Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Jun. 30, 2019 | Dec. 05, 2019 | |
Document and Entity Information [Abstract] | ||
Entity Registrant Name | CREATIVE LEARNING Corp | |
Entity Central Index Key | 0001394638 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2019 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2019 | |
Entity's Reporting Status Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Emerging Growth Company | false | |
Entity Common Stock, Shares Outstanding | 13,354,261 | |
Entity Filer Number | 000-52883 | |
Entity Interactive Data Current | Yes | |
Entity Incorporation State Country Code | DE |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Jun. 30, 2019 | Sep. 30, 2018 |
Current Assets: | ||
Cash | $ 264,427 | $ 80,693 |
Restricted Cash (marketing fund) | 23,766 | 22,505 |
Accounts receivable, less allowance for doubtful accounts of approximately $901,000 and $938,000, respectively | 382,363 | 194,835 |
Prepaid commission expense | 275,131 | |
Prepaid expense | 367 | 29,725 |
Assets held for sale | 43,178 | |
Notes receivables - current portion, less allowance for doubtful accounts of approximately $91,000 and $91,000, respectively | 6,000 | 11,955 |
Total Current Assets | 952,054 | 382,891 |
Prepaid commission expense - net of current portion | 1,352,314 | |
Notes receivables - net of current portion | 3,045 | |
Property and equipment, net of accumulated depreciation of appoximately $369,000 and $273,000, respectively | 394,339 | 357,930 |
Deposits | 1,425 | 1,425 |
Total Assets | 2,700,132 | 745,291 |
Current Liabilities: | ||
Accounts payable | 93,041 | 161,011 |
Deferred revenue | 1,011,380 | |
Accrued liabilities | 16,051 | 14,605 |
Accrued marketing fund | 65,304 | 97,334 |
Total Current Liabilities | 1,185,776 | 272,950 |
Deferred revenue - net of current portion | 3,831,672 | |
Total Liabilities | 5,017,448 | 272,950 |
Commitments and Contingencies (Note 6) | ||
Stockholders' Equity (Deficit) | ||
Preferred stock, $.0001 par value; 10,000,000 shares authorized; -0- shares issued and outstanding | ||
Common stock, $.0001 par value; 50,000,000 shares authorized 12,089,140 shares issued and 12,024,040 shares outstanding as of June 30, 2019, 12,075,875 shares issued and 12,010,775 shares outstanding as of September 30, 2018 | 1,209 | 1,207 |
Additional paid-in capital | 2,897,283 | 2,897,285 |
Treasury Stock, 65,100 shares, at cost | (34,626) | (34,626) |
Accumulated Deficit | (5,181,182) | (2,391,525) |
Total Stockholders' Equity (Deficit) | (2,317,316) | 472,341 |
Total Liabilities and Stockholders' Equity (Deficit) | $ 2,700,132 | $ 745,291 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) | Jun. 30, 2019 | Sep. 30, 2018 |
Consolidated Balance Sheets | ||
Allowance for doubtful accounts receivable | $ 901,000 | $ 938,000 |
Allowance for doubtful notes receivable | 91,000 | 91,000 |
Accumulated depreciation | $ 369,000 | $ 273,000 |
Preferred stock, par value (in dollars per share) | $ .0001 | $ .0001 |
Preferred stock, authorized | 10,000,000 | 10,000,000 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 50,000,000 | 50,000,000 |
Common stock, issued | 12,089,140 | 12,075,875 |
Common stock, outstanding | 12,024,040 | 12,010,775 |
Treasury stock, shares | 65,100 | 65,100 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Revenues | ||||
Royalties fees | $ 462,967 | $ 548,384 | $ 1,498,170 | $ 1,654,209 |
Advertising fund revenue | 38,323 | 620,361 | ||
Initial franchise fees | 614,716 | 65,060 | 1,844,413 | 159,269 |
Merchandise sales | 27,307 | 4,603 | 44,870 | 9,376 |
TOTAL REVENUES | 1,143,313 | 618,047 | 4,007,814 | 1,822,854 |
OPERATING EXPENSES | ||||
Salaries and payroll taxes and stock-based compensation | 155,220 | 174,100 | 531,467 | 526,975 |
Professional, legal and consulting fees | 163,917 | 89,418 | 413,842 | 496,460 |
Bad debt expense | 48,994 | 80,468 | 76,052 | 282,856 |
Other general and administrative expenses | 40,962 | 95,260 | 173,509 | 313,517 |
Franchise commissions | 18,588 | 18,350 | 460,361 | 49,153 |
Franchise training and expenses | 289 | 13,375 | 15,611 | 36,460 |
Depreciation | 31,160 | 13,219 | 86,332 | 37,952 |
Advertising | 40,553 | 16,200 | 631,132 | 21,503 |
Office expense | 6,319 | 2,088 | 15,030 | 9,334 |
TOTAL OPERATING EXPENSES | 506,002 | 502,478 | 2,403,336 | 1,774,210 |
OPERATING INCOME | 637,311 | 115,569 | 1,604,478 | 48,644 |
OTHER INCOME/ (LOSS) | (1,978) | (1,397) | 39,540 | (1,390) |
INCOME BEFORE INCOME TAXES | 635,333 | 114,172 | 1,644,018 | 47,254 |
PROVISION FOR INCOME TAXES | ||||
NET INCOME | $ 635,333 | $ 114,172 | $ 1,644,018 | $ 47,254 |
NET INCOME/(LOSS) PER SHARE | ||||
Basic and diluted | $ 0.05 | $ 0.01 | $ 0.14 | $ 0 |
Basic and diluted weighted average number of common shares outstanding (in shares) | 12,017,850 | 12,090,161 | 12,015,457 | 12,085,399 |
Condensed Consolidated Stateme
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) (Unaudited) - USD ($) | Treasury Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Balance at Sep. 30, 2017 | $ (34,626) | $ 1,207 | $ 2,895,285 | $ (2,172,692) | $ 689,174 |
Balance (in shares) at Sep. 30, 2017 | (65,100) | 12,075,875 | |||
Net income | 47,254 | 47,254 | |||
Stock-based compensation | 2,000 | 2,000 | |||
Balance at Jun. 30, 2018 | $ (34,626) | $ 1,207 | 2,897,285 | (2,125,438) | 738,428 |
Balance (shares) at Jun. 30, 2018 | (65,100) | 12,075,875 | |||
Balance at Mar. 31, 2018 | $ (34,626) | $ 1,207 | 2,897,285 | (2,239,610) | 624,256 |
Balance (in shares) at Mar. 31, 2018 | (65,100) | 12,075,875 | |||
Net income | 114,172 | 114,172 | |||
Balance at Jun. 30, 2018 | $ (34,626) | $ 1,207 | 2,897,285 | (2,125,438) | 738,428 |
Balance (shares) at Jun. 30, 2018 | (65,100) | 12,075,875 | |||
Balance at Sep. 30, 2018 | $ (34,626) | $ 1,207 | 2,897,285 | (2,391,525) | 472,341 |
Balance (in shares) at Sep. 30, 2018 | (65,100) | 12,075,875 | |||
Shares issued for rounding error | $ 2 | (2) | |||
Shares issued for rounding error (in shares) | 13,265 | ||||
Net income | 1,644,018 | 1,644,018 | |||
Adoption of ASC 606 | (4,433,675) | (4,433,675) | |||
Stock-based compensation | |||||
Balance at Jun. 30, 2019 | $ (34,626) | $ 1,209 | 2,897,283 | (5,181,182) | (2,317,316) |
Balance (shares) at Jun. 30, 2019 | (65,100) | 12,089,140 | |||
Balance at Mar. 31, 2019 | $ (34,626) | $ 1,209 | 2,897,283 | (5,816,515) | (2,952,649) |
Balance (in shares) at Mar. 31, 2019 | (65,100) | 12,089,140 | |||
Net income | 635,333 | 635,333 | |||
Balance at Jun. 30, 2019 | $ (34,626) | $ 1,209 | $ 2,897,283 | $ (5,181,182) | $ (2,317,316) |
