UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
Act Of 1934
For the quarterly period ended March 31, 2006
[ ] Transition Report Under Section 13 Or 15(d) Of The Securities Exchange
Act Of 1934
For the transition period ________ to ________
Commission file number 000-21753
CREATIVE EATERIES CORPORATION
Name of Small Business Issuer in Its Charter
NEVADA 88-0263701
State of Incorporation I.R.S. Employer Identification No.
7400 E. McDONALD, SUITE 121
SCOTTSDALE, AZ 85250
Address of Principal Executive Offices Zip code
480-355-8170
Issuer's Telephone Number
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE Title of class
Check whether the issuer: (1) filed all reports required to be filed by
Section13 or 15(d) of the Exchange Act 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.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB is not contained in this form, and no disclosure will 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-QSB
or any amendments to this Form 10-QSB [ ]
The number of shares outstanding of the issuer's only class of Common Stock
$0.001 par value was 40,494,324 on May 16, 2006
INDEX
PART I FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 31, 2006 (unaudited) 3
Consolidated Statements of Operations for the three-month periods ended
March 31, 2006 and 2005 (unaudited) 4
Consolidated Statements of Cash Flows for the three-month periods ended
March 31, 2006 and 2005 (unaudited) 5
Notes to the Consolidated Financial Statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITIONS 17
Item 3. CONTROL AND PROCEDURES 20
PART II OTHER INFORMATION
1. LEGAL PROCEEDINGS 20
2. CHANGES IN SECURITIES 22
3. DEFAULT UPON SENIOR SECURITIES 22
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
5. OTHER INFORMATION 22
6. EXHIBITS AND REPORTS ON FORM 8K 22
Signatures 23
2
Creative Eateries Corporation
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
MAR 31, 06
----------
ASSETS
Current Assets
Checking/Savings
Cash 180
Cash-restricted 44,987
----------
Total cash 45,167
Accounts receivable, less allowance for doubtful
accounts: 2005 $85,092 159,775
----------
Total Current Assets 204,942
Property and Equipment 2,695
----------
Total Assets 207,637
----------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities
Accounts Payable 763,125
Accrued Liabilities 240,408
Notes Payable (current) 257,100
Loans Payable (current) 151,651
Deferred Revenue (current) 10,000
----------
Total Current Liabilities 1,422,284
Loans payable (long-term portion) 60,914
Amounts owing to related parties 447,469
----------
Total Liabilities 1,930,667
----------
Stockholder's Deficit
Common stock, 100,000,000 shares authorized, par
value of $01, 39,234,324 and 28,400,000 issued and
outstanding, respectively 39,234
Additional paid-in-capital 4,621,925
Deficit Accumulated in the Development Stage (6,384,188)
----------
Total Stockholder's Deficit (1,723,029)
Total Liabilities and Stockholder's Deficit 207,637
See accompanying notes to unaudited consolidated financial statements
3
Creative Eateries Corporation
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Accumulated from
date of
inception to Three Months Three Months
March 31, Ended March 31, Ended March 31,
2006 2006 2005
----------- ----------- -----------
$ $ $
Revenue 50,505 50,000 --
Cost of sales -- -- --
----------- ----------- -----------
Total Gross Profit 50505 50000 --
----------- ----------- -----------
Expenses
General and administrative 6,311,848 853,190 116,719
Interest 122,833 20,600 12,688
----------- ----------- -----------
Total Expenses 6,434,681 873,790 129,407
----------- ----------- -----------
Net Loss from Operations (6,384,177) (823,790) 129,407
----------- ----------- -----------
Net Loss for the Period (6,384,177) (823,790) 30,610
=========== =========== ===========
Net Loss Per Share - Basic and Diluted (.16) (.0209) --
=========== =========== ===========
Weighted Average Number of Shares
Outstanding 39,234,100 34,054,000
=========== ===========
See accompanying notes to unaudited consolidated financial statements
4
Creative Eateries Corporation
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Accumulated from Three months
date of inception ended
to March 31, March 31,
2006 2006
---------- ----------
$ $
Cash Flows Used In Operating Activities
Net loss (6,384,177) (823,790)
Depreciation and amortization 461 140
Shares issued as compensation for services 5,008,151 628,000
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (75,597) (3,060)
(Increase) decrease in notes receivable -- --
(Increase) decrease in prepaid expenses and deposits 268 268
Increase (decrease) in accounts payable and accrued liabilities 850,048 115,481
Increase (decrease) in deferred revenue 10,000 (10,000)
---------- ----------
Net Cash Provided by (Used in) Operating Activities (590,846) (92,961)
---------- ----------
Cash Flows Used in Investing Activities
Acquisition of computer equipment (3,156) --
Cash from acquisition of UltraGuard 5,678 --
---------- ----------
Net Cash Provided by (Used) in Investing Activities 2,522 --
---------- ----------
Cash Flows From Financing Activities
Proceeds from subscribed shares 184,400 --
Increase (decrease) in loans/notes from unrelated parties 257,100 (17,900)
Proceeds from exercise of stock options 88,000 88,000
---------- ----------
Net Cash Provided by (Used in) Financing Activities 529,500 70,100
---------- ----------
Decrease in Cash (13,857) (13,857)
Cash - Beginning of the Period 14,037 14,037
---------- ----------
Cash - End of the Period 180 180
========== ==========
See accompanying notes to unaudited consolidated financial statements
5
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Unaudited)
1. Reverse Acquisition, Nature of Operations and Continuance of Business
On April 21, 2005, the Company's Board of Directors met to reorganize
UltraGuard Water Systems Corp (now Creative Eateries Corporation). The
Company voted to change its business focus from water filtration and
disinfection to restaurant franchising. On May 4, 2005, the Company filed a
form PRE14A with the SEC, calling a Special Meeting of the shareholders to
be held on June 13, 2005. At the meeting, the shareholders approved by an
88.65% majority vote, a proposal to change the Company's name to Creative
Eateries Corporation ("Creative") and by an 88.58% majority vote, to split
the outstanding shares on a 1 for 100 basis. All per share amounts have
been retroactively adjusted to reflect the reverse stock split.
