Driveitaway Holdings, Inc. - Annual Report: 2014 (Form 10-K)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended September 30, 2014

OR

Commission file number: 000-52883

Registrant's telephone number, including area code: (904) 824-3133

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations 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 filing). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant’s common stock on March 31, 2014, as quoted on the OTC Bulletin Board, was approximately $35,901,000.

As of December 29, 2014, the Registrant had 11,829,409 issued and outstanding shares of common stock.

Documents Incorporated by Reference: None

PART I

Cautionary Statement Concerning Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “project,” “estimate,” “forecast” and similar expressions, and reflect our expectations concerning the future. Such statements are made based on known events and circumstances at the time of publication, and as such, are subject in the future to unforeseen risks and uncertainties. It is possible that our future performance may differ from current expectations expressed in these forward-looking statements, due to a variety of factors such as: foreign and domestic competitors; the ability to continue introducing our services in new areas; domestic and foreign governmental and public policy changes; protection and validity of patent and other intellectual rights; the successful integration of strategic concept offerings and acquisitions; and, the cyclical nature of the business and economic market. We undertake no duty to undated forward-looking statements.

The identification in this report of factors that may affect the Company’s future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

ITEM 1. BUSINESS

BUSINESS

The Company was formed in March 2006 under the name B2 Health, Inc. to design, manufacture and sell chiropractic tables and beds. The Company generated only limited revenue and essentially abandoned its business plan in March 2008.

On July 2, 2010 the Company acquired BFK Franchise Company, LLC (“BFK”), a Nevada limited liability company formed in May 2009, under a Stock Exchange Agreement with the members of BFK for 9,000,000 shares of the Company’s common stock.

On July 7, 2010, shareholders holding a majority of the Company’s outstanding common stock approved an amendment to the Company’s Articles of Incorporation changing the name of the Company from B2 Health, Inc. to Creative Learning Corporation (“CLC”).

At the time BFK was acquired, BFK had a 50% ownership in a company called BFK Development Company LLC (“BFKD”), and on October 3, 2010 BFK acquired the remaining 50% interest in BFKD. Immediately following the acquisition of the non-controlling interest, BFKF transferred its 100% interest in BFKD to the Company.

BFKD was initially used to develop and test the brick and mortar model of the BRICKS 4 KIDZ® concept as a Corporate Creativity Center.

On September 14, 2012, the Company also formed CI Franchise Company LLC (“CI”) as a wholly owned subsidiary for purpose of operating a second franchise concept known as Challenge Island®, a service business within a defined exclusive territory, providing unique challenge-based programs designed to foster critical and creative thinking skills, problem solving methodology, and core STEM (Science, Technology, Engineering, Mathematics) principles in children ages 3-13+. CI began selling franchises during the 2013 fiscal year.

 On January 8, 2013 the Company also formed Sew Fun Franchise Company LLC (“SF”) as a wholly owned subsidiary for the purpose of operating a third franchise concept known as Sew Fun. Sew Fun is a brick and mortar business featuring stores/studios located in strip malls and offering after-school classes, camps and birthday parties for children ages 8-13+, as well as adult classes, in fashion design.

Unless otherwise indicated, all references to the Company include the operations of BFK, BFKD, CI and SF.

BFK Operations

BFK, which conducts business under the trade name, BRICKS 4 KIDZ®, offers programs designed to teach principles of engineering, architecture and physics to children ages 3-12+ using LEGO® bricks. BFK provides classes (both in school and after school), special events programs and day camps that are designed to enhance and enrich the traditional school curriculum, trigger young children’s lively imaginations and build self-confidence. BFK’s programs foster creativity and provide a unique atmosphere for students to develop problem solving and critical thinking skills by designing and building machines, catapults, pyramids, race cars, buildings and numerous other systems and devices using LEGO® bricks.

Current Programs Offered by BFK

In-school field trips. One-hour classes during school hours. Classes are correlated to the science for a particular grade level. Teacher guides, student worksheets, and step-by-step instruction are provided. Recommended fees: $5-$8 per student.

After-school classes. One hour, one day a week class held after school. Recommended fees: $10-$15 per class per child, minimum commitment is usually 4 classes.

Pre-school classes. Classes can be held in pre-schools for children of pre-school ages. Recommended fees; $5-$7 per child.

Classes for home-schooled children. Classes can be held in the home of one of the parents of a home-schooled child. Recommended fees: $8-$10 per child.

Camps. Normally 3 hours per day for 5 days. Camps can take place at schools or at other child-related venues. Children use LEGO® bricks to explore various science and math concepts while working in an open, friendly environment. The material covered each session varies depending on students’ ages, experience, and skill level. A new project is built each week. Architectural concepts are taught while assembling buildings, castles and other structures. Instructional content includes concepts of friction, gravity and torque, scale, gears, axles and beams. The curriculum can include the construction of a scaled model of the children’s school or the school mascot. The children work and play with programmable LEGO® bricks along with electric motors, sensors, system bricks, and LEGO® Technic pieces (i.e. gears, axles, and beams). Recommended fees: $125-$150/child. Children go home with a small LEGO® project (cost about $5/child)

Birthday Parties. In the home of the birthday child. Recommended fees: $150 per party up to 10 children. If over 10 children the fee is $10/child.

Special Events. Activities with LEGO® bricks can be held in various locations including church centers, lodges, child-related venues, private schools, pre-schools, etc. Program can include parents, grandparents and all children in the family. Recommended fees: $5 per family.

BFK Operating Units

BFK franchises are mobile models, with activities scheduled in the schools or other venues, but also can be operated through a store-front location called a Creativity Center.

As of December 31, 2014 BFK had 617 franchises operating in 43 states, the District of Columbia, and 31 foreign countries, with three Corporate owned franchise territories.

BFK Franchise Program

BKF sells franchises both domestically and internationally. International sales can be single franchise or a Master Franchise, where the Master Franchisee operates a franchise, but is also able to develop, sell and manage sub-franchises.

A franchisee pays a one-time, non-refundable franchise fee upon the execution of the franchise agreement. Domestically, there can be variations on the franchise fees depending on the size or territories being purchased, and other factors of the territory. The typical sized, domestic, single territory franchise fee is $25,900. If the franchisee buys more than one franchise at the time the initial franchise is purchased, the fee for the other territory is approximately $10,000 to $12,000.

International franchise fees vary and are set relative to the potential of the franchised territories. During the year ended September 30, 2014, BFK sold 11 Master Franchises at an average price of $121,000. In the case of a Master Franchise, BFK receives a percentage of the franchise fee paid to the Master Franchisee by any sub-franchisee.

