UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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





For the
fiscal year ended December 31, 2008





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





For the
transition period from _______ to _______





Commission
File No. 000-53130





Healthy
Fast Food, Inc.


(Exact
name of registrant as specified in its charter)





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





1075
      American Pacific, Suite C, Henderson, Nevada
            89074(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code: (702) 448-5301





Securities
      registered pursuant to Section 12(b) of the Act:
            NoneSecurities
      registered pursuant to Section 12(g) of the Act:
            Common
      Stock, $0.001 par value





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





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.


 ̈
Yes                      ý No





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 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.


ý
Yes                       ̈No





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





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





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            Smaller
      reporting company ý





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).   ̈Yes   ýNo







State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter:  $6,073,299
as of June 30, 2008





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date:  2,518,350shares of common stock as of March
23, 2009








SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





We make
forward-looking statements in this annual report that are subject to risks and
uncertainties.  These forward-looking statements include information
about possible or assumed future results of our business, financial condition,
liquidity, results of operations, plans and objectives.  In some
cases, you may identify forward-looking statements by words such as “may,”
“should,” “plan,” “intend,” “potential,” “continue,” “believe,” “expect,”
“predict,” “anticipate” and “estimate,” the negative of these words or other
comparable words.  These statements are only
predictions.  You should not place undue reliance on these
forward-looking statements.  The forward-looking statements are
qualified by their terms and/or important factors, many of which are outside our
control, and involve a number of risks, uncertainties and other factors that
could cause actual results and events to differ materially from the statements
made.  The forward-looking statements are based on our beliefs,
assumptions and expectations of our future performance, taking into account
information currently available to us.  These beliefs, assumptions and
expectations can change as a result of many possible events or factors,
including those events and factors described in “Risk Factors,” not all of which
are known to us.  Neither we nor any other person assumes
responsibility for the accuracy or completeness of these
statements.  We assume no duty to update or revise our forward-looking
statements based on changes in internal estimates or expectations or
otherwise.  If a change occurs, our business, financial condition,
liquidity and results of operations may vary materially from those expressed in
our forward-looking statements.


2


HEALTHY
FAST FOOD, INC.





FORM
10-K


FOR
THE FISCAL YEAR ENDED


DECEMBER
31, 2008





INDEX








PagePART IItem
      1.
                      Business
                      4Item
      1A.
                      Risk
      Factors
                      8Item
      1B.
                      Unresolved
      Staff Comments
                      8Item
      2.
                      Properties
                      8Item
      3.
                      Legal
      Proceedings
                      9Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      9PART IIItem
      5.
                      Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                      9Item
      6.
                      Selected
      Financial Data
                      10Item
      7.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      10Item
      7A.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      15Item
      8.
                      Financial
      Statements and Supplementary Data
                      15Item
      9.
                      Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                      15Item
      9A.
                      Controls
      and Procedures
                      16Item
      9B.
                      Other
      Information
                      16PART IIIItem
      10.
                      Directors,
      Executive Officers and Corporate Governance
                      16Item
      11.
                      Executive
      Compensation
                      20Item
      12.
                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                      22Item
      13.
                      Certain
      Relationships and Related Transactions, and Director
      Independence
                      23Item
      14.
                      Principal
      Accounting Fees and Services
                      24PART IVItem
      15
                      Exhibits,
      Financial Statement Schedules
                      25SIGNATURES





3


PART
I





Item
1.   Business





Overview





We are in
the business of offering consumers a healthier alternative for meals and
snacks.  We are launching a national chain of self-serve frozen yogurt
stores called U-Swirl Frozen Yogurt and are franchising this
concept.  We also own and operate two restaurants as a franchisee of
EVOS USA, Inc., but are in discussions to terminate our relationship with that
company.





We formed
the company in 2005 for the purpose of being an area developer for EVOS USA,
Inc. The EVOS restaurant concept delivers healthier food in a fast food
restaurant setting.  EVOS restaurants serve American favorites such as
burgers, french fries, shakes and smoothies that are lower in fat and calories
than most of the fast food restaurants that offer the same
items.  EVOS restaurants also use cooking techniques, such as baking
instead of frying, and high quality, healthy ingredients to create healthier
items.  We opened our first EVOS restaurant as a franchisee of EVOS
USA, Inc. in October 2006 in Henderson, Nevada, a suburb of Las Vegas, and
opened a second EVOS restaurant in Las Vegas in December 2008.  In
December 2006, we entered into an Area Representative Agreement that granted us
the exclusive rights to develop EVOS restaurants in a 12-state
territory.  As of December 31, 2008, we solicited a franchisee for the
Central California area, which opened its first restaurant in November
2008.  Although we are a franchisee and area representative with
exclusive development rights in our territory, our operations, finances and
management are separate from those of EVOS USA, Inc.  We have a
contractual relationship with EVOS USA, Inc. but are not a partner or affiliate
of that company.  We are in the process of terminating our
relationship with EVOS USA, Inc., as we have not been satisfied with the
operating results of our EVOS restaurants.  We plan to operate our two
restaurants with new branding after we have formally terminated our relationship
with EVOS.





After researching other
healthy fast food concepts, we acquiredthe worldwide rights to
the U-Swirl Frozen YogurtSMconcept, with
the intention of franchising the self-serve yogurt café into a national chain.
The U-Swirl Frozen Yogurt concept is owned by U-Swirl International, Inc.
(“USI”), which is a wholly owned subsidiary of our
company.U-Swirl allows guests the ultimate choice in frozen
yogurt by providing 16 non-fat flavors, including tart, traditional and no
sugar-added options and more than 40 toppings, including seasonal fresh fruit,
sauces, candy and granola.  Guests serve themselves and pay by the
ounce instead of by the cup size.  An alternative to a coffee shop
hang out, locations are furnished with couches and tables, patio seating and
provide free Wi-Fi access.





U-Swirl
Frozen Yogurt





We acquired the U-Swirl Frozen Yogurt
concept in September 2008 from U Create Enterprises Incorporated (formerly
U-Swirl Yogurt, Inc.), which is owned by the grandchildren and family of Henry
E. Cartwright, our President, in consideration for 100,000 restricted shares of
our common stock.  U Create Enterprises Incorporated continues to
operate its frozen yogurt store in Henderson, Nevada, as our
franchisee.  No license fees or royalties are charged with respect to
this location, as U-Create Enterprises will permit USI to use the location as a
training facility.  U-Create Enterprises has reserved the right to
open additional locations in Henderson, Boulder City and Pahrump,
Nevada.  U-Create Enterprises will pay an initial franchise fee of
$5,000 for each location and a 1% royalty on sales.





We recently opened our first
company-owned location in Las Vegas, Nevada, in March 2009, and plan to open a
second location in the Las Vegas area no later than mid-April
2009.  These locations will have inside seating for 50 people and
outside patio seating.





We issued a Franchise Disclosure
Document in November 2008 and filed it in certain states which require
filing.  The estimated initial investment for a U-Swirl franchise is
$350,000 to $455,000, exclusive of real estate costs.  Franchisees pay
an initial franchise fee of $15,000 for a single unit or $15,000 plus $5,000
times the minimum number for an area development agreement.  The
minimum number is that number of stores we determine should be opened in the
development area.







4


Franchisees
pay a 3% royalty on monthly net sales and may pay an additional 2% to support
national and regional advertising efforts, once we determine that the system has
grown to a sufficient size to warrant these efforts.  We require
franchisees to dedicate at least 1% of net sales to local
advertising.





Under the U-Swirl system, each store
must conform to a standard of interior design, featuring a distinctive and
comfortable décor.  The minimum size for a typical U-Swirl store is
1,600 square feet, but stores in malls, kiosks or other unique locations may be
smaller.  Under the terms of the franchise agreement, franchisees are
required to obtain approval of the store site from USI, build the space out in
accordance with USI standards, satisfactorily complete training, and purchase
certain equipment and supplies from USI or USI’s approved
suppliers.  Franchisees are also required to purchase a cash register,
computer hardware and computer software that met U-Swirl system standards and to
establish and maintain high-speed Internet access from a service provider
meeting the minimum specifications established by USI.  All goods sold
by our franchisees must be purchased through USI or through USI’s approved
suppliers that have met USI’s specifications and
standards.  Specifically, the yogurt sold in U-Swirl stores must meet
the criteria established by the National Yogurt Association for live and active
culture yogurt.





EVOS
Restaurant Operations





EVOS Restaurant
Franchise.We entered into a franchise agreement effective
December 14, 2005 to operate an EVOS restaurant in Henderson,
Nevada.  The initial term of the franchise agreement is ten years,
commencing October 14, 2006.  Under the terms of that franchise
agreement, we must operate our EVOS restaurant in accordance with procedures and
rules established by EVOS USA, Inc., which cover all aspects of restaurant
operation.





The
franchise agreement dated December 14, 2005 required us to pay royalties of 5.5%
of gross sales on a weekly basis.  Accordingly, we paid a 5.5% royalty
on sales for the period from the time that we commenced operations (October
2006) through March 2007.  On March 30, 2007, EVOS USA, Inc. modified
its standard franchise agreement by reducing the royalties to 3.5% for the first
year of operations of the franchise and 4.5% for the second year of
operations.  Thereafter, royalties are 5.5% of gross sales, which are
defined to be total actual charges for all products (food and non-food) and
services, such as catering and delivery, sold to customers, exclusive of
taxes.  As a result, our royalties for the Henderson restaurant were
reduced to 3.5% for the period from April 2007 through March 2008 and 4.5% for
the period from April 2008 through March 2009.  After March 2009,
royalties will be at the rate of 5.5%.





We
entered into a collateral assignment and assumption of lease through which we
granted EVOS USA, Inc. a security interest in the lease for the Henderson
location, all of the furniture, removable trade fixtures, inventory, licenses
and supplies located in the restaurant, and the franchise for this restaurant as
collateral for (1) the payment of any obligation owed by us to the lessor
arising under the lease, (2) any default or breach under the terms of the lease,
and (3) any default or breach of any of the terms and provisions of the
franchise agreement.  In the event of a breach of or default under the
lease or a payment by EVOS USA, Inc. as a result of a breach or default, EVOS
USA, Inc. may be entitled to possession of the restaurant and all of our rights,
title and interest in and to the lease.  We also entered into a
conditional assignment of telephone numbers and listings that assigns EVOS USA,
Inc. our telephone numbers and directory listings upon termination or expiration
of the franchise for the Henderson location.





Area
Representative.We obtained the
exclusive right to own, operate and solicit prospects for EVOS restaurant
franchises through an Area Representative Agreement dated December 1, 2006 with
EVOS USA, Inc. in a territory consisting of Arizona, California, Colorado,
Kansas, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Texas, Utah, and
Washington.  The Area Representative Agreement obligated us to open,
on our own or through persons that we solicit to be franchise owners, a minimum
of 207 new EVOS restaurants over the initial ten development years of the
agreement, in accordance with a development schedule specified
therein.  Our first development year commenced June 1, 2007 and ended
May 31, 2008.  The agreement also required that restaurant franchises
be rolled out in a geographically dispersed manner, with minimum requirements in
each state.  Under the amended terms of our area representative
agreement, we were required to have five restaurants opened in our territory by
December 1, 2008.  This date was then extended to March 1,
2009.






5


These
restaurants could be opened by us or through persons that we solicited to be
franchise owners.  Under the amended terms of our Area Representative
Agreement, we are paid 50% of the initial franchise fees from franchises awarded
in our exclusive territory.  We are also paid 50% of the royalties
from all franchisees in our exclusive territory, including restaurants that we
own, subject to adjustments made by EVOS USA, Inc. if certain performance
standards are not met.  These performance standards relate to the
appearance, organization, and cleanliness of the premises; the quality of the
service; food preparation; adherence to safe food handling and storage
procedures; and management of restaurant staff and operations.





Due to
the unprofitable operations of our EVOS restaurants, we found it difficult to
solicit franchisees for our territory and failed to meet the development
requirements as an area representative.  Accordingly, EVOS USA, Inc.
has the right to terminate our area representative agreement, which would cause
us to lose our exclusive right to develop the 12-state territory.  As
of March 24, 2009, the agreement has not been formally terminated.




Franchise
Marketing





Our
marketing strategy for establishing multi-unit franchises is to contact
individuals or entities that have previously developed franchises with our
management team in other concepts.  This strategy allows us to find
people with the proper knowledge, experience, and financial resources to develop
a U-Swirl franchise in a timely fashion.  We believe that we have an
advantage in franchise development because the people we have targeted have
worked successfully with our management team in the past, shortening the
learning curve and accelerating entry to the market.





We are
seeking individuals or groups with the skills and financial strength to operate
multi-unit franchise organizations within specific geographic
territories.  These persons must qualify on the basis of their skill
sets and financial ability to develop a territory.  We anticipate a
franchise territory will consist of areas that are either cities or counties
depending on population.  We seek to identify people with considerable
experience in management of food service venues who also have sufficient
start-up capital to open several U-Swirl locations.





We will
consider the skills and investment capital that each potential multiple
franchise owner presents to determine the size and nature of the territory and
the minimum number of U-Swirl locations that the franchise owner will be
required to maintain in the territory in order keep the exclusive rights to that
territory.  We consider the appropriate number of locations in an area
to be one store for every 200,000 of population and then set the minimum number
of restaurants at half the amount.  For example, a negotiated
territory with a population of 2,000,000 people should hold 10 U-Swirl stores
and a franchisee of that territory would be required to open a minimum of 5
stores over 3 years to maintain exclusivity.  Franchisees will not be
restricted from opening additional restaurants beyond the minimum for their
territory.





Industry
Background





According
to the National Restaurant Association, fast food sales in the U.S. are
projected to increase to $150 billion in 2007, a 5% increase over
2006.  The National Restaurant Association also indicates that the
current generation of Americans is eating out in an entirely different way than
the previous generation.  According to the restaurant trade group, in
1955 approximately 25% of the money Americans spent on all food purchases,
including groceries, was at restaurants.  In 2007, it amounts to
48%.  Furthermore, NDP Group, a consumer and retail market research
information firm, reports that in 2007 more than half of all meals purchased at
the nation’s estimated 935,000 restaurants are eaten at home, at the office or
in the car.  In 2006, the typical American ate 81 meals inside
restaurants but ordered 127 to go, according to the research group.





We
believe that there is an increasing awareness among consumers of the connection
between diet and good health, and as a result, demand for high-quality healthy
foods, in particular healthy fast foods, is increasing.  We believe
U-Swirl stores and EVOS restaurants will be able to take advantage of this
growing demand for healthy fast food by focusing on lower-fat meals, nutritional
content and wholesome, natural food ingredients.





