FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2010.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-52883
CREATIVE LEARNING CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 20-445603
-------------------------------- ----------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
340 Paseo Reyes Drive, St. Augustine, FL 32095
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 825-0873
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ]
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act): [ ] Yes [X] No
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the registrant's common stock
on March 31, 2010, as quoted on the OTC Bulletin Board, was approximately
$1,033,850.
As of April 20, 2011, the Registrant had 10,831,770 issued and outstanding
shares of common stock.
Documents Incorporated by Reference: None
PART I
Cautionary Statement Concerning Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to risks and uncertainties and are based on the beliefs and assumptions of
management and information currently available to management. The use of words
such as "believes", "expects", "anticipates", "intends", "plans", "estimates",
"should", "likely" or similar expressions, indicates a forward-looking
statement.
The identification in this report of factors that may affect the Company's
future performance and the accuracy of forward-looking statements is meant to be
illustrative and by no means exhaustive. All forward-looking statements should
be evaluated with the understanding of their inherent uncertainty.
ITEM 1. BUSINESS
BUSINESS
The Company was formed in March 2006 to design, manufacture and sell
chiropractic tables and beds. The Company generated only changing revenue and
essentially abandoned its business plan in March 2008.
On July 2, 2010 the Company acquired BFK Franchise Company, LLC, a Nevada
limited liability company formed in May 2009, for 9,000,000 shares of the
Company's common stock.
On the July 7, 2010, shareholders holding a majority of the Company's
outstanding common stock approved an amendment to the Company's Articles of
Incorporation changing the name of the Company to Creative Learning Corporation.
Unless otherwise indicated, all references to the Company include the
operations of BFK.
BFK, which conducts business under the trade name, BRICKS 4 KIDS(R), offers
programs designed to teach principles of engineering, architecture and physics
to children ages 3-12+ using LEGO(R) bricks. BFK 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
children's 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(R) bricks.
LEGO(R) Bricks
LEGO(R) is a line of construction toys manufactured by the LEGO(R) Group, a
privately held company based in Billund, Denmark. The flagship product, LEGO(R),
consists of colorful interlocking plastic bricks and an accompanying array of
gears, minifigures and various other parts. LEGO(R) bricks can be assembled and
connected in many ways to construct such objects as vehicles, buildings, and
even working robots. Anything constructed can then be taken apart, and the
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pieces used to make other objects. The toys were originally designed in the
1940s in Europe and have achieved an international appeal, with an extensive
subculture that supports LEGO(R) movies, games, video games, competitions, and
four LEGO(R) themed amusement parks.
LEGO(R) pieces of all varieties are a part of a universal system. Despite
variation in the design and purpose of individual pieces over the years, each
remains compatible in some way with existing pieces. LEGO(R) bricks from 1958
still interlock with those made in 2010, and LEGO(R) sets for young children are
compatible with those made for teenagers.
Bricks, beams, axles, gears, mini figures, and all other parts in the
LEGO(R) system are manufactured to an exacting degree of precision. When snapped
together, pieces must have just the right amount of strength and flexibility
mixed together to stick together. They must stay together until pulled apart.
They cannot be too easy to pull apart, or the resulting constructions would be
unstable; they also cannot be too difficult to pull apart, since the disassembly
of one creation in order to build another is part of the LEGO(R) appeal.
Since it began producing plastic bricks, the LEGO(R) Group has released
thousands of sets themed around a variety of topics including town and city,
space, robots, pirates, LEGO(R) Trains, Racers, Vikings, castles, Bionicle,
dinosaurs, holiday locations, scuba diving and undersea exploration, the wild
west, the Arctic, airports and miners.
The LEGO(R) range has expanded to encompass accessory motors, gears,
lights, sensors, and cameras designed to be used with LEGO(R) components.
Motors, battery packs, lights and switches are sold under the name Power
Functions. The Technics line utilizes newer types of interlocking connections
that are still compatible with the older brick type connections. The Technics
line can often be motorized with Power Functions.
LEGO(R) initiated a robotics line of toys called "Mindstorms" in 1998, and
has continued to expand and update this range ever since. The product originated
from a programmable brick developed at the MIT Media Lab and the name is taken
from a paper written by a computer scientist and educator who developed the
educational theory of constructionism, and whose research was at times funded by
the LEGO(R) Group.
The programmable LEGO(R) brick which is at the heart of these robotics sets
has undergone several updates and redesigns, with the latest being called the
'NXT' brick, and sold under the brand name of LEGO(R) Mindstorms NXT 2.0 or 1.5.
The set includes sensors that detect touch, light, sound and ultrasonic waves,
with several others being sold separately, including an RFID reader. The
intelligent brick can be programmed using software available for both Windows
and Mac computers, and is downloaded onto the brick via Bluetooth.
Current Programs Offered by BFK
In-school field trips. One-hour classes during school hours. Classes are
correlated to the science for a particular grade level. Teacher guides, student
worksheets, and step-by-step instruction are provided. Recommended fees: $5-$8
per student.
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After-school classes. One hour, one day a week class held after school.
Recommended fees: $10-$15 per class per child, minimum commitment is usually 4
classes.
Pre-school classes. Classes can be held in pre-schools for children of
pre-school ages. Recommended fees; $5-$7 per child.
Classes for home-schooled children. Classes can be held in the home of one of
the parents of a home-schooled child. Recommended fees: $8-$10 per child.
Camps. Normally 3 hours per day for 5 days. Camps can take place at schools or
at other child-related venues. Children use LEGO(R) bricks to explore various
science and math concepts while working in an open, friendly environment. The
material covered each session varies depending on students' ages, experience,
and skill level. A new project is built each week. Architectural concepts are
taught while assembling buildings, castles and other structures. Instructional
content includes concepts of friction, gravity and torque, scale, gears, axles
and beams. The curriculum can include the construction of a scaled model of the
children's school or the school mascot. The children work and play with
programmable LEGO(R) bricks along with electric motors, sensors, system bricks,
and LEGO(R) Technic pieces (i.e. gears, axles, and beams). Recommended fees:
$125-$150/child. Children go home with a small LEGO(R) project (cost about
$5/child)
Birthday Parties. In the home of the birthday child. Recommended fees: $150 per
party up to 10 children. If over 10 children the fee is $10/child.
