Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Jun. 30, 2018 | Jul. 30, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | CREATIVE LEARNING Corp | |
Entity Central Index Key | 1,394,638 | |
Document Type | 10-Q | |
Trading Symbol | CLCN | |
Document Period End Date | Jun. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Entity a Well-known Seasoned Issuer | No | |
Entity a Voluntary Filer | No | |
Entity's Reporting Status Current | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 12,090,161 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,018 |
Consolidated Balance Sheets (Un
Consolidated Balance Sheets (Unaudited) - USD ($) | Jun. 30, 2018 | Sep. 30, 2017 |
Current Assets: | ||
Cash | $ 38,348 | $ 213,950 |
Restricted cash (marketing fund) | 77,765 | 118,337 |
Accounts receivable, less allowance for doubtful accounts of approximately $409,000 and $262,000, respectively | 477,079 | 356,830 |
Prepaid expenses | 17,948 | 73,337 |
Notes receivable - current portion, less allowance for doubtful accounts of approximately $4,000 and $33,000, respectively | 9,158 | 2,730 |
Total Current Assets | 620,298 | 765,184 |
Notes receivable - net of current portion, less allowance for doubtful accounts of approximately $19,000 and $0, respectively | 58,386 | 59,150 |
Property and equipment, net of accumulated depreciation of approximately $278,000 and $240,000, respectively | 339,276 | 260,094 |
Intangible assets | 23,300 | 23,300 |
Deposits | 1,425 | 15,053 |
Total Assets | 1,042,685 | 1,122,781 |
Current Liabilities: | ||
Accounts payable | 182,610 | 148,021 |
Payroll accruals | 16,603 | 17,950 |
Accrued liabilities | 20,172 | 135,727 |
Accrued marketing fund | 84,872 | 131,909 |
Total Current Liabilities | 304,257 | 433,607 |
Commitments and Contingencies - Note 7 | ||
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; 12,090,161 and 12,075,875 shares issued and outstanding, respectively | 1,209 | 1,207 |
Additional paid-in capital | 2,897,283 | 2,895,285 |
Treasury Stock, 65,100 shares (cost method) | (34,626) | (34,626) |
Accumulated deficit | (2,125,438) | (2,172,692) |
Total Stockholders' Equity | 738,428 | 689,174 |
Total Liabilities and Stockholders' Equity | $ 1,042,685 | $ 1,122,781 |
Consolidated Balance Sheets (U3
Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) | Jun. 30, 2018 | Sep. 30, 2017 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts receivable | $ 409,000 | $ 262,000 |
Allowance for doubtful notes receivable | 4,000 | 33,000 |
Notes receivable - net of current portion | 19,000 | 0 |
Accumulated depreciation | $ 278,000 | $ 240,000 |
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 10,000,000 | 10,000,000 |
Preferred stock, issued | ||
Preferred stock, outstanding | ||
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 50,000,000 | 50,000,000 |
Common stock, issued | 12,090,161 | 12,075,875 |
Common stock, outstanding | 12,090,161 | 12,075,875 |
Treasury stock, shares | 65,100 | 65,100 |
Consolidated Statements of Oper
Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Revenues: | ||||
Total revenues | $ 618,047 | $ 551,657 | $ 1,822,854 | $ 1,872,328 |
Operating expenses: | ||||
Franchise consulting and commissions | 18,350 | 18,995 | 49,153 | 129,855 |
Franchise training and expenses | 13,375 | 27,183 | 36,460 | 72,280 |
Salaries and payroll taxes | 174,100 | 170,229 | 524,975 | 513,030 |
Stock-based compensation | 311,718 | 2,000 | 311,718 | |
Advertising | 16,200 | 1,050 | 21,503 | 22,969 |
Professional fees & legal settlements | 89,418 | 211,308 | 496,460 | 1,070,050 |
Office expense | 2,088 | 1,451 | 9,334 | 6,276 |
Bad debt expense | 80,468 | 42,662 | 282,856 | 146,093 |
Depreciation | 13,219 | 16,909 | 37,952 | 44,362 |
Other general and administrative expenses | 75,895 | 151,835 | 294,152 | 228,943 |
Total operating expenses | 483,113 | 953,340 | 1,754,845 | 2,545,576 |
Income (Loss) from operations | 134,934 | (401,683) | 68,009 | (673,248) |
Other income (loss): | ||||
Interest income - net | 48 | 87 | ||
Other income (loss) | (1,397) | 3,176 | (1,390) | 18,410 |
Total other income (loss) | (1,397) | 3,224 | (1,390) | 18,497 |
Income (Loss) before income taxes | 133,537 | (398,459) | 66,619 | (654,751) |
Provision for income taxes | (19,365) | (433,065) | (19,365) | (356,107) |
Net income (loss) | $ 114,172 | $ (831,524) | $ 47,254 | $ (1,010,858) |
Net income (loss) per share | ||||
Basic and diluted (in dollars per share) | $ 0.01 | $ (0.07) | $ 0 | $ (0.08) |
