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

History and Overview

History and Overview

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

Shortly after signing a franchise agreement in December 2005 to operate an EVOS restaurant in Henderson, Nevada, we engaged in a private placement to raise the capital necessary to open the restaurant. We sold 300,000 shares of common stock in the 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, which opened in October 2006.

In December 2006, we entered into an area representative agreement that gave us the exclusive right to develop EVOS restaurants in a 12-state territory. To maintain our exclusivity in the 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. 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, fund our efforts to solicit franchise owners for our territory, and open another restaurant.

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 net proceeds of the offering were intended to be used to open company-owned EVOS restaurants in the Las Vegas metropolitan statistical area (the "Las Vegas MSA") during the following 12 to 18 months, as well as for marketing expenses, franchise development and working capital. We opened our second restaurant in the Las Vegas MSA in December 2008, and our EVOS sub-franchisee in California opened its first restaurant in November 2008.

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

We issued a Franchise Disclosure Document (the "FDD") in November 2008 and filed it in certain states which require filing. In July 2009, we entered into a franchise agreement for a café in Reno, Nevada, which opened in October 2009. Our franchisee in Reno opened a second location in October 2010, and a third café in June 2011. We recently entered into franchise agreements for locations in Marietta, Georgia; Waco, Texas; and Philadelphia, Pennsylvania. The Waco, Texas café opened in September 2011. In addition, we have signed area development agreements as follows:

ˇ Phoenix, Arizona for the development of a minimum of seven cafés by November 2011 (of which three have been opened in 2011), three more cafés by November 2012 and a total of 23 cafés by November 2019;

ˇ Monmouth County, New Jersey for the development of a minimum of one café by February 2012, one more café by February 2013 and a total of three cafés by February 2014 (pursuant to an amended development schedule);

ˇ Las Vegas, Nevada for the development of a minimum of one café by April 2011, one more café by April 2012 and a total of four cafés by April 2013;

ˇ Boise, Idaho for the development of a minimum of one café by June 2011 (which opened in November 2010) and a total of two cafés by June 2012 (the second café having opened in June 2011 and the third café having opened in July 2011);

ˇ Tucson, Arizona for the development of a minimum of one café by October 2011 (which opened in July 2011), one more café by October 2012 and a total of five cafés by October 2015;

ˇ Orlando, Florida for the development of a minimum of one café by December 2011 (which opened in July 2011), one café by December 2012 and a total of four cafés by December 2014;

ˇ Northern California for the development of a minimum of one café by January 2012 (which opened in June 2011) and a total of five cafés by January 2014;

ˇ New Mexico for the development of a minimum of one café by May 2012 (which opened in February 2012) and a total of ten cafés by May 2015 (the second café having opened in March 2012);

ˇ Colorado Springs, Colorado for the development of a minimum of one café by May 2012 and a total of three cafés by May 2014;

ˇ Montana for the development of a minimum of one café by June 2012 (which opened in January 2012) and a total of four cafés by June 2014 (the second café having opened in May 2012);

ˇ Salt Lake City, Provo and Ogden, Utah for the development of a minimum of one café by September 2012 and a total of two cafés by September 2013 (with a total of three cafés being opened in 2011) ; and

ˇ Houston, Texas for the development of a minimum of two cafés by December 2012 and a total of ten cafés by December 2015.

In some cases, our area developers have encountered delays with lease negotiations, licensing and permitting issues, and construction schedules. We have chosen to continue to work with the developers, rather than enforce the development schedules contained in their respective agreements, in an effort to promote and support our franchising efforts.

We were not successful with the EVOS concept and ceased operating those restaurants under the EVOS concept in July 2009. After briefly operating under a concept known as "Fresh and Fast," we closed the two restaurants in August 2009, and have reflected activities related to this concept as discontinued operations in our financial statements. Prior periods have been restated to conform to the current presentation. We changed our name to "U-Swirl, Inc." effective May 16, 2011.

Results of Operations

Three Months Ended March 31, 2012. For the three months ended March 31, 2012, our U-Swirl cafés generated $523,665 in sales, net of discounts, as compared to $539,137 for the three months ended March 31, 2011. The decrease in sales revenue is attributed to the continued high unemployment rate in the Las Vegas area where all of our cafés are located, and increased competition from other frozen yogurt retailers.

