0001553350-16-002845.txt : 20161222 0001553350-16-002845.hdr.sgml : 20161222 20161222155309 ACCESSION NUMBER: 0001553350-16-002845 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 57 CONFORMED PERIOD OF REPORT: 20160630 FILED AS OF DATE: 20161222 DATE AS OF CHANGE: 20161222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE LEARNING Corp CENTRAL INDEX KEY: 0001394638 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 204456503 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-52883 FILM NUMBER: 162066553 BUSINESS ADDRESS: STREET 1: 701 MARKET STREET CITY: ST AUGUSTINE STATE: FL ZIP: 32095 BUSINESS PHONE: 904-824-3133 MAIL ADDRESS: STREET 1: 701 MARKET STREET CITY: ST AUGUSTINE STATE: FL ZIP: 32095 FORMER COMPANY: FORMER CONFORMED NAME: B2 HEALTH, INC. DATE OF NAME CHANGE: 20070327 10-Q 1 clcn_10q.htm QUARTERLY REPORT Quarterly Report

 



 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


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


For the quarterly period ended June 30, 2016


¨  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.)


701 Market St., Suite 113

St. Augustine, FL 32095

(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)


Indicate by check mark 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 þ  No ¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 þ  No ¨

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

þ

 

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


State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 12,001,409 shares of common stock as of December 12, 2016.

 

 





 


CREATIVE LEARNING CORPORTION

Form 10-Q

Quarter Ended June 30, 2016


 

 

 

 

 

Page No.

 

PART I

 

                     

 

                     

Item 1

Financial Statements

1

Item 2

Management's Discussion and Analysis of Financial Conditions and Plan of Operation

17

Item 3

Quantitative and Qualitative Disclosure About Market Risk

18

Item 4

Controls and Procedures

18

 

 

 

 

PART II

 

 

 

 

Item 1

Legal Proceedings

19

Item 1A

Risk Factors

21

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

21

Item 3

Defaults Upon Senior Securities

22

Item 4

Mine Safety Disclosures

22

Item 5

Other Information

22

Item 6

Exhibits

22






 


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”) 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 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; and

 

·

litigation and regulatory issues; and

 

·

our failure to comply with current or future laws or regulations.


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.








 


PART I


Item 1. Financial Statements


CREATIVE LEARNING CORPORATION

Consolidated Balance Sheets


 

 

June 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$

613,608

 

 

$

2,450,609

 

Restricted cash (marketing fund)

 

 

116,597

 

 

 

248,777

 

Accounts receivable, less allowance for doubtful accounts of approximately $190,000 and $165,000, respectively

 

 

250,207

 

 

 

407,270

 

Prepaid expenses

 

 

65,000

 

 

 

11,278

 

Notes receivable - current portion, less allowance for doubtful accounts of approximately $31,000 and $26,000, respectively

 

 

27,854

 

 

 

97,794

 

Income tax receivable

 

 

1,043,393

 

 

 

254,527

 

Assets of discontinued operations

 

 

 

 

 

57,199

 

Total Current Assets

 

 

2,116,659

 

 

 

3,527,454

 

 

 

 

 

 

 

 

 

 

Notes receivable - net of current portion

 

 

64,150

 

 

 

86,670

 

Property and equipment, net of accumulated depreciation of approximately $173,000 and $134,000, respectively

 

 

314,650

 

 

 

283,955

 

Intangible assets

 

 

100,504

 

 

 

100,504

 

Deposits

 

 

6,425

 

 

 

11,425

 

Deferred tax assets

 

 

81,832

 

 

 

81,583

 

Total Assets

 

$

2,684,220

 

 

$

4,091,591

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable - related party

 

$

 

 

$

240

 

Accounts payable - other

 

 

309,854

 

 

 

119,113

 

Payroll accruals

 

 

11,653

 

 

 

36,490

 

Accrued liabilities

 

 

213,004

 

 

 

428,058

 

Unearned revenue

 

 

209,438

 

 

 

35,900

 

Accrued marketing fund

 

 

112,398

 

 

 

248,777

 

Customer deposits

 

 

10,000

 

 

 

19,982

 

Liabilities of discontinued operations

 

 

 

 

 

9,016

 

Total Current Liabilities

 

 

866,347

 

 

 

897,576

 

Commitments and Contingencies - Note 8

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Creative Learning Corporation stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $.0001 par value; 10,000,000 shares authorized; None issued and outstanding

 

 

 

 

 

 

Common stock, $.0001 par value; 50,000,000 shares authorized; 12,001,409 issued and outstanding

 

 

1,200

 

 

 

1,200

 

Additional paid-in capital

 

 

2,534,554

 

 

 

2,534,554

 

Treasury Stock 65,100 shares and 15,100 shares, respectively (cost method)

 

 

(34,626

)

 

 

(18,126

)

Retained earnings

 

 

(683,255

)

 

 

676,387

 

Total Stockholders’ Equity

 

 

1,817,873

 

 

 

3,194,015

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

2,684,220

 

 

$

4,091,591

 




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


1



 


CREATIVE LEARNING CORPORATION

Consolidated Statements of Operations

(Unaudited)

 

 

 

For The Three Months Ended

 

 

For The Nine Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

(restated)

 

 

 

 

 

(restated)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Initial franchise fees

 

$

241,800

 

 

$

884,967

 

 

$

722,200

 

 

$

2,204,110

 

Royalties fees

 

 

611,173

 

 

 

685,446

 

 

 

1,717,676

 

 

 

1,950,343

 

Merchandise sales

 

 

384

 

 

 

1,035

 

 

 

597

 

 

 

2,318

 

 

 

 

853,357

 

 

 

1,571,448

 

 

 

2,440,473

 

 

 

4,156,771

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise consulting and commissions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related parties

 

 

 

 

 

85,499

 

 

 

 

 

 

324,629

 

Other

 

 

238,757

 

 

 

318,823

 

 

 

449,928

 

 

 

656,158

 

Franchise training and expenses

 

 

26,966

 

 

 

82,445

 

 

 

177,377

 

 

 

261,143

 

Salaries and payroll taxes

 

 

136,038

 

 

 

347,217

 

 

 

733,147

 

 

 

929,868

 

Advertising

 

 

27,425

 

 

 

177,032

 

 

 

424,665

 

 

 

610,187

 

Professional fees

 

 

347,407

 

 

 

201,301

 

 

 

2,014,613

 

 

 

429,293

 

Office expense

 

 

5,493

 

 

 

27,539

 

 

 

31,663

 

 

 

90,593

 

Bad debt expense

 

 

15,740

 

 

 

16,000

 

 

 

64,550

 

 

 

64,000

 

Depreciation

 

 

15,698

 

 

 

10,626

 

 

 

38,381

 

 

 

31,001

 

Other general and administrative expenses

 

 

184,114

 

 

 

185,085

 

 

 

538,643

 

 

 

559,684

 

Total operating expenses

 

 

997,638

 

 

 

1,451,567

 

 

 

4,472,967

 

 

 

3,956,556

 

(Loss) income from operations

 

 

(144,281

)

 

 

119,881

 

 

 

(2,032,494

)

 

 

200,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income - net

 

 

413

 

 

 

1,685

 

 

 

3,271

 

 

 

5,319

 

Legal settlement

 

 

2,967

 

 

 

 

 

 

(116,750

)

 

 

 

Other income (expense)

 

 

(163

)

 

 

(1,702

)

 

 

18,968

 

 

 

(4,449

)

Total other income (expense)

 

 

3,217

 

 

 

(17

)

 

 

(94,511

)

 

 

870

 

(Loss) income before benefit from income taxes

 

 

(141,064

)

 

 

119,864

 

 

 

(2,127,005

)

 

 

201,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit from (provision for) income taxes

 

 

40,453

 

 

 

(38,897

 

 

775,046

 

 

 

(65,254

Net (loss) income from continuing operations

 

 

(100,611

)

 

 

80,967

 

 

 

(1,351,959

)

 

 

135,831

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss) from discontinued operations

 

 

134

 

 

 

(65,549

 

 

(12,087

 

 

(67,386

Income tax (provision) benefit

 

 

(116

 

 

21,271

 

 

 

4,404

 

 

 

21,867

 

Income (loss) from discontinued operations

 

 

18

 

 

 

(44,278

)

 

 

(7,683

)

 

 

(45,519

)

Net (loss) Income

 

$

(100,593

)

 

$

36,689

 

 

$

(1,359,642

)

 

$

90,312

 

Net (loss) income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.01

)

 

$

0.00

 

 

$

(0.11

)

 

$

0.01

 

Discontinued operations

 

$

0.00

 

 

$

(0.00

)

 

$

(0.00

)

 

$

(0.00

)

Total

 

$

(0.01

)

 

$

0.00

 

 

$

(0.11

)

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average number of common shares outstanding

 

 

12,001,409

 

 

 

11,991,299

 

 

 

12,001,409

 

 

 

11,936,134

 





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


2



 


CREATIVE LEARNING CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)


 

 

For the Nine Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

(restated)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(1,359,642

)

 

$

90,312

 

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

7,683

 

 

 

45,519

 

Depreciation

 

 

38,381

 

 

 

31,001

 

Bad debt expense

 

 

64,550

 

 

 

64,000

 

Deferred income taxes

 

 

(249

)

 

 

 

Stock issued for services

 

 

 

 

 

15,120

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Restricted cash

 

 

132,180

 

 

 

(10,928

)

Accounts receivable

 

 

62,768

 

 

 

50,978

 

Prepaid expenses

 

 

(53,722

)

 

 

(19,475

)

Notes receivable

 

 

69,339

 

 

 

(53,557

)

Accrued revenue

 

 

 

 

 

(220,000

)

Deposits

 

 

5,000

 

 

 

(4,276

)

Accounts payable - related parties

 

 

(240

)

 

 

(42,211

)

Accounts payable - 3rd parties

 

 

190,741

 

 

 

(194,877

)

Payment of legal settlement

 

 

 

 

 

 

Accrued liabilities

 

 

(215,054

)

 

 

(6,450

)

Unearned revenue

 

 

173,538

 

 

 

60,520

 

Payroll accruals

 

 

(24,837

)

 

 

(30,073

)

Accrued marketing

 

 

(83,513

)

 

 

10,928

 

Customer deposits

 

 

(9,982

)

 

 

14,738

 

Income tax receivable

 

 

(784,462

)

 

 

61,661

 

Net cash used in operating activities

 

 

(1,787,521

)

 

 

(137,070

)

Net cash provided by  (used in) discontinued operations

 

 

19,596

 

 

 

(83,944

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(69,076

)

 

 

(52,391

)

Net cash used in investing activities

 

 

(69,076

)

 

 

(52,391

)

Net change in cash

 

 

(1,837,001

)

 

 

(273,405

)

Cash, beginning of period

 

 

2,450,609

 

 

 

3,050,983

 

Cash, end of period

 

$

613,608

 

 

$

2,777,578

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of 85,000 shares on February 18, 2015 for Sew Fun Mediation

 

 

 

 

 

106,250

 

Acquisition of treasury stock in connection with disposition of CI

 

 

16,500

 

 

 

 





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


3



 


CREATIVE LEARNING CORPORATION

Consolidated Statement of Stockholder's Equity

(Unaudited)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Treasury Stock

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Value

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Earnings

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, October 1, 2015

 

 

(15,100

)

 

$

(18,126

)

 

 

12,001,409

 

 

$

1,200

 

 

$

2,534,554

 

 

$

676,387

 

 

$

3,194,015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock (cost)

 

 

(50,000

)

 

 

(16,500

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,500

)

Net loss for the nine months ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,359,642

)

 

 

(1,359,642

)

Balance, June 30, 2016

 

 

(65,100

)

 

$

(34,626

)

 

 

12,001,409

 

 

$

1,200

 

 

$

2,534,554

 

 

$

(683,255

)

 

$

1,817,873

 







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


4



 


CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 

(1) Nature of Organization, Operations and Summary of Significant Accounting Policies:


Nature of Organization


Creative Learning Corporation (CLC) operates wholly owned subsidiaries, BFK Franchise Co., LLC (BFK) and SF Franchise Company, LLC (SF) under the trade names Bricks 4 Kidz® and Sew Fun Studios™ respectively, that offer children's enrichment and education franchises. As of June 30, 2016, BFK franchisees operated in 696 territories in 45 states and 40 countries, and SF franchisees operated in 12 territories in 10 states and 3 countries. The Company previously operated Challenge Island Franchise Co., LLC (CI) in 49 territories in 44 states and 3 countries.


The Company sold the CI concept on December 9, 2015, and as a result the Company is reporting CI as discontinued operations in the consolidated financial statements. See Note 6.


Basis of Presentation


The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s results for the interim periods that have been included. The results for the nine months ended June 30, 2016 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, 2015. In addition, refer to Note 6 regarding the sale of Challenge Island and related discontinued operations classification.






5



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 


Restatement


The previously issued consolidated financial statements of the Company as of and for the quarter ended June 30, 2015 have been restated. It was management’s determination that the Company had not properly presented cash, restricted cash, accounts receivable, other receivables, income tax receivable, deferred tax assets, accrued revenue, accounts payable, accrued liabilities, accrued marketing fund, deferred tax liability, legal settlement, retained earnings, franchise consulting & commissions, salaries and payroll taxes, professional fees, office expense, other general and administrative expenses, provision for income taxes and net income.


Restatement of 2015 Financial Statements


 

 

As reported 6/30/2015

 

 

CI Adjustment

 

 

Post CI Adjustment Balance

 

 

Restatement

 

 

Restated Balance 6/30/2015

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

2,803,962

 

 

$

(34,054

)

 

$

2,769,908

 

 

$

7,670

 

 

$

2,777,578

 

Restricted cash

 

 

194,965

 

 

 

 

 

 

 

194,965

 

 

 

(7,183

)

 

 

187,782

 

Accounts receivable, net

 

 

410,834

 

 

 

(3,002

)

 

 

407,832

 

 

 

(228,999

)

 

 

178,833

 

Other receivables - current portion

 

 

188,959

 

 

 

(95,632

)

 

 

93,327

 

 

 

11,106

 

 

 

104,433

 

Income tax receivable

 

 

46,105

 

 

 

 

 

 

46,105

 

 

 

16,669

 

 

 

62,774

 

Deferred tax asset

 

 

48,723

 

 

 

 

 

 

48,723

 

 

 

(44,776

)

 

 

3,947

 

Other receivables - long term

 

 

41,128

 

 

 

 

 

 

41,128

 

 

 

(15,149

)

 

 

25,979

 

Accrued revenue

 

 

 

 

 

(9,000

)

 

 

(9,000

)

 

 

229,000

 

 

 

220,000

 

Total assets

 

$

4,355,354

 

 

$

 

 

$

4,355,354

 

 

$

(31,662

)

 

$

4,323,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable - related party

 

$

2,695

 

 

 

 

 

$

2,695

 

 

$

(2,672

)

 

$

23

 

Accounts payable - other

 

 

155,077

 

 

 

(12,450

)

 

 

142,627

 

 

 

2,673

 

 

 

145,300

 

Accrued liabilities

 

 

32,250

 

 

 

 

 

 

32,250

 

 

 

10,000

 

 

 

42,250

 

Accrued marketing fund

 

 

194,965

 

 

 

(7,200

)

 

 

187,765

 

 

 

17

 

 

 

187,782

 

Deferred tax liability

 

 

5,550

 

 

 

 

 

 

5,550

 

 

 

(5,550

)

 

 

 

Legal settlement

 

 

10,000

 

 

 

 

 

 

10,000

 

 

 

(10,000

)

 

 

 

Long-term deferred tax liability

 

 

22,230

 

 

 

 

 

 

22,230

 

 

 

(22,230

)

 

 

 

Total liabilities

 

$

610,187

 

 

$

 

 

$

610,187

 

 

$

(27,762

)

 

$

582,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

$

1,200

 

 

$

 

 

$

1,200

 

 

$

 

 

$

1,200

 

Additional paid-in capital

 

 

2,534,554

 

 

 

 

 

 

2,534,554

 

 

 

 

 

 

2,534,554

 

Treasury stock

 

 

(18,126

)

 

 

 

 

 

(18,126

)

 

 

 

 

 

(18,126

)

Retained earnings

 

 

1,227,539

 

 

 

 

 

 

1,227,539

 

 

 

(3,900

)

 

 

1,223,639

 

Total stockholders' equity

 

$

3,745,167

 

 

$

 

 

$

3,745,167

 

 

$

(3,900

)

 

$

3,741,267

 

 

 

 

As reported

Nine Months Ended 6/30/2015

 

 

CI Adjustment

 

 

Post CI Adjustment Balance

 

 

Restatement

 

 

Restated Balance

Nine Months Ended 6/30/2015

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise consulting & commissions - related parties

 

 

401,518

 

 

 

 

 

 

401,518

 

 

 

(76,889

)

 

 

324,629

 

Franchise consulting & commissions - other

 

 

755,382

 

 

 

(176,112

)

 

 

579,270

 

 

 

76,888

 

 

 

656,158

 

Salaries and payroll taxes

 

 

959,941

 

 

 

 

 

 

959,941

 

 

 

(30,073

)

 

 

929,868

 

Professional fees

 

 

429,593

 

 

 

(263

)

 

 

429,330

 

 

 

(37

)

 

 

429,293

 

Office expense

 

 

96,507

 

 

 

(5,875

)

 

 

90,632

 

 

 

(39

)

 

 

90,593

 

Other general and administrative expenses

 

 

451,141

 

 

 

(32,551

)

 

 

418,590

 

 

 

141,094

 

 

 

559,684

 

Provision for income taxes

 

 

92,000

 

 

 

 

 

 

92,000

 

 

 

(48,613

)

 

 

43,387

 

Net income

 

$

152,643

 

 

$

 

 

$

152,643

 

 

$

(62,331

)

 

$

90,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earnings per share – basic & diluted

 

$

0.01

 

 

 

 

 

 

$

0.01

 

 

 

 

 

 

$

0.00

 



















6



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 



 

 

As reported

Three Months

Ended 6/30/2015

 

 

CI Adjustment

 

 

Post CI

Adjustment Balance

 

 

Restatement

 

 

Restated

Balance

Three Months

Ended

6/30/2015

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise consulting & commissions - related parties

 

$

148,620

 

 

$

 

 

$

148,620

 

 

$

(63,121

)

 

$

85,499

 

Franchise consulting & commissions - other

 

 

309,916

 

 

 

(54,214

)

 

 

255,702

 

 

 

63,121

 

 

 

318,823

 

Office expense

 

 

29,002

 

 

 

(1,424

)

 

 

27,578

 

 

 

(39

)

 

 

27,539

 

Other general and administrative expenses

 

 

197,463

 

 

 

(12,385

)

 

 

185,078

 

 

 

6

 

 

 

185,084

 

Provision for income taxes

 

 

18,000

 

 

 

 

 

 

18,000

 

 

 

(374

)

 

 

17,626

 

Net income

 

$

36,282

 

 

$

 

 

$

36,282

 

 

$

407

 

 

$

36,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earnings per share - basic & diluted

 

$

0.00

 

 

 

 

 

 

$

0.00

 

 

 

 

 

 

$

0.00

 


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, allowance for deferred tax assets, depreciation of property and equipment, amortization of intangible assets, recoverability of long lived assets and fair market value of equity instruments. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.


Restricted Cash


The Company had restricted cash of approximately $117,000 and $249,000, at June 30, 2016 and September 30, 2015, respectively, associated with a marketing fund collected from the franchisees. Per the franchise agreements, a marketing fund of 2% of franchisee’s gross cash receipts is collected and held to be spent on the promotion of the brand (see Note 4).


Accounts and Notes Receivable


The Company reviews accounts and notes receivable periodically for collectability, establishes an allowance for doubtful accounts, and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts and notes that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances, combined with management’s estimate of future potential recoverability. Receivables and notes are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts at June 30, 2016 and September 30, 2015 is adequate, but actual write-offs could exceed the recorded allowance. During the nine months ended June 30, 2016, the values of accounts written-off to the reserve were approximately $70,000 and during the year ended September 30, 2015 the amount of these write-offs was $156,000.



7



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 


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


Revenue Recognition


Revenue is recognized on an accrual basis after services have been performed under contract terms and in accordance with regulatory requirements, the service price to the client is fixed or determinable, and collectability is reasonably assured


Since the Company’s franchises are primarily a mobile concept and do not require finding locations or construction, the franchisees can begin operations as soon as they complete training. The franchise fees are fully collectible and nonrefundable as of the date of the signing of the franchise agreement, but the franchise fees are not recognized as revenue until initial training has been completed and when substantially all of the services required by the franchise agreement have been fulfilled by the Company in accordance with ASC Topic 952-605 Revenue Recognition-Franchisor. Royalties are recognized as earned on a monthly basis.


At June 30, 2016 and September 30, 2015 the Company had approximately $209,000 and $36,000, respectively, in unearned revenue for franchise fees collected but not yet earned per the revenue recognition policy.


Advertising Costs


Advertising costs are expensed as incurred. The Company incurred advertising costs for the quarters ended June 30, 2016 and 2015 of approximately $27,000 and $177,000, respectively.


Income Taxes


The provision for income taxes and deferred income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered. If after evaluating all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by a charge to tax expense to reserve the portion of the deferred tax assets which are not expected to be realized.


The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company is required to file.




8



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 


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. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows.


The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 30, 2016 and September 30, 2015, respectively, and has not recognized interest and/or penalties during the quarters ended June 30, 2016 and 2015, respectively, 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 2011 and forward by the U.S. Internal Revenue Service, and the years 2010 and forward for various states.


Net earnings (loss) per share


Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings 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.


Recent accounting pronouncements


Revenue from Contracts with Customers (Topic 606) has been discussed in several recent ASU including ASU 2016-12, 2016-11, 2016-10 and 2016-8. In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2017. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements.


In March 2016 the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to improve and simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This ASU is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted. We are currently assessing the impact that the adoption of ASU 2016-09 will have on our financial statements.




