Overview
Creative Learning Corporation, operating under the trade names of Bricks 4 Kidz®
and Sew Fun Studios®, offers educational and enrichment programs to children
ages 3 to 13+ through its franchisees. The Company's business model is to sell
franchise territories and collect a one-time franchise fee and subsequent
monthly royalty fees from each territory. Through the Company's franchise
business model, which includes a proprietary curriculum and marketing strategy
plus a proprietary franchise management tool, the Company provides a wide
variety of programs designed to enhance students' problem solving and critical
thinking skills. As of December 31, 2019, the Company had 501 Bricks 4 Kidz® and
Sew Fun Studios® franchise territories, 28 Bricks 4 Kidz® master franchises, and
138 Bricks 4 Kidz® sub-franchises operating in 40 countries.
1st Quarter FY 2020 Highlights
The decrease in initial franchise fees during the quarter ending December 31,
2019 was primarily due to more offboards in the comparative period in which the
deferred revenue on the terminated contract was recognized immediately as per
FASB ASC 606.
Royalties fees revenue decreased by approximately $117,000 due to the
offboarding of several franchisees during the year ended September 30, 2019,
thus fewer franchisees were paying royalties in the current period versus the
same period of the prior year.
Marketing fund revenue increased approximately $25,000 due to an increase in
marketing fund expenses in the current period. Because marketing fund revenues
and expenses are limited to the lesser of amounts spent by the Company or
amounts billed to customers, the increase in spend over the prior year resulted
in an increase in revenue from the prior year.
Operating Expenses decreased to approximately $509,000 in the quarter ended
December 31, 2019 from approximately $680,000 in the quarter ended December 31,
2018, or $171,000, primarily due to the increase in franchise commissions
expense as a result of more offboards in the comparative period in which the
deferred expense on the terminated contract was recognized immediately as per
FASB ASC 606.
The net income for the quarter ended December 31, 2019 was $299,148 as compared
to $698,540 in the quarter ended December 31, 2018. The decrease was primarily a
result of more offboards in the comparative period in which the deferred
revenues and expenses on terminated contracts were recognized immediately as per
FASB ASC 606.
Liquidity and Capital Resources
The Company's primary source of liquidity is cash generated through operations.
The Company has currently temporarily suspended domestic franchise offers and
sales of Bricks 4 Kidz® and Sew Fun Studios® franchises in compliance with FTC
Franchise Rule, Section 436.7(a) due to delay in completion of the Company's
fiscal year 2018 and 2019 consolidated audited financial statements as well as
the Company's December 31, 2019 consolidated financial statements. In turn, this
delayed completion of the Company's 2018 and 2019 FDDs for the Bricks 4 Kidz®
and Sew Fun Studios® franchise offerings
The Company is dependent upon both franchise sales and royalty fees to continue
current business operations and liquidity.
The recent Coronavirus outbreak has been declared a pandemic by the World Health
Organization, has spread to the United States and many other parts of the world
and has adversely affected our business operations, employee availability,
financial condition, liquidity and cash flow and the length of such impacts are
uncertain.
The outbreak of the Coronavirus ("COVID-19") continues to grow both in the
United States and globally, and related government and private sector responsive
actions have and will continue to adversely affect our business operations. It
is impossible to predict the effect and ultimate impact of the COVID-19 pandemic
as the situation is rapidly evolving.
The spread of COVID-19 has caused public health officials to recommend
precautions to mitigate the spread of the virus, including warning against
congregating in heavily populated areas, such as malls and shopping centers.
Among the precautions has been the closure of a substantial portion of the
schools in the United States, which will adversely impact our royalty revenue
from franchisees. There is significant uncertainty around the breadth and
duration of these school closures and other business disruptions related to
COVID-19, as well as its impact on the U.S. and global economy. The extent to
which COVID-19 impacts our results will depend on future developments, which are
highly uncertain and cannot be predicted, including new information that may
emerge concerning the severity of COVID-19 and the actions taken to contain it
or treat its impact. We have asked our corporate employees whose jobs allow them
to work remotely to do so for the foreseeable future. Such precautionary
measures could create operational challenges as we adjust to a remote workforce,
which could adversely impact our business.
Cash funds are used for ongoing operating expenses, the purchase of equipment,
property improvement, and software development. During the quarters ended
December 31, 2019 and 2018, the Company purchased property and equipment
totaling approximately $0 and $123,000.
On October 30, 2019 the Company completed the sale of a condominium conference
space for proceeds of approximately $100,000 and recorded a gain of
approximately $21,000, which represented the excess of the proceeds over the
carrying value on that date.
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