10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2020

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

For the transition period from __________ to __________

Commission File Number: 000-52883

CREATIVE LEARNING CORPORATION

(Exact name of registrant as specified in its charter)

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

P.O. Box 4502

Boise, ID 83711

 (Address of principal executive offices, including Zip Code)

(904) 824-3133

 (Issuer’s telephone number, including area code)

_______________________________________________

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

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

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

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

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

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

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 13,298,310 shares of common stock as of August 4, 2020.

CREATIVE LEARNING CORPORATION

FORM 10-Q

Period Ended June 30, 2020

TABLE OF CONTENTS

		Page No.
	PART I
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	16
Item 4.	Controls and Procedures	16
	PART II
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	18

2

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

● discuss future expectations;

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

● state other “forward-looking” information.

We believe it is important to communicate our expectations to our stockholders. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors and cautionary language discussed in this Form 10-Q and in our Form 10-K for the year ended September 30, 2019 provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in our forward-looking statements, including among other things:

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

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

● incidents that may impair the value of our brand;

● our failure to successfully implement our growth strategy;

● changing economic conditions;

● our need for additional financing;

● risks associated with our franchisees;

● litigation and regulatory issues;

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

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

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

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

3

PART I

Item 1. Financial Statements

CREATIVE LEARNING CORPORATION

Condensed Consolidated Balance Sheets

	June 30, 2020			September 30, 2019
		(Unaudited)
Current Assets:
Cash	$	491,303		$	522,071
Restricted Cash (marketing fund)		22,875			17,950
Accounts receivable, less allowance for doubtful accounts of approximately $810,000 and $663,000, respectively		457,891			279,109
Prepaid commission expense		230,112			235,129
Prepaid expense		14,452			7,867
Marketing fund receivable		64,790			—
Notes receivables - current portion, less allowance for doubtful accounts of approximately $91,000 and $91,000, respectively		9,987			3,000
Total Current Assets		1,291,410			1,065,126
Security deposit		833			—
Prepaid commission expense - net of current portion		601,163			773,062
Property and equipment, net of accumulated depreciation of approximately $415,000 and $383,000, respectively		163,053			323,789
Total Assets	$	2,056,459		$	2,161,977
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	74,947		$	107,697
SBA Loan - PPP		119,980			—
Deferred revenue		972,873			986,039
Accrued liabilities		33,703			125,720
Total Current Liabilities		1,201,503			1,219,456
Deferred revenue - net of current portion		2,740,222			3,382,107
Total Liabilities		3,941,725			4,601,563
Commitments and Contingencies (Note 3)		—			—
Stockholders’ Equity (Deficit)
Preferred stock, $.0001 par value; 10,000,000 shares authorized; -0- shares issued and outstanding		—			—
Common stock, $.0001 par value; 50,000,000 shares authorized 13,363,410 shares issued and 13,298,310 shares outstanding as of June 30, 2020 13,607,102 shares issued and 13,542,002 shares outstanding as of September 30, 2019		1,334			1,360
Additional paid in capital		2,990,080			2,987,554
Treasury Stock 65,100 shares, at cost		(34,626	)		(34,626	)
Accumulated Deficit		(4,842,054	)		(5,393,874	)
Total Stockholders’ Equity (Deficit)		(1,885,266	)		(2,439,586	)
Total Liabilities and Stockholders’ Equity (Deficit)	$	2,056,459		$	2,161,977

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

4

CREATIVE LEARNING CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

	For the three months ended June 30,						For the nine months ended June 30,
	2020			2019			2020		2019
				(Restated)					(Restated)
REVENUES
Royalties fees	$	342,010		$	462,967		$	1,248,467	$	1,498,170
Marketing fund revenue		12,979			38,323			159,773		108,049
Initial franchise fees		221,347			614,716			720,318		1,844,413
Technology fees		45,354			—			131,168		—
Merchandise sales		—			27,307			—		44,870
TOTAL REVENUES		621,690			1,143,313			2,259,726		3,495,502
OPERATING EXPENSES
Salaries and payroll taxes and stock-based compensation		175,240			155,220			454,006		531,467
Professional, legal and consulting fees		128,267			163,917			479,144		413,842
Bad debt expense		136,182			48,994			165,550		76,052
Other general and administrative expenses		79,133			40,962			184,304		173,509
Franchise commissions		62,628			18,588			182,337		460,361
Franchise training and expenses		—			289			3,294		15,611
Depreciation		26,281			31,160			81,107		86,332
General advertising		658			2,230			5,963		10,771
Franchise marketing fund expense		12,979			38,323			159,773		108,049
Office expense		3,023			6,319			7,630		15,030
TOTAL OPERATING EXPENSES		624,391			506,002			1,723,108		1,891,024
OPERATING INCOME (LOSS)		(2,701	)		637,311			536,618		1,604,478
OTHER INCOME (EXPENSE)		(565	)		(1,978	)		15,202		39,540
INCOME (LOSS) BEFORE INCOME TAXES		(3,266	)		635,333			551,820		1,644,018
PROVISION FOR INCOME TAXES		—			—			—		—
NET INCOME (LOSS)	$	(3,266	)	$	635,333		$	551,820	$	1,644,018
NET INCOME PER SHARE
Basic and diluted	$	—		$	0.05		$	0.04	$	0.14
Basic and diluted weighted average number of common shares outstanding		13,444,592			12,017,850			13,477,299		12,015,457

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

5

Creative Learning Corporation

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

For the three months ended June 30, 2020 

											Additional					Total
	Treasury Stock						Common stock				Paid-in		Accumulated			Stockholder’s
	Shares			Value			Shares		Amount		Capital		Deficit			Equity (Deficit)
Balance, March 31, 2020		(65,100	)	$	(34,626	)		13,642,816	$	1,362	$	2,990,052	$	(4,838,788	)	$	(1,882,000	)
Shares cancelled		—			—			(279,406)		(28)		28		—			—
Net loss		—			—			—		—		—		(3,266	)		(3,266	)
Balance, June 30, 2020		(65,100	)	$	(34,626	)		13,363,410	$	1,334	$	2,990,080	$	(4,842,054	)	$	(1,885,266	)

For the nine months ended June 30, 2020

											Additional					Total
	Treasury Stock						Common stock				Paid-in		Accumulated			Stockholder’s
	Shares			Value			Shares		Amount		Capital		Deficit			Equity (Deficit)
Balance, September 30, 2019		(65,100	)	$	(34,626	)		13,607,102	$	1,360	$	2,987,554	$	(5,393,874	)	$	(2,439,586	)
Stock compensation		—			—			35,714		2		2,498		—			2,500
Shares cancelled		—			—			(279,406)		(28)		28		—			—
Net loss		—			—			—		—		—		551,820			551,820
Balance, June 30, 2020		(65,100	)	$	(34,626	)		13,363,410	$	1,334	$	2,990,080	$	(4,842,054	)	$	(1,885,266	)

For the three months ended June 30, 2019 (Restated)

											Additional					Total
	Treasury Stock						Common stock				Paid-in		Accumulated			Stockholder’s
	Shares			Value			Shares		Amount		Capital		Deficit			Equity (Deficit)
Balance, March 31, 2019 (Restated)		(65,100	)	$	(34,626	)		12,089,140	$	1,209	$	2,897,283	$	(6,402,529	)	$	(3,538,663	)
Net income		—			—			—		—		—		635,333			635,333
Balance, June 30, 2019 (Restated)		(65,100	)	$	(34,626	)		12,089,140	$	1,209	$	2,897,283	$	(5,767,196	)	$	(2,903,330	)

For the nine months ended June 30, 2019 (Restated)

											Additional						Total
	Treasury Stock						Common stock				Paid-in			Accumulated			Stockholder’s
	Shares			Value			Shares		Amount		Capital			Deficit			Equity (Deficit)
Balance, September 30, 2018		(65,100	)	$	(34,626	)		12,075,875	$	1,207	$	2,897,285		$	(2,391,525	)	$	472,341
Shares issued for rounding error		—			—			13,265		2		(2	)		—			—
Net income		—			—			—		—		—			1,644,018			1,644,018
Adoption of ASC 606 (Restated)		—			—			—		—		—			(5,019,689	)		(5,019,689	)
Balance, June 30, 2019 (Restated)		(65,100	)	$	(34,626	)		12,089,140	$	1,209	$	2,897,283		$	(5,767,196	)	$	(2,903,330	)

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

6

CREATIVE LEARNING CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the nine months ended
	June 30,
	2020			2019
				(Restated)
Cash flows from operating activities:
Net Income	$	551,820		$	1,644,018
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation		81,107			86,332
Gain on sale of assets held for sale		(20,602	)		(42,775	)
Bad debt expense		29,368			76,052
Stock based compensation		2,500			—
Changes in operating assets and liabilities:
Accounts receivable		(208,150	)		(263,580	)
Prepaid expenses		(6,585	)		29,358
Prepaid commission expense		176,916			487,951
Deposits		(833	)		—
Accounts payable		(32,750	)		(67,970	)
Accrued liabilities		(92,017	)		1,446
Deferred Revenue		(655,051	)		(1,706,019	)
Accrued marketing fund		(64,790	)		(32,030	)
Net cash provided by (used in) operating activities		(239,067	)		212,783
Cash flows from investing activities:
Acquisition of property and equipment		—			(122,575	)
Sale of assets held for sale		100,231			85,787
Collection of Notes receivable		(6,987	)		9,000
Net cash provided by (used in) investing activities		93,244			(27,788	)
Cash flows from financing activities:
Proceeds from SBA PPP Loan		119,980			—
Net cash provided by financing activities		119,980			—
Net change in cash, cash equivalents and restricted cash		(25,843	)		184,995
Cash, cash equivalents and restricted cash at beginning of period		540,021			103,198
Cash, cash equivalents and restricted cash at end of period	$	514,178		$	288,193
Noncash financing activity:
Shares issued for rounding error	$	—		$	2
Noncash activity related to FASB ASC 606	$	—		$	5,019,689

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

7

CREATIVE LEARNING CORPORATION

Notes to Condensed Consolidated Unaudited Financial Statements

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

Nature of Organization

Creative Learning Corporation (the “Company”) operates wholly owned subsidiaries, BFK Franchise Co., LLC (“BFK”) and SF Franchise Company, LLC (“SF”), under the trade names Bricks 4 Kidz® and Sew Fun Studios™ respectively, that offer children’s enrichment and education franchises. As of June 30, 2020, BFK franchisees operated in 496 territories in 35 states and 40 countries.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s results for the interim periods that have been included. The results for the three and nine months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and management’s discussion and analysis included in the Company’s annual report on Form 10-K for the year ended September 30, 2019.