Special Events. Activities with LEGO(R) bricks can be held in various locations
including church centers, lodges, child-related venues, private schools,
pre-schools, etc. Program can include parents, grandparents and all children in
the family. Recommended fees: $5 per family.
Operating Units
BFK operates through Corporate Creativity Centers and franchisees.
A Corporate Creativity Center is a store-front location, owned and operated
by BFK, where BFK coordinates in school field trips, after school classes,
parties, camps and other programs - as well as the retail sales of LEGO(R)
merchandise.
As of April 20, 2011 BFK had:
o one Corporate Creativity Center in Florida.
o 46 franchises in 23 states and one foreign country.
Franchise Program
A franchisee pays a one-time, non-refundable franchise fee of $22,000 upon
the execution of the franchise agreement and is required to pay BFK a royalty of
7% of the amount received from the operation of the franchise.
The franchisee is granted an exclusive territory and a license to use the
"Bricks 4 Kidz(R)" name and trademarks in the franchised territory. The
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franchisee is required to conform to certain standards of business practices.
Each franchise is run as an independent business and, as such, is responsible
its operation, including employment of adequate staff.
Franchisees are permitted to assign their franchise provided that BFK
receives advance notice of the proposed assignment, the transferee assumes the
obligations under the franchise agreement, the transferee meets certain
conditions and qualifications, and BFK receives a $5,000 transfer fee.
The term of the franchise is for ten years. BFK has the right to terminate
any franchisee in the event of the franchisee's bankruptcy, a default under the
franchise agreement, or other events. The franchisee has the right to renew the
franchise for an additional ten years if, at the time of renewal, the franchisee
is in good standing and pays a renewal fee in the amount of $5000.
In addition to the $22,000 franchise fee, a franchisee is advised that an
additional investment of between $8,000 and $23,000 will be required for such
things as equipment and supplies, insurance, marketing and working capital
during the start-up phase of the business.
Competition
To the best of BFK's knowledge, there are no companies franchising a model
similar to that of Bricks 4 Kidz(R). However, Play-Well Teknologies, with
offices in San Anselmeo and Pleasanton, California, offers after-school classes,
camps and birthday parties using LEGO(R) bricks. Vision Education and Media
offers after school classes using LEGO(R) bricks in its office in New York City,
NY. In addition, several other small businesses around the country offer
after-school classes and vacation camps using LEGO(R) bricks. These classes and
camps are typically held in elementary schools, middle schools and community
colleges.
Government Regulation
The offer and sale of franchises, and the operations of franchises in some
respects, are regulated by the Federal Trade Commission and some state
governments.
In 1979 the Federal Trade Commission promulgated what became known as the
FTC Franchise Rule. The FTC Franchise Rule requires detailed disclosure of a
wide variety of information as a condition to selling a franchise, but the rule
does not regulate the franchise relationship or require any filing or
registration on the part of a franchisor. The FTC Franchise Rule requires that
the franchisor provide a disclosure statement or prospectus to each prospective
buyer prior to execution of a contract or payment of money relating to the
franchise relationship.
However, the FTC Franchise Rule is narrow and does not preempt state law,
which often is stricter than the FTC Franchise Rule. As such, numerous states
require franchise disclosure documents to be registered with the state
authorities, and numerous states regulate the franchise relationship itself.
California, Florida, Hawaii, Illinois, Indiana, Maryland, Michigan,
Minnesota, New York, North Dakota, Rhode Island, South Dakota, Texas, Utah,
Virginia, Washington and Wisconsin all have franchise statues and regulations
which typically require a franchisor to file or register its offering with the
state government and to provide all prospective franchisees with the disclosure
document.
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In these so called "registration states", state regulatory agencies review
the franchisor's registration application, the franchise disclosure document,
the proposed franchise agreement and any other agreements franchisees must sign.
State regulators also review the financial condition of the franchisor, the
background of the franchisor's executives and sales agents and provisions
regarding the rights and remedies of the franchisor and the franchise as
provided in the franchise agreement. These state agencies can deny registration
if they believe that the sale of the franchise would be deceptive in any way.
Numerous other states have laws regulating various facets of the
relationship between the franchisee and franchisor. These "relationship laws"
typically regulate franchisors' ability to terminate or refuse renewal of a
franchise, contain provisions requiring that a franchisor have "good cause"
before terminating or refusing to renew a franchise and may also address other
issues such as the right of a deceased franchisee's heirs to continue the
franchise after the original investor's death. Some laws require a franchisor to
buy back excess inventory from the franchisee in the even of termination. Some
state laws make it illegal for a franchisor to demand a general release from a
franchisee as a condition of renewing or entering into a new agreement.
Under the FTC Franchise Rule, the FTC has the authority to seek civil
penalties against a franchisor for violations of the FTC Franchise Rule. Each of
the "registration states" has similar authority to seek penalties for violations
of their requirements. Violations may include the offer or sale of an
unregistered franchise, failing to timely provide the disclosure document to a
prospective franchisee or making misrepresentations in the franchise disclosure
documents. Additionally, officers of the franchisor may have personal liability
if they had knowledge of or participated in the violations.
Individuals cannot sue a franchisor for a violation of the FTC Franchise
Rule. However, most of the pre-sale disclosure states grant a private right of
action for violation of the state statue and have remedies that typically
include damages, rescission of the franchise agreement and attorneys' fees.
General
The Company's offices are located at 340 Paseo Reyes Drive, St. Augustine,
FL 32095. The Company leases this space at a rate of $2,000 per month until July
31, 2011.
As of April 20, 2011 the Company employed five persons on a full time
basis.
The Company's website is www.bricks4kidz.com.
LEGO(R) is a registered trademark of the LEGO(R) Group of companies which
do not sponsor, authorize or endorse BFK's programs or its website.
ITEM 1A. RISK FACTORS
Not applicable.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
See Item 1 of this report.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. REMOVED AND RESERVED
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY
On November 7, 2008, the Company's common stock began trading on the OTC
Bulletin Board under the symbol "BTWO." Prior to that date, there was no
established trading market for the Company's common stock. Between February 2010
and April 2011 the closing price of the Company's common stock ranged between
$0.50 and $2.00. However, during this same period less than 120,000 shares
traded.
Shown below is the range of high and low quotations for our common stock
for the periods indicated as reported by the OTC Bulletin Board. The market
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commissions and may not necessarily represent actual transactions.