Domestic and international franchisees are required to pay BFK a royalty fee of 7%. BFK also receives a percentage of royalty payments received by Master Franchisees from their sub-franchisees.

BFK administers a Marketing Fund for domestic and Canadian franchisees with the purpose of building national brand awareness. The Marketing Fund expenditures are funded with BFK collecting a 2% marketing fee from domestic and Canadian franchisees. These marketing fee and expenses are accounted for separately and are not reported as revenue or expenses for BFK.

The franchisee is granted an exclusive territory and a license to use the “Bricks 4 Kidz®” name and trademarks in the franchised territory. The franchisee is required to conform to certain standards of business practices. Each franchise is run as an independent business and, as such, is responsible for its operation, including employment of adequate staff. A franchisee can also purchase additional territories.

Franchisees are permitted to assign their franchise provided that BFK receives advance notice of the proposed assignment, the transferee assumes the obligations under the franchise agreement, the transferee meets certain conditions and qualifications, and BFK receives a transfer fee based on a percentage of the current Franchise Fee rate for a single territory.

The term of the franchise is for ten years. BFK has the right to terminate any franchisee in the event of the franchisee’s bankruptcy, a default under the franchise agreement, or other events. The franchisee has the right to renew the franchise for an additional ten years if, at the time of renewal, the franchisee is in good standing and pays a renewal fee in the amount of $5,000.

In addition to the franchise fee, a franchisee is advised that an additional investment of between $8,000 and $23,000 for the mobile model will be required for such things as equipment and supplies, insurance, marketing and working capital during the start-up phase of the business.

BFK Competition

To the best of BFK’s knowledge, although BFK pioneered the Lego modeling based curriculum for after school programs, there are now at least two other companies franchising a model similar to that of Bricks 4 Kidz®, Engineering 4 Kids and Snapology. However, Play-Well Teknologies, with offices in San Anselmo and Pleasanton, California, offers after-school classes, camps and birthday parties using LEGO® bricks. Vision Education and Media offers after school classes using LEGO® bricks in its office in New York City, NY. In addition, several other small businesses around the country offer after-school classes and vacation camps using LEGO® bricks. These classes and camps are typically held in elementary schools, middle schools and community colleges.

CI Operations

CI, which conducts business under the trade name, Challenge Island®, provides unique challenge-based programs designed to foster critical and creative thinking skills, problem solving methodology, and core STEM (Science, Technology, Engineering, Mathematics) principles in children ages 3-13+.

Current Programs Offered by CI

CI has the same event types, possible venues and programs as BFK above.

CI Operating Units

CI franchises are mobile models, with activities which can be offered in a variety of venues and event types, including after-school programs. However, and in contrast to BFK, the CI franchise program does not have a store-front Center model available.

CI sold the first franchise in May 2013 and as of December 15, 2014 CI had 36 franchises operating in 15 states and 2 foreign countries.

CI Franchise Program

CI sells franchises both domestically and internationally. International sales can be individual international franchises, or where warranted, they could be sold as Master License agreement where the Master Licensee can operate a franchise, but also develops, sells and manages sub-franchisees.

A franchisee pays a one-time, non-refundable franchise fee upon the execution of the franchise agreement. Domestically, there can be variations on the franchise fees depending on the size and other factors of the territory, or territories being purchased. The typical size, domestic, single territory franchise fee is $17,500. Internationally, franchise fees are set relative to the potential of the proposed territories, and can vary. In the case of a Master Franchise, CI could receive a percentage of the price the Master Franchisee receives from the sub-franchisees.

Domestic and international franchisees are required to pay CI a royalty fee of 7%. CI also could receive a percentage of royalty payments received by Master licensees from their sub-franchisees.

CI administers a Marketing Fund for domestic and Canadian franchisees with the purpose of building national brand awareness. The Marketing Fund expenditures are funded with CI collecting a 2% marketing fee from domestic and Canadian franchisees. These marketing fee and expenses are accounted for separately and are not reported as revenue or expense for CI.

The franchisee is granted an exclusive territory and a license to use the “Challenge Island®” name and trademarks in the franchised territory. The franchisee is required to conform to certain standards of business practices. Each franchise is run as an independent business and, as such, is responsible for its operation, including employment of adequate staff. A franchisee can also purchase additional territories.

Franchisees are permitted to assign their franchise provided that CI receives advance notice of the proposed assignment, the transferee assumes the obligations under the franchise agreement, the transferee meets certain conditions and qualifications, and CI receives a transfer fee based on a percentage of the current Franchise Fee rate for a single territory.

The term of the franchise is for ten years. CI has the right to terminate any franchisee in the event of the franchisee’s bankruptcy, a default under the franchise agreement, or other events. The franchisee has the right to renew the franchise for an additional ten years if, at the time of renewal, the franchisee is in good standing and pays a renewal fee in the amount of $5,000.

In addition to the franchise fee, a franchisee is advised that an additional investment of between $8,000 and $23,000 will be required for such things as equipment and supplies, insurance, marketing and working capital during the start-up phase of the business.

CI Competition

To the best of CI’s knowledge, there are no companies franchising a model similar to that of Challenge Island®. However, in the after-school program market, there are many different concepts that vie for this time slot.

SF Operations

SF, known as Sew Fun, is just completing its development stage and will begin state required registrations. Franchises sold under this third franchise concept will operate brick and mortar businesses featuring stores/studios located in strip malls and offering after-school classes, camps and birthday parties for children ages 8-13+, as well as adult classes, in fashion design. As of December 31, 2014, SF has not offered these franchises for sale and has not sold any franchises.

Government Regulation

The offer and sale of franchises, and the operations of franchises in some respects, are regulated by the Federal Trade Commission and some state governments.

In 1979 the Federal Trade Commission promulgated what became known as the FTC Franchise Rule. The FTC Franchise Rule requires detailed disclosure of a wide variety of information as a condition to selling a franchise, but the rule does not regulate the franchise relationship or require any filing or registration on the part of a franchisor. The FTC Franchise Rule requires that the franchisor provide a disclosure statement or prospectus to each prospective buyer prior to execution of a contract or payment of money relating to the franchise relationship.

However, the FTC Franchise Rule is narrow and does not preempt state law, which often is stricter than the FTC Franchise Rule. As such, numerous states require franchise disclosure documents to be registered with the state authorities, and numerous states regulate the franchise relationship itself.