9



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 


In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. The guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance becomes effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. The Company adopted this guidance retrospectively as of October 1, 2015 and reclassified $81,832 and $81,583 from deferred costs to long-term deferred tax liability in June of 2016 and September of 2015, respectively.


Recent Events


On December 9, 2016, Brian Pappas, through his controlled company FranVentures, LLC, filed with the U.S. Securities and Exchange Commission a preliminary consent statement on Schedule 14A asking the shareholders of the Company to remove the current members of the Board of Directors and to replace them with three individuals proposed by Mr. Pappas. As a result, shareholders may have received, or may receive in the future, consent solicitation materials from FranVentures and/or Mr. Pappas seeking their written consent to remove the current Board members and elect the three individuals proposed by Mr. Pappas.


On December 16, 2016, we announced that our Board of Directors had determined that the consent solicitation commenced by Mr. Pappas and FranVentures is not in the best interests of all of the Company’s stockholders. The Company intends to file with the SEC a preliminary consent revocation statement in connection with the consent solicitation being conducted by Mr. Pappas and FranVentures, which will explain in more detail the Board’s reasons for opposing Mr. Pappas’ attempt to gain control of the Company.


(2) Related Party


During the nine months ended June 30, 2016 and 2015, the Company paid related parties (companies related by common control) for the following expenses:


 

 

Commissions and Consulting

 

 

 

Nine months ended

 

 

 

June 30,

 

Related Party

 

2016

 

 

2015

 

FranVentures, LLC (1)

 

$

 

 

$

76,204

 

MC Logic, LLC (2)

 

$

 

 

$

24,000

 

Leap Ahead Learning Company (3)

 

$

 

 

$

38,000

 

Bottom Line Group (4)

 

$

 

 

$

111,321

 

Jeffry Ball and J. Ball Group LLC (5)

 

$

 

 

$

62,330

 

 

 

$

 

 

$

311,855

 


(1)

Brian Pappas is a director and former chief executive officer of the Company. Effective July 22, 2015, Mr. Pappas was no longer employed by the Company. Mr. Pappas is the Managing Director and a minority owner of FranVentures, LLC. FranVentures, LLC received a 5% commission on BFK franchise sales by the Company prior to April 8, 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included above are travel and expense charges for Mr. Pappas for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $70. The wife of Mr. Pappas, Chris Pappas, was the human resources and payroll manager for the Company with compensation for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $12,900. Effective August 6, 2015, Mrs. Pappas was no longer employed by the Company and did not receive compensation subsequent to her leaving employment with the Company. Not included above are expense reimbursements for Mrs. Pappas for the nine months ending June 30, 2016 and 2015 of approximately $-0- and $3000, respectively. The related party payable for Mrs. Pappas was $-0- and $23 as of June 30, 2016 and June 30, 2015, respectively.



10



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 





(2)

MC Logic, LLC (“MC Logic”) is 100% owned by Michelle Cote, who is the Company’s President and Secretary and a former director and founder of the Company. Not included above are travel and expense reimbursements paid of approximately $-0- and $4300, respectively for the nine months ending June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. During the quarter ended December 31, 2013, the Company made a non-interest bearing loan in the amount of $125,000 to MC Logic. Later in that same quarter, management determined that the loan could be deemed a violation of Section 13(k) of the Exchange Act and Section 402 of the Sarbanes-Oxley Act and immediately sought repayment in full of the loan. MC Logic promptly repaid the entire amount of the loan before the end of the fiscal quarter ended December 31, 2013. Subsequent to the end of fiscal year 2015, the Company has recorded a related party receivable of $7,500 which resulted from activities that occurred in 2016. The receivable is a net amount due resulting from pre-approved activities at an MC Logic Sew Fun Franchise location, which involved using the space for initial evaluation of a potential new franchise concept and for the Company’s use of the location to consider taking the Sew Fun franchise as a company store. During this time, MC Logic had been reimbursed for expended funds and had tendered to the Company certain revenues. The Company later changed strategy, resulting in the reversal of reimbursements to MC Logic and the return of revenues to MC Logic. The net result was $10,217.73 due from MC Logic. MC Logic paid the balance in June of 2016. In addition, the Company has entered into an arrangement with MC Logic under which MC Logic has agreed to pay the standard Sew Fun Studios monthly royalty fee due for this territory effective June 1, 2016, and MC Logic is current on those payments as of September of 2016.

(3)

Leap Ahead Learning Company is 100% owned by Dan O’Donnell, who was a director and the Chief Operating Officer of the Company until his resignation on April 6 2016. Until April 15, 2015, the Company had paid Leap Ahead Learning $5,000 per month for consulting services except in November of 2014 when Leap Ahead Learning was paid $8,000. These services were provided through Mr. O'Donnell. Not included above are travel and expense reimbursements paid of approximately $4,000 and $25,000, respectively for the nine month periods ended June 30, 2016 and 2015. The related party payable was $-0-, and $240 at June 30, 2016 and September 30, 2015, respectively.

(4)

Bottom Line Group is owned by Jeff Pappas, a brother to Brian Pappas. The Business Consulting and Development Agreement between Bottom Line Group and the Company was terminated on September 25, 2015. Bottom Line Group served as one of the Company’s brokers in the sale of franchises. Payments to Bottom Line Group include commissions and consulting fees reflected in the table above. Not included above are travel and expense reimbursements paid of approximately $-0- and $10,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included in the related party schedule above are payments made to Michael Pappas (son to Jeff Pappas). The Business Consulting and Development Agreement between Michael Pappas and the Company has been terminated effective September 26, 2015. Payments made to Michael Pappas in the nine months ended June 30, 2016 and 2015 were approximately $-0- and $13,000, respectively.

(5)

J. Ball Group LLC is owned by Jeffery Ball, a son-in-law to Brian Pappas. The Independent Contractor Agreement between Jeffrey Ball and J Ball Group, LLC and the Company was terminated on September 30, 2015. The J Ball Group LLC served as one of the Company’s brokers in the sale of franchises. Payments reflected in the table above include commissions and consulting fees. Not included above are travel and expense reimbursements paid of approximately $-0- and $5,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. In January 2015, Jeffery Ball formed J. Ball Group LLC, which in these financial statements and disclosures have been presented as one business activity with amounts paid to either entity combined.


The Company had $11,130 in rent expense for the nine months ended June 30, 2016 for a 1,200 square foot MC Logic leased facility located in St. Augustine, Florida (the “Store”). This was a month to month arrangement with no lease in the Company’s name. The Company used the Store as a training center and expected to start holding classes and special events during evenings and weekends. This arrangement ended in March 2016.


(3) Notes and Other Receivables


At June 30, 2016 and September 30, 2015, the Company held certain other receivables totaling approximately $123,000 and $210,000 respectively, for extended payment terms of franchise fees, generally non-interest bearing notes with monthly payments, payable within one to two years. The Company only writes off franchisees’ receivables in the event that they leave the network. In addition, the Company analyzes the collectability of all receivables and reserves accordingly.


 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

Thereafter

 

 

Total

 

Payment schedules for Notes Receivable

 

$

24,605

 

 

$

41,154

 

 

$

19,000

 

 

$

12,950

 

 

$

24,963

 

 

$

122,672

 




11



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 


(4) Accrued Marketing Fund


Per the terms of the franchise agreements, the Company collects 2% of franchisee’s gross revenues for a marketing fund, managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees.


The marketing fund amounts are accounted for as a liability on the balance sheet and the actual collections are deposited into a marketing fund bank account. Expenses pertaining to the marketing fund activities are paid from the marketing fund and reduce the liability account.


At June 30, 2016 and September 30, 2015, the accrued marketing fund liability balances were approximately $112,000 and $249,000, respectively.


(5) Accrued Liabilities


The Company had accrued liabilities at June 30, 2016, and September 30, 2015 as follows:


 

 

June 30,

 

 

September 30,

 

Accrued Liabilities

 

2016

 

 

2015

 

Accrued Audit Fees

 

$

 

 

$

8,581

 

Accrued Legal Fees

 

 

 

 

 

213,130

 

Accrued Legal Settlements

 

 

17,000

 

 

 

101,897

 

Accrued State Regulatory Settlement

 

 

187,000

 

 

 

104,450

 

Accrued Consulting & Commissions

 

 

3,819

 

 

 

 

Accrued Conference expense

 

 

4,515

 

 

 

 

Accrued Office expense

 

 

670

 

 

 

 

 

 

 

$

213,004

 

 

$

428,058

 


The Company accrued $187,000 for state penalties and costs and the reimbursement of six franchisees as of June 30, 2016.


(6) Discontinued Operations


In September 2015, management committed to a plan to sell the CI concept because it was not a strategic fit with the Company’s existing BFK franchise brand.


The Company executed a purchase and sale agreement on December 9, 2015. The sale included substantially all of the assets of the CI business, which were sold on an “as is where is” basis, with no Company representations or warranties surviving the consummation of the sale. The purchase price for the assets was $24,750 and consisted of the transfer to the Company of 50,000 shares of the Company’s common stock, valued at $16,500, that had been held by the purchaser, reversal of an accrual to issue 25,000 shares of the Company’s common stock, valued at $8,250, and the assumption of certain liabilities related to the acquired assets.


For the fiscal year ended September 30, 2015, loss on assets held for sale of approximately $28,000 was recorded, representing the difference between the carrying value and fair value of the sold assets and liabilities. In addition, other CI assets, not included in the sale, were determined to be of no continuing value and were written-off at September 30, 2015.




12



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 


The following table lists the assets held for sale and liabilities held for sale of CI at September 30, 2015 and the operating loss on the assets held for sale.


 

 

As of

 

CI Franchise Company LLC

 

09/30/15

 

Assets of discontinued operations

 

 

 

Cash

 

$

24,032

 

Accounts receivable

 

 

16,667

 

Notes receivable

 

 

16,500

 

Total Assets of discontinued operations

 

$

57,199

 

 

 

 

 

 

Liabilities of discontinued operations

 

 

 

 

Accounts payable

 

 

9,016

 

Total Liabilities of discontinued operations

 

$

9,016

 


 

 

Three months ended

 

 

Nine months ended

 

Operating Loss on discontinued operations

 

6/30/2016

 

 

6/30/2015

 

 

6/30/2016

 

 

6/30/2015

 

Revenue

 

$

134

 

 

$

84,801

 

 

$

(5,882

)

 

$

337,742

 

Advertising and promotion

 

 

 

 

 

(34,917

)

 

 

(7,635

)

 

 

(97,204

)

Bad debt

 

 

 

 

 

(12,000

)

 

 

 

 

 

(36,118

)

Commissions and consulting

 

 

 

 

 

(54,215

)

 

 

 

 

 

(176,113

)

Franchisee expense

 

 

 

 

 

(34,429

)

 

 

 

 

 

(54,354

)

Professional fees

 

 

 

 

 

1

 

 

 

 

 

 

(263

)

Office expense

 

 

 

 

 

(1,424

)

 

 

 

 

 

(5,875

)

Depreciation expense

 

 

 

 

 

(884

)

 

 

 

 

 

(2,651

)

General and administrative expenses

 

 

 

 

 

(12,482

)

 

 

1,430

 

 

 

(32,550

)

Operating income(loss) on discontinued operations

 

$

134

 

 

$

(65,549

)

 

$

(12,087

)

 

$

(67,386

)


(7) Common Stock


In connection with the Discontinued Operations (see Note 6), in December 2015, the Company recorded Treasury Stock in the amount of $16,500 using the Cost Method for the 50,000 shares repurchased.


(8) Commitments and Contingencies


Lease Commitments


The Company entered into a commercial lease with Village Square at Palencia in July 2014, to lease unit 103B, Office Space 2, located at 701 Market Street, St. Augustine, Florida. On January 28, 2016, the Company provided a 60-day notice of termination for this lease that was accepted by the landlord. The fees and penalty for early termination was $2,000. The Company was required to vacate the suite by March 31, 2016.


Rent expense was approximately $22,000 and $24,000 for the nine months ended June 30, 2016 and 2015, respectively.


Included in the rent expense for the nine months ended June 30, 2016, was $11,130 for a facility under lease by a related party (see Note 2).


Litigation


From time to time, the Company has been and may become involved in legal proceedings arising in the ordinary course of its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.




13



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 


The Company was involved in arbitration with Sew Fun, LLC (SFLLC), from which the Company previously purchased intellectual property to establish a new sewing franchise concept. In 2015 the Company and SFLLC entered into a settlement agreement which provided for a payment of $106,000 in stock (which was granted in 2014) and $85,000 in cash (which was accrued in 2015 and paid subsequent to year end) as well as agreements on trademarks and license usage. The prior owner of SFLLC has a suit outstanding with a claim for an additional $42,000, which the Company is contesting. The Court denied the Company’s Motion to Dismiss and both sides have filed for summary judgment, each of which the Court has denied. No amount has been accrued for this additional claim.


In February 2015, the Company was sued for defamation by a former officer of the Company in relation to the Company’s statements in an SEC Form 8-K filing that the employee had been terminated. The pertinent 8-K filing occurred prior to the ascension to the Board any of the company’s current directors. The former officer alleged that the claimed misstatement in the SEC filing was false, was maliciously designed to injure the plaintiff in retribution for his having reported problems and pressed for changes at the company, and injured the reputation of the individual. The former officer seeks lost wages and income, compensatory damages, other damages and requests that a replacement Form 8-K be filed. The case is in the discovery phase. The company is in settlement negotiations with the plaintiff.


On October 2, 2015, the Company filed suit against its former Chief Executive Officer Brian Pappas, Christine Pappas, its former Human Resources officer, and an independent company controlled by Mr. Pappas named Franchise Ventures. 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.


In April, 2015, the United States Securities & Exchange Commission (“SEC”) issued a subpoena to Creative Learning Corporation seeking a variety of documents. The documents sought include without limitation materials regarding Brian Pappas, certain members of Mr. Pappas’ family, other company employees, board members and third-parties, company books and accounting procedures as well as other material regarding company affairs. In or about that time, it came to the attention of the Company that the SEC had initiated an investigation into possible violations of the securities laws by the Company and/or its officers, directors and/or others as of at least January 14, 2014. In late April 2015, the Company’s Board elected two new independent directors, and created an Audit Committee, which included the two new directors. In addition, in July 2015, the Board removed Brian Pappas as Chief Executive Officer. The Company has taken a number of steps to address compliance issues regarding its books and records. The Company is fully cooperating with the staff of the SEC in this matter.


On March 7, 2016, Franchise Ventures (“FV”), a company operated by Brian Pappas, filed suit in state court in St. Johns County, Florida against the Company and its affiliate BFK Franchise Company, LLC (collectively “the Company”) alleging breach of contract and seeking a declaratory judgment. The complaint does not state an amount of damages. FV claims that the Company has an ongoing contractual obligation to pay FV compensation in the form of commissions and other payments per the original LLC operating agreement under which BFK LLC was formed (“BFK Operating Agreement”). FV acknowledges that the Company terminated the LLC operating agreement and stopped paying FV in October 2015. FV’s complaint seeks recovery of compensation allegedly due after the termination date. Although the complaint is unclear, it appears to allege that the Company has no right ever to terminate the operating agreement. The Company contends that neither FV nor Mr. Pappas had any continuing right to franchise sales commissions under the BKF LLC operating agreement after FV ceased serving as managing member of BFK LLC when the Company acquired it. The Company further contends that: (a) the terms of the BFK Operating Agreement clearly provide that FV was owed compensation strictly for providing BFK LLC services as its managing member; (b) FV’s term as managing member of BFK LLC ended when CLC acquired it and CLC supplanted FV as the sole managing member of BFK LLC; and (c) in any event, under the terms of the BFK Operative Agreement, CLC had the full right to terminate the BKF LLC operating agreement on October 1, 2015, thereby eviscerating any conceivable legal rights FV might assert under that agreement thereafter. The Company contends that neither FV nor Mr. Pappas had any continuing right to franchise sales commissions under the BKF LLC operating agreement after FV ceased serving as managing member of BFK LLC when the Company acquired it on July 2, 2010. On October 27, 2016, plaintiff FranVentures filed a motion seeking leave to amend its complaint to add a claim alleging that the Company had entered into an oral contract or one implied by the parties’ conduct. The amended complaint does not address the Company’s position that even if a contract had been in place it had been terminated. The Court denied the Company’s motion to dismiss FV’s complaint, and discovery continues. The Company intends to vigorously litigate FranVentures’ complaint against the company.




14



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 


On June 23, 2016, the Company filed a counterclaim against its FV, which also included a complaint against former Chairman of the Board and Chief Executive Officer Brian Pappas and also named Christine Pappas as a defendant. The counterclaim and complaint 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 Pappas serving as the Chief Executive Officer of CLC and a member of its board of directors.  The counterclaim and/or complaint alleges the following:


a.

First, Pappas defrauded CLC, converted company assets and breached his fiduciary duty of loyalty by causing CLC to pay his company, FranVentures, more than $1,000,000 by falsely asserting that the funds were due under a contractual provision that Pappas knew had expired when CLC acquired BFK Franchise Company, LLC (“BFK”). After CLC stopped payments to FV in October 2015, Pappas sued CLC, claiming that CLC had to pay FV under that contract in perpetuity – that is, Pappas took the position that CLC never could stop paying his company – even though he knew that there was no legal basis for his claims.

b.

Second, to conceal the foregoing fraud scheme, Pappas made and caused to be made material false statements and material omissions regarding the transaction to CLC independent directors as well as in CLC’s filings with the U.S. Securities and Exchange Commission (the “SEC”).

c.

Third, Pappas breached his fiduciary duty of loyalty to CLC by repeatedly engaging in self-dealing and causing CLC to enter into several transactions with, and to make payments to or on behalf of, several members of his family, including his wife and brother, which transactions and payments were not disclosed to or approved by CLC’s board of directors and were not in the best interests of the Company and its shareholders.

i.

In particular, Pappas breached his fiduciary duty of loyalty by causing CLC to engage in repeated financial transactions with brother, Jeff Pappas including: (i) causing CLC to pay Jeff Pappas and/or his company approximately $560,000 in commissions and retainer payments from in or about 2010 to in or about 2015 including for handling CLC franchise sales, knowing or having reason to know that Jeff Pappas would and did do so in a reckless manner that exposed CLC to regulatory risk, liability, financial loss and reputational damage; and (ii) causing CLC to provide various financial benefits to Jeff Pappas to the financial detriment of CLC, including causing CLC to make loans and extensions of credit to Jeff Pappas and his company totaling approximately $40,000 in or about 2011-12 and thereafter causing CLC to write-off these loans and credit extensions as bad debt prior to their due date, notwithstanding that Pappas was during the same time causing CLC to pay retainer and commission payments to Jeff Pappas and his companies of at least $89,000. Pappas intentionally paid his brother these sums instead of setting off Jeff Pappas’ debt against the commissions and retainers purportedly owed to him.

ii.

Pappas also breached his fiduciary duty of loyalty by causing CLC to pay at least $95,000 in charges incurred by Pappas and his wife, Christine Pappas, on a CLC American Express credit card from in or about 2013 to in or about July 2015 without maintaining at the time, and thereafter in 2016 refusing to provide, proper and adequate business records and documentation for those expenditures. As a result, CLC is unable to verify that these expenditures were incurred for a proper business purpose and cannot deduct these payments as business expenses.

d.

Fourth, Pappas breached his fiduciary duty of loyalty to CLC by causing CLC to expend hundreds of thousands of dollars to respond to an investigation of Pappas and the Company the SEC initiated in early 2015 while Pappas was CLC’s CEO and Chairman of the Board as a result of Pappas’ misconduct detailed above, including CLC’s transactions with and payments to FV and Pappas’ family members, public disclosures relating to these transactions that Pappas caused the Company to make, inadequate internal corporate and financial controls, and other issues.

e.

Fifth, Pappas breached his fiduciary duty of loyalty to CLC by causing CLC liability for restitution and rescission payments, as well as state penalties and costs, in connection with an investigation conducted by the State of Virginia, alleging that Pappas committed fraud in relation to sales of Challenge Island franchises in Virginia, and that he thereafter caused an attempt to cover-up this fraud by taking further illegal actions. CLC has since divested itself of Challenge Island.

f.

Sixth, Pappas breached his fiduciary duty of loyalty to CLC by failing to implement adequate internal financial and corporate controls, thereby concealing his other misconduct and permitting Pappas to control and dominate CLC, misappropriate the Company’s assets, and repeatedly engage in fraud and self-dealing to the detriment of the Company and its shareholders.

g.

Seventh, Pappas’ misconduct described above was a material cause of the substantial delay and difficulty of the Company’s independent auditors in performing the audit of the Company’s financial statements for the 2015 fiscal year, which required the Company to suspend its domestic franchise sales on February 1, 2016 continuing until the date of this Complaint, causing financial loss to the Company.



15



CREATIVE LEARNING CORPORATION

Notes to Financial Statements

 


On October 27, 2016, Brian Pappas filed a motion to amend the complaint to add a claim alleging that the Company slandered him by virtue of a press release issued on or about August 1, 2016, in which the Company reported to shareholders on steps it had taken and improvements it had implemented. The Company intends to vigorously litigate this matter as well. 


On October 7, 2016, a franchisee filed a demand for arbitration against the Company’s affiliate BFK Franchise Company, LLC alleging that BFK had engaged in contract breaches and fraud in relation to numerous franchise agreements signed by Brian Pappas, Managing Director, or Dan O’Donnell, VP Operations between September 22, 2012 and November 1, 2015, with all but 1 of the agreements executed by or before March 2, 2015. The arbitration demand’s allegations include that misstatements and misrepresentations were made at or about the time of the purchase of the franchises. The complaint also assails other items such as the above-referenced SEC investigation, the Company’s settlements with the State of Virginia, Virginia’s “investigation and …settlement with Brian Pappas as a result of his conduct and actions during the time he served as Managing Director of BFK Franchise Co, and CEO of CLCN,” and self-dealing by corporate officers including commissions paid to officers upon sale of each new franchise.