Quarter Ending High Low
-------------- ---- ---
12/31/08 -- --
3/31/09 $0.90 $0.51
6/30/09 $0.90 $0.75
9/30/09 $0.65 $0.65
12/31/09 $0.65 $0.65
3/31/10 $1.01 $0.50
6/30/10 $2.00 $1.25
9/30/10 $1.75 $1.05
As of April 20, 2011, the Company had 10,831,770 outstanding shares of
common stock and 177 shareholders of record.
Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors. The Company's Board of Directors is not
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restricted from paying any dividends but is not obligated to declare a dividend.
No dividends have ever been declared and it is not anticipated that dividends
will ever be paid.
The Company's Articles of Incorporation authorize its Board of Directors to
issue up to 10,000,000 shares of preferred stock. The provisions in the Articles
of Incorporation relating to the preferred stock allow the Company's directors
to issue preferred stock with multiple votes per share and dividend rights which
would have priority over any dividends paid with respect to the holders of the
Company's common stock. The issuance of preferred stock with these rights may
make the removal of management difficult even if the removal would be considered
beneficial to shareholders generally, and will have the effect of limiting
shareholder participation in certain transactions such as mergers or tender
offers if these transactions are not favored by the Company's management.
See Items 1 and 7 of this report for information concerning shares of the
Company's common stock which have been issued since July 1, 2010.
The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 with respect to the sale or issuance of these shares of
its common stock. The persons who acquired these securities were sophisticated
investors and were provided full information regarding the Company's business
and operations. There was no general solicitation in connection with the offer
or sale of these securities. The persons who acquired these securities acquired
them for their own accounts. The certificates representing these securities bear
a restricted legend providing that they cannot be sold unless pursuant to an
effective registration statement or an exemption form registration.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the audited financial statements and notes thereto contained in this report.
Results of Operations
Although from a legal standpoint the Company, on July 2, 2010, acquired BFK
Franchise Company, for financial reporting purposes, the acquisition of BFK
constituted a recapitalization, and the acquisition was accounted for similar to
a reverse merger, with the result that BFK was deemed to have acquired the
Company. As a result, the financial statements of the Company included as part
of this report represent the activity of BFK from May 19, 2009 (the inception of
BFK) to July 2, 2010, and the consolidated activity of BFK and the Company from
July 2, 2010 forward.
Since BFK was organized on May 19, 2009, and was only in operation for
approximately four and a half months during the year ended September 30, 2009, a
comparison of the Company's financial statements for the year ended September
30, 2010 with the Company's financial statements for the period ended September
30, 2009 would not be meaningful.
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Liquidity and Capital Resources
Sources and (uses) of funds for the years ended September 30, 2010 and
2009 are shown below:
Year Ended September 30,
2010 2009
---- ----
Cash used in operations (franchise sales
royalties, facility operations) $498,444 $ 37,500
Bridge Loans 200,000 49,844
--------- --------
$698,444 $ 87,344
======== ========
Subsequent to July 2, 2010, the date the Company acquired BFK Franchise
Company, the Company had the following transactions in its common stock:
Between September 2010 and December 2010, the Company sold 55,342 units at
a price of $3.00 per unit. Each Unit consisted of four shares of the Company's
common stock and one warrant. Each Warrant entitles the holder to purchase one
share of the Company's common stock at a price of $3.00 per share. The Warrants
expire on the earlier of July 31, 2013, or twenty days following written
notification from the Company that its common stock had a closing bid price at
or above $4.00 for any ten of twenty consecutive trading days. The proceeds from
the sale of the Units were used to open a new Corporate Creativity Center in
Coral Springs, Florida, as well as for developing the Company's online Franchise
Management Tool (the "FMT") that is used by franchisees for business management
and general and administrative expenses.
On June 24, 2010 the Company borrowed $100,000 from a franchisee. During
the three months ended December 31, 2010 this loan was converted into 250,000
shares.
On July 15, 2010 the Company borrowed $100,000 from three persons. During
the three months ended December 31, 2010 these loans were converted into 215,902
shares. Of this amount, 62,500 shares had not been issued as of April 15, 2011.
On December 28, 2010 the Company borrowed $10,000 from a franchisee. The
loan was repaid on April 2, 2011. In partial consideration for providing this
loan, the Company agreed to issue 7,500 shares to the franchisee. Of this
amount, 2,500 shares have been issued as of April 15, 2011 and 5,000 shares
remain to be issued.
Between August 1, 2010 and March 1, 2011 the Company issued 35,000 shares
for investor relations services.
Between January 1, 2011 and February 1, 2011 the Company issued 100,000
shares to two persons for services rendered.
On January 21, 2011 the Company issued 10,000 shares to an employee for
services rendered.
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In March 2011 the Company granted a third party an option to purchase up to
667,000 shares at a price of $0.675 per share. The option expires on June 15,
2011. As of April 15, 2011 the option holder had purchased 160,000 shares.
Between April 1, 2011 and April 15, 2011 the Company sold 99,500 shares, at
a price of $1.00 per share, to a group of private investors.
The Company has agreed to issue 50,000 shares to Dan O'Donnell, the
Company's Vice President of Operations, for services rendered. As of April 15,
2011 these shares had not been issued.
On February 27, 2011 the Company borrowed $15,000 from a third party. This
loan was repaid on March 22, 2011. In partial consideration for providing this
loan, the Company agreed to issue 2,500 shares to the lender. As of April 15,
2011, these shares had not been issued.
Except as indicated, none of the shares listed above were issued to an
officer, director, principal shareholder or an affiliate of the Company.
As of April 20, 2011 the Company's operating cash requirements were
approximately $63,000 per month.
The Company anticipates that its capital requirements for the twelve-month
period ending December 31, 2011 will be as follows:
General and administrative expenses $343,200
Marketing $180,000
Business development $100,000
Opening new Corporate Creativity Centers $200,000
The Company will need to raise the capital it requires through the sale of
its securities or from loans from third parties. The Company does not have any
commitments or arrangements from any person to provide the Company with any
additional capital. If additional financing is not available when needed, the
Company may need to curtail operations. The Company may not be successful in
raising the capital it needs.