Balance (shares) at Jun. 30, 2019 | (65,100) | 12,089,140 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Cash flows from operating activities: | ||
Net Income | $ 1,644,018 | $ 47,254 |
Retained earnings adjustment for 606 | (4,433,675) | |
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities: | ||
Depreciation | 86,332 | 37,952 |
Gain on sale of assets held for sale | (42,775) | |
Bad debt expense | 76,052 | 282,856 |
Stock based compensation | 2,000 | |
Changes in operating assets and liabilities: | ||
Accounts receivable | (263,580) | (400,130) |
Prepaid expenses | 29,358 | 55,389 |
Prepaid commission expense | (1,627,445) | |
Deposits | 13,628 | |
Accounts payable | (67,970) | 34,589 |
Accrued liabilities | 1,446 | (116,902) |
Deferred Revenue | 4,843,052 | |
Accrued marketing fund | (32,030) | (47,037) |
Net cash provided by (used in) operating activities | 212,783 | (90,401) |
Cash flows from investing activities: | ||
Acquisition of property and equipment | (122,575) | (117,134) |
Sale of assets held for sale | 85,787 | |
(Issuance)/Collection of Notes receivable | 9,000 | (8,639) |
Net cash used in investing activities | (27,788) | (125,773) |
Cash flows from financing activities: | ||
Net cash provided by financing activities | ||
Net change in cash, cash equivalents and restricted cash | 184,995 | (216,174) |
Cash, cash equivalents and restricted cash at beginning of period | 103,198 | 332,287 |
Cash, cash equivalents and restricted cash at end of period | 288,193 | 116,113 |
Noncash financing activity: | ||
Shares issued for rounding error | $ 2 |
Nature of Organization and Summ
Nature of Organization and Summary of Significant Accounting Policies | 9 Months Ended |
Jun. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Organization 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, 2019, BFK franchisees operated in 374 territories in 38 countries. 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 three and six months ended June 30, 2019 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, 2018. Related Parties The Company has been involved in transactions with related parties. 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 also 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. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party. 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions made by management include 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. Reclassification Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications. Restricted Cash The Company had restricted cash of approximately $24,000 and $23,000 at June 30, 2019 and September 30, 2018, 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. Any cash collected by the Company for marketing funds is held in a separate bank account and any balance at period end is presented as “restricted cash” and “accrued marketing fund” on the balance sheet. See Note 4 for additional information. Accounts and Note Receivables 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, 2019 and September 30, 2018 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 Improvements 15-40 years Software 3 years Long-Lived Assets The Company’s long-lived assets consist of property and equipment, and intangible assets. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates of asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable, and accounts payable approximate fair value because of the relative short-term maturity of these items and current payment expected. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments. Notes receivable are recorded at par value less allowance for doubtful accounts. The carrying amount is consistent with fair value based upon similar notes issued to other franchisees. ASC 825, Financial Instruments, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared Revenue Recognition Revenue is recognized when a company satisfies a performance obligation by transferring a promised good or service to a customer. The Company generates all its revenue from contracts with customers. The Company’s franchise agreements enter the parties into a ten year term and include performance obligations as follows: protected territory designation, access to proprietary manuals and handbooks, initial training and on-going assistance, consulting, promotion of goodwill, administration of marketing fund, marketing and promotion items, initial advertising program development assistance, company website access, Franchise Management Tool access, lessons and model plans, project kits, Duplo bricks, frames stop motion animation software, and use of the franchisor’s intellectual property (IP) (e.g., trade name – Bricks for Kidz). Additionally, the contract permits the franchisee to renew the contract for an additional ten-year term for a fee. The following is a description of principal activities from which the Company generates its revenue. Initial Franchise Fee - 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 franchise fees are fully collectible and nonrefundable as of the date of the signing of the franchise agreement. The initial franchise fee is recognized as deferred revenue on a straight line basis over the ten-year period as the performance obligations are met over the contract term. The Company adopted the new revenue standard (Topic 606) on October 1, 2018 for contracts with remaining performance obligations as of October 1, 2018. Comparative information from prior year periods has not been adjusted and continue to be reported under the accounting standards in effect for those periods under Topic 605. The adoption of the new guidance changed the timing of recognition of franchise sales and franchise renewal revenue and related commissions paid on franchise sales, as discussed further in Note 7. The activity in the Company’s deferred revenue for initial franchise fee is included in “Deferred revenue” and “Deferred revenue, net of current portion” on the Condensed Consolidated Balance Sheets, and consists of the following: Balance at beginning of period New billings (a) Revenue recognized (b) Balance at end of As of June 30, 2019 $ - $ 6,687,465 $ (1,844,413) $ 4,843,052 (a) New billings not related to ASC 606 implementation was $45,876 and $176,343 for the three and nine month periods ended June 30, 2019, respectively. (b) Revenue recognized not related to ASC 606 implementation for new billings was $815 and $10,468 for the three and nine month periods ended June 30, 2019, respectively. Commissions paid on initial franchise sales are recognized as an asset and amortized over