Our 2012 café operating costs were $417,440, or 80% of net cafe sales revenues, resulting in café operating profit of $106,225, as compared to $425,807, or 79% of net cafe sales revenues in 2011, resulting in café operating profit of $113,330. The slight increase in café operating costs as a percentage of net sales revenues was due primarily to higher food, beverage and packaging costs.

We also generated $55,000 in franchise fee income and $51,034 in royalty income, and $20,290 in rebate income for a total of $126,324 in franchise royalties and fees during the three months ended March 31, 2012. During the three months ended March 31, 2011, we recognized $30,000 in franchise fee income and $16,264 in royalty income, for a total of $46,264. Prior to 2012, we did not receive any payment discounts, rebates, and/or other types of remuneration from any suppliers based on purchases by our franchisees. Beginning in January 2012, a supplier started paying rebate income based on purchases by our franchisees. During the three months ended March 31, 2012, we had 17 franchised cafés in operation for the entire period and three franchised cafés in operation for a portion of the period. During the comparable 2011 period, we had four franchised cafés in operation for the entire period and two franchised cafés in operation for a portion of the period.

Marketing and advertising expenses were $16,919 for the 2012 period as compared to $34,993 for the 2011 period. This decrease is a result of the reduced volume of print ads, radio advertising and store promotions offered during 2012.

For the three months ended March 31, 2012, general and administrative expense increased by $12,603 (9%) to $145,456. The largest components of general and administrative expense for the 2012 period were legal fees $20,304, accounting fees $7,500, repairs and maintenance $6,774, insurance $10,581, and credit card fees $6,859.

Officer compensation for the 2012 period increased by $7,095 (6%) to $117,264, despite the decrease in the valuation of the share-based compensation portion of this expense $12,870 in 2011 to $5,830 in 2012 due to lower stock prices. The increase is due primarily to the issuance of stock options to officers in November 2011 that are being amortized over the requisite service period. The 2012 expense attributable to those stock options was $22,232.

Depreciation and amortization expense increased from $76,690 to $76,872, reflecting our increased base of leasehold improvements, property and equipment due to the opening of our corporate offices in the current location.

Our loss from operations decreased by $71,149 for the three months ended March 31, 2012, primarily as a result of the increase in franchise royalties and fees.

As a result of the above, our net loss for the three months ended March 31, 2012 was $124,108, as compared to a loss of $195,445 for the comparable 2011 period.

Liquidity and Financial Condition

As of March 31, 2012. At March 31, 2012, we had working capital of $227,523 and cash of $214,587, as compared to working capital of $316,215 and cash of $300,637 at December 31, 2011.

We had a net loss of $124,108 during the first three months of 2012, and operating activities used cash of $89,371. The principal adjustments to reconcile the net loss to net cash used by operating activities were depreciation and amortization of $76,872 and stock-based compensation of $29,186. In comparison, operating activities used cash of $210,911 for the three months ended March 31, 2011, and the principal adjustments to reconcile the net loss to net cash used by operating activities were depreciation and amortization of $76,690 and share-based compensation of $12,870.

Investing activities provided cash of $4,816 in 2012 as compared to $18,036 in 2011. Pre-payments for inventory items are recorded as deposits. When the items are received, they are then recorded as inventory and the amounts of prepayment are credited against deposits. For 2011, we had

deposit credits of $19,771, offset by $5,745 used to purchase signage and equipment for our new corporate headquarters located in Henderson, Nevada.

Cash used by financing activities was $1,495 in 2012, as compared to cash used of $1,307 in 2011, resulting from payments on capital lease obligations.

The Company had deferred franchise fee and area representative agreement fee revenues of $380,000 as of March 31, 2012. Per the terms of the agreements, the Company will recognize franchise fee revenue upon the opening of each restaurant within the respective territories.

