BUSINESS DEVELOPMENT
The Company was incorporated in Nevada in August 1990 under the name Service Systems International Ltd and was inactive until eight Canadian and European individuals acquired it in July 1995.
For the period up to February 2002, they were the designer, manufacturer, and marketer of state of the art ultraviolet disinfection systems for wastewater disinfection with additional application possibilities in potable water. During fiscal 2002, the Company changed its business focus away from only providing ultraviolet equipment for wastewater disinfection to the treatment of water for drinking and other uses, coupled with ultraviolet and filtration.
In fiscal 2002, the Company discontinued the manufacturing of wastewater products and entered into various agreements to change it business focus. The wastewater business was licensed to Clearwater Industries Ltd.
The emphasis of the Company's business remained in ultraviolet disinfection, however they now target drinking water with systems developed for low-flow drinking water application. The systems identified are, Point of Entry (POE) purification system, which is installed where the water enters the home, and Point of Use (POU) purification system, which is located at the faucet.
During 2002, the Company was unable to raise the additional funds necessary to continue the operations of UVS and with UVS liabilities exceeding assets by a significant amount, the board of directors and investors determined that by selling UVS the Company could continue viable operations pursuing a new product focus (see Our Products).
On December 31, 2002, the Company entered into various agreements for the disposition of UVS and the removal of the UVS debt and receivable carried on the Company's financial statements. Manufacturing and marketing of the UVS technology had been discontinued by the Company and was licensed to Clearwater Industries in February 2002. The purchaser of UVS was 659999 BC Ltd. Terms of the sale included the transfer by UVS to the Company of all current and future revenue that may accrue as a result of the UVS technology. Full details of these agreements are available on Form 8-K filed with the SEC on January 15, 2003.
In December 2002, the Company added an additional business focus: the manufacturing and marketing of a primary, alternative, and emergency power generating Magnesium-Air power cell. Through a reverse acquisition concluded on December 31, 2002 UltraGuard Water Systems Corp. ("UltraGuard") acquired all of the outstanding stock of Innovative Fuels Cell Technologies Inc ("IFCT"). IFCT is the holder of an option to purchase worldwide manufacturing and marketing rights to a 12-volt Magnesium-Air Semi Fuel Cell from MagPower Systems Inc. for use with UltraGuard's Point of Use and Point of Entry Ultraviolet Water Purification System, and for ancillary uses such as lighting, radio, and other low energy electrical needs.
On March 14, 2003, IFCT exercised the license for the Fuel Cell.
On April 21, 2005, the Company's directors voted to change its business focus and move UltraGuard into restaurant franchising by signing an agreement with American Restaurant Development Company to identify opportunities in restaurant franchising. The directors also voted to reorganize the Company and brought it to the shareholders in a special meeting held on June 13, 2005. At the meeting shareholder approved the name change to Creative Eateries Corporation and a reverse split of the Companies common stock of 1:100.
On May 3, 2005, the directors approved the sale of all of Creative's filtration and disinfection technologies and intellectual property to Innovative Fuel Cell Technologies Inc. On June 30, 2005, the sale was completed. As a condition of the sale, all the shares of Innovative Fuel Cell Technologies Inc will be distributed on a prorata basis to the Creative's shareholders of record June 13, 2005.
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 was to pay $200,000 cash and 3,583,667 shares of Creative's common stock. The Company has negotiated with Franchise Capital Corporation regarding an amendment and rescission to the October Purchase Agreement prior to December 31, 2005. The Company has not paid the cash, but has funded approximately $150,000 of the Kokopelli and Comstock Jake's operations. 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 the obligation to pay any profit payments to the Company.
BUSINESS OF ISSUER
Creative Eateries Corporation (Creative Eateries) (formerly Vancouver-based UltraGuard Water System Corp) or ("Company"), is a franchise development company organized to capitalize on the new, growing demand for "fast-casual/full-service" restaurants in North America. Creative Eateries is poised to take advantage of this new phenomenon by targeting emerging and undervalued restaurant/franchise concepts and owning equity directly in these brands. Creative Eateries intends to grow these brands through expanding corporate growth and franchising by leveraging its skilled team of restaurant and franchise, deep operational expertise and a database of potential franchisees. The Company currently has two concepts: Q's House of Barbecue and Fit `N Healthy. These concepts have not been developed and are not ready to be franchised. The Company continues to identify potential concepts for their portfolio.
OUR SERVICES
The Company provides franchise brand management services in numerous regional markets across the United States. Through the terms of our "Franchise Agreement," the Company authorizes individuals and/or companies to form or establish and operate concept restaurants at approved locations. Under the agreement, the Company is obligated to provide certain services for the opening of, and the ongoing support of, each restaurant. Those services generally include:
- review and approval of restaurant location - review and approval of plans and layout design - identification of sources of suppliers
- provide an operations manual for service guidelines and restaurant management techniques - provide initial and ongoing training in acceptable methods of operations, food preparation, management controls, and legal framework of restaurant operations - provide ongoing support to maintain quality products at competitive prices - perform ongoing consistency and quality inspections of restaurants to maintain uniform acceptable standards
DISTRIBUTION METHODS OF OUR SERVICES
Creative Eateries targets emerging and undervalued restaurant/franchise concepts with the intent to own equity directly in these brands. The Company intends to grow these brands through expansion of corporate growth and franchising. The Company will obtain prospective franchises primarily from referrals from existing franchises, affiliations with industry experts and from selected marketing efforts. The selective criteria considered in the review and approval of new franchisees is prior experience in operating restaurants or comparable business acumen and the existence of sufficient capital resources to reasonably ensure success.
