Item 2. Management's Discussion and Analysis or Plan of Operation Forward-Looking Statements

This Form 10-QSB and other written reports and oral statements made from time to time by us and our representatives contain "forward-looking statements" within the meaning of the federal securities laws. These statements, which are not statements of historical fact, may contain estimates, assumptions, projections and/or expectations regarding our financial position, results of operations, growth strategy and plans for future expansion, product development, economic conditions, and other similar forecasts and statements of expectation. We generally indicate these statements by words or phrases such as "anticipate," "estimate," "plan," "expect," "believe," "intend," "foresee," and similar words or phrases. Forward- looking statements are based upon estimates, projections, beliefs and assumptions of management at the time of such statements and should not be viewed as guarantees of future performance. Such forward-looking information involves important risks and uncertainties that could significantly impact anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements by us or on our behalf. Factors that might cause such a difference include, without limitation: uncertainty of the Company's ability to meet capital needs; competition within the fast casual restaurant segment, acquisition of new franchisees and as set forth in our Form 10-KSB for the fiscal year ended December 31, 2003 under the heading entitled "Factors That May Effect Future Operating Results" and in our press releases. All cautionary statements made in this Report should be read as being applicable to all related forward-looking statements wherever they may appear. Any forward-looking statement speaks only as of the date on which such statement is made, and we disclaim any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

References in this report to "we" and "our" are to P.D.C. Innovative Industries, Inc. (and its subsidiary Ragin' Ribs, Inc. ("RRI") and RRI's subsidiaries Ragin' Ribs Franchise Corp. and Henderson One Group, Inc., which, collectively, may also be referred to herein as the "Company"). All share amount information contained herein, except where otherwise noted, reflects a one for twenty reverse stock split effected January 5, 2004.

For our prior three fiscal years, we have been a development stage company engaged principally as a licensee in the development of the Hypo-Pro 2000 ("Hypo-Pro") and to a lesser extent certain other products described herein.

The Hypo-Pro is a device designed to dispose of contaminated hypodermic syringes at the site of use, i.e., hospital, doctor's office, lab, etc. The device is designed to reduce, in an enclosed environment, the entire instrument to small, decontaminated particles, which can be disposed of as conventional trash.

We have not had any revenues from operations in any of our last three fiscal years. While we have attempted during such time period to obtain required funding from outside sources to further develop the Hypo-Pro for commercial marketing and sale, we have not been able to raise sufficient funds to meaningfully proceed with such efforts.

The U.S. Patent and Trademark Office advised in the latter half of 2003 that it rejected virtually all of the claims that were proffered in support of the Hypo-Pro potentially receiving patent protection. While the U.S. Patent and Trademark Office advised that it would allow for one claim, as well as one additional claim if certain revisions were made, counsel for the licensor of such product, who was also our then President and Director, advised that he did not view the patent protection that would be afforded to such claims as meaningful. Accordingly, no further patent protection efforts were undertaken by the licensor of such product. We have currently determined to defer any decision as to whether or not we will pursue efforts to gain U.S. Food and Drug Administration ("FDA") approval for the Hypo-Pro health-field related product or to undertake any other development, sales and marketing efforts concerning such product until the fourth quarter of 2004.

On February 16, 2004, we effected a business combination with RRI, as more fully described in Notes to Condensed Consolidated Financial Statements under the heading "NOTE 1. MERGER." RRI is a food service franchising company based in Tampa, Florida. We plan to continue the operations of RRI, a food service franchising company based in Tampa, Florida, and have relocated our executive offices to RRI's facilities.

While we are the legal surviving entity, for accounting purposes, the merger between RRI and Company Sub is being treated as a purchase business acquisition of the Company by RRI (commonly called a reverse acquisition) and a recapitalization of RRI. RRI is the acquirer for accounting and financial reporting purposes because the former stockholders of RRI received the larger portion of the common stockholder interests and voting rights in the combined enterprise when compared to the common stockholder interests and voting rights retained by the pre-merger stockholders of the Company. As a result of this accounting treatment, RRI will be recapitalized for accounting and financial reporting purposes to reflect the authorized stock of the legal surviving entity.

Effective with the merger as more fully described in "NOTE 1. MERGER" of the Notes to Condensed Consolidated Financial Statements, the Company has elected to cease its reporting as a Development Stage Company, as it is now an operating company and continuing the operations of RRI and the franchising of its fast casual restaurant system.

RRI was incorporated in the State of Florida on September 17, 1998 under the name Fun & Food Management Corporation. On July 6, 1999, such name was subsequently changed to GiftRunner.com, Inc., and later on September 25, 2000 to Ragin' Ribs International, Inc. The name was subsequently changed again on January 22, 2004 to Ragin' Ribs, Inc.