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.

Pursuant to the Consent Solicitation Settlement Agreement entered into on February 5, 2020, Christopher Rego was appointed to the Company’s board of directors as well as was named chief executive officer of BFK. Effective April 30, 2020, Mr. Rego was appointed chief executive officer of the Company. Mr. Rego is an active franchisee of the Company. As of September 30, 2019 and June 30, 2020, Mr. Rego’s franchises had deferred revenue balances of $14,659 and $11,967, respectively. Revenue recognized for the three and nine months ended June 30, 2020 for Mr. Rego’s franchises were $898 and $2,693, respectively. As of September 30, 2019 and June 30, 2020, Mr. Rego’s franchises had receivables balances of $21,536 and $10,447, respectively. As per the Consent Settlement Agreement, receivables owed from Mr. Rego in the amount of $18,825 were forgiven on February 4, 2020. This forgiveness has been reflected in the June 30, 2020 receivable balance noted above. Mr. Rego is also the CEO of a software development company that the Company entered into an agreement with on March 10, 2020. The term of the agreement is nine months and calls for a development fee of $12,900 per month. $51,600 was expensed and paid by the Company for the services provided during the nine months ended June 30, 2020. Also, as per the Consent Solicitation Settlement agreement entered into on February 5, 2020, the Company has expensed $10,000 for legal fees owed on behalf of Mr. Rego and Mr. Whiton.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions made by management include allowance for doubtful accounts, the valuation allowance for deferred tax assets, depreciation of property and equipment, amortization of intangible assets, recoverability of long-lived assets and fair market value of equity instruments. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.

Cash, Restricted Cash and Cash Equivalents

The Company had restricted cash of approximately $23,000 and $18,000 at June 30, 2020 and September 30, 2019, respectively, associated with marketing funds collected from the franchisees. Per the franchise agreements a marketing fund of 2% of franchisees gross cash receipts is collected and held to be spent on the promotion of the brand. Any cash collected by the Company for marketing funds is held in a separate bank account and any balance at period end is presented as “restricted cash” and “accrued marketing fund” on the balance sheet.

8

Accounts and Note Receivables

The Company reviews accounts and notes receivable periodically for collectability, establishes an allowance for doubtful accounts, and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts and notes that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Receivables and notes are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts at June 30, 2020 and September 30, 2019 are adequate, but actual write-offs could exceed the recorded allowance.

Property, Equipment and Depreciation

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, which range from three to forty years. Expenditures for additions and improvements are capitalized, while repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal.

Fixed Assets	Useful Life
Equipment	5 years
Furniture and Fixtures	5 years
Property Improvements	15-40 years
Software	3  years

Long-Lived Assets

The Company’s long-lived assets consist of property and equipment, and intangible assets. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates of asset useful lives and future cash flows.  Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, and accounts payable approximate fair value because of the relative short-term maturity of these items and current payment expected. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments. Notes receivable are recorded at par value less allowance for doubtful accounts. The carrying amount is consistent with fair value based upon similar notes issued to other franchisees.

ASC 825, Financial Instruments, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

Level 1:	Quoted prices in active markets for identical assets or liabilities.
Level 2:	Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
Level 3:	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.  The Company had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared 

9

Revenue Recognition 

The Company generates almost all of its revenue from contracts with customers. The Company’s franchise agreements enter the parties into a contractual agreement, typically over a ten years term, and include performance obligations as follows: protected territory designation, access to proprietary manuals and handbooks, initial training and on-going assistance, consulting, promotion of goodwill, administration of marketing fund, marketing and promotion items, initial marketing program development assistance, company website access, Franchise Management Tool access, lessons and model plans, project kits, Duplo bricks, frames stop motion animation software, and use of the franchisor’s intellectual property (IP) (e.g., trade name – Bricks for Kidz). Upon entering into a franchise agreement, the Company charges an initial franchise fee, which is fully collectible and nonrefundable as of the date of the signing of the franchise agreement. Further, because the Company’s franchises are primarily a mobile concept and do not require finding locations or construction, the franchisees can begin operations as soon as they complete training.

Per the terms of the franchise agreements, the Company charges for royalty fees on a monthly basis, generally set at a fixed amount, but in some cases are based on a percentage of franchisee’s monthly gross revenues. The Company also charges fees for a marketing fund, generally based on 2% of franchisee’s monthly gross revenues, which is managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees. Lastly, the Company charges for technology fees on a monthly basis, generally at a fixed amount, for the use of the company Franchise Management tool as well as company emails, etc.

Effective October 1, 2018 the Company began recognizing revenue under ASC 606. The Company considers initial franchise fees to be a part of the license of symbolic intellectual property (“IP”), therefore the performance obligation related to these fees is satisfied over time as the Company fulfills its promise to grant the customer rights to use, and benefit from, the Company’s IP, as well as support and maintain the IP. The initial franchise fee, then, is recorded as deferred revenue at inception and recognized on a straight-line basis over the contract term.

In accordance with ASC 606-10-55-65, the Company has determined that the royalty fees, marketing fees, and technology fees are subject to a sales and usage-based royalties’ constraint on licenses of IP. Accordingly, these fees are recognized as revenue at the later of when the sales or usage occurs or the related performance obligation is satisfied. Technology fees are recorded net of processing fees. Marketing fees are limited to the lesser of marketing amounts earned or expensed; therefore, the Company will recognize amounts received in excess of amounts spent on the balance sheet in the accrued marketing fund liability and will recognize amounts spent in excess of amounts received on the balance sheet in the marketing fund receivable.

The Company collects transfer fees when contracts are transferred between parties and accounts for the transfer as a contract modification under ASC 606. Because the transfer does not increase the scope of the contract or promise any additional goods or services and there are no new distinct services that will be provided after the transfer the Company considers the transfer fee part of the existing contract. Transfer fees, then, are recorded as deferred revenue at inception and recognized on a straight-line basis over the remaining contract term.

When contracts are terminated due to default, or in conjunction with an early termination agreement, the Company accounts for the early termination as a contract modification under ASC 606. Because the termination eliminates any future performance obligations of the Company any deferred revenue associated with the terminated contract is recognized into revenue at the time of termination, along with any early termination fees, in the initial franchise fee line on the Company’s Statement of Operations.

The Company generates revenue from sales of merchandise where the performance obligation is met, and therefore revenue recognized, upon the delivery of merchandise to the customer.

Contract Liability – Deferred Revenue

In conjunction with the adoption of ASC 606, effective October 1, 2018 the Company recorded deferred revenue as a contract liability for its initial franchise fees collected and related to contracts with remaining performance obligations. During the nine months ended June 30, 2020 the activity in the deferred revenue account was as follows:

Balance, September 30, 2019	$	4,368,146
Initial franchise fees collected		65,267
Deferred revenue recognized into revenue		(720,318	)
Balance, June 30, 2020		3,713,095
Current portion		(972,873	)
Deferred revenue, net of current portion	$	2,740,222

10

Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2020 were as follows:

Twelve months ended June 30, 2021	$	972,873
Twelve months ended June 30, 2022		921,982
Twelve months ended June 30, 2023		809,832
Twelve months ended June 30, 2024		538,871
Twelve months ended June 30, 2025 and thereafter		469,537
Total	$	3,713,095

Contract Liability / Asset – Accrued Marketing Fund / Marketing Fund Receivable

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

The marketing fund amounts owed to the Company are accounted for as a liability on the balance sheet and the actual collections are deposited into a marketing fund bank account, presented as restricted cash on the balance sheet. Expenses pertaining to the marketing fund activities are paid from the marketing fund and reduce the liability account. Upon adoption of FASB 606 on October 1, 2018, the Company presents these marketing fund revenues and expenses on a gross basis on its statement of operations. Any unused funds at the end of the period are recorded as accrued marketing fees or any funds used in excess of funds collected are recorded as a marketing fund receivable. During the nine months ended June 30, 2020, the Company recorded franchisee marketing fund expenses in advance of billings in the amount of $64,790. The Company expects to collect this advance in future periods from the 2% fees collected on future franchisee gross revenues. The activity in the accrued marketing fund liability account was as follows:

Marketing fund liability (receivable), September 30, 2019	—
Marketing fund billings recognized into income		159,773
Marketing funds recognized into expense		(159,773	)
Marketing funds advanced by the Company		(64,790	)
Marketing fund liability (receivable), June 30, 2020	$	(64,790	)

Contract Asset – Prepaid Commission Expense

In accordance with ASC 606 the costs related to obtaining a contract are to be capitalized as long as the costs are recoverable and incremental. Effective October 1, 2018, the date the Company adopted ASC 606, it capitalized the value of sales commissions as a contract asset and is amortizing those costs straight-line over the contract life of the franchise agreement to which they relate. During the nine months ended June 30, 2020, the activity in the contract asset account was as follows:

Balance, September 30, 2019	$	1,008,191
Commissions paid		5,421
Commissions recognized into expense		(182,337	)
Balance, June 30, 2020		831,275
Current portion		(230,112	)
Prepaid commission expense, net of current portion	$	601,163

Paycheck Protection Program

On April 28, 2020, the Company was granted a loan (the “Loan”) from First Bank of the Lake in the aggregate amount of $119,980, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a Note dated April 24, 2020 issued by the Company, matures on April 23, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on October 23, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

General Advertising Costs

General advertising costs are expensed as incurred. The Company incurred general advertising costs for the three months ended June 30, 2020 and 2019 of $658 and $2,230, respectively and for the nine months ended June 30, 2020 and 2019 of $5,963 and $10,771, 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. Given previous recurring losses, the Company cannot conclude that it is more likely than not that such assets will be realized, therefore a full valuation allowance has been recorded during the nine months ended June 30, 2020. 

11

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

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

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 30, 2020 and September 30, 2019, respectively, and has not recognized interest and/or penalties during the three or nine months ended June 30, 2020, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within the next twelve months.

The tax years subject to examination by major tax jurisdictions include the years 2015 and forward by the U.S. Internal Revenue Service.

Net earnings (loss) per share

Basic earnings per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

Stock-based compensation

The Company accounts for employee stock awards for services based on the grant date fair value of the instrument issued, and those issued to non-employees are recorded based on the grant date fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable. Stock awards are expensed over the service period.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Recent accounting pronouncements

All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.