NEW PRODUCTS OR SERVICES
None
COMPETITIVE BUSINESS CONDITIONS
Creative Eateries competes in the fast, casual and full-service dining segments of the restaurant industry. As a franchisor of restaurants, the Company must first attract successful franchisees and second, must assist franchisees in attracting customers in this segment. The Company competes with an increasing number of national chains of fast, casual and full-service dining, several of which have dominant market positions and possess substantially greater financial resources and longer operating histories.
The fast, casual and full-service dining segments of the restaurant industry are highly competitive with respect to price, service, location, and food quality. These competitive factors are affected by changes in consumer taste, local and national economic conditions, population trends, and local traffic patterns.
A number of companies have adopted "value pricing" strategies in response to flattening growth rates and/or declines in average sale per restaurant. Such strategies could draw customers away from companies that do not engage in "value pricing" or discount pricing, and could also negatively impact the operating margins by attempting to match competition-pricing points.
PRINCIPAL SUPPLIERS
The Company requires each franchisee to purchase raw materials; both food and non-food, from authorized and designated distributors who may only sell authorized and approved raw materials. The Company negotiates relationships with manufacturers and suppliers on a national level for all products whether or not they contain the Company's logo. Franchisees may request approval of additional manufacturers, suppliers, or distributors subject to the Company's approval. Approval is based upon a number of conditions including price, quality, ability to service the system on a national basis and such other reasonable standards as may be promulgated from time to time.
CUSTOMERS
Creative Eateries targets prospective franchises primarily from referrals from existing franchises, affiliations with industry experts and from selected marketing efforts.
A number of companies have adopted "value pricing" strategies in response to flattening growth rates and/or declines in average sale per restaurant. Such strategies could draw customers away from companies that do not engage in "value pricing" or discount pricing, and could also negatively impact the operating margins by attempting to match competition-pricing points.
LICENSES, FRANCHISES, ROYALTY AGREEMENTS
Franchisors are required to register the uniform franchise offering circular in certain states before franchises can be sold. The Company is in the process of identifying those states and the requirements for registration and licensing. These registrations will be completed prior to franchise sales in the required territories.
Franchise fees are payments received from franchisees and recognized as revenue in the period in which the store opens. The franchise fee for a franchisee's initial store will be in the range of $25,000-$35,000.
Royalties are based on a percentage of franchisees' net sales and recognized in the same period that the franchise store sales occur. Generally, royalties are earned at the rate of 5% of sales.
REGULATORY MATTERS
The Federal Trade Commission (the FTC") and various states regulate our principal activity of selling restaurant franchises. Such regulations govern disclosure, performance, and procedure in the sale and transfer of new and existing franchises. In general, the FTC's regulations require us to timely furnish a franchise offering circular to prospective franchisees containing prescribed information. Certain state laws also require registration of the franchise offering circular with applicable state authorities. Other states monitor or regulate the franchise relationship, particularly the sale, renewal, and termination of an agreement.
In October 1999, the FTC issued proposed changes to the FTC Rule that would effect certain disclosure obligations in connection with franchise sales. These proposed changes are still subject to public comment, and even if adopted as proposed, the Company does not think the changes would materially affect franchise sales or other operations. The Company is not aware of any other probable pending franchise legislation that is likely to affect operations significantly. The Company believes that our operations comply in all material respects with the FTC Rule and the applicable state franchise laws.
The Company is also subject to "Federal Fair Labor Standards Act," which governs minimum wages, overtime, working conditions and other matters as well as the "Americans With Disabilities Act."
From time to time, the Company will operate company owned restaurants. While operating the restaurants, the Company will be subject to a variety of federal, state, and local laws regarding minimum wage standards, sanitation, health, fire, alcoholic beverage, and safety codes.
The Company believes it will maintain compliance with all applicable federal, state, and local laws and regulations. Current expected changes in federal and individual state laws and regulations concerning the sale, termination and non-renewal of franchises are not expected to have a material impact on operations. There can be no assurance that existing or future franchise regulations will not have an adverse effect on the ability to maintain and expand the Company's franchise program.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company engages in research and development on an ongoing basis, testing new products and procedures for possible introduction into the Company's systems. While research and development operations are considered to be of prime importance to the Company, amounts expended for these activities are not deemed material.
ENVIRONMENTAL LAWS
Various federal, state, and local regulations have been adopted which affect the discharge of materials into the environment or which otherwise relate to the protection of the environment. The Company does not believe that such regulations will have a material effect on its capital expenditures, earnings, or competitive position. The Company cannot predict the effect of future environmental legislation or regulations.
EMPLOYEES
As of December 31, 2005, the Company had seven (7) full time employees engaged in management and operational activities. Part time consultants are used when required, for accounting, general office, and other activities.
