Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Mar. 31, 2021 | Apr. 30, 2021 | |
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 | Mar. 31, 2021 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2021 | |
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 | 13,175,838 | |
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 ($) | Mar. 31, 2021 | Sep. 30, 2020 |
Current Assets: | ||
Cash | $ 393,285 | $ 427,659 |
Restricted Cash (marketing fund) | 14,330 | 20,194 |
Accounts receivable, less allowance for doubtful accounts of approximately $1,035,000 and $942,000, respectively | 230,803 | 269,211 |
Prepaid commission expense | 182,273 | 212,122 |
Prepaid expense | 11,042 | 10,452 |
Marketing fund receivable | 2,557 | |
Notes receivables - current portion, less allowance for doubtful accounts of approximately $91,000 and $91,000, respectively | 7,503 | 9,159 |
Total Current Assets | 841,793 | 948,797 |
Security deposit | 833 | |
Prepaid commission expense - net of current portion | 370,142 | 512,756 |
Property and equipment, net of accumulated depreciation of approximately $501,000 and $416,000, respectively | 80,008 | 131,618 |
Total Assets | 1,291,943 | 1,594,004 |
Current Liabilities: | ||
Accounts payable | 57,164 | 69,527 |
SBA Loan - PPP | 119,980 | 119,980 |
Deferred revenue | 781,915 | 915,103 |
Accrued liabilities | 22,588 | 8,743 |
Total Current Liabilities | 981,647 | 1,113,353 |
Deferred revenue - net of current portion | 1,692,612 | 2,297,576 |
Total Liabilities | 2,674,259 | 3,410,929 |
Commitments and Contingencies (Note 3) | ||
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 13,240,938 shares issued and 13,175,838 shares outstanding as of March 31, 2021 13,363,410 shares issued and 13,298,310 shares outstanding as of September 30, 2020 | 1,322 | 1,334 |
Additional paid in capital | 3,020,092 | 2,990,080 |
Treasury Stock 65,100 shares, at cost | (34,626) | (34,626) |
Accumulated Deficit | (4,369,104) | (4,773,713) |
Total Stockholders' Equity (Deficit) | (1,382,316) | (1,816,925) |
Total Liabilities and Stockholders' Equity (Deficit) | $ 1,291,943 | $ 1,594,004 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) | Mar. 31, 2021 | Sep. 30, 2020 |
Consolidated Balance Sheets | ||
Allowance for doubtful accounts receivable | $ 1,035,000 | $ 942,000 |
Allowance for doubtful notes receivable | 91,000 | 91,000 |
Accumulated depreciation | $ 501,000 | $ 416,000 |
Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 10,000,000 | 10,000,000 |
Preferred stock, issued | 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 | 13,240,938 | 13,363,410 |
Common stock, outstanding | 13,175,838 | 13,298,310 |
Treasury stock, shares | 65,100 | 65,100 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2021 | Mar. 31, 2020 | Mar. 31, 2021 | Mar. 31, 2020 | |
Revenues | ||||
Royalty fees | $ 304,582 | $ 465,515 | $ 636,474 | $ 906,457 |
Marketing fund revenue | 88,692 | 146,794 | ||
Initial franchise fees | 350,104 | 238,278 | 739,108 | 498,971 |
Technology fees | 55,321 | 56,331 | 91,433 | 85,814 |
Merchandise sales | ||||
TOTAL REVENUES | 710,007 | 848,816 | 1,467,015 | 1,638,036 |
OPERATING EXPENSES | ||||
Salaries and payroll taxes and stock-based compensation | 107,411 | 141,323 | 244,770 | 278,766 |
Professional, legal and consulting fees | 188,915 | 189,879 | 294,202 | 350,877 |
Bad debt expense | 53,728 | 17,741 | 102,939 | 29,368 |
Other general and administrative expenses | 70,056 | 60,003 | 192,773 | 109,778 |
Franchise commissions | 84,492 | 60,181 | 172,428 | 119,709 |
Franchise training and expenses | 1,873 | 3,294 | ||
Depreciation | 23,353 | 26,740 | 54,606 | 54,826 |
General Advertising | 915 | 3,417 | 2,639 | 5,305 |
Franchise marketing fund expense | 88,692 | 146,794 | ||
TOTAL OPERATING EXPENSES | 528,870 | 589,849 | 1,064,357 | 1,098,717 |
OPERATING INCOME (LOSS) | 181,137 | 258,967 | 402,658 | 539,319 |
OTHER INCOME (EXPENSE) | 5 | (3,029) | 1,951 | 15,767 |
INCOME (LOSS) BEFORE INCOME TAXES | 181,142 | 255,938 | 404,609 | 555,086 |
PROVISION FOR INCOME TAXES | ||||
NET INCOME | $ 181,142 | $ 255,938 | $ 404,609 | $ 555,086 |
NET INCOME PER SHARE | ||||
Basic | $ 0.01 | $ 0.02 | $ 0.03 | $ 0.04 |
Diluted | $ 0.01 | $ 0.02 | $ 0.03 | $ 0.04 |
Basic weighted average number of common shares outstanding | 13,027,505 | 13,572,614 | 13,164,395 | 13,557,224 |
Diluted weighted average number of common shares outstanding | 13,389,636 | 13,572,614 | 13,389,636 | 13,557,224 |
Condensed Consolidated Statem_2
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, 2019 | $ (34,626) | $ 1,360 | $ 2,897,554 | $ (5,393,874) | $ (2,439,586) |
Balance (in shares) at Sep. 30, 2019 | (65,100) | 13,607,102 | |||
Compensatory stock issuances | $ 2 | 2,498 | 2,500 | ||
Compensatory stock issuances (in shares) | 35,714 | ||||
Net income | 555,086 | 555,086 | |||