6


Competition





The fast
food segment of the restaurant industry is highly competitive and
fragmented.  In addition, fast food restaurants compete against other
segments of the restaurant industry, including fast-casual restaurants and
casual dining restaurants.  The number, size and strength of our
competitors vary by region.  Our competitors also compete based on a
number of factors, including taste, speed of service, value, name recognition,
restaurant location and customer service.





The
restaurant industry is often affected by changes in consumer tastes; national,
regional or local economic conditions; currency fluctuations; demographic
trends; traffic patterns; the type, number and location of competing food
retailers and products; and disposable purchasing power.  Our
restaurant concept competes with international, national, and regional
restaurant chains as well as locally owned restaurants.  We compete
not only for customers, but also for management and hourly personnel, suitable
real estate sites, and qualified franchisees.





U-Swirl Frozen
Yogurt.  We believe that each of the following may provide
competition to U-Swirl, as each offers frozen yogurt franchises:


·
            TCBY
      – almost 900 locations worldwide; not
self-serve


·
            Pinkberry
      – over 70 stores in California and New York; not
  self-serve


·
            Golden
      Spoon – approximately 100 stores in Arizona, California, Idaho, Nevada and
      Utah; not self-serve


·
            Red
      Mango – approximately 40-50 stores in California, Hawaii,
      Illinois,  Nevada, New Jersey, New York, Utah and Washington;
      not self-serve


·
            Yogurtland
      – approximately 30 stores in California, Hawaii, Nevada, New York and
      Texas; self-serve





EVOS
Restaurants.  We believe that each of the following restaurants
may provide competition to EVOS restaurants, as each offers either healthier
versions of traditional American fast food or provides fast food fare with a
focus on organic or naturally raised ingredients:


·
            ChipotleMexican
      Grill – burritos, tacos and salads using naturally raised
      meats


·
            Better
      Burger – meat loaf, burgers, fries and smoothies using organic ingredients
      and naturally raised meats


·
            B.
      Good – burgers, sandwiches, salads and shakes emphasizing lower fat,
      calorie and carb content


·
            Topz
      – burger, sandwiches, salads, fries and shakes emphasizing lower fat and
      calorie content


·
            KnowFat!
      Lifestyle Grille – burritos, wraps, salads, burgers, sandwiches and fries
      with a nutrition center where vitamins and supplements can be
      purchased


·
            Baja
      Fresh Mexican Grill – burritos, tacos, quesadillas, salads and fajitas
      prepared to order


·
            Blendz
      – salads, panini sandwiches, smoothies, soups and
  juices





Of the
above-listed restaurants, we believe that only Chipotle Mexican Grill and Baja
Fresh Mexican Grill are larger and have significantly greater financial
resources than EVOS restaurants as a group.  Topz, KnowFat! Lifestyle
Grille, and Blendz appear to have a few more restaurants opened than EVOS as of
the date of this annual report.





Trademarks
and Copyrights





In
connection with our U-Swirl operations, we have the following applications
pending with the U.S. Patent and Trademark Office for the following principal
service marks and trademarks:


·
            “u-swirl
      FROZEN YOGURT and Design” – U.S. Serial Number 77/561907 filed September
      4, 2008;


·
            “U-SWIRL
      FROZEN YOGURT” – U.S. Serial Number 77/617738 filed November 19,
      2008;


·
            “U-SWIRL”
      – U.S. Serial Number 77/617762 filed November 19,
  2008;


·
            “U
      and Design” – U.S. Serial Number 77/561906 filed September 4, 2008;
      and


·
            “WORTH
      THE WEIGHT” – U.S. Serial Number 77/561905 filed September 4,
      2008.





7


As a
franchisee of EVOS USA, Inc., we have been granted a license to use certain
trademarks, service marks and copyrights.





Government
Regulation





We are
subject to various federal, state and local laws affecting our
business.  Our restaurants must comply with licensing and regulation
by a number of governmental authorities, which include health, sanitation,
safety and fire agencies in the state or municipality in which the restaurant is
located.  In addition, we must comply with various state laws that
regulate the franchisor/franchisee relationship.





We are
also subject to federal and state laws governing employment and pay practices,
overtime, tip credits and working conditions.  The bulk of our
employees are paid on an hourly basis at rates related to the federal and state
minimum wages.





We are
also subject to federal and state child labor laws which, among other things,
prohibit the use of certain “hazardous equipment” by employees 18 years of age
or younger.  Under the Americans with Disabilities Act, we could be
required to expend funds to modify our restaurants to better provide service to,
or make reasonable accommodation for the employment of disabled
persons.  We continue to monitor our facilities for compliance with
the Americans with Disabilities Act in order to conform to its
requirements.  We believe future expenditures for such compliance
would not have a material adverse effect on our operations.





Through
USI, we offer franchises and are subject to federal and state laws pertaining to
franchising.  These laws require that certain information be provided
to franchise prospects at certain times and regulate what can be said and done
during the offering process.  Some of the states in our territory
require the franchise offering circular to be registered and renewed on an
annual basis.





Employees





Our EVOS
restaurants have approximately 35 employees that work various
shifts.  The restaurants are open seven days per week from 11:00 am to
10:00 pm.  In addition to the employees at the EVOS restaurants, we
had eight full-time employees as of March 23, 2009, consisting of our chief
executive officer and one person for each of the following functions; restaurant
site selection, restaurant buildout, franchise sales, restaurant operations,
employee training, marketing, and administration.  Our chief financial
officer is a part-time employee.








Item
1A.  Risk Factors





Not
required for smaller reporting companies.








Item
1B.  Unresolved Staff Comments





Not required for smaller reporting
companies.








Item
2.   Properties





Facilities





Our principal offices are located at
1075 American Pacific, Suite C, Henderson, Nevada 89074.  These
offices are leased by Monster Framing, Inc., a company owned by Terry A.
Cartwright, one of our founders.  We do not pay any rent for the use
of this space.





8


U-Swirl Frozen
Yogurt.  We have leased 2,400 square feet at 305 North Nellis
Avenue, Las Vegas, Nevada 89110 for a U-Swirl store, under a 5-year lease that
commenced October 3, 2008.  We pay rent for this space of $5,400 per
month.





We have also leased 1,645 square feet
at 7591 West Washington Avenue, Las Vegas, Nevada 89128 for a U-Swirl store,
under a 5-year lease that commenced November 30, 2008.  We pay rent
for this space of $4,442 per month.





EVOS
Restaurants.  Our EVOS restaurant is located at 10895 South
Eastern Avenue, Unit 140/150, Henderson, Nevada 89052.  We lease 2,845
square feet under a five-year lease that commenced January 31, 2006, with an
option to extend for two additional five-year terms.  We currently pay
rent of $7,326 per month.





Our second EVOS restaurant is located
at 7541 West Lake Mead Boulevard, Suite 2, Las Vegas, Nevada
89128.  Our five-year lease for approximately 2,300 square feet
commenced December 5, 2007.  Payment of rent in the amount of $8,426
per month commenced December 1, 2008.








Item
3.   Legal Proceedings





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








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





None.








PART
II





Item
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity
Securities





Our
common stock is currently quoted on the OTC Bulletin Board (“OTCBB”)” under the
symbol “HFFI.”  The trading symbol often appears as “HFFI.OB” in
quotation requests on the Internet.  Priced quotations for our stock
were not entered until March 2008.  The following table sets forth the
range of high and low bid quotations for each fiscal quarter for the fiscal year
ended December 31, 2008.  These quotations reflect inter-dealer prices
without retail mark-up, markdown, or commissions and may not necessarily
represent actual transactions.





Bid
      Prices ($)High
                Low2008
      Fiscal Year:June
      30, 2008
                $4.50
                $3.10September
      30, 2008
                $3.00
                $1.75December
      31, 2008
                $1.75
                $0.55





On March
20, 2009, the closing bid price for the common stock on the OTCBB was $0.50 per
share.





Holders
and Dividends





As of
December 31, 2008, there were 101 record holders of our common
stock.  To date, we have not declared or paid any dividends on our
common stock.  We do not intend to declare or pay any dividends on our
common stock in the foreseeable future, but rather to retain any earnings to
finance the growth of our business.  Any future determination to pay
dividends will be at the discretion of our board of directors and will depend on
our




9
 
 results
of operations, financial condition, contractual and legal restrictions and other
factors the board of directors deems relevant.





Recent
Sales of Unregistered Securities





There
were no sales of unregistered securities during the quarter ended December 31,
2008.





Use
of Proceeds





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





Through
December 31, 2008, approximately $974,000 of the net proceeds had been used as
follows:  approximately $460,000 for the buildout of the registrant’s
new restaurant location (purchase and installation of machinery and equipment),
$250,000 to fund U-Swirl International, Inc., and $264,000 towards the operating
loss of the existing restaurant (working capital).  None of the
proceeds were paid to officers, directors, affiliates or more than 10%
shareholders.





Item
6.    Selected Financial Data





Not required for smaller reporting
companies.








Item
7.    Management’s Discussion and Analysis of Financial
Condition and Results of Operations





The
following discussion should be read in conjunction with the financial statements
and the related notes included in this annual report.  This discussion
contains forward-looking statements that involve risks and
uncertainties.  Our actual results could differ significantly from
those projected in the forward-looking statements as a result of many factors,
including those discussed in “Risk Factors,”  “Business” and elsewhere
in this report.





History
and Overview





We were incorporated under the laws of
the state of Nevada on November 14, 2005 to own and operate EVOS fast food
franchises.





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





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




10
 
  payment
to March 1, 2009.  As stated in Item 1. Business, we are in the
process of terminating our relationship with EVOS USA, Inc.





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





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





After experiencing 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 YogurtSM on
September 30, 2008.  We opened one U-Swirl location in the Las Vegas
area in March 2009 and plan to open a second location by mid-April
2009.  We issued a Franchise Disclosure Document in November 2008 and
filed it in certain states which require filing.





Results
of Operations




For the year ended December 31, 2008,
our restaurants generated $631,795 in sales, as compared to $970,163 for the
prior year. Management believes that the decline in sales revenues reflected the
downturn in the local economy, as unemployment rates in the Las Vegas area
increased from 5.1% in September 2007 to 8.8% in December 2008 (according to the
Nevada Department of Employment, Training and Rehabilitation).





Our restaurant operating costs were
$929,193, or 147% of net sales revenues, resulting in a restaurant operating
loss of $297,398.  During the 2007 fiscal year, restaurant operating
costs were 102% of net revenues and we lost $16,037 on our restaurant
operations.  Part of the increase in restaurant operating costs as a
percentage of net sales revenues is due to the fact that some of the restaurant
operating costs are fixed, such as salaries for our director of operations and
our director of training, as well as occupancy costs.  These costs do
not fluctuate with restaurant sales.  Restaurant operating costs for
the 2008 period reflect the increased royalty rate of 4.5% that went into effect
beginning April 2008.  We paid a 5.5% royalty on gross revenues from
the date the restaurant opened in October 2006 through March 30, 2007 and a 3.5%
royalty from April 2007 through March 2008.




We generated our first franchise
royalties and fees in 2008, as a result of soliciting a franchisee for the new
restaurant location within our 12-state territory.  The $33,663
recognized during 2008 represents 50% of the royalties and fees paid to EVOS
USA, Inc.




For the 2008 fiscal year, general and
administrative expense increased by $168,269 (77%) due to hiring an internal
bookkeeper , legal fees, audit fees, transfer agent fees, officers and directors
insurance and a general increase in the overall overhead of operating a public
company.  The largest components of general and administrative
expenses for the 2008 period were legal fees ($78,298), audit fees ($65,900),
insurance costs ($56,687), and administrative salaries and payroll taxes
($32,009).  Legal fees also increased as we prepared a franchise
disclosure document for our U-Swirl Frozen Yogurt concept during the last
quarter of 2008.




Officer compensation for 2008 decreased
by $83,508 (21%), due primarily to the stock options granted to officers in the
2007.  No options were granted in 2008.




The increase in investor relations fees
of $184,740 (100%) is due to a contract entered into in February 2008, which
requires monthly fees of $7,500.  In addition, we issued a warrant to
the investor relations firm to purchase 60,000 units, which was valued at
$101,342.




11


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




Due to our decision to terminate our
relationship with EVOS USA, Inc., we have taken an impairment loss on our
prepaid franchise fees in the amount of $217,500.




As a result of the above, our net loss
for the 2008 fiscal year was $1,603,166, as compared to a loss of $736,381 for
2007.




Liquidity
and Financial Condition





At
December 31, 2008, we had working capital of $3,297,263 and cash of $3,335,740,
as a result of completing our initial public offering in March
2008.  Working capital and cash at December 31, 2007 were $500,035 and
$604,118, respectively.





We
received net proceeds of $4,002,840 from the initial public
offering.  During the 2008 fiscal year, we used $674,832 for investing
activities, of which $479,232 was used for the purchase of fixed assets and
$140,000 was paid to EVOS USA, Inc. for the extension of our build-out
deadline.  As we had a net loss of $1,603,166, operating activities
used cash of $924,018.  The principal adjustments to reconcile the net
loss to net cash used by operating activities was the loss on impairment of
prepaid franchise fees of $217,500, share-based compensation of $101,342 as a
result of a warrant issued to our investor relations firm, and $180,000 for the
shares issued to acquire the U-Swirl Frozen Yogurt concept.





Contractual
Obligations





The following table summarizes our
obligations and commitments to make future payments for the periods specified as
of December 31, 2008:


Payments
      Due by PeriodContractual Obligations
                      
                      Total
                      
                      
                      Less
      Than
                        1 Year
                      
                      
                      1-3 Years
                      
                      
                      3-5 Years
                      
                      
                      More
      Than
                        5 YearsCapital
      lease obligations
                      
                      $
                      19,154
                      
                      
                      $
                      6,542
                      
                      
                      $
                      12,612
                      
                      
                      $
                      --
                      
                      
                      $
                      --Operating
      lease obligations
                      
                      
                      1,324,601
                      
                      
                      
                      270,624
                      
                      
                      
                      569,878
                      
                      
                      
                      450,869
                      
                      
                      
                      33,230Total
                      
                      $
                      1,343,755
                      
                      
                      $
                      277,166
                      
                      
                      $
                      582,490
                      
                      
                      $
                      450,869
                      
                      
                      $
                      33,230





Plan
of Operations





In addition to the obligations
disclosed in the above table, we expect to spend approximately $2,500,000 during
the fiscal year ending December 31, 2009 for the opening of U-Swirl locations in
the Las Vegas area and compliance with franchising laws.  In addition
to the two U-Swirl locations we will have opened by mid-April 2009, we expect to
open an additional seven locations in the Las Vegas metropolitan area by the end
of 2009.  Some of these additional locations may be in partnership
with others.  Based upon discussions to date, we also expect to have
three franchised locations by the end of 2009.  We do not believe that
we will need to add to our existing corporate staff in order to accommodate this
growth.





