Driveitaway Holdings, Inc. - Quarter Report: 2014 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

FORM 10-Q

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

For the quarterly period ended December 31, 2014

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

For the transition period from __________ to __________

Commission File Number: 000-52883

701 Market St., Suite 113

St. Augustine, FL 32095

 (Address of principal executive offices, including Zip Code)

(904) 824-3133

 (Issuer’s telephone number, including area code)

 ____________________________________________

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 11,894,409 shares of common stock as of February 10, 2015.

CREATIVE LEARNING CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Quarter Ended December 31, 2014

CREATIVE LEARNING CORPORATION

Consolidated Financial Statements

(Unaudited)

TABLE OF CONTENTS

CREATIVE LEARNING CORPORATION

Consolidated Balance Sheets

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

CREATIVE LEARNING CORPORATION

Consolidated Statements of Operations

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

CREATIVE LEARNING CORPORATION

Consolidated Statements of Cash Flows

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

CREATIVE LEARNING CORPORATION

Notes to Consolidated Financial Statements

 (Unaudited)

(1) Nature of Organization, Operations 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, controlled 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

The following (a) condensed balance sheet as of September 30, 2014, which has been derived from audited financial statements, and (b) the unaudited condensed financial statements as of December 31, 2014 and 2013, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K amendment No. 1 filed with the SEC on February 2, 2015. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for future quarters or for the full year. Notes to the condensed financial statements which substantially duplicate the disclosure contained in the audited financial statements for fiscal 2014 as reported in the Form 10-K/A have been omitted.

Summary of Significant Accounting Policies

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

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.

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 the Company’s franchises are primarily a mobile concept and do not require finding locations or construction, the franchisees can begin operations as soon as they leave training. The franchise fees are fully collectible as of the date of the signing of the franchise agreement, but the franchise fees are not recognized as revenue until the last day they complete training when substantially all of the services required by the franchise agreement have been provided by the Company. Royalty fees are recognized as earned.

As of December 31, 2014, the Company had $123,600 in unearned revenue for franchise fees collected but for which franchisees had not completed training.

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 December 31, 2014 and September 30, 2014. The Company had cash of $2,775,973 and $3,061,458 as of December 31, 2014 and September 30, 2014, respectively.

The Company has restricted cash of $184,690 at December 31, 2014 and $180,009 at September 30, 2014 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.

The Company has one operating account with Wells Fargo that exceed the $250,000 FDIC limit by approximately $2,525,000. The Company is confident the asset is secure based upon our history with and the stability of the institution.

Related Party Disclosure

During the three months ended December 31, 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.

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.

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 December 31, 2014 and September 30, 2014, the accrued marketing fund liability balances were $184,690 and $180,009 respectively.

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 December 31, 2014 of $56,000 is adequate, but actual write-offs could exceed the recorded allowance.

Income tax

The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards 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.

For the three months ended December 31, 2014 and 2013, the Company recorded a tax (benefit) provision of ($11,500) and $179,079 respectively on its pretax (loss)/income of (33,377) and $475,021 respectively.

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.

Advertising costs

Advertising costs are expensed as incurred. Advertising costs for the three month periods ended December 31, 2014 and 2013 were $245,375 and $191,942, respectively.

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 December 31, 2014 and September 30, 2014, $68,600 and $70,000, per the agreement is outstanding respectively.

At December 31, 2014 and September 30, 2014 respectively, the Company held certain other receivables totaling $217,248 and $194,088 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 December 31, 2014 and September 30, 2014 of $24,238 and $22,729 respectively.

Intangible Assets

As of December 31, 2014, the Company had $170,754 of intangible assets. On November 11, 2014 the Company issued 25,000 shares with a fair value of $45,000 to Kidsplorations LLC as part of the original purchase and sale of asset agreement dated September 14, 2012.

On September 14, 2012, the Company signed an agreement for purchase and sale of assets with Challenge Island. The compensation in the agreement is in the form of CLCN common stock to be issued in 25,000 share increments at signing and then, over time, based upon the incremental sales of 25 new CI franchises up to a total of 175 new franchises or a total of 175,000 common shares. The initial issue was at the time of signing for 25,000 shares of CLCN common stock at a fair market value of $25,250. The first increment of 25,000 shares issue, based on 25 franchise sales, was on November 11, 2014 at a fair value of $45,000. In the future as each 25 new franchises are sold the Company will issue 25,000 shares of common stock of CLCN to be valued at the fair market value at the date of issue.