Basic and diluted weighted average number of common shares outstanding (in shares) | 12,090,161 | 12,005,850 | 12,085,399 | 12,002,889 |
Initial Franchise Fees [Member] | ||||
Revenues: | ||||
Total revenues | $ 65,060 | $ 5,522 | $ 145,835 | $ 159,269 |
Royalties Fees [Memebr] | ||||
Revenues: | ||||
Total revenues | 548,384 | 546,135 | 1,654,209 | 1,726,433 |
Merchandise Sales [Memeber] | ||||
Revenues: | ||||
Total revenues | $ 4,603 | $ 9,376 | $ 60 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Cash flows from operating activities: | ||
Net income (loss) | $ 47,254 | $ (1,010,858) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Depreciation | 37,952 | 44,362 |
Bad debt expense | 282,856 | 146,093 |
Deferred income taxes | 343,444 | |
Stock issued for LOC option | 2,000 | |
Stock based directors' fees | 295,926 | |
Stock based compensation | 15,792 | |
Impairment loss on intangible assets | 77,204 | |
Changes in operating assets and liabilities: | ||
Restricted cash | 40,572 | 16,131 |
Accounts receivable | (400,130) | (211,052) |
Prepaid expenses | 55,389 | (89,515) |
Notes receivable | (8,639) | 6,991 |
Deposits | 13,628 | (8,550) |
Accounts payable | 34,589 | 26,244 |
Accrued liabilities | (115,555) | (229,997) |
Unearned revenue | (188) | |
Payroll accruals | (1,347) | (1,600) |
Accrued marketing | (47,037) | 35,694 |
Income tax receivable | 424,938 | |
Net cash used in operating activities | (58,468) | (118,941) |
Cash flows from investing activities: | ||
Acquisition of property and equipment | (117,134) | (1,080) |
Net cash used in investing activities | (117,134) | (1,080) |
Net change in cash | (175,602) | (120,021) |
Cash, beginning of period | 213,950 | 276,685 |
Cash, end of period | $ 38,348 | $ 156,664 |
Nature of Organization, Operati
Nature of Organization, Operations and Summary of Significant Accounting Policies: | 9 Months Ended |
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Organization, Operations and Summary of Significant Accounting Policies: | (1) Nature of Organization, Operations and Summary of Significant Accounting Policies: Nature of Organization Creative Learning Corporation (the “Company”) operates wholly owned subsidiaries, BFK Franchise Co., LLC (“BFK”) and SF Franchise Company, LLC (“SF”) under the trade names Bricks 4 Kidz® and Sew Fun Studios™ respectively that offer children’s enrichment and education franchises. As of June 30, 2018, BFK franchisees operated in 643 territories in 40 states and 46 countries, and SF franchisees operated in 4 territories in 2 states and 1 country. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s results for the interim periods that have been included. The results for the nine months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and management’s discussion and analysis included in the Company’s annual report on Form 10-K for the year ended September 30, 2017. Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. The more significant estimates and assumptions made by management include the allowance for doubtful accounts, the valuation allowance for deferred tax assets, depreciation of property and equipment, amortization of intangible assets, recoverability of long-lived assets, and fair market value of equity instruments. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Restricted Cash The Company had restricted cash of approximately $78,000 and $118,000 at June 30, 2018 and September 30, 2017, respectively, associated with marketing funds collected from the franchisees. Per the franchise agreements, a marketing fund of 2% of franchisees’ gross cash receipts is collected and held to be spent on the promotion of the brand (see Note 4). Accounts and Notes Receivable The Company reviews accounts and notes receivable periodically for collectability, establishes an allowance for doubtful accounts, and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts and notes that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Receivables and notes are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts at June 30, 2018 and September 30, 2017 are adequate, but actual write-offs could exceed the recorded allowance. Property, Equipment and Depreciation Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, which range from three to forty years. Expenditures for additions and improvements are capitalized, while repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal. Fixed Assets Useful Life Equipment 5 years Furniture and Fixtures 5 years Property and Improvements 15-40 years