As of April 20, 2011 the Company did not have any outstanding short or long
term loans and the Company's liabilities consisted of trade payables. In late
February, early March 2011, the Company began to generate a positive cash flow
from its operations. Notwithstanding the above, there is no assurance the
Company's operations will be profitable or that the Company will continue to
generate a positive cash flow.
Contractual Obligations
The following table summarizes the Company's contractual obligations as of
September 30, 2010:
2011 2012 2013 Total
---- ---- ---- -----
Lease of corporate office $24,000 -- -- $ 24,000
Lease of Creative Learning Center $42,119 $44,175 $45,267 $131,561
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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
Other than as disclosed above, the Company does not know of any trends,
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, the Company's liquidity increasing or decreasing
in any material way.
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 and recent
accounting pronouncements, the adoption of which may have a material effect on
the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statements and accompanying notes included as part of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the
participation of management, including the Company's Principal Financial Officer
and Principal Executive Officer, of the effectiveness of disclosure controls and
procedures as of the end of the period covered by this report on Form 10-K.
Disclosure controls and procedures are procedures designed with the objective of
ensuring that information required to be disclosed in reports filed under the
Securities Exchange Act of 1934, such as this Form 10-K, is recorded, processed,
summarized and reported, within the time period specified in the Securities and
Exchange Commission's rules and forms, and that such information is accumulated
and is communicated to management, including the Company's Principal Executive
Officer and Principal Financial Officer, or persons performing similar
functions, as appropriate, to allow timely decisions regarding required
disclosure. Based on that evaluation, management concluded that, as of September
30, 2010, the Company's disclosure controls and procedures were effective.
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Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting and for the assessment of the
effectiveness of internal control over financial reporting. As defined by the
Securities and Exchange Commission, internal control over financial reporting is
a process designed by, or under the supervision of the Company's principal
executive officer and principal financial officer and implemented by the
Company's Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with U.S. generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Brian Pappas, the Company's Principal Executive and Financial Officer,
evaluated the effectiveness of disclosure controls and procedures as of
September 30, 2010 based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission, or the COSO Framework. Management's assessment included an
evaluation of the design of our internal control over financial reporting and
testing of the operational effectiveness of those controls.
Based on this evaluation, management concluded that the Company's internal
control over financial reporting was effective as of September 30, 2010.
There was no change in internal control over financial reporting that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company's officers and directors are listed below. Directors are
generally elected at the annual shareholders' meeting and hold office until the
next annual shareholders' meeting or until their successors are elected and
qualified. Executive officers are elected by Directors and serve at their
discretion.
Name Age Position
---- --- --------
Brian Pappas 59 President, Principal Financial Officer,
Principal Accounting Officer, Secretary
and Director
Michelle Cote 40 Founder and a Director
Dan O'Donnell 40 Vice President of Operations and a Director
Jeff Pappas 56 Vice President of New Business Developments
Steven Menscher 47 Director
Brian Pappas has been an officer and Managing Member of BFK since May 2009.
Between 1981 and 1998 Brian Pappas owned and operated (with his brother Jeff),
Together Development Corporation, which sold franchises under the trade name
"Together Dating Service." Mr. Pappas and his brother grew Together Development
Corporation from 12 franchises to over 175 franchises which were located
throughout the US, Canada, England, Netherlands and Germany. After Mr. Pappas
sold Together Development Corporation in 1998 he opened Skater Paradise, Inc,
which operated a chain of indoor skate parks in Massachusetts. After selling
Skater Paradise, Inc in 2004 Mr. Pappas, until April, 2009, provided consulting
services, and in some instances acted as the franchise development director for
Zen Massage Center, WeekDay Gourmet, Shape up Sisters, Digicom Specialties, The
Online Outpost, and Auction-It-Today. In the spring of 2009, Mr. Pappas met with
Michelle Cote, the founder of Bricks 4 Kidz(R), and together they formed BFK in
May 2009. Between 1981 and 1998 Mr. Pappas also co-owned and operated two
advertising agencies, Cushing & Pappas and The Thought Process. Mr. Pappas
graduated from Colgate University in 1973 with a Bachelor of Arts degree in
mathematics and music.
Dan O'Donnell has been an officer and Vice President of Operations of BFK
since April 15, 2010. Between October 2009 and his association with BFK, Mr.
O'Donnell developed the Franchise Marketing Tool (FMT) for BFK, which is an
essential component of the Bricks 4 Kidz(R) franchise model. Between May 2000
and October 2009 Mr. O'Donnell was the Director of Franchise Operations for The
Whole Child Learning Company, a franchisor of children's educational services,
where he was responsible for the oversight of all daily operational activities,
franchisee training and ongoing franchisee support. Mr. O'Donnell began his
career in 1994 when he developed and launched a computer education program for
children called Computer Kids Unlimited in Pittsburgh. Mr. O'Donnell attended
the University of Pittsburgh at Titusville between August 1987 and May 1988 and
Richard Bland College between August 1988 and May 1990.
Jeff Pappas has been an officer and Vice President of New Business
Development of BFK since April 15, 2010. Between 2007 and 2010, Mr. Pappas was
the President/Managing Director for Bottom Line Group, a firm that provided
consulting services to middle market food and beverage clients in the areas of
13
corporate finance, corporate strategy, human resources, equity analysis, startup
management, and intellectual property. Between 2003 and 2006 Mr. Pappas was a
partner and Director for Acceleron Group, LLC, an agency similar to Bottom Line
Group. Mr. Pappas received his Bachelor of Arts degree from Denison University
(Granville, Ohio) in 1976.
Michelle Cote co-founded BFK in May 2009 and founded Bricks 4 Kidz(R) in
June, 2008. In her capacity as "founder", Ms. Cote advises BFK in the areas of
creative development and new programs. Ms. Cote developed the Bricks 4 Kidz(R)
concept and since early 2008 has been operating after-school classes, camps and
birthday parties using LEGO(R) bricks. Between 2005 and 2008 Ms. Cote was a free
lance architectural draftsman. Prior to that time Ms. Cote worked for an
architectural firm in St. Augustine, FL. Ms. Cote received her B.A. degree from
Flagler College in St. Augustine in 1991 with a major in Spanish/Latin American
studies and graduated Cum Laude.
Steven Menscher was appointed as director of the Company on July 30, 2010.