Balance at Mar. 31, 2020 | $ (34,626) | $ 1,362 | 2,990,052 | (4,838,788) | (1,882,000) |
Balance (shares) at Mar. 31, 2020 | (65,100) | 13,642,816 | |||
Balance at Dec. 31, 2019 | $ (34,626) | $ 1,360 | 2,897,554 | (5,094,726) | (2,140,438) |
Balance (in shares) at Dec. 31, 2019 | (65,100) | 13,607,102 | |||
Compensatory stock issuances | $ 2 | 2,498 | 2,500 | ||
Compensatory stock issuances (in shares) | 35,714 | ||||
Net income | 255,938 | 255,938 | |||
Balance at Mar. 31, 2020 | $ (34,626) | $ 1,362 | 2,990,052 | (4,838,788) | (1,882,000) |
Balance (shares) at Mar. 31, 2020 | (65,100) | 13,642,816 | |||
Balance at Sep. 30, 2020 | $ (34,626) | $ 1,334 | 2,990,080 | (4,773,713) | (1,816,925) |
Balance (in shares) at Sep. 30, 2020 | (65,100) | 13,363,410 | |||
Shares Issued | $ 15 | 29,985 | 30,000 | ||
Shares Issued (in shares) | 150,000 | ||||
Shares Cancelled | $ (27) | 27 | |||
Shares Cancelled (in shares) | (272,472) | ||||
Net income | 404,609 | 404,609 | |||
Balance at Mar. 31, 2021 | $ (34,626) | $ 1,322 | 3,020,092 | (4,369,104) | (1,382,316) |
Balance (shares) at Mar. 31, 2021 | (65,100) | 13,240,938 | |||
Balance at Dec. 31, 2020 | $ (34,626) | $ 1,334 | 2,990,080 | (4,550,246) | (1,593,458) |
Balance (in shares) at Dec. 31, 2020 | (65,100) | 13,363,410 | |||
Shares Issued | $ 15 | 29,985 | 30,000 | ||
Shares Issued (in shares) | 150,000 | ||||
Shares Cancelled | $ (27) | 27 | |||
Shares Cancelled (in shares) | (272,472) | ||||
Net income | 181,142 | 181,142 | |||
Balance at Mar. 31, 2021 | $ (34,626) | $ 1,322 | $ 3,020,092 | $ (4,369,104) | $ (1,382,316) |
Balance (shares) at Mar. 31, 2021 | (65,100) | 13,240,938 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 6 Months Ended | |
Mar. 31, 2021 | Mar. 31, 2020 | |
Cash flows from operating activities: | ||
Net Income | $ 404,609 | $ 555,086 |
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities: | ||
Depreciation | 54,606 | 54,826 |
Gain on sale of assets held for sale | (20,602) | |
Bad debt expense | 29,368 | 29,368 |
Stock based compensation | 30,000 | 2,500 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 9,040 | (136,271) |
Prepaid expenses | (590) | (5,084) |
Prepaid commission expense | 172,428 | 117,557 |
Deposits | 833 | (833) |
Accounts payable | (12,363) | (45,968) |
Accrued liabilities | 13,880 | (70,100) |
Deferred Revenue | (738,153) | (442,585) |
Accrued marketing fund | (2,557) | (64,189) |
Net cash provided by (used in) operating activities | (38,898) | (26,295) |
Cash flows from investing activities: | ||
Acquisition of property and equipment | (2,996) | |
Sale of assets held for sale | 100,231 | |
Collection of Notes receivable | 1,656 | (7,815) |
Net cash provided by (used in) investing activities | (1,340) | 92,416 |
Cash flows from financing activities | ||
Net change in cash, cash equivalents and restricted cash | (40,238) | 66,121 |
Cash, cash equivalents and restricted cash at beginning of period | 447,853 | 540,021 |
Cash, cash equivalents and restricted cash at end of period | 407,615 | 606,142 |
Noncash financing activity: | ||
Shares cancelled | 27 | |
Supplemental cash flow information: | ||
Cash paid for interest | ||
Cash paid for income taxes |
Nature of Organization and Summ
Nature of Organization and Summary of Significant Accounting Policies | 6 Months Ended |
Mar. 31, 2021 | |
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 March 31, 2021, BFK franchisees operated in 496 territories in 35 states and 40 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 months and six months ended March 31, 2021 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, 2020. 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. Cash, Restricted Cash and Cash Equivalents The Company had restricted cash of approximately $14,000 and $20,000 at March 31, 2021 and September 30, 2020, 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” or “marketing fund receivable” on the balance sheet. 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 March 31, 2021 and September 30, 2020 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 The Company generates almost all of its revenue from contracts with customers. The Company’s franchise agreements enter the parties into a contractual agreement, typically over a ten years 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 marketing 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). Upon entering into a franchise agreement, the Company charges an initial franchise fee, which is fully collectible and nonrefundable as of the date of the signing of the franchise agreement. Further, because 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. Per the terms of the franchise agreements, the Company charges for royalty fees on a monthly basis, generally set at a fixed amount, but in some cases are based on a percentage