the contract life of the franchise agreement. The activity in the Company’s capitalized contract costs for commissions consist of the following: Balance at beginning of period Additions to Contract cost for new activity (a) Expense recognized (b) Balance at end of As of June 30, 2019 $ - $ 2,087,806 $ (460,361) $ 1,627,445 (a) Additions to contract cost for new activity not related to ASC 606 implementation was $0 and $11,737 for the three and nine month periods ended June 30, 2019, respectively. (b) Expense recognized not related to ASC 606 implementation for new activity was $0 and $828 for the three and nine month periods ended June 30, 2019, respectively. Advertising Fund Revenue - Per the terms of the franchise agreements, the Company collects 2% of franchisee’s monthly gross revenues each month, due on the third day of the following month, for a marketing fund, managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees. This revenue is recognized on a monthly basis. Upon adoption of FASB 606 on October 1, 2018, the Company began presenting these revenues on a gross revenue basis on its statement of operations as per FASB ASC 606-10-55-39. The activity in the Company’s accrued marketing fund for advertising fund revenue accounts consists of the following: Balance at beginning of period New billings (a) Expense recognized (b) Balance at end of As of June 30, 2019 $ 97,334 $ 585,885 $ (617,915) $ 65,304 (a) New billings recognized related to the beginning balance was $68,871 and $73,573 for the three and nine month periods ended June 30, 2019 not related to ASC 606 implementation. (b) Expense recognized related to the beginning balance was $38,324 and $105,603 for the three and nine month periods ended June 30, 2019 not related to ASC 606 implementation. Royalties - Royalties are calculated per franchise, based on a flat fee structure and are recognized as earned on a monthly basis. Merchandise Revenue – Merchandise revenue is made up of Lego kits and fees for the use of Company email. Advertising Costs Advertising costs for the operating company are expensed as incurred. The Company incurred advertising costs for the three and nine months ended June 30, 2019 of approximately $2,000 and $11,000, respectively, and for the three and nine months ended June 30, 2018 of approximately $16,000 and $22,000, respectively. Advertising costs of approximately $620,000 were paid out of the marketing fund on behalf of the franchisees and were expensed when funds were received from franchisees. See Note 7. 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. Given previous recurring losses, the Company cannot conclude that it is more likely than not that such assets will be realized, therefore a full valuation allowance has been recorded during the nine months ended June 30, 2019. 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, 2019 and September 30, 2018, respectively, and has not recognized interest and/or penalties during the nine 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. All securities outstanding as of June 30, 2019 are anti-dilutive. 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 (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”) and has since issued various amendments which provide additional clarification and implementation guidance on Topic 606. This guidance establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company adopted this new guidance effective the first day of fiscal 2018 using the modified retrospective transition method and applied Topic 606 to those contracts which were not completed as of October 1, 2018. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of fiscal 2018. In performing its analysis, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price. Comparative information from prior year periods has not been adjusted and continue to be reported under the accounting standards in effect for those periods under “Revenue Recognition” (“Topic 605”). Refer to Note 7 for further disclosure of the impact of the new guidance. In February 2016, the FASB issued ASU No. 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 and includes 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 November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Jun. 30, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | (2) Related Party Transactions On December 29 th st |
Notes and Other Receivables
Notes and Other Receivables | 9 Months Ended |
Jun. 30, 2019 | |
Receivables [Abstract] | |
Notes and Other Receivables | (3) Notes and Other Receivables At June 30, 2019 and September 30, 2018, respectively, the Company held certain notes receivable totaling approximately $6,000 and $15,000 respectively, net of allowances, for extended payment terms of franchise fees. The notes receivable bear interest at 3% per year with monthly payments, payable within one year. The Company analyzes the collectability of all receivables and reserves accordingly. |
Accrued Marketing Fund
Accrued Marketing Fund | 9 Months Ended |
Jun. 30, 2019 | |
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 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. All marketing fund fees net of expenses were accounted for as a liability on the balance sheet prior to adoption of FASB ASC 606 on October 1, 2018. Upon adoption of FASB 606 on October 1, 2018, the Company presents these revenues on a gross revenue basis on its statement of operations. Any unused funds at the end of the period are recorded as accrued marketing fees (see Note 7). |
Stock-Based Compensation
Stock-Based Compensation | 9 Months Ended |
Jun. 30, 2019 | |
Share-based Payment Arrangement [Abstract] | |