Mr. Menscher is an attorney, a private investor, and an experienced executive
specializing in all aspects of start-up companies, including legal, corporate
planning and strategic planning. Since 1997, he has been the president of SeCure
Files, Inc., an Aspen, Colorado based computer service company, Mr. Menscher has
also been of counsel for Rohan Development Corporation of Los Angeles. Mr.
Menscher is a graduate of the University of Colorado, Boulder, and the
Pepperdine University School of Law.
Brian Pappas, Michele Cote and Dan O'Donnell's longstanding relationship
with the Company benefits the Company and its shareholders and qualifies them to
be directors.
Steven Menscher's experience with development stage companies benefits the
Company and its shareholders and qualifies him to be a director.
The Company does not have a compensation committee. The Company's directors
serve as its audit committee.
The Company's directors are not independent directors as that term is
defined in section 803 of the listing standards of the NYSE AMEX. No director is
a "financial expert" as that term is defined in the regulations of the
Securities and Exchange Commission. The Company does not believe a financial
expert is necessary since its revenues for the year ended September 30, 2010
were less than $500,000.
The Company has not adopted a Code of Ethics applicable to its principal
executive, financial, and accounting officers and persons performing similar
functions. The Company does not believe a Code of Ethics is needed at this time
since the Company has only three officers.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the compensation paid or accrued to the Company's
executive officers during the years ended September 30, 2010 and 2009.
Following the acquisition of BFK in July 2010, and as discussed in item 1
of this report, John Quam resigned as an officer and director and the other
persons listed below were appointed as the new management of the Company.
Stock Option All Other
Name and Principal Fiscal Salary Bonus Awards Awards Compensation
Position Year (1) (2) (3) (4) (5) Total
------------------ ---- ------ ----- ------ ------ ------------ -----
Brian Pappas, 2010 $75,000 -- -- -- -- $75,000
Principal Executive,
Financial and
Accounting Officer
Michelle Cote, 2010 -- -- -- -- $70,102 $70,102
Founder
Dan O'Donnell, 2010 $47,150 -- -- -- -- $47,150
Vice President of
Operations
Jeff Pappas, 2010 $34,000 -- -- -- -- $34,000
Vice President of
New Business
Development
John Quam, 2010$ -- -- -- -- -- --
President 2009$ -- -- -- -- -- --
(1) The dollar value of base salary (cash and non-cash) earned.
(2) The dollar value of bonus (cash and non-cash) earned.
(3) The fair value of stock issued for services computed in accordance with ASC
718 on the date of grant.
(4) The fair value of options granted computed in accordance with ASC 718 on
the date of grant.
(5) All other compensation received that we could not properly report in any
other column of the table.
Long-Term Incentive Plans. The Company does not provide its officers or
employees with pension, stock appreciation rights, long-term incentive or other
plans.
Employee Pension, Profit Sharing or other Retirement Plans. The Company does not
have a defined benefit, pension plan, profit sharing or other retirement plan,
although it may adopt one or more of such plans in the future.
Compensation of Directors During Year Ended September 30, 2010. The Company does
not compensate its directors for acting as such.
Compensation Committee Interlocks and Insider Participation.
14
The Company's directors act as its compensation committee. During the year
ended September 30, 2010 each director participated in deliberations concerning
executive officer compensation.
During the year ended September 30, 2010, none of the Company's officers
was a member of the compensation committee or a director of another entity,
which other entity had one of its executive officers serving as one of the
Company's directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table shows, as of April 20, 2011, information with respect
to those persons owning beneficially 5% or more of the Company's common stock
and the number and percentage of outstanding shares owned by each Director and
officer and by all officers and directors as a group. Unless otherwise
indicated, each owner has sole voting and investment powers over their shares of
common stock.
Shares Percent of
Name and Address Owned Outstanding Shares
---------------- ----- ------------------
Brian Pappas 2,599,000 (1) 24%
340 Paseo Reyes Drive
St. Augustine, FL 32095
Michele Cote 1,800,000 (2) 17%
340 Paseo Reyes Drive
St. Augustine, FL 32095
Dan O'Donnell 100,000 1%
340 Paseo Reyes Drive
St. Augustine, FL 32095
Jeff Pappas 125,000 1%
340 Paseo Reyes Drive
St. Augustine, FL 32095
Steven Menscher 137,000 1%
725 Castle Creek Drive
Aspen, CO 81611
(All officers and directors 4,761,000 44%
as a group 5 persons)
(1) Shares are held of record by FranVentures, LLC, a limited liability company
managed by Mr. Pappas.
(2) Shares are held of record by MC Logic, LLC, a limited liability company
controlled by Ms. Cote.
15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
--------------------------------------
For the year ended September 30, 2010 and 2009, Ronald R. Chadwick, P.C.
("Chadwick") served as the Company's independent registered public accounting
firm. The following table shows the aggregate fees billed the Company for these
periods by Chadwick.
Year Ended Year Ended
September 30, 2010 September 30, 2009
------------------ ------------------
Audit Fees $19,500 $ 11,000
Audit-Related Fees $ 1,500 -
Tax Fees $ 2,000 -
All Other Fees - -
Audit fees represent amounts billed for professional services rendered for
the audit of the Company's annual financial statements and the reviews of the
financial statements included in the Company's Form 10-Q and Form 10-K reports.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits Page Number
-------- -----------
3.1.1 Articles of Incorporation (1)
3.1.2 Amendment to Articles of Incorporation
3.1.2 Bylaws (1)
10 Agreement relating to the acquisition of BFK
Franchise Company (2)
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
(1) Incorporated by reference to the same exhibit filed with the Company's
registration statement on Form SB-2, File #333-145999.
(2) Incorporated by reference to Exhibit 10.1 filed with the Company's report
on Form 8-K dated July 2, 2010.
16
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 and 2010
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
Consolidated Financial Statements
TABLE OF CONTENTS
Page
----
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of operations 3
Consolidated statements of stockholders' equity 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 7
RONALD R. CHADWICK, P.C.
Certified Public Accountant
2851 South Parker Road, Suite 720
Aurora, Colorado 80014
Telephone (303) 306-1967
Fax (303) 306-1944
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Creative Learning Corporation
St. Augustine, Florida
I have audited the accompanying consolidated balance sheets of Creative Learning
Corporation (formerly B2 Health, Inc.) as of September 30, 2009 and 2010, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Creative Learning Corporation as of September 30, 2009 and 2010, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered a loss from operations and has a
working capital deficit and stockholders' deficit. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 8. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Aurora, Colorado /s/ Ronald R. Chadwick, P.C.