California, Florida, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin all have franchise statues and regulations which typically require a franchisor to file or register its offering with the state government and to provide all prospective franchisees with the disclosure document.

In these so called “registration states”, state regulatory agencies review the franchisor’s registration application, the franchise disclosure document, the proposed franchise agreement and any other agreements franchisees must sign. State regulators also review the financial condition of the franchisor, the background of the franchisor’s executives and sales agents and provisions regarding the rights and remedies of the franchisor and the franchise as provided in the franchise agreement. These state agencies can deny registration if they believe that the sale of the franchise would be deceptive in any way.

Numerous other states have laws regulating various facets of the relationship between the franchisee and franchisor. These “relationship laws” typically regulate the franchisor’s ability to terminate or refuse renewal of a franchise, contain provisions requiring that a franchisor have “good cause” before terminating or refusing to renew a franchise and may also address other issues such as the right of a deceased franchisee’s heirs to continue the franchise after the original investor’s death. Some laws require a franchisor to buy back excess inventory from the franchisee in the event of termination. Some state laws make it illegal for a franchisor to demand a general release from a franchisee as a condition of renewing or entering into a new agreement.

Under the FTC Franchise Rule, the FTC has the authority to seek civil penalties against a franchisor for violations of the FTC Franchise Rule. Each of the “registration states” has similar authority to seek penalties for violations of their requirements. Violations may include the offer or sale of an unregistered franchise, failing to timely provide the disclosure document to a prospective franchisee or making misrepresentations in the franchise disclosure documents. Additionally, officers of the franchisor may have personal liability if they had knowledge of or participated in the violations.

Individuals cannot sue a franchisor for a violation of the FTC Franchise Rule. However, most of the pre-sale disclosure states grant a private right of action for violation of the state statue and have remedies that typically include damages, rescission of the franchise agreement and attorneys’ fees.

General

The Company’s offices, consisting of approximately 4,500 square feet, are located in an office/condo complex at 701 Market, Suite 113, St. Augustine, FL 32095. The Company owns three of the office condominiums and rents a two additional units.

As of December 29, 2014 the Company employed twenty-two persons on a full time basis.

The Company’s website is www.creativelearningcorp.com, and BKF’s, CI’s and SF’s websites are www.bricks4kidz.com, www.challenge-island.com, and www.sewfunstudios.com respectively. The information in these websites is not a part of this report.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

The Company’s offices, consisting of approximately 4,500 square feet, are located in an office/condo complex at 701 Market, Suite 113, St. Augustine, FL 32095. The Company owns three of the office condominiums and rents a two additional units.

ITEM 3. LEGAL PROCEEDINGS

The Company may be involved in arbitration with Sew Fun, LLC (SFLLC), from which the Company purchased intellectual property to franchise a new sewing franchise concept. As of the date of this filing there has been no formal complaint filed against the Company by SFLLC, but managements has anticipated that there may be a complaint filed if settlement negotiations are not successful. SFLLC is seeking $614,000 for what it claims is the Company’s failure to sell Sew Fun Studios franchises in 2013 and 2014. The Company is seeking $804,000 against SF for the deceptive trade practices that the Company claims induced the Company to acquire SFLLC’s intellectual property.

ITEM 4. MINE SAFETY DISCLOSURE

Not Applicable.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

On November 7, 2008, the Company’s common stock began trading on the OTC Bulletin Board under the symbol “BTWO.” On February 27, 2012 the Company’s trading symbol was changed to “CLCN.” Prior to that date, there was no established trading market for the Company’s common stock.

Shown below is the range of high and low quotations for the Company’s common stock for the periods indicated as reported by the OTC Bulletin Board. The market quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not necessarily represent actual transactions.

As of December 31, 2014, the Company had 11,829,409 outstanding shares of common stock and 138 shareholders of record.

Holders of common stock are entitled to receive dividends as may be declared by the Board of Directors. The Company’s Board of Directors is not restricted from paying any dividends but is not obligated to declare a dividend. No dividends have ever been declared and it is not anticipated that dividends will ever be paid.

The Company’s Articles of Incorporation authorize its Board of Directors to issue up to 10,000,000 shares of preferred stock. The provisions in the Articles of Incorporation relating to the preferred stock allow the Company’s directors to issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of the Company’s common stock. The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers if these transactions are not favored by the Company’s management. As of September 30, 2014 there are no shares of preferred stock issued or outstanding.

On June 23, 2014, the Company agreed to issue 60,000 shares, over several quarters, of its common stock for payment relating to a commission incentive for Master Franchise sales. The total value of the 60,000 shares at the date of the agreement was $147,600 (60,000 shares times $2.46). This value was expensed as Commission Expense and set up as Accrued Liability. The first 20,000 shares were issued on July 29, 2014 with the respective $49,200 being charged to the Accrued Liability leaving a balance of $98,400.

The Company has relied upon the exemption provided by Section 4(2) of the Securities Act of 1933 with respect to the sale or issuance of the shares of its common stock. The persons who acquired these securities were sophisticated investors and were provided full information regarding the Company’s business and operations. There was no general solicitation in connection with the offer or sale of these securities. The persons who acquired these securities acquired them for their own accounts. The certificates representing these securities bear a restricted legend providing that they cannot be sold unless pursuant to an effective registration statement or an exemption from registration.

Securities Authorized For Issuance Under Equity Compensation Plans

The following table contains information regarding our equity compensation plans as of September 30, 2014:

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “project,” “estimate,” “forecast” and similar expressions, and reflect our expectations concerning the future. Such statements are made based on known events and circumstances at the time of publication, and as such, are subject in the future to unforeseen risks and uncertainties. It is possible that our future performance may differ from current expectations expressed in these forward-looking statements, due to a variety of factors such as: foreign and domestic competitors; the ability to continue introducing our services in new areas; domestic and foreign governmental and public policy changes; protection and validity of patent and other intellectual rights; the successful integration of strategic concept offerings and acquisitions; and, the cyclical nature of the business and economic market. We undertake no duty to update forward-looking statements.

As of September 30, 2014 the Company’s liabilities consisted primarily of trade payables and the franchisee funded Marketing Fund. The Company collects 2% of the franchisee gross revenues for a marketing fund, managed by the Company, to allocate towards national branding of the Company’s concepts to benefit the franchisees. The marketing fund amounts are accounted for as a liability on the balance sheet and the actual collections are deposited into a marketing fund bank account. Expenses pertaining to the marketing fund activities are paid from the marketing fund and reduce the liability account. The Marketing Fund liability is actually offset with the matching amount of cash in the Marketing Fund bank account.