of franchisee’s monthly gross revenues. The Company also charges fees for a marketing fund, generally based on 2% of franchisee’s monthly gross revenues, which is managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees. Lastly, the Company charges for technology fees on a monthly basis, generally at a fixed amount, for the use of the company Franchise Management tool as well as company emails, etc. Effective October 1, 2018 the Company began recognizing revenue under ASC 606. The Company considers initial franchise fees to be a part of the license of symbolic intellectual property (“IP”), therefore the performance obligation related to these fees is satisfied over time as the Company fulfills its promise to grant the customer rights to use, and benefit from, the Company’s IP, as well as support and maintain the IP. The initial franchise fee, then, is recorded as deferred revenue at inception and recognized on a straight-line basis over the contract term. In accordance with ASC 606-10-55-65, the Company has determined that the royalty fees, marketing fees, and technology fees are subject to a sales and usage-based royalties’ constraint on licenses of IP. Accordingly, these fees are recognized as revenue at the later of when the sales or usage occurs or the related performance obligation is satisfied. Technology fees are recorded net of processing fees. Marketing fees are limited to the lesser of marketing amounts earned or expensed; therefore, the Company will recognize amounts received in excess of amounts spent on the balance sheet in the accrued marketing fund liability and will recognize amounts spent in excess of amounts received on the balance sheet in the marketing fund receivable. The Company collects transfer fees when contracts are transferred between parties and accounts for the transfer as a contract modification under ASC 606. Because the transfer does not increase the scope of the contract or promise any additional goods or services and there are no new distinct services that will be provided after the transfer the Company considers the transfer fee part of the existing contract. Transfer fees, then, are recorded as deferred revenue at inception and recognized on a straight-line basis over the remaining contract term. When contracts are terminated due to default, or in conjunction with an early termination agreement, the Company accounts for the early termination as a contract modification under ASC 606. Because the termination eliminates any future performance obligations of the Company any deferred revenue associated with the terminated contract is recognized into revenue at the time of termination, along with any early termination fees, in the initial franchise fee line on the Company’s Statement of Operations. The Company generates revenue from sales of merchandise where the performance obligation is met, and therefore revenue recognized, upon the delivery of merchandise to the customer. Contract Liability – Deferred Revenue In conjunction with the adoption of ASC 606, effective October 1, 2018 the Company recorded deferred revenue as a contract liability for its initial franchise fees collected and related to contracts with remaining performance obligations. During the six months ended March 31, 2021 the activity in the deferred revenue account was as follows: Balance, September 30, 2020 $ 3,212,679 Initial franchise fees collected 956 Deferred revenue recognized into revenue (739,108 ) Balance, March 31, 2021 2,474,527 Current portion (781,915 ) Deferred revenue, net of current portion $ 1,692,612 Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021 were as follows: Twelve months ended March 31, 2022 $ 781,915 Twelve months ended March 31, 2023 697,838 Twelve months ended March 31, 2024 516,370 Twelve months ended March 31, 2025 252,471 Twelve months ended March 31, 2026 and thereafter 225,933 Total $ 2,474,527 Contract Liability / Asset – Accrued Marketing Fund / Marketing Fund Receivable 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 toward national branding of the Company’s concepts to benefit the franchisees. The marketing fund amounts owed to the Company are accounted for as a liability on the balance sheet and the actual collections are deposited into a marketing fund bank account, presented as restricted cash on the balance sheet. Expenses pertaining to the marketing fund activities are paid from the marketing fund and reduce the liability account. Upon adoption of FASB 606 on October 1, 2018, the Company presents these marketing fund revenues and expenses on a gross basis on its statement of operations. Any unused funds at the end of the period are recorded as accrued marketing fees or any funds used in excess of funds collected are recorded as a marketing fund receivable. The Company expects to collect this advance in future