(9) Subsequent Events


As of January 29, 2016, Creative Learning Corporation (“the Company”) temporarily suspended domestic franchise offer 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 FY2015 consolidated audited financial statements. In turn, this has delayed completion of the Company’s 2016 Franchise Disclosure Documents (“FDDs”) for the Bricks 4 Kidz® and Sew Fun Studios®. The company has reinstated sales of Bricks 4 Kidz franchises in September of 2016 in most states.


In March 2016, the Company received a letter from the Commonwealth of Virginia State Corporation Commission alleging that Company affiliate BFK Franchise Company, LLC (“BFK”) and former Company CEO Brian Pappas had violated certain provisions of the Virginia Retail Franchising Act. The Letter sought a negotiated resolution of the issues. The Company has cooperated and negotiated a payment of approximately $60,000 in restitution and $35,000 in fines and costs. Such amounts have been accrued as legal settlement payable on the accompanying balance sheets.






16



 


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. At June 30, 2016, the Company had 709 Bricks 4 Kidz®, Challenge Island® (which was sold during 2015) and Sew Fun Studios® franchises, 27 Bricks 4 Kidz® master franchises, and 20 Bricks 4 Kidz® sub-franchises operating in 42 countries.


3rd Quarter 2016 Highlights


During the 3rd quarter of our 2016 fiscal year, the Company added 5 new territories and had 8 new owners, due to transfer of territories, making our total operating franchise territories 708 as of June 30, 2016 over the two brands. Initial franchise fees were down $643,000 for the quarter ended June 30, 2016, when compared to the quarter ended June 30, 2015. Total revenue has decreased $718,000 for the same period. The decrease in revenue was mainly due to the Company’s temporary suspension of domestic franchise offers and sales of franchises, discussed below, although international sales did continue. The new management team has reevaluated and improved the franchise sales policy, procedure, and process. A consistent and compliant franchise agreement and franchise disclosure document was developed, implemented and is being registered with state agencies. An additional change was the termination of all past related-party sales brokers, as part of new management’s increased focus upon enhancing shareholder value and its new anti-nepotism policy. A new sales broker program has been developed that both, trains and commits any person representing the Company to consistent and ethical standards.


Operating expenses decreased to $998,000 for the quarter ended June 30, 2016 from $1,452,000 for the quarter ended June 30, 2015, or $454,000 (-31%). The decrease was across the board in all categories of expense, including consulting and commissions, franchisee training and expense, salaries and payroll taxes, and advertising. The total expense decrease in these categories equals $582,000, with an offsetting increase in professional fees of $146,000 for the quarter ended June 30, 2016 compared to the quarter ended June 30, 2015. A large portion of the increase in professional fees is related to issues that resulted from the prior management decisions. The Company’s net loss increased to $101,000 for the quarter ended June 30, 2016 from a net income of $37,000 for the quarter ended June 30, 2015, a difference of $137,000. Although the Company had an increased loss from operations, noted above, the loss from discontinued operations decreased from $44,000 in quarter ended June 30, 2015 to income of $18 for the quarter ended June 30, 2016. This along with an increase in our benefit from income taxes of $58,000 created the net income difference.


On December 9, 2015, the Company completed the sale of the Challenge Island business to its prior owner, pursuant to an asset sale and purchase agreement entered into on that date. See Note 6 to the Consolidated Financial Statements.


As of January 29, 2016, the Company temporarily suspended domestic franchise offer 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 FY2015 consolidated audited financial statements. In turn, this delayed completion of the Company’s 2016 FDDs for the Bricks 4 Kidz® and Sew Fun Studios® franchise offerings. The Company expects that offer and sales efforts will resume in approximately 70% of the states in which Bricks 4 Kidz® and Sew Fun Studios® currently sell franchises immediately upon completion of the FDD, and in the rest of the states upon either filing or approval of the renewal applications, based upon the applicable rules of each such state. In a number of these states, the Company did not have active franchise offer and sales efforts even before the temporary suspension. This temporary suspension of domestic franchise offer and sales does not affect the Company’s international franchise offer and sales activity or its royalty fee collections from existing franchisees. The Company reinstated sales of Bricks 4 Kidz franchises in September 2016 in most states.




17



 


Liquidity and Capital Resources


The Company’s primary source of liquidity is from cash generated through operations. From January of 2016 through August 2016, the Company was not able to sell franchises in the United States, and at the same time the Company had significant professional fees and regulatory cash outlays which put adverse pressure on the Company’s liquidity. The Company believes its US sales will rebound after resuming sales in the US and its cash outlays related to professional fees and regulatory functions will return to traditional levels for a similar business. The company will explore all options to improve liquidity and reassess its position in December, 2016.


Cash funds are used for ongoing operating expenses, the purchase of equipment, property improvement, and software development. During the nine months ending June 30, 2016, the Company purchased property and equipment totaling approximately $69,000, and no intangible property. The Company used cash during the fiscal year ended September 30, 2015 to make payments of $55,000 on a legal settlement reached in 2014.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.


Not applicable to us as a smaller reporting company.


Item 4. Controls and Procedures.


As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation regarding the nine months ended June 30, 2016, under the supervision and with the participation of our management, including our Chief Financial Officer who is also serving as our Principal Financial Officer and Principal Accounting 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 including our Chief Financial Officer, 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. 


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, no changes in the Company’s internal control over financial reporting occurred that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


Our 2015 Annual Report on Form 10-K contains information regarding material weaknesses in our internal control over financial reporting as of September, 2015 as a result of material weaknesses primarily related to a lack of sufficient personnel with appropriate training and expertise in accounting principles generally accepted in the United States, the lack of senior management leadership in the area, and the absence of board independence and the ability of the Audit Committee to function fully effectively until late July 2015.


During the first nine months of 2016, the Company did not successfully address the material weaknesses mentioned above with the exception of the changes to the Board of Directors.







18



 


PART II

 

Item 1. Legal Proceedings


From time to time, the Company has been and may become involved in legal proceedings arising in the ordinary course of its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.


The Company was involved in arbitration with Sew Fun, LLC (SFLLC), from which the Company previously purchased intellectual property to establish a new sewing franchise concept. In 2015 the Company and SFLLC entered into a settlement agreement which provided for a payment of $106,000 in stock (which was granted in 2014) and $85,000 in cash (which was accrued in 2015 and paid subsequent to year end) as well as agreements on trademarks and license usage. The prior owner of SFLLC has a suit outstanding with a claim for an additional $42,000, which the Company is contesting. The Court denied the Company’s Motion to Dismiss and both sides have filed for summary judgment, each of which the Court has denied. No amount has been accrued for this additional claim.


In February 2015, the Company was sued for defamation by a former officer of the Company in relation to the Company’s statements in an SEC Form 8-K filing that the employee had been terminated. The pertinent 8-K filing occurred prior to the ascension to the Board any of the company’s current directors. The former officer alleged that the claimed misstatement in the SEC filing was false, was maliciously designed to injure the plaintiff in retribution for his having reported problems and pressed for changes at the company, and injured the reputation of the individual. The former officer seeks lost wages and income, compensatory damages, other damages and requests that a replacement Form 8-K be filed. The case is in the discovery phase. The company is in settlement negotiations with the plaintiff.


On October 2, 2015, the Company filed suit against its former Chief Executive Officer Brian Pappas, Christine Pappas, its former Human Resources officer, and an independent company controlled by Mr. Pappas named Franchise Ventures. 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. 


In April, 2015, the United States Securities & Exchange Commission (“SEC”) issued a subpoena to Creative Learning Corporation seeking a variety of documents. The documents sought include without limitation materials regarding Brian Pappas, certain members of Mr. Pappas’ family, other company employees, board members and third-parties, company books and accounting procedures as well as other material regarding company affairs. In or about that time, it came to the attention of the Company that the SEC had initiated an investigation into possible violations of the securities laws by the Company and/or its officers, directors and/or others as of at least January 14, 2014. In late April 2015, the Company’s Board elected two new independent directors, and created an Audit Committee, which included the two new directors. In addition, in July 2015, the Board removed Brian Pappas as Chief Executive Officer. The Company has taken a number of steps to address compliance issues regarding its books and records. The Company is fully cooperating with the staff of the SEC in this matter.




19



 


On March 7, 2016, Franchise Ventures (“FV”), a company operated by Brian Pappas, filed suit in state court in St. Johns County, Florida against the Company and its affiliate BFK Franchise Company, LLC (collectively “the Company”) alleging breach of contract and seeking a declaratory judgment. The complaint does not state an amount of damages. FV claims that the Company has an ongoing contractual obligation to pay FV compensation in the form of commissions and other payments per the original LLC operating agreement under which BFK LLC was formed (“BFK Operating Agreement”). FV acknowledges that the Company terminated the LLC operating agreement and stopped paying FV in October 2015. FV’s complaint seeks recovery of compensation allegedly due after the termination date. Although the complaint is unclear, it appears to allege that the Company has no right ever to terminate the operating agreement. The Company contends that neither FV nor Mr. Pappas had any continuing right to franchise sales commissions under the BKF LLC operating agreement after FV ceased serving as managing member of BFK LLC when the Company acquired it. The Company further contends that: (a) the terms of the BFK Operating Agreement clearly provide that FV was owed compensation strictly for providing BFK LLC services as its managing member; (b) FV’s term as managing member of BFK LLC ended when CLC acquired it and CLC supplanted FV as the sole managing member of BFK LLC; and (c) in any event, under the terms of the BFK Operative Agreement, CLC had the full right to terminate the BKF LLC operating agreement on October 1, 2015, thereby eviscerating any conceivable legal rights FV might assert under that agreement thereafter. The Company contends that neither FV nor Mr. Pappas had any continuing right to franchise sales commissions under the BKF LLC operating agreement after FV ceased serving as managing member of BFK LLC when the Company acquired it on July 2, 2010. On October 27, 2016, plaintiff FranVentures filed a motion seeking leave to amend its complaint to add a claim alleging that the Company had entered into an oral contract or one implied by the parties’ conduct. The amended complaint does not address the Company’s position that even if a contract had been in place it had been terminated. The Court denied the Company’s motion to dismiss FV’s complaint, and discovery continues. The Company intends to vigorously litigate FranVentures’ complaint against the company.


On June 23, 2016, the Company filed a counterclaim against its FV, which also included a complaint against former Chairman of the Board and Chief Executive Officer Brian Pappas and also named Christine Pappas as a defendant. The counterclaim and complaint 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 Pappas serving as the Chief Executive Officer of CLC and a member of its board of directors.  The counterclaim and/or complaint alleges the following:


a.

First, Pappas defrauded CLC, converted company assets and breached his fiduciary duty of loyalty by causing CLC to pay his company, FranVentures, more than $1,000,000 by falsely asserting that the funds were due under a contractual provision that Pappas knew had expired when CLC acquired BFK Franchise Company, LLC (“BFK”). After CLC stopped payments to FV in October 2015, Pappas sued CLC, claiming that CLC had to pay FV under that contract in perpetuity – that is, Pappas took the position that CLC never could stop paying his company – even though he knew that there was no legal basis for his claims.

b.

Second, to conceal the foregoing fraud scheme, Pappas made and caused to be made material false statements and material omissions regarding the transaction to CLC independent directors as well as in CLC’s filings with the U.S. Securities and Exchange Commission (the “SEC”).

c.

Third, Pappas breached his fiduciary duty of loyalty to CLC by repeatedly engaging in self-dealing and causing CLC to enter into several transactions with, and to make payments to or on behalf of, several members of his family, including his wife and brother, which transactions and payments were not disclosed to or approved by CLC’s board of directors and were not in the best interests of the Company and its shareholders.

i.

In particular, Pappas breached his fiduciary duty of loyalty by causing CLC to engage in repeated financial transactions with brother, Jeff Pappas including: (i) causing CLC to pay Jeff Pappas and/or his company approximately $560,000 in commissions and retainer payments from in or about 2010 to in or about 2015 including for handling CLC franchise sales, knowing or having reason to know that Jeff Pappas would and did do so in a reckless manner that exposed CLC to regulatory risk, liability, financial loss and reputational damage; and (ii) causing CLC to provide various financial benefits to Jeff Pappas to the financial detriment of CLC, including causing CLC to make loans and extensions of credit to Jeff Pappas and his company totaling approximately $40,000 in or about 2011-12 and thereafter causing CLC to write-off these loans and credit extensions as bad debt prior to their due date, notwithstanding that Pappas was during the same time causing CLC to pay retainer and commission payments to Jeff Pappas and his companies of at least $89,000. Pappas intentionally paid his brother these sums instead of setting off Jeff Pappas’ debt against the commissions and retainers purportedly owed to him.



20



 


ii.

Pappas also breached his fiduciary duty of loyalty by causing CLC to pay at least $95,000 in charges incurred by Pappas and his wife, Christine Pappas, on a CLC American Express credit card from in or about 2013 to in or about July 2015 without maintaining at the time, and thereafter in 2016 refusing to provide, proper and adequate business records and documentation for those expenditures. As a result, CLC is unable to verify that these expenditures were incurred for a proper business purpose and cannot deduct these payments as business expenses.

d.

Fourth, Pappas breached his fiduciary duty of loyalty to CLC by causing CLC to expend hundreds of thousands of dollars to respond to an investigation of Pappas and the Company the SEC initiated in early 2015 while Pappas was CLC’s CEO and Chairman of the Board as a result of Pappas’ misconduct detailed above, including CLC’s transactions with and payments to FV and Pappas’ family members, public disclosures relating to these transactions that Pappas caused the Company to make, inadequate internal corporate and financial controls, and other issues.

e.

Fifth, Pappas breached his fiduciary duty of loyalty to CLC by causing CLC liability for restitution and rescission payments, as well as state penalties and costs, in connection with an investigation conducted by the State of Virginia, alleging that Pappas committed fraud in relation to sales of Challenge Island franchises in Virginia, and that he thereafter caused an attempt to cover-up this fraud by taking further illegal actions. CLC has since divested itself of Challenge Island.

f.

Sixth, Pappas breached his fiduciary duty of loyalty to CLC by failing to implement adequate internal financial and corporate controls, thereby concealing his other misconduct and permitting Pappas to control and dominate CLC, misappropriate the Company’s assets, and repeatedly engage in fraud and self-dealing to the detriment of the Company and its shareholders.

g.

Seventh, Pappas’ misconduct described above was a material cause of the substantial delay and difficulty of the Company’s independent auditors in performing the audit of the Company’s financial statements for the 2015 fiscal year, which required the Company to suspend its domestic franchise sales on February 1, 2016 continuing until the date of this Complaint, causing financial loss to the Company.


On October 27, 2016, Brian Pappas filed a motion to amend the complaint to add a claim alleging that the Company slandered him by virtue of a press release issued on or about August 1, 2016, in which the Company reported to shareholders on steps it had taken and improvements it had implemented. The Company intends to vigorously litigate this matter as well.


On October 7, 2016, a franchisee filed a demand for arbitration against the Company’s affiliate BFK Franchise Company, LLC alleging that BFK had engaged in contract breaches and fraud in relation to numerous franchise agreements signed by Brian Pappas, Managing Director, or Dan O’Donnell, VP Operations between September 22, 2012 and November 1, 2015, with all but 1 of the agreements executed by or before March 2, 2015. The arbitration demand’s allegations include that misstatements and misrepresentations were made at or about the time of the purchase of the franchises. The complaint also assails other items such as the above-referenced SEC investigation, the Company’s settlements with the State of Virginia, Virginia’s “investigation and …settlement with Brian Pappas as a result of his conduct and actions during the time he served as Managing Director of BFK Franchise Co, and CEO of CLCN,” and self-dealing by corporate officers including commissions paid to officers upon sale of each new franchise.


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 CLC's most recent annual report on Form 10-K.


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


The Company executed a purchase and sale agreement with the prior owner of the Challenge Island business on December 9, 2015. The sale included substantially all of the assets of the CI business, which were sold on an “as is where is” basis, with no Company representations or warranties surviving the consummation of the sale. The purchase price for the assets consisted of the transfer to the Company certain shares of the Company’s common stock that had been held by the purchaser, as well as the assumption of certain liabilities related to the acquired assets. The transaction was structured as a sale of assets, with CLC being the seller and Challenge Island Global being the purchaser. As a result of the sale, the Company’s obligation to issue these additional 25,000 shares was terminated.


In connection with the Discontinued Operations (see Note 6), in December 2015, the Company recorded 50,000 shares of Treasury Stock in the amount of $16,500 using the Cost Method.




21



 


Item 3. Defaults Upon Senior Securities


Not applicable.


Item 4. Mine Safety Disclosures


Not applicable.


Item 5. Other Information


None.


Item 6. Exhibits


Exhibits


31.1

 

 

Certification of Interim Chief Executive 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 Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.

 

 

 

 

32.1

 

 

Certification of Interim Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32.2

 

 

Certification of Chief Financial 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





22



 


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: December 22, 2016

By:

/s/ Rod Whiton

 

 

Rod Whiton,

 

 

Interim Chief Executive Officer

(Principal Executive Officer)

 

 

 

Dated: December 22, 2016

By:

/s/ Christian Miller

 

 

Christian Miller,

 

 

Chief Financial Officer

(Principal Accounting Officer)


 




23



 


EXHIBIT INDEX


Exhibit No.

 

 

Exhibit

31.1

 

 

Certification of Interim Chief Executive 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 Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.

 

 

 

 

32.1

 

 

Certification of Interim Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32.2

 

 

Certification of Chief Financial 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




24


EX-31.1 2 clcn_ex31z1.htm CERTIFICATION Certification

 


EXHIBIT 31.1

CERTIFICATIONS


I, Rod 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.

 

 

December 22, 2016

By:

/s/ Rod Whiton

 

 

 

Rod Whiton

 

 

 

Interim Chief Executive Offer

(Principal Executive Officer)

 

 






EX-31.2 3 clcn_ex31z2.htm CERTIFICATION Certification

 


EXHIBIT 31.2

CERTIFICATIONS


I, Christian Miller, 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.

  

December 22, 2016

By:

/s/ Christian Miller

 

 

 

Christian Miller

 

 

 

Chief Financial Officer

(Principal Accounting and Financial Officer)

 






EX-32.1 4 clcn_ex32z1.htm CERTIFICATION Certification

 


EXHIBIT 32.1


CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Creative Learning Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), Rod Whiton, the Principal Executive 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.

 

 

December 22, 2016

By:

/s/ Rod Whiton

 

 

 

Rod Whiton

 

 

 

Interim Executive Officer

(Principal Executive Officer)

 

 










EX-32.2 5 clcn_ex32z2.htm CERTIFICATION Certification

 


EXHIBIT 32.2


CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Creative Learning Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2016 as filed with the Securities and Exchange Commission (the “Report”), Christian Miller, the Principal Accounting and Financial 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.