Software 3 years Revenue Recognition Revenue is recognized on an accrual basis after services have been performed under contract terms and in accordance with regulatory requirements, the service price to the client is fixed or determinable, and collectability is reasonably assured. Since the Company’s franchises are primarily a mobile concept and do not require finding locations or construction, the franchisees can begin operations as soon as they complete training. The Initial Franchise Fees are fully collectible and nonrefundable as of the date of the signing of the franchise agreement, but the franchise fees are not recognized as revenue until initial training has been completed and when substantially all of the services required by the franchise agreement have been fulfilled by the Company in accordance with ASC Topic 952-605 Revenue Recognition-Franchisor As described under Recent account pronouncements below, the adoption of Topic 606 will have a significant impact on the recognition of revenue with repect to franchise sales. Royalties are recognized as earned on a monthly basis. Advertising Costs Advertising costs are expensed as incurred. The Company incurred advertising costs for the quarters ended June 30, 2018 and 2017 of approximately $16,000 and $1,000, respectively. Income Taxes The provision for income taxes and deferred income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered. If after evaluating all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by a charge to tax expense to reserve the portion of the deferred tax assets which are not expected to be realized. The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company is required to file. When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position the Company takes has to have at least a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained with the ultimate realization being dependent on generating sufficient taxable income in future years. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 30, 2018 and September 30, 2017, respectively, and has not recognized interest and/or penalties during the three months ended June 30, 2018, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within the next twelve months. The tax years subject to examination by major tax jurisdictions include the years 2014 and forward by the U.S. Internal Revenue Service. Net earnings (loss) per share Basic earnings per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation. Stock-based compensation The Company accounts for employee stock awards for services based on the grant date fair value of the instrument issued, and those issued to non-employees are recorded based on the grant date fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable. Stock awards are expensed over the service period. Recent accounting pronouncements In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. Topic 606 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. Topic 606 is required to be adopted by the Company on October 1, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements. Under the prior revenue recognition rules, the Company generally recorded revenue for initial franchise sales up front upon the completion of the sale transaction and corresponding training obligations. Under Topic 606, franchise sales revenue is generally deferred and recognized over the life of the franchise agreement as there is an ongoing obligation of the company to perform under the agreement. Accordingly, the Company expects a significant impact upon adoption as prior franchise sales which had previously been recognized up front will need to be recast as deferred over the remaining life of the agreements from the adoption date. The recognition of royalty revenue is not expected to change under Topic 606. The Company’s initial calculations in regard to the change in revenue recognition would create a deferred liability of approximately $7MM to $10MM with recognition of this deferred revenue of $80,000 to $250,000 per month depending on the activity during the period. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)”. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 becomes effective for fiscal years beginning after December 15, 2017 with early adoption permitted. The Company is currently evaluating the impact ASU 2016-18 will have on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, “Leases“, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less. Additional qualitative and quantitative disclosures, including significant judgments made by management, will be required. The new standard will become effective for the Company beginning with the first quarter 2020 and requires a modified retrospective transition approach including a number of practical expedients. Early adoption of the standard is permitted. The Company is currently evaluating the impact the adoption of this accounting guidance will have on the consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This update expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, aligning them to the accounting required for share-based payments awards issued to employees. ASU 2018-07 becomes effective for fiscal years beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of ASU 2014-09. The Company is currently evaluating the impact the adoption of this accounting guidance will have on the consolidated financial statements. |
Related Party
Related Party | 9 Months Ended |
Jun. 30, 2018 | |
Related Party Transactions [Abstract] | |
Related Party | (2) Related Party A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management, and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. On December 29 th st The Company has formed a not-for-profit entity, Bricks 4 Kidz, Inc., which was approved for 501(c)(3) designation during the quarter ended March 31, 2018. The entity will provide specialized educational programs and training support to underserved communities to teach the fundamentals of S.T.E.M. (science, technology, engineering and math) education for the benefit of school age children and teachers. This entity may allow our franchisees to have greater outreach in their communities. The management of Bricks 4 Kidz, Inc. is the same as the Company management, though Bricks 4 Kidz, Inc. and the Company have different Directors. The Company paid approximately $7,000 in costs and fees related to the formation of Bricks 4 Kidz, Inc. |
Notes and Other Receivables
Notes and Other Receivables | 9 Months Ended |
Jun. 30, 2018 | |
Receivables [Abstract] | |
Notes and Other Receivables | (3) Notes and Other Receivables At June 30, 2018 and September 30, 2017, the Company held certain notes receivable totaling approximately $91,000 and $95,000, respectively, for extended payment terms of franchise fees. The Company only writes off franchisees’ receivables in the event that they leave the network. In addition, the Company analyzes the collectability of all receivables and reserves accordingly. 2018 2019 2020 2021 2022 Thereafter Total Payment schedules for Notes Receivable $ 7,304 $ 11,301 $ 15,685 $ 15,370 $ 15,571 $ 25,953 $ 91,184 |
Accrued Marketing Fund
Accrued Marketing Fund | 9 Months Ended |
Jun. 30, 2018 | |
Accrued Liabilities and Other Liabilities [Abstract] | |
Accrued Marketing Fund | (4) Accrued Marketing Fund Per the terms of the franchise agreements, the Company collects 2% of a franchisee’s gross revenues for a marketing fund, managed by the Company, to allocate towards 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. At June 30, 2018 and September 30, 2017, the accrued marketing fund liability balances were approximately $85,000 and $132,000, respectively. |
Accrued Liabilities
Accrued Liabilities | 9 Months Ended |
Jun. 30, 2018 | |
Payables and Accruals [Abstract] | |
Accrued Liabilities | (5) Accrued Liabilities The Company had accrued liabilities at June 30, 2018, and September 30, 2017 as follows: Accrued Liabilities June 30, September 30, Accrued Legal Fees 18,418 77,719 Accrued Legal Settlements — 32,143 Accrued Exit Agreement — 9,739 Accrued Other 1,754 16,126 $ 20,172 $ 135,727 |
Stock-Based Compensation
Stock-Based Compensation | 9 Months Ended |
Jun. 30, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | (6) Stock-Based Compensation On December 29 th st |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | (7) Commitments and Contingencies Lease Commitments Rent expense was approximately $5,000 and $3,000, respectively, for the three months ended June 30, 2018 and 2017, and $14,000 and $12,000, respectively, for the nine months ended June 30, 2018 and 2017. Litigation Except as disclosed in the Company’s Form 10-Q for the quarter ended March 31, 2018, under Note 7 in Notes to Financial Statements, and Part II, Item 1, there have been no significant developments in the pending legal proceedings as previously reported in Note 10, Commitments and Contingencies, of our Consolidated Financial Statements in our Annual Report on Form 10-K, for the year ended September 30, 2017. |