periods from the 2% fees collected on future franchisee gross revenues. The activity in the accrued marketing fund liability account for the six months ended March 31, 2021 was as follows: Marketing fund liability (receivable), September 30, 2020 $ — Marketing fund billings recognized into income — Marketing funds recognized into expense — Marketing funds advanced by the Company (2,557 ) Marketing fund liability (receivable), March 31, 2021 $ (2,557 ) Contract Asset – Prepaid Commission Expense In accordance with ASC 606 the costs related to obtaining a contract are to be capitalized as long as the costs are recoverable and incremental. Effective October 1, 2018, the date the Company adopted ASC 606, it capitalized the value of sales commissions as a contract asset and is amortizing those costs straight-line over the contract life of the franchise agreement to which they relate. During the six months ended March 31, 2021, the activity in the contract asset account was as follows: Balance, September 30, 2020 $ 724,878 Commissions paid (35 ) Commissions recognized into expense (172,428 ) Balance, March 31, 2021 552,415 Current portion (182,273 ) Prepaid commission expense, net of current portion $ 370,142 General Advertising Costs General advertising costs are expensed as incurred. The Company incurred general advertising costs for the three months and six months ended March 31, 2021 of $915 and $2,639, respectively and $3,417 and $5,305, for the quarter and six months ended March 31, 2020. 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 six months ended March 31, 2021. 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 March 31, 2021 and September 30, 2020, respectively, and has not recognized interest and/or penalties during the six months ended March 31, 2021, 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 2015 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. During the six months ended March 31, 2021, the Company issued 150,000 shares to a vendor in exchange for professional services and expensed $30,000 in connection with the stock issuance. Reclassifications Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Recent accounting pronouncements All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable. |
Notes and Other Receivables
Notes and Other Receivables | 6 Months Ended |
Mar. 31, 2021 | |
Receivables [Abstract] | |
Notes and Other Receivables | (2) Notes and Other Receivables At March 31, 2021 and September 30, 2020, the Company held certain notes receivable totaling approximately $8,000 and $9,000, respectively, net of allowances, for extended payment terms of franchise fees. The notes receivable bear interest of 4% per annum with monthly payments, payable within four years. The Company analyzes the collectability of all receivables and reserves accordingly. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Mar. 31, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | (3) Commitments and Contingencies 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. On October 8, 2020 the Court dismissed Brian Pappas’ indemnity counterclaim without prejudice. 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”) filed suit against the Company alleging 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. The Company is actively litigating this matter. On October 27, 2016, Brian Pappas filed a motion to amend the complaint in Case No. CA 16-236 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 granted the right to amend his complaint and does so, the Company will vigorously defend the proposed claim. The Company’s complaint against Mr. Pappas and Franventures (Case No. CA 15-1076) has been consolidated with Mr. Pappas’ and Franventures’ complaint against the Company (Case No. CA 16-236) for purposes of discovery, but not for any other purpose. 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, as well as four other defendants seeking damages under the New York Franchise Sales Act. The same Plaintiffs also initiated an arbitration proceeding against the Company 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 in the arbitration case. Both cases have been held in abeyance as the parties seek a resolution. 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). The Plaintiffs allege breach of contract, fraud, misrepresentations and omissions, violations of the Indiana Franchise Act, and violations of the Indiana Deceptive Franchise Practices Act. On April 23, 2020, a settlement agreement was entered into between the Plaintiffs and the Company under which the arbitration was dismissed. Pursuant to the settlement agreement, Indy Bricks, LLC will pay the Company an agreed amount of past due franchise fees, monthly marketing and royalty fees, and monthly fees to utilize the Company’s franchise management software. |
Sale of Condominium