12

(2) Notes and Other Receivables

At June 30, 2020 and September 30, 2019, the Company held certain notes receivable totaling approximately $10,000 and $3,000, respectively, net of allowances, for extended payment terms of franchise fees. The notes receivable bear interest of 4% with monthly payments, payable within four years. The Company analyzes the collectability of all receivables and reserves accordingly.

(3) Commitments and Contingencies

Employment Agreements

The Company entered into an Employment Agreement with Mr. Mitchell as of October 1, 2019 appointing him Chief Executive Officer of the Company. The employment agreement provides for a one year term. Mr. Mitchell’s annual cash compensation increased to $150,000 and he is entitled to receive stock grants valued at the lesser of $15,000 or 200,000 Shares of Common Stock. Effective April 30, 2020, Mr. Mitchell’s title was changed to President. Mr. Mitchell resigned as his position of President on June 8, 2020. At such time he received a severance package of $50,000.

Effective October 1, 2019, Robert Boyd was appointed Chief Accounting Officer of the Company. Mr. Boyd and the Company entered into a one year employment agreement which provides that Mr. Boyd’s compensation will be $40,000 per annum.

Litigation

The Company is subject to litigation claims arising in the ordinary course of business. The Company believes that it has adequately accrued for legal matters in accordance with the requirements of GAAP. The Company records litigation accruals for legal matters which are both probable and estimable and for related legal costs as incurred. The Company does not reduce these liabilities for potential insurance or third-party recoveries.

On October 2, 2015, the Company filed suit in the state court in St. John’s County, Florida, Case No. CA 15-1076, against its former Chief Executive Officer Brian Pappas, Christine Pappas, its former Human Resources officer, and an independent company controlled by Mr. Pappas named Franventures, LLC (“Franventures”). The lawsuit seeks return of company emails and other electronic materials in the possession of the defendants, company control over the process by which the company’s documents are identified, and a court judgment that the property is the Company’s. Mr. and Mrs. Pappas have returned certain company documents that they have identified, but other issues remain. On December 11, 2017, Brian Pappas filed a counterclaim alleging the Company is required to indemnify him for a multitude of matters. The Company denies the allegation and is actively litigating this matter. On January 29, 2020, the court entered an order denying Mr. Pappas’ motion for summary judgment on his indemnification claim.

In a separate suit, filed on March 7, 2016 in the state court in St. John’s County, Florida (Case No. CA 16-236), Franventures, LLC (“FV”) filed suit against the Company alleging that it is due an unstated amount of money from the Company pursuant to a contract the Company had previously terminated. On June 23, 2016, the Company filed a counterclaim against Franventures, which also included a complaint against former Chairman of the Board and Chief Executive Officer Brian Pappas. The counterclaim seeks redress for losses and expenditures caused by alleged fraud, conversion of company assets, and breaches of fiduciary duty that the Company alleges that defendants perpetrated upon CLC, including assertions regarding actions by Brian Pappas that the Company alleges occurred while Mr. Pappas was serving as the Chief Executive Officer of CLC and as a member of its board of directors. The Company is actively litigating this matter. On October 27, 2016, Brian Pappas filed a motion to amend the complaint in Case No. CA 16-236 to add a claim alleging that the Company slandered him by virtue of a press release issued on or about August 1, 2016, in which the Company reported to shareholders on steps it had taken and improvements it had implemented. The motion has still not been ruled upon by the Court. If Mr. Pappas does amend his complaint, the Company will vigorously defend the proposed claim.

The Company’s complaint against Mr. Pappas and Franventures (Case No. CA 15-1076) has been consolidated with Mr. Pappas’ and Franventures’ complaint against the Company (Case No. CA 16-236) for purposes of discovery, but not for any other purpose.

On February 24, 2017, franchisee, Team Kasa, LLC, along with its three owners, filed suit in the Eastern District of New York (Case No. 2:17-cv-01074) against former CEO Brian Pappas, and Franventures. The same Plaintiffs also initiated an arbitration proceeding against the Company on the same issues (American Arbitration Association, Case No. 01-17-0001-1968), alleging the Company is jointly and severally liable for damages resulting from the allegations against Mr. Pappas and Franventures. The Company is contesting the allegations and its liability for any damages. This case has been held in abeyance as the parties seek a resolution.

On November 8, 2017, franchisee, Indy Bricks, LLC, along with its two owners, Ben and Kate Schreiber, initiated arbitration against the Company (American Arbitration Association, Case No. 01-17-0006-8120). Plaintiffs allege breach of contract, fraud, material misrepresentations and omissions, violations of the Indiana Franchise Act, and violations of the Indiana Deceptive Franchise Practices Act. . On April 23, 2020, a settlement agreement was entered into between the Plaintiffs and the Company under which the arbitration was dismissed. Pursuant to the settlement agreement, Indy Bricks, LLC will pay the Company an agreed amount of past due franchise fees, monthly marketing and royalty fees, and monthly fees to utilize the Company’s FMS.

 On December 6, 2019, the Company initiated arbitration against two franchise owners. This case was settled on February 5, 2020.

13

(4) Directors Compensation

During the nine months ended June 30, 2020, the Company recorded a total of $14,500 for cash compensation for two directors for their services provided as Directors and Audit Chairman. During the nine months ended June 30, 2020, the Company also recorded a total of $5,000 for stock-based compensation owed to two directors for director services, of which 35,714 shares of common stock were issued for a fair value of $2,500. The remaining $2,500 is accrued at June 30, 2020 as a liability as per FASB ASC 480-10-55-2. This accrual will be recorded as equity upon issuance of shares.  

On April 30, 2020, Bart Mitchell was appointed president of the Company and Christopher Rego was appointed chief executive officer. On June 2, 2020 Bart Mitchell tendered his resignation to the Company as president, effective as of the close of business on June 8, 2020.

On May 1, 2020, Mr. Mitchell returned 279,406 shares of common stock, which had been granted to him in the prior year, for no consideration. The shares were recorded as cancelled by the Company.

On June 8, 2020, the Company appointed Rod K. Whiton as president of the Company, effective immediately following Mr. Mitchell’s resignation on the same date. In connection with Mr. Whiton’s appointment, the Company’s board approved a salary of `$100,000 per year for Mr. Whiton. At the same time, the Company’s board approved a salary of $120,000 per year for Mr. Rego, the Company’s chief executive officer.

(5) Sale of Condominium

On October 30, 2019 the Company completed the sale of a condominium conference space for proceeds of approximately $100,000 and recorded a gain of approximately $21,000, which represented the excess of the proceeds over the carrying value on that date.

(6) Restatement of Prior Period Financial Statements

The Company has restated its previously reported consolidated statement of operations, statement of cash flows, and statement of stockholders equity (deficit) to correct certain revenues and expenses and to properly reflect the effect of FASB ASC 606 upon its adoption. The tables below illustrate these restatements:

Statement of operations for the nine months ended June 30, 2019:

	As Originally Reported		As Adjusted		Effect of Change
Marketing fund revenue	$	620,361	$	108,049	$	(512,312)
Marketing fund expense	$	-	$	108,049	$	108,049
General advertising expense	$	631,132	$	10,771	$	(620,361)

Statement of cash flows for the nine months ended June 30, 2019:

	As Originally Reported			As Adjusted		Effect of Change
Noncash activity related to FASB ASC 606	$	4,433,675		$	5,019,689	$	586,014
Commission expense	$	(1,627,445	)	$	487,951	$	2,115,396
Deferred revenue	$	4,843,052		$	(1,706,019)	$	(6,549,071)

Statement of stockholders’ equity (deficit) for the three and nine months ended June 30, 2019:

	As Originally Reported		As Adjusted		Effect of Change
Adoption of FASB ASC 606	$	4,433,675	$	5,019,689	$	586,014
Accumulated Deficit	$	5,181,182	$	5,767,196	$	586,014

These restatements had no effect on net income for the three or nine months ended June 30, 2019.

(7) Subsequent Events

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require disclosure in the consolidated financial statements.

14

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

Overview

Creative Learning Corporation, operating under the trade names of Bricks 4 Kidz® and Sew Fun Studios®, offers educational and enrichment programs to children ages 3 to 13+ through its franchisees. The Company’s business model is to sell franchise territories and collect a one-time franchise fee and subsequent monthly royalty fees from each territory. Through the Company’s franchise business model, which includes a proprietary curriculum and marketing strategy plus a proprietary franchise management tool, the Company provides a wide variety of programs designed to enhance students’ problem solving and critical thinking skills. As of June 30, 2020, the Company had 496 Bricks 4 Kidz® and Sew Fun Studios® franchise territories, 28 Bricks 4 Kidz® master franchises, and 141 Bricks 4 Kidz® sub-franchises operating in 40 countries.

Third Quarter FY 2020 Highlights

The decrease in initial franchise fees during the three and nine months ended June 30, 2020 was primarily due to the acceleration of deferred revenues in 2019, and fewer franchises paying royalties because of the Coronavirus (“COVID-19”).

Royalties fee revenue decreased by approximately $250,000 for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019 due to the offboarding of several franchisees during the year ended September 30, 2019, thus fewer franchisees were paying royalties in the current period versus the same period of the prior year. In addition, fewer franchises were paying royalties because of COVID-19.

Marketing fund revenue decreased approximately $25,000 in the three months ended June 30, 2020 and increased by approximately $52,000 during the nine months ended June 30, 2020 due to an increase in marketing fund expenses in the current period. Because marketing fund revenues and expenses are limited to the lesser of amounts spent by the Company or amounts billed to customers, the increase in spend over the prior year resulted in an increase in revenue from the prior year.

Technology fees increased by 100% in the three and nine months ended June 30, 2020 due to the Company beginning to charge franchisees for the use of their online platform.

Operating Expenses increased by approximately $118,000 in the three months ended June 30, 2020, as compared to the same period in 2019, primarily due to a higher allowance for doubtful accounts as the Company measures collectability of franchise royalties in the COVID-19 environment, and thus increased bad debt expense. Operating expenses decreased by approximately $168,000 in the nine months ended June 30, 2020, as compared to the same period in 2019, primarily due to the larger franchise commissions expense recorded in the nine months ended June 30, 2019 as well as increased bad debt expense as described above. This was a result of more offboards in the comparative period in which the deferred expense on the terminated contract was recognized immediately as per FASB ASC 606.