As part of the reorganization, on June 30, 2005, the Board of Directors
finalized details of the sale of UltraGuard Water System's filtration and
disinfection technologies and intellectual property to Innovative Fuel Cell
Technologies Inc (IFCT). All shares of IFCT owned by the Company will be
distributed as a dividend in kind to Company shareholders of record on June
12, 2005. The number of IFCT shares received by each Company shareholder
will be pro-rata to the number of Company shares owned by the shareholder.
On July 11, 2005, the Company's Board of Directors approved a share
exchange agreement between shareholders of Creative and Restaurant
Companies International, Inc ("RCI"), a Nevada corporation. RCI is a
franchise development company organized on September 24, 2004 to capitalize
on the growing demand for fast casual dining in North America. On July 11,
2005, the Company acquired, by way of reverse acquisition, 100% of the
issued and outstanding capital stock of RCI in exchange for the issuance of
30,802,367 shares of the Company's common shares. Pursuant to the
Agreement, the Company's officers resigned. As a result, there was a change
in control of the Company to the former shareholders of RCI.
For financial accounting purposes, the acquisition was a reverse
acquisition of the Company by RCI under the purchase method of accounting
and was treated as a recapitalization with RCI as the acquirer.
Accordingly, the historical financial statements have been restated after
giving effect to the July 11, 2005 acquisition of the Company. Consistent
with reverse acquisition accounting: (i) all of the Company's assets,
liabilities, and accumulated deficit, are reflected at their combined
historical cost (as the accounting acquirer) and (ii) the pre-existing
outstanding shares of the Company (the accounting acquiree) are reflected
at their net asset value.
These consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles, on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business. As at June 30, 2005, the UltraGuard Water Systems Corp has not
recognized significant revenue, has a working capital deficit of $863,409,
and has accumulated operating losses of $1,671,571 since inception. The
combined company has yet to generate significant revenue and will require
additional capital to do so. The continuation of the Company is dependent
upon the continuing financial support of creditors and stockholders and
obtaining short-term and long-term financing, the completion of product
development and achieving profitability. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. These
financial statements do not include any adjustments that might arise from
this uncertainty. Management is attempting to raise debt and equity capital
and use the proceeds to develop restaurant concepts and explore
acquisitions of other existing restaurant concepts. However, there is no
assurance that the Company will be successful in executing its business
plan.
2. Significant Accounting Policies
CONSOLIDATED FINANCIAL STATEMENTS
These financial statements include the accounts of Creative and RCI. All
significant inter-company transactions and balances of the subsidiaries,
Q's Franchise Company and Fit `N Healthy Franchise Company, have been
eliminated.
On July 11, 2005 ("the acquisition date"), Creative Eateries Corporation
("Creative") acquired all of the outstanding stock of Restaurant Companies
International, Inc ("RCI"). For accounting purposes, the acquisition was
treated as the acquisition of Creative by RCI with RCI as the accounting
acquirer (reverse acquisition). As a result, the historical financial
statements prior to the acquisition date are those of RCI from July 1, 2005
(date of inception of RCI).
6
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, in banks and all highly
liquid investments with maturity of three months or less when purchased.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed on a
straight-line method using an estimated useful life of five years for
furniture and three years for computer equipment.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104, "Revenue Recognition."
Revenue will be recognized only when the price is fixed or determinable,
persuasive evidence of an arrangement exists, the service is performed, and
collectibility is reasonably assured. Deferred revenue represents deposits
received for the development of restaurants sites. Those deposits are
recognized as revenue when the respective stores open.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles used in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and
accompanying notes. Actual results could differ from these estimates.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share in accordance with SFAS
No. 128, "Earnings per Share". This statement requires presentation of both
basic and diluted earnings per share (EPS) on the face of the income
statement. Basic EPS is computed by dividing net income (loss) available to
common shareholders (numerator) by the weighted average number of common
shares outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the
period including stock options, using the treasury stock method, and
convertible preferred stock, using the if-converted method. In computing
diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock
options or warrants. The convertible debt of $50,000 plus interest is
convertible into 220,000 shares at December 31, 2005. These potential
common shares have been excluded from the diluted EPS calculation because
the effect is anti-dilutive.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock based compensation in accordance with SFAS
No. 123R, "Accounting for Stock-Based Compensation." This statement
requires that stock awards granted subsequent to January 1, 2006, be
recognized as compensation expense based on their fair value at the date of
grant. The Company accounts for stock issued for services to non-employees
in accordance with SFAS No. 123 and EITF 96-18. Compensation expense is
based on the fair market value of the stock award or fair market value of
the goods and services received whichever is more reliably measurable.
No stock options were granted to employees in fiscal 2004 and 2005,
therefore no pro-forma disclosures have been presented.
LONG-LIVED ASSETS
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" establishes a single accounting model for long-lived assets to be
disposed of by sale including discontinued operations. SFAS 144 requires
that these long-lived assets be measured at the lower of the carrying
amount or fair value less cost to sell, whether reported in continuing
operations or discontinued operations.
7
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
FINANCIAL INSTRUMENTS
The fair value of cash, accounts receivable, accounts payable, accrued
liabilities and amounts owing to related parties approximates their
carrying value due to the immediate or short-term maturity of these
financial instruments. The Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of cash. Cash was deposited with a high credit quality
institution.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (SFAS 123R), effective January 1, 2006.
SFAS 123R requires the recognition of the fair value of stock-based
compensation in net income. Stock-based compensation primarily consists of
stock options. Stock options are granted to employees at exercise prices
equal to the fair market value of our stock at the dates of grant.
Generally, options fully vest immediately and expire 30 days after the
employee leaves the company. The recognizes the stock-based compensation
expense over the requisite service period of the individual grantees, which
generally equals the vesting period and provides newly issued shares to
satisfy stock option exercises. As there were no option awards granted in
the three months ended March 31, 2006 and all prior option awards were
fully vested prior to January 1, 2006 there was no effect due to the
implementation of SFAS 123R in the three month period ended March 31, 2006.