Sale of Condominium | 6 Months Ended |
Mar. 31, 2021 | |
Notes to Financial Statements | |
Sale of Condominium | (4) Sale of Condominium On October 30, 2019 the Company completed the sale of a condominium conference space for proceeds of approximately $100,000 and recorded a gain of approximately $21,000, which represented the excess of the proceeds over the carrying value on that date. |
Related Party Transactions
Related Party Transactions | 6 Months Ended |
Mar. 31, 2021 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | (5) Related Party Transactions Christopher Rego has been a director since February 5, 2020, and our Chief Executive Officer since May 1, 2020. Prior to his appointment, Mr. Rego purchased an active franchise in California. During the six months ended March 31, 2021 the Company recognized royalty revenue from the franchise of $7,875 and recognized marketing fee revenue from the franchise of $0. Total payments made by the franchisee were $2,834. As of March 31, 2021 and September 30, 2020 the accounts receivable balance with the franchisee was $3,143 and $11,894, respectively and the franchisee had deferred revenue balances of $0. Christopher Rego, our chief executive officer, is also the CEO of Teknowland, a software development company, with which the Company entered into an agreement on March 10, 2020 to perform development and maintenance services in relation to the Company’s franchise management software. The term of the agreement is six months, subject to auto-renewal until Teknowland had completed its obligations under the agreement, but subject to each party’s right to terminate the agreement at any time on 30 days’ notice. Under the agreement, the Company was obligated to pay Teknowland a fee of $12,900 per month for development and maintenance services. Starting in November 2020, the Company and Teknowland orally agreed to reduce the monthly amount that the Company is obligated to pay to $3,000 per month. During the year ended September 30, 2020, the Company and Mr. Rego orally agreed that Mr. Rego and Teknowland would develop an eLearning program to enable the Company to offer educational programs over the internet. No agreement was reached regarding whether the Company or Teknowland would own the eLearning program, or the terms under which the Company would be entitled to use the program on a long-term basis, whether as owner or licensee. The Company orally agreed to pay Teknowland $10,000 per month for five months for hosting and content costs incurred by Teknowland, of which $40,000 has been paid. After testing the program, the Company’s board decided in December 2020 not to pursue the E-Learning program. Beginning in January 2021, Teknowland began hosting the Company’s website at a cost of $5,000 per month pursuant to an oral agreement. On February 12, 2021, the Company, Chris Rego and Teknowland entered into an agreement under which the parties mutually agreed to terminate the March 10, 2020 agreement to develop and maintain the Company’s franchise management system, and the oral agreement under which Teknowland hosted the Company’s website. In both cases, the Company has engaged an independent firm to provide the services. Under the same agreement, the Company agreed to transfer and assign to Teknowland all of the Company’s rights in an E-Learning program developed by Teknowland for the Company. The Company evaluated the E-Learning program on a trial basis, and elected not to pursue it as a line of business. The Company agreed to pay Teknowland $50,000 to pay all invoices associated with the two agreements and the E-Learning program, of which $20,000 was payable at execution of the agreement, $20,000 was payable 30 days later and $10,000 was payable 60 days later. As of March 31, 2021 $20,000 has been paid and $30,000 is still owed. |
Subsequent Events
Subsequent Events | 6 Months Ended |
Mar. 31, 2021 | |
Subsequent Events [Abstract] | |
Subsequent Events | (6) Subsequent Events None. |
Nature of Organization and Su_2
Nature of Organization and Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Mar. 31, 2021 | |
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 March 31, 2021, BFK franchisees operated in 496 territories in 35 states and 40 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 months and six months ended March 31, 2021 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, 2020. |
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. |
Cash, Restricted Cash and Cash Equivalents | Cash, Restricted Cash and Cash Equivalents The Company had restricted cash of approximately $14,000 and $20,000 at March 31, 2021 and September 30, 2020, 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” or “marketing fund receivable” on the balance sheet. |