 

 

December 22, 2016

By:

/s/ Christian Miller

 

 

 

Christian Miller

 

 

 

Chief Financial Officer

(Principal Accounting and Financial Officer)

 








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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.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">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.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">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 &#147;more likely than not&#148; chance of being sustained (based on the position&#146;s technical merits) upon challenge by the respective authorities. 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width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td colspan="2" style="margin-top: 0px; vertical-align: top; width: 73.93px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td colspan="2" style="margin-top: 0px; vertical-align: top; width: 73.93px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: top"><p style="margin: 0px; padding-left: 8px; text-indent: -8px">Franchise consulting &#38; commissions - related parties</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; 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text-align: right">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; 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text-align: right">610,187</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(27,762</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; 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text-align: right">(18,126</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; 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background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">1,223,639</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom"><p style="margin: 0px">Total stockholders' equity</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.66px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; 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background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #000000 1px solid; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">16,500</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; border-bottom: #FFFFFF 1px solid; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: top"><p style="margin: 0px; padding-left: 40px; text-indent: -8px">Total Assets of discontinued operations</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; 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vertical-align: top"><p style="margin: 0px; padding: 0px">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px">&#160;</p></td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: top; width: 161.33px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Three months ended</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td><td colspan="6" style="margin-top: 0px; border-bottom: #000000 1px solid; vertical-align: top; width: 161.33px"><p style="margin: 0px; font-size: 8pt; text-align: center"><b>Nine months ended</b></p> </td><td style="margin-top: 0px; vertical-align: bottom; width: 6.73px"><p style="margin: 0px; padding: 0px; font-size: 8pt">&#160;</p></td></tr> <tr><td style="margin-top: 0px; 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background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">337,742</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: top"><p style="margin: 0px; padding-left: 24px; text-indent: -8px">Advertising and promotion</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(34,917</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(7,635</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; 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background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(12,000</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(36,118</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: top"><p style="margin: 0px; padding-left: 24px; text-indent: -8px">Commissions and consulting</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(54,215</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(176,113</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: top"><p style="margin: 0px; padding-left: 24px; text-indent: -8px">Franchisee expense</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; 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background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">337,742</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: top"><p style="margin: 0px; padding-left: 24px; text-indent: -8px">Advertising and promotion</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; 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background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(12,000</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(36,118</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td></tr> <tr><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: top"><p style="margin: 0px; padding-left: 24px; 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background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; 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background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(34,429</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #CCFFCC; vertical-align: bottom; 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text-align: right">&#151;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">1</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; 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background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(65,549</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(12,087</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">&#160;</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">$</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #000000 3px double; vertical-align: bottom; width: 67.2px"><p style="margin: 0px; text-align: right">(67,386</p> </td><td style="margin-top: 0px; background-color: #FFFFFF; border-bottom: #FFFFFF 3px double; vertical-align: bottom; width: 6.73px"><p style="margin: 0px">)</p> </td></tr> </table> <p style="margin: 0px"></p> <p style="margin: 0px; text-align: justify"><b>(8) Commitments and Contingencies</b></p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-align: justify"><b><i>Lease Commitments</i></b></p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">The Company entered into a commercial lease with Village Square at Palencia in July 2014, to lease unit 103B, Office Space 2, located at 701 Market Street, St. Augustine, Florida. On January 28, 2016, the Company provided a 60-day notice of termination for this lease that was accepted by the landlord. The fees and penalty for early termination was $2,000. The Company was required to vacate the suite by March 31, 2016.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">Rent expense was approximately $22,000 and $24,000 for the nine months ended June 30, 2016 and 2015, respectively.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">Included in the rent expense for the nine months ended June 30, 2016, was $11,130 for a facility under lease by a related party (see Note 2).</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px"><b><i>Litigation</i></b></p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">From time to time, the Company has been and may become involved in legal proceedings arising in the ordinary course of its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">The Company was involved in arbitration with Sew Fun, LLC (SFLLC), from which the Company previously purchased intellectual property to establish a new sewing franchise concept. In 2015 the Company and SFLLC entered into a settlement agreement which provided for a payment of $106,000 in stock (which was granted in 2014) and $85,000 in cash (which was accrued in 2015 and paid subsequent to year end) as well as agreements on trademarks and license usage. The prior owner of SFLLC has a suit outstanding with a claim for an additional $42,000, which the Company is contesting. The Court denied the Company&#146;s Motion to Dismiss and both sides have filed for summary judgment, each of which the Court has denied. No amount has been accrued for this additional claim.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">In February 2015, the Company was sued for defamation by a former officer of the Company in relation to the Company&#146;s statements in an SEC Form 8-K filing that the employee had been terminated. The pertinent 8-K filing occurred prior to the ascension to the Board any of the company&#146;s current directors. The former officer alleged that the claimed misstatement in the SEC filing was false, was maliciously designed to injure the plaintiff in retribution for his having reported problems and pressed for changes at the company, and injured the reputation of the individual. The former officer seeks lost wages and income, compensatory damages, other damages and requests that a replacement Form 8-K be filed. The case is in the discovery phase. The company is in settlement negotiations with the plaintiff.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">On October 2, 2015, the Company filed suit against its former Chief Executive Officer Brian Pappas, Christine Pappas, its former Human Resources officer, and an independent company controlled by Mr. Pappas named Franchise Ventures. 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&#146;s documents are identified and a court judgment that the property is the Company&#146;s. Mr. and Mrs. Pappas have returned certain company documents that they have identified, but other issues remain.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">In April, 2015, the United States Securities &#38; Exchange Commission (&#147;SEC&#148;) issued a subpoena to Creative Learning Corporation seeking a variety of documents. The documents sought include without limitation materials regarding Brian Pappas, certain members of Mr. Pappas&#146; family, other company employees, board members and third-parties, company books and accounting procedures as well as other material regarding company affairs. In or about that time, it came to the attention of the Company that the SEC had initiated an investigation into possible violations of the securities laws by the Company and/or its officers, directors and/or others as of at least January 14, 2014. In late April 2015, the Company&#146;s Board elected two new independent directors, and created an Audit Committee, which included the two new directors. In addition, in July 2015, the Board removed Brian Pappas as Chief Executive Officer. The Company has taken a number of steps to address compliance issues regarding its books and records. The Company is fully cooperating with the staff of the SEC in this matter.</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">On March 7, 2016, Franchise Ventures (&#147;FV&#148;), a company operated by Brian Pappas, filed suit in state court in St. Johns County, Florida against the Company and its affiliate BFK Franchise Company, LLC (collectively &#147;the Company&#148;) alleging breach of contract and seeking a declaratory judgment. The complaint does not state an amount of damages. FV claims that the Company has an ongoing contractual obligation to pay FV compensation in the form of commissions and other payments per the original LLC operating agreement under which BFK LLC was formed (&#147;BFK Operating Agreement&#148;). FV acknowledges that the Company terminated the LLC operating agreement and stopped paying FV in October 2015. FV&#146;s complaint seeks recovery of compensation allegedly due after the termination date. Although the complaint is unclear, it appears to allege that the Company has no right ever to terminate the operating agreement. The Company contends that neither FV nor Mr. Pappas had any continuing right to franchise sales commissions under the BKF LLC operating agreement after FV ceased serving as managing member of BFK LLC when the Company acquired it. The Company further contends that: (a) the terms of the BFK Operating Agreement clearly provide that FV was owed compensation strictly for providing BFK LLC services as its managing member; (b) FV&#146;s term as managing member of BFK LLC ended when CLC acquired it and CLC supplanted FV as the sole managing member of BFK LLC; and (c) in any event, under the terms of the BFK Operative Agreement, CLC had the full right to terminate the BKF LLC operating agreement on October 1, 2015, thereby eviscerating any conceivable legal rights FV might assert under that agreement thereafter. The Company contends that neither FV nor Mr. Pappas had any continuing right to franchise sales commissions under the BKF LLC operating agreement after FV ceased serving as managing member of BFK LLC when the Company acquired it on July 2, 2010. On October 27, 2016, plaintiff FranVentures filed a motion seeking leave to amend its complaint to add a claim alleging that the Company had entered into an oral contract or one implied by the parties&#146; conduct. The amended complaint does not address the Company&#146;s position that even if a contract had been in place it had been terminated. The Court denied the Company&#146;s motion to dismiss FV&#146;s complaint, and discovery continues. The Company intends to vigorously litigate FranVentures&#146; complaint against the company.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">On June 23, 2016, the Company filed a counterclaim against its FV, which also included a complaint against former Chairman of the Board and Chief Executive Officer Brian Pappas and also named Christine Pappas as a defendant. The counterclaim and complaint 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 Pappas serving as the Chief Executive Officer of CLC and a member of its board of directors. &#160;The counterclaim and/or complaint alleges the following:</p> <p style="margin: 0px"><br /></p> <p style="margin-top: 0px; margin-bottom: -2px; text-indent: 48px; width: 80px; float: left">a.</p> <p style="margin: 0px; padding-left: 80px; text-indent: -2px; text-align: justify"><u>First</u>, Pappas defrauded CLC, converted company assets and breached his fiduciary duty of loyalty by causing CLC to pay his company, FranVentures, more than $1,000,000 by falsely asserting that the funds were due under a contractual provision that Pappas knew had expired when CLC acquired BFK Franchise Company, LLC (&#147;BFK&#148;). After CLC stopped payments to FV in October 2015, Pappas sued CLC, claiming that CLC had to pay FV under that contract <i>in perpetuity</i> &#150; that is, Pappas took the position that CLC <i>never</i> could stop paying his company &#150; even though he knew that there was no legal basis for his claims.</p> <p style="margin-top: 0px; margin-bottom: -2px; text-indent: 48px; width: 80px; clear: left; float: left">b.</p> <p style="margin: 0px; padding-left: 80px; text-indent: -2px; text-align: justify"><u>Second</u>, to conceal the foregoing fraud scheme, Pappas made and caused to be made material false statements and material omissions regarding the transaction to CLC independent directors as well as in CLC&#146;s filings with the U.S. Securities and Exchange Commission (the &#147;SEC&#148;).</p> <p style="margin-top: 0px; margin-bottom: -2px; text-indent: 48px; width: 80px; clear: left; float: left">c.</p> <p style="margin: 0px; padding-left: 80px; text-indent: -2px; text-align: justify"><u>Third</u>, Pappas breached his fiduciary duty of loyalty to CLC by repeatedly engaging in self-dealing and causing CLC to enter into several transactions with, and to make payments to or on behalf of, several members of his family, including his wife and brother, which transactions and payments were not disclosed to or approved by CLC&#146;s board of directors and were not in the best interests of the Company and its shareholders.</p> <p style="margin-top: 0px; margin-bottom: -2px; text-indent: 80px; width: 112px; clear: left; float: left">i.</p> <p style="margin: 0px; padding-left: 112px; text-indent: -2px; text-align: justify">In particular, Pappas breached his fiduciary duty of loyalty by causing CLC to engage in repeated financial transactions with brother, Jeff Pappas including: (i) causing CLC to pay Jeff Pappas and/or his company approximately $560,000 in commissions and retainer payments from in or about 2010 to in or about 2015 including for handling CLC franchise sales, knowing or having reason to know that Jeff Pappas would and did do so in a reckless manner that exposed CLC to regulatory risk, liability, financial loss and reputational damage; and (ii) causing CLC to provide various financial benefits to Jeff Pappas to the financial detriment of CLC, including causing CLC to make loans and extensions of credit to Jeff Pappas and his company totaling approximately $40,000 in or about 2011-12 and thereafter causing CLC to write-off these loans and credit extensions as bad debt prior to their due date, notwithstanding that Pappas was during the same time causing CLC to pay retainer and commission payments to Jeff Pappas and his companies of at least $89,000. Pappas intentionally paid his brother these sums instead of setting off Jeff Pappas&#146; debt against the commissions and retainers purportedly owed to him.</p> <p style="margin-top: 0px; margin-bottom: -2px; text-indent: 80px; width: 112px; clear: left; float: left">ii.</p> <p style="margin: 0px; padding-left: 112px; text-indent: -2px; text-align: justify">Pappas also breached his fiduciary duty of loyalty by causing CLC to pay at least $95,000 in charges incurred by Pappas and his wife, Christine Pappas, on a CLC American Express credit card from in or about 2013 to in or about July 2015 without maintaining at the time, and thereafter in 2016 refusing to provide, proper and adequate business records and documentation for those expenditures. As a result, CLC is unable to verify that these expenditures were incurred for a proper business purpose and cannot deduct these payments as business expenses.</p> <p style="margin-top: 0px; margin-bottom: -2px; text-indent: 48px; width: 80px; clear: left; float: left">d.</p> <p style="margin: 0px; padding-left: 80px; text-indent: -2px; text-align: justify"><u>Fourth</u>, Pappas breached his fiduciary duty of loyalty to CLC by causing CLC to expend hundreds of thousands of dollars to respond to an investigation of Pappas and the Company the SEC initiated in early 2015 while Pappas was CLC&#146;s CEO and Chairman of the Board as a result of Pappas&#146; misconduct detailed above, including CLC&#146;s transactions with and payments to FV and Pappas&#146; family members, public disclosures relating to these transactions that Pappas caused the Company to make, inadequate internal corporate and financial controls, and other issues.</p> <p style="margin-top: 0px; margin-bottom: -2px; text-indent: 48px; width: 80px; clear: left; float: left">e.</p> <p style="margin: 0px; padding-left: 80px; text-indent: -2px; text-align: justify"><u>Fifth</u>, Pappas breached his fiduciary duty of loyalty to CLC by causing CLC liability for restitution and rescission payments, as well as state penalties and costs, in connection with an investigation conducted by the State of Virginia, alleging that Pappas committed fraud in relation to sales of Challenge Island franchises in Virginia, and that he thereafter caused an attempt to cover-up this fraud by taking further illegal actions. CLC has since divested itself of Challenge Island.</p> <p style="margin-top: 0px; margin-bottom: -2px; text-indent: 48px; width: 80px; clear: left; float: left">f.</p> <p style="margin: 0px; padding-left: 80px; text-indent: -2px; text-align: justify"><u>Sixth</u>, Pappas breached his fiduciary duty of loyalty to CLC by failing to implement adequate internal financial and corporate controls, thereby concealing his other misconduct and permitting Pappas to control and dominate CLC, misappropriate the Company&#146;s assets, and repeatedly engage in fraud and self-dealing to the detriment of the Company and its shareholders.</p> <p style="margin-top: 0px; margin-bottom: -2px; text-indent: 48px; width: 80px; clear: left; float: left">g.</p> <p style="margin: 0px; padding-left: 80px; text-indent: -2px; text-align: justify"><u>Seventh</u>, Pappas&#146; misconduct described above was a material cause of the substantial delay and difficulty of the Company&#146;s independent auditors in performing the audit of the Company&#146;s financial statements for the 2015 fiscal year, which required the Company to suspend its domestic franchise sales on February 1, 2016 continuing until the date of this Complaint, causing financial loss to the Company.</p> <p style="margin: 0px"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">On October 27, 2016, Brian Pappas filed a motion to amend the complaint to add a claim alleging that the Company slandered him by virtue of a press release issued on or about August 1, 2016, in which the Company reported to shareholders on steps it had taken and improvements it had implemented. The Company intends to vigorously litigate this matter as well.&#160;</p> <p style="margin: 0px; text-align: justify"><br /></p> <p style="margin: 0px; text-indent: 48px; text-align: justify">On October 7, 2016, a franchisee filed a demand for arbitration against the Company&#146;s affiliate BFK Franchise Company, LLC alleging that BFK had engaged in contract breaches and fraud in relation to numerous franchise agreements signed by Brian Pappas, Managing Director, or Dan O&#146;Donnell, VP Operations between September 22, 2012 and November 1, 2015, with all but 1 of the agreements executed by or before March 2, 2015. The arbitration demand&#146;s allegations include that misstatements and misrepresentations were made at or about the time of the purchase of the franchises. The complaint also assails other items such as the above-referenced SEC investigation, the Company&#146;s settlements with the State of Virginia, Virginia&#146;s &#147;investigation and &#133;settlement with Brian Pappas as a result of his conduct and actions during the time he served as Managing Director of BFK Franchise Co, and CEO of CLCN,&#148; and self-dealing by corporate officers including commissions paid to officers upon sale of each new franchise.</p> Brian Pappas is a director and former chief executive officer of the Company. Effective July 22, 2015, Mr. Pappas was no longer employed by the Company. Mr. Pappas is the Managing Director and a minority owner of FranVentures, LLC. FranVentures, LLC received a 5% commission on BFK franchise sales by the Company prior to April 8, 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included above are travel and expense charges for Mr. Pappas for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $70. The wife of Mr. Pappas, Chris Pappas, was the human resources and payroll manager for the Company with compensation for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $12,900. Effective August 6, 2015, Mrs. Pappas was no longer employed by the Company and did not receive compensation subsequent to her leaving employment with the Company. Not included above are expense reimbursements for Mrs. Pappas for the nine months ending June 30, 2016 and 2015 of approximately $-0- and $3000, respectively. The related party payable for Mrs. Pappas was $-0- and $23 as of June 30, 2016 and June 30, 2015, respectively. MC Logic, LLC ("MC Logic") is 100% owned by Michelle Cote, who is the Company's President and Secretary and a former director and founder of the Company. Not included above are travel and expense reimbursements paid of approximately $-0- and $4300, respectively for the nine months ending June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. During the quarter ended December 31, 2013, the Company made a non-interest bearing loan in the amount of $125,000 to MC Logic. Later in that same quarter, management determined that the loan could be deemed a violation of Section 13(k) of the Exchange Act and Section 402 of the Sarbanes-Oxley Act and immediately sought repayment in full of the loan. MC Logic promptly repaid the entire amount of the loan before the end of the fiscal quarter ended December 31, 2013. Subsequent to the end of fiscal year 2015, the Company has recorded a related party receivable of $7,500 which resulted from activities that occurred in 2016. The receivable is a net amount due resulting from pre-approved activities at an MC Logic Sew Fun Franchise location, which involved using the space for initial evaluation of a potential new franchise concept and for the Company's use of the location to consider taking the Sew Fun franchise as a company store. During this time, MC Logic had been reimbursed for expended funds and had tendered to the Company certain revenues. The Company later changed strategy, resulting in the reversal of reimbursements to MC Logic and the return of revenues to MC Logic. The net result was $10,217.73 due from MC Logic. MC Logic paid the balance in June of 2016. In addition, the Company has entered into an arrangement with MC Logic under which MC Logic has agreed to pay the standard Sew Fun Studios monthly royalty fee due for this territory effective June 1, 2016, and MC Logic is current on those payments as of September of 2016. Leap Ahead Learning Company is 100% owned by Dan O'Donnell, who was a director and the Chief Operating Officer of the Company until his resignation on April 6 2016. Until April 15, 2015, the Company had paid Leap Ahead Learning $5,000 per month for consulting services except in November of 2014 when Leap Ahead Learning was paid $8,000. These services were provided through Mr. O'Donnell. Not included above are travel and expense reimbursements paid of approximately $4,000 and $25,000, respectively for the nine month periods ended June 30, 2016 and 2015. The related party payable was $-0-, and $240 at June 30, 2016 and September 30, 2015, respectively. Bottom Line Group is owned by Jeff Pappas, a brother to Brian Pappas. The Business Consulting and Development Agreement between Bottom Line Group and the Company was terminated on September 25, 2015. Bottom Line Group served as one of the Company's brokers in the sale of franchises. Payments to Bottom Line Group include commissions and consulting fees reflected in the table above. Not included above are travel and expense reimbursements paid of approximately $-0- and $10,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included in the related party schedule above are payments made to Michael Pappas (son to Jeff Pappas). The Business Consulting and Development Agreement between Michael Pappas and the Company has been terminated effective September 26, 2015. Payments made to Michael Pappas in the nine months ended June 30, 2016 and 2015 were approximately $-0- and $13,000, respectively. J. Ball Group LLC is owned by Jeffery Ball, a son-in-law to Brian Pappas. The Independent Contractor Agreement between Jeffrey Ball and J Ball Group, LLC and the Company was terminated on September 30, 2015. The J Ball Group LLC served as one of the Company's brokers in the sale of franchises. Payments reflected in the table above include commissions and consulting fees. Not included above are travel and expense reimbursements paid of approximately $-0- and $5,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. In January 2015, Jeffery Ball formed J. Ball Group LLC, which in these financial statements and disclosures have been presented as one business activity with amounts paid to either entity combined. 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Document and Entity Information - shares
9 Months Ended
Jun. 30, 2016
Dec. 12, 2016
Document And Entity Information    
Entity Registrant Name CREATIVE LEARNING Corp  
Entity Central Index Key 0001394638  
Document Type 10-Q  
Document Period End Date Jun. 30, 2016  
Amendment Flag false  
Current Fiscal Year End Date --09-30  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   12,001,409
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2016  
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Consolidated Balance Sheets - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Current Assets:    
Cash $ 613,608 $ 2,450,609
Restricted cash (marketing fund) 116,597 248,777
Accounts receivable, less allowance for doubtful accounts of approximately $190,000 and $165,000, respectively 250,207 407,270
Prepaid expenses 65,000 11,278
Notes receivable - current portion, less allowance for doubtful accounts of approximately $31,000 and $26,000, respectively 27,854 97,794
Income tax receivable 1,043,393 254,527
Assets of discontinued operations 57,199
Total Current Assets 2,116,659 3,527,454
Notes receivable - net of current portion 64,150 86,670
Property and equipment, net of accumulated depreciation of approximately $173,000 and $134,000, respectively 314,650 283,955
Intangible assets 100,504 100,504
Deposits 6,425 11,425
Deferred tax assets 81,832 81,583
Total Assets 2,684,220 4,091,591
Current Liabilities:    
Accounts payable - related party 240
Accounts payable - other 309,854 119,113
Payroll accruals 11,653 36,490
Accrued liabilities 213,004 428,058
Unearned revenue 209,438 35,900
Accrued marketing fund 112,398 248,777
Customer deposits 10,000 19,982
Liabilities of discontinued operations 9,016
Total Current Liabilities 866,347 897,576
Commitments and Contingencies - Note 8  
Creative Learning Corporation stockholders' equity:    
Preferred stock, $.0001 par value; 10,000,000 shares authorized; None issued and outstanding
Common stock, $.0001 par value; 50,000,000 shares authorized; 12,001,409 issued and outstanding 1,200 1,200
Additional paid-in capital 2,534,554 2,534,554
Treasury Stock 65,100 shares and 15,100 shares, respectively (cost method) (34,626) (18,126)
Retained earnings (683,255) 676,387
Total Stockholders' Equity 1,817,873 3,194,015
Total Liabilities and Stockholders' Equity $ 2,684,220 $ 4,091,591
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Consolidated Balance Sheets (Parenthetical) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Current Assets:    
Allowance for doubtful accounts receivable $ 190,000 $ 165,000
Allowance for doubtful notes receivable 31,000 26,000
Accumulated depreciation $ 173,000 $ 134,000
Stockholders' Equity    
Preferred stock, par value $ 0.0001 $ 0.0001
Preferred stock, authorized shares 10,000,000 10,000,000
Preferred stock, issued shares 0 0
Preferred stock, outstanding shares 0 0
Common stock, par value $ 0.0001 $ 0.0001
Common stock, Authorized 50,000,000 50,000,000
Common stock, Issued 12,001,409 12,001,409
Common stock, outstanding 12,001,409 12,001,409
Treasury stock, shares 65,100 15,100
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Consolidated Statements of Operations - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Revenues:        
Initial franchise fees $ 241,800 $ 884,967 $ 722,200 $ 2,204,110
Royalties fees 611,173 685,446 1,717,676 1,950,343
Merchandise sales 384 1,035 597 2,318
Total revenues 853,357 1,571,448 2,440,473 4,156,771
Operating expenses:        
Franchise consulting and commissions: Related parties 85,499 324,629
Franchise consulting and commissions: Other 238,757 318,823 449,928 656,158
Franchise training and expenses 26,966 82,445 177,377 261,143
Salaries and payroll taxes 136,038 347,217 733,147 929,868
Advertising 27,425 177,032 424,665 610,187
Professional fees 347,407 201,301 2,014,613 429,293
Office expense 5,493 27,539 31,663 90,593
Bad debt expense 15,740 16,000 64,550 64,000
Depreciation 15,698 10,626 38,381 31,001
Other general and administrative expenses 184,114 185,085 538,643 559,684
Total operating expenses 997,638 1,451,567 4,472,967 3,956,556
(Loss) income from operations (144,281) 119,881 (2,032,494) 200,215
Other income (expense):        
Interest income - net 413 1,685 3,271 5,319
Legal settlement 2,967 (116,750)
Other income (expense) (163) (1,702) 18,968 (4,449)
Total other income (expense) 3,217 (17) (94,511) 870
(Loss) income before benefit from income taxes (141,064) 119,864 (2,127,005) 201,085
Benefit from (provision for) income taxes 40,453 (38,897) 775,046 (65,254)
Net (loss) income from continuing operations (100,611) 80,967 (1,351,959) 135,831
Discontinued operations:        
Operating income (loss) from discontinued operations 134 (65,549) (12,087) (67,386)
Income tax (provision) benefit (116) 21,271 4,404 21,867
Income (loss) from discontinued operations 18 (44,278) (7,683) (45,519)
Net (loss) Income $ (100,593) $ 36,689 $ (1,359,642) $ 90,312
Basic and diluted        
Continuing operations $ (0.01) $ 0.00 $ (0.11) $ 0.01
Discontinued operations 0.00 0.00 0.00 0.00
Total $ (0.01) $ 0.00 $ (0.11) $ 0.01
Basic and diluted weighted average number of common shares outstanding 12,001,409 11,991,299 12,001,409 11,936,134
XML 16 R5.htm IDEA: XBRL DOCUMENT v3.6.0.2
Consolidated Statements of Cash Flows - USD ($)
9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Cash flows from operating activities:    
Net (loss) income $ (1,359,642) $ 90,312
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:    
Loss from discontinued operations 7,683 45,519
Depreciation 38,381 31,001
Bad debt expense 64,550 64,000
Deferred income taxes (249)
Stock issued for services 15,120
Changes in operating assets and liabilities:    
Restricted cash 132,180 (10,928)
Accounts receivable 62,768 50,978
Prepaid expenses (53,722) (19,475)
Notes receivable 69,339 (53,557)
Accrued revenue (220,000)
Deposits 5,000 (4,276)
Accounts payable - related parties (240) (42,211)
Accounts payable - 3rd parties 190,741 (194,877)
Payment of legal settlement
Accrued liabilities (215,054) (6,450)
Unearned revenue 173,538 60,520
Payroll accruals (24,837) (30,073)
Accrued marketing (83,513) 10,928
Customer deposits (9,982) 14,738
Income tax receivable (784,462) 61,661
Net cash used in operating activities (1,787,521) (137,070)
Net cash provided by (used in) discontinued operations 19,596 (83,944)
Cash flows from investing activities:    
Acquisition of property and equipment (69,076) (52,391)
Net cash used in investing activities (69,076) (52,391)
Net change in cash (1,837,001) (273,405)
Cash, beginning of period 2,450,609 3,050,983
Cash, end of period 613,608 2,777,578
Supplemental non-cash investing and financing activities:    
Issuance of 85,000 shares on February 18, 2015 for Sew Fun Mediation 106,250
Acquisition of treasury stock in connection with disposition of CI $ 16,500
XML 17 R6.htm IDEA: XBRL DOCUMENT v3.6.0.2
Consolidated Statements of Cash Flows (Parenthetical)
9 Months Ended
Jun. 30, 2016
shares
Consolidated Statements Of Cash Flows  
Stock issued as part of mediated settlement agreement, shares 85,000
XML 18 R7.htm IDEA: XBRL DOCUMENT v3.6.0.2
Consolidated Statement of Stockholders' Equity - 9 months ended Jun. 30, 2016 - USD ($)
Treasury Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Total
Balance at Sep. 30, 2015 $ (18,126) $ 1,200 $ 2,534,554 $ 676,387 $ 3,194,015
Balance (shares) at Sep. 30, 2015 (15,100) 12,001,409     12,001,409
Treasury stock (cost) $ (16,500)       $ (16,500)
Treasury stock (cost) (shares) (50,000)        
Net loss       (1,359,642) (1,359,642)
Balance at Jun. 30, 2016 $ (34,626) $ 1,200 $ 2,534,554 $ (683,255) $ 1,817,873
Balance (shares) at Jun. 30, 2016 (65,100) 12,001,409     12,001,409
XML 19 R8.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies
9 Months Ended
Jun. 30, 2016
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 (CLC) operates wholly owned subsidiaries, BFK Franchise Co., LLC (BFK) and SF Franchise Company, LLC (SF) under the trade names Bricks 4 Kidz® and Sew Fun Studios™ respectively, that offer children's enrichment and education franchises. As of June 30, 2016, BFK franchisees operated in 696 territories in 45 states and 40 countries, and SF franchisees operated in 12 territories in 10 states and 3 countries. The Company previously operated Challenge Island Franchise Co., LLC (CI) in 49 territories in 44 states and 3 countries.