In December 2004, FASB issued SFAS No. 153, "EXCHANGES OF NONMONETARY
ASSETS - AN AMENDMENT OF APB OPINION NO. 29". The guidance in APB Opinion
No. 29, "ACCOUNTING FOR NONMONETARY TRANSACTIONS", is based on the
principle that exchanges of nonmonetary assets should be measured based on
the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. SFAS No. 153 amends
Opinion No. 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the
exchange. The provisions of SFAS No. 153 are effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005.
Early application is permitted and companies must apply the standard
prospectively. The adoption of this standard is not expected to have a
material effect on the Company's results of operations or financial
position.
In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107 ("SAB
107") to give guidance on the implementation of SFAS No. 123R. The Company
will consider SAB 107 during the implementation of SFAS NO. 123R.
LOSS CONTINGENCIES
The Company estimates a loss contingency in accordance with Statement of
Financial Accounting Standards ("SFAS" No. 5 "Accounting for
Contingencies". The Company accrues the loss by a charge to income when
there is information available that it is probable that an asset has been
impaired or a liability has been incurred and the amount of the loss can be
reasonably estimated.
GOODWILL AND OTHER INTANGIBLES
In July 2001, the Financial Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill
and Other Intangible Assets," which is effective for fiscal years beginning
after December 15, 2001. SFAS 142 prohibits the amortization of goodwill
and intangible assets with indefinite useful lives but requires that these
assets be reviewed for impairment at least annually or on an interim basis
if an event occurs or circumstances change that could indicate that their
value has diminished or been impaired. Other intangible assets will
continue to be amortized over their estimated useful lives. In addition,
the standard includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the useful
lives of existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill.
8
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
INCOME TAXES
Potential benefits of income tax losses are not recognized in the accounts
until realization is more likely than not. The Company has adopted SFAS No.
109 "Accounting for Income Taxes" as of its inception. Pursuant to SFAS No.
109, the Company is required to compute tax asset benefits for net
operating losses carried forward. Potential benefit of net operating losses
have not been recognized in these financial statements because the Company
cannot be assured it is more likely than not it will utilize the net
operating losses carried forward in future years.
3. Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
March 31, March 31,
2006 2005
Accumulated Net Book Net Book
Cost Depreciation Value Value
---- ------------ ----- -----
$ $ $ $
Property and equipment 3,156 461 2,695 --
====== ==== ====== ===
4. Debt
a) On August 15, 2005, a debenture payable totalling $50,000 was acquired
with the purchase of Fit & Healthy, a restaurant concept with no
operations with quarterly interest of $1,250. Principal was due on
December 1, 2005. The holder has the option to convert all or part of
the principal amount and accrued interest into common stock, par value
$0.001 per share at a price per share equal to 50% of the closing bid
price of the common stock on the date that the company receives notice
of conversion. The Company recognized the value of the beneficial
conversion feature as $50,000. Since the obligation matured in 2005,
the full amount of the discount was amortized as interest expense in
the year ended December 31, 2005. The Company is currently in default
of this debenture as no payments of interest or principal have been
made. Interest will continue to accrue until the debenture is paid or
converted into common stock.
b) On November 8, 2005, a note payable totalling $100,000 and bearing 12%
interest per annum was received. Principal is due on November 6, 2006.
Interest is accrued and payable on November 6, 2006.
c) On January 26, 2006, a note payable totalling $7,100 and bearing 10%
interest per annum was received. Principal is interest are payable on
demand.
Type Description Date Principal Interest Due Date
---- ----------- ---- --------- -------- --------
Note Payable Restaurant Companies Int'l 4/2/2005 $100,000 8%/Annum 7/2/2006
Debenture Fit `N Healthy 8/15/2005 $ 50,000 10%/Annum 12/1/2005
Note Payable Creative Eateries 11/8/2005 $100,000 12%/Annum 11/8/2006
Note Payable Kenneth Fielding 1/26/06 $ 7,100 10%/Annum On Demand
9
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
d) On April 25, 2003, Chelverton Fund Limited filed a suit in the Supreme
Court of British Columbia against UltraGuard for non-payment of debt
in the amount of $155,000. UltraGuard entered an appearance, filed a
defence against this claim, and attempted to negotiate a settlement.
Chelverton filed additional information that supported their claim and
UltraGuard responded with a "no defines" position. Judgment was issued
in the amount of $183,944 (Cnd$234,642) including interest and legal
costs. On April 5, 2004, the Company appeared in the Supreme Court of
British Columbia to provide to Chelverton and the court, specific
information pertaining to the Company's assets and its ability to pay
the judgment including interest. The hearing was adjourned with a
requirement that UltraGuard provide additional detailed financial
information. This information has now been provided. The Company has
been in discussions with Baker Tilley Co. voluntary liquidators for
Chelverton and has reached an agreement to pay $10,000 per month
beginning December 1, 2005 until the debt is settled. The Company is
currently in default of this agreement as no payments have been made.
With accrued interest, the amount owing is now $212,565.
5. Amounts Owing to Related Parties
Unpaid wages, consulting and loans amounting to $555,607 owed to two former
officers and current directors and their related companies, 659999 BC,
Ltd., Integrated Industries, and UV Systems Technology, are due on demand,
unsecured, and will bear interest calculated at 10% effective April 1,
2005. Included in this amount of $447,468 are amounts owing to the
President of the Company as a result of loans, management fees and expenses
amounting to $35,873 advanced during the period ending December 31, 2005.
In fiscal 2003, two officer directors were issued 24,000 shares of common
restricted stock of the Company at $3.38 per share totalling $81,120 for
partial payment of amounts owing. During this fiscal period, on June 8,
2005 officers and directors were issued 18,420 shares from the 2004
Incentive Plan of Creative at $1.00, the current market price on the date
of issue was charged against the amounts payable to these officers and
directors. On April 29, 2005, 25,872 of restricted stock were issued at
$0.70 to settle $18,110 debt owing to a company managed by two officers and
directors. Advances to the officers and directors totalling $108,139 have
been applied to the amount owing to reduce the payable to $447,469.