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 March 31, 2021 and September 30, 2020 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 The Company generates almost all of its revenue from contracts with customers. The Company’s franchise agreements enter the parties into a contractual agreement, typically over a ten years 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 marketing 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). Upon entering into a franchise agreement, the Company charges an initial franchise fee, which is fully collectible and nonrefundable as of the date of the signing of the franchise agreement. Further, because 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. Per the terms of the franchise agreements, the Company charges for royalty fees on a monthly basis, generally set at a fixed amount, but in some cases are based on a percentage of franchisee’s monthly gross revenues. The Company also charges fees for a marketing fund, generally based on 2% of franchisee’s monthly gross revenues, which is managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees. Lastly, the Company charges for technology fees on a monthly basis, generally at a fixed amount, for the use of the company Franchise Management tool as well as company emails, etc. Effective October 1, 2018 the Company began recognizing revenue under ASC 606. The Company considers initial franchise fees to be a part of the license of symbolic intellectual property (“IP”), therefore the performance obligation related to these fees is satisfied over time as the Company fulfills its promise to grant the customer rights to use, and benefit from, the Company’s IP, as well as support and maintain the IP. The initial franchise fee, then, is recorded as deferred revenue at inception and recognized on a straight-line basis over the contract term. In accordance with ASC 606-10-55-65, the Company has determined that the royalty fees, marketing fees, and technology fees are subject to a sales and usage-based royalties’ constraint on licenses of IP. Accordingly, these fees are recognized as revenue at the later of when the sales or usage occurs or the related performance obligation is satisfied. Technology fees are recorded net of processing fees. Marketing fees are limited to the lesser of marketing amounts earned or expensed; therefore, the Company will recognize amounts received in excess of amounts spent on the balance sheet in the accrued marketing fund liability and will recognize amounts spent in excess of amounts received on the balance sheet in the marketing fund receivable. The Company collects transfer fees when contracts are transferred between parties and accounts for the transfer as a contract modification under ASC 606. Because the transfer does not increase the scope of the contract or promise any additional goods or services and there are no new distinct services that will be provided after the transfer the Company considers the transfer fee part of the existing contract. Transfer fees, then, are recorded as deferred revenue at inception and recognized on a straight-line basis over the remaining contract term. When contracts are terminated due to default, or in conjunction with an early termination agreement, the Company accounts for the early termination as a contract modification under ASC 606. Because the termination eliminates any future performance obligations of the Company any deferred revenue associated with the terminated contract is recognized into revenue at the time of termination, along with any early termination fees, in the initial franchise fee line on the Company’s Statement of Operations. The Company generates revenue from sales of merchandise where the performance obligation is met, and therefore revenue recognized, upon the delivery of merchandise to the customer. Contract Liability – Deferred Revenue In conjunction with the adoption of ASC 606, effective October 1, 2018 the Company recorded deferred revenue as a contract liability for its initial franchise fees collected and related to contracts with remaining performance obligations. During the six months ended March 31, 2021 the activity in the deferred revenue account was as follows: Balance, September 30, 2020 $ 3,212,679 Initial franchise fees collected 956 Deferred revenue recognized into revenue (739,108 ) Balance, March 31, 2021 2,474,527 Current portion (781,915 ) Deferred revenue, net of current portion $ 1,692,612 Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021 were as follows: Twelve months ended March 31, 2022 $ 781,915 Twelve months ended March 31, 2023 697,838 Twelve months ended March 31, 2024 516,370 Twelve months ended March 31, 2025 252,471 Twelve months ended March 31, 2026 and thereafter 225,933 Total $ 2,474,527 Contract Liability / Asset – Accrued Marketing Fund / Marketing Fund Receivable 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 