The Company sold the CI concept on December 9, 2015, and as a result the Company is reporting CI as discontinued operations in the consolidated financial statements. See Note 6.


Basis of Presentation


The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s results for the interim periods that have been included. The results for the nine months ended June 30, 2016 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, 2015. In addition, refer to Note 6 regarding the sale of Challenge Island and related discontinued operations classification.


Restatement


The previously issued consolidated financial statements of the Company as of and for the quarter ended June 30, 2015 have been restated. It was management’s determination that the Company had not properly presented cash, restricted cash, accounts receivable, other receivables, income tax receivable, deferred tax assets, accrued revenue, accounts payable, accrued liabilities, accrued marketing fund, deferred tax liability, legal settlement, retained earnings, franchise consulting & commissions, salaries and payroll taxes, professional fees, office expense, other general and administrative expenses, provision for income taxes and net income.


Restatement of 2015 Financial Statements


 

 

As reported 6/30/2015

 

 

CI Adjustment

 

 

Post CI Adjustment Balance

 

 

Restatement

 

 

Restated Balance 6/30/2015

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

2,803,962

 

 

$

(34,054

)

 

$

2,769,908

 

 

$

7,670

 

 

$

2,777,578

 

Restricted cash

 

 

194,965

 

 

 

 

 

 

 

194,965

 

 

 

(7,183

)

 

 

187,782

 

Accounts receivable, net

 

 

410,834

 

 

 

(3,002

)

 

 

407,832

 

 

 

(228,999

)

 

 

178,833

 

Other receivables - current portion

 

 

188,959

 

 

 

(95,632

)

 

 

93,327

 

 

 

11,106

 

 

 

104,433

 

Income tax receivable

 

 

46,105

 

 

 

 

 

 

46,105

 

 

 

16,669

 

 

 

62,774

 

Deferred tax asset

 

 

48,723

 

 

 

 

 

 

48,723

 

 

 

(44,776

)

 

 

3,947

 

Other receivables - long term

 

 

41,128

 

 

 

 

 

 

41,128

 

 

 

(15,149

)

 

 

25,979

 

Accrued revenue

 

 

 

 

 

(9,000

)

 

 

(9,000

)

 

 

229,000

 

 

 

220,000

 

Total assets

 

$

4,355,354

 

 

$

 

 

$

4,355,354

 

 

$

(31,662

)

 

$

4,323,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable - related party

 

$

2,695

 

 

 

 

 

$

2,695

 

 

$

(2,672

)

 

$

23

 

Accounts payable - other

 

 

155,077

 

 

 

(12,450

)

 

 

142,627

 

 

 

2,673

 

 

 

145,300

 

Accrued liabilities

 

 

32,250

 

 

 

 

 

 

32,250

 

 

 

10,000

 

 

 

42,250

 

Accrued marketing fund

 

 

194,965

 

 

 

(7,200

)

 

 

187,765

 

 

 

17

 

 

 

187,782

 

Deferred tax liability

 

 

5,550

 

 

 

 

 

 

5,550

 

 

 

(5,550

)

 

 

 

Legal settlement

 

 

10,000

 

 

 

 

 

 

10,000

 

 

 

(10,000

)

 

 

 

Long-term deferred tax liability

 

 

22,230

 

 

 

 

 

 

22,230

 

 

 

(22,230

)

 

 

 

Total liabilities

 

$

610,187

 

 

$

 

 

$

610,187

 

 

$

(27,762

)

 

$

582,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

$

1,200

 

 

$

 

 

$

1,200

 

 

$

 

 

$

1,200

 

Additional paid-in capital

 

 

2,534,554

 

 

 

 

 

 

2,534,554

 

 

 

 

 

 

2,534,554

 

Treasury stock

 

 

(18,126

)

 

 

 

 

 

(18,126

)

 

 

 

 

 

(18,126

)

Retained earnings

 

 

1,227,539

 

 

 

 

 

 

1,227,539

 

 

 

(3,900

)

 

 

1,223,639

 

Total stockholders' equity

 

$

3,745,167

 

 

$

 

 

$

3,745,167

 

 

$

(3,900

)

 

$

3,741,267

 

 

 

 

As reported

Nine Months Ended 6/30/2015

 

 

CI Adjustment

 

 

Post CI Adjustment Balance

 

 

Restatement

 

 

Restated Balance

Nine Months Ended 6/30/2015

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise consulting & commissions - related parties

 

 

401,518

 

 

 

 

 

 

401,518

 

 

 

(76,889

)

 

 

324,629

 

Franchise consulting & commissions - other

 

 

755,382

 

 

 

(176,112

)

 

 

579,270

 

 

 

76,888

 

 

 

656,158

 

Salaries and payroll taxes

 

 

959,941

 

 

 

 

 

 

959,941

 

 

 

(30,073

)

 

 

929,868

 

Professional fees

 

 

429,593

 

 

 

(263

)

 

 

429,330

 

 

 

(37

)

 

 

429,293

 

Office expense

 

 

96,507

 

 

 

(5,875

)

 

 

90,632

 

 

 

(39

)

 

 

90,593

 

Other general and administrative expenses

 

 

451,141

 

 

 

(32,551

)

 

 

418,590

 

 

 

141,094

 

 

 

559,684

 

Provision for income taxes

 

 

92,000

 

 

 

 

 

 

92,000

 

 

 

(48,613

)

 

 

43,387

 

Net income

 

$

152,643

 

 

$

 

 

$

152,643

 

 

$

(62,331

)

 

$

90,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earnings per share – basic & diluted

 

$

0.01

 

 

 

 

 

 

$

0.01

 

 

 

 

 

 

$

0.00

 





















 

 

As reported

Three Months

Ended 6/30/2015

 

 

CI Adjustment

 

 

Post CI

Adjustment Balance

 

 

Restatement

 

 

Restated

Balance

Three Months

Ended

6/30/2015

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise consulting & commissions - related parties

 

$

148,620

 

 

$

 

 

$

148,620

 

 

$

(63,121

)

 

$

85,499

 

Franchise consulting & commissions - other

 

 

309,916

 

 

 

(54,214

)

 

 

255,702

 

 

 

63,121

 

 

 

318,823

 

Office expense

 

 

29,002

 

 

 

(1,424

)

 

 

27,578

 

 

 

(39

)

 

 

27,539

 

Other general and administrative expenses

 

 

197,463

 

 

 

(12,385

)

 

 

185,078

 

 

 

6

 

 

 

185,084

 

Provision for income taxes

 

 

18,000

 

 

 

 

 

 

18,000

 

 

 

(374

)

 

 

17,626

 

Net income

 

$

36,282

 

 

$

 

 

$

36,282

 

 

$

407

 

 

$

36,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earnings per share - basic & diluted

 

$

0.00

 

 

 

 

 

 

$

0.00

 

 

 

 

 

 

$

0.00

 


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, allowance for deferred tax assets, depreciation of property and equipment, amortization of intangible assets, recoverability of long lived assets and fair market value of equity instruments. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.


Restricted Cash


The Company had restricted cash of approximately $117,000 and $249,000, at June 30, 2016 and September 30, 2015, respectively, associated with a marketing fund collected from the franchisees. Per the franchise agreements, a marketing fund of 2% of franchisee’s gross cash receipts is collected and held to be spent on the promotion of the brand (see Note 4).


Accounts and Notes Receivable


The Company reviews accounts and notes receivable periodically for collectability, establishes an allowance for doubtful accounts, and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts and notes that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances, combined with management’s estimate of future potential recoverability. Receivables and notes are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts at June 30, 2016 and September 30, 2015 is adequate, but actual write-offs could exceed the recorded allowance. During the nine months ended June 30, 2016, the values of accounts written-off to the reserve were approximately $70,000 and during the year ended September 30, 2015 the amount of these write-offs was $156,000.


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


Revenue Recognition


Revenue is recognized on an accrual basis after services have been performed under contract terms and in accordance with regulatory requirements, the service price to the client is fixed or determinable, and collectability is reasonably assured


Since the Company’s franchises are primarily a mobile concept and do not require finding locations or construction, the franchisees can begin operations as soon as they complete training. The franchise fees are fully collectible and nonrefundable as of the date of the signing of the franchise agreement, but the franchise fees are not recognized as revenue until initial training has been completed and when substantially all of the services required by the franchise agreement have been fulfilled by the Company in accordance with ASC Topic 952-605 Revenue Recognition-Franchisor. Royalties are recognized as earned on a monthly basis.


At June 30, 2016 and September 30, 2015 the Company had approximately $209,000 and $36,000, respectively, in unearned revenue for franchise fees collected but not yet earned per the revenue recognition policy.


Advertising Costs


Advertising costs are expensed as incurred. The Company incurred advertising costs for the quarters ended June 30, 2016 and 2015 of approximately $27,000 and $177,000, respectively.


Income Taxes


The provision for income taxes and deferred income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered. If after evaluating all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by a charge to tax expense to reserve the portion of the deferred tax assets which are not expected to be realized.


The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company is required to file.


When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position the Company takes has to have at least a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows.


The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 30, 2016 and September 30, 2015, respectively, and has not recognized interest and/or penalties during the quarters ended June 30, 2016 and 2015, respectively, 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 2011 and forward by the U.S. Internal Revenue Service, and the years 2010 and forward for various states.


Net earnings (loss) per share


Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings 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.


Recent accounting pronouncements


Revenue from Contracts with Customers (Topic 606) has been discussed in several recent ASU including ASU 2016-12, 2016-11, 2016-10 and 2016-8. In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2017. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements.


In March 2016 the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to improve and simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This ASU is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted. We are currently assessing the impact that the adoption of ASU 2016-09 will have on our financial statements.


In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. The guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance becomes effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. The Company adopted this guidance retrospectively as of October 1, 2015 and reclassified $81,832 and $81,583 from deferred costs to long-term deferred tax liability in June of 2016 and September of 2015, respectively.


Recent Events


On December 9, 2016, Brian Pappas, through his controlled company FranVentures, LLC, filed with the U.S. Securities and Exchange Commission a preliminary consent statement on Schedule 14A asking the shareholders of the Company to remove the current members of the Board of Directors and to replace them with three individuals proposed by Mr. Pappas. As a result, shareholders may have received, or may receive in the future, consent solicitation materials from FranVentures and/or Mr. Pappas seeking their written consent to remove the current Board members and elect the three individuals proposed by Mr. Pappas.


On December 16, 2016, we announced that our Board of Directors had determined that the consent solicitation commenced by Mr. Pappas and FranVentures is not in the best interests of all of the Company’s stockholders. The Company intends to file with the SEC a preliminary consent revocation statement in connection with the consent solicitation being conducted by Mr. Pappas and FranVentures, which will explain in more detail the Board’s reasons for opposing Mr. Pappas’ attempt to gain control of the Company.

XML 20 R9.htm IDEA: XBRL DOCUMENT v3.6.0.2
Related Party
9 Months Ended
Jun. 30, 2016
Related Party Transactions [Abstract]  
Related Party


(2) Related Party


During the nine months ended June 30, 2016 and 2015, the Company paid related parties (companies related by common control) for the following expenses:


 

 

Commissions and Consulting

 

 

 

Nine months ended

 

 

 

June 30,

 

Related Party

 

2016

 

 

2015

 

FranVentures, LLC (1)

 

$

 

 

$

76,204

 

MC Logic, LLC (2)

 

$

 

 

$

24,000

 

Leap Ahead Learning Company (3)

 

$

 

 

$

38,000

 

Bottom Line Group (4)

 

$

 

 

$

111,321

 

Jeffry Ball and J. Ball Group LLC (5)

 

$

 

 

$

62,330

 

 

 

$

 

 

$

311,855

 


(1)

Brian Pappas is a director and former chief executive officer of the Company. Effective July 22, 2015, Mr. Pappas was no longer employed by the Company. Mr. Pappas is the Managing Director and a minority owner of FranVentures, LLC. FranVentures, LLC received a 5% commission on BFK franchise sales by the Company prior to April 8, 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included above are travel and expense charges for Mr. Pappas for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $70. The wife of Mr. Pappas, Chris Pappas, was the human resources and payroll manager for the Company with compensation for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $12,900. Effective August 6, 2015, Mrs. Pappas was no longer employed by the Company and did not receive compensation subsequent to her leaving employment with the Company. Not included above are expense reimbursements for Mrs. Pappas for the nine months ending June 30, 2016 and 2015 of approximately $-0- and $3000, respectively. The related party payable for Mrs. Pappas was $-0- and $23 as of June 30, 2016 and June 30, 2015, respectively.

(2)

MC Logic, LLC (“MC Logic”) is 100% owned by Michelle Cote, who is the Company’s President and Secretary and a former director and founder of the Company. Not included above are travel and expense reimbursements paid of approximately $-0- and $4300, respectively for the nine months ending June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. During the quarter ended December 31, 2013, the Company made a non-interest bearing loan in the amount of $125,000 to MC Logic. Later in that same quarter, management determined that the loan could be deemed a violation of Section 13(k) of the Exchange Act and Section 402 of the Sarbanes-Oxley Act and immediately sought repayment in full of the loan. MC Logic promptly repaid the entire amount of the loan before the end of the fiscal quarter ended December 31, 2013. Subsequent to the end of fiscal year 2015, the Company has recorded a related party receivable of $7,500 which resulted from activities that occurred in 2016. The receivable is a net amount due resulting from pre-approved activities at an MC Logic Sew Fun Franchise location, which involved using the space for initial evaluation of a potential new franchise concept and for the Company’s use of the location to consider taking the Sew Fun franchise as a company store. During this time, MC Logic had been reimbursed for expended funds and had tendered to the Company certain revenues. The Company later changed strategy, resulting in the reversal of reimbursements to MC Logic and the return of revenues to MC Logic. The net result was $10,217.73 due from MC Logic. MC Logic paid the balance in June of 2016. In addition, the Company has entered into an arrangement with MC Logic under which MC Logic has agreed to pay the standard Sew Fun Studios monthly royalty fee due for this territory effective June 1, 2016, and MC Logic is current on those payments as of September of 2016.

(3)

Leap Ahead Learning Company is 100% owned by Dan O’Donnell, who was a director and the Chief Operating Officer of the Company until his resignation on April 6 2016. Until April 15, 2015, the Company had paid Leap Ahead Learning $5,000 per month for consulting services except in November of 2014 when Leap Ahead Learning was paid $8,000. These services were provided through Mr. O'Donnell. Not included above are travel and expense reimbursements paid of approximately $4,000 and $25,000, respectively for the nine month periods ended June 30, 2016 and 2015. The related party payable was $-0-, and $240 at June 30, 2016 and September 30, 2015, respectively.

(4)

Bottom Line Group is owned by Jeff Pappas, a brother to Brian Pappas. The Business Consulting and Development Agreement between Bottom Line Group and the Company was terminated on September 25, 2015. Bottom Line Group served as one of the Company’s brokers in the sale of franchises. Payments to Bottom Line Group include commissions and consulting fees reflected in the table above. Not included above are travel and expense reimbursements paid of approximately $-0- and $10,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included in the related party schedule above are payments made to Michael Pappas (son to Jeff Pappas). The Business Consulting and Development Agreement between Michael Pappas and the Company has been terminated effective September 26, 2015. Payments made to Michael Pappas in the nine months ended June 30, 2016 and 2015 were approximately $-0- and $13,000, respectively.

(5)

J. Ball Group LLC is owned by Jeffery Ball, a son-in-law to Brian Pappas. The Independent Contractor Agreement between Jeffrey Ball and J Ball Group, LLC and the Company was terminated on September 30, 2015. The J Ball Group LLC served as one of the Company’s brokers in the sale of franchises. Payments reflected in the table above include commissions and consulting fees. Not included above are travel and expense reimbursements paid of approximately $-0- and $5,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. In January 2015, Jeffery Ball formed J. Ball Group LLC, which in these financial statements and disclosures have been presented as one business activity with amounts paid to either entity combined.


The Company had $11,130 in rent expense for the nine months ended June 30, 2016 for a 1,200 square foot MC Logic leased facility located in St. Augustine, Florida (the “Store”). This was a month to month arrangement with no lease in the Company’s name. The Company used the Store as a training center and expected to start holding classes and special events during evenings and weekends. This arrangement ended in March 2016.

XML 21 R10.htm IDEA: XBRL DOCUMENT v3.6.0.2
Notes and Other Receivables
9 Months Ended
Jun. 30, 2016
Receivables [Abstract]  
Notes and Other Receivables

(3) Notes and Other Receivables


At June 30, 2016 and September 30, 2015, the Company held certain other receivables totaling approximately $123,000 and $210,000 respectively, for extended payment terms of franchise fees, generally non-interest bearing notes with monthly payments, payable within one to two years. The Company only writes off franchisees’ receivables in the event that they leave the network. In addition, the Company analyzes the collectability of all receivables and reserves accordingly.


 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

Thereafter

 

 

Total

 

Payment schedules for Notes Receivable

 

$

24,605

 

 

$

41,154

 

 

$

19,000

 

 

$

12,950

 

 

$

24,963

 

 

$

122,672

 

XML 22 R11.htm IDEA: XBRL DOCUMENT v3.6.0.2
Accrued Marketing Fund
9 Months Ended
Jun. 30, 2016
Accrued Liabilities and Other Liabilities [Abstract]  
Accrued Marketing Fund

(4) Accrued Marketing Fund


Per the terms of the franchise agreements, the Company collects 2% of franchisee’s gross revenues for a marketing fund, managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees.


The marketing fund amounts are accounted for as a liability on the balance sheet and the actual collections are deposited into a marketing fund bank account. Expenses pertaining to the marketing fund activities are paid from the marketing fund and reduce the liability account.


At June 30, 2016 and September 30, 2015, the accrued marketing fund liability balances were approximately $112,000 and $249,000, respectively.