We also anticipate that we may spend up
to $50,000 to re-open our existing EVOS restaurants under a new name with new
décor and menu items.  Our objective is to achieve at least break-even
operations with respect to these restaurants.





Summary
of Significant Accounting Policies





Inventories.Inventories
consisting of food, beverages and supplies are stated at the lower of cost or
market, including provisions for spoilage commensurate with known or estimated
exposures which are recorded as a charge to cost of sales during the period
spoilage is incurred.  As of December 31, 2008, inventories consisted
of




12




food and
beverages ($17,152) and non-foods ($26,298).  We did not incur any
significant charges to cost of sales for spoilage during fiscal 2008 or
2007.





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





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





Deposits.  Deposits
consist of the $151,617 in security deposits for multiple locations, of which
$87,604 was paid and $64,013 (in connection with our Henderson restaurant
property lease) was unpaid as of December 31, 2008.  All deposits are
carried at the lower of fair value or cost.





Franchise
fees.  Franchise fees paid to EVOS USA, Inc. are stated at
cost.  Amortization of the franchise fees is calculated based on the
straight-line method over the ten-year useful life of the franchise
agreement.  In accordance with SFAS 142, paragraph 11, the useful life
of an intangible asset is determined by the period over which the asset is
expected to contribute either directly or indirectly to our future cash
flows.  Franchise renewal fees are also recorded at cost and amortized
over the useful life of the renewal term.  Upon closing or disposal of
a restaurant, the accounts will be relieved of cost and accumulated amortization
and the related gain or loss will be reflected in income from continued
operations.  As of December 31, 2008, franchise fees consisted of
$13,621 net of $3,879 of accumulated amortization.





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





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





During the quarter ended March 31,
2009, we determined to terminate our relationship with EVOS USA, Inc. and
abandon our area representative agreement.  We also determined that
the viability of the EVOS concept and franchise model was in question
significant enough to abandon the concept altogether.  Accordingly, we
determined to impair our prepaid franchise fees and recorded a loss totalling
$217,500 as of December 31, 2008.  We continue to operate our two
franchise stores under the EVOS concept as of the date of this
report.





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





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






13




should be
recognized when the franchiser has substantially performed or satisfied all
material services or conditions relating to the sale.  Substantial
performance has occurred when the franchiser has: (a) no remaining obligations
or intent to refund any cash received or to forgive any unpaid notes or
receivables; (b) performed substantially all of the initial services required by
the franchise agreement (such as providing assistance in site selection,
obtaining facilities, advertising, training, preparing operating manuals,
bookkeeping, or quality control); and (c) met all other material conditions or
obligations.  We believe that completion of our training commitment
satisfies the “substantial performance” definition outlined above.  We
recognized $18,450 and $0 in franchise fee revenue during fiscal 2008 and 2007,
respectively.





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





Recently
Issued Accounting Pronouncements





EITF No. 07-05 – In
June 2008, the Financial Accounting Standards Board (“FASB”) ratified the
consensus reached in Emerging Issues Task Force (“EITF”) Issue No. 07-05, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own
Stock.EITF Issue No. 07-05 clarifies the determination of
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which would qualify as a scope exception under Statement of Financial
Accounting Standards (“SFAS”) No. 133, Accounting for Derivative
Instruments and Hedging Activities.  EITF Issue No. 07-05 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008.  Early adoption for an existing instrument is not
permitted.  We do not expect the adoption of EITF Issue No. 07-05 will
have a material impact on our financial statements.





FSP No. 142-3 – In
April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, Determination of the Useful Life of
Intangible Assets.  FSP No. 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142,Goodwill and Other
Intangible Assets.  FSP No. 142-3 is effective for financial
statements issued for fiscal years beginning after December 15,
2008.  Early adoption is prohibited.  We do not expect the
adoption of FSP No. 142-3 will have a material impact on our financial
statements.





SFAS No. 161 – In
March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities, which is effective January 1,
2009.SFAS No.
161 requires enhanced disclosures about derivative instruments and hedging
activities to allow for a better understanding of their effects on an entity’s
financial position, financial performance, and cash flows.  Among
other things, SFAS No. 161 requires disclosure of the fair values of derivative
instruments and associated gains and losses in a tabular
format.  Since SFAS No. 161 requires only additional disclosures about
our current derivatives and hedging activities, the adoption of SFAS No. 161
will not affect our financial position or results of operations, should we
acquire derivatives in the future.





SFAS No. 141(R) and SFAS No.
160 – In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and
SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements.  SFAS No.
141(R) requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquired entity at
their fair values on the acquisition date, with goodwill being the excess value
over the net identifiable assets acquired.  SFAS No. 160 clarifies
that a noncontrolling interest in a subsidiary should be reported as equity in
the financial statements.  The calculation of earnings per share will
continue to be based on income amounts attributable to the
parent.  SFAS No. 141(R) and SFAS No. 160 are effective for financial
statements issued for fiscal years beginning after December 15,
2008.  Early adoption is prohibited.  We do not expect the
adoption of SFAS No. 141(R) and SFAS No. 160 will have a material impact on our
financial statements.





SFAS No. 157 and FSP No.
157-2 – In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value in
accordance with U.S. generally accepted accounting principles and expands
disclosures about fair value measurements.  For financial assets and
liabilities, SFAS No. 157 was effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years.  In
February 2008, the FASB issued FSP No. 157-2, which delays the effective date of
SFAS No. 157 one year for all nonfinancial assets and nonfinancial liabilities,
except those recognized or disclosed at fair value in the financial statements
on a recurring basis.  FSP 157-2 is effective for us beginning




14
 
  October
1, 2008.  In accordance with FSP 157-2, we may measure the remaining
assets and liabilities beginning the first quarter of 2009.  We do not
expect the adoption, if required, of SFAS No. 157, as amended by FSP 157-2, will
have a material impact on our financial statements.





Off-Balance
Sheet Arrangements





We do not have any off-balance sheet
arrangements.








Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk





Not required for smaller reporting
companies.








Item
8.   Financial Statements and Supplementary
Data





See the pages beginning with
F-1.








Item
9.  Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure





On
December 11, 2007, we engaged L.L. Bradford & Company, LLC (“Bradford”) as
our registered independent public accountant for the year ended December 31,
2007.  We dismissed Reeves, Evans, McBride & Zhang, LLP
(“Reeves”), as our registered independent public accountant on December 12,
2007.  The decisions to appoint Bradford and dismiss Reeves were
approved by our Board of Directors on December 11, 2007.





During the fiscal year ended December
31, 2006 and period from November 1, 2005 (inception) through December 31, 2005,
and through the subsequent interim period ending December 12, 2007, there were
no disagreements with Reeves on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Reeves, would have caused
Reeves to make reference thereto in its report on our financial statements for
such periods.  Further, there were no reportable events as described
in Item 304(a)(1)(iv)(B) of Regulation S-B occurring within such periods and the
subsequent interim period ending December 12, 2007.





The audit
report of Reeves for our financial statements as of December 31, 2006, contained
a separate paragraph stating:





“The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in the accompanying financial
statements, the Company incurred a net loss of $337,497 from November 1, 2005
(Inception) through December 31, 2006.  This and other factors
discussed in Note 2 to the financial statements raise substantial doubt about
the Company’s ability to continue as a going concern. The financial statements
do not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts and classification of liabilities that might
be necessary in the event the Company cannot continue in
existence.”





During
the fiscal year ended December 31, 2006 and the period from November 1, 2005
(inception) through December 31, 2005, and through the subsequent interim period
ending December 11, 2007, the period prior to the engagement of Bradford,
neither we nor anyone on our behalf consulted Bradford regarding the application
of accounting principles to a specific completed or contemplated transaction, or
the type of audit opinion that might be rendered on our financial
statements.  Further, Bradford has not provided written or oral advice
to us that was an important factor considered by us in reaching a decision as to
any accounting, auditing or financial reporting issues.





We
provided a copy of the foregoing disclosures to Reeves prior to filing of our
registration statement on February 8, 2008 and requested that Reeves furnish us
with a letter addressed to the Securities and Exchange




15
 
 Commission
stating whether or not it agreed with the statements in this
section.  A copy of the letter furnished in response to that request
was filed as an exhibit to the registration statement.








Item
9A.  Controls and Procedures





Disclosure
Controls and Procedures





Disclosure controls and procedures, as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”), are our controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Act is accumulated and communicated
to our management, including our Chief Executive Officer and Chief
Financial Officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.  Rule 13a-15
under the Exchange Act, requires us to carry out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2008, being the date of our most recently
completed fiscal year end.  This evaluation was implemented under the
supervision and with the participation of our President and Chief Executive
Officer, Henry R. Cartwright, and the Chief Financial Officer, Brad
Beckstead.  Based on this evaluation, these officers have concluded
that the design and operation of our disclosure controls and procedures are
effective.





Management’s Annual Report on
Internal Control Over Financial Reporting





This
annual report does not include a report of management's assessment regarding
internal control over financial reporting or an attestation report of the
company's registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public
companies.





Changes in Internal Control over
Financial Reporting





During
the period covered by this annual report, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.








Item
9B.  Other Information





None.








PART
III





Item
      10.
              Directors,
      Executive Officers and Corporate
Governance





Our
directors, executive officers and key employees, and their ages as of March 15,
2009, are as follows:


Name
                            Age
                            PositionHenry
      E. Cartwright
                            70
                            Chairman
      of the Board, President, Chief Executive Officer, and
    DirectorBrad
      Beckstead
                            44
                            Chief
      Financial OfficerUlderico
      Conte
                            39
                            Vice
      President of Franchise DevelopmentGregory
      R. Janson
                            37
                            Vice
      President of Franchise Support, Secretary and DirectorTerry
      A. Cartwright
                            47
                            Vice
      President of Restaurant
Development




16


Name
                          Age
                          PositionKatherine
      Hemingway
                          38
                          Vice
      President of Marketing and CommunicationsR.
      Scott Olson
                          49
                          Director
      of OperationsDana
      Cartwright
                          49
                          Corporate
      Trainer/ManagerSam
      D. Dewar
                          63
                          DirectorRea
      M. Melanson
                          59
                          DirectorPaul
      Schloss
                          42
                          Director
  The term
of office of each director ends at the next annual meeting of our stockholders
or when such director’s successor is elected and qualifies.  The term
of office of each officer ends at the next annual meeting of our board of
directors, expected to take place immediately after the next annual meeting of
stockholders, or when such officer’s successor is elected and
qualifies.





Henry E. Cartwrighthas been
our chairman of the board, president and chief executive officer and a director
since April 2007 and was one of our founders.  From October 2002 to
April 2007, he was semi-retired and a private investor in numerous real estate
and lending transactions and other ventures.  Mr. Cartwright served as
chairman of the board of Major Video Corp. from December 1982 until its merger
with Blockbuster Entertainment Corporation in January 1989.  In
September 1993, Mr. Cartwright founded Back to the 50’s, Inc., a company that
sold 50’s and 60’s memorabilia through a mail order catalog and
showroom.  Back to the 50’s, Inc. was acquired by Crowne Ventures,
Inc. in November 1995.  Mr. Cartwright served as a director of Crowne
Ventures, Inc. from 1995 until he resigned in April 1998.  He served
as chairman of the board of Americabilia.com, Inc. (now known as Seaena, Inc.)
from September 1999 to October 2002.  Americabilia was engaged in
direct Internet merchandising of American-themed collectibles, gifts and
memorabilia.  He is the father of Terry A. Cartwright and Dana
Cartwright.





Brad Beckstead has been our
chief financial officer since July 2007.  He has been the managing
partner of Beckstead and Watts, LLP, an auditing firm located in Henderson,
Nevada, since June 2002.  Mr. Beckstead has also been the president of
United Accounting Systems, LLC, an accounting systems and document management
consulting firm since January 2006.  He previously provided small
business tax and accounting services and later auditing services for public
companies through his own firm.  Mr. Beckstead received his bachelor’s
degree in accounting from Utah State University in 1987 and has been licensed as
a certified public accountant in Nevada since 1995.  Mr. Beckstead
devotes a minimum of 25 hours per week to the business of the
company.





Ulderico Conte has been our
vice president of franchise development since April 2007 and was one of our
founders.  From June 2005 to November 2005, he researched various
restaurant concepts before deciding on the EVOS concept and forming the
company.  He served as our vice president, secretary and a director
from inception to April 2007.  Mr. Conte has been the president and
principal of PIN Financial LLC, a NASD member investment banking
firm.  From October 2004 to May 2005, he worked as an institutional
sales trader with Garden State Securities.  He served in a similar
role with Tradition Aisle Securities from February 2003 to October
2004.  Until 2003, Mr. Conte owned and operated Stone Harbor Financial
Services, LLC, a securities broker-dealer firm.  Following the events
of September 11, 2001, he made substantial personal loans to support Stone
Harbor and pay its employees.  Stone Harbor ceased doing business in
2003 and Mr. Conte filed for personal bankruptcy in October 2003.  The
bankruptcy was discharged in May 2004.  He received a bachelor’s
degree in business from Rider University and a master’s degree in business
administration from the University of Phoenix.





Gregory R. Janson has been a
director since inception in November 2005 and was one of our
founders.  He served as our president and treasurer from inception to
April 2007, and has been our corporate secretary since April 2007 and our vice
president of franchise support since March 2009.  Mr. Janson is the
co-founder of PIN Financial LLC and has been the vice president of that FINRA
member investment-banking firm since May 2004.  Mr. Janson received
his bachelor’s degree in finance from Hofstra University.  He is the
husband of Katherine Hemingway.





17


Terry A. Cartwrighthas been
our vice president of restaurant development since April 2007 and was one of our
founders.  Since May 2002, he has served as president of Gold Key,
Inc., d/b/a Monster Framing, a wholesale custom picture and art manufacturing
company specializing in hotels, timeshares, condos and retail
shops.  Since 1989, he has served as vice president and director of
operations for MV Entertainment, a franchisee of Blockbuster Entertainment
Corp., with stores in Southern California.  From 1985 until 1989, he
served as the director of new store development for Major Video
Corp.  Mr. Cartwright attended the University of Nevada at Las
Vegas.  He is the son of Henry E. Cartwright.





Katherine Hemingwayhas been
our vice president of marketing and communications since June
2008.  She served as our director of marketing and communications from
June 2007 to May 2008.  From October 2003 to April 2007, she served in
the following positions for Lighthouse International, a non-profit organization
serving the visually impaired, based in New York, New York:  director
of corporate & foundation relations (November 2006 to April 2007), director
of corporate sponsorships (January 2005 to October 2006), and consultant for
business development (October 2003 to December 2004).  Ms. Hemingway
received a bachelor’s degree from Manhattan College.





