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 June 30, 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. 7702 E. Doubletree Ranch Road, Suite 300 Scottsdale, AZ 85258 Address of Principal Executive Offices Zip code 480-747-4846 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 41,804,324 on June 30, 2006 INDEX PART I Financial Information Item 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheet as of June 30, 2006 (unaudited) 3 Consolidated Statements of Operations accumulated from date of inception and the three and six month periods ended June 30, 2006 and 2005 (unaudited) 4 Consolidated Statements of Cash Flows accumulated from date of inception and the sixmonth periods ended June 30, 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 21 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 23 Signatures 23 2 Creative Eateries Corporation (A Development Stage Company) Consolidated Balance Sheet (Unaudited) June 30, 06 ----------- ASSETS Current Assets Cash $ 948 Cash-restricted 47,092 ----------- Accounts receivable, less allowance for doubtful accounts: 2005 $85,092 (includes amounts due from affiliates of $21,187) 71,973 ----------- Total Current Assets 120,013 Property and Equipment 2,558 ----------- Total Assets $ 122,571 =========== LIABILITIES AND STOCKHOLDER'S DEFICIT Current Liabilities Accounts Payable $ 924,310 Accrued Liabilities 314,936 Notes Payable (current) 257,100 Loans Payable (current) 151,651 ----------- Total Current Liabilities 1,647,997 Loans payable (long-term portion) 60,914 Amounts owing to related parties 447,469 ----------- Total Liabilities 2,156,380 ----------- Stockholder's Deficit Common stock, 100,000,000 shares authorized, par value of $0.001, 41,404,324 and 28,400,000 issued and outstanding, respectively 41,404 Additional paid-in-capital 5,057,505 Deficit Accumulated in the Development Stage (7,132,718) ----------- Total Stockholder's Deficit (2,033,809) ----------- Total Liabilities and Stockholder's Deficit $ 122,571 =========== 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 Three Months Three Months Six Months Six Months inception to Ended Ended Ended Ended June 30, 2006 June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005 ------------- ------------- ------------- ------------- ------------- $ $ $ $ $ Revenue 60,505 10,000 5,135 60,000 5,135 Cost of sales -- -- -- -- -- ---------- ---------- -------- ---------- -------- Total Gross Profit 60,505 10,000 5,135 60,000 5,135 ---------- ---------- -------- ---------- -------- Expenses General and administrative 7,051,858 739,998 102,540 1,593,199 219,260 Interest 141,365 18,532 10,366 39,132 23,054 ---------- ---------- -------- ---------- -------- Total Expenses 7,193,223 758,530 112,906 1,632,331 242,314 ---------- ---------- -------- ---------- -------- Net Loss from Operations (7,132,718) (748,530) (107,771) (1,572,331) (237,179) ---------- ---------- -------- ---------- -------- Net Loss for the Period (7,132,718) (748,530) (107,771) (1,572,331) (138,382) ========== ========== ======== ========== ======== Net Loss Per Share - Basic and Diluted (.22) (.018) (.18) (.048) (0.29) ========== ========== ======== ========== ======== Weighted Average Number of Shares Outstanding 32,620,405 40,733,781 596,638 33,052,493 469,739 ========== ========== ======== ========== ======== See accompanying notes to unaudited consolidated financial statements 4 Creative Eateries Corporation (A Development Stage Company) Consolidated Statements of Cash Flows (Unaudited) Accumulated from date of Six months Six months inception to ended ended June 30, 2006 June 30, 2006 June 30, 2005 ------------- ------------- ------------- $ $ $ Cash Flows Used In Operating Activities Net loss (7,132,718) (1,572,331) (138,382) Depreciation and amortization 601 279 44 Shares issued as compensation for services 5,457,381 1,077,230 230,683 Changes in operating assets and liabilities (Increase) decrease in accounts receivable (71,793) (45,598) (2,562) (Increase) decrease in notes receivable -- -- -- (Increase) decrease in prepaid expenses and deposits 268 268 (3,500) Increase (decrease) in accounts payable and accrued liabilities 1,157,048 432,861 (24,119) Increase (decrease) in deferred revenue 0 (20,000) 0 ---------- ---------- ---------- Net Cash Provided by (Used in) Operating Activities (589,213) (127,291) 6,596 ---------- ---------- ---------- Cash Flows Used in Investing Activities Acquisition of computer equipment (3,156) -- (513) Restricted cash 44,102 44,102 Cash from acquisition of UltraGuard 5,678 -- -- ---------- ---------- ---------- Net Cash Provided by (Used) in Investing Activities 46,624 -- (513) ---------- ---------- ---------- Cash Flows From Financing Activities Proceeds from subscribed shares 184,400 -- -- Increase (decrease) in loans/notes from unrelated parties 257,100 (17,900) (100,558) Proceeds from exercise of stock options 88,000 88,000 -- ---------- ---------- ---------- Net Cash Provided by (Used in) Financing Activities 529,500 70,100 (2,282) ---------- ---------- ---------- Decrease in Cash (13,089) (13,089) 3,801 Cash - Beginning of the Period 14,037 14,037 1,877 ---------- ---------- ---------- Cash - End of the Period 948 948 5,678 ========== ========== ========== 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 $7,051,421 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. No warrants or preferred stock was issued, or outstanding, during the period ending June 30, 2006. In addition, no stock options were exercised during the same period and have since been cancelled. 