XML 23 R12.htm IDEA: XBRL DOCUMENT v3.6.0.2
Accrued Liabilities
9 Months Ended
Jun. 30, 2016
Payables and Accruals [Abstract]  
Accrued Liabilities

(5) Accrued Liabilities


The Company had accrued liabilities at June 30, 2016, and September 30, 2015 as follows:


 

 

June 30,

 

 

September 30,

 

Accrued Liabilities

 

2016

 

 

2015

 

Accrued Audit Fees

 

$

 

 

$

8,581

 

Accrued Legal Fees

 

 

 

 

 

213,130

 

Accrued Legal Settlements

 

 

17,000

 

 

 

101,897

 

Accrued State Regulatory Settlement

 

 

187,000

 

 

 

104,450

 

Accrued Consulting & Commissions

 

 

3,819

 

 

 

 

Accrued Conference expense

 

 

4,515

 

 

 

 

Accrued Office expense

 

 

670

 

 

 

 

 

 

 

$

213,004

 

 

$

428,058

 


The Company accrued $187,000 for state penalties and costs and the reimbursement of six franchisees as of June 30, 2016.

XML 24 R13.htm IDEA: XBRL DOCUMENT v3.6.0.2
Discontinued Operations
9 Months Ended
Jun. 30, 2016
Discontinued Operations  
Discontinued Operations

(6) Discontinued Operations


In September 2015, management committed to a plan to sell the CI concept because it was not a strategic fit with the Company’s existing BFK franchise brand.


The Company executed a purchase and sale agreement on December 9, 2015. The sale included substantially all of the assets of the CI business, which were sold on an “as is where is” basis, with no Company representations or warranties surviving the consummation of the sale. The purchase price for the assets was $24,750 and consisted of the transfer to the Company of 50,000 shares of the Company’s common stock, valued at $16,500, that had been held by the purchaser, reversal of an accrual to issue 25,000 shares of the Company’s common stock, valued at $8,250, and the assumption of certain liabilities related to the acquired assets.


For the fiscal year ended September 30, 2015, loss on assets held for sale of approximately $28,000 was recorded, representing the difference between the carrying value and fair value of the sold assets and liabilities. In addition, other CI assets, not included in the sale, were determined to be of no continuing value and were written-off at September 30, 2015.


The following table lists the assets held for sale and liabilities held for sale of CI at September 30, 2015 and the operating loss on the assets held for sale.


 

 

As of

 

CI Franchise Company LLC

 

09/30/15

 

Assets of discontinued operations

 

 

 

Cash

 

$

24,032

 

Accounts receivable

 

 

16,667

 

Notes receivable

 

 

16,500

 

Total Assets of discontinued operations

 

$

57,199

 

 

 

 

 

 

Liabilities of discontinued operations

 

 

 

 

Accounts payable

 

 

9,016

 

Total Liabilities of discontinued operations

 

$

9,016

 


 

 

Three months ended

 

 

Nine months ended

 

Operating Loss on discontinued operations

 

6/30/2016

 

 

6/30/2015

 

 

6/30/2016

 

 

6/30/2015

 

Revenue

 

$

134

 

 

$

84,801

 

 

$

(5,882

)

 

$

337,742

 

Advertising and promotion

 

 

 

 

 

(34,917

)

 

 

(7,635

)

 

 

(97,204

)

Bad debt

 

 

 

 

 

(12,000

)

 

 

 

 

 

(36,118

)

Commissions and consulting

 

 

 

 

 

(54,215

)

 

 

 

 

 

(176,113

)

Franchisee expense

 

 

 

 

 

(34,429

)

 

 

 

 

 

(54,354

)

Professional fees

 

 

 

 

 

1

 

 

 

 

 

 

(263

)

Office expense

 

 

 

 

 

(1,424

)

 

 

 

 

 

(5,875

)

Depreciation expense

 

 

 

 

 

(884

)

 

 

 

 

 

(2,651

)

General and administrative expenses

 

 

 

 

 

(12,482

)

 

 

1,430

 

 

 

(32,550

)

Operating income(loss) on discontinued operations

 

$

134

 

 

$

(65,549

)

 

$

(12,087

)

 

$

(67,386

)

XML 25 R14.htm IDEA: XBRL DOCUMENT v3.6.0.2
Common Stock
9 Months Ended
Jun. 30, 2016
Equity [Abstract]  
Common Stock

(7) Common Stock


In connection with the Discontinued Operations (see Note 6), in December 2015, the Company recorded Treasury Stock in the amount of $16,500 using the Cost Method for the 50,000 shares repurchased.

XML 26 R15.htm IDEA: XBRL DOCUMENT v3.6.0.2
Commitments and Contingencies
9 Months Ended
Jun. 30, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

(8) Commitments and Contingencies


Lease Commitments


The Company entered into a commercial lease with Village Square at Palencia in July 2014, to lease unit 103B, Office Space 2, located at 701 Market Street, St. Augustine, Florida. On January 28, 2016, the Company provided a 60-day notice of termination for this lease that was accepted by the landlord. The fees and penalty for early termination was $2,000. The Company was required to vacate the suite by March 31, 2016.


Rent expense was approximately $22,000 and $24,000 for the nine months ended June 30, 2016 and 2015, respectively.


Included in the rent expense for the nine months ended June 30, 2016, was $11,130 for a facility under lease by a related party (see Note 2).


Litigation


From time to time, the Company has been and may become involved in legal proceedings arising in the ordinary course of its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.


The Company was involved in arbitration with Sew Fun, LLC (SFLLC), from which the Company previously purchased intellectual property to establish a new sewing franchise concept. In 2015 the Company and SFLLC entered into a settlement agreement which provided for a payment of $106,000 in stock (which was granted in 2014) and $85,000 in cash (which was accrued in 2015 and paid subsequent to year end) as well as agreements on trademarks and license usage. The prior owner of SFLLC has a suit outstanding with a claim for an additional $42,000, which the Company is contesting. The Court denied the Company’s Motion to Dismiss and both sides have filed for summary judgment, each of which the Court has denied. No amount has been accrued for this additional claim.


In February 2015, the Company was sued for defamation by a former officer of the Company in relation to the Company’s statements in an SEC Form 8-K filing that the employee had been terminated. The pertinent 8-K filing occurred prior to the ascension to the Board any of the company’s current directors. The former officer alleged that the claimed misstatement in the SEC filing was false, was maliciously designed to injure the plaintiff in retribution for his having reported problems and pressed for changes at the company, and injured the reputation of the individual. The former officer seeks lost wages and income, compensatory damages, other damages and requests that a replacement Form 8-K be filed. The case is in the discovery phase. The company is in settlement negotiations with the plaintiff.


On October 2, 2015, the Company filed suit against its former Chief Executive Officer Brian Pappas, Christine Pappas, its former Human Resources officer, and an independent company controlled by Mr. Pappas named Franchise Ventures. 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.


In April, 2015, the United States Securities & Exchange Commission (“SEC”) issued a subpoena to Creative Learning Corporation seeking a variety of documents. The documents sought include without limitation materials regarding Brian Pappas, certain members of Mr. Pappas’ family, other company employees, board members and third-parties, company books and accounting procedures as well as other material regarding company affairs. In or about that time, it came to the attention of the Company that the SEC had initiated an investigation into possible violations of the securities laws by the Company and/or its officers, directors and/or others as of at least January 14, 2014. In late April 2015, the Company’s Board elected two new independent directors, and created an Audit Committee, which included the two new directors. In addition, in July 2015, the Board removed Brian Pappas as Chief Executive Officer. The Company has taken a number of steps to address compliance issues regarding its books and records. The Company is fully cooperating with the staff of the SEC in this matter.


On March 7, 2016, Franchise Ventures (“FV”), a company operated by Brian Pappas, filed suit in state court in St. Johns County, Florida against the Company and its affiliate BFK Franchise Company, LLC (collectively “the Company”) alleging breach of contract and seeking a declaratory judgment. The complaint does not state an amount of damages. FV claims that the Company has an ongoing contractual obligation to pay FV compensation in the form of commissions and other payments per the original LLC operating agreement under which BFK LLC was formed (“BFK Operating Agreement”). FV acknowledges that the Company terminated the LLC operating agreement and stopped paying FV in October 2015. FV’s complaint seeks recovery of compensation allegedly due after the termination date. Although the complaint is unclear, it appears to allege that the Company has no right ever to terminate the operating agreement. The Company contends that neither FV nor Mr. Pappas had any continuing right to franchise sales commissions under the BKF LLC operating agreement after FV ceased serving as managing member of BFK LLC when the Company acquired it. The Company further contends that: (a) the terms of the BFK Operating Agreement clearly provide that FV was owed compensation strictly for providing BFK LLC services as its managing member; (b) FV’s term as managing member of BFK LLC ended when CLC acquired it and CLC supplanted FV as the sole managing member of BFK LLC; and (c) in any event, under the terms of the BFK Operative Agreement, CLC had the full right to terminate the BKF LLC operating agreement on October 1, 2015, thereby eviscerating any conceivable legal rights FV might assert under that agreement thereafter. The Company contends that neither FV nor Mr. Pappas had any continuing right to franchise sales commissions under the BKF LLC operating agreement after FV ceased serving as managing member of BFK LLC when the Company acquired it on July 2, 2010. On October 27, 2016, plaintiff FranVentures filed a motion seeking leave to amend its complaint to add a claim alleging that the Company had entered into an oral contract or one implied by the parties’ conduct. The amended complaint does not address the Company’s position that even if a contract had been in place it had been terminated. The Court denied the Company’s motion to dismiss FV’s complaint, and discovery continues. The Company intends to vigorously litigate FranVentures’ complaint against the company.


On June 23, 2016, the Company filed a counterclaim against its FV, which also included a complaint against former Chairman of the Board and Chief Executive Officer Brian Pappas and also named Christine Pappas as a defendant. The counterclaim and complaint 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 Pappas serving as the Chief Executive Officer of CLC and a member of its board of directors.  The counterclaim and/or complaint alleges the following:


a.

First, Pappas defrauded CLC, converted company assets and breached his fiduciary duty of loyalty by causing CLC to pay his company, FranVentures, more than $1,000,000 by falsely asserting that the funds were due under a contractual provision that Pappas knew had expired when CLC acquired BFK Franchise Company, LLC (“BFK”). After CLC stopped payments to FV in October 2015, Pappas sued CLC, claiming that CLC had to pay FV under that contract in perpetuity – that is, Pappas took the position that CLC never could stop paying his company – even though he knew that there was no legal basis for his claims.

b.

Second, to conceal the foregoing fraud scheme, Pappas made and caused to be made material false statements and material omissions regarding the transaction to CLC independent directors as well as in CLC’s filings with the U.S. Securities and Exchange Commission (the “SEC”).

c.

Third, Pappas breached his fiduciary duty of loyalty to CLC by repeatedly engaging in self-dealing and causing CLC to enter into several transactions with, and to make payments to or on behalf of, several members of his family, including his wife and brother, which transactions and payments were not disclosed to or approved by CLC’s board of directors and were not in the best interests of the Company and its shareholders.

i.

In particular, Pappas breached his fiduciary duty of loyalty by causing CLC to engage in repeated financial transactions with brother, Jeff Pappas including: (i) causing CLC to pay Jeff Pappas and/or his company approximately $560,000 in commissions and retainer payments from in or about 2010 to in or about 2015 including for handling CLC franchise sales, knowing or having reason to know that Jeff Pappas would and did do so in a reckless manner that exposed CLC to regulatory risk, liability, financial loss and reputational damage; and (ii) causing CLC to provide various financial benefits to Jeff Pappas to the financial detriment of CLC, including causing CLC to make loans and extensions of credit to Jeff Pappas and his company totaling approximately $40,000 in or about 2011-12 and thereafter causing CLC to write-off these loans and credit extensions as bad debt prior to their due date, notwithstanding that Pappas was during the same time causing CLC to pay retainer and commission payments to Jeff Pappas and his companies of at least $89,000. Pappas intentionally paid his brother these sums instead of setting off Jeff Pappas’ debt against the commissions and retainers purportedly owed to him.

ii.

Pappas also breached his fiduciary duty of loyalty by causing CLC to pay at least $95,000 in charges incurred by Pappas and his wife, Christine Pappas, on a CLC American Express credit card from in or about 2013 to in or about July 2015 without maintaining at the time, and thereafter in 2016 refusing to provide, proper and adequate business records and documentation for those expenditures. As a result, CLC is unable to verify that these expenditures were incurred for a proper business purpose and cannot deduct these payments as business expenses.

d.

Fourth, Pappas breached his fiduciary duty of loyalty to CLC by causing CLC to expend hundreds of thousands of dollars to respond to an investigation of Pappas and the Company the SEC initiated in early 2015 while Pappas was CLC’s CEO and Chairman of the Board as a result of Pappas’ misconduct detailed above, including CLC’s transactions with and payments to FV and Pappas’ family members, public disclosures relating to these transactions that Pappas caused the Company to make, inadequate internal corporate and financial controls, and other issues.

e.

Fifth, Pappas breached his fiduciary duty of loyalty to CLC by causing CLC liability for restitution and rescission payments, as well as state penalties and costs, in connection with an investigation conducted by the State of Virginia, alleging that Pappas committed fraud in relation to sales of Challenge Island franchises in Virginia, and that he thereafter caused an attempt to cover-up this fraud by taking further illegal actions. CLC has since divested itself of Challenge Island.

f.

Sixth, Pappas breached his fiduciary duty of loyalty to CLC by failing to implement adequate internal financial and corporate controls, thereby concealing his other misconduct and permitting Pappas to control and dominate CLC, misappropriate the Company’s assets, and repeatedly engage in fraud and self-dealing to the detriment of the Company and its shareholders.

g.

Seventh, Pappas’ misconduct described above was a material cause of the substantial delay and difficulty of the Company’s independent auditors in performing the audit of the Company’s financial statements for the 2015 fiscal year, which required the Company to suspend its domestic franchise sales on February 1, 2016 continuing until the date of this Complaint, causing financial loss to the Company.


On October 27, 2016, Brian Pappas filed a motion to amend the complaint to add a claim alleging that the Company slandered him by virtue of a press release issued on or about August 1, 2016, in which the Company reported to shareholders on steps it had taken and improvements it had implemented. The Company intends to vigorously litigate this matter as well. 


On October 7, 2016, a franchisee filed a demand for arbitration against the Company’s affiliate BFK Franchise Company, LLC alleging that BFK had engaged in contract breaches and fraud in relation to numerous franchise agreements signed by Brian Pappas, Managing Director, or Dan O’Donnell, VP Operations between September 22, 2012 and November 1, 2015, with all but 1 of the agreements executed by or before March 2, 2015. The arbitration demand’s allegations include that misstatements and misrepresentations were made at or about the time of the purchase of the franchises. The complaint also assails other items such as the above-referenced SEC investigation, the Company’s settlements with the State of Virginia, Virginia’s “investigation and …settlement with Brian Pappas as a result of his conduct and actions during the time he served as Managing Director of BFK Franchise Co, and CEO of CLCN,” and self-dealing by corporate officers including commissions paid to officers upon sale of each new franchise.

XML 27 R16.htm IDEA: XBRL DOCUMENT v3.6.0.2
Subsequent Events
9 Months Ended
Jun. 30, 2016
Subsequent Events [Abstract]  
Subsequent Events

(9) Subsequent Events


As of January 29, 2016, Creative Learning Corporation (“the Company”) temporarily suspended domestic franchise offer 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 FY2015 consolidated audited financial statements. In turn, this has delayed completion of the Company’s 2016 Franchise Disclosure Documents (“FDDs”) for the Bricks 4 Kidz® and Sew Fun Studios®. The company has reinstated sales of Bricks 4 Kidz franchises in September of 2016 in most states.


In March 2016, the Company received a letter from the Commonwealth of Virginia State Corporation Commission alleging that Company affiliate BFK Franchise Company, LLC (“BFK”) and former Company CEO Brian Pappas had violated certain provisions of the Virginia Retail Franchising Act. The Letter sought a negotiated resolution of the issues. The Company has cooperated and negotiated a payment of approximately $60,000 in restitution and $35,000 in fines and costs. Such amounts have been accrued as legal settlement payable on the accompanying balance sheets.

XML 28 R17.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies (Policies)
9 Months Ended
Jun. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Organization

Nature of Organization


Creative Learning Corporation (CLC) operates wholly owned subsidiaries, BFK Franchise Co., LLC (BFK) and SF Franchise Company, LLC (SF) under the trade names Bricks 4 Kidz® and Sew Fun Studios™ respectively, that offer children's enrichment and education franchises. As of June 30, 2016, BFK franchisees operated in 696 territories in 45 states and 40 countries, and SF franchisees operated in 12 territories in 10 states and 3 countries. The Company previously operated Challenge Island Franchise Co., LLC (CI) in 49 territories in 44 states and 3 countries.


The Company sold the CI concept on December 9, 2015, and as a result the Company is reporting CI as discontinued operations in the consolidated financial statements. See Note 6.

Basis of Presentation

Basis of Presentation


The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s results for the interim periods that have been included. The results for the nine months ended June 30, 2016 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, 2015. In addition, refer to Note 6 regarding the sale of Challenge Island and related discontinued operations classification.

Restatement

Restatement


The previously issued consolidated financial statements of the Company as of and for the quarter ended June 30, 2015 have been restated. It was management’s determination that the Company had not properly presented cash, restricted cash, accounts receivable, other receivables, income tax receivable, deferred tax assets, accrued revenue, accounts payable, accrued liabilities, accrued marketing fund, deferred tax liability, legal settlement, retained earnings, franchise consulting & commissions, salaries and payroll taxes, professional fees, office expense, other general and administrative expenses, provision for income taxes and net income.


Restatement of 2015 Financial Statements


 

 

As reported 6/30/2015

 

 

CI Adjustment

 

 

Post CI Adjustment Balance

 

 

Restatement

 

 

Restated Balance 6/30/2015

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

2,803,962

 

 

$

(34,054

)

 

$

2,769,908

 

 

$

7,670

 

 

$

2,777,578

 

Restricted cash

 

 

194,965

 

 

 

 

 

 

 

194,965

 

 

 

(7,183

)

 

 

187,782

 

Accounts receivable, net

 

 

410,834

 

 

 

(3,002

)

 

 

407,832

 

 

 

(228,999

)

 

 

178,833

 

Other receivables - current portion

 

 

188,959

 

 

 

(95,632

)

 

 

93,327

 

 

 

11,106

 

 

 

104,433

 

Income tax receivable

 

 

46,105

 

 

 

 

 

 

46,105

 

 

 

16,669

 

 

 

62,774

 

Deferred tax asset

 

 

48,723

 

 

 

 

 

 

48,723

 

 

 

(44,776

)

 

 

3,947

 

Other receivables - long term

 

 

41,128

 

 

 

 

 

 

41,128

 

 

 

(15,149

)

 

 

25,979

 

Accrued revenue

 

 

 

 

 

(9,000

)

 

 

(9,000

)

 

 

229,000

 

 

 

220,000

 

Total assets

 

$

4,355,354

 

 

$

 

 

$

4,355,354

 

 

$

(31,662

)

 

$

4,323,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable - related party

 

$

2,695

 

 

 

 

 

$

2,695

 

 

$

(2,672

)

 

$

23

 

Accounts payable - other

 

 

155,077

 

 

 

(12,450

)

 

 

142,627

 

 

 

2,673

 

 

 

145,300

 

Accrued liabilities

 

 

32,250

 

 

 

 

 

 

32,250

 

 

 

10,000

 

 

 

42,250

 

Accrued marketing fund

 

 

194,965

 

 

 

(7,200

)

 

 

187,765

 

 

 

17

 

 

 

187,782

 

Deferred tax liability

 

 

5,550

 

 

 

 

 

 

5,550

 

 

 

(5,550

)

 

 

 

Legal settlement

 

 

10,000

 

 

 

 

 

 

10,000

 

 

 

(10,000

)

 

 

 

Long-term deferred tax liability

 

 

22,230

 

 

 

 

 

 

22,230

 

 

 

(22,230

)

 

 

 

Total liabilities

 

$

610,187

 

 

$

 

 

$

610,187

 

 

$

(27,762

)

 

$

582,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

$

1,200

 

 

$

 

 

$

1,200

 

 

$

 

 

$

1,200

 

Additional paid-in capital

 

 

2,534,554

 

 

 

 

 

 

2,534,554

 

 

 

 

 

 

2,534,554

 

Treasury stock

 

 

(18,126

)

 

 

 

 

 

(18,126

)

 

 

 

 

 

(18,126

)

Retained earnings

 

 

1,227,539

 

 

 

 

 

 

1,227,539

 

 

 

(3,900

)

 

 

1,223,639

 

Total stockholders' equity

 

$

3,745,167

 

 

$

 

 

$

3,745,167

 

 

$

(3,900

)

 

$

3,741,267

 

 

 

 

As reported

Nine Months Ended 6/30/2015

 

 

CI Adjustment

 

 

Post CI Adjustment Balance

 

 

Restatement

 

 

Restated Balance

Nine Months Ended 6/30/2015

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise consulting & commissions - related parties

 

 

401,518

 

 

 

 

 

 

401,518

 

 

 

(76,889

)

 

 

324,629

 

Franchise consulting & commissions - other

 

 

755,382

 

 

 

(176,112

)

 

 

579,270

 

 

 

76,888

 

 

 

656,158

 

Salaries and payroll taxes

 

 

959,941

 

 

 

 

 

 

959,941

 

 

 

(30,073

)

 

 

929,868

 

Professional fees

 

 

429,593

 

 

 

(263

)

 

 

429,330

 

 

 

(37

)

 

 

429,293

 

Office expense

 

 

96,507

 

 

 

(5,875

)

 

 

90,632

 

 

 

(39

)

 

 

90,593

 

Other general and administrative expenses

 

 

451,141

 

 

 

(32,551

)

 

 

418,590

 

 

 

141,094

 

 

 

559,684

 

Provision for income taxes

 

 

92,000

 

 

 

 

 

 

92,000

 

 

 

(48,613

)

 

 

43,387

 

Net income

 

$

152,643

 

 

$

 

 

$

152,643

 

 

$

(62,331

)

 

$

90,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earnings per share – basic & diluted

 

$

0.01

 

 

 

 

 

 

$

0.01

 

 

 

 

 

 

$

0.00

 





















 

 

As reported

Three Months

Ended 6/30/2015

 

 

CI Adjustment

 

 

Post CI

Adjustment Balance

 

 

Restatement

 

 

Restated

Balance

Three Months

Ended

6/30/2015

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise consulting & commissions - related parties

 

$

148,620

 

 

$

 

 

$

148,620

 

 

$

(63,121

)

 

$

85,499

 

Franchise consulting & commissions - other

 

 

309,916

 

 

 

(54,214

)

 

 

255,702

 

 

 

63,121

 

 

 

318,823

 

Office expense

 

 

29,002

 

 

 

(1,424

)

 

 

27,578

 

 

 

(39

)

 

 

27,539

 

Other general and administrative expenses

 

 

197,463

 

 

 

(12,385

)

 

 

185,078

 

 

 

6

 

 

 

185,084

 

Provision for income taxes

 

 

18,000

 

 

 

 

 

 

18,000

 

 

 

(374

)

 

 

17,626

 

Net income

 

$

36,282

 

 

$

 

 

$

36,282

 

 

$

407

 

 

$

36,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earnings per share - basic & diluted

 

$

0.00

 

 

 

 

 

 

$

0.00

 

 

 

 

 

 

$

0.00

 

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, allowance for deferred tax assets, depreciation of property and equipment, amortization of intangible assets, recoverability of long lived assets and fair market value of equity instruments. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.