R. Scott Olson has been our
director of operations since March 2007.  He has been involved in the
restaurant industry since 1987.  Mr. Olson was a general manager for
Popeye’s Chicken & Biscuits with responsibility for the Las Vegas, Nevada
area from March 2006 to February 2007.  His duties included managing
operations, recruiting, training and opening new restaurants.  He was
a general manager for a Lonestar Steakhouse & Saloon restaurant in Las
Vegas, Nevada from August 2005 to February 2006.  From October 2003 to
July 2005, he was the general manager of a Denny’s restaurant located on the Las
Vegas Strip.  Mr. Olson was the director of operations for LC Pizza of
Las Vegas, the area franchise owner of Little Caesars Pizza and Blimpie Subs
& Salads restaurants, from February 2000 to September 2003.  He
supervised 15 Blimpie restaurants and 16 Little Caesars
restaurants.  He received an associate’s degree in
restaurant/hotel/resort management from the University of Minnesota –
Crookston.





Dana Cartwrighthas been our
corporate trainer/manager since October 2006.  From January 1991 to
October 2006, she was the secretary and manager of MV Entertainment, Inc., a
Blockbuster video store franchisee located in Henderson, Nevada.  She
is the daughter of Henry E. Cartwright.





Sam D. Dewarhas been a
director since June 2007.  He has been the president and CEO of
Natural Harmony Foods, Inc., since he founded that company in January
2002.  Natural Harmony Foods is an independent food company based in
Fort Lauderdale, Florida, that develops and markets natural meat products
blended with soy protein that are lower in fat.  Mr. Dewar has been
involved in the food industry since 1970.  His experience includes ten
years with Campbell Soup Company as the general manager of the Pepperidge Farm
Biscuit Division from 1970 to 1980, and eight years with Mars, Inc. as the
president of the Snackmaster division from 1980 to 1988.  He received
a bachelor’s degree from Duke University and a master’s degree in business
from the University of Pennsylvania Wharton School.





Rea M. Melansonhas been a
director since June 2007.  Since 2002, she has been the president and
tax partner of Melanson & Lancaster, CPAs, a Las Vegas, Nevada accounting
firm that emphasizes tax preparation, monthly accounting services for small
businesses and forensic accounting.  She has practiced as a certified
public accountant in Las Vegas, Nevada, since 1990.  Her accounting
experience dates back to 1980 with Price Waterhouse & Co. in Denver,
Colorado.  Ms. Melanson received her bachelor’s degree from the
University of Denver in 1972 and has been licensed as a certified public
accountant in Nevada since 1990.





Paul Schlosshas been a
director since June 2007.  He has been the president, owner and
founder of Brooklyn Food Group, a limited liability company in Henderson,
Nevada, since 1999.  Brooklyn Food Group owns and operates six
Brooklyn Bagel Deli restaurants in Henderson and Las Vegas.  From 1995
to 1999, Mr. Schloss was the director of operations for Manhattan Bagel Company,
which owned and operated 22 Manhattan Bagel restaurants in Texas and Southern
Nevada.  Mr. Schloss received a bachelor’s degree in marketing from
Washington State University.





18


No
directorships are held by each director in any company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934 or any company registered as an investment company, under the Investment
Company Act of 1940.





Messrs.
Henry E. Cartwright, Janson, Conte and Terry A. Cartwright may be deemed to be
organizers and “control persons” of the company, as those terms are in defined
in the Securities Act of 1933.





All of our officers work full-time for
the company, with the exceptions of Messrs. Brad Beckstead and Terry A.
Cartwright.  Mr. Beckstead devotes a minimum of 25 hours per week to
the business of the company, and Mr. Terry A. Cartwright devotes approximately
two-thirds of his time to the business of the company.





Audit
Committee





Rea M. Melanson, Sam D. Dewar and Paul
Schloss serve on the Audit Committee of our board of directors.  Rea
M. Melanson is considered our audit committee financial expert and is
independent.





Conflicts
of Interest





Two of
our two non-officer directors, Sam D. Dewar and Paul Schloss, are associated
with a food company and restaurant, respectively.  Consequently, there
are potential conflicts of interest in their acting as directors of our
company.





Our
officers and directors are now and may in the future become shareholders,
officers or directors of other companies, which may be formed for the purpose of
engaging in business activities similar to us.  Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of us or other entities.  Moreover,
additional conflicts of interest may arise with respect to opportunities which
come to the attention of such individuals in the performance of their duties or
otherwise.  Currently, we do not have a right of first refusal
pertaining to opportunities that come to their attention and may relate to our
business operations.





Our
officers and directors are, so long as they are our officers or directors,
subject to the restriction that all opportunities contemplated by our plan of
operation which come to their attention, either in the performance of their
duties or in any other manner, will be considered opportunities of, and be made
available to us and the companies that they are affiliated with on an equal
basis.  A breach of this requirement will be a breach of the fiduciary
duties of the officer or director.  If we or the companies with which
the officers and directors are affiliated both desire to take advantage of an
opportunity, then said officers and directors would abstain from negotiating and
voting upon the opportunity.  However, all directors may still
individually take advantage of opportunities if we should decline to do
so.  Except as set forth above, we have not adopted any other conflict
of interest policy with respect to such transactions.





Code
of Ethics





We have adopted a code of ethics that
applies to our chief executive officer, chief financial officer, principal
accounting officer or controller, or persons performing similar
functions.




Section
16(a) Beneficial Ownership Reporting Compliance




Section 16(a) of the Securities
Exchange Act of 1934 requires our officers, directors, and persons who
beneficially own more than 10% of our common stock to file reports of securities
ownership and changes in such ownership with the Securities and Exchange
Commission (“SEC”).  Officers, directors and greater than 10%
beneficial owners are also required by rules promulgated by the SEC to furnish
us with copies of all Section 16(a) forms they file.





Based
solely upon a review of the copies of such forms furnished to us, or written
representations that no Form 5 filings were required, we believe that during the
fiscal year ended December 31, 2008, there was compliance




19
 
  with all
Section 16(a) filing requirements applicable to our officers, directors and
greater than 10% beneficial owners.


Item
11.   Executive Compensation





The
following table sets forth information about the remuneration of our principal
executive officer (“Named Officer”) for services rendered during our last two
completed fiscal years.  None of our other executive officers had
total compensation of $100,000 or more.  Certain columns as required
by the regulations of the Securities and Exchange Commission have been omitted
as no information was required to be disclosed under those columns.


Summary
Compensation Table


Name
      and Principal Position
                        Year
                        Salary
      ($)
                        Bonus
      ($)
                        Option
      Awards
                          ($)
                        Total
      ($)Henry
      E. Cartwright,
                          President
      and CEO (1)
                        2008
                          2007
                        19,385
                          -0-
                        -0-
                          -0-
                        -0-
                          49,156
      (2)
                        19,385
                          49,156


(1)           Mr.
Cartwright has been our president and chief executive officer since April
2007.


(2)           The
options were valued using the Black-Scholes stock option pricing model with the
following assumptions used:


·
            Expected
      option life-years:  5


·
            Risk-free
      interest rate:  4.6%


·
            Dividend
      yield:  0


·
            Volatility:  45%





The following table set forth
information regarding the outstanding equity awards as of December 31,
2008.





Outstanding
Equity Awards At Fiscal Year-End


Option
      AwardsName
                          Number
      of Securities Underlying Unexercised Options (#)
    Exercisable
                          Number
      of Securities Underlying Unexercised Options (#)
    Unexercisable
                          Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options (#)
                          Option
      Exercise Price ($)
                          Option
      Expiration DateHenry
      E. Cartwright
                          53,125
                          53,125
      (1)
                          -0-
                          4.40
                          6/30/2012


(1)           These options will vest March 1,
2009.





During
the fiscal year ended December 31, 2008, there were no exercises of stock
options by the Named Officer.





Compensation
of Directors





Each of our non-employee directors
receives reimbursement for expenses of attendance for each scheduled meeting
that requires physical attendance.  We do not pay any cash
compensation to any of our non-employee directors.  We have granted
each of our non-employee directors options to purchase up to 25,000 shares of
common stock, exercisable at $4.40 per share.  The options are
exercisable until June 30, 2012 and vest as to 25% upon date of grant (June 30,
2007) and 75% one year from date of grant (June 30, 2008).  The
following table sets forth compensation paid to our directors for the fiscal
year ended December 31, 2008.





20


Director
Compensation


Name
                              Fees
      Earned or Paid in Cash ($)
                              Option
      Awards ($)
                              Total
      ($)Sam
      D. Dewar
                              -0-
                              -0-
                              -0-Gregory
      R. Janson
                              -0-
      (1)
                              -0-
                              -0-Rea
      M. Melanson
                              -0-
                              -0-
                              -0-Paul
      Schloss
                              -0-
                              -0-
                              -0-


(1)
            Mr.
      Janson was paid a salary of $58,547 for the fiscal year ended December 31,
      2008 for his service as an officer of the
  Company.





Employment
Agreements





We entered into an employment contract
with Brad Beckstead in July 2007.  We have agreed to pay Mr. Beckstead
cash compensation of $7,000 per month and have granted options to purchase a
total of 70,000 shares of common stock under our 2007 Stock Option
Plan.  One-half of the options vest in four equal quarterly
installments during the year beginning July 20, 2007, and the remaining half
will vest in eight equal quarterly installments during the two years beginning
July 20, 2008.  The term of the contract is for a period of three
years, but may be terminated if we do not become a public reporting
company.  If we should terminate the contract without cause or if Mr.
Beckstead should resign for cause, we would be obligated to pay Mr. Beckstead 12
months of cash compensation.  A lapse in our directors’ and officers’
liability insurance can be grounds for Mr. Beckstead’s resignation for
cause.  In addition, if a change in control should occur, all
compensation due to Mr. Beckstead through the end of the term of the contract
would be immediately due and payable.  We pay $4,000 of Mr.
Beckstead’s monthly cash compensation in the form of rent to a real estate
holding company owned by Mr. Beckstead and his wife.





Stock
Option Plan





Our
stockholders adopted the 2007 Stock Option Plan on June 27, 2007 that currently
permits the granting of options to purchase up to 470,000
shares.  This amount adjusts at the beginning of each of our fiscal
quarters to a number equal to 10% of the number of shares of common stock
outstanding at the end of our last completed fiscal quarter, or 470,000 shares,
whichever is greater, and provided further that such number will be increased by
the number of shares of option stock that we subsequently may reacquire through
repurchase or otherwise.  Options may be granted to officers,
directors, employees, and consultants on a case-by-case basis.  This
Plan will remain in effect until it is terminated by the board of directors or,
if so appointed by the board, a committee of two or more disinterested directors
administering the Plan, except that no incentive stock option will be granted
after June 26, 2017.





The 2007
Stock Option Plan is intended to (i) encourage ownership of shares by our
employees and directors of and certain consultants to the company; (ii) induce
them to work for the benefit of the company; and (iii) provide additional
incentive for such persons to promote the success of the company.





The board
of directors or committee may amend, suspend or discontinue the Plan at any time
or from time to time; provided that no action of the board will cause incentive
stock options granted under this Plan not to comply with Section 422 of the
Internal Revenue Code unless the board specifically declares such action to be
made for that purpose and provided further that without the approval of our
stockholders, no such action may: (i) materially increase the maximum aggregate
number of shares that may be issued under options granted pursuant to the Plan,
(ii) materially increase the benefits accruing to Plan participants, or (iii)
materially modify eligibility requirements for the
participants.  Moreover, no such action may alter or impair any option
previously granted under the Plan without the consent of the holder of such
option.





The Plan
contains provisions for proportionate adjustment of the number of shares for
outstanding options and the option price per share in the event of stock
dividends, recapitalizations, stock splits or combinations.





Each
option granted under the Plan will be evidenced by a written option agreement
between us and the optionee.  The option price of any incentive stock
option or non-qualified option may be not less than 100% of the fair market
value per share on the date of grant of the option; provided, however, that any
incentive stock option granted to a person owning more than 10% of the total
combined voting power of the common stock will have an option price of not less
than 110% of the fair market value per share on the date of
grant.  “Fair Market Value” per




21
 
 share as
of a particular date is defined in the Plan as the closing price of our common
stock as reported on a national securities exchange or the last transaction
price on the reporting system or, if none, the average of the closing bid and
asked prices of our common stock in the over-the-counter market or, if such
quotations are unavailable, the value determined by the board in its discretion
in good faith.





The
exercise period of incentive stock options or non-qualified options granted
under the Plan may not exceed ten years from the date of grant
thereof.  Incentive stock options granted to a person owning more than
ten percent of the total combined voting power of our common stock will be for
no more than five years.





To
exercise an option, the optionee must pay the full exercise price in cash, by
check or such other legal consideration as may be approved by the
committee.  Such other consideration may consist of shares of common
stock having a fair market value equal to the option price, cashless exercise, a
personal recourse note, or in a combination of cash, shares, cashless exercise
and a note, subject to approval of the committee.





An option
may not be exercised unless the optionee then is an employee, consultant,
officer, or director of our company or its subsidiaries, and unless the optionee
has remained continuously as an employee, consultant, officer, or director of
our company since the date of grant of the option.  If the optionee
ceases to be an employee, consultant, officer, or director of our company or its
subsidiaries other than by reason of death, disability, or for cause, all
options granted to such optionee, fully vested to such optionee but not yet
exercised, will terminate three months after the date the optionee ceases to be
an employee, consultant, officer or director of our company.





If the
employee is terminated “for cause” (as that term is defined in the Plan), such
employee’s options will terminate immediately on the date the optionee ceases
employment or association.





If an
optionee dies while an employee, consultant, officer or director of our company,
or if the optionee’s employment, consultant, officer, or director status
terminates by reason of disability, all options theretofore granted to such
optionee, whether or not otherwise exercisable, unless earlier terminated in
accordance with their terms, may be exercised at any time within one year after
the date of death or disability of said optionee, by the optionee or by the
optionee’s estate or by a person who acquired the right to exercise such options
by bequest or inheritance or otherwise by reason of the death or disability of
the optionee.





As of
December 31, 2008, 470,000 options were outstanding under the Plan.







Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters





Set forth
below is information regarding the beneficial ownership of our common stock, as
of March 23, 2009 by (i) each person whom we know owned, beneficially, more than
5% of the outstanding shares of our common stock, (ii) each of our directors,
(iii) each of our named executive officers, and (iv) all of the current
directors and executive officers as a group.  We believe that, except
as otherwise noted below, each named beneficial owner has sole voting and
investment power with respect to the shares listed.  Unless otherwise
indicated herein, beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission, and includes voting or
investment power with respect to shares beneficially owned.  Shares of
common stock subject to options or warrants currently exercisable or exercisable
within 60 days of March 23, 2009 are deemed outstanding for purposes of
computing the percentage ownership of the person holding such options or
warrants, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person.