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. There were no options granted in the six month period ended June 30, 2006. No stock options were granted to employees in fiscal 2005 and 2006, therefore no pro-forma disclosures have been presented. As of June 30, 2006 all options have been cancelled. 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. 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. June 30, June 30, 2006 2005 Accumulated Net Book Net Book Cost Depreciation Value Value ---- ------------ ----- ----- $ $ $ $ Property and equipment 3,156 598 2,558 -- ===== === ===== === 5. 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 June 30, 2006. e) Issuance of Restricted Common Shares During the period ending June 30, 2006 the Company issued no restricted shares. 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 June 30, 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) 1,650,000 .21 346,500 Employee Qualified Stock Option Plan (Note 6d) shares under options 0 -- Consulting services provided pursuant to 144 restricted shares (Note 6e) 0 -- --------- ------- 1,650,000 346,500 ========= ======= 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 no 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 June 30, 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. 15 Creative Eateries Corporation (A Development Stage Company) Notes to the Consolidated Financial Statements Continued (Unaudited) 11. Subsequent Events Subsequent to Junes 30, 2006 the Company has released many of it employees in an effort to cut cost and reorganize the Company. However, the Company intends to maintain it current business model. The Company has also downsized its offices and moved to 7702 E. Doubletree Ranch Road, Suite 300, Scottsdale 85258. In August the Company acknowledged they were in default of the December 29, 2005 Funding Agreement between the Company and Franchise Capital Corporation. As per the Agreement the Company was to provide funding to Franchise Capital Corporation in exchange for a percentage of the royalty fees of Kokopelli Franchise Company, LLC, an investment company of Franchise Capital Corporation. As a result of the default, the Company has released all claims it may have related to Kokopelli Franchise Company, and Franchise Capital Corporation. 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 June 30, 2006. The company has generated total revenue since inception to June 30, 2006 of $60,505. 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 $7,132,718 during the period from inception on September 24, 2004 to June 30, 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. PLAN OF OPERATION The Company is currently in a reorganization period, but intends to continue its business model as a full-service franchise development company that targets emerging and undervalued franchise concepts. The Company intends to introduce a line of new restaurant brands that fall into the broad category of "fast-casual/full-service" dining. The Company will provide the necessary elements to grow these brands by owning or partnering with the existing restaurant companies, thereby owning equity directly in these brands and by providing the concepts a total Franchise Turnkey Program. This formula is the result of several years of development to provide the tools and support needed to create and sustain a successful restaurant franchise with above average per store returns. The Company hopes to acquire its first full functioning restaurant chain prior to the end of the year and start full development of its "Q's House of Barbeque" and "Fit-n-Healthy Cafe" concepts after the first of the year. The Company projects it will need $1,500,000 in funding to meet its objectives. 17 RESULTS OF OPERATIONS The Company had revenue of $10,000 for the three months ending June 30, 2006. This revenue is from restaurant development services the Company provides to restaurant franchisees. Total general and administrative operating expenses for the three and six months ending June 30, 2006 and June 30, 2005 were $739,998 and $1,593,199, and $102,540 and 219,260 respectively. This was primarily for consulting fees, which and the issuance of the Company's common stock for these fees. The Company recorded a net loss for the three months ending June 30, 2006 of $748,530. 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 $(261,329) from operating activities during the three months ending June 30, 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: 18 * 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 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. 19 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 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 20 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 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 21 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. ITEM 2. CHANGES IN SECURITIES During the three months ended June 30, 2006 the Company issued the following shares for the listed consideration Residency/ Consideration Date Shares Exemption Citizenship Valued at ---- ------ --------- ----------- --------- April 07/06 100,000 USA $22,000 S-8** May 08/06 300,000 USA $63,000 S-8** May 26/06 250,000 USA $46,250 S-8** May 30/06 150,000 USA $32,250 S-8** May 30/06 10,000 USA $ 2,150 S-8** May 30/06 20,000 USA $ 4,300 S-8** May 30/06 320,000 USA $68,800 S-8** May 30/06 20,000 USA $95,000 S-8** - ---------- ** 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 22 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. 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: September 14, 2006 By: /s/ Frank Holdraker --------------------------------------------- Title: Frank Holdraker, President Director Date: September 14, 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