Restricted Cash

Restricted Cash


The Company had restricted cash of approximately $117,000 and $249,000, at June 30, 2016 and September 30, 2015, respectively, associated with a marketing fund collected from the franchisees. Per the franchise agreements, a marketing fund of 2% of franchisee’s gross cash receipts is collected and held to be spent on the promotion of the brand (see Note 4).

Accounts and Notes Receivables

Accounts and Notes Receivable


The Company reviews accounts and notes receivable periodically for collectability, establishes an allowance for doubtful accounts, and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts and notes that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances, combined with management’s estimate of future potential recoverability. Receivables and notes are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts at June 30, 2016 and September 30, 2015 is adequate, but actual write-offs could exceed the recorded allowance. During the nine months ended June 30, 2016, the values of accounts written-off to the reserve were approximately $70,000 and during the year ended September 30, 2015 the amount of these write-offs was $156,000.

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

Revenue Recognition

Revenue Recognition


Revenue is recognized on an accrual basis after services have been performed under contract terms and in accordance with regulatory requirements, the service price to the client is fixed or determinable, and collectability is reasonably assured


Since the Company’s franchises are primarily a mobile concept and do not require finding locations or construction, the franchisees can begin operations as soon as they complete training. The franchise fees are fully collectible and nonrefundable as of the date of the signing of the franchise agreement, but the franchise fees are not recognized as revenue until initial training has been completed and when substantially all of the services required by the franchise agreement have been fulfilled by the Company in accordance with ASC Topic 952-605 Revenue Recognition-Franchisor. Royalties are recognized as earned on a monthly basis.


At June 30, 2016 and September 30, 2015 the Company had approximately $209,000 and $36,000, respectively, in unearned revenue for franchise fees collected but not yet earned per the revenue recognition policy.

Advertising Costs

Advertising Costs


Advertising costs are expensed as incurred. The Company incurred advertising costs for the quarters ended June 30, 2016 and 2015 of approximately $27,000 and $177,000, respectively.

Income Taxes

Income Taxes


The provision for income taxes and deferred income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered. If after evaluating all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by a charge to tax expense to reserve the portion of the deferred tax assets which are not expected to be realized.


The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company is required to file.


When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position the Company takes has to have at least a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows.


The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 30, 2016 and September 30, 2015, respectively, and has not recognized interest and/or penalties during the quarters ended June 30, 2016 and 2015, respectively, 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 2011 and forward by the U.S. Internal Revenue Service, and the years 2010 and forward for various states.

Net earnings (loss) per share

Net earnings (loss) per share


Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings 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.

Recent accounting pronouncements

Recent accounting pronouncements


Revenue from Contracts with Customers (Topic 606) has been discussed in several recent ASU including ASU 2016-12, 2016-11, 2016-10 and 2016-8. In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2017. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements.


In March 2016 the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to improve and simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This ASU is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted. We are currently assessing the impact that the adoption of ASU 2016-09 will have on our financial statements.


In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”. The guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance becomes effective for annual reporting periods beginning after December 15, 2016 with early adoption permitted. The Company adopted this guidance retrospectively as of October 1, 2015 and reclassified $81,832 and $81,583 from deferred costs to long-term deferred tax liability in June of 2016 and September of 2015, respectively.

Recent Events

Recent Events


On December 9, 2016, Brian Pappas, through his controlled company FranVentures, LLC, filed with the U.S. Securities and Exchange Commission a preliminary consent statement on Schedule 14A asking the shareholders of the Company to remove the current members of the Board of Directors and to replace them with three individuals proposed by Mr. Pappas. As a result, shareholders may have received, or may receive in the future, consent solicitation materials from FranVentures and/or Mr. Pappas seeking their written consent to remove the current Board members and elect the three individuals proposed by Mr. Pappas.


On December 16, 2016, we announced that our Board of Directors had determined that the consent solicitation commenced by Mr. Pappas and FranVentures is not in the best interests of all of the Company’s stockholders. The Company intends to file with the SEC a preliminary consent revocation statement in connection with the consent solicitation being conducted by Mr. Pappas and FranVentures, which will explain in more detail the Board’s reasons for opposing Mr. Pappas’ attempt to gain control of the Company.

XML 29 R18.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies (Tables)
9 Months Ended
Jun. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Restatement of 2015 Financial Statements


Restatement of 2015 Financial Statements


 

 

As reported 6/30/2015

 

 

CI Adjustment

 

 

Post CI Adjustment Balance

 

 

Restatement

 

 

Restated Balance 6/30/2015

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

2,803,962

 

 

$

(34,054

)

 

$

2,769,908

 

 

$

7,670

 

 

$

2,777,578

 

Restricted cash

 

 

194,965

 

 

 

 

 

 

 

194,965

 

 

 

(7,183

)

 

 

187,782

 

Accounts receivable, net

 

 

410,834

 

 

 

(3,002

)

 

 

407,832

 

 

 

(228,999

)

 

 

178,833

 

Other receivables - current portion

 

 

188,959

 

 

 

(95,632

)

 

 

93,327

 

 

 

11,106

 

 

 

104,433

 

Income tax receivable

 

 

46,105

 

 

 

 

 

 

46,105

 

 

 

16,669

 

 

 

62,774

 

Deferred tax asset

 

 

48,723

 

 

 

 

 

 

48,723

 

 

 

(44,776

)

 

 

3,947

 

Other receivables - long term

 

 

41,128

 

 

 

 

 

 

41,128

 

 

 

(15,149

)

 

 

25,979

 

Accrued revenue

 

 

 

 

 

(9,000

)

 

 

(9,000

)

 

 

229,000

 

 

 

220,000

 

Total assets

 

$

4,355,354

 

 

$

 

 

$

4,355,354

 

 

$

(31,662

)

 

$

4,323,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable - related party

 

$

2,695

 

 

 

 

 

$

2,695

 

 

$

(2,672

)

 

$

23

 

Accounts payable - other

 

 

155,077

 

 

 

(12,450

)

 

 

142,627

 

 

 

2,673

 

 

 

145,300

 

Accrued liabilities

 

 

32,250

 

 

 

 

 

 

32,250

 

 

 

10,000

 

 

 

42,250

 

Accrued marketing fund

 

 

194,965

 

 

 

(7,200

)

 

 

187,765

 

 

 

17

 

 

 

187,782

 

Deferred tax liability

 

 

5,550

 

 

 

 

 

 

5,550

 

 

 

(5,550

)

 

 

 

Legal settlement

 

 

10,000

 

 

 

 

 

 

10,000

 

 

 

(10,000

)

 

 

 

Long-term deferred tax liability

 

 

22,230

 

 

 

 

 

 

22,230

 

 

 

(22,230

)

 

 

 

Total liabilities

 

$

610,187

 

 

$

 

 

$

610,187

 

 

$

(27,762

)

 

$

582,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

$

1,200

 

 

$

 

 

$

1,200

 

 

$

 

 

$

1,200

 

Additional paid-in capital

 

 

2,534,554

 

 

 

 

 

 

2,534,554

 

 

 

 

 

 

2,534,554

 

Treasury stock

 

 

(18,126

)

 

 

 

 

 

(18,126

)

 

 

 

 

 

(18,126

)

Retained earnings

 

 

1,227,539

 

 

 

 

 

 

1,227,539

 

 

 

(3,900

)

 

 

1,223,639

 

Total stockholders' equity

 

$

3,745,167

 

 

$

 

 

$

3,745,167

 

 

$

(3,900

)

 

$

3,741,267

 

 

 

 

As reported

Nine Months Ended 6/30/2015

 

 

CI Adjustment

 

 

Post CI Adjustment Balance

 

 

Restatement

 

 

Restated Balance

Nine Months Ended 6/30/2015

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise consulting & commissions - related parties

 

 

401,518

 

 

 

 

 

 

401,518

 

 

 

(76,889

)

 

 

324,629

 

Franchise consulting & commissions - other

 

 

755,382

 

 

 

(176,112

)

 

 

579,270

 

 

 

76,888

 

 

 

656,158

 

Salaries and payroll taxes

 

 

959,941

 

 

 

 

 

 

959,941

 

 

 

(30,073

)

 

 

929,868

 

Professional fees

 

 

429,593

 

 

 

(263

)

 

 

429,330

 

 

 

(37

)

 

 

429,293

 

Office expense

 

 

96,507

 

 

 

(5,875

)

 

 

90,632

 

 

 

(39

)

 

 

90,593

 

Other general and administrative expenses

 

 

451,141

 

 

 

(32,551

)

 

 

418,590

 

 

 

141,094

 

 

 

559,684

 

Provision for income taxes

 

 

92,000

 

 

 

 

 

 

92,000

 

 

 

(48,613

)

 

 

43,387

 

Net income

 

$

152,643

 

 

$

 

 

$

152,643

 

 

$

(62,331

)

 

$

90,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earnings per share – basic & diluted

 

$

0.01

 

 

 

 

 

 

$

0.01

 

 

 

 

 

 

$

0.00

 





















 

 

As reported

Three Months

Ended 6/30/2015

 

 

CI Adjustment

 

 

Post CI

Adjustment Balance

 

 

Restatement

 

 

Restated

Balance

Three Months

Ended

6/30/2015

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise consulting & commissions - related parties

 

$

148,620

 

 

$

 

 

$

148,620

 

 

$

(63,121

)

 

$

85,499

 

Franchise consulting & commissions - other

 

 

309,916

 

 

 

(54,214

)

 

 

255,702

 

 

 

63,121

 

 

 

318,823

 

Office expense

 

 

29,002

 

 

 

(1,424

)

 

 

27,578

 

 

 

(39

)

 

 

27,539

 

Other general and administrative expenses

 

 

197,463

 

 

 

(12,385

)

 

 

185,078

 

 

 

6

 

 

 

185,084

 

Provision for income taxes

 

 

18,000

 

 

 

 

 

 

18,000

 

 

 

(374

)

 

 

17,626

 

Net income

 

$

36,282

 

 

$

 

 

$

36,282

 

 

$

407

 

 

$

36,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earnings per share - basic & diluted

 

$

0.00

 

 

 

 

 

 

$

0.00

 

 

 

 

 

 

$

0.00

 

Property and Equipment and Depreciation

Fixed Assets

 

Useful Life

Equipment

 

5 years

Furniture and Fixtures

 

5 years

Property Improvements

 

15 – 40 years

Software

 

3 years

XML 30 R19.htm IDEA: XBRL DOCUMENT v3.6.0.2
Related Party (Tables)
9 Months Ended
Jun. 30, 2016
Related Party Transactions [Abstract]  
Schedule of Related Party Transactions

During the nine months ended June 30, 2016 and 2015, the Company paid related parties (companies related by common control) for the following expenses:


 

 

Commissions and Consulting

 

 

 

Nine months ended

 

 

 

June 30,

 

Related Party

 

2016

 

 

2015

 

FranVentures, LLC (1)

 

$

 

 

$

76,204

 

MC Logic, LLC (2)

 

$

 

 

$

24,000

 

Leap Ahead Learning Company (3)

 

$

 

 

$

38,000

 

Bottom Line Group (4)

 

$

 

 

$

111,321

 

Jeffry Ball and J. Ball Group LLC (5)

 

$

 

 

$

62,330

 

 

 

$

 

 

$

311,855

 


(1)

Brian Pappas is a director and former chief executive officer of the Company. Effective July 22, 2015, Mr. Pappas was no longer employed by the Company. Mr. Pappas is the Managing Director and a minority owner of FranVentures, LLC. FranVentures, LLC received a 5% commission on BFK franchise sales by the Company prior to April 8, 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included above are travel and expense charges for Mr. Pappas for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $70. The wife of Mr. Pappas, Chris Pappas, was the human resources and payroll manager for the Company with compensation for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $12,900. Effective August 6, 2015, Mrs. Pappas was no longer employed by the Company and did not receive compensation subsequent to her leaving employment with the Company. Not included above are expense reimbursements for Mrs. Pappas for the nine months ending June 30, 2016 and 2015 of approximately $-0- and $3000, respectively. The related party payable for Mrs. Pappas was $-0- and $23 as of June 30, 2016 and June 30, 2015, respectively.

(2)

MC Logic, LLC (“MC Logic”) is 100% owned by Michelle Cote, who is the Company’s President and Secretary and a former director and founder of the Company. Not included above are travel and expense reimbursements paid of approximately $-0- and $4300, respectively for the nine months ending June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. During the quarter ended December 31, 2013, the Company made a non-interest bearing loan in the amount of $125,000 to MC Logic. Later in that same quarter, management determined that the loan could be deemed a violation of Section 13(k) of the Exchange Act and Section 402 of the Sarbanes-Oxley Act and immediately sought repayment in full of the loan. MC Logic promptly repaid the entire amount of the loan before the end of the fiscal quarter ended December 31, 2013. Subsequent to the end of fiscal year 2015, the Company has recorded a related party receivable of $7,500 which resulted from activities that occurred in 2016. The receivable is a net amount due resulting from pre-approved activities at an MC Logic Sew Fun Franchise location, which involved using the space for initial evaluation of a potential new franchise concept and for the Company’s use of the location to consider taking the Sew Fun franchise as a company store. During this time, MC Logic had been reimbursed for expended funds and had tendered to the Company certain revenues. The Company later changed strategy, resulting in the reversal of reimbursements to MC Logic and the return of revenues to MC Logic. The net result was $10,217.73 due from MC Logic. MC Logic paid the balance in June of 2016. In addition, the Company has entered into an arrangement with MC Logic under which MC Logic has agreed to pay the standard Sew Fun Studios monthly royalty fee due for this territory effective June 1, 2016, and MC Logic is current on those payments as of September of 2016.

(3)

Leap Ahead Learning Company is 100% owned by Dan O’Donnell, who was a director and the Chief Operating Officer of the Company until his resignation on April 6 2016. Until April 15, 2015, the Company had paid Leap Ahead Learning $5,000 per month for consulting services except in November of 2014 when Leap Ahead Learning was paid $8,000. These services were provided through Mr. O'Donnell. Not included above are travel and expense reimbursements paid of approximately $4,000 and $25,000, respectively for the nine month periods ended June 30, 2016 and 2015. The related party payable was $-0-, and $240 at June 30, 2016 and September 30, 2015, respectively.

(4)

Bottom Line Group is owned by Jeff Pappas, a brother to Brian Pappas. The Business Consulting and Development Agreement between Bottom Line Group and the Company was terminated on September 25, 2015. Bottom Line Group served as one of the Company’s brokers in the sale of franchises. Payments to Bottom Line Group include commissions and consulting fees reflected in the table above. Not included above are travel and expense reimbursements paid of approximately $-0- and $10,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included in the related party schedule above are payments made to Michael Pappas (son to Jeff Pappas). The Business Consulting and Development Agreement between Michael Pappas and the Company has been terminated effective September 26, 2015. Payments made to Michael Pappas in the nine months ended June 30, 2016 and 2015 were approximately $-0- and $13,000, respectively.

(5)

J. Ball Group LLC is owned by Jeffery Ball, a son-in-law to Brian Pappas. The Independent Contractor Agreement between Jeffrey Ball and J Ball Group, LLC and the Company was terminated on September 30, 2015. The J Ball Group LLC served as one of the Company’s brokers in the sale of franchises. Payments reflected in the table above include commissions and consulting fees. Not included above are travel and expense reimbursements paid of approximately $-0- and $5,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. In January 2015, Jeffery Ball formed J. Ball Group LLC, which in these financial statements and disclosures have been presented as one business activity with amounts paid to either entity combined.

XML 31 R20.htm IDEA: XBRL DOCUMENT v3.6.0.2
Notes and Other Receivables (Tables)
9 Months Ended
Jun. 30, 2016
Receivables [Abstract]  
Schedule of Future Payments for Notes and Other Receivables

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

Thereafter

 

 

Total

 

Payment schedules for Notes Receivable

 

$

24,605

 

 

$

41,154

 

 

$

19,000

 

 

$

12,950

 

 

$

24,963

 

 

$

122,672

 

XML 32 R21.htm IDEA: XBRL DOCUMENT v3.6.0.2
Accrued Liabilities (Tables)
9 Months Ended
Jun. 30, 2016
Payables and Accruals [Abstract]  
Schedule of Accrued Liabilities

The Company had accrued liabilities at June 30, 2016, and September 30, 2015 as follows:


 

 

June 30,

 

 

September 30,

 

Accrued Liabilities

 

2016

 

 

2015

 

Accrued Audit Fees

 

$

 

 

$

8,581

 

Accrued Legal Fees

 

 

 

 

 

213,130

 

Accrued Legal Settlements

 

 

17,000

 

 

 

101,897

 

Accrued State Regulatory Settlement

 

 

187,000

 

 

 

104,450

 

Accrued Consulting & Commissions

 

 

3,819

 

 

 

 

Accrued Conference expense

 

 

4,515

 

 

 

 

Accrued Office expense

 

 

670

 

 

 

 

 

 

 

$

213,004

 

 

$

428,058

 

XML 33 R22.htm IDEA: XBRL DOCUMENT v3.6.0.2
Discontinued Operations (Tables)
9 Months Ended
Jun. 30, 2016
Discontinued Operations Tables  
Schedule of Discontinued Operations

The following table lists the assets held for sale and liabilities held for sale of CI at September 30, 2015 and the operating loss on the assets held for sale.