Nature of Organization, Opera13
Nature of Organization, Operations and Summary of Significant Accounting Policies: (Policies) | 9 Months Ended |
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Organization | Nature of Organization Creative Learning Corporation (the “Company”) operates wholly owned subsidiaries, BFK Franchise Co., LLC (“BFK”) and SF Franchise Company, LLC (“SF”) under the trade names Bricks 4 Kidz® and Sew Fun Studios™ respectively that offer children’s enrichment and education franchises. As of June 30, 2018, BFK franchisees operated in 643 territories in 40 states and 46 countries, and SF franchisees operated in 4 territories in 2 states and 1 country. |
Basis of Presentation | Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s results for the interim periods that have been included. The results for the nine months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and management’s discussion and analysis included in the Company’s annual report on Form 10-K for the year ended September 30, 2017. |
Use of Estimates | Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. The more significant estimates and assumptions made by management include the allowance for doubtful accounts, the valuation allowance for deferred tax assets, depreciation of property and equipment, amortization of intangible assets, recoverability of long-lived assets, and fair market value of equity instruments. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. |
Restricted Cash | Restricted Cash The Company had restricted cash of approximately $78,000 and $118,000 at June 30, 2018 and September 30, 2017, respectively, associated with marketing funds collected from the franchisees. Per the franchise agreements, a marketing fund of 2% of franchisees’ gross cash receipts is collected and held to be spent on the promotion of the brand (see Note 4). |
Accounts and Note Receivables | Accounts and Notes Receivable The Company reviews accounts and notes receivable periodically for collectability, establishes an allowance for doubtful accounts, and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts and notes that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Receivables and notes are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts at June 30, 2018 and September 30, 2017 are adequate, but actual write-offs could exceed the recorded allowance. |
Property, Equipment and Depreciation | Property, Equipment and Depreciation Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, which range from three to forty years. Expenditures for additions and improvements are capitalized, while repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal. Fixed Assets Useful Life Equipment 5 years Furniture and Fixtures 5 years Property and Improvements 15-40 years Software 3 years |
Revenue Recognition | Revenue Recognition Revenue is recognized on an accrual basis after services have been performed under contract terms and in accordance with regulatory requirements, the service price to the client is fixed or determinable, and collectability is reasonably assured. Since the Company’s franchises are primarily a mobile concept and do not require finding locations or construction, the franchisees can begin operations as soon as they complete training. The Initial Franchise Fees are fully collectible and nonrefundable as of the date of the signing of the franchise agreement, but the franchise fees are not recognized as revenue until initial training has been completed and when substantially all of the services required by the franchise agreement have been fulfilled by the Company in accordance with ASC Topic 952-605 Revenue Recognition-Franchisor As described under Recent account pronouncements below, the adoption of Topic 606 will have a significant impact on the recognition of revenue with repect to franchise sales. Royalties are recognized as earned on a monthly basis. |
Advertising Costs | Advertising Costs Advertising costs are expensed as incurred. The Company incurred advertising costs for the quarters ended June 30, 2018 and 2017 of approximately $16,000 and $1,000, respectively. |