The company engaged in minimal business activities from 1998 through March 2002. In approximately March 2002, RRI began to develop the menu, proprietary sauces, operating manuals and procedures for its Ragin' Ribs restaurant and franchise concept, as well as updating franchisee documentation, manuals and developing infrastructure for its planned national franchise program. In approximately May 2002, RRI commenced capital raising efforts on a private placement basis to fund its business concept. From May 2002 through July 2002, RRI sought to open a company owned restaurant or obtain one or more franchisees. In July 2002, the company sold a franchise in Georgia, which franchisee opened one restaurant facility that subsequently closed in November 2003.

In furtherance of its business plan, on June 20, 2003, RRI formed a wholly owned subsidiary, Ragin' Ribs Franchise Corp., a Florida corporation ("Franchise Corp."), for purposes of operating its franchise division. The officers and directors of such company are the same as the officers and directors of PDC and RRI.

In November 2003, RRI entered into an equally owned joint venture with a third party entity, Warren Capital Corporation, whose principal is an RRI shareholder, under the name Ragin' Ribs Canada, Inc., a Canadian corporation. Such entity entered into an area development agreement with Franchise Corp. to locate franchisees to develop RRI franchises in Canada.

In November 2003, Franchise Corp. also entered into an area development agreement with Warren Capital Corporation to locate franchisees to develop RRI franchises in the State of Virginia.

Each of such area development agreements provide for the area developer to secure territory operators pursuant to the following performance schedule in order for the area developer to maintain its respective area exclusivity; each territory operator will be required to develop a minimum of five franchise restaurants pursuant to an agreed to performance schedule to maintain their exclusivity.

In early December 2003, RRI opened a company operated restaurant facility through a majority owned subsidiary, Henderson One Group, Inc., in Tampa, Florida, which also serves as the Company's training center for franchisees. The classroom component of the training center is located at the Company's headquarters; on-the-job training takes place at such restaurant facility. The training center has been established to accommodate a two-week training program for our franchisees. Our training program consists of training the franchisees with regard to daily restaurant operations, restaurant management, restaurant systems and control, advertising and promotion, and all other necessary procedures to be compliant with Ragin' Ribs operating standards.

At the end of December 2003, Franchise Corp. entered into a ten-year restaurant franchise agreement with an unrelated third party for a restaurant facility in the North Hillsborough territory, near Tampa, Florida. Such restaurant franchise agreement was entered into in connection with an exclusive territory license agreement entered into by and between Franchise Corp. and such franchisee in early December 2003, which, generally, provides that such franchisee has the right and obligation to develop five restaurants within a 2-1/2 year period within the geographic area described above. The territory license agreement calls for a territory license fee to be paid of $100,000, $70,000 upon the execution date of such agreement and $30,000 upon execution of the franchise agreement for restaurant number one, which territory license fee has been paid in full. Such franchisee also paid a franchise fee of $25,000 and is pays a royalty fee in the amount of 4% of the subject restaurant's gross sales per week, as well as a 1% of such restaurant's gross sales per week to a national advertising fund. The franchisee opened his location on February 16, 2004 and is current with all franchise related payments. On August 9, 2004 the franchisee was issued a Notice of Default for noncompliance with Franchise Agreement. The franchisee has thirty days to cure the default.

Results of Operations

Three Months Ended June 30, 2004 Compared to the Three Months Ended June 30, 2003

Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003

Management has elected not to make comparisons of the results of operations for aforementioned periods nor comparisons of the financial position at June 3, 2004 compared to June 30, 2003. As a result of the merger (see "NOTE 1. MERGER" of the Notes to Condensed Consolidated Financial Statements), the Company is no longer primarily a medical technology research and development enterprise. The Company is now primarily a franchisor of a fast casual restaurant system. Therefore, to make such comparisons would be misleading to the shareholders and potential investors. Additionally, with this business combination the Company has elected to cease presenting its financial information as a "Development Stage Company."

Plan of Operation

During the fiscal year ended December 31, 2003, and for several years prior thereto, we were engaged principally in the development of the Hypo-Pro, a device designed to dispose of contaminated hypodermic syringes at the site of use. As a result of liquidity constraints, which were particularly severe during our last fiscal year, we were unable to engage in additional laboratory testing, or to seek and obtain FDA approval for such product, which steps we believed necessary in order to commercially market and potentially sell such product. As such, we have not had any revenues from operations in the last several years.

As a result of our acquisition in February 2004 of RRI, we are since such time an owner, operator and franchisor of restaurants offering high quality and value priced home delivery, take-out and dine-in whole meal replacement under the name "Ragin' Ribs." We presently have one Company owned/operated restaurant, one franchisee operated restaurant and have executed two area development agreements and one territory license agreement.

During the next twelve months, our plan of operation principally entails the franchising of our fast casual restaurant model which offers nutritious, quality and reasonably priced home meal replacement for home delivery as well as take-out and dine-in, and selling our proprietary food products through a franchise system and traditional distribution network. We currently plan to derive revenue primarily from revenue from franchise operations, including franchise and royalty fees, and to lesser extent, from sales from our Company owned/operated restaurant, and, to a lesser extent, the sale of Company proprietary food products through retail and possibly wholesale channels of commerce.