Stock-Based Compensation | (5) Stock-Based Compensation On December 29 th st On March 27, 2019, the Company issued 13,265 shares of common stock to the former President of the Company due to a rounding error in shares related to her terminated employment agreement. All equity compensation relating to this agreement was properly fully recognized during the year ended September 30, 2017. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Jun. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | (6) Commitments and Contingencies Lease Commitments Rent expense was approximately $10,000 and $30,000, for the three and nine months ended June 30, 2019, respectively, and approximately $5,000 and $14,000 for the three and nine months ended June 30, 2018, respectively. There are no lease commitments with terms greater than one year. Litigation The Company is subject to litigation claims arising in the ordinary course of business. The Company believes that it has adequately accrued for legal matters in accordance with the requirements of GAAP. The Company records litigation accruals for legal matters which are both probable and estimable and for related legal costs as incurred. The Company does not reduce these liabilities for potential insurance or third-party recoveries. On October 2, 2015, the Company filed suit in the state court in St. John’s County, Florida, Case No. CA 15-1076, against its former Chief Executive Officer Brian Pappas, Christine Pappas, its former Human Resources officer, and an independent company controlled by Mr. Pappas named Franventures, LLC (“Franventures”). The lawsuit seeks return of company emails and other electronic materials in the possession of the defendants, company control over the process by which the company’s documents are identified, and a court judgment that the property is the Company’s. Mr. and Mrs. Pappas have returned certain company documents that they have identified, but other issues remain. On December 11, 2017, Brian Pappas filed a counterclaim alleging the Company is required to indemnify him for a multitude of matters. The Company denies the allegation and is actively litigating this matter. In a separate suit, filed on March 7, 2016 in the state court in St. John’s County, Florida (Case No. CA 16-236), Franventures, LLC (“FV”) alleged that it is due an unstated amount of money from the Company pursuant to a contract the Company had previously terminated. On June 23, 2016, the Company filed a counterclaim against Franventures, which also included a complaint against former Chairman of the Board and Chief Executive Officer Brian Pappas. The counterclaim seeks redress for losses and expenditures caused by alleged fraud, conversion of company assets, and breaches of fiduciary duty that the Company alleges that defendants perpetrated upon CLC, including assertions regarding actions by Brian Pappas that the Company alleges occurred while Mr. Pappas was serving as the Chief Executive Officer of CLC and as a member of its board of directors. This case is being actively litigated by the Company. On October 27, 2016, Brian Pappas filed a motion to amend the complaint to add a claim alleging that the Company slandered him by virtue of a press release issued on or about August 1, 2016, in which the Company reported to shareholders on steps it had taken and improvements it had implemented. The motion has still not been ruled upon by the Court. If Mr. Pappas does amend his complaint, the Company will vigorously defend the proposed claim. On February 24, 2017, franchisee, Team Kasa, LLC, along with its three owners, filed suit in the Eastern District of New York (Case No. 2:17-cv-01074) against former CEO Brian Pappas, and Franventures. The same Plaintiffs also initiated arbitration on the same issues (American Arbitration Association, Case No. 01-17-0001-1968), alleging the Company is jointly and severally liable for damages resulting from the allegations against Mr. Pappas and Franventures. The Company is contesting the allegations and its liability for any damages. On November 8, 2017, franchisee, Indy Bricks, LLC, along with its two owners, Ben and Kate Schreiber initiated arbitration against the Company. (American Arbitration Association, Case No. 01-17-0006-8120). Plaintiffs allege breach of contract, fraud, material misrepresentations and omissions, violations of the Indiana Franchise Act, and violations of the Indiana Deceptive Franchise Practices Act. The Company is vigorously contesting the allegations and its liability for any damages. Management of the Company believes no other such litigation matters involving a reasonably possible chance of loss will, individually or in the aggregate, result in a material adverse effect on the Company's financial condition, results of operations and cash flows. |
Revenue Recognition
Revenue Recognition | 9 Months Ended |
Jun. 30, 2019 | |
Notes to Financial Statements | |
Revenue Recognition | (7) Revenue Recognition The Company adopted the new revenue standard (Topic 606) on October 1, 2018. The Company applied the new revenue standard using the modified retrospective transition method. The adoption of the new guidance changed the timing of recognition of franchise sales and franchise renewal revenue and related commissions paid on franchise sales, as discussed below. Franchise sales is comprised of revenue from the sale or renewal of franchises. The Company previously recognized revenue at the time of sale. Under the new revenue standard, the franchise sale initial fees are considered to be a part of the license of symbolic intellectual property, which is now recognized over the contractual term of the franchise agreement, which is typically 10 years. Correspondingly, the commissions related to franchise sales are recorded as an asset (the current portion in “Commission expense” on the balance sheet, and long- term portion in “Commission expense - net of current portion”) on the balance sheet, and are recognized over the contractual term of the franchise agreement in “Commission Expense” on the statement of operations. Previously, such commissions were expensed as incurred. The following tables summarize the impacts of the new revenue standard adoption on the Company’s financial statements: Consolidated Balance Sheet Impact of Changes in Accounting Policies As of June 30, 2019 As previously reported Adjustments As Adjusted Prepaid Commission Expense - 275,131 275,131 Prepaid Commission Expense - net of current portion - 1,352,314 1,352,314 Deferred Revenue - 1,011,380 1,011,380 Deferred Revenue - net of current portion - 3,831,672 3,831,672 Accrued Marketing Fund 97,334 (32,030) 65,304 Accumulated Deficit (2,391,525) (4,433,675) (6,825,200) Consolidated Statement of Income Impact of Changes in Accounting Policies As of June 30, 2019 As previously reported Adjustments As Adjusted Franchise Fees - 1,844,413 1,844,413 Advertising Fund Revenue - 620,361 620,361 Commission Expense - 460,361 460,361 Advertising Expense - 620,361 620,361 Income before income taxes - 1,384,052 1,384,052 Net Income - 1,384,052 1,384,052 Consolidated Statement of Cash Flows Impact of Changes in Accounting Policies As of June 30, 2019 As previously reported Adjustments As Adjusted Net Income - 1,384,052 1,384,052 Prepaid Commission expense - (1,627,445) (1,627,445) Deferred revenue - 4,843,052 4,843,052 Advertising Fund Revenue - Per the terms of the franchise agreements, the Company collects 2% of 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. Upon adoption of FASB 606 on October 1, 2018, the Company began presenting these expended revenues on a gross revenue basis on its statement of operations as per FASB ASC 606-10-55-39. Royalties - Royalties are calculated per franchise and are recognized on a flat fee schedule as per the Franchise Agreements. These fees are recognized as earned on a monthly basis as per FASB ASC 606-10-55-65. Transaction Price Allocated to the Remaining Performance Obligations The following table includes estimated revenue by year, excluding certain other immaterial items, expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period: June 30, 2020 June 30, 2021 June 30, 2022 June 30, 2023 June 30, 2024 and thereafter Initial Franchise Fees $ 1,011,380 $ 996,693 $ 939,088 $ 819,326 $ 1,076,564 |