Income Taxes | Income Taxes The provision for income taxes and deferred income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered. If after evaluating all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by a charge to tax expense to reserve the portion of the deferred tax assets which are not expected to be realized. The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company is required to file. When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position the Company takes has to have at least a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained with the ultimate realization being dependent on generating sufficient taxable income in future years. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 30, 2018 and September 30, 2017, respectively, and has not recognized interest and/or penalties during the three months ended June 30, 2018, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within the next twelve months. The tax years subject to examination by major tax jurisdictions include the years 2014 and forward by the U.S. Internal Revenue Service. |
Net earnings (loss) per share | Net earnings (loss) per share Basic earnings per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation. |
Stock-based compensation | Stock-based compensation The Company accounts for employee stock awards for services based on the grant date fair value of the instrument issued, and those issued to non-employees are recorded based on the grant date fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable. Stock awards are expensed over the service period. |
Recent accounting pronouncements | Recent accounting pronouncements In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. Topic 606 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. Topic 606 is required to be adopted by the Company on October 1, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements. Under the prior revenue recognition rules, the Company generally recorded revenue for initial franchise sales up front upon the completion of the sale transaction and corresponding training obligations. Under Topic 606, franchise sales revenue is generally deferred and recognized over the life of the franchise agreement as there is an ongoing obligation of the company to perform under the agreement. Accordingly, the Company expects a significant impact upon adoption as prior franchise sales which had previously been recognized up front will need to be recast as deferred over the remaining life of the agreements from the adoption date. The recognition of royalty revenue is not expected to change under Topic 606. The Company’s initial calculations in regard to the change in revenue recognition would create a deferred liability of approximately $7MM to $10MM with recognition of this deferred revenue of $80,000 to $250,000 per month depending on the activity during the period. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)”. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 becomes effective for fiscal years beginning after December 15, 2017 with early adoption permitted. The Company is currently evaluating the impact ASU 2016-18 will have on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, “Leases“, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases. Lessees are permitted to make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less. Additional qualitative and quantitative disclosures, including significant judgments made by management, will be required. The new standard will become effective for the Company beginning with the first quarter 2020 and requires a modified retrospective transition approach including a number of practical expedients. Early adoption of the standard is permitted. The Company is currently evaluating the impact the adoption of this accounting guidance will have on the consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This update expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, aligning them to the accounting required for share-based payments awards issued to employees. ASU 2018-07 becomes effective for fiscal years beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of ASU 2014-09. The Company is currently evaluating the impact the adoption of this accounting guidance will have on the consolidated financial statements. |
Nature of Organization, Opera14
Nature of Organization, Operations and Summary of Significant Accounting Policies: (Tables) | 9 Months Ended |
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Schedule of property and equipment useful lifes | The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal. Fixed Assets Useful Life Equipment 5 years Furniture and Fixtures 5 years Property and Improvements 15-40 years Software 3 years |
Notes and Other Receivables (Ta
Notes and Other Receivables (Tables) | 9 Months Ended |
Jun. 30, 2018 | |