toward national branding of the Company’s concepts to benefit the franchisees. The marketing fund amounts owed to the Company are accounted for as a liability on the balance sheet and the actual collections are deposited into a marketing fund bank account, presented as restricted cash on the balance sheet. Expenses pertaining to the marketing fund activities are paid from the marketing fund and reduce the liability account. Upon adoption of FASB 606 on October 1, 2018, the Company presents these marketing fund revenues and expenses on a gross basis on its statement of operations. Any unused funds at the end of the period are recorded as accrued marketing fees or any funds used in excess of funds collected are recorded as a marketing fund receivable. The Company expects to collect this advance in future periods from the 2% fees collected on future franchisee gross revenues. The activity in the accrued marketing fund liability account for the six months ended March 31, 2021 was as follows: Marketing fund liability (receivable), September 30, 2020 $ — Marketing fund billings recognized into income — Marketing funds recognized into expense — Marketing funds advanced by the Company (2,557 ) Marketing fund liability (receivable), March 31, 2021 $ (2,557 ) Contract Asset – Prepaid Commission Expense In accordance with ASC 606 the costs related to obtaining a contract are to be capitalized as long as the costs are recoverable and incremental. Effective October 1, 2018, the date the Company adopted ASC 606, it capitalized the value of sales commissions as a contract asset and is amortizing those costs straight-line over the contract life of the franchise agreement to which they relate. During the six months ended March 31, 2021, the activity in the contract asset account was as follows: Balance, September 30, 2020 $ 724,878 Commissions paid (35 ) Commissions recognized into expense (172,428 ) Balance, March 31, 2021 552,415 Current portion (182,273 ) Prepaid commission expense, net of current portion $ 370,142 |
General Advertising Costs | General Advertising Costs General advertising costs are expensed as incurred. The Company incurred general advertising costs for the three months and six months ended March 31, 2021 of $915 and $2,639, respectively and $3,417 and $5,305, for the quarter and six months ended March 31, 2020. |
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 six months ended March 31, 2021. 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 March 31, 2021 and September 30, 2020, respectively, and has not recognized interest and/or penalties during the six months ended March 31, 2021, 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 2015 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. During the six months ended March 31, 2021, the Company issued 150,000 shares to a vendor in exchange for professional services and expensed $30,000 in connection with the stock issuance. |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. |
Recent accounting pronouncements | Recent accounting pronouncements All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable. |
Nature of Organization and Su_3
Nature of Organization and Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Mar. 31, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
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 Improvements 15-40 years Software 3 years |
Summary of deferred revenue activity | During the six months ended March 31, 2021 the activity in the deferred revenue account was as follows: Balance, September 30, 2020 $ 3,212,679 Initial franchise fees collected 956 Deferred revenue recognized into revenue (739,108 ) Balance, March 31, 2021 2,474,527 Current portion (781,915 ) Deferred revenue, net of current portion $ 1,692,612 |
Summary of performance obligations | Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021 were as follows: Twelve months ended March 31, 2022 $ 781,915 Twelve months ended March 31, 2023 697,838 Twelve months ended March 31, 2024 516,370 Twelve months ended March 31, 2025 252,471 Twelve months ended March 31, 2026 and thereafter 225,933 Total $ 2,474,527 |
Summary of accrued marketing fund for advertising fund revenue accounts | The activity in the accrued marketing fund liability account for the six months ended March 31, 2021 was as follows: Marketing fund liability (receivable), September 30, 2020 $ — Marketing fund billings recognized into income — Marketing funds recognized into expense — Marketing funds advanced by the Company (2,557 ) Marketing fund liability (receivable), March 31, 2021 $ (2,557 ) |
Summary of contract asset activity | During the six months ended March 31, 2021, the activity in the contract asset account was as follows: Balance, September 30, 2020 $ 724,878 Commissions paid (35 ) Commissions recognized into expense (172,428 ) Balance, March 31, 2021 552,415 Current portion (182,273 ) Prepaid commission expense, net of current portion $ 370,142 |
Nature of Organization and Su_4
Nature of Organization and Summary of Significant Accounting Policies (Details) | 6 Months Ended |
Mar. 31, 2021 | |
Furniture and Fixtures [Member] | |
Property, Plant and Equipment [Line Items] | |
Property and Equipment | 5 years |
Equipment [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) - USD ($) | 6 Months Ended | |
Mar. 31, 2021 | Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Deferred revenue at beggining | $ 3,212,679 | |
Initial franchise fees collected | 956 | |
Deferred revenue recognized into revenue | (739,108) | |
Deferred revenue at end | 2,474,527 | |
Current portion | (781,915) | $ (915,103) |
Deferred revenue, net of current portion | $ 1,692,612 | $ 2,297,576 |
Nature of Organization and Su_6
Nature of Organization and Summary of Significant Accounting Policies (Details 2) | Mar. 31, 2021USD ($) |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Twelve months ended March 31, 2022 | $ 781,915 |
Twelve months ended March 31, 2023 | 697,838 |
Twelve months ended March 31, 2024 | 516,370 |
Twelve months ended March 31, 2025 | 252,471 |
Twelve months ended March 31, 2026 and thereafter | 225,933 |
Total | $ 2,474,527 |
Nature of Organization and Su_7
Nature of Organization and Summary of Significant Accounting Policies (Details 3) | 6 Months Ended |
Mar. 31, 2021USD ($) | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Accrued marketing fund for advertising fund revenue at beginning | |
Marketing fund billings | |
Commissions recognized into expense | |
Marketing funds advanced by the Company | (2,557) |
Accrued marketing fund for advertising fund revenue at beginning | $ (2,557) |
Nature of Organization and Su_8
Nature of Organization and Summary of Significant Accounting Policies (Details 4) - USD ($) | 6 Months Ended | |
Mar. 31, 2021 | Sep. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Commission expense at beginning | $ 724,878 | |
Commissions paid | (35) | |
Commissions recognized into expense | (172,428) | |
Commissions expense at end | 552,415 | |
Current portion | (182,273) | |
Prepaid commission expense, net of current portion | $ 370,142 | $ 512,756 |
Nature of Organization and Su_9
Nature of Organization and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Mar. 31, 2021 | Mar. 31, 2020 | Mar. 31, 2021 | Mar. 31, 2020 | Sep. 30, 2020 | |
Restricted cash | $ 14,330 | $ 14,330 | $ 20,194 | ||
Advertising costs | 915 | $ 3,417 | 2,639 | $ 5,305 | |
Accrual for interest or penalties | 0 | 0 | 0 | ||
Interest and/or penalties recognized | 0 | ||||
Unrecognized tax benefits | $ 0 | $ 0 | $ 0 | ||
Vendor | |||||
Stock issued for professional services, shares | 150,000 | ||||
Stock issued for professional services, value | $ 30,000 | ||||
BFK Franchise Co., LLC ("BFK") [Member] | Franchise Agreements [Member] | |||||
Percentage of gross revenues collected for marketing fund | 2.00% | 2.00% |
Notes and Other Receivables (De
Notes and Other Receivables (Details Narrative) - USD ($) | 6 Months Ended | |
Mar. 31, 2021 | Sep. 30, 2020 | |
Receivables [Abstract] | ||
Other receivables | $ 8,000 | $ 9,000 |
Interest rate | 4.00% |
Sale of Condominium (Details Na
Sale of Condominium (Details Narrative) | 1 Months Ended |
Oct. 30, 2019USD ($) | |
Notes to Financial Statements | |
Sale of Condominium | $ 100,000 |
Gain on sale of condominium | $ 21,000 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | Feb. 12, 2021 | Jan. 31, 2021 | Mar. 31, 2021 | Dec. 30, 2020 | Mar. 31, 2020 | Mar. 31, 2021 | Mar. 31, 2020 | Sep. 30, 2020 |
Revenue | $ 710,007 | $ 848,816 | $ 1,467,015 | $ 1,638,036 | ||||
Deferred revenue | 781,915 | 781,915 | $ 915,103 | |||||
Franchise [Member] | ||||||||
Revenue | 2,834 | |||||||
Accounts receivable | 3,143 | 3,143 | 11,894 | |||||
Deferred revenue | 0 | 0 | $ 0 | |||||
Franchise [Member] | Royalty Revenue [Member] | ||||||||
Revenue | 7,875 | |||||||
Franchise [Member] | Marketing Revenue [Member] | ||||||||
Revenue | $ 0 | |||||||
Christopher Rego [Member] | Teknowland [Member] | ||||||||
Due to related party | 12,900 | 12,900 | ||||||
Account payable, related party | 3,000 | $ 3,000 | ||||||
Frequency of periodic payments | per month | |||||||
Description of related party transactions | The Company orally agreed to pay Teknowland $10,000 per month for five months for hosting and content costs incurred by Teknowland, of which $40,000 has been paid | |||||||
JoyAnn Kenny-Charlton [Member] | ||||||||
Shares cancelled | 272,472 | |||||||
Chris Rego [Member] | Teknowland [Member] | ||||||||
Due to related party | 30,000 | $ 30,000 | ||||||
Payment to related party | $ 50,000 | $ 20,000 | ||||||
Teknowland [Member] | ||||||||
Website expense | $ 5,000 |