Sale of Condominium
Sale of Condominium | 9 Months Ended |
Jun. 30, 2019 | |
Notes to Financial Statements | |
Sale of Condominium | (8) Sale of Condominium On November 14, 2018, the Company completed the sale of its condominium held for sale for proceeds of approximately $86,000 and recorded a gain of approximately $43,000, which represented the excess of the proceeds over the carrying value on that date. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Jun. 30, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | (9) Subsequent Events On July 9, 2019 the Company completed the sale of a condominium conference space listed for sale for proceeds of $60,000 and recorded a gain of approximately $22,000 which represented the excess of the proceeds over the carrying value on that date. Effective, September 30, 2019, Blake Furlow resigned as Chief Executive Officer of the Company. Mr. Furlow will remain a Director of the Company. Mr. Furlow will receive severance of $30,000 pursuant to the terms of a Severance. In connection with the obligations of his former employment agreement, the Company issued an aggregate of 573,176 shares of Common Stock to Mr. Furlow. Effective September 30, 2019, Bart Mitchell, the Company’s Chief Financial Officer, was appointed Chief Executive Officer of the Company. In connection with this appointment, Mr. Mitchell entered into an Employment Agreement with the Company as of October 1, 2019 for the term of one year. In addition to cash compensation, he will receive stock grants valued at lesser of $15,000 or 200,000 Shares of Common Stock on the last day of the completed year of employment. Mr. Mitchell will continue to serve as a member of the Board of Directors of the Company, but will no longer serve as the Company’s Chief Financial Officer. On November 14, 2019, in connection with their service on the Board of Directors for fiscal years 2017, 2018 and 2019, the Company issued (i) 99,362, (ii) 272,472,(iii) 112,739 and (iv) 272,472 shares of Common Stock to Blake Furlow, Gary Herman, Bart Mitchell and JoyAnn Kenny-Charlton, respectively as well as a total of $85,041. Effective October 1, 2019, Robert Boyd was appointed Chief Accounting Officer of the Company. Mr. Boyd and the Company entered into a one-year employment agreement. On October 30, 2019 the Company completed the sale of a condominium conference space listed for sale for proceeds of approximately $99,000. On December 12, 2019 Blake Furlow resigned as a member of the Board of Directors of Creative Learning Corporation and from his position as Chairman of the Board of Directors. |
Nature of Organization and Su_2
Nature of Organization and Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Jun. 30, 2019 | |
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, 2019, BFK franchisees operated in 374 territories in 38 countries. |
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 three and six months ended June 30, 2019 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, 2018. |
Related Parties | Related Parties The Company has been involved in transactions with related parties. 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 also 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. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party. |
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 financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions made by management include 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. |
Reclassification | Reclassification Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications. |
Restricted Cash | Restricted Cash The Company had restricted cash of approximately $24,000 and $23,000 at June 30, 2019 and September 30, 2018, 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. Any cash collected by the Company for marketing funds is held in a separate bank account and any balance at period end is presented as “restricted cash” and “accrued marketing fund” on the balance sheet. See Note 4 for additional information. |
Accounts and Note Receivables | Accounts and Note Receivables 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, 2019 and September 30, 2018 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 Improvements 15-40 years Software 3 years |
Long-Lived Assets | Long-Lived Assets The Company’s long-lived assets consist of property and equipment, and intangible assets. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates of asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable, and accounts payable approximate fair value because of the relative short-term maturity of these items and current payment expected. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments. Notes receivable are recorded at par value less allowance for doubtful accounts. The carrying amount is consistent with fair value based upon similar notes issued to other franchisees. ASC 825, Financial Instruments, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability. Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared |
Revenue Recognition | Revenue Recognition Revenue is recognized when a company satisfies a performance obligation by transferring a promised good or service to a customer. The Company generates all its revenue from contracts with customers. The Company’s franchise agreements enter the parties into a ten year term and include performance obligations as follows: protected territory designation, access to proprietary manuals and handbooks, initial training and on-going assistance, consulting, promotion of goodwill, administration of marketing fund, marketing and promotion items, initial advertising program development assistance, company website access, Franchise Management Tool access, lessons and model plans, project kits, Duplo bricks, frames stop motion animation software, and use of the franchisor’s intellectual property (IP) (e.g., trade name – Bricks for Kidz). Additionally, the contract permits the franchisee to renew the contract for an additional ten-year term for a fee. The following is a description of principal activities from which the Company generates its revenue. Initial Franchise Fee - 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 franchise fees are fully collectible and nonrefundable as of the date of the signing of the franchise agreement. The initial franchise fee is recognized as deferred revenue on a straight line basis over the ten-year period as the performance obligations are met over the contract term. The Company adopted the new revenue standard (Topic 606) on October 1, 2018 for contracts with remaining performance obligations as of October 1, 2018. Comparative information from prior year periods has not been adjusted and continue to be reported under the accounting standards in effect for those periods under Topic 605. The adoption of the new guidance changed the timing of recognition of franchise sales and franchise renewal revenue and related commissions paid on franchise sales, as discussed further in Note 7. The activity in the Company’s deferred revenue for initial franchise fee is included in “Deferred revenue” and “Deferred revenue, net of current portion” on the Condensed Consolidated Balance Sheets, and consists of the following: Balance at beginning of period New billings (a) Revenue recognized (b) Balance at end of As of June 30, 2019 $ - $ 6,687,465 $ (1,844,413) $ 4,843,052 (a) New billings not related to ASC 606 implementation was $45,876 and $176,343 for the three and nine month periods ended June 30, 2019, respectively. (b) Revenue recognized not related to ASC 606 implementation for new billings was $815 and $10,468 for the three and nine month periods ended June 30, 2019, respectively. Commissions paid on initial franchise sales are recognized as an asset and amortized over the contract life of the franchise agreement. The activity in the Company’s capitalized contract costs for commissions consist of the following: Balance at beginning of period Additions to Contract cost for new activity (a) Expense recognized (b) Balance at end of As of June 30, 2019 $ - $ 2,087,806 $ (460,361) $ 1,627,445 (a) Additions to contract cost for new activity not related to ASC 606 implementation was $0 and $11,737 for the three and nine month periods ended June 30, 2019, respectively. (b) Expense recognized not related to ASC 606 implementation for new activity was $0 and $828 for the three and nine month periods ended June 30, 2019, respectively. Advertising Fund Revenue - Per the terms of the franchise agreements, the Company collects 2% of franchisee’s monthly gross revenues each month, due on the third day of the following month, for a marketing fund, managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees. This revenue is recognized on a monthly basis. Upon adoption of FASB 606 on October 1, 2018, the Company began presenting these revenues on a gross revenue basis on its statement of operations as per FASB ASC 606-10-55-39. The activity in the Company’s accrued marketing fund for advertising fund revenue accounts consists of the following: Balance at beginning of period New billings (a) Expense recognized (b) Balance at end of As of June 30, 2019 $ 97,334 $ 585,885 $ (617,915) $ 65,304 (a) New billings recognized related to the beginning balance was $68,871 and $73,573 for the three and nine month periods ended June 30, 2019 not related to ASC 606 implementation. (b) Expense recognized related to the beginning balance was $38,324 and $105,603 for the three and nine month periods ended June 30, 2019 not related to ASC 606 implementation. Royalties - Royalties are calculated per franchise, based on a flat fee structure and are recognized as earned on a monthly basis. Merchandise Revenue – Merchandise revenue is made up of Lego kits and fees for the use of Company email. |
Advertising Costs | Advertising Costs Advertising costs for the operating company are expensed as incurred. The Company incurred advertising costs for the three and nine months ended June 30, 2019 of approximately $2,000 and $11,000, respectively, and for the three and nine months ended June 30, 2018 of approximately $16,000 and $22,000, respectively. Advertising costs of approximately $620,000 were paid out of the marketing fund on behalf of the franchisees and were expensed when funds were received from franchisees. See Note 7. |
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. Given previous recurring losses, the Company cannot conclude that it is more likely than not that such assets will be realized, therefore a full valuation allowance has been recorded during the nine months ended June 30, 2019. 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, 2019 and September 30, 2018, respectively, and has not recognized interest and/or penalties during the nine 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. All securities outstanding as of June 30, 2019 are anti-dilutive. |
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 (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”) and has since issued various amendments which provide additional clarification and implementation guidance on Topic 606. This guidance establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company adopted this new guidance effective the first day of fiscal 2018 using the modified retrospective transition method and applied Topic 606 to those contracts which were not completed as of October 1, 2018. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of fiscal 2018. In performing its analysis, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price. Comparative information from prior year periods has not been adjusted and continue to be reported under the accounting standards in effect for those periods under “Revenue Recognition” (“Topic 605”). Refer to Note 7 for further disclosure of the impact of the new guidance. In February 2016, the FASB issued ASU No. 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 and includes 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 November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash |
Nature of Organization and Su_3
Nature of Organization and Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Jun. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Property and Equipment Useful Lifes | Fixed Assets Useful Life Equipment 5 years Furniture and Fixtures 5 years Property Improvements 15-40 years Software 3 years |