The net income (loss) for the three and nine months ended June 30, 2020 was $(3,267) and $551,820 as compared to $635,333 and $1,644,018 in three and nine months ended June 30, 2019. The decrease was primarily a result of more offboards in fiscal 2019, which resulted in the immediate recognition of deferred revenues associated with the terminated contracts per FASB ASC 606 and the outbreak of COVID-19.

Liquidity and Capital Resources

The Company’s primary source of liquidity is cash generated through operations. The Company has currently temporarily suspended domestic franchise offers and sales of Bricks 4 Kidz® and Sew Fun Studios® franchises in compliance with FTC Franchise Rule, Section 436.7(a) due to delay in completion of the Company’s fiscal year 2018 and 2019 consolidated audited financial statements as well as the Company’s December 31, 2019 consolidated financial statements. In turn, this delayed completion of the Company’s 2018 and 2019 FDDs for the Bricks 4 Kidz® and Sew Fun Studios® franchise offerings.

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

The recent COVID-19 outbreak has been declared a pandemic by the World Health Organization, has spread to the United States and many other parts of the world and has adversely affected our business operations, employee availability, financial condition, liquidity and cash flow and the length of such impacts are uncertain.

The outbreak of the COVID-19 continues to grow both in the United States and globally, and related government and private sector responsive actions have and will continue to adversely affect our business operations. It is impossible to predict the effect and ultimate impact of the COVID-19 pandemic as the situation is rapidly evolving.

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

15

On April 28, 2020, the Company, was granted a loan (the “Loan”) from First Bank of the Lake in the aggregate amount of $119,980, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a Note dated April 24, 2020 issued by the Company, matures on April 23, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on October 23, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

Cash funds are used for ongoing operating expenses, the purchase of equipment, property improvement, and software development. During the nine months ended June 30, 2019 and 2018, the Company purchased property and equipment totaling approximately $0 and $123,000, respectively.

During the nine months ended June 30, 2020, the Company completed the sale of a condominium conference space for proceeds of approximately $100,000 and recorded a gain of approximately $21,000, which represented the excess of the proceeds over the carrying value on the date of sale.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to us as a smaller reporting company.

Item 4. Controls and Procedures

As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation regarding the three months ended June 30, 2020, under the supervision and with the participation of our management and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our management concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management 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.

In our 2019 Annual Report on Form 10-K, the Company concluded internal controls over financial reporting were not effective as of September 30, 2019.

16

PART II

Item 1. Legal Proceedings

There is no new litigation or changes to matters currently outstanding as of the 10-K filed with the SEC for the year ended September 30, 2019, except as previously disclosed in the “Note (3) Commitments and Contingencies – Litigation” to the financial statements including in Part I to this Form 10-Q.

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

During the three months ended June 30, 2020, the Company did not issue any shares of common stock.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information 

None

17

Item 6. Exhibits

Exhibits 

Exhibit No.	Exhibit
31.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
32.2	Certification of Principal Accounting 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

18

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: August 4, 2020	By:	/s/ Robert Boyd
		Robert Boyd
		Chief Accounting Officer (Principal Financial Officer)

	CREATIVE LEARNING CORPORATION
Dated: August 4, 2020	By:	/s/ Rod K. Whiton
		Rod K. Whiton
		President

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: August 4, 2020	By:	/s/ Robert Boyd
		Robert Boyd
		Chief Accounting Officer (Principal Financial Officer)

	CREATIVE LEARNING CORPORATION
Dated: August 4, 2020	By:	/s/ Rod K. Whiton
		Rod K. Whiton
		President

19

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Robert Boyd, 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.

August 4, 2020	By:	/s/ Robert Boyd
		Robert Boyd
		Chief Accounting Officer (Principal Financial Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Christopher Rego, 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.

August 4, 2020	By:	/s/ Christopher Rego
		Christopher Rego,
		Chief Executive Officer, Board Member (Principal Executive Officer)

EX-32.1

EXHIBIT 32.1

In connection with the Quarterly Report of Creative Learning Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2020 as filed with the Securities and Exchange Commission (the “Report”), Robert Boyd, the Chief Accounting Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

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

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

August 4, 2020	By:	/s/ Robert Boyd
		Robert Boyd
		Chief Accounting Officer (Principal Financial Officer)

EX-32.2

EXHIBIT 32.2

In connection with the Quarterly Report of Creative Learning Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2020 as filed with the Securities and Exchange Commission (the “Report”), Christopher Rego, the Chief 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 her 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.

August 4, 2020	By:	/s/ Christopher Rego
		Christopher Rego,
		Chief Executive Officer, Board Member (Principal Executive Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Jun. 30, 2020	Aug. 04, 2020
Document and Entity Information [Abstract]
Entity Registrant Name	CREATIVE LEARNING Corp
Entity Central Index Key	0001394638
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Document Type	10-Q
Document Period End Date	Jun. 30, 2020
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2020
Entity's Reporting Status Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		12,811,532
Entity Filer Number	000-52883
Entity Interactive Data Current	Yes
Entity Incorporation State Country Code	DE

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Current Assets:
Cash	$ 491,303	$ 522,071
Restricted Cash (marketing fund)	22,875	17,950
Accounts receivable, less allowance for doubtful accounts of approximately $810,000 and $663,000, respectively	457,891	279,109
Prepaid commission expense	230,112	235,129
Prepaid expense	14,452	7,867
Marketing fund receivable	64,790
Notes receivables - current portion, less allowance for doubtful accounts of approximately $91,000 and $91,000, respectively	9,987	3,000
Total Current Assets	1,291,410	1,065,126
Security deposit	833
Prepaid commission expense - net of current portion	601,163	773,062
Property and equipment, net of accumulated depreciation of approximately $415,000 and $383,000, respectively	163,053	323,789
Total Assets	2,056,459	2,161,977
Current Liabilities:
Accounts payable	74,947	107,697
SBA Loan - PPP	119,980
Deferred revenue	972,873	986,039
Accrued liabilities	33,703	125,720
Total Current Liabilities	1,201,503	1,219,456
Deferred revenue - net of current portion	2,740,222	3,382,107
Total Liabilities	3,941,725	4,601,563
Commitments and Contingencies (Note 3)
Stockholders' Equity (Deficit)
Preferred stock, $.0001 par value; 10,000,000 shares authorized; -0- shares issued and outstanding
Common stock, $.0001 par value; 50,000,000 shares authorized 13,363,410 shares issued and 13,313,410 shares outstanding as of June 30, 2020 13,607,102 shares issued and 13,542,002 shares outstanding as of September 30, 2019	1,334	1,360
Additional paid in capital	2,990,080	2,987,554
Treasury Stock 65,100 shares, at cost	(34,626)	(34,626)
Accumulated Deficit	(4,842,054)	(5,393,874)
Total Stockholders' Equity (Deficit)	(1,885,266)	(2,439,586)
Total Liabilities and Stockholders' Equity (Deficit)	$ 2,056,459	$ 2,161,977

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Consolidated Balance Sheets
Allowance for doubtful accounts receivable	$ 810,000	$ 663,000
Allowance for doubtful notes receivable	91,000	91,000
Accumulated depreciation	$ 415,000	$ 383,000
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, authorized	10,000,000	10,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, authorized	50,000,000	50,000,000
Common stock, issued	13,363,410	13,607,102
Common stock, outstanding	13,313,410	13,542,002
Treasury stock, shares	65,100	65,100

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenues
Royalties fees	$ 342,010	$ 462,967	$ 1,248,467	$ 1,498,170
Marketing fund revenue	12,979	38,323	159,773	108,049
Initial franchise fees	221,347	614,716	720,318	1,844,413
Technology fees	45,354		131,168
Merchandise sales		27,307		44,870
TOTAL REVENUES	621,690	1,143,313	2,259,726	3,495,502
OPERATING EXPENSES
Salaries and payroll taxes and stock-based compensation	175,240	155,220	454,006	531,467
Professional, legal and consulting fees	128,267	163,917	479,144	413,842
Bad debt expense	136,182	48,994	165,550	76,052
Other general and administrative expenses	79,133	40,962	184,304	173,509
Franchise commissions	62,628	18,588	182,337	460,361
Franchise training and expenses		289	3,294	15,611
Depreciation	26,281	31,160	81,107	86,332
General Advertising	658	2,230	5,963	10,771
Franchise marketing fund expense	12,979	38,323	159,773	108,049
Office expense	3,023	6,319	7,630	15,030
TOTAL OPERATING EXPENSES	624,391	506,002	1,723,108	1,891,024
OPERATING INCOME (LOSS)	(2,701)	637,311	536,618	1,604,478
OTHER INCOME (EXPENSE)	(565)	(1,978)	15,202	39,540
INCOME (LOSS) BEFORE INCOME TAXES	(3,266)	635,333	551,820	1,644,018
PROVISION FOR INCOME TAXES
NET INCOME (LOSS)	$ (3,266)	$ 635,333	$ 551,820	$ 1,644,018
NET INCOME PER SHARE
Basic and diluted	$ .00	$ 0.05	$ 0.04	$ 0.14
Basic and diluted weighted average number of common shares outstanding	13,444,592	12,017,850	13,477,299	12,015,457

XML

Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) (Unaudited) - USD ($)	Treasury Stock	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Balance at Sep. 30, 2018	$ (34,626)	$ 1,207	$ 2,895,285	$ (2,391,525)	$ 472,341
Balance (in shares) at Sep. 30, 2018	(65,100)	12,075,875
Stock-based compensation
Shares issued for rounding error		$ 2	(2)
Shares issued for rounding error (in shares)		13,265
Net income (loss)				1,644,018	1,644,018
Adoption of ASC 606				(5,019,689)	(5,019,689)
Balance at Jun. 30, 2019	$ (34,626)	$ 1,209	2,897,283	(5,767,196)	(2,903,330)
Balance (shares) at Jun. 30, 2019	(65,100)	12,089,140
Balance at Mar. 31, 2019	$ (34,626)	$ 1,209	2,897,283	(6,402,529)	(3,538,663)
Balance (in shares) at Mar. 31, 2019	(65,100)	12,089,140
Net income (loss)				635,333	635,333
Balance at Jun. 30, 2019	$ (34,626)	$ 1,209	2,897,283	(5,767,196)	(2,903,330)
Balance (shares) at Jun. 30, 2019	(65,100)	12,089,140
Balance at Sep. 30, 2019	$ (34,626)	$ 1,360	2,987,554	(5,393,874)	(2,439,586)
Balance (in shares) at Sep. 30, 2019	(65,100)	13,607,102
Stock-based compensation		$ 2	2,498		2,500
Stock-based compensation (in shares)		35,714
Shares cancelled		$ (28)	28
Shares cancelled (in shares)		(279,406)
Net income (loss)				551,820	551,820
Balance at Jun. 30, 2020	$ (34,626)	$ 1,334	2,990,080	(4,842,054)	(1,885,266)
Balance (shares) at Jun. 30, 2020	(65,100)	13,363,410
Balance at Mar. 31, 2020	$ (34,626)	$ 1,362	$ 2,990,052	$ (4,838,788)	$ (1,882,000)
Balance (in shares) at Mar. 31, 2020	(65,100)	13,642,816
Stock-based compensation (in shares)		(28)	28
Shares cancelled		$ (279,406)
Net income (loss)				$ (3,266)	$ (3,266)
Balance at Jun. 30, 2020	$ (34,626)	$ 1,334	$ 2,990,080	$ (4,842,054)	$ (1,885,266)
Balance (shares) at Jun. 30, 2020	(65,100)	13,363,410