Outlook

The Company saw another year of significant growth in the sales of franchises in fiscal year 2014, expanding from 395 to 618 franchises sold with its two brands in operation, resulting in increased revenues from franchise fees, including international growth and exposure. In addition, with franchisees being in the system longer, there were significant increases in royalty fees.

As a result of this growth, the Company experienced a significant increase in liquidity and expects all of these trends to continue into the next fiscal year.

Other than as disclosed above, the Company does not know of any:

The following discussion and analysis should be read in conjunction with the audited financial statements and notes thereto contained in this report.

Results of Operations

Material changes of items in the Company’s Statement of Operations for the year ended September 30, 2014 as compared to the same period in the prior year are discussed below.

The Company does not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on the Company’s revenues or expenses.

Liquidity and Capital Resources

The Companies primary source of liquidity is from cash generated through operations. Cash funds are used for on-going operating expenses, the purchase of equipment, property improvement, and software development. During the fiscal year ended September 30, 2014 the Company purchased property and equipment totaling $118,812, and intangible property for $10,000. The Company used cash during the fiscal year ending September 30, 2014 to make payments on a legal settlement of $40,000 and repayment of a note of $26,632.

The financial statements which are included as part of this report, and in particular the Statement of Stockholders Equity, reflect the issuance of shares when certificates representing the shares are issued by the Company’s transfer agent. In contrast, in the text of this report shares are considered to be issued and outstanding when the Company’s board of directors has authorized the issuance of the shares and the consideration for the shares has been received.

Contractual Obligations

The Company entered into a Business Lease with Village Square at Palencia in July 2014, to lease unit 103B, Office Space 2, located at 701 Market Street, St. Augustine, Florida. The contract period is beginning August 1, 2014 and ending July 31, 2017. The monthly rent is $950.00.

The Company entered into a Business Lease with Village Square at Palencia in July 2014, to lease unit 114 located at 701 Market Street, St. Augustine, Florida. The contract period is beginning July 1, 2014 and ending June 15, 2019. The monthly rent is $1,425.00.

The Company entered into an agreement for the repurchase of territories in Nevada in December 2013, The agreement was a note with a total due of $95,000 with monthly payments of $5,000 beginning in January 2014. The balance on the note at September 30, 2014 is $55,000.

The following table summarizes the Company’s contractual obligations as of September 30, 2014:

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity or capital resources.

Critical Accounting Policies and Recent Accounting Pronouncements

Financial Instruments

The FASB Accounting Standards Codification (“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:

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.

Long-Lived Assets

In accordance with ASC 350, Intangibles – Goodwill and Other, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that may suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.

Revenue Recognition

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

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

Net earnings (loss) per share

ASC 260-10-45, “Earnings Per Share”, requires presentation of "basic" and "diluted" earnings per share on the face of the statements of operations for all entities with complex capital structures. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities 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. When the company is in loss position, no dilutive effect is considered.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Variable Interest Entity

The Company follows the guidelines in FASB Codification of ASC 810 “Consolidation”which indicates "a legal entity that is deemed to be a business need not be evaluated by a reporting entity to determine if the legal entity is a Variable Interest Entity (“VIE")” unless any one of four conditions exist: 

 A VIE is an entity that either (a) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (b) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. If we determine that we have operating power and the obligation to absorb losses or receive benefits, we consolidate the VIE as the primary beneficiary, and if not, we do not consolidate. The Company has not identified any VIEs as of September 30, 2014.

 Income Taxes

The Company accounts for income taxes pursuant to ASC 740, Income Taxes. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Recent Accounting Pronouncements

 In July 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists(ASU 2013-11), to require that in certain cases, an unrecognized tax benefit, or portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not believe the adoption of this standard will have a significant impact on the Company’s consolidated financial statements.

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the financial statements and accompanying notes included as part of this report.

The financial statements which are included as part of this report, and in particular the Statement of Stockholders Equity, reflect the issuance of shares when certificates representing the shares are issued by the Company’s transfer agent. In contrast, in the text of this report shares are considered to be issued and outstanding when the Company’s board of directors has authorized the issuance of the shares and the consideration for the shares has been received.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

During the fiscal year ending September 30, 2014 the Company changed its outside audit company. The new audit firm is, Hartley Moore Accounting Corporation, Anaheim, CA. The prior audit firm was, Silberstein Unger, PLLC CPA’s and Business Advisors, Bingham Farms, MI.

ITEM 9A. CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the participation of management, including the Company’s Principal Financial Officer and Principal Executive Officer, of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report on Form 10-K. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, such as this Form 10-K, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to management, including the Company’s Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, management concluded that, as of September 30, 2014, the Company’s disclosure controls and procedures were not effective.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of the Company’s principal executive officer and principal financial officer and implemented by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures my deteriorate.

Brian Pappas, the Company’s Principal Executive and Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of September 30, 2014 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway commission, or the COSO Framework. Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2014 as a result, a material weakness primarily related to a lack of sufficient personnel with appropriate training and expertise in accounting principles generally accepted in the United States.  As a result of this material weakness the Company (i) did not record all payables which were due at year end, (ii) did not record the impairment of certain assets, and (iii) the Company improperly capitalized a refund of franchisee fees.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm as such attestation is not required for smaller reporting filers such as us pursuant to applicable SEC rules.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reports that occurred during the quarter ended September 30, 2014 that materially affect, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Company’s officers and directors are listed below. Directors are generally elected at the annual shareholders' meeting and hold office until the next annual shareholders' meeting or until their successors are elected and qualified. Executive officers are elected by Directors and serve at their discretion.

Brian Pappas has been a Managing Member of BFK since its inception in May 2009 and became the Chief Executive Officer and a director of the parent company, Creative Learning Corporation when it acquired BFK in 2010. Mr. Pappas graduated from Colgate University in 1973 with a Bachelor of Arts degree in mathematics and music. Between 1981 and 1998 Brian Pappas owned and operated (with his brother Jeff), Together Development Corporation, which sold franchises under the trade name “Together Dating Service.” Mr. Pappas and his brother grew Together Development Corporation from 12 franchises to over 175 franchises which were located throughout the US, Canada, England, Netherlands and Germany. After Mr. Pappas sold Together Development Corporation in 1998 he opened Skater Paradise, Inc., which operated a chain of indoor skate parks in Massachusetts. After selling Skater Paradise, Inc. in 2004 Mr. Pappas, until April, 2009, provided consulting services, and in some instances acted as the franchise development director for Zen Massage Center, WeekDay Gourmet, Shape up Sisters, Digicom Specialties, The Online Outpost, and Auction-It-Today. Between 1981 and 1998 Mr. Pappas also co-owned and operated two advertising agencies, Cushing & Pappas and The Thought Process. In the spring of 2009, Mr. Pappas met with Michelle Cote, the founder of Bricks 4 Kidz®, and together they formed BFK in May 2009. Under Brian’s direction and leadership, the Company has grown to 590 franchises operating in the US and internationally, and is expanding with the acquisition of two additional concepts and brands, Challenge Island® and Sew Fun®.