Summary of capitalized contract costs for commissions | The activity in the Company’s deferred revenue for initial franchise fee is included in “Deferred revenue” and “Deferred revenue, net of current portion” on the Condensed Consolidated Balance Sheets, and consists of the following: Balance at beginning of period New billings (a) Revenue recognized (b) Balance at end of As of June 30, 2019 $ - $ 6,687,465 $ (1,844,413) $ 4,843,052 (a) New billings not related to ASC 606 implementation was $45,876 and $176,343 for the three and nine month periods ended June 30, 2019, respectively. (b) Revenue recognized not related to ASC 606 implementation for new billings was $815 and $10,468 for the three and nine month periods ended June 30, 2019, respectively. Commissions paid on initial franchise sales are recognized as an asset and amortized over the contract life of the franchise agreement. The activity in the Company’s capitalized contract costs for commissions consist of the following: Balance at beginning of period Additions to Contract cost for new activity (a) Expense recognized (b) Balance at end of As of June 30, 2019 $ - $ 2,087,806 $ (460,361) $ 1,627,445 (a) Additions to contract cost for new activity not related to ASC 606 implementation was $0 and $11,737 for the three and nine month periods ended June 30, 2019, respectively. (b) Expense recognized not related to ASC 606 implementation for new activity was $0 and $828 for the three and nine month periods ended June 30, 2019, respectively. |
Summary of accrued marketing fund for advertising fund revenue accounts | The activity in the Company’s accrued marketing fund for advertising fund revenue accounts consists of the following: Balance at beginning of period New billings (a) Expense recognized (b) Balance at end of As of June 30, 2019 $ 97,334 $ 585,885 $ (617,915) $ 65,304 (a) New billings recognized related to the beginning balance was $68,871 and $73,573 for the three and nine month periods ended June 30, 2019 not related to ASC 606 implementation. (b) Expense recognized related to the beginning balance was $38,324 and $105,603 for the three and nine month periods ended June 30, 2019 not related to ASC 606 implementation. |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 9 Months Ended |
Jun. 30, 2019 | |
Notes to Financial Statements | |
Summary of the impacts of the new revenue standard adoption | The following tables summarize the impacts of the new revenue standard adoption on the Company’s financial statements: Consolidated Balance Sheet Impact of Changes in Accounting Policies As of June 30, 2019 As previously reported Adjustments As Adjusted Prepaid Commission Expense - 275,131 275,131 Prepaid Commission Expense - net of current portion - 1,352,314 1,352,314 Deferred Revenue - 1,011,380 1,011,380 Deferred Revenue - net of current portion - 3,831,672 3,831,672 Accrued Marketing Fund 97,334 (32,030) 65,304 Accumulated Deficit (2,391,525) (4,433,675) (6,825,200) Consolidated Statement of Income Impact of Changes in Accounting Policies As of June 30, 2019 As previously reported Adjustments As Adjusted Franchise Fees - 1,844,413 1,844,413 Advertising Fund Revenue - 620,361 620,361 Commission Expense - 460,361 460,361 Advertising Expense - 620,361 620,361 Income before income taxes - 1,384,052 1,384,052 Net Income - 1,384,052 1,384,052 Consolidated Statement of Cash Flows Impact of Changes in Accounting Policies As of June 30, 2019 As previously reported Adjustments As Adjusted Net Income - 1,384,052 1,384,052 Prepaid Commission expense - (1,627,445) (1,627,445) Deferred revenue - 4,843,052 4,843,052 |
Summary of future expenses related to performance obligations | The following table includes estimated revenue by year, excluding certain other immaterial items, expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period: June 30, 2020 June 30, 2021 June 30, 2022 June 30, 2023 June 30, 2024 and thereafter Initial Franchise Fees $ 1,011,380 $ 996,693 $ 939,088 $ 819,326 $ 1,076,564 |
Nature of Organization and Su_4
Nature of Organization and Summary of Significant Accounting Policies (Details) | 9 Months Ended |
Jun. 30, 2019 | |
Equipment [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and Equipment | 5 years |
Furniture and Fixtures [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and Equipment | 5 years |
Property Improvements [Member] | Minimum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and Equipment | 15 years |
Property Improvements [Member] | Maximum [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and Equipment | 40 years |
Software [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and Equipment | 3 years |
Nature of Organization and Su_5
Nature of Organization and Summary of Significant Accounting Policies (Details 1) | 9 Months Ended |
Jun. 30, 2019USD ($) | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Deferred revenue at beggining | $ 0 |
New billings | 6,687,465 |
Revenue recognized | (1,844,413) |
Deferred revenue at end | $ 4,843,052 |
Nature of Organization and Su_6
Nature of Organization and Summary of Significant Accounting Policies (Details 2) | 9 Months Ended |
Jun. 30, 2019USD ($) | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Commission expense at beginning | $ 0 |
Additions to Contract cost for new activity | 2,087,806 |
Revenue recognized | (460,361) |
Commissions expense at end | $ 1,627,445 |
Nature of Organization and Su_7
Nature of Organization and Summary of Significant Accounting Policies (Details 3) | 9 Months Ended |
Jun. 30, 2019USD ($) | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Accrued marketing fund for advertising fund revenue at beginning | $ 97,334 |
New billings | 585,885 |
Revenue recognized | (617,915) |
Accrued marketing fund for advertising fund revenue at beginning | $ 65,304 |
Nature of Organization and Su_8
Nature of Organization and Summary of Significant Accounting Policies (Details Narrative) | 3 Months Ended | 9 Months Ended | |||
Jun. 30, 2019USD ($)Number | Jun. 30, 2018USD ($) | Jun. 30, 2019USD ($)Number | Jun. 30, 2018USD ($) | Sep. 30, 2018USD ($) | |
Number of territories | Number | 374 | 374 | |||
Number of countries | Number | 38 | 38 | |||
Restricted cash | $ 23,766 | $ 23,766 | $ 22,505 | ||
Marketing fund expenses | 620,000 | ||||
Advertising costs | 2,000 | $ 16,000 | 11,000 | $ 22,000 | |
New billings on deffered revenue | 45,876 | 176,343 | |||
Revenue recognized on deffered revenue | 815 | 10,468 | |||
New billings | 0 | 11,737 | |||
Revenue recognized | 0 | 828 | |||