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities:
Net Income	$ 551,820	$ 1,644,018
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Depreciation	81,107	86,332
Gain on sale of assets held for sale	(20,602)	(42,775)
Bad debt expense	29,368	76,052
Stock based compensation	2,500
Changes in operating assets and liabilities:
Accounts receivable	(208,150)	(263,580)
Prepaid expenses	(6,585)	29,358
Prepaid commission expense	176,916	487,951
Deposits	(833)
Accounts payable	(32,750)	(67,970)
Accrued liabilities	(92,017)	1,446
Deferred Revenue	(655,051)	(1,706,019)
Accrued marketing fund	(64,790)	(32,030)
Net cash provided by (used in) operating activities	(239,067)	212,783
Cash flows from investing activities:
Acquisition of property and equipment		(122,575)
Sale of assets held for sale	100,231	85,787
Collection of Notes receivable	(6,987)	9,000
Net cash provided by (used in) investing activities	93,244	(27,788)
Cash flows from financing activities:
Proceeds from SBA PPP Loan	119,980
Net cash provided by financing activities	119,980
Net change in cash, cash equivalents and restricted cash	(25,843)	184,995
Cash, cash equivalents and restricted cash at beginning of period	540,021	103,198
Cash, cash equivalents and restricted cash at end of period	514,178	288,193
Noncash financing activity:
Shares issued for rounding error		2
Noncash activity related to FASB ASC 606		$ 5,019,689

XML

Nature of Organization and Summary of Significant Accounting Policies

9 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Organization, Operations and Summary of Significant Accounting Policies

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

Nature of Organization

Creative Learning Corporation (the “Company”) operates wholly owned subsidiaries, BFK Franchise Co., LLC (“BFK”) and SF Franchise Company, LLC (“SF”), under the trade names Bricks 4 Kidz® and Sew Fun Studios™ respectively, that offer children’s enrichment and education franchises. As of June 30, 2020, BFK franchisees operated in 496 territories in 35 states and 40 countries.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s results for the interim periods that have been included. The results for the three and nine months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and management’s discussion and analysis included in the Company’s annual report on Form 10-K for the year ended September 30, 2019.

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.

Pursuant to the Consent Solicitation Settlement Agreement entered into on February 5, 2020, Christopher Rego was appointed to the Company’s board of directors as well as was named chief executive officer of BFK. Effective April 30, 2020, Mr. Rego was appointed chief executive officer of the Company. Mr. Rego is an active franchisee of the Company. As of September 30, 2019 and June 30, 2020, Mr. Rego’s franchises had deferred revenue balances of $14,659 and $11,967, respectively. Revenue recognized for the three and nine months ended June 30, 2020 for Mr. Rego’s franchises were $898 and $2,693, respectively. As of September 30, 2019 and June 30, 2020, Mr. Rego’s franchises had receivables balances of $21,536 and $10,447, respectively. As per the Consent Settlement Agreement, receivables owed from Mr. Rego in the amount of $18,825 were forgiven on February 4, 2020. This forgiveness has been reflected in the June 30, 2020 receivable balance noted above. Mr. Rego is also the CEO of a software development company that the Company entered into an agreement with on March 10, 2020. The term of the agreement is nine months and calls for a development fee of $12,900 per month. $51,600 was expensed and paid by the Company for the services provided during the nine months ended June 30, 2020. Also, as per the Consent Solicitation Settlement agreement entered into on February 5, 2020, the Company has expensed $10,000 for legal fees owed on behalf of Mr. Rego and Mr. Whiton.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions made by management include allowance for doubtful accounts, the valuation allowance for deferred tax assets, depreciation of property and equipment, amortization of intangible assets, recoverability of long-lived assets and fair market value of equity instruments. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.

Cash, Restricted Cash and Cash Equivalents

The Company had restricted cash of approximately $23,000 and $18,000 at June 30, 2020 and September 30, 2019, respectively, associated with marketing funds collected from the franchisees. Per the franchise agreements a marketing fund of 2% of franchisees gross cash receipts is collected and held to be spent on the promotion of the brand. Any cash collected by the Company for marketing funds is held in a separate bank account and any balance at period end is presented as “restricted cash” and “accrued marketing fund” on the balance sheet.

Accounts and Note Receivables

The Company reviews accounts and notes receivable periodically for collectability, establishes an allowance for doubtful accounts, and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts and notes that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Receivables and notes are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts at June 30, 2020 and September 30, 2019 are adequate, but actual write-offs could exceed the recorded allowance.

Property, Equipment and Depreciation

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, which range from three to forty years. Expenditures for additions and improvements are capitalized, while repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal.

Fixed Assets	Useful Life
Equipment	5 years
Furniture and Fixtures	5 years
Property Improvements	15-40 years
Software	3  years

Long-Lived Assets

The Company’s long-lived assets consist of property and equipment, and intangible assets. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates of asset useful lives and future cash flows.  Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, and accounts payable approximate fair value because of the relative short-term maturity of these items and current payment expected. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments. Notes receivable are recorded at par value less allowance for doubtful accounts. The carrying amount is consistent with fair value based upon similar notes issued to other franchisees.

ASC 825, Financial Instruments, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

Level 1:	Quoted prices in active markets for identical assets or liabilities.
Level 2:	Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
Level 3:	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.  The Company had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared 

Revenue Recognition 

The Company generates almost all of its revenue from contracts with customers. The Company’s franchise agreements enter the parties into a contractual agreement, typically over a ten years term, and include performance obligations as follows: protected territory designation, access to proprietary manuals and handbooks, initial training and on-going assistance, consulting, promotion of goodwill, administration of marketing fund, marketing and promotion items, initial marketing program development assistance, company website access, Franchise Management Tool access, lessons and model plans, project kits, Duplo bricks, frames stop motion animation software, and use of the franchisor’s intellectual property (IP) (e.g., trade name – Bricks for Kidz). Upon entering into a franchise agreement, the Company charges an initial franchise fee, which is fully collectible and nonrefundable as of the date of the signing of the franchise agreement. Further, because the Company’s franchises are primarily a mobile concept and do not require finding locations or construction, the franchisees can begin operations as soon as they complete training.

Per the terms of the franchise agreements, the Company charges for royalty fees on a monthly basis, generally set at a fixed amount, but in some cases are based on a percentage of franchisee’s monthly gross revenues. The Company also charges fees for a marketing fund, generally based on 2% of franchisee’s monthly gross revenues, which is managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees. Lastly, the Company charges for technology fees on a monthly basis, generally at a fixed amount, for the use of the company Franchise Management tool as well as company emails, etc.

Effective October 1, 2018 the Company began recognizing revenue under ASC 606. The Company considers initial franchise fees to be a part of the license of symbolic intellectual property (“IP”), therefore the performance obligation related to these fees is satisfied over time as the Company fulfills its promise to grant the customer rights to use, and benefit from, the Company’s IP, as well as support and maintain the IP. The initial franchise fee, then, is recorded as deferred revenue at inception and recognized on a straight-line basis over the contract term.

In accordance with ASC 606-10-55-65, the Company has determined that the royalty fees, marketing fees, and technology fees are subject to a sales and usage-based royalties’ constraint on licenses of IP. Accordingly, these fees are recognized as revenue at the later of when the sales or usage occurs or the related performance obligation is satisfied. Technology fees are recorded net of processing fees. Marketing fees are limited to the lesser of marketing amounts earned or expensed; therefore, the Company will recognize amounts received in excess of amounts spent on the balance sheet in the accrued marketing fund liability and will recognize amounts spent in excess of amounts received on the balance sheet in the marketing fund receivable.

The Company collects transfer fees when contracts are transferred between parties and accounts for the transfer as a contract modification under ASC 606. Because the transfer does not increase the scope of the contract or promise any additional goods or services and there are no new distinct services that will be provided after the transfer the Company considers the transfer fee part of the existing contract. Transfer fees, then, are recorded as deferred revenue at inception and recognized on a straight-line basis over the remaining contract term.

When contracts are terminated due to default, or in conjunction with an early termination agreement, the Company accounts for the early termination as a contract modification under ASC 606. Because the termination eliminates any future performance obligations of the Company any deferred revenue associated with the terminated contract is recognized into revenue at the time of termination, along with any early termination fees, in the initial franchise fee line on the Company’s Statement of Operations.

The Company generates revenue from sales of merchandise where the performance obligation is met, and therefore revenue recognized, upon the delivery of merchandise to the customer.