Dan O’Donnell has been an officer and Vice President of Operations of CLC since April 15, 2010. Between October 2009 and his association with CLC, Mr. O’Donnell developed the Franchise Marketing Tool (FMT) for BFK, which is an essential component of the Bricks 4 Kidz® franchise model. The FMT has expanded with versions for each international franchise sold, as well as tailored to the two additional brands, Challenge Island® and Sew Fun®. Mr. O’Donnell attended the University of Pittsburgh at Titusville between August 1987 and May 1988 and Richard Bland College between August 1988 and May 1990. He began his career in 1994 when he developed and launched a computer education program for children called Computer Kids Unlimited in Pittsburgh. Between May 2000 and October 2009 Mr. O’Donnell was the Director of Franchise Operations for The Whole Child Learning Company, a franchisor of children’s educational services, where he was responsible for the oversight of all daily operational activities, franchisee training and ongoing franchisee support. In addition to him bringing the FMT to CLC, his success and experience in building, marketing and operating his own after school, education based program, as well as turning it into, and operating as a franchisor has been one of the foundations that has allowed CLC to grow quickly.

Michelle Cote founded Bricks 4 Kidz® in June, 2008 after developing curriculum and running after-school classes, camps and birthday parties using LEGO® since early 2008. She teamed with Brian Pappas in May of 2009 and co-founded BFK. She became a director of CLC when it acquired BFK in July 2010. In her capacity as “founder”, Ms. Cote advises the BFK operations in the areas of creative development and new programs. Prior to that time Ms. Cote worked for an architectural firm in St. Augustine, FL. Ms. Cote received her B.A. degree from Flagler College in St. Augustine in 1991 with a major in Spanish/Latin American studies and graduated Cum Laude.

Richard Nickelson had been with the Company since February 20, 2012 and was appointed Chief Financial Officer of Creative Learning Corporation by the directors on September 5, 2014. His employment with the Company was ended in October, 2014. His final relationship with the Company is under review by our legal counsel. Prior to employment with the Company Richard was a Senior Accountant with Infinite Energy, Inc. a supplier of natural gas. Prior to that as Director of Business Development and Controller of Ellianos, LLC. A franchisor of drive-thru coffee shops.

Brian Pappas, Michele Cote and Dan O’Donnell’s longstanding relationship with the Company benefits the Company and its shareholders and qualifies them to be directors.

The Company does not have a compensation committee. The Company’s directors serve as its audit committee.

The Company’s directors are not independent directors as that term is defined in section 803 of the listing standards of the NYSE AMEX. No director is a “financial expert” as that term is defined in the regulations of the Securities and Exchange Commission.

The Company has not adopted a Code of Ethics applicable to its principal executive, financial, and accounting officers and persons performing similar functions.

The directors and officers are in compliance with Section 16a, Electronic Reporting.All transactions relating to the stock of the Company are reported in the appropriate time frame.

ITEM 11. EXECUTIVE COMPENSATION

The following table shows the compensation paid or accrued to the Company’s executive officers during the years ended September 30, 2014 and 2013.

____________

Long-Term Incentive Plans. The Company does not provide its officers or employees with pension, stock appreciation rights, long-term incentive or other plans.

Employee Pension, Profit Sharing or other Retirement Plans. The Company does not have a defined benefit, pension, profit sharing plan but does offer a 401(k) plan.

Compensation of Directors During Year Ended September 30, 2014. The Company does not compensate its directors for acting as such.

Compensation Committee Interlocks and Insider Participation.

The Company’s directors act as its compensation committee. During the year ended September 30, 2014 each director participated in deliberations concerning executive officer compensation.

During the year ended September 30, 2014, none of the Company’s officers was a member of the compensation committee or a director of another entity, which other entity had one of its executive officers serving as one of the Company’s directors.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table shows, as of December 31, 2014, information with respect to those persons owning beneficially 5% or more of the Company’s common stock and the number and percentage of outstanding shares owned by each Director and officer and by all officers and directors as a group. Unless otherwise indicated, each owner has sole voting and investment powers over their shares of common stock.

______________

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the years ended September 30, 2014 and 2013, the Company paid related parties (companies related by common control) for the following expenses:

Fran Ventures, LLC is 100% owned by Brian Pappas, Principal Officer and Director of the Company. MC Logic, LLC is 100% owned by Michelle Cote a Director of the Company. Leap Ahead Leaning Company is 100% owned by Dan O’Donnell a Director of the Company.

In June of 2013, the Company issued 50,000 stock options (25,000 each to an officer/director and an employee) at an option price of $0.60 per share, with an expiration date of December 31, 2015, resulting in a $6,612 stock option expense to the Company using the Black Scholes model.

In July of 2013, the Company loaned $70,000 to AudioFlix, Inc., a related party entity. The loan was personally guaranteed by Brian Papas. The loan bears interest at 6%, payable monthly and is due and payable on July 1, 2015. The unpaid balance of the loan is convertible prior to July 1, 2015 into unrestricted shares of the common stoic of AudioFlix, Inc. at a price of $0.35 per share.

In February of 2014, the Company issued 70,000 stock options (20,000 each to two officers and 10,000 each to three employees) at an option price of $1.55 per share, with an expiration date of December 31, 2016, resulting in a $56,630 stock option expense to the Company using the Black Stoles model.

 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Silberstein Ungar PLLC served as the Company’s independent registered public accountant through the period ended March 31, 2014. Hartley Moore Accountancy Corporation served as the Company’s independent registered public accountant through the period beginning April 1, 2014 through FYE September 30, 2014.

Hartley Moore Accountants currently serve as the Company’s independent registered public accountants for the year ended September 30, 2014.

The following table shows the aggregate fees billed by Silberstein Ungar to the Company for the period shown. 

 The following table shows the aggregate fees billed by Silberstein Ungar and Hartley Moore to the Company for the period shown.

