CREATIVE LEARNING CORP Management’s Discussion and Analysis of Financial Condition and Plan of Operation (form 10-Q)


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 “Learning Business”). 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. BFK had 274 global Bricks 4 Kidz® and Sew
Fun Studios® franchise territories, 28 Bricks 4 Kidz® master franchises, and
134 Bricks 4 Kidz® sub-franchises operating in 39 countries.

As a result of challenges faced by our Learning Business, in December 2021, our
board elected to change the business focus of the Company by entering into the
Share Exchange Agreement to acquire DriveItAway, Inc. and a separate agreement
to dispose of our Learning Business if the acquisition of DIA closes..” As a
result, the following description of our operating results and liquidity may not
be representative of our future operating results and liquidity.

Three Months ended December 31, 2021 and 2020

Revenues were $373,990 during the three months ended December 31, 2021, as
compared to $757,008 during the three months ended December 31, 2020. The drop
in gross revenues in 2021 as compared to 2020 is mainly attributable to a
decrease of approximately $143,000 in royalty fees and a decrease of
approximately $238,000 in initial franchise fees.

Initial franchise fees were $150,905 during the three months ended December 31,
2021
, as compared to $389,004 during the three months ended December 31, 2020, a
decline of $238,099. The decrease in initial franchise fees during the three
months ended December 31, 2021 was primarily due to fewer new franchise sales
due to the COVID-19 pandemic, as well as fewer terminations of existing
franchises, which results in the acceleration of deferred franchise revenues.

Royalty fee revenues were $189,147 during the three months ended December 31,
2021
as compared to $331,892 during the three months ended December 31, 2020, a
decline of $142,745. Royalty fee revenues decreased as compared to the
comparative periods due to the offboarding of franchisees during the year ended
September 30, 2021, and the three months ended December 31, 2021, which resulted
in fewer franchisees being charged royalties in the current period versus the
same period of the prior fiscal year. In addition, royalty fee revenues were
lower because of the interruption of normal operation at many franchises because
of the COVID-19 pandemic.

Marketing fund revenues were $0 during the three months ended December 31, 2021,
as compared to $0 during the three months ended December 31, 2020. The Company
had no marketing fund revenue in the current period due to the impact of
COVID-19. In particular, due to the impact of the COVID-19 pandemic on the
business of our franchisees, we voluntarily elected to cease charging our
franchises for marketing fees in March 2020. The Company expects to resume
charging franchisees for marketing when they are able to return to normal
operations following the COVID-19 pandemic.

Technology fees were $33,938 during the three months ended December 31, 2021, as
compared to $36,112 during the three months ended December 31, 2020. Technology
fees decreased during the three months ended December 31, 2021 over the
comparative prior period due to the impact of the COVID-19 on our franchisees’
operations.

Operating expenses were $386,059 during the three months ended December 31,
2021
, as compared to $535,487 during the three months ended December 31, 2020.
Operating expenses declined in 2021 as compared to 2020 primarily due to lower
franchise commission expense, professional fees and bad debt. Franchise
commissions decreased as a result of the offboarding of franchisees in the prior
year, which triggered the recognition of prepaid commissions into expense in the
prior year. Professional fees decreased due to settlement of litigation cases in
the prior year . Bad debt expense decreased due to fewer charge-offs of bad debt
as compared to the prior year.

Net income (loss) for the three months ended December 31, 2021 was $(12,372) as
compared to $223,467 in the three months ended December 31, 2020. The net loss
in the three months ended December 31, 2021 as compared to the net income in the
three months ended December 31, 2020 was a result of lower revenues partially
offset by lower expenses as discussed in detail above.



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Liquidity and Capital Resources

The Company’s primary source of liquidity is cash generated through operations.
As of December 31, 2021, the Company had approximately $279,000 of unrestricted
cash, and used cash flow from operations of approximately $72,000 in the three
months ended December 31, 2021 . The Company believes it has sufficient cash on
hand to cover expenses for the next 12 months, provided the Company operates
only the Learning Business for the next 12 months. However, the Company has
entered into agreements to acquire DIA and dispose of the Learning Business, and
if those agreements are consummated the Company’s liquidity will be determined
in reference to DIA’s profitability and capital needs instead.

The Company is dependent upon both franchise sales and royalty fees to continue
current business operations and liquidity.

The recent COVID-19 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 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 without masks, vaccinations and testing,
such as malls and shopping centers. Among the precautions was the cessation of
in-person learning at a substantial portion of the schools in the United States,
which has adversely impacted our royalty revenue from franchisees and our
ability to sell new franchises. 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. Many
public schools resumed some or all in person learning in the Fall of 2021, but
many have since reverted back to remote learning with the advent of the Omicron
strain of COVID-19 in December 2021. 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 some of our corporate employees whose jobs allow them to work
remotely to do so a few days a week 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,
and software development.

© Edgar Online, source Glimpses



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