Contract Liability – Deferred Revenue

In conjunction with the adoption of ASC 606, effective October 1, 2018 the Company recorded deferred revenue as a contract liability for its initial franchise fees collected and related to contracts with remaining performance obligations. During the nine months ended June 30, 2020 the activity in the deferred revenue account was as follows:

Balance, September 30, 2019	$	4,368,146
Initial franchise fees collected		65,267
Deferred revenue recognized into revenue		(720,318	)
Balance, June 30, 2020		3,713,095
Current portion		(972,873	)
Deferred revenue, net of current portion	$	2,740,222

Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2020 were as follows:

Twelve months ended June 30, 2021	$	972,873
Twelve months ended June 30, 2022		921,982
Twelve months ended June 30, 2023		809,832
Twelve months ended June 30, 2024		538,871
Twelve months ended June 30, 2025 and thereafter		469,537
Total	$	3,713,095

Contract Liability / Asset – Accrued Marketing Fund / Marketing Fund Receivable

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

The marketing fund amounts owed to the Company are accounted for as a liability on the balance sheet and the actual collections are deposited into a marketing fund bank account, presented as restricted cash on the balance sheet. Expenses pertaining to the marketing fund activities are paid from the marketing fund and reduce the liability account. Upon adoption of FASB 606 on October 1, 2018, the Company presents these marketing fund revenues and expenses on a gross basis on its statement of operations. Any unused funds at the end of the period are recorded as accrued marketing fees or any funds used in excess of funds collected are recorded as a marketing fund receivable. During the nine months ended June 30, 2020, the Company recorded franchisee marketing fund expenses in advance of billings in the amount of $64,790. The Company expects to collect this advance in future periods from the 2% fees collected on future franchisee gross revenues. The activity in the accrued marketing fund liability account was as follows:

Marketing fund liability (receivable), September 30, 2019	—
Marketing fund billings recognized into income		159,773
Marketing funds recognized into expense		(159,773	)
Marketing funds advanced by the Company		(64,790	)
Marketing fund liability (receivable), June 30, 2020	$	(64,790	)

Contract Asset – Prepaid Commission Expense

In accordance with ASC 606 the costs related to obtaining a contract are to be capitalized as long as the costs are recoverable and incremental. Effective October 1, 2018, the date the Company adopted ASC 606, it capitalized the value of sales commissions as a contract asset and is amortizing those costs straight-line over the contract life of the franchise agreement to which they relate. During the nine months ended June 30, 2020, the activity in the contract asset account was as follows:

Balance, September 30, 2019	$	1,008,191
Commissions paid		5,421
Commissions recognized into expense		(182,337	)
Balance, June 30, 2020		831,275
Current portion		(230,112	)
Prepaid commission expense, net of current portion	$	601,163

Paycheck Protection Program

On April 28, 2020, the Company was granted a loan (the “Loan”) from First Bank of the Lake in the aggregate amount of $119,980, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a Note dated April 24, 2020 issued by the Company, matures on April 23, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on October 23, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

General Advertising Costs

General advertising costs are expensed as incurred. The Company incurred general advertising costs for the three months ended June 30, 2020 and 2019 of $658 and $2,230, respectively and for the nine months ended June 30, 2020 and 2019 of approximately $5,963 and $10,771, 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. Given previous recurring losses, the Company cannot conclude that it is more likely than not that such assets will be realized, therefore a full valuation allowance has been recorded during the nine months ended June 30, 2020. 

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

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

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 30, 2020 and September 30, 2019, respectively, and has not recognized interest and/or penalties during the three or nine months ended June 30, 2020, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within the next twelve months.

The tax years subject to examination by major tax jurisdictions include the years 2015 and forward by the U.S. Internal Revenue Service.

Net earnings (loss) per share

Basic earnings per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

Stock-based compensation

The Company accounts for employee stock awards for services based on the grant date fair value of the instrument issued, and those issued to non-employees are recorded based on the grant date fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable. Stock awards are expensed over the service period.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Recent accounting pronouncements

All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.

XML

Notes and Other Receivables

9 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Notes and Other Receivables

(2) Notes and Other Receivables

At June 30, 2020 and September 30, 2019, the Company held certain notes receivable totaling approximately $10,000 and $3,000, respectively, net of allowances, for extended payment terms of franchise fees. The notes receivable bear interest of 4% with monthly payments, payable within four years. The Company analyzes the collectability of all receivables and reserves accordingly.

XML

Commitments and Contingencies

9 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

(3) Commitments and Contingencies

Employment Agreements

The Company entered into an Employment Agreement with Mr. Mitchell as of October 1, 2019 appointing him Chief Executive Officer of the Company. The employment agreement provides for a one year term. Mr. Mitchell’s annual cash compensation increased to $150,000 and he is entitled to receive stock grants valued at the lesser of $15,000 or 200,000 Shares of Common Stock. Effective April 30, 2020, Mr. Mitchell’s title was changed to President. Mr. Mitchell resigned as his position of President on June 8, 2020. At such time he received a severance package of $50,000.

Effective October 1, 2019, Robert Boyd was appointed Chief Accounting Officer of the Company. Mr. Boyd and the Company entered into a one year employment agreement which provides that Mr. Boyd’s compensation will be $40,000 per annum.

Litigation

The Company is subject to litigation claims arising in the ordinary course of business. The Company believes that it has adequately accrued for legal matters in accordance with the requirements of GAAP. The Company records litigation accruals for legal matters which are both probable and estimable and for related legal costs as incurred. The Company does not reduce these liabilities for potential insurance or third-party recoveries.

On October 2, 2015, the Company filed suit in the state court in St. John’s County, Florida, Case No. CA 15-1076, against its former Chief Executive Officer Brian Pappas, Christine Pappas, its former Human Resources officer, and an independent company controlled by Mr. Pappas named Franventures, LLC (“Franventures”). The lawsuit seeks return of company emails and other electronic materials in the possession of the defendants, company control over the process by which the company’s documents are identified, and a court judgment that the property is the Company’s. Mr. and Mrs. Pappas have returned certain company documents that they have identified, but other issues remain. On December 11, 2017, Brian Pappas filed a counterclaim alleging the Company is required to indemnify him for a multitude of matters. The Company denies the allegation and is actively litigating this matter. On January 29, 2020, the court entered an order denying Mr. Pappas’ motion for summary judgment on his indemnification claim.

In a separate suit, filed on March 7, 2016 in the state court in St. John’s County, Florida (Case No. CA 16-236), Franventures, LLC (“FV”) filed suit against the Company alleging that it is due an unstated amount of money from the Company pursuant to a contract the Company had previously terminated. On June 23, 2016, the Company filed a counterclaim against Franventures, which also included a complaint against former Chairman of the Board and Chief Executive Officer Brian Pappas. The counterclaim seeks redress for losses and expenditures caused by alleged fraud, conversion of company assets, and breaches of fiduciary duty that the Company alleges that defendants perpetrated upon CLC, including assertions regarding actions by Brian Pappas that the Company alleges occurred while Mr. Pappas was serving as the Chief Executive Officer of CLC and as a member of its board of directors. The Company is actively litigating this matter. On October 27, 2016, Brian Pappas filed a motion to amend the complaint in Case No. CA 16-236 to add a claim alleging that the Company slandered him by virtue of a press release issued on or about August 1, 2016, in which the Company reported to shareholders on steps it had taken and improvements it had implemented. The motion has still not been ruled upon by the Court. If Mr. Pappas does amend his complaint, the Company will vigorously defend the proposed claim.

The Company’s complaint against Mr. Pappas and Franventures (Case No. CA 15-1076) has been consolidated with Mr. Pappas’ and Franventures’ complaint against the Company (Case No. CA 16-236) for purposes of discovery, but not for any other purpose.

On February 24, 2017, franchisee, Team Kasa, LLC, along with its three owners, filed suit in the Eastern District of New York (Case No. 2:17-cv-01074) against former CEO Brian Pappas, and Franventures. The same Plaintiffs also initiated an arbitration proceeding against the Company on the same issues (American Arbitration Association, Case No. 01-17-0001-1968), alleging the Company is jointly and severally liable for damages resulting from the allegations against Mr. Pappas and Franventures. The Company is contesting the allegations and its liability for any damages. This case has been held in abeyance as the parties seek a resolution.

On November 8, 2017, franchisee, Indy Bricks, LLC, along with its two owners, Ben and Kate Schreiber, initiated arbitration against the Company (American Arbitration Association, Case No. 01-17-0006-8120). Plaintiffs allege breach of contract, fraud, material misrepresentations and omissions, violations of the Indiana Franchise Act, and violations of the Indiana Deceptive Franchise Practices Act. . On April 23, 2020, a settlement agreement was entered into between the Plaintiffs and the Company under which the arbitration was dismissed. Pursuant to the settlement agreement, Indy Bricks, LLC will pay the Company an agreed amount of past due franchise fees, monthly marketing and royalty fees, and monthly fees to utilize the Company’s FMS.

 On December 6, 2019, the Company initiated arbitration against two franchise owners. This case was settled on February 5, 2020.

XML

Directors Compensation

9 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Directors Compensation

(4) Directors Compensation

During the nine months ended June 30, 2020, the Company recorded a total of $14,500 for cash compensation for two directors for their services provided as Directors and Audit Chairman. During the nine months ended June 30, 2020, the Company also recorded a total of $5,000 for stock-based compensation owed to two directors for director services, of which 35,714 shares of common stock were issued for a fair value of $2,500. The remaining $2,500 is accrued at June 30, 2020 as a liability as per FASB ASC 480-10-55-2. This accrual will be recorded as equity upon issuance of shares.  

On April 30, 2020, Bart Mitchell was appointed president of the Company and Christopher Rego was appointed chief executive officer. On June 2, 2020 Bart Mitchell tendered his resignation to the Company as president, effective as of the close of business on June 8, 2020.

On May 1, 2020, Mr. Mitchell returned 279,406 shares of common stock, which had been granted to him in the prior year, for no consideration. The shares were recorded as cancelled by the Company.

On June 8, 2020, the Company appointed Rod K. Whiton as president of the Company, effective immediately following Mr. Mitchell’s resignation on the same date. In connection with Mr. Whiton’s appointment, the Company’s board approved a salary of `$100,000 per year for Mr. Whiton. At the same time, the Company’s board approved a salary of $120,000 per year for Mr. Rego, the Company’s chief executive officer.

XML

Sale of Condominium

9 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Sale of Condominium

(5) Sale of Condominium

On October 30, 2019 the Company completed the sale of a condominium conference space for proceeds of approximately $100,000 and recorded a gain of approximately $21,000, which represented the excess of the proceeds over the carrying value on that date.

XML

Restatement of Prior Period Financial Statements

9 Months Ended

Jun. 30, 2020

Accounting Changes and Error Corrections [Abstract]

Restatement of Prior Period Financial Statements

(6) Restatement of Prior Period Financial Statements

The Company has restated its previously reported consolidated statement of operations, statement of cash flows, and statement of stockholders equity (deficit) to correct certain revenues and expenses and to properly reflect the effect of FASB ASC 606 upon its adoption. The tables below illustrate these restatements:

Statement of operations for the nine months ended June 30, 2019:

	As Originally Reported		As Adjusted		Effect of Change
Marketing fund revenue	$	620,361	$	108,049	$	(512,312)
Marketing fund expense	$	-	$	108,049	$	108,049
General advertising expense	$	631,132	$	10,771	$	(620,361)

Statement of cash flows for the nine months ended June 30, 2019:

	As Originally Reported			As Adjusted		Effect of Change
Noncash activity related to FASB ASC 606	$	4,433,675		$	5,019,689	$	586,014
Commission expense	$	(1,627,445	)	$	487,951	$	2,115,396
Deferred revenue	$	4,843,052		$	(1,706,019)	$	(6,549,071)

Statement of stockholders’ equity (deficit) for the three and nine months ended June 30, 2019:

	As Originally Reported		As Adjusted		Effect of Change
Adoption of FASB ASC 606	$	4,433,675	$	5,019,689	$	586,014
Accumulated Deficit	$	5,181,182	$	5,767,196	$	586,014

These restatements had no effect on net income for the three or nine months ended June 30, 2019.

