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CLCN > SEC Filings for CLCN > Form 10-Q on 13-Feb-2014All Recent SEC Filings

Show all filings for CREATIVE LEARNING CORP

Form 10-Q for CREATIVE LEARNING CORP


13-Feb-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operation

The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto contained in this report.

Results of Operations

BFK, which conducts business under the trade name BRICKS 4 KIDS®, offers programs designed to teach principles of engineering, architecture and physics to children ages 3-12+ using LEGO® bricks. The Company provides classes (both in school and after school), special events programs and day camps that are designed to enhance and enrich the traditional school curriculum, trigger young childrens' lively imaginations and build self-confidence. BFK's programs foster creativity and provide a unique atmosphere for students to develop problem solving and critical thinking skills by designing and building machines, catapults, pyramids, race cars, buildings and numerous other systems and devices using LEGO® bricks.

BFK operates primarily through a mobile franchise model.

BFK sold its first franchise in September 2009 and as of December31, 2013, BFK has sold 438 franchises, operating in 39 states, the District of Columbia, Puerto Rico and 19 foreign countries.

On September 14, 2012, the Company formed CI Franchise Company LLC ("CI") as a wholly owned subsidiary for purpose of operating a second franchise concept known as Challenge Island®, which provides unique challenge-based programs designed to foster critical and creative thinking skills, problem solving methodology, and core STEM (Science, Technology, Engineering, Mathematics) principles in children ages 3-13+. CI began selling franchises during the 2013 fiscal year.

As of December 31, 2013 CI has sold 8 franchises in the United States.

On January 8, 2013 the Company formed Sew Fun Franchise Company LLC ("SF") as a wholly owned subsidiary for the purpose of operating a third franchise concept known as Sew Fun. Sew Fun is a brick and mortar business featuring stores/studios located in strip malls and offering after-school classes, camps and birthday parties for children ages 8-13+, as well as adult classes, in fashion design.


The Company is in the process registering SF with state franchising regulators, and as of December 31, 2013, no state registrations have been completed.

Unless otherwise indicated, all references to the Company include the operations of BFK, BFKD, CI and SF.

Material changes of items in the Company's Statement of Operations for the three months ended December 31, 2013, as compared to the same period in 2012, are discussed below.

                                Increase (I)
Item                          or Decrease (D)     Reason

Revenues                             I            Growth of business resulting in
                                                  increased sales of franchises and
                                                  an increase in royalties received
                                                  from franchisees.

Operating Expenses                   I            Growth in business and the
                                                  startup of two new brands,
                                                  Challenge Island and Sew Fun, and
                                                  an additional BFK segment called
                                                  Bricks 4 Biz, and an additional
                                                  Corporate Creativity Center.

Liquidity and Capital Resources

Sources and (uses) of funds for the three months ended December 31, 2013 and
2012 were as follows:

                                                     Three months ended
                                                        December 31,
                                                     2013          2012

           Cash provided by (used in) operations     587,539        61,273
           Purchase of property and equipment         (2,437 )      (9,183 )
           Loans (repayment of loans)                   (764 )     (20,000 )

As of December 31, 2013 the Company's operating cash requirements were approximately $315,000 per month.

The Company anticipates that its capital requirements for the twelve-month period ending December 31, 2014 will be as follows:

                General and administrative expenses   $ 1,300,000
                Marketing                             $   450,000
                Business development                  $ 2,065,000


The Company collects and allocates 2% of the franchisee gross revenues to a marketing fund, managed by the Company, which is used for the national branding of the Company's concepts to benefit the franchisees. The marketing fund amounts are accounted for as a liability on the balance sheet and the actual collections are deposited into a marketing fund bank account. Expenses pertaining to the marketing fund activities are paid from the marketing fund and reduce the liability account. The Marketing Fund liability is actually offset with the matching amount of cash in the Marketing Fund bank account.

Contractual Obligations

The Company owns its corporate headquarters, but leases an additional office suite. The following table summarizes the Company's contractual lease obligations as of December 31, 2013:

2014 2015 2016 2017 Total

Lease of office space $ 10,800 $ 10,800 $ 10,800 $ 0 $ 32,400

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonable likely to have a current or future material effect on the Company's financial condition, changes in financial condition, results of operations, liquidity or capital resources.

Outlook

The Company saw another year of significant growth in the sales of franchises in fiscal year 2013 expanding from 210 to 395 franchises sold with its two brands in operation, resulting in increased revenues from franchise fees, including international growth and exposure. That trend continued into the quarter ending December 31, 2013, setting a record in new sales revenues and adding an additional 61 franchises, both domestic and internationally. In addition, with franchisees being in the system longer, there were significant increases in royalty fees.

As a result of this growth, the Company experienced a significant increase in liquidity and expects all of these trends to continue through this fiscal year.

By the end of the 2013 fiscal year, the Company had used all of its startup, tax net loss carryovers, and will be liable for income taxes on reported net income.

Other than as disclosed above, the Company does not know of any significant changes in its expected sources and uses of cash.

Critical Accounting Policies and Recent Accounting Pronouncements

See Note 1 to the Company's financial statements included as part of this report for a discussion of the Company's critical accounting policies. The Company does not expect that the adoption of recent accounting pronouncements will have a material effect on its financial statements.


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