Receivables [Abstract] | |
Schedule of future payments for notes and other receivables | In addition, the Company analyzes the collectability of all receivables and reserves accordingly. 2018 2019 2020 2021 2022 Thereafter Total Payment schedules for Notes Receivable $ 7,304 $ 11,301 $ 15,685 $ 15,370 $ 15,571 $ 25,953 $ 91,184 |
Accrued Liabilities (Tables)
Accrued Liabilities (Tables) | 9 Months Ended |
Jun. 30, 2018 | |
Payables and Accruals [Abstract] | |
Schedule of accrued liabilities | The Company had accrued liabilities at June 30, 2018, and September 30, 2017 as follows: Accrued Liabilities June 30, September 30, Accrued Legal Fees 18,418 77,719 Accrued Legal Settlements — 32,143 Accrued Exit Agreement — 9,739 Accrued Other 1,754 16,126 $ 20,172 $ 135,727 |
Nature of Organization, Opera17
Nature of Organization, Operations and Summary of Significant Accounting Policies: (Details) | 9 Months Ended |
Jun. 30, 2018 | |
Equipment [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and equipment useful lives | 5 years |
Furniture and Fixtures [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and equipment useful lives | 5 years |
Property Improvements [Member] | Minimum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and equipment useful lives | 15 years |
Property Improvements [Member] | Maximum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and equipment useful lives | 40 years |
Software [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and equipment useful lives | 3 years |
Nature of Organization, Opera18
Nature of Organization, Operations and Summary of Significant Accounting Policies: (Details Narrative) | 3 Months Ended | 9 Months Ended | |||
Jun. 30, 2018USD ($) | Jun. 30, 2017USD ($) | Jun. 30, 2018USD ($) | Jun. 30, 2017USD ($) | Sep. 30, 2017USD ($) | |
Restricted cash | $ 77,765 | $ 77,765 | $ 118,337 | ||
Advertising costs | $ 16,200 | $ 1,050 | $ 21,503 | $ 22,969 | |
BFK Franchise Co., LLC ("BFK") [Member] | Franchise Agreements [Member] | |||||
Number of territories | 643 | 643 | |||
Number of states | 40 | 40 | |||
Number of countries | 46 | 46 | |||
Percentage of gross revenues collected for marketing fund | 2.00% | 2.00% | |||
SF Franchise Company, LLC ("SF") [Member] | |||||
Number of territories | 4 | 4 | |||
Number of states | 2 | 2 | |||
Number of countries | 1 | 1 | |||
Accounting Standards Update 2014-09 [Member] | Minimum [Member] | |||||
Deferred liability | $ 7,000,000 | $ 7,000,000 | |||
Monthly additional revenue | 80,000 | ||||
Accounting Standards Update 2014-09 [Member] | Maximum [Member] | |||||
Deferred liability | $ 10,000,000 | 10,000,000 | |||
Monthly additional revenue | $ 250,000 |
Related Party (Details Narrativ
Related Party (Details Narrative) - Line Of Credit Agreements [Member] - Two Director [Member] - USD ($) | Dec. 31, 2017 | Dec. 29, 2017 | Jun. 30, 2018 |
Maximum borrowing capacity | $ 50,000 | $ 50,000 | |
Initial term | 5 years | 5 years | |
Lines of credit outstanding |
Notes and Other Receivables (De
Notes and Other Receivables (Details) | Jun. 30, 2018USD ($) |
Receivables [Abstract] | |
2,018 | $ 7,304 |
2,019 | 11,301 |
2,020 | 15,685 |
2,021 | 15,370 |
2,022 | 15,571 |
Thereafter | 25,953 |
Payment schedules for Notes Receivable | $ 91,184 |
Notes and Other Receivables (21
Notes and Other Receivables (Details Narrative) - USD ($) | Jun. 30, 2018 | Sep. 30, 2017 |
Receivables [Abstract] | ||
Other receivables | $ 91,000 | $ 95,000 |
Accrued Marketing Fund (Details
Accrued Marketing Fund (Details Narrative) - USD ($) | Jun. 30, 2018 | Sep. 30, 2017 |
Accrued marketing fund | $ 84,872 | $ 131,909 |
BFK Franchise Co., LLC ("BFK") [Member] | Franchise Agreements [Member] | ||
Percentage of gross revenues collected for marketing fund | 2.00% |
Accrued Liabilities (Details)
Accrued Liabilities (Details) - USD ($) | Jun. 30, 2018 | Sep. 30, 2017 |
Payables and Accruals [Abstract] | ||
Accrued Legal Fees | $ 18,418 | $ 77,719 |
Accrued Legal Settlements | 32,143 | |
Accrued Exit Agreement | 9,739 | |
Accrued Other | 1,754 | 16,126 |
Accrued Liabilities | $ 20,172 | $ 135,727 |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details Narrative) - Line Of Credit Agreements [Member] - Two Director [Member] | Dec. 31, 2017USD ($)shares |
Number of shares granted | shares | 14,286 |
Fair value of shares granted | $ 2,000 |
Expenses incurred inconnection with shares | $ 2,000 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Rent expense | $ 5,000 | $ 3,000 | $ 14,000 | $ 12,000 |