XML

Subsequent Events

9 Months Ended

Jun. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

(7) Subsequent Events

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.

XML

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

9 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Organization

Nature of Organization

Creative Learning Corporation (the “Company”) operates wholly owned subsidiaries, BFK Franchise Co., LLC (“BFK”) and SF Franchise Company, LLC (“SF”), under the trade names Bricks 4 Kidz® and Sew Fun Studios™ respectively, that offer children’s enrichment and education franchises. As of June 30, 2020, BFK franchisees operated in 496 territories in 35 states and 40 countries.

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for a fair presentation of the Company’s results for the interim periods that have been included. The results for the three and nine months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and management’s discussion and analysis included in the Company’s annual report on Form 10-K for the year ended September 30, 2019.

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.

Pursuant to the Consent Solicitation Settlement Agreement entered into on February 5, 2020, Christopher Rego was appointed to the Company’s board of directors as well as was named chief executive officer of BFK. Effective April 30, 2020, Mr. Rego was appointed chief executive officer of the Company. Mr. Rego is an active franchisee of the Company. As of September 30, 2019 and June 30, 2020, Mr. Rego’s franchises had deferred revenue balances of $14,659 and $11,967, respectively. Revenue recognized for the three and nine months ended June 30, 2020 for Mr. Rego’s franchises were $898 and $2,693, respectively. As of September 30, 2019 and June 30, 2020, Mr. Rego’s franchises had receivables balances of $21,536 and $10,447, respectively. As per the Consent Settlement Agreement, receivables owed from Mr. Rego in the amount of $18,825 were forgiven on February 4, 2020. This forgiveness has been reflected in the June 30, 2020 receivable balance noted above. Mr. Rego is also the CEO of a software development company that the Company entered into an agreement with on March 10, 2020. The term of the agreement is nine months and calls for a development fee of $12,900 per month. $51,600 was expensed and paid by the Company for the services provided during the nine months ended June 30, 2020. Also, as per the Consent Solicitation Settlement agreement entered into on February 5, 2020, the Company has expensed $10,000 for legal fees owed on behalf of Mr. Rego and Mr. Whiton.

Use of Estimates

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions made by management include allowance for doubtful accounts, the valuation allowance for deferred tax assets, depreciation of property and equipment, amortization of intangible assets, recoverability of long-lived assets and fair market value of equity instruments. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.

Cash, Restricted Cash and Cash Equivalents

Cash, Restricted Cash and Cash Equivalents

The Company had restricted cash of approximately $23,000 and $18,000 at June 30, 2020 and September 30, 2019, respectively, associated with marketing funds collected from the franchisees. Per the franchise agreements a marketing fund of 2% of franchisees gross cash receipts is collected and held to be spent on the promotion of the brand. Any cash collected by the Company for marketing funds is held in a separate bank account and any balance at period end is presented as “restricted cash” and “accrued marketing fund” on the balance sheet.

Accounts and Note Receivables

Accounts and Note Receivables

The Company reviews accounts and notes receivable periodically for collectability, establishes an allowance for doubtful accounts, and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts and notes that is based on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with management’s estimate of future potential recoverability. Receivables and notes are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts at June 30, 2020 and September 30, 2019 are adequate, but actual write-offs could exceed the recorded allowance.

Property, Equipment and Depreciation

Property, Equipment and Depreciation

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, which range from three to forty years. Expenditures for additions and improvements are capitalized, while repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal.

Fixed Assets	Useful Life
Equipment	5 years
Furniture and Fixtures	5 years
Property Improvements	15-40 years
Software	3  years

Long-Lived Assets

Long-Lived Assets

The Company’s long-lived assets consist of property and equipment, and intangible assets. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates of asset useful lives and future cash flows.  Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, and accounts payable approximate fair value because of the relative short-term maturity of these items and current payment expected. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial instruments for trading purposes, nor does it utilize derivative instruments. Notes receivable are recorded at par value less allowance for doubtful accounts. The carrying amount is consistent with fair value based upon similar notes issued to other franchisees.

ASC 825, Financial Instruments, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

Level 1:	Quoted prices in active markets for identical assets or liabilities.
Level 2:	Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.
Level 3:	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.  The Company had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared 

Revenue Recognition

Revenue Recognition 

The Company generates almost all of its revenue from contracts with customers. The Company’s franchise agreements enter the parties into a contractual agreement, typically over a ten years term, and include performance obligations as follows: protected territory designation, access to proprietary manuals and handbooks, initial training and on-going assistance, consulting, promotion of goodwill, administration of marketing fund, marketing and promotion items, initial marketing program development assistance, company website access, Franchise Management Tool access, lessons and model plans, project kits, Duplo bricks, frames stop motion animation software, and use of the franchisor’s intellectual property (IP) (e.g., trade name – Bricks for Kidz). Upon entering into a franchise agreement, the Company charges an initial franchise fee, which is fully collectible and nonrefundable as of the date of the signing of the franchise agreement. Further, because the Company’s franchises are primarily a mobile concept and do not require finding locations or construction, the franchisees can begin operations as soon as they complete training.

Per the terms of the franchise agreements, the Company charges for royalty fees on a monthly basis, generally set at a fixed amount, but in some cases are based on a percentage of franchisee’s monthly gross revenues. The Company also charges fees for a marketing fund, generally based on 2% of franchisee’s monthly gross revenues, which is managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees. Lastly, the Company charges for technology fees on a monthly basis, generally at a fixed amount, for the use of the company Franchise Management tool as well as company emails, etc.

Effective October 1, 2018 the Company began recognizing revenue under ASC 606. The Company considers initial franchise fees to be a part of the license of symbolic intellectual property (“IP”), therefore the performance obligation related to these fees is satisfied over time as the Company fulfills its promise to grant the customer rights to use, and benefit from, the Company’s IP, as well as support and maintain the IP. The initial franchise fee, then, is recorded as deferred revenue at inception and recognized on a straight-line basis over the contract term.

In accordance with ASC 606-10-55-65, the Company has determined that the royalty fees, marketing fees, and technology fees are subject to a sales and usage-based royalties’ constraint on licenses of IP. Accordingly, these fees are recognized as revenue at the later of when the sales or usage occurs or the related performance obligation is satisfied. Technology fees are recorded net of processing fees. Marketing fees are limited to the lesser of marketing amounts earned or expensed; therefore, the Company will recognize amounts received in excess of amounts spent on the balance sheet in the accrued marketing fund liability and will recognize amounts spent in excess of amounts received on the balance sheet in the marketing fund receivable.

The Company collects transfer fees when contracts are transferred between parties and accounts for the transfer as a contract modification under ASC 606. Because the transfer does not increase the scope of the contract or promise any additional goods or services and there are no new distinct services that will be provided after the transfer the Company considers the transfer fee part of the existing contract. Transfer fees, then, are recorded as deferred revenue at inception and recognized on a straight-line basis over the remaining contract term.

When contracts are terminated due to default, or in conjunction with an early termination agreement, the Company accounts for the early termination as a contract modification under ASC 606. Because the termination eliminates any future performance obligations of the Company any deferred revenue associated with the terminated contract is recognized into revenue at the time of termination, along with any early termination fees, in the initial franchise fee line on the Company’s Statement of Operations.

The Company generates revenue from sales of merchandise where the performance obligation is met, and therefore revenue recognized, upon the delivery of merchandise to the customer.

Contract Liability – Deferred Revenue

In conjunction with the adoption of ASC 606, effective October 1, 2018 the Company recorded deferred revenue as a contract liability for its initial franchise fees collected and related to contracts with remaining performance obligations. During the nine months ended June 30, 2020 the activity in the deferred revenue account was as follows:

Balance, September 30, 2019	$	4,368,146
Initial franchise fees collected		65,267
Deferred revenue recognized into revenue		(720,318	)
Balance, June 30, 2020		3,713,095
Current portion		(972,873	)
Deferred revenue, net of current portion	$	2,740,222

Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2020 were as follows:

Twelve months ended June 30, 2021	$	972,873
Twelve months ended June 30, 2022		921,982
Twelve months ended June 30, 2023		809,832
Twelve months ended June 30, 2024		538,871
Twelve months ended June 30, 2025 and thereafter		469,537
Total	$	3,713,095

Contract Liability / Asset – Accrued Marketing Fund / Marketing Fund Receivable

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

The marketing fund amounts owed to the Company are accounted for as a liability on the balance sheet and the actual collections are deposited into a marketing fund bank account, presented as restricted cash on the balance sheet. Expenses pertaining to the marketing fund activities are paid from the marketing fund and reduce the liability account. Upon adoption of FASB 606 on October 1, 2018, the Company presents these marketing fund revenues and expenses on a gross basis on its statement of operations. Any unused funds at the end of the period are recorded as accrued marketing fees or any funds used in excess of funds collected are recorded as a marketing fund receivable. During the nine months ended June 30, 2020, the Company recorded franchisee marketing fund expenses in advance of billings in the amount of $64,790. The Company expects to collect this advance in future periods from the 2% fees collected on future franchisee gross revenues. The activity in the accrued marketing fund liability account was as follows:

Marketing fund liability (receivable), September 30, 2019	—
Marketing fund billings recognized into income		159,773
Marketing funds recognized into expense		(159,773	)
Marketing funds advanced by the Company		(64,790	)
Marketing fund liability (receivable), June 30, 2020	$	(64,790	)

Contract Asset – Prepaid Commission Expense

In accordance with ASC 606 the costs related to obtaining a contract are to be capitalized as long as the costs are recoverable and incremental. Effective October 1, 2018, the date the Company adopted ASC 606, it capitalized the value of sales commissions as a contract asset and is amortizing those costs straight-line over the contract life of the franchise agreement to which they relate. During the nine months ended June 30, 2020, the activity in the contract asset account was as follows:

Balance, September 30, 2019	$	1,008,191
Commissions paid		5,421
Commissions recognized into expense		(182,337	)
Balance, June 30, 2020		831,275
Current portion		(230,112	)
Prepaid commission expense, net of current portion	$	601,163

Paycheck Protection Program

Paycheck Protection Program

On April 28, 2020, the Company was granted a loan (the “Loan”) from First Bank of the Lake in the aggregate amount of $119,980, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a Note dated April 24, 2020 issued by the Company, matures on April 23, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on October 23, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020. The Company intends to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

General Advertising Costs

General Advertising Costs

General advertising costs are expensed as incurred. The Company incurred general advertising costs for the three months ended June 30, 2020 and 2019 of $658 and $2,230, respectively and for the nine months ended June 30, 2020 and 2019 of approximately $5,963 and $10,771, 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. Given previous recurring losses, the Company cannot conclude that it is more likely than not that such assets will be realized, therefore a full valuation allowance has been recorded during the nine months ended June 30, 2020. 