Audit fees represent amounts invoiced for professional services rendered for the audit of the Company’s annual financial statements, including the Form 10-K report, and the reviews of the quarter ending financial statements included in the Company’s Form 10-Q reports. Prior to contracting with Hartley Moore Accountants to render audit or non-audit services, each engagement was approved by the Company’s directors.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

________________

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Hartley Moore Accountancy Corporation

Phone (714) 627-2506

2400 E Katella Avenue, Suite 800

Anaheim, CA 92806

www.hmcpa.com

 Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders 

Creative Learning Corporation

We have audited the accompanying consolidated balance sheet of Creative Learning Corporation as of September 30, 2014, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Creative Learning Corporation as of September 30, 2014, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Hartley Moore Accountancy Corporation 

Hartley Moore Accountancy Corporation

Anaheim, California 

January 14, 2015

Silberstein Ungar, PLLC CPAs and Business Advisors

Phone (248) 203-0080

Fax (248) 281-0940

30600 Telegraph Road, Suite 2175

Bingham Farms, MI 48025-4586

www.sucpas.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders 

Creative Leaning Corporation

We have audited the balance sheet of Creative Leaning Corporation as of September 30, 2013 and the related statements of operations, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Creative Leaning Corporation as of September 30, 2012 were audited by other auditors whose report dated December 19, 2012, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Creative Learning Corporation as of September 30, 2013, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Silberstein Ungar, PLLC 

Silberstein Ungar, PLLC

Bingham Farms, Michigan 

January 11, 2014

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

CREATIVE LEARNING CORPORATION

Consolidated Statements of Operations

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

CREATIVE LEARNING CORPORATION

Consolidated Statements of Cash Flows

The accompanying notes are an intergral part of the consolidated financial statements.

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

CREATIVE LEARNING CORPORATION

Notes to Consolidated Financial Statements

September 30, 2014 and 2013

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

Nature of Organization

Creative Learning Corporation (“CLC” or the “Company”), formerly B2 Health, Inc., was incorporated March 8, 2006 in the State of Delaware. BFK Franchise Company LLC (“BFKF”) was formed in the State of Nevada on May 19, 2009. Effective July 2, 2010, CLC was acquired by BFKF in a transaction classified as a reverse acquisition. CLC concurrently changed its name from B2 Health, Inc. to Creative Learning Corporation. The financial statements represent the activity of BFKF from May 19, 2009 forward, and the consolidated activity of BFKF and CLC from July 2, 2010 forward. BFKF and CLC are hereinafter referred to collectively as the "Company".

In addition to the accounts of CLC and BFKF, the accompanying consolidated financial statements include the accounts of CLC’s subsidiaries, BFK Development Company LLC (“BFKD”) from November 25, 2009 (BFKD’s inception) forward, CI Franchise Company LLC (“CI”) from September 14, 2012 (CI’s inception) forward, and Sew Fun Franchise Company LLC (SF) from January 8, 2013 (SF’s inception) forward.

The registration statements for BFK Development Company LLC, CI Franchise Company LLC, and Sew Fun Franchise Company LLC do not have a termination date associated with the Life of the Organizations. Each of the above listed LLC’s has a single member, controller 100% by the Company.

BFKF held a 50% ownership interest in BFKD from November 25, 2009 through October 2, 2010. On October 3, 2010, the BFKF acquired the 50% noncontrolling interest in BFKD. Immediately following the acquisition of the noncontrolling interest, BFKF transferred its 100% interest in BFKD to CLC.

Creative Learning Corporation operates wholly owned subsidiaries BFK FRANCHISE COMPANY, LLC, CI FRANCHISE COMPANY, LLC AND SEW FUN FRANCHISE COMPANY, LLC under the trade names Bricks 4 Kidz®, Challenge Island®, and Sew Fun Studios™ respectively, that offer children's enrichment and education franchises.

Basis of Presentation

This summary of significant accounting policies is presented to assist the reader in understanding and evaluating the Company’s financial statements. The financial statements and notes are representation of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

The Company uses the accrual basis of accounting and is presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company believes that the disclosures made are adequate to make the information presented not misleading. The information reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods set forth herein.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Variable Interest Entity

The Company follows the guidelines in FASB Codification of ASC 810 “Consolidation” which indicates "a legal entity that is deemed to be a business need not be evaluated by a reporting entity to determine if the legal entity is a Variable Interest Entity (“VIE")” unless any one of four conditions exist:

 A VIE is an entity that either (a) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (b) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. If we determine that we have operating power and the obligation to absorb losses or receive benefits, we consolidate the VIE as the primary beneficiary, and if not, we do not consolidate. The Company has not identified any VIEs as of September 30, 2014.

Fiscal year

The Company operates on a September 30 fiscal year-end.

Related Parties

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions made by management include allowance for doubtful accounts, allowance for deferred tax assets, depreciation of property and equipment, amortization of intangible assets, 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 and Cash Equivalents

The Company considers all highly liquid securities with original maturities of three months or less when acquired, to be cash equivalents. We had no cash equivalents at September 30, 2014 and 2013.The Company had cash of $3,061,458 and $1,904,193 as of September 30, 2014 and 2013, respectively.

The Company has restricted cash of $180,009 at September 30, 2014 and $100,754 at September 30, 2013 associated with a marketing funds collected from the franchisee’s. Per the franchise agreements a marketing fund of 2% of revenues is collected and held for promotion of the brand. (see note 6)

The Company has one operating account with Wells Fargo that exceed the $250,000 FDIC limit by $2,748,000. The Company is confident the asset is secure based upon our history with and the stability of the institution.

Accounts Receivable

The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts 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 are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts as of September 30, 2014 and 2013 are adequate, but actual write-offs could exceed the recorded allowance. At September 30, 2014 and 2013, the Company’s allowance for doubtful accounts totaled $41,000, and $10,000, respectively. During the year ended September 30, 2014 and September 30, 2013 the value of accounts written-off to the reserve were approximately $12,000 and $0 respectively.

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.

Website development costs

The Company recognized the costs associated with developing a website in accordance with ASC 350-50 “Website Development Cost”. The website development costs are divided into three stages, planning, development and production. The development stage can further be classified as application and infrastructure development, graphics development and content development. In short, website development cost for internal use should be capitalized except content input and data conversion costs in content development stage.

Costs associated with the website consist primarily of website development costs paid to third parties. These capitalized costs will be amortized based on their estimated useful life over three years upon the website becoming operational. All capitalized web development cost are captured in property and equipment.