Additions to contract cost for new activity | 68,871 | 73,573 | |||
Expense recognized | $ 38,324 | $ 105,603 | |||
BFK Franchise Co., LLC ("BFK") [Member] | Franchise Agreements [Member] | |||||
Percentage of gross revenues collected for marketing fund | 2.00% | 2.00% |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | 9 Months Ended | ||
Jun. 30, 2019 | Dec. 31, 2017 | Dec. 29, 2017 | |
Related Party Transaction [Line Items] | |||
Line of credit | $ 0 | ||
Initial term | 5 years | ||
First Member [Member] | |||
Related Party Transaction [Line Items] | |||
Line of credit | $ 50,000 | ||
Second Member [Member] | |||
Related Party Transaction [Line Items] | |||
Line of credit | $ 50,000 |
Notes and Other Receivables (De
Notes and Other Receivables (Details Narrative) - USD ($) | Jun. 30, 2019 | Sep. 30, 2018 |
Receivables [Abstract] | ||
Notes receivable | $ 6,000 | $ 15,000 |
Interest rate | 3.00% |
Accrued Marketing Fund (Details
Accrued Marketing Fund (Details Narrative) | Jun. 30, 2019 |
BFK Franchise Co., LLC ("BFK") [Member] | Franchise Agreements [Member] | |
Percentage of gross revenues collected for marketing fund | 2.00% |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Dec. 31, 2017 | Dec. 29, 2017 | Dec. 31, 2017 | Jun. 30, 2019 | Jun. 30, 2018 | Mar. 27, 2019 | |
Option granted expenses | $ 2,000 | |||||
Stock based compensation | $ 2,000 | |||||
Directors [Member] | ||||||
Number of shares granted | 14,286 | |||||
Fair value of shares grant | $ 2,000 | |||||
Officers [Member] | ||||||
Number of shares granted | 14,286 | |||||
Fair value of shares grant | $ 2,000 | |||||
Former President [Member] | ||||||
Stock issued | 13,265 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | ||||
Rent expense | $ 10,000 | $ 5,000 | $ 30,000 | $ 14,000 |
Revenue Recognition (Details)
Revenue Recognition (Details) - USD ($) | Jun. 30, 2019 | Sep. 30, 2018 |
Deferred Revenue | $ 1,011,380 | |
Deferred Revenue - net of current portion | 3,831,672 | |
Accumulated Deficit | (5,181,182) | $ (2,391,525) |
As Previously Reported [Member] | ||
Prepaid Commission Expense | ||
Prepaid Commission Expense - net of current portion | ||
Deferred Revenue | ||
Deferred Revenue - net of current portion | ||
Accrued Marketing Fund | 97,334 | |
Accumulated Deficit | (2,391,525) | |
Adjustments [Member] | ||
Prepaid Commission Expense | 275,131 | |
Prepaid Commission Expense - net of current portion | 1,352,314 | |
Deferred Revenue | 1,011,380 | |
Deferred Revenue - net of current portion | 3,831,672 | |
Accrued Marketing Fund | (32,030) | |
Accumulated Deficit | (4,433,675) | |
As Adjusted [Member] | ||
Prepaid Commission Expense | 275,131 | |
Prepaid Commission Expense - net of current portion | 1,352,314 | |
Deferred Revenue | 1,011,380 | |
Deferred Revenue - net of current portion | 3,831,672 | |
Accrued Marketing Fund | 65,304 | |
Accumulated Deficit | $ (6,825,200) |
Revenue Recognition (Details 1)
Revenue Recognition (Details 1) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Franchise Fees | $ 614,716 | $ 65,060 | $ 1,844,413 | $ 159,269 |
Advertising Fund Revenue | 38,323 | 620,361 | ||
Advertising Expense | 40,553 | 16,200 | 631,132 | 21,503 |
Income before income taxes | 635,333 | 114,172 | 1,644,018 | 47,254 |
Net Income | $ 635,333 | $ 114,172 | 1,644,018 | $ 47,254 |
As Previously Reported [Member] | ||||
Franchise Fees | ||||
Advertising Fund Revenue | ||||
Commission Expense | ||||
Advertising Expense | ||||
Income before income taxes | ||||
Net Income | ||||
Adjustments [Member] | ||||
Franchise Fees | 1,844,413 | |||
Advertising Fund Revenue | 620,361 | |||
Commission Expense | 460,361 | |||
Advertising Expense | 620,361 | |||
Income before income taxes | 1,384,052 | |||
Net Income | 1,384,052 | |||
As Adjusted [Member] | ||||
Franchise Fees | 1,844,413 | |||
Advertising Fund Revenue | 620,361 | |||
Commission Expense | 460,361 | |||
Advertising Expense | 620,361 | |||
Income before income taxes | 1,384,052 | |||
Net Income | $ 1,384,052 |
Revenue Recognition (Details 2)
Revenue Recognition (Details 2) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Net Income | $ 635,333 | $ 114,172 | $ 1,644,018 | $ 47,254 |
Deferred revenue | 4,843,052 | |||
As Previously Reported [Member] | ||||
Net Income | ||||
Prepaid Commission expense | ||||
Deferred revenue | ||||
Adjustments [Member] | ||||
Net Income | 1,384,052 | |||
Prepaid Commission expense | (1,627,445) | |||
Deferred revenue | 4,843,052 | |||
As Adjusted [Member] | ||||
Net Income | 1,384,052 | |||
Prepaid Commission expense | (1,627,445) | |||
Deferred revenue | $ 4,843,052 |
Revenue Recognition (Details 3)
Revenue Recognition (Details 3) | 9 Months Ended |
Jun. 30, 2019USD ($) | |
Revenue Recognition [Abstract] | |
Initial Franchise Fees for June 30, 2020 | $ 1,011,380 |
Initial Franchise Fees for June 30, 2021 | 996,693 |
Initial Franchise Fees for June 30, 2022 | 939,088 |
Initial Franchise Fees for June 30, 2023 | 819,326 |
Initial Franchise Fees for June 30, 2024 and thereafter | $ 1,076,564 |
Revenue Recognition (Details Na
Revenue Recognition (Details Narrative) | 9 Months Ended |
Jun. 30, 2019 | |
Revenue Recognition [Abstract] | |
Franchise term | 10 years |
Percentage of franchisee’s gross revenues for marketing fund | 2.00% |
Sale of Condominium (Details Na
Sale of Condominium (Details Narrative) | Nov. 14, 2018USD ($) |
Notes to Financial Statements | |
Proceeds from sale of condominium | $ 86,000 |
Gain on sale of condominium | $ 43,000 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Nov. 14, 2019 | Jul. 09, 2019 | Nov. 14, 2018 | Oct. 30, 2019 | Sep. 30, 2019 |
Proceeds from sale of condominium | $ 86,000 | ||||
Gain on sale of condominium | $ 43,000 | ||||
Subsequent Event [Member] | |||||
Proceeds from sale of condominium | $ 60,000 | $ 99,000 | |||
Gain on sale of condominium | $ 22,000 | ||||
Subsequent Event [Member] | JoyAnn Kenny-Charlton [Member] | |||||
Stock issued | 272,472 | ||||
Directors fees | $ 85,041 | ||||
Subsequent Event [Member] | Directors [Member] | |||||
Stock issued | 573,176 | ||||
Severance | $ 30,000 | ||||
Subsequent Event [Member] | Blake Furlow [Member] | |||||
Stock issued | 99,362 | ||||
Subsequent Event [Member] | Gary Herman [Member] | |||||
Stock issued | 272,472 | ||||
Subsequent Event [Member] | Bart Mitchell [Member] | |||||
Stock issued | 112,739 | ||||
Stock grants description | In addition to cash compensation, he will receive stock grants valued at lesser of $15,000 or 200,000 Shares of Common Stock on the last day of the completed year of employment. |