Going Concern

In its report prepared in connection with our 2011 financial statements, our independent registered public accounting firm included an explanatory paragraph stating that, because of our net loss of $673,394 for the year ended December 31, 2011 and accumulated losses of $6,377,816 since inception, there is substantial doubt about our ability to continue as a going concern. For the three months ended March 31, 2012, our net loss was $124,108 and we had accumulated losses of $6,501,924 through March 31, 2012. Our continued existence will depend on the duration of the current economic downturn, our future performance, and our ability to successfully implement our business and growth strategies. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Contractual Obligations

The following table summarizes our obligations and commitments to make future
payments for the periods specified as of March 31, 2012:

                                                           Payments Due by Period
                                                  Less Than                                      More Than
Contractual Obligations              Total          1 Year       1-3 Years       3-5 Years        5 Years
Capital lease obligations         $     3,146     $    3,146     $        -     $        --     $        --
Operating lease obligations         1,025,554        400,191        576,706          41,706           6,951
Total                             $ 1,028,700     $  403,337     $  576,706     $    41,706     $     6,951

Capital lease obligations are amounts owed under a lease agreement for our vehicle. Operating lease obligations are amounts owed under leases for our existing six company-owned U-Swirl cafés and our corporate headquarters in Henderson, Nevada.

Plan of Operations

The amounts set forth in the Contractual Obligations table, together with approximately $95,000 per month to cover our fixed overhead expenses, are what we require to maintain our existing operations. Although we have historically experienced losses from operations, including recently, based on our current projections which assume a continued increase in revenues, we believe that the operation of our six company-owned cafés and revenues from franchise royalties and fees will provide sufficient cash to maintain our existing operations indefinitely.

For the current fiscal year, we anticipate increased revenues from franchise royalties and fees, while holding our non-café operating expenses to fiscal 2011 levels. To the extent that actual revenues fall short of our projections, we will decrease our fixed overhead expenses. Any decreases, however, are likely to impair our ability to market and sell franchises, as the expense reductions are likely to occur in the area of public relations, marketing and advertising. We hope that as the number of franchised cafés in operation increases, our business will have more visibility to prospective franchisees, thereby mitigating the effects of reducing our public relations, marketing and advertising expenses. 2011 was a year of

significant franchise expansion. We must carefully manage expansion opportunities and optimize existing café performance. By doing this, we believe our cash position will improve and the trend of losses will dissipate.

The net proceeds from our secondary public offering were $410,704. We had planned to use these proceeds to open one company-owned U-Swirl café in the southeastern area of the United States, thereby providing greater exposure for our U-Swirl brand. However, since the completion of that offering, we have entered into a franchise agreement for a U-Swirl café in Marietta, Georgia, and an area development agreement for Orlando, Florida. In addition, a significant portion of the proceeds have been used for working capital as we do not yet have profitable operations. Rather than focus our efforts on opening another company-owned U-Swirl café, we are looking at other ways to increase our revenue base, including expansion through the continued sale of franchises, expansion through acquisition using our stock as consideration, and possible joint venture arrangements.

Summary of Significant Accounting Policies

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 March 31, 2012 and December 31, 2011, inventories consisted of the following: food and beverages of $24,596 and $31,441 and non-foods of $20,973 and $54,225, respectively. The Company did not incur significant charges to cost of sales for spoilage during the periods then ended.

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."

Impairment of long-lived assts. We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of leasehold improvements, property and equipment or whether the remaining balance of property and equipment should be evaluated for possible impairment.

Deposits. At March 31, 2012 and December 31, 2011, deposits consisted of security deposits for multiple locations. All deposits are carried at the lower of fair value or cost.

Revenue recognition policy. Revenue from U-Swirl café sales is recognized when food and beverage products are sold. We reduce revenues by sales returns and sales discounts.

Revenue earned as a U-Swirl Frozen Yogurt franchisor is derived from cafés in U-Swirl International, Inc.'s worldwide territory and includes initial franchise fees, continuing service fees, and royalties. Continuing service fees and royalties are recognized in the period in which they are earned. FASB ASC 952-605-25 stipulates that initial franchise fee revenue from a franchise sale should be recognized when the franchiser has substantially performed or satisfied all material services or conditions relating to the sale. Substantial performance has occurred when the 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. We defer

revenue from the initial franchise fee until commencement of operations by the franchisee, at which time all of our services and obligations are substantially complete.

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