 

 

As of

 

CI Franchise Company LLC

 

09/30/15

 

Assets of discontinued operations

 

 

 

Cash

 

$

24,032

 

Accounts receivable

 

 

16,667

 

Notes receivable

 

 

16,500

 

Total Assets of discontinued operations

 

$

57,199

 

 

 

 

 

 

Liabilities of discontinued operations

 

 

 

 

Accounts payable

 

 

9,016

 

Total Liabilities of discontinued operations

 

$

9,016

 


 

 

Three months ended

 

 

Nine months ended

 

Operating Loss on discontinued operations

 

6/30/2016

 

 

6/30/2015

 

 

6/30/2016

 

 

6/30/2015

 

Revenue

 

$

134

 

 

$

84,801

 

 

$

(5,882

)

 

$

337,742

 

Advertising and promotion

 

 

 

 

 

(34,917

)

 

 

(7,635

)

 

 

(97,204

)

Bad debt

 

 

 

 

 

(12,000

)

 

 

 

 

 

(36,118

)

Commissions and consulting

 

 

 

 

 

(54,215

)

 

 

 

 

 

(176,113

)

Franchisee expense

 

 

 

 

 

(34,429

)

 

 

 

 

 

(54,354

)

Professional fees

 

 

 

 

 

1

 

 

 

 

 

 

(263

)

Office expense

 

 

 

 

 

(1,424

)

 

 

 

 

 

(5,875

)

Depreciation expense

 

 

 

 

 

(884

)

 

 

 

 

 

(2,651

)

General and administrative expenses

 

 

 

 

 

(12,482

)

 

 

1,430

 

 

 

(32,550

)

Operating income(loss) on discontinued operations

 

$

134

 

 

$

(65,549

)

 

$

(12,087

)

 

$

(67,386

)

XML 34 R23.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies (Restatement) (Details) - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Sep. 30, 2015
Sep. 30, 2014
Assets            
Cash $ 613,608 $ 2,777,578 $ 613,608 $ 2,777,578 $ 2,450,609 $ 3,050,983
Restricted Cash 116,597 187,782 116,597 187,782 248,777  
Accounts receivable, net 250,207 178,833 250,207 178,833 407,270  
Other receivables - current portion 27,854 104,433 27,854 104,433 97,794  
Income tax receivable 1,043,393 62,774 1,043,393 62,774 254,527  
Deferred tax asset   3,947   3,947    
Other receivables - long term   25,979   25,979    
Accrued revenue   220,000   220,000    
Total assets 2,684,220 4,323,692 2,684,220 4,323,692 4,091,591  
Liabilities            
Accounts payable - related party 309,854 23 309,854 23 119,113  
Accounts payable - other   145,300   145,300    
Accrued liabilities 213,004 42,250 213,004 42,250 428,058  
Accrued marketing fund 112,398 187,782 112,398 187,782 248,777  
Deferred tax liability 81,832 81,832 81,583  
Legal settlement        
Long term deferred tax liability        
Total liabilities   582,425   582,425    
Stockholders' Equity            
Common stock 1,200 1,200 1,200 1,200 1,200  
Additional paid-in capital 2,534,554 2,534,554 2,534,554 2,534,554 2,534,554  
Treasury stock (34,626) (18,126) (34,626) (18,126) (18,126)  
Retained earnings (683,255) 1,223,639 (683,255) 1,223,639 676,387  
Total stockholders' equity 1,817,873 3,741,267 1,817,873 3,741,267 $ 3,194,015  
Revenue            
Initial franchise fees 241,800 884,967 722,200 2,204,110    
Royalty Fees 611,173 685,446 1,717,676 1,950,343    
Expenses            
Franchise consulting & commissions - related parties 85,499 324,629    
Franchise consulting & commissions - other 238,757 318,823 449,928 656,158    
Salaries and payroll taxes 136,038 347,217 733,147 929,868    
Professional fees 347,407 201,301 2,014,613 429,293    
Office expense   27,539   90,593    
Other general and administrative expenses 184,114 185,085 538,643 559,684    
Provision for income taxes   17,626   43,387    
Net loss $ (100,593) $ 36,689 $ (1,359,642) $ 90,312    
Total loss per share - basic & diluted $ 0.01 $ (0.00) $ 0.11 $ (0.01)    
Interest income (expense) $ 413 $ 1,685 $ 3,271 $ 5,319    
Other income (expense) (163) (1,702) 18,968 (4,449)    
Benefit from income taxes $ (40,453) 38,897 $ (775,046) 65,254    
As Reported [Member]            
Assets            
Cash   2,803,962   2,803,962    
Restricted Cash   194,965   194,965    
Accounts receivable, net   410,834   410,834    
Other receivables - current portion   188,959   188,959    
Income tax receivable   46,105   46,105    
Deferred tax asset   48,723   48,723    
Other receivables - long term   41,128   41,128    
Accrued revenue        
Total assets   4,355,354   4,355,354    
Liabilities            
Accounts payable - related party   2,695   2,695    
Accounts payable - other   155,077   155,077    
Accrued liabilities   32,250   32,250    
Accrued marketing fund   194,965   194,965    
Deferred tax liability   5,550   5,550    
Legal settlement   10,000   10,000    
Long term deferred tax liability   22,230   22,230    
Total liabilities   610,187   610,187    
Stockholders' Equity            
Common stock   1,200   1,200    
Additional paid-in capital   2,534,554   2,534,554    
Treasury stock   (18,126)   (18,126)    
Retained earnings   1,227,539   1,227,539    
Total stockholders' equity   3,745,167   3,745,167    
Expenses            
Franchise consulting & commissions - related parties   148,620   401,518    
Franchise consulting & commissions - other   309,916   755,382    
Salaries and payroll taxes       959,941    
Professional fees       429,593    
Office expense   29,002   96,507    
Other general and administrative expenses   197,463   451,141    
Provision for income taxes   18,000   92,000    
Net loss   $ 36,282   $ 152,643    
Total loss per share - basic & diluted   $ (0.00)   $ 0.01    
CI Adjustment [Member]            
Assets            
Cash   $ (34,054)   $ (34,054)    
Restricted Cash        
Accounts receivable, net   (3,002)   (3,002)    
Other receivables - current portion   (95,632)   (95,632)    
Income tax receivable        
Deferred tax asset        
Other receivables - long term        
Accrued revenue   (9,000)   (9,000)    
Total assets        
Liabilities            
Accounts payable - related party        
Accounts payable - other   (12,450)   (12,450)    
Accrued liabilities        
Accrued marketing fund   (7,200)   (7,200)    
Deferred tax liability        
Legal settlement        
Long term deferred tax liability        
Total liabilities        
Stockholders' Equity            
Common stock        
Additional paid-in capital        
Retained earnings        
Total stockholders' equity        
Expenses            
Franchise consulting & commissions - related parties        
Franchise consulting & commissions - other   (54,214)   (176,112)    
Salaries and payroll taxes          
Professional fees       (263)    
Office expense   (1,424)   (5,875)    
Other general and administrative expenses   (12,385)   (32,551)    
Provision for income taxes        
Net loss        
Total loss per share - basic & diluted          
Post CI Adjustment [Member]            
Assets            
Cash   $ 2,769,908   2,769,908    
Restricted Cash   194,965   194,965    
Accounts receivable, net   407,832   407,832    
Other receivables - current portion   93,327   93,327    
Income tax receivable   46,105   46,105    
Deferred tax asset   48,723   48,723    
Other receivables - long term   41,128   41,128    
Accrued revenue   (9,000)   (9,000)    
Total assets   4,355,354   4,355,354    
Liabilities            
Accounts payable - related party   2,695   2,695    
Accounts payable - other   142,627   142,627    
Accrued liabilities   32,250   32,250    
Accrued marketing fund   187,765   187,765    
Deferred tax liability   5,550   5,550    
Legal settlement   10,000   10,000    
Long term deferred tax liability   22,230   22,230    
Total liabilities   610,187   610,187    
Stockholders' Equity            
Common stock   1,200   1,200    
Additional paid-in capital   2,534,554   2,534,554    
Treasury stock   (18,126)   (18,126)    
Retained earnings   1,227,539   1,227,539    
Total stockholders' equity   3,745,167   3,745,167    
Expenses            
Franchise consulting & commissions - related parties   148,620   401,518    
Franchise consulting & commissions - other   255,702   579,270    
Salaries and payroll taxes       959,941    
Professional fees       429,330    
Office expense   27,578   90,632    
Other general and administrative expenses   185,078   418,590    
Provision for income taxes   18,000   92,000    
Net loss   $ 36,282   $ 152,643    
Total loss per share - basic & diluted   $ (0.00)   $ 0.01    
Restatement [Member]            
Assets            
Cash   $ 7,670   $ 7,670    
Restricted Cash   (7,183)   (7,183)    
Accounts receivable, net   (228,999)   (228,999)    
Other receivables - current portion   11,106   11,106    
Income tax receivable   16,669   16,669    
Deferred tax asset   (44,776)   (44,776)    
Other receivables - long term   (15,149)   (15,149)    
Accrued revenue   229,000   229,000    
Total assets   (31,662)   (31,662)    
Liabilities            
Accounts payable - related party   (2,672)   (2,672)    
Accounts payable - other   2,673   2,673    
Accrued liabilities   10,000   10,000    
Accrued marketing fund   17   17    
Deferred tax liability   (5,550)   (5,550)    
Legal settlement   (10,000)   (10,000)    
Long term deferred tax liability   (22,230)   (22,230)    
Total liabilities   (27,762)   (27,762)    
Stockholders' Equity            
Common stock        
Additional paid-in capital        
Treasury stock        
Retained earnings   (3,900)   (3,900)    
Total stockholders' equity   (3,900)   (3,900)    
Expenses            
Franchise consulting & commissions - related parties   (63,121)   (76,889)    
Franchise consulting & commissions - other   63,121   76,888    
Salaries and payroll taxes       (30,073)    
Professional fees       (37)    
Office expense   (39)   (39)    
Other general and administrative expenses   6   141,094    
Provision for income taxes   (374)   (48,613)    
Net loss   $ 407   $ (62,331)    
Total loss per share - basic & diluted          
XML 35 R24.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies (Restricted Cash) (Details) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Jun. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]      
Restricted cash $ 116,597 $ 248,777 $ 187,782
Percentage of gross revenues collected for marketing fund 2.00% 2.00%  
XML 36 R25.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies (Accounts Receivable) (Details) - USD ($)
9 Months Ended 12 Months Ended
Jun. 30, 2016
Sep. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Value of accounts written-off to reserve during period $ 70,000 $ 156,000
XML 37 R26.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies (Property & Depreciation) (Details)
9 Months Ended
Jun. 30, 2016
Equipment [Member]  
Property, Plant and Equipment [Line Items]  
Property and equipment useful lives 5 years
Furniture and Fixtures [Member]  
Property, Plant and Equipment [Line Items]  
Property and equipment useful lives 5 years
Property Improvements [Member] | Minimum [Member]  
Property, Plant and Equipment [Line Items]  
Property and equipment useful lives 15 years
Property Improvements [Member] | Maximum [Member]  
Property, Plant and Equipment [Line Items]  
Property and equipment useful lives 40 years
Software [Member]  
Property, Plant and Equipment [Line Items]  
Property and equipment useful lives 3 years
XML 38 R27.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies (Revenue Recognition) (Details) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]    
Unearned revenue $ 209,438 $ 35,900
XML 39 R28.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies (Advertising Costs) (Details) - USD ($)
3 Months Ended 9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]        
Advertising costs $ 27,425 $ 177,032 $ 424,665 $ 610,187
XML 40 R29.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization, Operations and Summary of Significant Accounting Policies (Income Taxes) (Details) - USD ($)
9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Sep. 30, 2015
Income Tax Contingency [Line Items]      
Accrual for interest or penalties  
Interest and/or penalties expense recognized  
Minimum [Member] | U.S. Internal Revenue Service [Member]      
Income Tax Contingency [Line Items]      
Tax years subject to examination by major tax jurisdictions 2011    
Minimum [Member] | Various States [Member]      
Income Tax Contingency [Line Items]      
Tax years subject to examination by major tax jurisdictions 2010    
XML 41 R30.htm IDEA: XBRL DOCUMENT v3.6.0.2
Nature of Organization and Summary of Significant Accounting Policies (Recent accounting pronouncements) (Details) (USD $) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Jun. 30, 2015
Nature Of Organization And Summary Of Significant Accounting Policies Recent Accounting Pronouncements Details Usd      
Long-term deferred tax liability $ 81,832 $ 81,583
XML 42 R31.htm IDEA: XBRL DOCUMENT v3.6.0.2
Related Party (Schedule of Related Party Expenses) (Details) - USD ($)
9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Related Party Transaction [Line Items]    
Commissions and consulting fees incurred with related parties $ 311,855
FranVentures, LLC [Member]    
Related Party Transaction [Line Items]    
Commissions and consulting fees incurred with related parties [1] 76,204
MC Logic, LLC [Member]    
Related Party Transaction [Line Items]    
Commissions and consulting fees incurred with related parties [2] 24,000
Leap Ahead Learning Company [Member]    
Related Party Transaction [Line Items]    
Commissions and consulting fees incurred with related parties [3] 38,000
Bottom Line Group [Member]    
Related Party Transaction [Line Items]    
Commissions and consulting fees incurred with related parties [4] 111,321
Jeffrey Ball and J. Ball Group LLC [Member]    
Related Party Transaction [Line Items]    
Commissions and consulting fees incurred with related parties [5] $ 62,330
[1] Brian Pappas is a director and former chief executive officer of the Company. Effective July 22, 2015, Mr. Pappas was no longer employed by the Company. Mr. Pappas is the Managing Director and a minority owner of FranVentures, LLC. FranVentures, LLC received a 5% commission on BFK franchise sales by the Company prior to April 8, 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included above are travel and expense charges for Mr. Pappas for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $70. The wife of Mr. Pappas, Chris Pappas, was the human resources and payroll manager for the Company with compensation for the nine months ending June 30, 2016 and 2015, respectively of approximately $-0- and $12,900. Effective August 6, 2015, Mrs. Pappas was no longer employed by the Company and did not receive compensation subsequent to her leaving employment with the Company. Not included above are expense reimbursements for Mrs. Pappas for the nine months ending June 30, 2016 and 2015 of approximately $-0- and $3000, respectively. The related party payable for Mrs. Pappas was $-0- and $23 as of June 30, 2016 and June 30, 2015, respectively.
[2] MC Logic, LLC ("MC Logic") is 100% owned by Michelle Cote, who is the Company's President and Secretary and a former director and founder of the Company. Not included above are travel and expense reimbursements paid of approximately $-0- and $4300, respectively for the nine months ending June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. During the quarter ended December 31, 2013, the Company made a non-interest bearing loan in the amount of $125,000 to MC Logic. Later in that same quarter, management determined that the loan could be deemed a violation of Section 13(k) of the Exchange Act and Section 402 of the Sarbanes-Oxley Act and immediately sought repayment in full of the loan. MC Logic promptly repaid the entire amount of the loan before the end of the fiscal quarter ended December 31, 2013. Subsequent to the end of fiscal year 2015, the Company has recorded a related party receivable of $7,500 which resulted from activities that occurred in 2016. The receivable is a net amount due resulting from pre-approved activities at an MC Logic Sew Fun Franchise location, which involved using the space for initial evaluation of a potential new franchise concept and for the Company's use of the location to consider taking the Sew Fun franchise as a company store. During this time, MC Logic had been reimbursed for expended funds and had tendered to the Company certain revenues. The Company later changed strategy, resulting in the reversal of reimbursements to MC Logic and the return of revenues to MC Logic. The net result was $10,217.73 due from MC Logic. MC Logic paid the balance in June of 2016. In addition, the Company has entered into an arrangement with MC Logic under which MC Logic has agreed to pay the standard Sew Fun Studios monthly royalty fee due for this territory effective June 1, 2016, and MC Logic is current on those payments as of September of 2016.
[3] Leap Ahead Learning Company is 100% owned by Dan O'Donnell, who was a director and the Chief Operating Officer of the Company until his resignation on April 6 2016. Until April 15, 2015, the Company had paid Leap Ahead Learning $5,000 per month for consulting services except in November of 2014 when Leap Ahead Learning was paid $8,000. These services were provided through Mr. O'Donnell. Not included above are travel and expense reimbursements paid of approximately $4,000 and $25,000, respectively for the nine month periods ended June 30, 2016 and 2015. The related party payable was $-0-, and $240 at June 30, 2016 and September 30, 2015, respectively.
[4] Bottom Line Group is owned by Jeff Pappas, a brother to Brian Pappas. The Business Consulting and Development Agreement between Bottom Line Group and the Company was terminated on September 25, 2015. Bottom Line Group served as one of the Company's brokers in the sale of franchises. Payments to Bottom Line Group include commissions and consulting fees reflected in the table above. Not included above are travel and expense reimbursements paid of approximately $-0- and $10,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. Not included in the related party schedule above are payments made to Michael Pappas (son to Jeff Pappas). The Business Consulting and Development Agreement between Michael Pappas and the Company has been terminated effective September 26, 2015. Payments made to Michael Pappas in the nine months ended June 30, 2016 and 2015 were approximately $-0- and $13,000, respectively.
[5] J. Ball Group LLC is owned by Jeffery Ball, a son-in-law to Brian Pappas. The Independent Contractor Agreement between Jeffrey Ball and J Ball Group, LLC and the Company was terminated on September 30, 2015. The J Ball Group LLC served as one of the Company's brokers in the sale of franchises. Payments reflected in the table above include commissions and consulting fees. Not included above are travel and expense reimbursements paid of approximately $-0- and $5,000, respectively for the nine months ended June 30, 2016 and 2015. There was no related party payable at June 30, 2016 or September 30, 2015. In January 2015, Jeffery Ball formed J. Ball Group LLC, which in these financial statements and disclosures have been presented as one business activity with amounts paid to either entity combined.
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.6.0.2
Related Party (Narrative) (Details) - USD ($)
3 Months Ended 9 Months Ended
Dec. 31, 2013
Jun. 30, 2016
Jun. 30, 2015
May 31, 2016
Sep. 30, 2015
Nov. 30, 2014
Related Party Transaction [Line Items]            
Rent Expense   $ 22,000 $ 24,000      
Related party payable       $ 240  
Related party expenses incurred   11,130        
Jeffrey Ball and J. Ball Group LLC [Member]            
Related Party Transaction [Line Items]            
Related party expenses incurred   0 5,000      
Michael Pappas [Member]            
Related Party Transaction [Line Items]            
Related party expenses incurred   0 13,000      
Bottom Line Group [Member]            
Related Party Transaction [Line Items]            
Related party expenses incurred   0 10,000      
Leap Ahead Learning Company [Member]            
Related Party Transaction [Line Items]            
Related party payable   0     $ 240  
Related party expenses incurred   4,000 25,000      
Monthly amount paid to related party for consulting services   5,000       $ 8,000
MC Logic, LLC [Member]            
Related Party Transaction [Line Items]            
Due from related party   7,500   $ 10,218    
Related party expenses incurred   0 4,300      
Issuance of loan to related party $ 125,000          
Repayment of loan from related party $ 125,000          
Brian Pappas [Member]            
Related Party Transaction [Line Items]            
Related party expenses incurred   $ 0 70      
Commission percentage paid to related party for franchise sales   5.00%        
Chris Pappas [Member]            
Related Party Transaction [Line Items]            
Related party payable   $ 0 23      
Related party expenses incurred   0 3,000      
Related party salaries paid during period   $ 0 $ 12,900      
XML 44 R33.htm IDEA: XBRL DOCUMENT v3.6.0.2
Notes and Other Receivables (Details) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Receivables [Abstract]    
Other receivables $ 123,000 $ 210,000
XML 45 R34.htm IDEA: XBRL DOCUMENT v3.6.0.2
Notes and Other Receivables (Schedule of Future Payments for Notes Receivables) (Details)
Jun. 30, 2016
USD ($)
Receivables [Abstract]  
Due 2016 $ 24,605
Due 2017 41,154
Due 2018 19,000
Due 2019 12,950
Thereafter 24,963
Total $ 122,672
XML 46 R35.htm IDEA: XBRL DOCUMENT v3.6.0.2
Accrued Marketing Fund (Details) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Jun. 30, 2015
Accrued Liabilities and Other Liabilities [Abstract]      
Accrued marketing fund $ 112,398 $ 248,777 $ 187,782
Percentage of gross revenues collected for marketing fund 2.00% 2.00%  
XML 47 R36.htm IDEA: XBRL DOCUMENT v3.6.0.2
Accrued Liabilities (Details) - USD ($)
Jun. 30, 2016
Sep. 30, 2015
Jun. 30, 2015
Payables and Accruals [Abstract]      
Accrued Audit Fees $ 8,581  
Accrued Legal Fees 213,130  
Accrued Legal Settlements 17,000 101,897  
Accrued State Regulatory Settlement 187,000 104,450  
Accrued Consulting & Commissions 3,819  
Accrued Conference expense 4,515  
Accrued Office expense 670    
Accrued Liabilities $ 213,004 $ 428,058 $ 42,250
XML 48 R37.htm IDEA: XBRL DOCUMENT v3.6.0.2
Discontinued Operations (Details) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Dec. 09, 2015
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Sep. 30, 2015
Liabilities of discontinued operations            
Total Liabilities of discontinued operations       $ 9,016
CI Franchise Company LLC [Member]            
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]            
Purchase price for the assets $ 24,750          
Number of shares of stock issued for assets purchased 50,000          
Value of shares of stock issued for assets purchased $ 16,500          
Number of shares previously accrued for 25,000          
Value of shares previously accrued for $ 8,250          
Loss on assets held for sale           28,000
Assets of discontinued operations            
Cash           24,032
Accounts Receivable           16,667
Notes Receivable           16,500
Total Assets of discontinued operations           57,199
Liabilities of discontinued operations            
Accounts payable           9,016
Total Liabilities of discontinued operations           $ 9,016
Operating Loss on discontinued operations            
Revenue   134 $ 84,801 (5,882) $ 337,742  
Advertising and promotion   (34,917) (7,635) (97,204)  
Bad debt   (12,000) (36,118)  
Commissions and consulting   (54,215) (176,113)  
Franchisee expense   (34,429) (54,354)  
Professional fees   1 (263)  
Office expense   (1,424) (5,875)  
Depreciation expense   (884) (2,651)  
General and administrative expenses   (12,482) 1,430 (32,550)  
Operating income (loss) on discontinued operations   $ 134 $ (65,549) $ (12,087) $ (67,386)  
XML 49 R38.htm IDEA: XBRL DOCUMENT v3.6.0.2
Common Stock (Details) - USD ($)
1 Months Ended 9 Months Ended
Dec. 31, 2015
Jun. 30, 2016
Stock Issuances Details Narrative    
Value of stock repurchased during period $ 16,500 $ 16,500
Shares of stock repurchased during period 50,000  
XML 50 R39.htm IDEA: XBRL DOCUMENT v3.6.0.2
Commitments and Contingencies (Lease Commitments) (Details) - USD ($)
9 Months Ended
Jun. 30, 2016
Jun. 30, 2015
Commitments And Contingencies Details    
Fees and penalty for early termination $ 2,000  
Rent expense 22,000 $ 24,000
Related party expenses incurred $ 11,130  
XML 51 R40.htm IDEA: XBRL DOCUMENT v3.6.0.2
Commitments and Contingencies (Litigation) (Details) - USD ($)
1 Months Ended 3 Months Ended 9 Months Ended
Jun. 23, 2016
Jun. 30, 2016
Jun. 30, 2015
Jun. 30, 2016
Jun. 30, 2015
Sep. 30, 2015
Loss Contingencies [Line Items]            
Bed debt   $ 15,740 $ 16,000 $ 64,550 $ 64,000  
Brian Pappas [Member]            
Loss Contingencies [Line Items]            
Damages sought by plantiff $ 1,000,000          
Commissions 560,000          
Bed debt 40,000          
Retainer and commission payments to Jeff Pappas and his companies 89,000          
Loyalty fees to pappas and his wife $ 95,000          
Settled Litigation [Member] | Sew Fun, LLC [Member]            
Loss Contingencies [Line Items]            
Accrued legal settlement   $ 85,000   85,000    
Settled Litigation [Member] | Common Stock [Member] | Sew Fun, LLC [Member]            
Loss Contingencies [Line Items]            
Stock issued as part of settlement agreement, fair value       106,000    
Pending Litigation [Member] | Sew Fun, LLC [Member]            
Loss Contingencies [Line Items]            
Damages sought by plantiff       $ 42,000    
Accrued legal settlement          
XML 52 R41.htm IDEA: XBRL DOCUMENT v3.6.0.2
Subsequent Events (Details) - Common Wealth of Virgina State Corporate Commission [Member] - Settled Litigation [Member]
Mar. 31, 2016
USD ($)
Subsequent Event [Line Items]  
Legal settlement portion relating to restitution $ 60,000
Legal settlement portion relating to fines and costs $ 35,000
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