6. Common Stock
a) Stock Split
On June 13, 2005, the Board of Directors approved a one for one
hundred reverse stock split of common shares. The Company issued one
share for each one hundred common shares outstanding effective June
13, 2005. All per share amounts have been retroactively adjusted to
reflect the reverse stock split. The number of shares outstanding
pre-reverse split was 60,891,806. After giving effect to the reverse
split the outstanding shares totalled 609,021.
b) On November 26, 2003, the Company adopted The Incentive Plan ("the
Plan") that was registered with the Securities Exchange Commission on
December 1, 2003 on Form S-8. Under the Plan, the Company may issue
5,000,000 shares of common stock or grant options. During the year
ended December 31, 2004, the Company issued all remaining shares
pursuant to the Plan.
10
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
c) Independents Contractors/Consulting Plan
On July 27, 2005 the Company adopted the Independent Contractors/Consulting
Plan (the "Plan"). Under the Plan, the Company may issue 5,000,000 common
shares or grant options. The value of the shares granted is determined
based on the trading price of the Company's common stock at the date of
grant. The shares issued are in the following table:
DATE GRANTED NUMBER OF SHARES VALUE
------------ ---------------- -----
January 5, 2006 750,000 $.20
January 5, 2006 480,000 $.20
January 5, 2006 250,000 $.20
January 5, 2006 520,000 $.20
d) Qualified Stock Option Plan
On February, 9 2006 the Company adopted the Qualified Stock Option Plan
(the "Plan"). Under the Plan, the Company may issue 5,000,000 common shares
or grant options. The value of the shares granted is determined based on
the trading price of the Company's common stock at the date of grant. The
Company issued 800,000 options to one employee during the quarter ending
March 31, 2006. The Company expensed the fair value of the options of
$168,000 in the quarter ended March 31, 2006. The options vested
immediately and were exercised within the period. There are no options
outstanding at March 31, 2006.
e) Issuance of Restricted Common Shares
During the period ending March 31, 2006 the Company issued restricted
shares to two employees for 90,000 shares as an incentive and to six
consultants for consulting services in the following amounts:
January 5, 2006 250,000
January 20, 2006 40,000
Valuation of Common Stock Issued for Services and Assets
The Company applies EITF 96-18 "Accounting for Equity Instruments that are
issued to Other Than Employers for Acquiring, or in Conjunction with
Selling, Goods or Services", in accounting for shares issued to
consultants. The values of these shares were based on calculating the fair
market value of the stock and the services provided.
11
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
During the quarter ending March 31, 2006 the Company issued the following
common shares:
Weighted
Average
Fair Market
Shares Value Total
Issued Per Share Fair Value
------ --------- ----------
# $ $
Consulting services provided pursuant to incentive plan (Note 6c) 2,000,000 .20 400,000
Employee Qualified Stock Option Plan (Note 6d) shares under options 800,000 .21 168,000
Consulting services provided pursuant to 144 restricted shares (Note 6e) 290,000 .22 63,800
--------- --------
2,570,000 631,800
========= ========
8. Legal Proceedings/Contingency Accrual
a) On October 20, 1998, a suit was filed in the Supreme Court of British
Columbia by an original shareholder ("the plaintiff") against the
Company's President and Director, and a former Director and Vice
President of the Company. The plaintiff alleges that in April of 1996,
he purchased common shares of the Company based on a representation
that they would be free trading in 40 days of "the filing of a
prospectus." The plaintiff further alleges that in September of 1996
he purchased additional common shares of the Company based on the
representation that the shares would be free trading within 40 days of
the common shares becoming free trading and that the representation
was a warranty and was incorrect. The plaintiff further alleges that
he suffered a loss because the share price decreased while he was
holding the shares and is seeking damages for breach of warranty,
negligence, misrepresentation and breach of fiduciary duty. The amount
claimed is not specified. The Company filed an answer denying the
claims and will continue to actively defend the suit. The suit has
remained inactive since early 1999. There has been no loss provision
accrued pursuant to this action against the Company, as the
probability of incurring a material loss is remote.
b) On April 25, 2003, Chelverton Fund Limited filed a suit in the Supreme
Court of British Columbia against UltraGuard for non-payment of debt
in the amount of $155,000. UltraGuard entered an appearance, filed a
defence against this claim, and attempted to negotiate a settlement.
Chelverton filed additional information that supported their claim and
UltraGuard responded with a "no defines" position. Judgment was issued
in the amount of $183,944 (Cnd$234,642) including interest and legal
costs. On April 5, 2004, the Company appeared in the Supreme Court of
British Columbia to provide to Chelverton and the court, specific
information pertaining to the Company's assets and its ability to pay
the judgment including interest. The hearing was adjourned with a
requirement that UltraGuard provide additional detailed financial
information. This information has now been provided. The Company has
been in discussions with Baker Tilley Co. voluntary liquidators for
Chelverton and has reached an agreement to pay $10,000 per month
beginning December 1, 2005 until the debt is settled. The Company is
currently in default of this agreement as no payments have been made.
With accrued interest, the amount owing is now $212,565.
12
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
c) On June 6, 2003, a group of shareholders (Shareholder Group) filed a
consent resolution, which, among other things elected a new slate of
directors and revised the Company's by-laws. The Company refused to
accept the consent resolution or by-laws as in the opinion of the
Company's legal counsel, the consent resolutions were not in
accordance with Nevada Statutes or the filing requirements of the
Security and Exchange Commission. At a directors meeting held June 9,
2003, the Company elected two additional directors: Edward White and
Erin Strench to the Company's board, bringing the total number of
directors to five. On June 16, 2003, the Shareholder Group filed for
and obtained a temporary restraining order (TRO) against the Company
and its five directors prohibiting the Company, from among other
things, issuing stock, transferring assets, changing management and
other actions that would affect the status quo of the Company. In
addition, two shareholders issued writs against various directors,
alleging breach of fiduciary duty in respect of the issue of certain
common shares to the Company's officers others. On June 24, 2003, in
discussions between legal counsel for plaintiff, respondent and the
hearing Judge, the TRO was vacated and a date of July 2, 2003 was set
for a new TRO hearing to be held in Reno, Nevada. At the July 2, 2003,
the TRO hearing Judge did not grant a TRO and requested the plaintiff
and respondent file a series of three briefs outlining their position.