Beneficial Owner (1)
                                                      Number
      of Shares
                                                        Beneficially Owned
                                                      Percent
      of
                                                        Class
      (2)Chester
      L.F. Paulson and Jacqueline M. Paulson (3)
                                                      400,000
                                                      13.7%Ulderico
      Conte (4)
                                                      211,750
                                                      8.9%Gregory
      R. Janson (5)
                                                      206,250
                                                      8.1%Ira
      J. Miller (6)
                                                      200,000
                                                      7.6%Henry
      R. Cartwright (7)
                                                      181,250
                                                      6.9%







22




Beneficial Owner (1)
                        Number
      of Shares
                          Beneficially Owned
                        Percent
      of
                          Class
      (2)Terry
      A. Cartwright (8)
                        106,250
                        4.2%Brad
      Beckstead (9)
                        48,125
                        1.9%Paul
      Schloss (10)
                        30,000
                        1.2%Rea
      M. Melanson (10)
                        25,000
                        1.0%Sam
      D. Dewar (10)
                        25,000
                        1.0%All
      directors and officers as a group (8 persons)(11)
                        833,625
                        29.3%


(1)
            With
      the exception of Chester L.F. Paulson and Jacqueline M. Paulson and Ira J.
      Miller, the address of those listed is c/o Healthy Fast Food, Inc., 1075
      American Pacific #C, Henderson, Nevada 89074.  The Paulson’s
      address is 811 SW Naito Parkway, Suite 200, Portland, OR
      97204.  Mr. Miller’s address is 2224 Summerwind Circle,
      Henderson, Nevada 89052.




(2)
            Based
      on 2,518,350 shares outstanding.




(3)
            Includes
      400,000 shares issuable upon the exercise of warrants owned of record by
      Paulson Investment Company, Inc.




(4)
            Includes
      25,000 shares held by Mr. Conte’s wife, 31,250 shares issuable upon the
      exercise of vested options, and 5,000 shares issuable upon the exercise of
      warrants.




(5)
            Includes
      25,000 shares held by Mr. Janson’s wife and 31,250 shares issuable upon
      the exercise of vested stock
options.




(6)
            Includes
      100,000 shares held by Miller Family Trust Dated 7/18/2000 and 100,000
      shares issuable upon the exercise of
warrants.




(7)
            Includes
      106,250 shares issuable upon the exercise of vested
    options.




(8)
            Includes
      31,250 shares issuable upon the exercise of vested
  options.




(9)
            Includes
      48,125 shares issuable upon the exercise of vested
  options.




(10)
            Includes
      25,000 shares issuable upon the exercise of vested
  options.




(11)
            Includes
      323,125 shares issuable upon the exercise of vested options and 5,000
      shares issuable upon the exercise of
warrants.




Changes in Control


There are no agreements known to
management that may result in a change of control of our company.





Equity
Compensation Plan Information





The
following table sets forth information as of the end of the most recently
completed fiscal year, December 31, 2008:





Plan
      category
                          Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                          Weighted
      average exercise price of outstanding options, warrants and
      rights
                          Number
      of securities remaining available for future issuanceEquity
      compensation plans approved by security holders
                          470,000
                          $4.40
                          -0-Equity
      compensation plans not approved by security holders
                          -0-
                          --
                          -0-Total
                          470,000
                          $4.40
                          -0-








Item
13.    Certain Relationships and Related Transactions, and
Director Independence





None of our present directors, officers
or principal stockholders, nor any family member of the foregoing, nor, to the
best of our information and belief, any of our former directors, officers or
principal stockholders, nor any family member of such former directors, officers
or principal stockholders, has or had any material interest, direct or indirect,
in any transaction, or in any proposed transaction which has materially affected
or will materially affect us, except as described below.




23


Office
Space





Our principal offices are located at
1075 American Pacific, Suite C, Henderson, Nevada 89074.  These
offices are leased by Monster Framing, Inc., a company owned by Terry A.
Cartwright, one of our founders.  We do not pay any rent for the use
of this space, the fair market value of which is estimated to be $70 per
month.  The annualized donated rent of $490 is considered immaterial
to the financial statements and consequently not recorded.





Purchase
of U-Swirl Frozen Yogurt Concept





On
September 30, 2008, we acquired the worldwide rights to the U-Swirl Frozen
Yogurt concept in exchange for 100,000 restricted shares of our common stock
from a company then known as U-Swirl Yogurt, Inc. (now known as U Create
Enterprises Incorporated), which is owned by the grandchildren and family of
Henry E. Cartwright.  U Create Enterprises Incorporated continues to
operate its frozen yogurt store in Henderson, Nevada, as our
franchisee.  As part of the terms of the acquisition, we agreed that
no license fees or royalties would be charged with respect to this location, as
it will permit us to use the location as a training facility.  In
addition, we granted U Create Enterprises Incorporated the right to open
additional locations in Henderson, Boulder City and Pahrump,
Nevada.  U Create Enterprises Incorporated currently operates as a
franchisee and will pay an initial franchise fee of $5,000 for each location and
a 1% royalty on sales.





Future
Transactions





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





Director
Independence





As of the
date of this annual report, our common stock is not listed on any
exchange.  As such, we are not


currently
subject to corporate governance standards of listed companies, which require,
among other things, that the majority of the board of directors be
independent.  Since we are not currently subject to corporate
governance standards relating to the independence of our directors, we choose to
define an “independent” director in accordance with the NASDAQ Capital Market’s
requirements for independent directors (NASDAQ Marketplace Rule
4200).  The NASDAQ independence definition includes a series of
objective tests, such as that the director is not an employee of the company and
has not engaged in various types of business dealings with the
company.





Sam
D. Dewar, Rea M. Melanson and Paul Schloss are considered independent directors
under the above definition.  They serve as members of our Audit
Committee, Compensation Committee and Nominating and Governance
Committee.








Item
14.  Principal Accounting Fees and Services





The fees
billed for professional services rendered by our principal accountant are as
follows:





FISCAL
              
              AUDIT-RELATEDYEAR
              AUDIT
      FEES
              FEES
              TAX
      FEES
              ALL
      OTHER FEES2007
              $19,000
              $-0-
              $-0-
              $-0-2008
              $40,000
              $2,700
              $-0-
              $-0-





The
audit-related fees were incurred in connection with the comfort letter for the
underwriter of our initial public offering and review of the registration
statement covering the securities offered in the initial public
offering.





24


Pre-Approval
Policies and Procedures





The board
of directors must pre-approve any use of our independent accountants for any
non-audit services.  All services of our auditors are approved by our
whole board and are subject to review by our whole board.








PART
IV





Item
15.    Exhibits, Financial Statement
Schedules





Regulation
      S-K Number
                                                                          Exhibit3.1
                                                                          Amended
      and Restated Articles of Incorporation (1)3.2
                                                                          Amended
      Bylaws (1)4.1
                                                                          Form
      of common stock certificate (2)4.2
                                                                          Form
      of Class A warrant (included in Exhibit 4.5)4.3
                                                                          Form
      of Class B warrant (included in Exhibit 4.5)4.4
                                                                          Form
      of unit certificate (3)4.5
                                                                          Form
      of Warrant Agreement between the Registrant and Computershare Trust
      Company, N.A. (4)4.6
                                                                          Form
      of Representative’s Purchase Warrants (3)10.1
                                                                          EVOS
      Restaurant Franchise Agreement dated December 14, 2005
  (1)10.2
                                                                          Conditional
      Assignment of Telephone Numbers and Listings to EVOS USA, Inc. dated
      December 14, 2005 (1)10.3
                                                                          Collateral
      Assignment and Assumption of Lease to EVOS USA, Inc. dated December 14,
      2005 (1)10.4
                                                                          Addendum
      to Franchise Agreement dated February 6, 2006 (1)10.5
                                                                          2007
      Stock Option Plan, as amended (1)10.6
                                                                          Promissory
      Note dated October 24, 2006 to Henry E. Cartwright and Ira J. Miller as
      Trustee of the Miller Family Trust dated July 18, 2000
  (1)10.7
                                                                          Warrant
      to purchase common stock issued to Ira J. Miller dated November 20, 2006
      (1)10.8
                                                                          Area
      Representative Agreement between EVOS USA, Inc. and Healthy Fast Food,
      Inc. dated December 1, 2006 (1)10.9
                                                                          Territory
      and Development Schedule Addendum to the Area Representative Agreement
      effective February 26, 2007 (1)10.10
                                                                          Letter
      agreement with EVOS USA, Inc. dated July 10, 2007 (1)10.11
                                                                          Contract
      of Employment with Brad Beckstead dated July 25, 2007
  (1)10.12
                                                                          Letter
      agreement with EVOS USA, Inc. dated July 30, 2007 (1)10.13
                                                                          Letter
      agreement with EVOS USA, Inc. dated February 7, 2008
(4)10.14
                                                                          Asset
      Purchase Agreement with U-Swirl Yogurt, Inc. Dated September 19, 2008
      (5)14.1
                                                                          Code
      of Ethics for Chief Executive Officer14.2
                                                                          Code
      of Ethics for Chief Financial Officer31.1
                                                                          Rule
      13a-14(a) Certification of Chief Executive Officer31.2
                                                                          Rule
      13a-14(a) Certification of Chief Financial Officer32.1
                                                                          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
  Officer32.2
                                                                          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


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


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








25




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


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


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





26


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





HEALTHY
      FAST FOOD, INC.Date:  March
      26, 2009
            /s/
      Henry E. CartwrightHenry
      E. Cartwright, President





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




Signature
                                        
                                        Title
                                        
                                        Date/s/
      Henry E. Cartwright
                                        
                                        President,
      Chief Executive Officer and Director
                                          (Principal Executive Officer)
                                        
                                        March
      26, 2009Henrey
      E. Cartwright/s/
      Brad Beckstead
                                        
                                        Chief
      Financial Officer (Principal Financial Officer and Principal Accounting
      Officer)
                                        
                                        March
      26, 2009Brad
      Beckstead/s/
      Gregory R. Janson
                                        
                                        Director
                                        
                                        March
      26, 2009Gregory
      R. JansonDirectorSam
      Dewar/s/
      Rea M. Melanson
                                        
                                        Director
                                        
                                        March
      26, 2009Rea
      M. Melanson/s/
      Paul Schloss
                                        
                                        Director
                                        
                                        March
      26, 2009Paul
      Schloss


27





























REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














To the
Board of Directors and Stockholders


Healthy
Fast Food, Inc.


Henderson,
Nevada





We have
audited the accompanying balance sheets of Healthy Fast Food, Inc. as of
December 31, 2008 and 2007, and the related statements of operations,
stockholders’ equity, and cash flows for the years then
ended.  Healthy Fast Food, Inc.’s management is responsible for these
financial statements.  Our responsibility is to express an opinion on
these financial statements based on our audits.





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





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Healthy Fast Food, Inc. as of
December 31, 2008 and 2007, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.













L.L.
Bradford & Company, LLC


March 19,
2009


Las
Vegas, Nevada





F-1








December 31, 2008
                              
                              
                              December 31, 2007ASSETSCurrent
      assetsCash
      and equivalents
                              
                              $
                              3,335,740
                              
                              
                              $
                              604,118Royalty
      rebate receivable
                              
                              
                              2,039
                              
                              
                              
                              992Tenant
      improvement allowance receivable
                              
                              
                              50,210
                              
                              
                              
                              -Inventory
                              
                              
                              43,450
                              
                              
                              
                              13,575Prepaid
      expenses
                              
                              
                              43,010
                              
                              
                              
                              16,750Total
      current assets
                              
                              
                              3,474,449
                              
                              
                              
                              635,435Leasehold
      improvements, property and equipment, net
                              
                              
                              879,435
                              
                              
                              
                              454,692Other
      assetsDeposits
                              
                              
                              151,617
                              
                              
                              
                              146,217Deferred
      offering costs
                              
                              
                              -
                              
                              
                              
                              332,415Franchise
      fees, net of amortization
                              
                              
                              13,621
                              
                              
                              
                              15,372Prepaid
      franchise fees
                              
                              
                              -
                              
                              
                              
                              77,500Total
      other assets
                              
                              
                              165,238
                              
                              
                              
                              571,504Total
      assets
                              
                              $
                              4,519,122
                              
                              
                              $
                              1,661,631LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
                              
                              $
                              170,776
                              
                              
                              $
                              133,556Accrued
      interest - related parties
                              
                              
                              -
                              
                              
                              
                              1,844Royalties
      payable
                              
                              
                              2,207
                              
                              
                              
                              -Current
      portion of capitalized lease
                              
                              
                              4,203
                              
                              
                              
                              -Total
      current liabilities
                              
                              
                              177,186
                              
                              
                              
                              135,400Deferred
      rent
                              
                              
                              207,482
                              
                              
                              
                              87,744Long-term
      capitalized lease
                              
                              
                              14,951
                              
                              
                              
                              -Total
      liabilities
                              
                              
                              399,619
                              
                              
                              
                              223,144Commitments
      and contingenciesStockholders'
      equityPreferred
      stock; $0.001 par value; 25,000,000 shares authorized,no
      shares issued and outstanding
                              
                              
                              -
                              
                              
                              
                              -Common
      stock; $0.001 par value; 100,000,000 shares authorized,2,518,350
      and 1,418,350 shares issued and outstandingat
      12/31/08 and 12/31/07, respectively
                              
                              
                              2,518
                              
                              
                              
                              1,418Additional
      paid-in capital
                              
                              
                              6,794,179
                              
                              
                              
                              2,511,097Stock
      subscriptions receivable
                              
                              
                              (150
                              )
                              
                              
                              (150
                              )Accumulated
      deficit
                              
                              
                              (2,677,044
                              )
                              
                              
                              (1,073,878
                              )Total
      stockholders' equity
                              
                              
                              4,119,503
                              
                              
                              
                              1,438,487Total
      liabilities and stockholders' equity
                              
                              $
                              4,519,122
                              
                              
                              $
                              1,661,631







F-2






For
      the years endedDecember 31, 2008
                                
                                
                                December 31, 2007RevenuesRestaurant
      sales, net of discounts
                                
                                $
                                631,795
                                
                                
                                $
                                970,163Franchise
      royalties and fees
                                
                                
                                33,663
                                
                                
                                
                                -Total
      revenues
                                
                                
                                665,458
                                
                                
                                
                                970,163Restaurant
      operating costsFood,
      beverage and packaging costs
                                
                                
                                275,195
                                
                                
                                
                                416,443Labor
      and related expenses
                                
                                
                                347,094
                                
                                
                                
                                359,232Occupancy
      and related expenses
                                
                                
                                200,203
                                
                                
                                