Fair Value of Financial Instruments

The carrying amounts of cash, accounts and notes receivable, prepaid expenses, property and equipment, intangible assets, deposits, and current liabilities approximate fair value because of the short-term maturity of these items. 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.

The FASB Accounting Standards Codification (“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:

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 nonrecurring 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.

Long-Lived Assets

The Company’s long-lived assets consisted of property and equipment, and intangible assets are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, Property, Plant, and Equipment, and FASB ASC Topic 205, Presentation of Financial Statements. 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 on 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. Through September 30, 2014, the Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances that demand for the Company’s products or services will continue, which could result in an impairment of long-lived assets in the future.

Revenue Recognition

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

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

As of September 30, 2014 and 2013 the Company had $0 and $35,900 respectively in unearned revenue for franchise fees collected but not yet earned per the revenue recognition policy.

Advertising Costs

Advertising costs are expensed as incurred. The Company incurred advertising costs for the years ended September 30, 2014 and 2013 of approximately $920,000 and $445,000, respectively.

 Income Taxes

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

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

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

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at September 30, 2014 and September 30 2013, respectively, and has not recognized interest and/or penalties during the years ended September 30, 2014 and September 30, 2013, respectively, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within in the next 12 months.

The tax years subject to examination by major tax jurisdictions include the years 2011 and forward by the U.S. Internal Revenue Service, and the years 2010 and forward for various states.

Net earnings (loss) per share

ASC 260-10-45, “Earnings Per Share”, requires presentation of "basic" and "diluted" earnings per share on the face of the statements of operations for all entities with complex capital structures. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities 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 and non-employee stock awards under ASC 718, Compensation – Stock Compensation, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable.

Recent accounting pronouncements

 In July 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists(ASU 2013-11), to require that in certain cases, an unrecognized tax benefit, or portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not believe the adoption of this standard will have a significant impact on the Company’s consolidated financial statements.

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

(2) Related Party Transactions

During the years ended September 30, 2014 and 2013, the Company paid related parties (companies related by common control) for the following expenses:

FranVentures, LLC is 100% owned by Brian Pappas, Principal Officer and Director of the Company. MC Logic, LLC is 100% owned by Michelle Cote a Director of the Company. Leap Ahead Leaning Company is 100% owned by Dan O’Donnell a Director of the Company.

In June of 2013, the Company issued 50,000 stock options (25,000 each to an officer/director and an employee) at an option price of $0.60 per share, with an expiration date of December 31, 2015, resulting in a $6,612 stock option expense to the Company using the Black Scholes model. See note 9.

In July of 2013, the Company loaned $70,000 to AudioFlix, Inc., a related party entity. The loan was personally guaranteed by Brian Papas. The loan bears interest at 6%, payable monthly and is due and payable on July 1, 2015. The unpaid balance of the loan is convertible prior to July 1, 2015 into unrestricted shares of the common stock of AudioFlix, Inc. at a price of $0.35 per share.

In February of 2014, the Company issued 70,000 stock options (20,000 each to two officers and 10,000 each to three employees) at an option price of $1.55 per share, with an expiration date of December 31, 2016, resulting in a $56,630 stock option expense to the Company using the Black Stoles model. See note 9.

(3) Property and Equipment

Property and equipment consisted of the following:

___________

(1) This is website development and is expected to be completed June 2015 at total cost of $45,000. 

Depreciation expense totaled $39,915 and $30,267, respectively, for the years ended September 30, 2014 and 2013.

(4) Intangible Assets

As of September 30, 2014, the Company had $125,754 of intangible assets, consisting of a second and a third franchise concept and trademarks for $25,250 and $23,300, respectively, under developing subsidiaries called CI Franchise Company LLC (Challenge Island) and Sew Fun Franchise Company LLC. Also included is a net change of $30,484 as the result of the repurchase of three BKF franchises and sale of one BKF franchises in Nevada, Texas, and Missouri.

As of September 30, 2013, the Company had $95,270 of intangible assets, consisting of a second and a third franchise concept and trademarks for $25,250 and $23,300, respectively, under newly created subsidiaries called CI Franchise Company LLC (Challenge Island) and Sew Fun Franchise Company LLC, a $40,000 purchase of a Franchisee territory in Denver, and $6,720 for the purchase of a partial Franchisee Territory in Texas.

(5) Notes and Other Receivables

In July of 2013, the Company issued a $70,000 loan to a related party company, personally guaranteed by the related party, at 6% interest, monthly interest only payments and fully due and payable by July 1, 2015. The Note is convertible up to the maturity date to unrestricted shares in the related party company for any unpaid balance at $0.35 per share. As of September 30, 2014 the $70,000, per the agreement is outstanding.

At September 30, 2014 and 2013 respectively, the Company held certain other receivables totaling $194,088 and $131,792 respectively for extended payment terms of franchise fees, generally non-interest bearing notes with monthly payments, payable within one to two years, and Foreign Tax Credits at September 30, 2014 of $22,729.

(6) Accrued Marketing Fund

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

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

As of September 30, 2014 and 2013, the accrued marketing fund liability balances were $180,009 and $100,754 respectively.

(7) Notes Payable

Note dated September 2012

In September of 2012, the Company issued a non-interest bearing promissory note of $40,000 to a related party for consulting services payable by issuance of 40,000 shares of the Company’s common stock. As of September 30, 2014 and 2013, the remaining balance on this promissory note was $0 and $20,000, respectively. During the year ended September 30, 2013, payments of $20,000 were made with the issuance of common stock. During the year ended September 30, 2014, payments of $20,000 cash were made.

Deferred commission note payable

As of September 30, 2014 and September 30, 2013, the Company owed respectively $2,225 and $8,857 in deferred commission payments, non-interest bearing, payable in monthly payments, on deferred payment schedules related to extended payment terms of Franchise Fees.

(8) Common Stock Issuances

During the year ended September 30, 2013, the Company issued 20,000 shares of its common stock for partial payment of a promissory note to a related party at the stated price valued at $20,000 at the stated price in the promissory note of $1.00 per share.

During the year ended September 30, 2013, the Company had two issuances of 35,000 and 10,000 shares of its common stock related to the acquisition of a third Franchise concept valued at $17,500 or $0.50 per share and $5,800 or $0.58 per share, respectively.

During the year ended September 30, 2013, the Company had three issuances of 35,000, 5,000 and 15,000 shares of its common stock in exchange for consulting services, valued at $21,000, $3,000 and $9,000, respectively, or at $0.60 per share.