We have currently determined to defer any decision as to whether or not we will pursue efforts to gain FDA approval for the Hypo-Pro, or to undertake any other development, sales and marketing efforts concerning such product until the fourth quarter of 2004.

We are currently experiencing severe financial constraints. We will be required to seek and obtain additional capital from outside funding sources for our food service and franchise operations as working capital and current cash flow from operations is not adequate to sustain operations. We currently estimate that we will require up to approximately $750,000 (excluding any further Hypo-Pro development which will require additional funding yet to be determined) to fund our daily operations for approximately the next twelve months, which currently include further integration activities relating to the business combination, franchise development and related matters. We currently believe that we can satisfy our cash requirements for only approximately three months in the event we do not secure otherwise needed capital. There can be no assurance that financing will be available when needed, or if available, on acceptable terms. We have no firm commitments, arrangements or understandings for any financing at this time, but plan to continue to seek and raise funds on a private placement basis, or otherwise, from one or more outside funding sources.

Operating expenses for our Company operated/owned restaurant are and will consist primarily of food and food packaging costs, payroll and other costs associated with employee benefits, occupancy costs and other operating expenses.

Our franchise operating costs are expected to include franchise selling costs and franchise administrative support. Our revenue and expenses from our franchise operations are expected to be directly affected by the number of territory franchises sold and the related sales volume of each franchised restaurant.

As our growth strategy is to emphasize the development of franchised restaurants, our success is contingent upon our ability to attract qualified area developers, territory operators and franchisees to purchase franchises, and our ability to negotiate and execute definitive area development, territory license and franchisee agreements. In the event our franchise operators experience financial difficulties from time to time, such event could materially impact us. We plan to closely monitor the financial condition of our franchisees and record provisions for estimated losses on receivables when we believe our franchisees will be unable to make their required payment to us.

We believe we will possibly have to significantly increase our number of employees, principally additional management, sales, marketing and support personnel, to the extent we are successful in expanding our franchise operations. Due to the size of the restaurant industry, we currently believe that qualified candidates for such positions are, and will be, readily available on terms favorable to the Company.

We do not currently believe that we will engage in any product research and development over the next twelve months or that we will affect the purchase or sale of plant and significant equipment.

Following the acquisition of RRI, management immediately set forth a plan to negotiate and settle certain Company obligations. The judgment previously obtained by the Company's prior landlord has been settled with a promissory note of $25,000 due at the end of the third quarter of 2004, which has reduced the Company's liabilities by $201,707. Several smaller accounts payable obligations have also been settled. We plan to continue to negotiate with the Company's creditors and to enter into settlement agreements where possible.

In the event we are successful in meeting our franchise goals, which entails expanding our franchise operation so as to have an aggregate of approximately 100 franchisee restaurant facilities under contract, we plan to seek to acquire one or more food manufacturing and/or food processing facilities. Our plan strategy is to first acquire those facilities that provide the proprietary products being sold to our franchises. In the event such goal is accomplished, we plan to target food- manufacturing facilities having unique proprietary products. We do not currently anticipate implementing such acquisition strategy in fiscal year 2004, and believe that we will require additional funding from outside sources to accomplish such acquisition goals.

We have no off-balance sheet arrangements.

Critical Accounting Policies

Stock Based Compensation

From time to time, we have issued and plan to continue to issue, shares of our common stock to certain employees and service providers for services rendered and to be rendered. The fair market value of such shares is based on the quoted trading price of our common stock at the grant date.

Deferred Tax Assets

Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized.

Recent Accounting Pronouncements

In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities ("SFAS 149"), which provides for certain changes in the accounting treatment of derivative contracts. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except for certain provisions that relate to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, which should continue to be applied in accordance with their respective effective dates. The guidance should be applied prospectively. The adoption of SFAS 149 did not have a material impact on the Company's condensed consolidated financial position, results of operations or liquidity.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS 150"). This new statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. It requires that those instruments be classified as liabilities in balance sheets. Most of the guidance in SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on the Company's condensed consolidated financial position, results of operations or liquidity.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year- end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a material impact on the Company's financial position, results of operations, or liquidity.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which represents an interpretation of Accounting Research Bulletin No. 51 ("ARB 51"), "Consolidated Financial Statements". ARB 51 requires that a Company's consolidated financial statements include subsidiaries in which the Company has a controlling financial interest. That requirement usually has been applied to subsidiaries in which the Company has a majority voting interest. However, the voting interest approach is not effective in identifying controlling financial interests in entities (referred to as " variable interest entities") that are not controllable through voting interests or in which the equity investors do not bear the residual economic risks. FIN 46 provides guidance on identifying variable interest entities and on assessing whether a Company's investment in a variable interest entity requires consolidation thereof. FIN 46 is effective immediately for investments made in variable interest entities after January 31, 2003 and it is effective in the first fiscal year or interim period beginning after June 15, 2003 for investments in variable interest entities made prior to February 1, 2003. The adoption of FIN 46 did not have a material impact on the Company's financial position, results of operations, or liquidity.