                                106,133Marketing
      and advertising
                                
                                
                                80,016
                                
                                
                                
                                79,825Royalties
                                
                                
                                26,685
                                
                                
                                
                                24,567General
      and administrative
                                
                                
                                386,373
                                
                                
                                
                                218,104Officer
      compensation
                                
                                
                                318,805
                                
                                
                                
                                402,313Board
      fees
                                
                                
                                -
                                
                                
                                
                                34,375Consulting
      fees - related party
                                
                                
                                -
                                
                                
                                
                                11,458Investor
      relations fees
                                
                                
                                184,740
                                
                                
                                
                                -Intellectual
      property acquired from related parties
                                
                                
                                180,000
                                
                                
                                
                                -Pre-opening
      costs
                                
                                
                                22,439
                                
                                
                                
                                -Impairment
      loss on prepaid franchise fees
                                
                                
                                217,500
                                
                                
                                
                                -Depreciation
      and amortization
                                
                                
                                78,416
                                
                                
                                
                                65,016Amortization
      of franchise fees
                                
                                
                                1,751
                                
                                
                                
                                1,750Total
      costs and expenses
                                
                                
                                2,319,217
                                
                                
                                
                                1,719,216Loss
      from operations
                                
                                
                                (1,653,759
                                )
                                
                                
                                (749,053
                                )Interest
      expense
                                
                                
                                (3,394
                                )
                                
                                
                                (6,106
                                )Interest
      income
                                
                                
                                53,987
                                
                                
                                
                                18,778Loss
      before income taxes
                                
                                
                                (1,603,166
                                )
                                
                                
                                (736,381
                                )Provision
      for income taxes
                                
                                
                                -
                                
                                
                                
                                -Net
      loss
                                
                                $
                                (1,603,166
                                )
                                
                                $
                                (736,381
                                )Net
      loss per common share - basic and fully diluted
                                
                                $
                                (0.73
                                )
                                
                                $
                                (0.57
                                )Weighted
      average common shares outstanding -basic
      and diluted
                                
                                
                                2,186,110
                                
                                
                                
                                1,299,847






F-3








Stock
                            
                            
                            
                            
                            
                            TotalCommon
      Stock
                            
                            
                            Additional
                            
                            
                            Subscription
                            
                            
                            Accumulated
                            
                            
                            Stockholders'Shares
                            
                            
                            Amount
                            
                            
                            Paid-in
      Capital
                            
                            
                            Receivable
                            
                            
                            Deficit
                            
                            
                            EquityBalance,
      December 31, 2006
                            
                            
                            1,000,550
                            
                            
                            $
                            1,001
                            
                            
                            $
                            668,114
                            
                            
                            $
                            -
                            
                            
                            $
                            (337,497
                            )
                            
                            $
                            331,618Issuance
      of stock pursuant to private placement
                            
                            
                            227,000
                            
                            
                            
                            227
                            
                            
                            
                            903,273
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            903,500$4.00
      per share, net of $4,500 of offering costs paid in cashIssuance
      of stock valued at $2.00/share for debt and interest
                            
                            
                            3,350
                            
                            
                            
                            3
                            
                            
                            
                            6,698
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            6,701Warrants
      issued for deferred offering costs
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            11,265
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            11,265Issuance
      of stock pursuant to private placement$4.00
      per share, net of $1,173 of offering costs paid in cash
                            
                            
                            162,450
                            
                            
                            
                            162
                            
                            
                            
                            648,465
                            
                            
                            
                            (150
                            )
                            
                            
                            -
                            
                            
                            
                            648,477Fair
      value of share-based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            272,807
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            272,807Issuance
      of stock pursuant to warrant exercise at $0.02/warrant
                            
                            
                            25,000
                            
                            
                            
                            25
                            
                            
                            
                            475
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            500Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (736,381
                            )
                            
                            
                            (736,381
                            )Balance,
      December 31, 2007
                            
                            
                            1,418,350
                            
                            
                            
                            1,418
                            
                            
                            
                            2,511,097
                            
                            
                            
                            (150
                            )
                            
                            
                            (1,073,878
                            )
                            
                            
                            1,438,487Issuance
      of stock pursuant to unit offering$5.10
      per unit, net of underwriting fees of $510,000and
      offering costs of $587,160
                            
                            
                            1,000,000
                            
                            
                            
                            1,000
                            
                            
                            
                            1,655,949
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,656,949-Fair
      market value of 1,000,000 A warrants
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,119,628
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,119,628-Fair
      market value of 2,000,000 B warrants
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,226,263
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,226,263Fair
      value of share-based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            101,342
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            101,342100,000
      shares issued for U-Swirl intellectual property at
    $1.80/share
                            
                            
                            100,000
                            
                            
                            
                            100
                            
                            
                            
                            179,900
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            180,000Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,603,166
                            )
                            
                            
                            (1,603,166
                            )Balance,
      December 31, 2008
                            
                            
                            2,518,350
                            
                            
                            $
                            2,518
                            
                            
                            $
                            6,794,179
                            
                            
                            $
                            (150
                            )
                            
                            $
                            (2,677,044
                            )
                            
                            $
                            4,119,503







F-4








For
      the years endedDecember
      31, 2008
                                                  
                                                  
                                                  December
      31, 2007Cash
      flows from operating activities:Net
      (loss)
                                                  
                                                  $
                                                  (1,603,166
                                                  )
                                                  
                                                  $
                                                  (736,381
                                                  )Adjustments
      to reconcile net (loss) to netcash
      (used) by operating activities:Depreciation
      and amortization
                                                  
                                                  
                                                  78,416
                                                  
                                                  
                                                  
                                                  65,016Amortization
      of franchise fees
                                                  
                                                  
                                                  1,751
                                                  
                                                  
                                                  
                                                  1,750Loss
      on impairment of prepaid franchise fees
                                                  
                                                  
                                                  217,500
                                                  
                                                  
                                                  
                                                  -Share-based
      compensation
                                                  
                                                  
                                                  101,342
                                                  
                                                  
                                                  
                                                  272,807Shares
      issued to acquire U-Swirl intellectual property
                                                  
                                                  
                                                  180,000
                                                  
                                                  
                                                  
                                                  -Stock
      issued for interest
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  700Changes
      in operating assets and liabilities:Royalty
      rebate receivable
                                                  
                                                  
                                                  (1,047
                                                  )
                                                  
                                                  
                                                  (992
                                                  )Inventory
                                                  
                                                  
                                                  (29,875
                                                  )
                                                  
                                                  
                                                  2,307Prepaid
      expenses
                                                  
                                                  
                                                  (26,260
                                                  )
                                                  
                                                  
                                                  (16,750
                                                  )Accounts
      payable and accrued liabilities
                                                  
                                                  
                                                  37,220
                                                  
                                                  
                                                  
                                                  36,521Accrued
      interest - related parties
                                                  
                                                  
                                                  (1,844
                                                  )
                                                  
                                                  
                                                  (3,243
                                                  )Royalties
      payable
                                                  
                                                  
                                                  2,207
                                                  
                                                  
                                                  
                                                  1,844Deferred
      rent
                                                  
                                                  
                                                  119,738
                                                  
                                                  
                                                  
                                                  (19,344
                                                  )Net
      cash (used) by operating activities
                                                  
                                                  
                                                  (924,018
                                                  )
                                                  
                                                  
                                                  (395,765
                                                  )Cash
      flows from investing activities:Tenant
      improvement allowance receivable
                                                  
                                                  
                                                  (50,210
                                                  )
                                                  
                                                  
                                                  -Deposits
                                                  
                                                  
                                                  (5,400
                                                  )
                                                  
                                                  
                                                  (8,426
                                                  )Prepaid
      franchise fees
                                                  
                                                  
                                                  (140,000
                                                  )
                                                  
                                                  
                                                  -Purchase
      of fixed assets
                                                  
                                                  
                                                  (479,222
                                                  )
                                                  
                                                  
                                                  (26,345
                                                  )Net
      cash (used) by investing activities
                                                  
                                                  
                                                  (674,832
                                                  )
                                                  
                                                  
                                                  (34,771
                                                  )Cash
      flows from financing activities:Net
      proceeds from issuance of common stock
                                                  
                                                  
                                                  4,002,840
                                                  
                                                  
                                                  
                                                  1,552,627Subscriptions
      receivable
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (150
                                                  )Deferred
      offering costs
                                                  
                                                  
                                                  332,415
                                                  
                                                  
                                                  
                                                  (321,150
                                                  )Payments
      on long-term capital lease
                                                  
                                                  
                                                  (4,783
                                                  )
                                                  
                                                  
                                                  -Payments
      on notes payable - related parties
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (250,200
                                                  )Net
      cash provided by financing activities
                                                  
                                                  
                                                  4,330,472
                                                  
                                                  
                                                  
                                                  981,127Net
      change in cash
                                                  
                                                  
                                                  2,731,622
                                                  
                                                  
                                                  
                                                  550,591Cash,
      beginning of period
                                                  
                                                  
                                                  604,118
                                                  
                                                  
                                                  
                                                  53,527Cash,
      end of period
                                                  
                                                  $
                                                  3,335,740
                                                  
                                                  
                                                  $
                                                  604,118Supplemental
      disclosure of cash flow information:Interest
      paid
                                                  
                                                  $
                                                  3,394
                                                  
                                                  
                                                  $
                                                  6,106Taxes
      paid
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -Value
      of warrants issued for offering costs
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  11,265Number
      of shares issued for debt and interest
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  3,350Value
      of shares issued for debt and interest
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  6,701Capital
      lease obligations for property and equipment
                                                  
                                                  $
                                                  23,937
                                                  
                                                  
                                                  $
                                                  -Number
      of shares issued for intellectual property
                                                  
                                                  
                                                  100,000
                                                  
                                                  
                                                  
                                                  -Value
      of shares issued for intellectual property
                                                  
                                                  $
                                                  180,000
                                                  
                                                  
                                                  $
                                                  -







F-5
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


1.
              DESCRIPTION OF
      BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES





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





Evos
Concept


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





U-Swirl
Concept


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





Increase in authorized
capital; reverse stock split– As of June 29, 2007, the Company increased
its authorized capital to 100,000,000 shares of common stock, $0.001 par value,
and 25,000,000 shares of preferred stock, $0.001 par value.  In
connection with this action, the Company amended and restated its articles of
incorporation.  On June 30, 2007, the Company conducted a reverse
split of its outstanding common stock on a 1-for-2 basis.  The
accompanying financial statements and these notes have been retroactively
restated to reflect the effect of the reverse stock split.





Restaurant operations;
franchise agreement– The Company entered into a franchise agreement with
EVOS USA, Inc. as of December 14, 2005, giving the Company the right to develop
and operate one EVOS® fast food restaurant.  The Company opened its
first restaurant in Henderson, Nevada and began restaurant operations in October
2006.  The initial term of the franchise agreement is 10 years, with
two optional 5-year renewal periods.





As of
December 31, 2007, the Company was obligated to pay EVOS USA, Inc. a royalty of
3.5% of net revenue generated by the restaurant.  The royalty fees are
paid based upon the gross revenues derived from food and beverage sales
exclusive of sales taxes.  During fiscal 2008 and 2007, the Company
paid $26,685 and $24,567, respectively, in royalty fees to EVOS USA,
Inc.





The
Company may be required to spend at least 2% of gross sales on local marketing,
and in the future, an additional 2% to a “system fund” that may be administered
by EVOS USA, Inc.  EVOS USA, Inc. currently has a moratorium on the
fund assessments until March 31, 2009, at which time it will determine if the
funds are needed based on the number of opened stores both locally and
nationally.  If the Company would have been required to pay to the
marketing and system funds during fiscal 2008 and 2007, the pro forma impact
would have been to increase the net loss and net loss per share by $12,636 and
$21,457 and $0.01 and $0.02, respectively.





Under the
franchise agreement, the Company (i) is required to comply with the rules and
operating procedures established by EVOS USA, Inc.; (ii) is required to buy
supplies and inventory from an approved suppliers list; and (iii) conditionally
assigned its lease and telephone numbers and listings of the Henderson
restaurant to EVOS USA, Inc. in order to secure the Company’s royalty payment
and other performance obligations under the franchise agreement.





Franchise sales activities;
area representative agreement– The Company signed an Area Representative
Agreement (“ARA”) with EVOS USA, Inc. in December 2006.  Under the
ARA, the Company has the exclusive right to sell EVOS® franchise rights in
Arizona, California, Colorado, Kansas, Nevada, New Mexico, Ohio, Oklahoma,
Oregon, Texas, Utah, and Washington.




F-6
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


Pursuant
to the ARA as amended, the Company was committed to opening five restaurants by
March 1, 2009.  Evos USA, Inc. may terminate the ARA in the event the
development schedule is not met.  If the ARA were to be terminated,
the Company would lose its exclusive 12-state territory rights and the 50%
franchise fee and royalty fee splits discussed below.  However, the
Company would not lose the right to continue developing
restaurants.  The Company is dependent upon a successful equity
offering in order raise capital to meet its ARA development
schedule.




Under the
ARA, the Company is entitled to receive 50% of the initial franchise fee revenue
and 50% of the gross revenue royalty fee for all franchised EVOS® restaurants,
including Company-owned restaurants, within the 12-state territory (except for
the special arrangements relating to the initial franchise fees for the first
eight third-party franchise locations, as stated below).  Since the
Company-owned restaurants are similarly treated under the ARA, the Company pays
a net 1.75% royalty on gross revenue per month to EVOS USA, Inc. commencing
March 31, 2007.





Pursuant
to the ARA, the Company paid cash of $6,458 per restaurant, or a total of
$77,500, to EVOS USA, Inc. (see Note 7 for further discussion) for the rights to
12 Company-owned restaurants.  As consideration for the discounted
franchise fees, the Company will forgo its right to receive 50% of the franchise
fee revenue generated from the first eight restaurants awarded to third party
franchisees within the Company’s 12-state territory.  (EVOS USA, Inc.
has agreed to provide all of the upfront training for the first eight new
franchisees within the Company’s 12-state territory.)





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.





Segment Reporting –
We provide segment reporting in accordance with SFAS No. 131,Disclosures about Segments of an
Enterprise and Related Information, which establishes annual and interim
reporting standards for an enterprise’s business segments and related
disclosures about its products, services, geographic areas and major customers.
Our chief operating decision maker regularly reviews our operating results on a
consolidated basis in deciding how to allocate resources and in assessing our
operating performance.





Cash and cash
equivalents– The Company considers all investments with an original
maturity of three months or less to be a cash equivalent.  The
Company’s cash in bank and short-term investments, at times, may exceed
federally insured limits.  The Company has not experienced any losses
in such accounts and, accordingly, the Company believes it is not exposed to any
significant credit risk on cash and short-term investments.