During the year ended September 30, 2013, the Company, as a gesture of good will, issued 66,667 shares of its common stock to an individual investor who had purchased stock in a prior year in a pass through arrangement with a third party company that did not fulfill their commitment to transfer the stock. It was determined there was no recourse with the third party company, and the shares were issued at a Fair Market Value of $38,667 or $0.58 per share. Related to this transaction, an adjustment was made to the Company issued share count of an additional 66,667 shares that were also issued to the third party company in the prior year in error. The Company was awaiting their return and cancellation. Without recourse with the third party company, these 66,667 shares were recorded at a fair value of $30,000 or $0.45 per share based on the value on the date of the original issue.

On June 23, 2014, the Company agreed to issue 60,000 shares, over several quarters, of its common stock for payment relating to a commissions earned for Master Franchise sales at such date. The total value of the 60,000 shares at the date of the agreement was $147,600 (60,000 shares times the fair value of $2.46 per share). The Company recorded the full fare value to Commission Expense and recorded a liability under accrued stock based compensation in the accompanying consolidated statement balance sheet. The first 20,000 shares were issued on July 29, 2014 with the respective $49,200 being re-classed to common stock and additional paid in capital with remaining balance of $98,400 recorded under accrued stock based compensation at September 30, 2014.

(9) Stock Options and Warrants

Employee stock options

The Company accounts for employee stock options under ASC 718, Compensation – Stock Compensation, whereby option costs are recorded based on the Black-Scholes option pricing model. Unless otherwise provided for, the Company covers option exercises by issuing new shares.

On July 1, 2013, the Company issued 50,000 common stock purchase options (25,000 each to an employee and to an officer/director), allowing the holders to purchase one share of common stock per option, exercisable at $.60 per share with an expiration date of December 31, 2015. At September 30, 2014 these share options were still outstanding. The fair value of the option grants were estimated on the date of grant using the Black-Scholes option pricing model.

On February 3, 2014, the Company issued 70,000 common stock purchase options (20,000 each to two officers and 10,000 each to three employees) allowing the holders to purchase one share of common stock per option, exercisable at $1.55 per share with an expiration date of December 31, 2016. These options were fully vested on October 1, 2014. At September 30, 2014 these share options were still outstanding. The fair value of the options grants were estimated on the date of grant using the Black-Scholes option pricing model. The company incurred and recorded compensation expense of $56,630 for the year ended September 30, 2014 and $6,613 for the year ended September 30, 2013.

 
The Company recognized stock compensation expense as follows:

No additional stock based compensation is to be recognized on these stock options.

The fair value of the options granted during the various periods was estimated at the date of grant using the Black-Scholes option-pricing model and the following assumptions:

Fair value is generally based on independent sources such as quoted market prices or dealer price quotations. To the extent certain financial instruments trade infrequently or are non-marketable securities, they may not have readily determinable fair values. The Company estimated the fair value of the options using a Black Scholes option pricing model and available information that management deems most relevant. The stock price is the closing price of the Company’s stock on the valuation date; the risk free interest rate is based on the U.S. Government Securities rate for 2 year maturities on the date of issuance; the volatility is a statistical measure (standard deviation) of the tendency of the Company’s stock price to change over time; the exercise price is the price at which the Options can be purchased by exercising prior to its expiration; the dividend yield is not applicable due to the Company not intending to declare dividends; the contractual life is based on the average exercise period of the Options; and the fair market value is value of the options based on the Black Scholes model on the valuation date.

(10) Franchise Operations

The Company currently supports independently owned franchises located in 43 states, 9 Canadian provinces and 31 other countries. Following is a summary of the annual franchise activity:

Franchises are required to pay the Company an initial franchise fee, royalty fees and a marketing fee. The marketing fee is 2% of gross sales, and the current royalty fee is 7% of gross sales. A limited number of earlier agreements set the royalty fee at 5% if they opened a Creativity Center, but is not in the current agreements.

(11) Commitments and Contingencies

Lease Commitments

The Company entered into a Business Lease with Village Square at Palencia in July 2014, to lease unit 103B, Office Space 2, located at 701 Market Street, St. Augustine, Florida. The contract period is beginning August 1, 2014 and ending July 31, 2017. The monthly rent is $950.00.

The Company entered into a Business Lease with Village Square at Palencia in July 2014, to lease unit 114 located at 701 Market Street, St. Augustine, Florida. The contract period is beginning July 1, 2014 and ending June 15, 2019. The monthly rent is $1,425.00.

The following table summarizes the Company’s contractual lease obligations as of September 30, 2014:

Rent expense was $18,106 and $49,131, respectively, for the years ended September 30, 2014 and 2013.

Legal Settlement

On September 27, 2013, BFK Franchise Company LLC was named as a co-defendant in a Complaint filed by a Franchisee in Nevada who had purchased three existing Las Vegas territories from other Franchisees. In December of 2013, without any further legal process, BFK Franchise Company LLC entered into a settlement with the Nevada Franchisee to purchase the three Las Vegas territories for $95,000. At the end of the fiscal year September 30, 2014 the outstanding balance of the note was $55,000. This obligation will be satisfied during the next 11 months.

The Company may be involved in arbitration with Sew Fun, LLC (SFLLC), from which the Company purchased intellectual property to franchise a new sewing franchise concept.  As of the date of this filing there has been no formal complaint filed against the Company by SFLLC, but managements has anticipated that there may be a complaint filed if settlement negotiations are not successful.  SFLLC is seeking $614,000 for what it claims is the Company’s failure to sell Sew Fun Studios franchises in 2013 and 2014.  The Company is seeking $804,000 against SF for the deceptive trade practices that the Company claims induced the Company to acquire SFLLC’s intellectual property. As of the date of issuance, the Company’s legal counsel believes an unfavorable outcome against the Company is unlikely. However, an estimated range of loss could be from $50,000 to $100,000. As of September 30, 2014, the Company has not accrued any amounts related to this matter.

(12) Income Taxes

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

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

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

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties at September 30, 2014 and September 30, 2013, respectively, and has not recognized interest and/or penalties during the years ended September 30, 2014 and September 30, 2013, respectively, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits will occur within in the next 12 months.

The tax years subject to examination by major tax jurisdictions include the years 2010 and forward by the U.S. Internal Revenue Service, and the years 2009 and forward for various states.

The types of temporary differences between the tax basis of assets and their financial reporting amounts that give rise to a significant portion of the deferred assets and liabilities are as follows: