10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2020

☐ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission File Number: 000-52883

CREATIVE LEARNING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	20-4456503
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

475 W Townplace, Suite A

St Augustine, FL 32092

 (Address of principal executive offices, including Zip Code)

(904) 824-3133

 (Issuer’s telephone number, including area code)

_______________________________________________

(Former name or former address if changed since last report) 

Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 13,025,838 shares of common stock as of February 2, 2021. 

CREATIVE LEARNING CORPORATION

FORM 10-Q

Period Ended December 31, 2020

TABLE OF CONTENTS

		Page No.
	PART I
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	13
Item 4.	Controls and Procedures	13
	PART II
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits	15

i

Unless the context otherwise requires, when we use the words the “Company,” “Creative Learning,” “we,” “us,” “our” or “our Company” in this Form 10-Q, we are referring to Creative Learning Corporation, a Delaware corporation, and its subsidiaries.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Report” or the “Form 10-Q”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. You should read statements that contain these words carefully because they:

● discuss future expectations;

● contain projections of future results of operations or financial condition; or

● state other “forward-looking” information.

We believe it is important to communicate our expectations to our stockholders. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors and cautionary language discussed in this Form 10-Q and in our Form 10-K for the year ended September 30, 2020 provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in our forward-looking statements, including among other things:

● the operating and financial results of and our relationships with our franchisees;

● actions taken by our franchisees that may harm our business;

● incidents that may impair the value of our brand;

● our failure to successfully implement our growth strategy;

● changing economic conditions;

● our need for additional financing;

● risks associated with our franchisees;

● litigation and regulatory issues;

● our failure to comply with current or future laws or regulations; and

● The impact of the Coronavirus (COVID-19) pandemic.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual future results to differ materially from those projected or contemplated in the forward-looking statements.

All forward-looking statements included herein attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except to the extent required by applicable laws and regulations, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. You should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this Form 10-Q could have a material adverse effect on us.

ii

PART I

Item 1. Financial Statements

CREATIVE LEARNING CORPORATION

Condensed Consolidated Balance Sheets 

 

	December 31, 2020			September 30, 2020
	(Unaudited)
Current Assets:
Cash	$	453,821		$	427,659
Restricted Cash (marketing fund)		16,887			20,194
Accounts receivable, less allowance for doubtful accounts of approximately $981,000 and $663,000, respectively		218,710			269,211
Prepaid commission expense		196,870			212,122
Prepaid expense		—			10,452
Marketing fund receivable		6,000			—
Notes receivables - current portion, less allowance for doubtful accounts of approximately $91,000 and $91,000, respectively		8,331			9,159
Total Current Assets		900,619			948,797
Security deposit		—			833
Prepaid commission expense - net of current portion		440,072			512,756
Property and equipment, net of accumulated depreciation of approximately $478,000 and $383,000, respectively		100,533			131,618
Total Assets	$	1,441,224		$	1,594,004
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	67,484		$	69,527
SBA Loan - PPP		119,980			119,980
Deferred revenue		838,049			915,103
Accrued liabilities		22,588			8,743
Total Current Liabilities		1,048,101			1,113,353
Deferred revenue - net of current portion		1,986,581			2,297,576
Total Liabilities		3,034,682			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 13,363,410 shares issued and 13,298,310 shares outstanding as of December 31, 2020 13,363,410 shares issued and 13,298,310 shares outstanding as of September 30, 2020		1,334			1,334
Additional paid in capital		2,990,080			2,990,080
Treasury Stock 65,100 shares, at cost		(34,626	)		(34,626	)
Accumulated Deficit		(4,550,246	)		(4,773,713	)
Total Stockholders’ Equity (Deficit)		(1,593,458	)		(1,816,925	)
Total Liabilities and Stockholders’ Equity (Deficit)	$	1,441,224		$	1,594,004

The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.

1

CREATIVE LEARNING CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

	For the three months ended December 31,
	2020		2019
REVENUES
Royalties fees	$	331,892	$	440,942
Marketing fund revenue		—		58,102
Initial franchise fees		389,004		260,693
Technology fees		36,112		29,483
Merchandise sales		—		—
TOTAL REVENUES		757,008		789,220
OPERATING EXPENSES
Salaries and payroll taxes and stock-based compensation		137,359		137,443
Professional, legal and consulting fees		105,287		160,998
Bad debt expense		49,211		11,627
Other general and administrative expenses		122,717		47,426
Franchise commissions		87,936		59,528
Franchise training and expenses		—		1,421
Depreciation		31,253		28,086
General advertising		1,724		1,888
Franchise marketing fund expense		—		58,102
Office expense		—		2,349
TOTAL OPERATING EXPENSES		535,487		508,868
OPERATING INCOME		221,521		280,352
OTHER INCOME (EXPENSE)		1,946		18,796
INCOME BEFORE INCOME TAXES		223,467		299,148
PROVISION FOR INCOME TAXES		—		—
NET INCOME	$	223,467	$	299,148
NET INCOME PER SHARE
Basic	$	0.02	$	0.02
Diluted	$	0.02	$	0.02
Basic weighted average number of common shares outstanding		13,298,310		13,542,002
Diluted weighted average number of common shares outstanding		13,680,319		13,542,002

The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.

2

Creative Learning Corporation

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) (Unaudited)

For the three months ended December 31, 2020

																Total
	Treasury Stock						Common stock				Additional Paid-in		Accumulated			Stockholder’s Equity
	Shares			Value			Shares		Amount		Capital		Deficit			(Deficit)
Balance, September 30, 2020		(65,100	)	$	(34,626	)		13,363,816	$	1,334	$	2,990,080	$	(4,773,713	)	$	(1,816,925	)
Net income		—			—			—		—		—		223,467			223,467
Balance, December 31, 2020		(65,100	)	$	(34,626	)		13,362,816	$	1,334	$	2,990,080	$	(4,550,246	)	$	(1,593,458	)

For the three months ended December 31, 2019

																Total
	Treasury Stock						Common stock				Additional Paid-in		Accumulated			Stockholder’s Equity
	Shares			Value			Shares		Amount		Capital		Deficit			(Deficit)
Balance, September 30, 2019		(65,100	)	$	(34,626	)		13,607,102	$	1,360	$	2,897,554	$	(5,393,874	)	$	(2,439,586	)
Net income		—			—			—		—		—		299,148			299,148
Balance, December 31, 2019		(65,100	)	$	(34,626	)		13,607,102	$	1,360	$	2,897,554	$	(5,094,726	)	$	(2,140,438	)

The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.

3

CREATIVE LEARNING CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the three months ended
	December 31,
	2020			2019
Cash flows from operating activities:
Net Income	$	223,467		$	299,148
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation		31,254			28,086
Gain on sale of assets held for sale		—			(20,602	)
Bad debt expense		49,211			11,627
Stock based compensation		—			—
Changes in operating assets and liabilities:
Accounts receivable		1,289			(50,731	)
Prepaid expenses		10,452			7,867
Prepaid commission expense		87,936			59,528
Deposits		833			—
Accounts payable		(2,043	)		38,862
Accrued liabilities		13,845			(102,496	)
Deferred Revenue		(388,048	)		(241,736	)
Accrued marketing fund		(6,000	)		(74,418	)
Net cash provided by (used in) operating activities		22,196			(44,865	)
Cash flows from investing activities:
Acquisition of property and equipment		(169	)		—
Sale of assets held for sale		—			100,231
Collection of Notes receivable		828			3,000
Net cash provided by (used in) investing activities		659			103,231
Cash flows from financing activities		—			—
Net change in cash, cash equivalents and restricted cash		22,855			58,366
Cash, cash equivalents and restricted cash at beginning of period		447,853			540,021
Cash, cash equivalents and restricted cash at end of period	$	470,708		$	598,387

The accompanying notes are an integral part of the condensed consolidated unaudited financial statements.

4

CREATIVE LEARNING CORPORATION

Notes to Condensed Consolidated Unaudited Financial Statements

(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 December 31, 2020, 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 ended December 31, 2020 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 $17,000 and $20,000 at December 31, 2020 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.

5

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 December 31, 2020 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 

6

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 three months ended December 31, 2020 the activity in the deferred revenue account was as follows:

Balance, September 30, 2020	$	3,212,679
Initial franchise fees collected		955
Deferred revenue recognized into revenue		(389,004	)
Balance, December 31, 2020		2,824,630
Current portion		(838,049	)
Deferred revenue, net of current portion	$	1,986,581

7

Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2020 were as follows:

Twelve months ended December 31, 2021	$	838,049
Twelve months ended December 31, 2022		765,104
Twelve months ended December 31, 2023		607,868
Twelve months ended December 31, 2024		327,067
Twelve months ended December 31, 2025 and thereafter		286,542
Total	$	2,824,630

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 three months ended December 31, 2020 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		(6,000	)
Marketing fund liability (receivable), December 31, 2020	$	(6,000	)

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 three months ended December 31, 2020, the activity in the contract asset account was as follows:

Balance, September 30, 2020	$	724,878
Commissions paid		—
Commissions recognized into expense		(87,936	)
Balance, December 31, 2020		636,942
Current portion		(196,870	)
Prepaid commission expense, net of current portion	$	440,072

General Advertising Costs

General advertising costs are expensed as incurred. The Company incurred general advertising costs for the three months ended December 31, 2020 and 2019 of $1,724 and $1,888.

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 three months ended December 31, 2020. 

8

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 December 31, 2020 and September 30, 2020, respectively, and has not recognized interest and/or penalties during the three months ended December 31, 2020, 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.

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.

9

(2) Notes and Other Receivables

At December 31, 2020 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.

(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.

10

(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. 

(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 three months ended December 31, 2020 the Company recognized royalty revenue from the franchise of $24,734 and recognized marketing fee revenue from the franchise of $0. Total payments made by the franchisee were $9,000. As of December 31, 2020 and September 30, 2020 the accounts receivable balance with the franchisee was $27,628 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. The Company and Teknowland mutually agreed that the Company would transfer and assign all of its rights to the E-Learning program to Teknowland in February 2021. See Note 6 – Subsequent Events.

(6) Subsequent Events

Subsequent to December 31, 2020, JoyAnn Kenny-Charlton, a director of the Company, agreed to relinquish 272,472 shares previously approved for issuance to her for director services.

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 is payable 30 days later and $10,000 is payable 60 days later.

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operation

Overview

Creative Learning Corporation, operating under the trade names of Bricks 4 Kidz® and Sew Fun Studios®, offers educational and enrichment programs to children ages 3 to 13+ through its franchisees. The Company’s business model is to sell franchise territories and collect a one-time franchise fee and subsequent monthly royalty fees from each territory. Through the Company’s franchise business model, which includes a proprietary curriculum and marketing strategy plus a proprietary franchise management tool, the Company provides a wide variety of programs designed to enhance students’ problem solving and critical thinking skills. As of December 31, 2020, the Company had 496 Bricks 4 Kidz® and Sew Fun Studios® franchise territories, 28 Bricks 4 Kidz® master franchises, and 141 Bricks 4 Kidz® sub-franchises operating in 40 countries.

The Company temporarily suspended domestic franchise offers and sales of Bricks 4 Kidz® and Sew Fun Studios® franchises in compliance with FTC Franchise Rule, Section 436.7(a) due to delay in completion of the Company’s fiscal year 2018 and 2019 consolidated audited financial statements. In turn, this delayed completion of the Company’s 2018 and 2019 FDDs for the Bricks 4 Kidz® and Sew Fun Studios® franchise offerings. The Company has completed all required financial statements, and expects to update its FDDs shortly to resume new franchise sales. However, the resumption of new franchise sales may be further delayed due to disruptions caused by the COVID-19 pandemic. At this time, the Company is unable to predict when it will resume new franchise sales.

First Quarter 2021 Highlights

Initial franchise fees were $389,004 during the quarter ended December 31, 2020, as compared to $260,693 during the quarter ended December 31, 2019. The increase in initial franchise fees during the three months ended December 31, 2020 was primarily due to the acceleration of deferred revenues in 2020 due to the offboarding of franchisees during the three months ended December 31, 2020, which was partially offset by fewer new franchise sales due to the Coronavirus (“COVID-19”) pandemic.

Royalty fee revenues were $331,892 during the quarter ended December 31, 2020, as compared to $440,942 during the quarter ended December 31, 2019. Royalty fee revenues decreased by approximately $109,000 for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019 due to the offboarding of franchisees during the year ended September 30, 2020, which resulted in fewer franchisees were charged royalties in the current period versus the same period of the prior year. In addition, royalty fee revenues were lower because of the interruption of normal operation at many franchises because of the COVID-19 pandemic.

Marketing fund revenues were $0 during the quarter ended December 31, 2020, as compared to $58,102 during the quarter ended December 31, 2019. The Company had no marketing fund revenue in the three months ended December 31, 2020 due to the impact of COVID-19. In particular, due to the impact of the COVID-19 pandemic on the business of our franchisees, we voluntarily elected to cease charging our franchises for marketing fees in March 2020. The Company expects to resume charging franchisees for marketing when they are able to return to normal operations following the COVID-19 pandemic.

Technology fees were $36,112 during the quarter ended December 31, 2020, as compared to $29,483 during the quarter ended December 31, 2019. Technology fees increased by 22% from the prior period due to the Company charging franchisees for the use of their online platform.

Operating expenses were $535,487 during the quarter ended December 31, 2020, as compared to $508,868 during the quarter ended December 31, 2019. Operating expenses increased by approximately $27,000 in the three months ended December 31, 2020, as compared to the same period in 2019, primarily due to higher website maintenance and rent expenses.

The net income for the three months ended December 31, 2020 was approximately $223,000 as compared to $299,000 in three months ended December 31, 2019. The decrease was a result of lower revenues and higher expenses. The lower revenues were due to more offboards of franchises in fiscal 2020, which resulted in lower royalty fee revenue in the current period which was partially offset by the higher recognition of deferred revenue in the current period. The higher expenses, as explained above, were due to increases in website maintenance and rent expense.

Liquidity and Capital Resources

The Company’s primary source of liquidity is cash generated through operations. As of December 31, 2020, the Company had approximately $450,000 of unrestricted cash, and generated cash flow from operations of approximately $22,000 in the quarter ended December 31, 2020. The Company believes it has sufficient cash on hand to cover expenses for the next 12 months.

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

The recent COVID-19 outbreak has been declared a pandemic by the World Health Organization, has spread to the United States and many other parts of the world and has adversely affected our business operations, employee availability, financial condition, liquidity and cash flow and the length of such impacts are uncertain.  The outbreak of the COVID-19 continues to grow both in the United States and globally, and related government and private sector responsive actions have and will continue to adversely affect our business operations. It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic as the situation is rapidly evolving.

The spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, including warning against congregating in heavily populated areas, such as malls and shopping centers. Among the precautions has been the closure of a substantial portion of the schools in the United States, which will adversely impact our royalty revenue from franchisees and our ability to sell new franchises. There is significant uncertainty around the breadth and duration of these school closures and other business disruptions related to COVID-19, as well as its impact on the U.S. and global economy. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. We have asked our corporate employees whose jobs allow them to work remotely to do so for the foreseeable future. Such precautionary measures could create operational challenges as we adjust to a remote workforce, which could adversely impact our business.

12

Cash funds are used for ongoing operating expenses, the purchase of equipment, property improvement, and software development.

During the three months ended December 31, 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 the date of sale.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable to us as a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation regarding the three months ended December 31, 2020, under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our management concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Changes in Internal Control Over Financial Reporting

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. As of the Evaluation Date, the Company discovered that it lacked controls to ensure that all sources of revenue are properly deposited in the Company’s accounts, and that any changes require the signature of two or more officers. The Company is conducting a review of all banking and payment processing relationships to ensure that the proper controls are in place, and expects to remediate the deficiency shortly. Other than the change identified earlier in this paragraph, there was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The Company continues to have the following material weaknesses in internal control:

· We have not established and/or maintained adequately designed internal controls in order to prevent or detect and correct material misstatements to the financial statements, including internal controls related to complex or nonroutine transactions.

· We lack the necessary accounting resources with sufficient SEC reporting experience, US GAAP knowledge and accounting experience.

Management believes that despite our material weaknesses, our consolidated financial statements for the quarter ended December 31, 2020 are fairly stated, in all material respects, in accordance with GAAP.

13

PART II

Item 1. Legal Proceedings

The discussion of pending legal matters included in Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 is incorporated herein by reference.  There have been no material changes in legal proceedings since the filing of the Form 10-K.

Item 1A. Risk Factors

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussed under Part II, Item 1A of the Company’s most recent annual report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended December 31, 2020, the Company did not issue any shares of common stock.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information 

None

14

Item 6. Exhibits

Exhibits 

Exhibit No.	Exhibit
31.1	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
31.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
32.2	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

15

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	CREATIVE LEARNING CORPORATION
Dated: March 17, 2021	By:	/s/ Mike Elkin
		Mike Elkin
		Chief Accounting Officer (Principal Financial Officer)

	CREATIVE LEARNING CORPORATION
Dated: March 17, 2021	By:	/s/ Rod K. Whiton
		Rod K. Whiton
		President (Principal Executive Officer)

16

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Mike Elkin, certify that;

1.  I have reviewed this quarterly report on Form 10-Q of Creative Learning Corporation;

2.  Based on my knowledge, this report, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 17, 2021	By:	/s/ Mike Elkin
		Mike Elkin
		Chief Accounting Officer (Principal Financial Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Rod K. Whiton, certify that;

1.  I have reviewed this quarterly report on Form 10-Q of Creative Learning Corporation;

2.  Based on my knowledge, this report, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 17, 2021	By	/s/ Rod K. Whiton
		Rod K. Whiton,
		President (Principal Executive Officer)

EX-32.1

EXHIBIT 32.1

In connection with the Quarterly Report of Creative Learning Corporation (the “Company”) on Form 10-Q for the period ending December 31, 2020 as filed with the Securities and Exchange Commission (the “Report”), Mike Elkin, the Chief Accounting Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects the financial condition and results of operation of the Company.

March 17, 2021	By:	/s/ Mike Elkin
		Mike Elkin
		Chief Accounting Officer (Principal Financial Officer)

EX-32.2

EXHIBIT 32.2

In connection with the Quarterly Report of Creative Learning Corporation (the “Company”) on Form 10-Q for the period ending December 31, 2020 as filed with the Securities and Exchange Commission (the “Report”), Rod K. Whiton, the President of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects the financial condition and results of operation of the Company.

March 17, 2021	By:	/s/ Rod K. Whiton
		Rod K. Whiton,
		President (Principal Executive Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Dec. 31, 2020	Feb. 02, 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	Dec. 31, 2020
Document Fiscal Period Focus	Q1
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		13,025,838
Entity Filer Number	000-52883
Entity Interactive Data Current	Yes
Entity Incorporation State Country Code	DE

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Dec. 31, 2020	Sep. 30, 2020
Current Assets:
Cash	$ 453,821	$ 427,659
Restricted Cash (marketing fund)	16,887	20,194
Accounts receivable, less allowance for doubtful accounts of approximately $981,000 and $663,000, respectively	218,710	269,211
Prepaid commission expense	196,870	212,122
Prepaid expense		10,452
Marketing fund receivable	6,000
Notes receivables - current portion, less allowance for doubtful accounts of approximately $91,000 and $91,000, respectively	8,331	9,159
Total Current Assets	900,619	948,797
Security deposit		833
Prepaid commission expense - net of current portion	440,072	512,756
Property and equipment, net of accumulated depreciation of approximately $478,000 and $383,000, respectively	100,533	131,618
Total Assets	1,441,224	1,594,004
Current Liabilities:
Accounts payable	67,484	69,527
SBA Loan - PPP	119,980	119,980
Deferred revenue	838,049	915,103
Accrued liabilities	22,588	8,743
Total Current Liabilities	1,048,101	1,113,353
Deferred revenue - net of current portion	1,986,581	2,297,576
Total Liabilities	3,034,682	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 13,363,410 shares issued and 13,298,310 shares outstanding as of December 31, 2020 13,363,410 shares issued and 13,298,310 shares outstanding as of September 30, 2020	1,334	1,334
Additional paid in capital	2,990,080	2,990,080
Treasury Stock 65,100 shares, at cost	(34,626)	(34,626)
Accumulated Deficit	(4,550,246)	(4,773,713)
Total Stockholders' Equity (Deficit)	(1,593,458)	(1,816,925)
Total Liabilities and Stockholders' Equity (Deficit)	$ 1,441,224	$ 1,594,004

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Dec. 31, 2020	Sep. 30, 2020
Consolidated Balance Sheets
Allowance for doubtful accounts receivable	$ 981,000	$ 663,000
Allowance for doubtful notes receivable	91,000	91,000
Accumulated depreciation	$ 478,000	$ 383,000
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	13,363,410	13,298,310
Common stock, outstanding	13,298,310	13,298,310
Treasury stock, shares	65,100	65,100

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Revenues
Royalties fees	$ 331,892	$ 440,942
Marketing fund revenue		58,102
Initial franchise fees	389,004	260,693
Technology fees	36,112	29,483
Merchandise sales
TOTAL REVENUES	757,008	789,220
OPERATING EXPENSES
Salaries and payroll taxes and stock-based compensation	137,359	137,443
Professional, legal and consulting fees	105,287	160,998
Bad debt expense	49,211	11,627
Other general and administrative expenses	122,717	47,426
Franchise commissions	87,936	59,528
Franchise training and expenses		1,421
Depreciation	31,253	28,086
General Advertising	1,724	1,888
Franchise marketing fund expense		58,102
Office expense		2,349
TOTAL OPERATING EXPENSES	535,487	508,868
OPERATING INCOME	221,521	280,352
OTHER INCOME (EXPENSE)	1,946	18,796
INCOME BEFORE INCOME TAXES	223,467	299,148
PROVISION FOR INCOME TAXES
NET INCOME	$ 223,467	$ 299,148
NET INCOME PER SHARE
Basic	$ 0.02	$ 0.02
Diluted	$ 0.02	$ 0.02
Basic weighted average number of common shares outstanding	13,298,310	13,542,002
Diluted weighted average number of common shares outstanding	13,680,319	13,542,002

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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
Net income				299,148	299,148
Balance at Dec. 31, 2019	$ (34,626)	$ 1,360	2,897,554	(5,094,726)	(2,140,438)
Balance (shares) at Dec. 31, 2019	(65,100)	13,607,102
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)	13,363,816
Net income				223,467	223,467
Balance at Dec. 31, 2020	$ (34,626)	$ 1,334	$ 2,990,080	$ (4,550,246)	$ (1,593,458)
Balance (shares) at Dec. 31, 2020	(65,100)	13,362,816

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Cash flows from operating activities:
Net Income	$ 223,467	$ 299,148
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation	31,254	28,086
Gain on sale of assets held for sale		(20,602)
Bad debt expense	49,211	11,627
Stock based compensation
Changes in operating assets and liabilities:
Accounts receivable	1,289	(50,731)
Prepaid expenses	10,452	7,867
Prepaid commission expense	87,936	59,528
Deposits	833
Accounts payable	(2,043)	38,862
Accrued liabilities	13,845	(102,496)
Deferred Revenue	(388,048)	(241,736)
Accrued marketing fund	(6,000)	(74,418)
Net cash provided by (used in) operating activities	22,196	(44,865)
Cash flows from investing activities:
Acquisition of property and equipment	(169)
Sale of assets held for sale		100,231
Collection of Notes receivable	828	3,000
Net cash provided by (used in) investing activities	659	103,231
Cash flows from financing activities
Net change in cash, cash equivalents and restricted cash	22,855	58,366
Cash, cash equivalents and restricted cash at beginning of period	447,853	540,021
Cash, cash equivalents and restricted cash at end of period	$ 470,708	$ 598,387

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Nature of Organization and Summary of Significant Accounting Policies

3 Months Ended

Dec. 31, 2020

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 December 31, 2020, 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 ended December 31, 2020 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 $17,000 and $20,000 at December 31, 2020 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 December 31, 2020 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 three months ended December 31, 2020 the activity in the deferred revenue account was as follows:

Balance, September 30, 2020	$	3,212,679
Initial franchise fees collected		955
Deferred revenue recognized into revenue		(389,004	)
Balance, December 31, 2020		2,824,630
Current portion		(838,049	)
Deferred revenue, net of current portion	$	1,986,581

Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2020 were as follows:

Twelve months ended December 31, 2021	$	838,049
Twelve months ended December 31, 2022		765,104
Twelve months ended December 31, 2023		607,868
Twelve months ended December 31, 2024		327,067
Twelve months ended December 31, 2025 and thereafter		286,542
Total	$	2,824,630

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 three months ended December 31, 2020 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		(6,000	)
Marketing fund liability (receivable), December 31, 2020	$	(6,000	)

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 three months ended December 31, 2020, the activity in the contract asset account was as follows:

Balance, September 30, 2020	$	724,878
Commissions paid		—
Commissions recognized into expense		(87,936	)
Balance, December 31, 2020		636,942
Current portion		(196,870	)
Prepaid commission expense, net of current portion	$	440,072

General Advertising Costs

General advertising costs are expensed as incurred. The Company incurred general advertising costs for the three months ended December 31, 2020 and 2019 of $1,724 and $1,888.

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 three months ended December 31, 2020. 

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 December 31, 2020 and September 30, 2020, respectively, and has not recognized interest and/or penalties during the three months ended December 31, 2020, 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.

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.

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Notes and Other Receivables

3 Months Ended

Dec. 31, 2020

Receivables [Abstract]

Notes and Other Receivables

(2) Notes and Other Receivables

At December 31, 2020 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.

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Commitments and Contingencies

3 Months Ended

Dec. 31, 2020

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.

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Sale of Condominium

3 Months Ended

Dec. 31, 2020

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. 

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Related Party Transactions

3 Months Ended

Dec. 31, 2020

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 three months ended December 31, 2020 the Company recognized royalty revenue from the franchise of $24,734 and recognized marketing fee revenue from the franchise of $0. Total payments made by the franchisee were $9,000. As of December 31, 2020 and September 30, 2020 the accounts receivable balance with the franchisee was $27,628 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. The Company and Teknowland mutually agreed that the Company would transfer and assign all of its rights to the E-Learning program to Teknowland in February 2021. See Note 6 – Subsequent Events.

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Subsequent Events

3 Months Ended

Dec. 31, 2020

Subsequent Events [Abstract]

Subsequent Events

(6) Subsequent Events

Subsequent to December 31, 2020, JoyAnn Kenny-Charlton, a director of the Company, agreed to relinquish 272,472 shares previously approved for issuance to her for director services.

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 is payable 30 days later and $10,000 is payable 60 days later.

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Nature of Organization and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Dec. 31, 2020

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 December 31, 2020, 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 ended December 31, 2020 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 $17,000 and $20,000 at December 31, 2020 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 December 31, 2020 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 three months ended December 31, 2020 the activity in the deferred revenue account was as follows:

Balance, September 30, 2020	$	3,212,679
Initial franchise fees collected		955
Deferred revenue recognized into revenue		(389,004	)
Balance, December 31, 2020		2,824,630
Current portion		(838,049	)
Deferred revenue, net of current portion	$	1,986,581

Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2020 were as follows:

Twelve months ended December 31, 2021	$	838,049
Twelve months ended December 31, 2022		765,104
Twelve months ended December 31, 2023		607,868
Twelve months ended December 31, 2024		327,067
Twelve months ended December 31, 2025 and thereafter		286,542
Total	$	2,824,630

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 three months ended December 31, 2020 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		(6,000	)
Marketing fund liability (receivable), December 31, 2020	$	(6,000	)

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 three months ended December 31, 2020, the activity in the contract asset account was as follows:

Balance, September 30, 2020	$	724,878
Commissions paid		—
Commissions recognized into expense		(87,936	)
Balance, December 31, 2020		636,942
Current portion		(196,870	)
Prepaid commission expense, net of current portion	$	440,072

General Advertising Costs

General Advertising Costs

General advertising costs are expensed as incurred. The Company incurred general advertising costs for the three months ended December 31, 2020 and 2019 of $1,724 and $1,888.

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 three months ended December 31, 2020. 

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 December 31, 2020 and September 30, 2020, respectively, and has not recognized interest and/or penalties during the three months ended December 31, 2020, 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.

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.

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Nature of Organization and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Dec. 31, 2020

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 three months ended December 31, 2020 the activity in the deferred revenue account was as follows:

Balance, September 30, 2020	$	3,212,679
Initial franchise fees collected		955
Deferred revenue recognized into revenue		(389,004	)
Balance, December 31, 2020		2,824,630
Current portion		(838,049	)
Deferred revenue, net of current portion	$	1,986,581

Summary of performance obligations

Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2020 were as follows:

Twelve months ended December 31, 2021	$	838,049
Twelve months ended December 31, 2022		765,104
Twelve months ended December 31, 2023		607,868
Twelve months ended December 31, 2024		327,067
Twelve months ended December 31, 2025 and thereafter		286,542
Total	$	2,824,630

Summary of accrued marketing fund for advertising fund revenue accounts

The activity in the accrued marketing fund liability account for the three months ended December 31, 2020 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		(6,000	)
Marketing fund liability (receivable), December 31, 2020	$	(6,000	)

Summary of contract asset activity

During the three months ended December 31, 2020, the activity in the contract asset account was as follows:

Balance, September 30, 2020	$	724,878
Commissions paid		—
Commissions recognized into expense		(87,936	)
Balance, December 31, 2020		636,942
Current portion		(196,870	)
Prepaid commission expense, net of current portion	$	440,072

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Nature of Organization and Summary of Significant Accounting Policies (Details 1)	3 Months Ended
	Dec. 31, 2020
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

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Nature of Organization and Summary of Significant Accounting Policies (Details 2) - USD ($)	3 Months Ended
	Dec. 31, 2020	Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Deferred revenue at beggining	$ 3,212,679
Initial franchise fees collected	955
Deferred revenue recognized into revenue	(389,004)
Deferred revenue at end	2,824,630
Current portion	(838,049)	$ (915,103)
Deferred revenue, net of current portion	$ 1,986,581	$ 2,297,576

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Nature of Organization and Summary of Significant Accounting Policies (Details 3)	Dec. 31, 2020 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Twelve months ended December 31, 2021	$ 838,049
Twelve months ended December 31, 2022	765,104
Twelve months ended December 31, 2023	607,868
Twelve months ended December 31, 2024	327,067
Twelve months ended December 31, 2025 and thereafter	286,542
Total	$ 2,824,630

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Nature of Organization and Summary of Significant Accounting Policies (Details 4)	3 Months Ended
	Dec. 31, 2020 USD ($)
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	(6,000)
Accrued marketing fund for advertising fund revenue at beginning	$ (6,000)

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Nature of Organization and Summary of Significant Accounting Policies (Details 5) - USD ($)	3 Months Ended
	Dec. 31, 2020	Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Commission expense at beginning	$ 724,878
Commissions paid
Commissions recognized into expense	(87,936)
Commissions expense at end	636,942
Current portion	(196,870)
Prepaid commission expense, net of current portion	$ 440,072	$ 512,756

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Nature of Organization and Summary of Significant Accounting Policies (Details Narrative) - USD ($)	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020
Restricted cash	$ 16,887		$ 20,194
Advertising costs	1,724	$ 1,888
Accrual for interest or penalties	0		0
Interest and/or penalties recognized	0
Unrecognized tax benefits	$ 0		$ 0
BFK Franchise Co., LLC ("BFK") [Member] | Franchise Agreements [Member]
Percentage of gross revenues collected for marketing fund	2.00%

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Notes and Other Receivables (Details Narrative) - USD ($)	3 Months Ended
	Dec. 31, 2020	Sep. 30, 2020
Receivables [Abstract]
Other receivables	$ 8,000	$ 9,000
Interest rate	4.00%

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Sale of Condominium (Details Narrative)	1 Months Ended
	Oct. 30, 2019 USD ($)
Notes to Financial Statements
Sale of Condominium	$ 100,000
Gain on sale of condominium	$ 21,000

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Related Party Transactions (Details Narrative) - USD ($)	3 Months Ended
	Dec. 31, 2020	Dec. 30, 2020	Dec. 31, 2019	Sep. 30, 2020
Revenue	$ 757,008		$ 789,220
Deferred revenue	838,049			$ 915,103
Franchise [Member]
Revenue		$ 9,000
Accounts receivable		27,628		11,894
Deferred revenue		0		$ 0
Franchise [Member] | Royalty Revenue [Member]
Revenue		24,734
Franchise [Member] | Marketing Revenue [Member]
Revenue		$ 0
Christopher Rego [Member] | Teknowland [Member]
Due to related party	12,900
Account payable, related party	$ 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

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Subsequent Events (Details Narrative) - Subsequent Event [Member] - USD ($)		1 Months Ended	2 Months Ended
	Feb. 12, 2021	Jan. 31, 2021	Mar. 11, 2021
JoyAnn Kenny-Charlton [Member]
Shares cancelled			272,472
Chris Rego [Member] | Teknowland [Member]
Payment to related party	$ 50,000
Teknowland [Member]
Website expense		$ 5,000