Inventories–
Inventories consisting of food, beverages, and supplies are stated at the lower
of cost (FIFO) or market, including provisions for spoilage commensurate with
known or estimated exposures which are recorded as a charge to Cost of Sales
during the period spoilage is incurred.  The Company has no minimum
purchase commitments with its vendors.  As of December 31, 2008,
inventories consisted of the following: food and beverages $17,152, non-foods
$26,298.  The Company did not incur significant charges to Cost of
Sales for spoilage during fiscal 2008 or 2007.





F-7
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


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





The
estimated useful lives are:





Leasehold improvements and buildings
                  
                  5-20
      yearsFurniture
      and fixtures
                  
                  3-10
      yearsEquipment
                  
                  3-7
      years





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




Long-lived assets–
Long-lived assets are evaluated when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable through the
estimated undiscounted future cash flows from the use of these
assets.  When any such impairment exists, the related assets will be
written down to fair value.





Deferred offering
costs– The Company capitalizes certain costs associated with the offering
of its stock and adjusts the deferred cost to offset offering proceeds upon
closing of the offering or expenses the costs upon abandonment of the
offering.





Accounting Policy for
Ownership Interests in Investees – The accompanying Consolidated
Financial Statements include the accounts of the Company and its majority-owned
subsidiary corporation, after elimination of all material intercompany accounts,
transactions, and profits. Investments in unconsolidated subsidiaries
representing ownership of at least 20% but less than 50%, are accounted for
under the equity method. Nonmarketable investments in which the Company has less
than 20% ownership and in which it does not have the ability to exercise
significant influence over the investee are initially recorded at cost and
periodically reviewed for impairment.





Deposits– Deposits
consist of $151,617 in security deposits for mulitple locations, of which
$87,604 was paid and $64,013 (in connection with the Company’s Henderson
restaurant property lease) was unpaid as of December 31, 2008.  All
deposits are carried at the lower of fair value or cost.





Franchise fees–
Franchise fees paid to EVOS USA, Inc. are stated at
cost.  Amortization of the franchise fees is calculated based on the
straight-line method over the ten-year useful life of the franchise
agreement.  In accordance with SFAS 142, paragraph 11, the useful life
of an intangible asset is determined by the period over which the asset is
expected to contribute either directly or indirectly to the future cash flows of
the Company.  Franchise renewal fees are also recorded at cost and
amortized over the useful life of the renewal term.  Upon closing or
disposal of a restaurant, the accounts will be relieved of cost and accumulated
amortization and the related gain or loss will be reflected in income from
continued operations.  As of December 31, 2008, franchise fees
consisted of $13,621 net of $3,879 of accumulated amortization.





F-8
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


Prepaid franchise
fees– Prepaid franchise fees consist entirely of the advances and
payments made to EVOS USA, Inc. in connection with the Company entering into the
ARA agreement in December 2006.  The Company has the right to develop
and operate an additional 12 EVOS® restaurants without paying additional
franchise fees.  As the Company opens new restaurants, a proportional
amount of prepaid franchise fees will be capitalized to franchise fees and
amortized over the useful life of the franchise agreement in accordance with
SFAS 142, paragraph 11.





Goodwill and intangible
assets– The Company has adopted Statement of Financial Accounting
Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS
142”).  According to this statement, goodwill and intangible assets
with indefinite lives are no longer subject to amortization, but rather an
annual assessment of impairment by applying a fair-value based
test.  Fair value for intangible assets is based on discounted cash
flows.  Under SFAS 142, the carrying value of such assets is
calculated at the lowest level for which there are identifiable cash
flows.





SFAS 142
requires the Company to compare the fair value of the reporting unit to its
carrying amount on an annual basis to determine if there is potential
impairment.  If the fair value of the reporting unit is less than its
carrying value, an impairment loss is recorded to the extent that the fair value
of the intangible asset within the reporting unit is less than its carrying
value.





Insurance liability–
The Company maintains various insurance policies for workers’ compensation,
employee health, officer and director, general liability, and property
damage.  Pursuant to these policies, the Company is responsible for
losses up to certain limits and is required to estimate a liability that
represents the ultimate exposure for aggregate losses below those
limits.  No liability exists as of December 31, 2008, but in the event
a liability is incurred, the amount will be based on management’s estimates of
the ultimate costs to be incurred to settle known claims and claims not reported
as of the balance sheet date.  Any future estimated liability may not
be discounted and may be based on a number of assumptions and factors, including
historical trends, actuarial assumptions, and economic conditions.  If
actual trends differ from the estimates, future financial results could be
impacted.





Rent–Rent expense for the
Company’s lease, which provides for escalating rentals over the term of the
lease, is recorded on a straight-line basis over the lease term.  The
lease term began when the Company had the right to control the use of the
property, which was before rent payments were actually due under the
lease.  The difference between the rent expense and the actual amount
payable under the terms of the lease is recorded as deferred rent in the
financial statements pursuant to the FASB Staff Position No. 13-1 Accounting for Rental Costs Incurred
During the Construction Period(“FSP 13-1”).  Rent totaling
$22,439 was expensed and included as pre-opening costs during the year ended
December 31, 2008.





On
February 7, 2005, the Office of the Chief Accountant of the Securities and
Exchange Commission issued a letter to the American Institute of Certified
Public Accountants expressing its views regarding certain operating lease
accounting issues and their application under generally accepted accounting
principles in the United States of America(“GAAP”).  Management has
determined that the appropriate interpretation of FASB Technical Bulletin No.
88-1, “Issues Relating to Accounting for Leases,” requires these allowances to
be recorded as a leasehold improvement asset and deferred rent liability on the
Balance Sheet and as both an investing activity (addition to property and
equipment) and a component of operating activities on the Statements of Cash
Flows.  For the years ended December 31, 2008 and 2007, the Company
recorded additional leasehold improvements as they relate to leasing build-out
incentives of $-0- and $87,744, respectively, and deferred rent of $207,482 and
$87,744, respectively, in its Balance Sheet to reflect the unamortized portion
of tenant improvement allowances and deferred rent liabilities for the existing
leases.  The Company’s Statements of Cash Flows reflects cash
reimbursements received for tenant improvement allowances during the periods
presented as additions to property and equipment and an increase in operating
activities.  As of December 31, 2008 and 2007, the Company has
unamortized tenant improvement allowances of $91,673 and $60,859, respectively,
and deferred rent liability balances of $207,482 and $87,744,
respectively.





F-9
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


Advertising Expense–
The Company recognizes advertising expense as incurred.  The Company
recognized advertising expense totaling $80,016 and $79,825 for the years ended
December 31, 2008 and 2007, respectively.





During
the ordinary course of business, the Company enters into certain barter
transactions whereby it issues redeemable coupons for product in exchange for
advertising services.  The barter transactions included in advertising
expense during fiscal 2008 and 2007 were valued at the fair market value of the
advertising services received, or $-0- and $10,530, respectively.





Income taxes– The
Company accounts for its income taxes in accordance with SFAS 109, which
requires recognition of deferred tax assets and liabilities for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax credit carry-forwards.  Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.  The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the period
that includes the enactment date.





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes and
the amounts used for income tax purposes.  Significant components of
the Company’s deferred tax liabilities and assets as of December 31, 2008 and
2007 are as follows:





Deferred
      tax assets:
                  
                  2008
                  
                  
                  2007Net
      operating loss
                  
                  $
                  1,603,166
                  
                  
                  $
                  1,073,878Stock,
      options and warrants issued for services and financing
    costs
                  
                  
                  (101,342
                  )
                  
                  
                  (220,579
                  )1,501,824
                  
                  
                  
                  853,299Income
      tax rate
                  
                  
                  34
                  %
                  
                  
                  34
                  %510,620
                  
                  
                  
                  290,122Less
      valuation allowance
                  
                  
                  (510,620
                  )
                  
                  
                  (290,122
                  )$
                  -
                  
                  
                  $
                  -




Through
December 31, 2008, a valuation allowance has been recorded to offset the
deferred tax assets, including those related to the net operating
losses.  During the year ended December 31, 2008, the Company
determined that it was more likely than not that it would not realize its
deferred tax assets and a valuation allowance was recorded.  At
December 31, 2008, the Company had approximately $2,355,000 of federal and state
net operating losses.  The net operating loss carryforwards, if not
utilized will begin to expire in 2024.





Reconciliations
of the U.S. federal statutory rate to the actual tax rate follows for the years
ended December 31, 2008 and 2007 are as follows:




2008
                2007U.S.
      federal statutory income tax rate
                
                
                34.0
                %
                34.0
                %State
      tax - net of federal benefit
                
                
                0.0
                %
                0.0
                %34.0
                %
                34.0
                %Increase
      in valuation allowance
                
                
                (34.0
                %)
                (34.0
                %)Effective
      tax rate
                
                
                0.0
                %
                0.0
                %








F-10
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


Fair value of financial
instruments– SFAS 107, “Disclosure About Fair Value of Financial
Instruments,” requires the Company to disclose, when reasonably attainable, the
fair market values of its assets and liabilities which are deemed to be
financial instruments.  As of December 31, 2008 and 2007 the carrying
amounts and estimated fair values of the Company’s financial instruments
approximate their fair value due to the short-term nature of such financial
instruments.





Revenue, discounts and
expense recognition– Revenue from restaurant sales is recognized when
food and beverage products are sold.  The Company reduces revenue by
sales returns and sales discounts.





Revenue
earned as an area representative for EVOS USA, Inc. is derived from restaurants
in the Company’s 12-state territory and will include initial franchise fees,
continuing service fees, and royalties.  Continuing service fees and
royalties are recognized in the period in which they are
earned.  Except for the first eight franchises sold within the
Company’s 12-state territory as discussed above, franchise fee revenue is
recognized and fully earned upon the completion of the Company’s commitment to
train of each of the EVOS® restaurants sold in the Company’s 12-state
territory.  SFAS 45, paragraph 5 (a)-(c), stipulates that initial
franchise fee revenue from a franchise sale should be recognized when the
franchisor has substantially performed or satisfied all material services or
conditions relating to the sale.  Substantial performance has occurred
when the franchisor has: (a) no remaining obligations or intent to refund any
cash received or to forgive any unpaid notes or receivables; (b) performed
substantially all of the initial services required by the franchise agreement
(such as providing assistance in site selection, obtaining facilities,
advertising, training, preparing operating manuals, bookkeeping, or quality
control); and (c) met all other material conditions or
obligations.  The Company believes that completion of its training
commitment satisfies the “substantial performance” definition outlined
above.  The Company recognized $17,500 and $-0- in franchise fee
revenue during fiscal 2008 and 2007, respectively.





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





Restaurant pre-opening
costs– Pre-opening costs, including wages, benefits and travel for the
training and opening teams, food and other restaurant operating costs, are
expensed as incurred prior to the opening of a restaurant.  During the
years ended December 31, 2008 and 2007, these costs include $22,439 and
$-0-, respectively, of rent paid since the adoption of the Financial Accounting
Standards Board (“FASB”) Staff Position No. FAS 13-1 “Accounting for Rental
Costs Incurred During a Construction Period,” (“FSP 13-1”) in January
2006.





Expenses of offering–
The Company accounts for specific incremental costs directly to a proposed or
actual offering of securities as a direct charge against the gross proceeds of
the offering.  During the years ended December 31, 2008 and 2007, the
Company incurred cash offering related costs of $587,160 and $5,673,
respectively.




Stock-based
compensation– In December 2004, the FASB issued SFAS No. 123R,
“Share-Based Payment”(“SFAS 123R”), which
replaces SFAS No. 123, and supersedes APB No. 25.  SFAS 123R requires
all share-based payments to employees, including grants of Company stock options
to Company employees, as well as other equity-based compensation arrangements,
to be recognized in the financial statements based on the grant date fair value
of the awards.  Compensation expense is generally recognized over the
vesting period.  During fiscal 2008 and 2007, the Company recognized
stock-based offering costs totaling $-0- and $11,265, respectively, and
stock-based compensation expense totaling $101,342 and $272,807, respectively,
associated with the issuance of warrants.  See Note 12 for further
discussion.





Comprehensive income
(loss)– The Company has no components of other comprehensive
income.  Accordingly, net loss equals comprehensive loss for all
periods.





F-11
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


Earnings (loss) per
share– Basic earnings (loss) per share exclude any dilutive effects of
options, warrants and convertible securities.  Basic earnings (loss)
per share is computed using the weighted-average number of outstanding common
stock during the applicable period.  Diluted earnings per share is
computed using the weighted-average number of common and common stock equivalent
shares outstanding during the period.  Common stock equivalent shares
are excluded from the computation if their effect is
antidilutive.  For the years ended December 31, 2008 and 2007, the
Company had 705,000 common stock equivalent shares, respectively, which were
considered antidilutive and excluded from the earnings (loss) per share
calculations.





Concentration of
risk– The Company’s operations and future business model are dependent in
a large part on EVOS USA, Inc.’s ability to meet its obligations to provide
operational support and expertise.  EVOS USA, Inc.’s inability to meet
its obligations as franchisor may have a material adverse effect on the
Company’s financial condition.





Geographic
concentration– As of December 31, 2008, all of the Company’s revenues are
derived from its restaurants located in Southern Nevada, which may be impacted
in the event of a decline in the local economy.





New accounting
pronouncements– In September 2006, the Financial Accounting Standards
Board (FASB) issued SFAS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value in
accordance with U.S. GAAP and expands disclosures about fair value measurements.
For financial assets and liabilities, SFAS No. 157 was effective for fiscal
years beginning after November 15, 2007, and interim periods within those
fiscal years.  In February 2008, the FASB issued Staff Position
(FSP) No. 157-2 which delays the effective date of SFAS No. 157 one
year for all nonfinancial assets and nonfinancial liabilities, except those
recognized or disclosed at fair value in the financial statements on a recurring
basis.  FSP 157-2 is effective for the Company beginning
October 1, 2008.




In
accordance with FSP 157-2, the Company may measure the remaining assets and
liabilities beginning Q1 2009. The Company does not expect the adoption, if
required, of SFAS No. 157, as amended by FSP 157-2, will have a material
impact on its financial statements.




In
December 2007, the FASB issued SFAS No. 141 (R), Business Combinations, and
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS No. 141 (R) requires an
acquirer to measure the identifiable assets acquired, the liabilities assumed
and any noncontrolling interest in the acquired entity at their fair values on
the acquisition date, with goodwill being the excess value over the net
identifiable assets acquired. SFAS No. 160 clarifies that a noncontrolling
interest in a subsidiary should be reported as equity in the financial
statements. The calculation of earnings per share will continue to be based on
income amounts attributable to the parent. SFAS No. 141 (R) and SFAS
No. 160 are effective for financial statements issued for fiscal years
beginning after December 15, 2008. Early adoption is prohibited. The
Company does not expect the adoption of SFAS No. 141 (R) and SFAS
No. 160 will have a material impact on its financial
statements.