The first brief was filed on July 11, 2003 by the Company's counsel.
The plaintiff responded on July 18, 2003 and the Company's counsel
filed the final brief on July 25, 2003. The Judge has not made a
ruling on the TRO. The Company's counsel has responded to the various
other suits filed against the Company and its directors. Counsel for
the Company was successful in moving these actions from Nevada State
jurisdiction to federal jurisdiction.
In March 2004, the Company's legal counsel filed to withdraw from the
action as a result of non-payment of legal fees. The court approved
the withdrawal of the lawyer on two of the four cases. By April 29,
2004, the Plaintiff and the Defendant were required to file a proposed
pre-trial order with the Federal Court. The Company and the Plaintiff
requested and received an extension to August 26, 2004 to settle this
matter or file the pre-trial order, which upon approval; the Court
will set down for trial. On October 28, 2004 the Company jointly filed
a pre-trial notice and on November 15, 2004 in a conference call with
the sitting Judge a trial date was set for February 22, 2005. Prior to
the trial date, the parties reached a settlement on all matters. Under
the terms of the settlement, the Plaintiffs agreed to and have
dismissed all of the lawsuits and have cancelled all debts owed by the
Company to the Plaintiff amounting to about $98,797.
d) The Company has made a provision for a loss of $27,000 in a claim
filed with the British Columbia Labor Relations (LRB) Board, made by a
former employee for wrongful dismissal. The loss amount was the amount
determined by the LRB. This amount represented the total probable loss
of the lawsuit and has been recorded as an accrued liability as of
December 31, 2004 and 2003. On October 20, 2005 the employee filed a
lawsuit in the Supreme Court of British Columbia against the Company
and a former subsidiary; UV Systems Technology Inc whom the former
employee was employed by, claiming wrongful dismissal. UV Systems
Technology Inc has filed a Statement of Defense. Counsel for the
former employee informed the Company that counsel would be filing an
amended Statement of Claim. The amount of the claim is for one year of
salary, which would represent CAN$90,000 (US$77,193) including the
$27,000 determined for the LRB. Subsequent to the year-end, on
February 28, 2006, the Company appeared in BC Supreme Court at a Rule
18A hearing at which the lawyers for the plaintiff and the Company
each presented evidence to the Court. The Judge has reserved his
decision on the matter. The possible rulings by the Court may be in
favour of either the Company, the Plaintiff or the Court could also
dismiss the Rule 18A hearing and set the matter to trial, to a date
set in April 2006.
e) On October 4, 2005, the Company completed a Purchase Agreement with
Franchise Capital Corporation. Creative purchased from Franchise
Capital its interest in Kokopelli Sonoran Grill, Comstock Jakes,
Cousin Vinnie's Italian Diner, and Kirby Foo's Asian Grill. As per the
Agreement, Creative will pay $200,000 cash and 3,583,667 shares of
Creative's common stock. The Company has not paid the cash, but has
funded approximately $150,000 of the Kokopelli and Comstock Jake's
operations.
13
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
On December 29, 2005, the Company and Franchise Capital Corporation
have agreed to rescind the October Purchase Agreement and have entered
into a Funding Agreement. The Company will provide Franchise Capital
Corporation a total $600,000 in funding for the operation of Kokopelli
and Comstock. The Company has already funded approximately $150,000
and has agreed to fund the balance of approximately $450,000 with
monthly payments of $100,000 beginning January 25, 2006. In return for
the funding of operation for Kokopelli and Comstock Jake's, Franchise
Capital Corporation will pay the Company an amount equal to 50% of the
profits Franchise Capital Corporation receives from its ownership in
Kokopelli and Comstock Jake's for the periods commencing on July 1,
2006 and ending on June 30, 2011. If the Company fails to provide the
full amount of funding but at least $300,000, the profit payments will
be reduced to 25%. If the Company fails to provide at least $300,000
of funding, then the Franchise Capital Corporation will have not
obligation to pay any profit payments to the Company. The Company is
currently in default with this agreement.
f) On November 1, 2005 the Company's board of directors approved a
purchase agreement with Pasta Pranzo, LLC. The members of Pasta
Pranzo, LLC approved the purchase agreement on the same date. The date
to close the purchase was set for January 1, 2006. The property to be
acquired was the Pasta Pranzo System including, without limitation,
the Marks and Recipes of their California operation. Pursuant to the
terms of the purchase agreement, $300,000 in common shares of the
Company and a note for $300,000 was to be exchanged for the
aforementioned assets. Said shares shall be restricted. The principal
followed in determining the amount of consideration given was based
upon the current value and future revenue streams and the market
exposure in relation to the Company's current position and the
restrictive nature of the stock.
On December 28, 2005, the Company rescinded the agreement, cancelled
the issuance for $300,000 common shares, and cancelled the promissory
note for $300,000, effective the same day. The Company was unable to
secure the required financing to close on the purchase agreement.
9. Business Combination
The Company valued the transaction to acquire Ultra Guard based on the
estimated fair value of the assets acquired at June 30, 2005. Ultra Guard's
common stock issued in the transaction is thinly traded and it was
determined that the estimated fair value of the net assets transferred was
a better indicator of the value of the transaction. Neither Ultra Guard nor
RCI had any significant operations at the time of the transaction. Ultra
Guard had a net deficit of $680,872 at acquisition as the current assets of
$118,801were acquired along with the liabilities totalling $799,672. The
Company determined that the book value of the net assets approximated fair
value in that most were current assets and liabilities expected to be
settled in the near term. Because the liabilities assumed exceeded the
assets acquired, the difference is recorded as charge to additional paid in
capital.
14
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
UltraGuard Water Systems June 30, 2005
------------------------ -------------
CURRENT ASSETS
Cash $ 5,678
Accounts receivable 4,645
Notes receivable 103,710
Prepaid expenses and deposits 4,768
TOTAL CURRENT ASSETS $ 118,801
CURRENT LIABILITIES
Accounts payable 178,078
Accrued liabilities 426,404
TOTAL CURRENT LIABILITIES $ 604,482
OTHER LIABILITIES 195,190
TOTAL LIABILITIES 799,672
DIFFERENCE (680,872)
10. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company has a deferred income tax asset of $2,222,000 as of March 31, 2006.