February 21, 2011 RONALD R. CHADWICK, P.C.
1
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
CONSOLIDATED BALANCE SHEETS
Sept. 30, Sept. 30,
2009 2010
----------- -------------
ASSETS
Current assets
Cash $ 57,652 $ 27,271
----------- -------------
Total current assets 57,652 27,271
----------- -------------
Fixed assets 41,743
Less accumulated depreciation (589)
Other assets 9,819
----------- -------------
- 50,973
----------- -------------
Total Assets $ 57,652 $ 78,244
=========== =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ - $ 39,700
Note payable - rel. pty. - current
portion 650 650
Notes payable - current portion 200,000
Debt discount (19,630)
Accrued interest payable 6,350
Due to shareholder 6,250
----------- -------------
Total current liabilities 650 233,320
----------- -------------
Total Liabilities 650 233,320
----------- -------------
Stockholders' Equity (See Note 5)
Creative Learning Corporation
stockholders' equity
Preferred stock, $.0001 par value;
10,000,000 shares authorized; none
issued and outstanding - -
Common stock, $.0001 par value;
50,000,000 shares authorized;
1,557,500 (2009) and 2,581,268 (2010)
shares issued and outstanding 156 258
Additional paid in capital 49,844 670,427
Retained earnings (deficit) 7,002 (771,027)
----------- -------------
Total Creative Learning Corporation
stockholders' equity 57,002 (100,342)
Noncontrolling interest - (54,734)
----------- -------------
Total Stockholders' Equity 57,002 (155,076)
----------- -------------
Total Liabilities and Stockholders' Equity $ 57,652 $ 78,244
=========== =============
The accompanying notes are an integral part of
the consolidated financial statements.
2
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended
Sept. 30, Sept. 30,
2009 (1) 2010 (1)
-------------- ---------------
Revenues $ 37,500 $ 498,444
Cost of revenues - 261,516
-------------- ---------------
Gross profit 37,500 236,928
-------------- ---------------
Operating expenses:
Depreciation 589
Bad debts 29,500
General and administrative 30,499 962,613
-------------- ---------------
30,499 992,702
-------------- ---------------
Gain (loss) from operations 7,001 (755,774)
-------------- ---------------
Other income (expense):
Interest expense (6,975)
Interest expense - debt discount (80,370)
Interest income 1 1
Other income 10,355
-------------- ---------------
1 (76,989)
-------------- ---------------
Income (loss) before provision for
income taxes 7,002 (832,763)
Provision for income tax - -
-------------- ---------------
Net income (loss) 7,002 (832,763)
Less: Net (income) loss attributable
to non-controlling interest - 54,734
-------------- ---------------
Net income (loss) attributable
to Creative Learning Corporation $ 7,002 $ (778,029)
============== ===============
Net income (loss) per share (Creative
Learning Corporation)
(Basic and fully diluted) $ 0.01 $ (0.43)
============== ===============
Weighted average number of
common shares outstanding 1,038,000 1,793,575
============== ===============
(1) As restated for a reverse acquisition on July 2, 2010
The accompanying notes are an integral part of the consolidated financial
statements.
3
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Stockholders'
Common Stock Equity
Additional Retained Creative Total
Amount Paid in Earnings Learning Noncontrolling Stockholders'
Shares ($.0001 Par) Capital (Deficit) Corporation Interest Equity
-------- ------------ ---------- ---------- ------------ --------------- ------------
Balances at September 30, 2008
(1) - $ - $ - $ - $ - $ - $ -
Founders shares for cash 1,557,000 156 49,844 50,000 50,000
Net income (loss) for the
year 7,002 7,002 7,002
--------- ---------- --------- ---------- ----------- ----------- -------------
Balances at September 30, 2009
(1) 1,557,000 $ 156 $ 49,844 $ 7,002 $ 57,002 $ - $ 57,002
Stock issued for reverse
acquisition 800,000 80 (26,410) (26,330) (26,330)
Compensatory warrant issuances 353,814 353,814 353,814
Compensatory stock issuances 100,000 10 141,237 141,247 141,247
Paid in capital - beneficial
conversion feature 58,753 58,753 58,753
Sales of common stock 124,268 12 93,189 93,201 93,201
Net income (loss) for the
year (778,029) (778,029) (54,734) (832,763)
--------- ---------- --------- ---------- ----------- ----------- -------------
Balances at September 30, 2010
(1) 2,581,268 $ 258 $ 670,427 $(771,027) $(100,342) $(54,734) $ (155,076)
========= ========== ========= ========== =========== =========== =============
(1) As restated for a reverse acquisition on July 2, 2010
The accompanying notes are an integral part of the consolidated financial
statements.
4
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended
Sept. 30, Sept. 30,
2009 (1) 2010 (1)
------------ ------------
Cash Flows From Operating Activities:
Net income (loss) $ 7,002 $ (832,763)
Adjustments to reconcile net loss to net
cash provided by (used for) operating
activities:
Depreciation 589
Compensatory equity issuances 453,814
Interest expense - debt discount 80,370
Accrued payables 25,970
Other assets (9,819)
------------ ------------
Net cash provided by (used for)
operating activities 7,002 (281,839)
------------ ------------
Cash Flows From Investing Activities:
Fixed assets (41,743)
------------ ------------
Net cash provided by (used for)
investing activities - (41,743)
------------ ------------
Cash Flows From Financing Activities:
Notes payable - borrowings 650 200,000
Sales of common stock 50,000 93,201
------------ ------------
Net cash provided by (used for)
financing activities 50,650 293,201
------------ ------------
Net Increase (Decrease) In Cash 57,652 (30,381)
Cash At The Beginning Of The Period - 57,652
------------ ------------
Cash At The End Of The Period $ 57,652 $ 27,271
============ ============
(1) As restated for a reverse acquisition on
July 2, 2010
Schedule Of Non-Cash Investing And Financing Activities
In 2010 the Company issued 50,000 common shares
in connection with notes payable for
compensation recorded at $100,000, the Company
issued 200,000 common stock purchase options in
connection with notes payable for compensation
recorded at $353,814, and the Company issued
800,000 shares of common stock pursuant to a
reverse acquisition for net liabilities of
$26,330.
Supplemental Disclosure
Cash paid for interest $ - $ 625
Cash paid for income taxes $ - $ -
The accompanying notes are an integral part of the consolidated financial
statements.
5
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 and 2010
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Creative Learning Corporation (formerly B2 Health, Inc.) was incorporated March
8, 2006 in the State of Delaware. BFK Franchise Company LLC was formed in the
State of Nevada on May 19, 2009. Effective July 2, 2010 Creative Learning
Corporation was acquired by BFK Franchise Company LLC in a transaction similar
to a reverse acquisition. Creative Learning Corporation concurrently changed its
name from B2 Health, Inc. to Creative Learning Corporation. The financial
statements represent the activity of BFK Franchise Company LLC from May 19, 2009
(the inception of BFK Franchise Company) to July 2, 2010, and the consolidated
activity of BFK Franchise Company LLC and Creative Learning Corporation from
July 2, 2010 forward. BFK Franchise Company LLC and Creative Learning
Corporation are hereinafter referred to collectively as the "Company". The
Company, primarily through franchises, offers educational programs designed to
teach principles of engineering, architecture and physics to children using Lego
(R) bricks. The Company may also engage in any other business that is permitted
by law, as designated by the Board of Directors of the Company.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All intercompany accounts and
transactions have been eliminated in consolidation.
Fiscal year
The Company employs a fiscal year ending September 30.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Nature of significant initial services and restricted funds
When an individual franchise is sold, the Company agrees to provide site
location assistance, trademarks and training to the franchises. When the Company
receives funds from the franchises which are required to be used for
advertising, such funds are recorded as a liability until spent.
6
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 and 2010
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
Accounts receivable
The Company reviews accounts receivable periodically for collectability and
establishes an allowance for doubtful accounts and records bad debt expense when
deemed necessary. At September 30, 2009 and 2010 the Company had no balance in
its allowance for doubtful accounts.
Property and equipment
Property and equipment are recorded at cost and depreciated under accelerated or
straight line methods over each item's estimated useful life.
Revenue recognition
Revenue is recognized on an accrual basis after services have been performed
under contract terms, the service price to the client is fixed or determinable,
and collectibility is reasonably assured.
Advertising costs
Advertising costs are expensed as incurred. The Company had advertising costs in
2009 and 2010 of $6,600 and $110,000.
Income tax
The Company accounts for income taxes pursuant to ASC 740. Under ASC 740
deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
7
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 and 2010
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Prior to fiscal year 2010 the Company operated as an LLC, was a pass-through
entity for federal income tax purposes and paid no income tax at the company
level. At September 30, 2010 the Company had net operating loss carryforwards of
approximately $540,000 which begin to expire in 2030. The deferred tax asset of
approximately $11,000 created by the net operating loss has been offset by a
100% valuation allowance. The change in the valuation allowance in fiscal year
2010 was $110,000.
Net income (loss) per share
The net income (loss) per share is computed by dividing the net income (loss) by
the weighted average number of shares of common outstanding. Warrants, stock
options, and common stock issuable upon the conversion of the Company's
preferred stock (if any), are not included in the computation if the effect
would be anti-dilutive and would increase the earnings or decrease loss per
share.
Financial Instruments
The carrying value of the Company's financial instruments, as reported in the
accompanying balance sheets, approximates fair value.
Long-Lived Assets
In accordance with ASC 350, the Company regularly reviews the carrying value of
intangible and other long-lived assets for the existence of facts or
circumstances, both internally and externally, that may suggest impairment. If
impairment testing indicates a lack of recoverability, an impairment loss is
recognized by the Company if the carrying amount of a long-lived asset exceeds
its fair value.
Stock based compensation
The Company accounts for employee and non-employee stock awards under ASC 718,
whereby equity instruments issued to employees for services are recorded based
on the fair value of the instrument issued and those issued to non-employees are
recorded based on the fair value of the consideration received or the fair value
of the equity instrument, whichever is more reliably measurable.
8
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 and 2010
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued):
Minority Interest (Noncontrolling interest)
A subsidiary of the Company has minority members, representing ownership
interests of 50% at September 30, 2010. The Company accounts for these minority,
or noncontolling interests pursuant to ASC 810-10-65 whereby gains or losses in
a subsidiary with a noncontrolling interest are allocated to the noncontrolling
interest based on the ownership percentage of the noncontrolling interest, even
if that allocation results in a deficit noncontrolling interest balance.
NOTE 2. REVERSE ACQUISITION
On July 2, 2010 Creative Learning Corporation entered into an agreement to
exchange securities (the "Agreement") with BFK Franchise Company LLC, acquiring
100% of the outstanding membership interests of BFK Franchise Company LLC
through the Agreement calling for the issuance of 9,000,000 shares of its common
stock. As of September 30, 2010, 1,557,000 shares had been issued under the
Agreement, with 7,443,000 shares remaining to be issued. The transaction was
accounted for similar to a reverse acquisition as the members of BFK Franchise
Company LLC retained the majority of the outstanding common stock of Creative
Learning Corporation after the share exchange. The accounting for the
transaction was identical to that resulting from a reverse acquisition, except
that no goodwill or other intangibles were recorded. Effective with the
Agreement, the Company's stockholders' equity was retroactively recapitalized as
that of BFK Franchise Company LLC, while 100% of the net liabilities of Creative
Learning Corporation valued at $(26,330) consisting of accounts payable of
$26,330, were recorded as being acquired in the reverse acquisition for its
800,000 outstanding common shares. Subsequent to the July 2, 2010
recapitalization, Creative Learning Corporation and BFK Franchise Company LLC
remain separate legal entities (with Creative Learning Corporation as the parent
of BFK Franchise Company LLC). The accompanying consolidated financial
statements exclude the financial position, results of operations and cash flows
of Creative Learning Corporation prior to the July 2, 2010. Creative Learning
Corporation concurrent with the transaction changed its name from B2 Health,
Inc. to Creative Learning Corporation. Effective with the July 2, 2010 Agreement
the Company sold its 100% owned subsidiary Back 2 Health, Ltd. to a company
related by common control for a nominal fee.