In
March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities(“SFAS 161”), which is effective
January 1, 2009. SFAS 161 requires enhanced disclosures about derivative
instruments and hedging activities to allow for a better understanding of their
effects on an entity’s financial position, financial performance, and cash
flows. Among other things, SFAS 161 requires disclosure of the fair values of
derivative instruments and associated gains and losses in a tabular format.
Since SFAS 161 requires only additional disclosures about the Company’s current
derivatives and hedging activities, the adoption of SFAS 161 will not affect its
financial position or results of operations, should it acquire derivatives in
the future.


F-12
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007




In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets. FSP No. 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible
Assets. FSP No. 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008. Early adoption is
prohibited. The Company does not expect the adoption of FSP No. 142-3 will
have a material impact on its financial statements.





In June
2008, the FASB ratified the consensus reached on EITF Issue No. 07-05,
Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock.
EITF Issue No. 07-05 clarifies the determination of whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which would
qualify as a scope exception under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. EITF Issue No. 07-05 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption for an existing instrument is not
permitted. The Company does not expect the adoption of EITF Issue No. 07-05
will have a material impact on its financial statements.





2.           CASH AND
EQUIVALENTS





Concentration of Credit Risk forCash
Held at Banks


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





During
the third quarter ended September 30, 2008, the Company invested $3,000,000 in
13-week maturity US Government Treasury Bills.  The T-Bills matured
and were redeemed in full on January 9, 2009.





3.           TENANT IMPROVEMENT ALLOWANCE
RECEIVABLE





During
December 2008, the Company entered into a lease agreement for a new U-Swirl
Yogurt restaurant.  According to the terms of the agreement, the
lessor owes the Company $50,210 in cash for tenant improvements.  As
of December 31, 2008, the lessor had not paid the Company the $50,210,
therefore, the amount is shown as an amount receivable on the Company’s Balance
Sheet.  The amount was received in full from the lessor in January
2009.





4.           FRANCHISE FEE
INCOME





The
Company recognized $18,450 and $0 in franchise fee income for the years ended
December 31, 2008 and 2007, respectively.  The $17,500 recognized
during the quarter ended December 31, 2008 represents 50% of the initial
franchise fee for a new restaurant location purchased by a new franchisee within
the Company’s 12 state territory, and is in accordance with the Company’s Area
Representative Agreement with EVOS USA, Inc.





F-13
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


5.           LEASEHOLD IMPROVEMENTS,
PROPERTY AND EQUIPMENT





Leasehold
improvements, property and equipment consist of the following at December
31:





2008
                    
                    
                    2007Restaurant
      equipment
                    
                    $
                    197,476
                    
                    
                    $
                    100,184Machinery
      & equipment
                    
                    
                    31,122
                    
                    
                    
                    29,995Furniture
      and fixtures
                    
                    
                    159,218
                    
                    
                    
                    95,032Computer
      software
                    
                    
                    15,831
                    
                    
                    
                    10,086Computer
      equipment
                    
                    
                    18,807
                    
                    
                    
                    2,707Vehicles
                    
                    
                    23,937
                    
                    
                    
                    -0-Leasehold
      improvements
                    
                    
                    604,239
                    
                    
                    
                    309,4691,050,630
                    
                    
                    
                    547,473Less:
      accumulated depreciation
                    
                    
                    (171,195
                    )
                    
                    
                    (92,780
                    )Leasehold
      improvements, property and equipment, net
                    
                    $
                    879,435
                    
                    
                    $
                    454,693





Depreciation
and amortization expense for the years ended December 31, 2008 and 2007 totaled
$78,416 and $65,016, respectively.





6.           CAPITAL
LEASE





The
Company leases its vehicle under an agreement that is classified as a capital
lease. The cost of equipment under capital leases is included in the Balance
Sheet as leasehold improvements, property, and equipment and was $23,937 and
$23,927 at December 31, 2008, and December 31, 2007, respectively. Accumulated
amortization of the leased equipment at December 31, 2008, and December 31,
2007, was approximately $4,200 and $-0-, respectively. Amortization of assets
under capital leases is included in depreciation expense.





The
future minimum lease payments required under the capital leases as of December
31, 2008, are as follows:





Year Ending December 31,
                
                Amount2009
                
                $
                6,5422010
                
                
                6,5422011
                
                
                6,070Total
      minimum lease payments
                
                
                19,154Less:
      Current maturities of capital lease obligations
                
                
                (4,203
                )Long-term
      capital lease obligations
                
                $
                14,951





7.
            FRANCHISE FEES
      AMORTIZATION





Amortization
expense related to capitalized franchise fees for the years ended December 31,
2008 and 2007 totaled $1,751 and $1,750, respectively.





8.
            INTEREST INCOME AND
      EXPENSE





Interest
income for the years ended December 31, 2008 and 2007 totaled $53,987 and
$18,778, respectively.





Interest
expense for the years ended December 31, 2008 and 2007 totaled $3,394 and
$6,106, respectively.




F-14
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


9.           PREPAID FRANCHISE
FEES





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





Impairment
Loss on Prepaid Franchise Fees


During
the first quarter ended March 31, 2009, the Company determined to terminate its
relationship with Evos, USA and abandon the EVOS® ARA agreement.  The
Company also determined that the viability of the EVOS® concept and franchise
model was in question significant enough to abandon the ARA
altogether.  Accordingly, the Company determined to impair its prepaid
franchise fees and recorded a loss totaling $217,500 as of December 31,
2008.  However, the Company will continue to operate its two franchise
stores under the EVOS®.





10.           STOCKHOLDERS’
EQUITY





These
financial statements and related footnotes have been retroactively restated to
reflect the effect of the reverse stock split which was effected on June 30,
2007.





The
amended and restated articles of incorporation authorize a total of 100,000,000
shares of common stock, $0.001 par value, and 25,000,000 shares of preferred
stock, $0.001 par value.  Common stock holders have all the rights and
obligations that normally pertain to stockholders of Nevada
corporations.  As of December 31, 2007, the Company had 1,418,350
shares of common stock issued and outstanding.  The Company has not
issued any shares of preferred stock.





On
November 30, 2005, the Company issued 700,000 shares of common stock
(restricted) to seven founding individuals at $0.0025 per share for
consideration totaling $1,750.





During
2006, the Company issued 300,000 shares of common stock (restricted) at $2.00
per share pursuant to a private placement offering.  The Company paid
cash for offering costs of $55,122, receiving net cash proceeds of $544,878, and
issued warrants valued at $99,192, in connection with the offering.





On August
17, 2006, the Company issued 550 shares of common stock (restricted) at $2.00
per share for services valued at $1,100.





The
Company initiated a private placement in December 2006 for the sale of up to
500,000 shares of its $0.001 par value common stock (restricted) to accredited
investors at $4.00 per share to raise $2,000,000 of additional equity
capital.  As of December 31, 2007, subscriptions have been received
from investors for 389,450 shares raising approximately $1,557,650 (before
offering costs of approximately $5,673).  As of December 31, 2007,
Subscriptions Receivable totaled $150.





On
October 16, 2007, a warrant-holder exercised 25,000 warrants at $0.02 per
warrant into 25,000 shares of the Company’s $0.001 par value common stock
(restricted).





Initial
Public Offering


On March
25, 2008, the Company closed its initial public offering and sold 1,000,000
units at $5.10 per unit to its underwriter for proceeds of $4,068,776 (net of
underwriting fees totaling $510,000 and offering costs totaling
$521,224).  Each unit consists of one share of $0.001 par value common
stock, one “A” warrant exercisable into one share of common stock at $5.10 per
share, and two “B” warrants exercisable into two shares of common stock at
$10.20 per share.  The fair market values of the “A” and “B” warrants
on the date of grant are based on the Black-Scholes-Merton valuation model and
recorded to additional paid-in capital as of December 31, 2008 at $1,119,628 and
$1,226,263, respectively.


F-15
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


Related
Party Acquisition


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





There
were no other issuances of preferred or common stock as of December 31,
2008.





11.           STOCK OPTIONS AND
WARRANTS





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





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





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





WeightedNumber
                            
                            
                            Weighted
                            
                            
                            Averageof
                            
                            
                            Average
                            
                            
                            RemainingShares
                            
                            
                            Exercise
      Price
                            
                            
                            Contractual
      Lifein
      YearsBalance,
      December 31, 2006
                            
                            
                            150,000
                            
                            
                            $
                            1.47
                            
                            
                            
                            9.50Warrants granted and
      assumed
                            
                            
                            50,000
                            
                            
                            
                            7.50
                            
                            
                            
                            9.70Warrants expired
                            
                            
                            -0-
                            
                            
                            
                            -0-
                            
                            
                            
                            -0-Warrants canceled
                            
                            
                            -0-
                            
                            
                            
                            -0-
                            
                            
                            
                            -0-Warrants
exercised
                            
                            
                            (25,000
                            )
                            
                            
                            -0-
                            
                            
                            
                            -0-Balance,
      December 31, 2007
                            
                            
                            175,000
                            
                            
                            
                            2.98
                            
                            
                            
                            8.58Warrants granted and
      assumed
                            
                            
                            60,000
                            
                            
                            
                            1.20
                            
                            
                            
                            4.00Warrants expired
                            
                            
                            -0-
                            
                            
                            
                            -0-
                            
                            
                            
                            -0-Warrants canceled
                            
                            
                            -0-
                            
                            
                            
                            -0-
                            
                            
                            
                            -0-Warrants
exercised
                            
                            
                            -0-
                            
                            
                            
                            -0-
                            
                            
                            
                            -0-Balance,
      December 31, 2008
                            
                            
                            235,000
                            
                            
                            $
                            2.53
                            
                            
                            
                            6.29





All
warrants outstanding are exercisable as of December 31, 2008.


F-16
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007




Fair Value of Equity
Awards  - The above tables reflect the assumptions utilized to
value the stock-based compensation as of December 31, 2008 under SFAS 123R
and using the Black-Scholes-Merton valuation model.  The risk-free
interest rate is based upon U.S. Treasury Rates for instruments with similar
terms.  The full term of the options and warrants granted was used for
the expected life since the options and warrants were granted to senior
management and outside consultants where turnover is expected to be low and
since they are expected to hold the options and warrants for the full term to
obtain the maximum benefit.  The Company has not paid dividends to
date and does not plan to pay dividends in the near future.  The
volatility assumptions were derived from historical volatilities of competitors
whose shares are traded in the public markets and are adjusted to reflect
anticipated behavior specific to the Company.




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





12.           RELATED PARTY
TRANSACTIONS





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





The
Company paid $48,000 in rent to a real estate holding company held jointly by
the Company’s Chief Financial Officer and his spouse as compensation for the
year ended December 31, 2008 pursuant to the Company’s employment agreement with
the officer.





13.           OCCUPANCY AND RELATED
EXPENSES





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





2008
                  
                  
                  2007Rent
      and CAM fees
                  
                  $
                  175,752
                  
                  
                  $
                  80,516Utilities
                  
                  
                  24,451
                  
                  
                  
                  25,617Occupancy
      and related expenses
                  
                  $
                  200,203
                  
                  
                  $
                  106,133





Future
minimum lease payments required under all leases as of December 31, 2008, are as
follows:





2009
                  
                  $
                  270,6242010
                  
                  
                  309,2962011
                  
                  
                  260,5822012
                  
                  
                  226,3722013
                  
                  
                  224,497Thereafter
                  
                  
                  33,230$
                  1,324,601








F-17
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


14.           COMMITMENTS AND
CONTINGENCIES





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





Litigation– In the
normal course of business, the Company is subject to proceedings, lawsuits and
other claims.  Such matters can be subject to many uncertainties, and
outcomes are not predictable with assurance.  The Company is not aware
of the existence of any such matters at December 31, 2008, and has not provided
for any such contingencies, accordingly.





15.           COMPANY’S OPERATIONS ARE
CLASSIFIED INTO TWO PRINCIPAL REPORTABLE SEGMENTS: EVOS FRANCHISES AND U-SWIRL
OPERATIONS





The
Company manages its operations through two business segments: Evos franchises
and U-Swirl International company-owned stores. Each unit owns and operates
restaurants under the respective names.




The
Company evaluates performance based on net operating profit. Administrative
functions such as finance, treasury, and information systems are centralized.
However, where applicable, portions of the administrative function expenses are
allocated between the operating segments. The operating segments do not share
any facilities. In the event any supplies and/or services are provided to one
operating segment by the other, the transaction is valued according to the
company’s transfer policy, which approximates market price. The costs of
operating the restaurants are captured discretely within each segment. The
Company’s leasehold improvements, property, and equipment, inventory, and
results of operations are captured and reported discretely within each operating
segment.




Summary
financial information for the two reportable segments is as
follows:




2008
                
                
                2007Evos
      Franchise Operations:Net
      sales
                
                $
                665,458
                
                
                $
                970,163Operating
      loss
                
                
                (263,737
                )
                
                
                (16,037
                )Assets
                
                
                4,238,998
                
                
                
                1,661,631Cash
      and equivalents
                
                
                3,147,607
                
                
                
                604,118Inventory
                
                
                28,350
                
                
                
                13,575U-Swirl
      International Operations:Net
      sales
                
                $
                -0-
                
                
                $
                -0-Operating
      income
                
                
                -0-
                
                
                
                -0-Assets
                
                
                280,124
                
                
                
                -0-Cash
      and equivalents
                
                
                188,133
                
                
                
                -0-Inventory
                
                
                15,100
                
                
                
                -0-





2008
                
                
                2007Consolidated
      Operations:Net
      sales
                
                $
                665,458
                
                
                $
                970,163Operating
      loss
                
                
                (1,653,759
                )
                
                
                (749,053
                )Assets
                
                
                4,519,122
                
                
                
                1,661,631Cash
      and equivalents
                
                
                3,335,740
                
                
                
                604,118Inventory
                
                
                43,450
                
                
                
                13,575




F-18
 HEALTHY
FAST FOOD, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND
2007


16.           SUBSEQUENT
EVENTS





Impairment
Loss on Prepaid Franchise Fees


During
the first quarter ended March 31, 2009, the Company determined to terminate its
relationship with Evos, USA and abandon the EVOS® ARA agreement.  The
Company also determined that the viability of the EVOS® concept and franchise
model was in question significant enough to abandon the ARA
altogether.  Accordingly, the Company determined to impair its prepaid
franchise fees and recorded a loss totaling $217,500 as of December 31,
2008.  The Company continues to operate its two franchise stores under
the EVOS® during the first quarter ended March 31, 2009.