The net deferred income tax asset has been reduced in its entirety by a
valuation allowance. No provision or benefit for income taxes has been
reported in the accompanying statements of operations since any current
income tax benefit would be offset by an equal increase in the valuation
allowance. The valuation allowance increased by $2,222,000 for the year
ended December 31, 2005. There were no material tax effects for the period
from September 24, 2004 (date of inception) through December 31, 2004
15
Creative Eateries Corporation
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Continued
(Unaudited)
A reconciliation of the differences between the statutory and effective
income tax rates for the year ended December 31, 2005 and for the period
from September 24, 2004 (date of inception) through December 31, 2004 was
as follows:
2005 2004
------------------------- --------------------
Amount % Amount %
----------- ------- -------- ------
Federal statutory rates $(1,889,908) (34.00) $ -- --
State income taxes - net of
federal benefit (333,513) (6.00) -- --
Valuation allowance 2,222,154 39.08 -- --
Other 1,268 .02 -- --
----------- ------- -------- ------
Effective rate $ 0 0 $ -- --
=========== ======= ======== ======
The total net operating loss carry forward of approximately $1,072,000 as
of December 31, 2004, for both federal and state purposes, begins expiring
in 2024 and 2009, respectively.
11. Subsequent Events
On May 8, 2006 the Company entered into a consulting agreement with K
Kapital Group, Inc. As per the agreement K Kapital will provide various
services related to the Company's business in exchange for 300,000 shares
of the Company's stock.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act.
Forward-looking statements deal with our current plans, intentions, beliefs and
expectations and are statements of future economic performance. Statements
containing terms like "believes", "does not believe", "plans", "expects",
"intends", "estimates", "anticipates", and other phrases of similar meaning are
considered to imply uncertainty and are forward-looking statements.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause our actual results in future periods to differ materially from
what is currently anticipated. We make cautionary statements throughout this
report and the documents we have incorporated by reference, including those
stated under the heading "Risk Factors". You should read these cautionary
statements as being applicable to all related forward-looking statements
wherever they appear in this report, the materials referred to in this report,
and the materials incorporated by reference into this report.
We cannot guarantee our future results, levels of activity, performance or
achievements. Neither we nor any other person assumes responsibility for the
accuracy and completeness of these forward-looking statements. We are under no
duty to update any of the forward-looking statements after the date of this
report.
Where we say "we", "us", "our", or "the Company", we mean Creative Eateries
Corporation and its subsidiaries.
MANAGEMENT DISCUSSION-OVERVIEW
As a result of the reverse acquisition of Creative Eateries on July 11, 2005,
the Company's status changed to that of a development stage company. Therefore,
consolidated balance sheets of Creative Eateries Corporation and the related
consolidated statements of operations and cash flows and stockholders' equity,
include operations for the period from September 24, 2004 (Date of Inception) to
March 31, 2006. The company has generated total revenue since inception to March
31, 2006 of $50,505. This revenue relates to services prior to the acquisition
and is unrelated to the restaurant franchising business.
The Company has incurred aggregate net losses of approximately $6,200,188 during
the period from inception on September 24, 2004 to March 31, 2006. We will
likely continue to incur significant additional operating losses as marketing
efforts continue. Operating losses may fluctuate from quarter to quarter as a
result of differences in the timing of expenses incurred and when revenue is
recognized.
Total general and administrative operating expenses for the three months ending
March 31, 2006 were $669,201. This was primarily for consulting fees and the
issuance of the Company's common stock for these fees.
The Company recorded a net loss for the three months ending March 31, 2006 of
$6,200,188. This loss was primarily due to the expense related to various
consultants. The consultants provide such services and advice to the Company in
business development, business strategy and corporate image
RESULTS OF OPERATIONS
The Company had revenue of $50,000 for the three months ending March 31, 2006.
This revenue is from restaurant development services the Company provides to
restaurant franchisees.
Total general and administrative operating expenses for the three months ending
March 31, 2006 were $689,801. This was primarily for consulting fees, which and
the issuance of the Company's common stock for these fees.
17
The Company recorded a net loss for the three months ending March 31, 2006 of
$689,801. This loss was primarily due to the expense related to various
consultants. The consultants provide such services and advice to the Company in
business development, business strategy and corporate image.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a cash outflow of $(203,857) from operating activities
during the three months ending March 31, 2006. The Company is moving forward in
executing its business plan and is in negotiations with several acquisition
targets in the restaurant industry. To acquire the restaurants the Company
intends to obtain financing through a combination of debt and equity. The
Company is currently in negotiations with a financial institution and hopes to
soon complete an agreement with them.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States of America requires our
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. As such, in accordance with
the use of accounting principles generally accepted in the United States of
America, our actual realized results may differ from management's initial
estimates as reported. A summary of our significant accounting policies are
detailed in the notes to the financial statements which are an integral
component of this filing.
CERTAIN RISK FACTORS AFFECTING OUR BUSINESS
Our business involves a high degree of risk. Potential investors should
carefully consider the risks and uncertainties described below and the other
information in this report before deciding whether to invest in shares of our
common stock. If any of the following risks actually occur, our business,
financial condition, and results of operations could be materially and adversely
affected. This could cause the trading price of our common stock to decline,
with the loss of part or all of an investment in the common stock.
WE HAVE A LIMITED OPERATING HISTORY AND THERE IS NO ASSURANCE THAT OUR COMPANY
WILL ACHIEVE PROFITABILITY. Until recently, we have had no significant
operations with which to generate profits or greater liquidity. Although we have
recently established joint ventures with various fast-casual dining restaurants
in keeping with our proposed business model, we have not generated a meaningful
amount of operating revenue and we have a very limited current operating history
on which investors can evaluate our potential for future success. Our ability to
generate revenue is uncertain and we may never achieve profitability. Potential
investors should evaluate our company in light of the expenses, delays,
uncertainties, and complications typically encountered by early-stage
businesses, many of which will be beyond our control. These risks include the
following:
* lack of sufficient capital,
* unanticipated problems, delays, and expenses relating to acquisitions
of other businesses, concepts, or product development and
implementation,
* licensing and marketing difficulties,
* competition, and
* uncertain market acceptance of our products and services.