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

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

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at June 30, 2020 and September 30, 2019, respectively, and has not recognized interest and/or penalties during the three or nine months ended June 30, 2020, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within the next twelve months.

The tax years subject to examination by major tax jurisdictions include the years 2015 and forward by the U.S. Internal Revenue Service.

Net earnings (loss) per share

Net earnings (loss) per share

Basic earnings per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.

Stock-based compensation

Stock-based compensation

The Company accounts for employee stock awards for services based on the grant date fair value of the instrument issued, and those issued to non-employees are recorded based on the grant date fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable. Stock awards are expensed over the service period.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Recent accounting pronouncements

Recent accounting pronouncements

All newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.

XML

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

9 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Property and Equipment Useful Lifes

Fixed Assets	Useful Life
Equipment	5 years
Furniture and Fixtures	5 years
Property Improvements	15-40 years
Software	3  years

Summary of deferred revenue activity

During the nine months ended June 30, 2020 the activity in the deferred revenue account was as follows:

Balance, September 30, 2019	$	4,368,146
Initial franchise fees collected		65,267
Deferred revenue recognized into revenue		(720,318	)
Balance, June 30, 2020		3,713,095
Current portion		(972,873	)
Deferred revenue, net of current portion	$	2,740,222

Summary of performance obligations

Amounts expected to be recognized into revenue related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2020 were as follows:

Twelve months ended June 30, 2021	$	972,873
Twelve months ended June 30, 2022		921,982
Twelve months ended June 30, 2023		809,832
Twelve months ended June 30, 2024		538,871
Twelve months ended June 30, 2025 and thereafter		469,537
Total	$	3,713,095

Summary of accrued marketing fund for advertising fund revenue accounts

The activity in the accrued marketing fund liability account was as follows:

Marketing fund liability (receivable), September 30, 2019	—
Marketing fund billings recognized into income		159,773
Marketing funds recognized into expense		(159,773	)
Marketing funds advanced by the Company		(64,790	)
Marketing fund liability (receivable), June 30, 2020	$	(64,790	)

Summary of contract asset activity

During the nine months ended June 30, 2020, the activity in the contract asset account was as follows:

Balance, September 30, 2019	$	1,008,191
Commissions paid		5,421
Commissions recognized into expense		(182,337	)
Balance, June 30, 2020		831,275
Current portion		(230,112	)
Prepaid commission expense, net of current portion	$	601,163

XML

Restatement of Prior Period Financial Statements (Tables)

9 Months Ended

Jun. 30, 2020

Accounting Changes and Error Corrections [Abstract]

Schedule of restated statement of operations and statement of cash flows

The tables below illustrate these restatements:

Statement of operations for the nine months ended June 30, 2019:

	As Originally Reported		As Adjusted		Effect of Change
Marketing fund revenue	$	620,361	$	108,049	$	(512,312)
Marketing fund expense	$	-	$	108,049	$	108,049
General advertising expense	$	631,132	$	10,771	$	(620,361)

Statement of cash flows for the nine months ended June 30, 2019:

	As Originally Reported			As Adjusted		Effect of Change
Noncash activity related to FASB ASC 606	$	4,433,675		$	5,019,689	$	586,014
Commission expense	$	(1,627,445	)	$	487,951	$	2,115,396
Deferred revenue	$	4,843,052		$	(1,706,019)	$	(6,549,071)

Statement of stockholders’ equity (deficit) for the three and nine months ended June 30, 2019:

	As Originally Reported		As Adjusted		Effect of Change
Adoption of FASB ASC 606	$	4,433,675	$	5,019,689	$	586,014
Accumulated Deficit	$	5,181,182	$	5,767,196	$	586,014

XML

Nature of Organization and Summary of Significant Accounting Policies (Details 1)	9 Months Ended
	Jun. 30, 2020
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment	5 years
Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment	5 years
Property Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment	15 years
Property Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment	40 years
Software [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment	3 years

XML

Nature of Organization and Summary of Significant Accounting Policies (Details 2) - USD ($)	9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Deferred revenue at beggining	$ 4,368,146
Initial franchise fees collected	65,267
Deferred revenue recognized into revenue	(720,318)
Deferred revenue at end	3,713,095
Current portion	(972,873)	$ (986,039)
Deferred revenue, net of current portion	$ 2,740,222	$ 3,382,107

XML

Nature of Organization and Summary of Significant Accounting Policies (Details 3)	Jun. 30, 2020 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Year ended June 30, 2021	$ 972,873
Year ended June 30, 2022	921,982
Year ended June 30, 2023	809,832
Year ended June 30, 2024	538,871
Year ended March 31, 2025 and thereafter	469,537
Total	$ 3,713,095

XML

Nature of Organization and Summary of Significant Accounting Policies (Details 4)	9 Months Ended
	Jun. 30, 2020 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Accrued marketing fund for advertising fund revenue at beginning
Marketing fund billings	159,773
Commissions recognized into expense	(159,773)
Marketing funds advanced by the Company	(64,790)
Accrued marketing fund for advertising fund revenue at beginning	$ (64,790)

XML

Nature of Organization and Summary of Significant Accounting Policies (Details 5) - USD ($)	9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Commission expense at beginning	$ 1,008,191
Commissions paid	5,421
Commissions recognized into expense	(182,337)
Commissions expense at end	831,275
Current portion	(230,112)
Prepaid commission expense, net of current portion	$ 601,163	$ 773,062

XML

Nature of Organization and Summary of Significant Accounting Policies (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Apr. 28, 2020	Feb. 04, 2020	Sep. 30, 2019
Deferred revenue	$ 972,873		$ 972,873				$ 986,039
Revenue recognized	621,690	$ 1,143,313	2,259,726	$ 3,495,502
Restricted cash	22,875		22,875				17,950
Franchisee marketing fund expenses in advance of billings			64,790
Advertising costs	658	$ 2,230	5,963	$ 10,771
Accrual for interest or penalties	0		0				0
Interest and penalties	0		0
SBA Loan - PPP	119,980		$ 119,980		$ 119,980
Loan description			Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Loan, which was in the form of a Note dated April 24, 2020 issued by the Company, matures on April 23, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on October 23, 2020. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020.
Regos Franchises [Member]
Deferred revenue	11,967		$ 11,967				14,659
Revenue recognized	898		2,693
Receivables balances	10,447		10,447				$ 21,536
Accrued legal fees	$ 10,000		10,000
Development fee			$ 12,900
Rego [Member]
Amount forgive						$ 18,825
BFK Franchise Co., LLC ("BFK") [Member] | Franchise Agreements [Member]
Percentage of gross revenues collected for marketing fund	2.00%		2.00%

XML

Notes and Other Receivables (Details Narrative) - USD ($)	9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019
Receivables [Abstract]
Other receivables	$ 10,000	$ 3,000
Interest rate	4.00%

XML

Commitments and Contingencies (Details Narrative) - USD ($)		9 Months Ended
	Oct. 02, 2019	Jun. 30, 2020	Jun. 30, 2019	Jun. 08, 2020
Cash compensation		$ 2,500
Robert Boyd [Member]
Cash compensation	$ 40,000
Mitchell [Member]
Cash compensation	150,000
Value of stock grants	$ 15,000
Number of stock grants	200,000
Severance package				$ 50,000

XML

Directors Compensation (Details Narrative) - USD ($)		3 Months Ended		9 Months Ended
	May 01, 2020	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Sep. 30, 2019
Stock-based compensation				$ 2,500
Accrued liability		$ 33,703		33,703		$ 125,720
Salary per year		175,240	$ 155,220	454,006	$ 531,467
Two Directors
Cash compensation expenses				14,500
Stock-based compensation				5,000
Stock issued during period value stock based compensation				$ 2,500
Stock issued during period share stock based compensation				35,714
Accrued liability		$ 2,500		$ 2,500
Whiton [Member]
Salary per year				100,000
Rego [Member]
Salary per year				$ 120,000
Bart Mitchell
Common stock returned	279,406

XML

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

XML

Restatement of Prior Period Financial Statements (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Marketing fund revenue	$ 12,979	$ 38,323	$ 159,773	$ 108,049
Marketing fund expense	$ 12,979	$ 38,323	159,773	108,049
Noncash activity related to FASB ASC 606				5,019,689
Commission expense			176,916	487,951
Deferred Revenue			$ (655,051)	(1,706,019)
Adoption of FASB ASC 606				(5,019,689)
Previously Reported [Member]
Marketing fund revenue				620,361
Marketing fund expense
General advertising expense				631,132
Noncash activity related to FASB ASC 606				4,433,675
Commission expense				(1,627,445)
Deferred Revenue				4,843,052
Adoption of FASB ASC 606				4,433,675
Accumulated Deficit				5,181,182
Adjustment [Member]
Marketing fund revenue				108,049
Marketing fund expense				108,049
General advertising expense				10,771
Noncash activity related to FASB ASC 606				5,019,689
Commission expense				487,951
Deferred Revenue				(1,706,019)
Adoption of FASB ASC 606				5,019,689
Accumulated Deficit				5,767,196
Effect of Change [Member]
Marketing fund revenue				(512,312)
Marketing fund expense				108,049
General advertising expense				(620,361)
Noncash activity related to FASB ASC 606				586,014
Commission expense				2,115,396
Deferred Revenue				(6,549,071)
Adoption of FASB ASC 606				586,014
Accumulated Deficit				$ 586,014