NOTE 3. RELATED PARTY TRANSACTIONS
In fiscal year 2009 and 2010 the Company paid companies related by common
control approximately $2,300 and $0 for advertising, $10,000 and $89,000 for
consulting, $0 and $31,000 for franchise expenses, $0 and $39,000 for franchise
training, and $0 and $158,000 for commissions.
9
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 and 2010
NOTE 4. FIXED ASSETS
Fixed asset values recorded at cost are as follows:
September 30, 2010
Furniture & Fixtures $ 31,763
Equipment 9,981
----------
41,744
Less accumulated depreciation (589)
-----------
Total $ 41,155
===========
Depreciation expense in fiscal year 2010 was $589.
NOTE 5. NOTES PAYABLE
At September 30, 2009 and 2010 the Company had a note payable to a related party
of $650, unsecured, due in December 2010, and bearing simple interest at 5% per
annum.
At September 30, 2010 the Company also had $100,000 in notes outstanding to
individuals, unsecured, to be repaid from proceeds of a private placement
offering of the Company's common stock which was commenced in July 2010, with 1%
interest monthly on the outstanding balance. If one of the notes, for $50,000,
was not repaid by July 1, 2010, the Company is required to pay $5,000 per month
from mid-July 2010 forward until the note is retired. Pursuant to note terms,
the lenders were to also receive 50,000 common shares by June 2010 (which
remained due at September 30, 2010), and upon repayment of the notes have the
right to purchase 200,000 shares of the Company at $.50 per share.
At September 30, 2010 the Company in addition had $100,000 in convertible notes
outstanding to individuals, unsecured, due in November 2010, with 1% interest
compounded monthly on the outstanding balance, convertible anytime at the
lender's election at $.50 per share into 200,000 common shares total. Pursuant
to note terms, the lenders were to also receive 25,000 common shares by June
2010 and 25,000 shares by August 31, 2010, which remained due at September 30,
2010. The Company recognized a beneficial conversion feature debt discount on
the convertible notes of $100,000 (limited to the face amount of the notes),
which was allocated $58,753 to paid in capital and $41,247 to stock
subscriptions payable. The debt discount is amortized over the lives of the
loans. Interest expense from debt amortization in fiscal year 2010 was $80,370,
with a remaining unamortized debt discount at September 30, 2010 of $19,630.
10
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 and 2010
NOTE 5. NOTES PAYABLE (Continued):
The total of all notes payable outstanding at September 30, 2010 was $200,650,
all currently due within one year. Accrued interest payable on the notes was
$6,350, with interest expense in fiscal year 2010 of $6,975.
NOTE 6. STOCK COMMITMENTS
The Company is committed to issued an additional 7,443,000 common shares
pursuant to the July 2, 2010 securities exchange agreement. If all of the
7,443,000 securities exchange shares were issued and outstanding, when coupled
with the Company's currently outstanding shares of 2,581,268, the Company would
have 10,024,268 common shares outstanding.
NOTE 7. LEASE COMMITMENTS
The Company carries various office leases with terms expiring from 2011 through
2015. The leases are generally non-cancellable and carry renewal options.
Current monthly lease costs are approximately $6,300 per month plus costs.
Subsequent to September 30, 2010 future minimum payments under the leases are
approximately $226,000 including by fiscal year $64,000 in 2011, $44,000 in
2012, $45,000 in 2013, $46,000 in 2014, and $27,000 in 2015. Rent expense in
fiscal year 2010 was approximately $14,000.
NOTE 8. STOCK OPTIONS AND WARRANTS
At September 30, 2010 the Company had stock options outstanding as described
below.
Non-employee stock options
The Company accounts for non-employee stock options under ASC 718, whereby
option costs are recorded based on the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably
measurable. Unless otherwise provided for, the Company covers option exercises
by issuing new shares.
During the year ended September 30, 2010 the Company issued 200,000 common stock
purchase options in conjunction with notes payable, allowing the holder to
purchase one share of common stock per option, exercisable upon repayment of the
notes payable at $.50 per share with an open term. At September 30, 2010 all of
these options remained outstanding. The fair value of the option grants were
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions: risk free interest rate of 2.1 - 2.57%, dividend
yield of 0%, expected lives estimated at five years, volatility from 81 - 115%.
The Company incurred and recorded compensation expense under the stock options
of $353,814 in fiscal year 2010.
11
CREATIVE LEARNING CORPORATION
(formerly B2 Health, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 and 2010
NOTE 8. STOCK OPTIONS AND WARRANTS (Continued)
Also in fiscal year 2010 the Company issued 31,067 common stock purchase
warrants as part of $3.00 units sold in an ongoing private placement offering
which commenced in July 2010. Each unit contains four shares of common stock and
one common stock purchase warrant, with each warrant allowing the holder to
purchase one share of common stock per warrant, exercisable anytime at the
holder's election at $3.00 per share, through a term expiring July 31, 2013. All
value of the sold units has been allocated to the common shares as the warrants
were not in the money on the date of sale.
Employee stock options
The Company accounts for employee stock options under ASC 718. Unless otherwise
provided for, the Company covers option exercises by issuing new shares. There
were no employee stock options issued or outstanding in 2009 and 2010.
NOTE 8. GOING CONCERN
The Company has suffered a loss from operations and has a working capital
deficit and stockholders' deficit, and in all likelihood will be required to
make significant future expenditures in connection with continuing marketing
efforts along with general administrative expenses. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company may raise additional capital through the sale of its equity
securities, through an offering of debt securities, or through borrowings from
financial institutions. By doing so, the Company hopes through increased
marketing efforts to generate greater revenues from sales of its franchises.
Management believes that actions presently being taken to obtain additional
funding provide the opportunity for the Company to continue as a going concern.
12
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 26th day of April, 2011.
CREATIVE LEARNING CORPORATION
By:/s/ Brian Pappas
------------------------------------
Brian Pappas, President
Pursuant to the requirements of the Securities Exchange Act of l934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Brian Pappas Principal Executive, Financial April 26, 2011
---------------------- and Accounting Officer and a
Brian Pappas Director
/s/ Michelle Cote Director April 24, 2011
----------------------
Michelle Cote
Director
----------------------
Dan O'Donnell
/s/ Steven Menscher Director April 26, 2011
----------------------
Steven Menscher
13
CREATIVE LEARNING CORPORATION
FORM 10-K
EXHIBITS