As a result of our limited operating history, our plan for growth, and the
competitive nature of the markets in which we may compete, our company's
historical financial data are of limited value in anticipating future revenue,
capital requirements, and operating expenses. Our planned capital requirements
and expense levels will be based in part on our expectations concerning
potential acquisitions, capital investments, and future revenue, which are
difficult to forecast accurately due to our company's current stage of
development. We may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenue. Once we acquire new
restaurant concepts, product development and marketing expenses may increase
significantly as we expand operations. To the extent that these expenses precede
18
or are not rapidly followed by a corresponding increase in revenue or additional
sources of financing, our business, operating results, and financial condition
may be materially and adversely affected.
WE MAY NEED SIGNIFICANT INFUSIONS OF ADDITIONAL CAPITAL. Based upon our current
cash reserves and forecasted operations, we believe that we will need to obtain
outside funding. We may require significant additional financing in the future
in order to further satisfy our cash requirements. Our need for additional
capital to finance our business strategy, operations, and growth will be greater
should, among other things, revenue or expense estimates prove to be incorrect.
If we fail to arrange for sufficient capital in the future, we may be required
to reduce the scope of our business activities until we can obtain adequate
financing. We cannot predict the timing or amount of our capital requirements at
this time. We may not be able to obtain additional financing in sufficient
amounts or on acceptable terms when needed, which could adversely affect our
operating results and prospects. Debt financing must be repaid regardless of
whether or not we generate profits or cash flows from our business activities.
Equity financing may result in dilution to existing shareholders and may involve
securities that have rights, preferences, or privileges that are senior to our
common stock.
WE WILL FACE A VARIETY OF RISKS ASSOCIATED WITH ESTABLISHING AND INTEGRATING NEW
JOINT VENTURES. The growth and success of our company's business will depend to
a great extent on our ability to find and attract appropriate restaurant
concepts with which to form joint ventures in the future. We cannot provide
assurance that we will be able to
* identity suitable restaurant concepts,
* form joint ventures on commercially acceptable terms,
* effectively integrate the operations of any joint ventures with our
existing operations,
* manage effectively the combined operations of the businesses,
* achieve our operating and growth strategies with respect to the new
joint ventures, or
* reduce our overall selling, general, and administrative expenses
associated with the new joint ventures.
The integration of the management, personnel, operations, products, services,
technologies, and facilities of any businesses that we associate ourselves with
in the future could involve unforeseen difficulties. These difficulties could
disrupt our ongoing businesses, distract our management and employees, and
increase our expenses, which could have a material adverse affect on our
company's business, financial condition, and operating results.
WE DEPEND ON OUR CURRENT MANAGEMENT TEAM. Our company's success will depend to a
large degree upon the skills of our current management team and advisors and
upon our ability to identify, hire, and retain additional senior management,
sales, marketing, technical, and financial personnel. We may not be able to
retain our existing key personnel or to attract and retain additional key
personnel. The loss of any of our current executives, employees, or advisors or
the failure to attract, integrate, motivate, and retain additional key employees
could have a material adverse effect on our company's business. We do not have
"key person" insurance on the lives of any of our management team.
OUR COMPANY MAY NOT BE ABLE TO MANAGE ITS GROWTH. We anticipate a period of
significant growth. This growth could cause significant strain on our company's
managerial, operational, financial, and other resources. Success in managing
this expansion and growth will depend, in part, upon the ability of our senior
management to manage effectively the growth of our company. Any failure to
manage the proposed growth and expansion of our company could have a material
adverse effect on our company's business.
THERE IS NO ASSURANCE THAT OUR FUTURE PRODUCTS AND SERVICES WILL BE ACCEPTED IN
THE MARKETPLACE. Our products and services may not experience broad market
acceptance. Any market acceptance for our company's products and services may
not develop in a timely manner or may not be sustainable. New or increased
19
competition may result in market saturation, more competitive pricing, or lower
margins. Further, overall performance and user satisfaction may be affected by a
variety of factors, many of which will be beyond our company's control. Our
company's business, operating results, and financial condition would be
materially and adversely affected if the market for our products and services
fails to develop or grow, develops or grows more slowly than anticipated, or
becomes more competitive or if our products and services are not accepted by
targeted customers even if a substantial market develops.
WE MAY FACE STIFF COMPETITION. There are existing companies that offer or have
the ability to develop products and services that will compete with those that
our company may offer in the future. These include large, well-recognized
companies with substantial resources and established relationships in their
respective industries. Their greater financial, technical, marketing, and sales
resources may permit them to react more quickly to emerging technologies and
changes in customer requirements or to devote greater resources to the
development, promotion, and sale of competing products and services. Emerging
companies also may develop and offer products and services that compete with
those offered by our company.
OUR COMMON STOCK MAY BE SUBJECT TO THE "PENNY STOCK" RULES AS PROMULGATED UNDER
THE EXCHANGE ACT. In the event that no exclusion from the definition of "penny
stock" under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") is available, then any broker engaging in a transaction in our company's
common stock will be required to provide its customers with a risk disclosure
document, disclosure of market quotations, if any, disclosure of the
compensation of the broker-dealer and its sales person in the transaction, and
monthly account statements showing the market values of our company's securities
held in the customer's accounts. The bid and offer quotation and compensation
information must be provided prior to effecting the transaction and must be
contained on the customer's confirmation of sale. Certain brokers are less
willing to engage in transactions involving "penny stocks" as a result of the
additional disclosure requirements described above, which may make it more
difficult for holders of our company's common stock to dispose of their shares.
ITEM 3. CONTROL AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As at the end of the period covered by this report, the Company's Chief
Executive Officer and Chief Financial Officer carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure. Based on
the evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as at the end of the period covered by this report, the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed 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 Commission's rules and forms and to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
disclosure
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 20, 1998 a suit was filed in the Supreme Court of British Columbia by
Thomas O'Flynn against Service Systems, Kenneth Fielding (Service Systems'
President and Director), and Charles P Nield (a former Director and Vice
President of the Company). O'Flynn alleges that in April of 1996, he purchased
shares of Service Systems' common stock based on a representation that they
would be free trading in 40 days of "the filing of a prospectus". He further
alleges that, in September of 1996, he purchased additional shares of common
stock based on the representation that the shares would be free trading within
40 days of the common stock becoming free trading. O'Flynn alleges that the
representation was a warranty and was incorrect. He further alleges that he
suffered a loss because the share price decreased while he was holding the
20
shares. He seeks damages for breach of warranty, negligence, misrepresentation
and breach of fiduciary duty. The amount claimed is not specified. The Company
filed an answer denying the claims and continues to actively defend the suit.
Examination for discovery of Charles P Nield was conducted in June 1999, since
then there has been no further activity.
On April 25, 2003, Chelverton Fund Limited filed a suit in the Supreme Court of
British Columbia against the Company for non-payment of debt in the amount of
$155,000. The Company entered an appearance and filed a defence against this
claim and attempted to negotiate a settlement. Chelverton filed additional
information that supported their claim and the Company responded with a "no
defines" position and judgment was issued in the amount of $193,944
(Cnd$234,642) including interest and legal costs On April 5, 2004 the Company
appeared in Supreme Court to provide to Chelverton and the court, specific
information pertaining to the Company's assets and its ability to pay the
judgment including interest. The Company was required to and has, provided
additional detailed financial information. No further activity has occurred.
On June 6, 2003 a group of shareholders consisting of the original owners of
Innovative Fuel Cell Technologies Inc (Shareholder Group) filed a consent
resolution, which among other things elected a new slate of directors and
revised the company by-laws. The Company refused to accept the consent
resolution or bylaws as in the opinion of the Company's legal counsel, the
consent resolutions were not in accordance with Nevada Statutes or the filing
requirements of Security and Exchange Commission. At a directors meeting held
June 9th, 2003, the Company elected two additional directors; Edward a White and
Erin Strench to the Company board, bringing the total number of directors to
five. On June 16, 2003 the Shareholder Group filed for and obtained a temporary
restraining order (TRO) against the Company and its five director prohibiting
the Company from among other things, issuing stock, transferring assets,
changing management and other actions that would affect the STATUS QUO of the
Company. In addition two shareholders issued writs against the four directors,
alleging breach of fiduciary duty in respect of the issue of certain common
shares to John Gaetz, Ken Fielding and others. On June 24, 2003, in discussions
between legal counsel for plaintiff, respondent and the hearing Judge; Judge
Adams, the TRO was vacated and a date of July 2, 2003 was set for a new TRO
hearing to be held in Reno, Nevada. At the July 2, 2003 TRO hearing Judge Adams
did not grant a TRO and requested the plaintiff and respondent file a series of
three briefs outlining their position. The first brief was filed on July 11,
2003 by our counsel. The plaintiff responded on July 18, 2003 and our counsel
filed the final brief on July 25, 2003. The Company's counsel has responded to
the various other suits filed against the Company and its directors. The Company
had attempted during the second quarter to have these cases moved from Nevada
State court to federal court and in the third quarter we were advised that these
cases would be heard in federal court. Subsequent to December 31, 2003, in March
2004 the Company's legal counsel filed to withdraw from the action as a result
of non-payment of legal fees. The court approved the withdrawal in two of the
four cases. By April 29, 2004, the Plaintiff and the Defendant must file a
proposed pre-trial order with the Federal Court, which upon approval, the Court
will set down for trial. During this quarter the Company and the Plaintiff
requested and received an extension to August 26, 2004 to settle this matter or
file the pre-trial order, which upon approval, the Court will set down for
trial. On October 28, 2004 we jointly filed a pre-trial notice and on November
15, 2004 in a conference call with the sitting Judge a trial date was set for
February 22, 2005. During this fiscal period, one of the Plaintiffs withdrew
from the action. On October 28, 2004 the Company jointly filed a pre-trial
notice and on November 15, 2004 in a conference call with the sitting Judge a
trial date was set for February 22, 2005. Prior to the trial date the parties
reached a settlement on all matters. Under the terms of the settlement, the
Plaintiffs agreed to and have dismissed all of the lawsuits and have cancelled
all debts owed by the Company to the Plaintiff amounting to about $98,797.
21
ITEM 2. CHANGES IN SECURITIES
During the three months ended March 31, 2006 the Company issued the following
shares for the listed consideration:
Residency/ Consideration
Date Shares Citizenship Valued at Exemption
- ---- ------ ----------- --------- ---------
January 05/06 750,000 USA $150,000 S-8*
January 05/06 480,000 USA $ 96,000 S-8*
January 05/06 250,000 USA $ 50,000 S-8*
January 05/06 250,000 USA $ 50,000 Reg 144
January 20/06 40,000 USA $ 10,000 Reg 144
January 22/06 800,000 USA $176,000 S-8**
- ----------
* Registered S-8 on July 27, 2005
** Registered S-8 on February 9, 2006
At a special meeting of the shareholder held June 13, 2005, the shareholders
approved a 1 for 100 reverse split of the Company stock which has been accounted
for retroactively.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are either attached hereto or incorporated herein by
reference as indicated:
Exhibit
Number Description
- ------ -----------
31.1 Certification pursuant to SEC Release No. 33-8238, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to SEC Release No. 33-8238, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) The Registrant has not filed any Current Reports on Form 8-K during the
three-month period covered by this Quarterly Report.
22
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
CREATIVE EATERIES CORPORATION
Date: May 23, 2006 By: /s/ Frank Holdraker
---------------------------------------------
Title: Frank Holdraker, President
Director
Date: May 23, 2006 By: /s/ Scott Campbell
---------------------------------------------
Title: Scott Campbell, Vice President of Finance
23
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
31.1 Certification pursuant to SEC Release No. 33-8238, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to SEC Release No. 33-8238, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002