Accrued stock based compensation

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 originally 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 as of September 30, 2014. On November 25, 2014 the remaining 40,000 shares of common stock were issued with the remaining balance of $98,400 being re-classed to common stock and additional paid in capital as of December 31, 2014.

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.

As of December 31, 2014 there were a total of 120,000 shares of stock options issued and outstanding. These stock options vested prior to the end of the fiscal year ended September 30, 2014 and the full expense was recorded during that year. For the quarter ended December 31, 2014 there was no stock based compensation expense. There were no stock options granted during the three month period ending December 31, 2014. There is no unamortized stock benefit compensation yet to be recorded for the period.

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.

The Company’s potential dilutive securities for employee stock options for the three months ended December 31, 2014 and 2013 are 38,529 and 33,302, respectively. As the Company had a net loss for the period ending December 31, 2014, the potential dilutive securities were not included in the diluted earnings per share as such would have been anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share:

Stock Issuance

On November 11, 2014, the company issued 25,000 shares of CLCN common stock valued at $45,000 to Kidsplorations, LLC as part of the purchase of assets agreement for Challenger Island. This was based upon the threshold of selling 25 franchises.

On November 25, 2014, the Company issued 40,000 shares of CLCN common stock valued at $98,400 for accrued stock base commissions. The expense for these share was recorded in the fiscal year ended September 30, 2014. This completes the agreement.

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 $9,205 and $3,535, respectively, for the quarters ended December 31, 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. During the three months ended December 31, 2014 payment of $20,000 were made leaving a balance due on the note of $35,000. This obligation will be satisfied during the next 7 months.

The Company was involved in arbitration with Sew Fun, LLC (SFLLC), from which the Company previously purchased intellectual property to establish a new sewing franchise concept. On January 23, 2015 the Company and SFLLC entered into a settlement agreement in which the parties agreed to the following:

As the events related to this settlement were known as of December 31, 2014 and September 30, 2014, pursuant to ASC Topic 855 - Subsequent Events, the Company has accrued $106,250 which is the estimated fair market value of the 85,000 shares of common stock to be issued pursuant to this legal settlement under "Legal Settlement" in the accompanying balance sheet at December 31, 2014 and September 30, 2014. The estimated market value of the shares of common stock was $106,250 based on the trading price of the Company's common stock on the date of the settlement.

Subsequent Events

On January 26, 2015 the Company's board of directors approved a plan pursuant to Securities and Exchange Commission Rule 10b-18 to purchase 100,000 shares of its common stock in the secondary market.

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

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

Results of 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. The Company 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.

BFK operates primarily through a mobile franchise model.

BFK sold its first franchise in September 2009 and as of December 31, 2014, BFK has sold 608 franchises, operating in 43 states, 9 Canadian provinces and 31 other countries.

On September 14, 2012, the Company formed CI Franchise Company LLC (“CI”) as a wholly owned subsidiary for purpose of operating a second franchise concept known as Challenge Island®, which 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+. CI began selling franchises during the 2013 fiscal year.

As of December 31, 2014 CI has sold 39 franchises in the United States and in 1 foreign country.

On January 8, 2013 the Company 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.

The Company is in the process of registering SF Franchise Company LLC, (SF) with state franchising regulators, and as of December 31, 2014, no SF franchises had been sold. SF was issued a FIN on February 3, 2015.

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

BFK sells franchises both domestically and internationally. International franchise sales can be a single franchise or a Master Franchise, where the Master Franchisee operates a franchise, but is also able to develop, sell and manage sub-franchises. International franchise and Master Franchise fees vary and are set relative to the potential of the franchised territories.

Outlook

Demand remains very strong for Bricks 4 Kidz and Challenge Island - both for domestic and international franchises, including master franchises. The Company has several international master franchises in the pipeline and expects to close on them during the second quarter of 2015.

As of the date of this filing, the initial lead flow of prospective franchisees for Sew Fun Studios has also been strong. The Company projects to award, on average, 15-20 franchises per month among all three concepts through the end of its fiscal year. Furthermore, the royalty revenue continues to increase each month and the Company projects that this will continue through the end of the fiscal year and beyond.

The Company sold 28 fewer franchises during the first quarter of fiscal year 2015 compared to the same period of 2014. This is primarily a result of an unusually high number of international franchises and international master franchises sold in the first quarter of 2014. Master franchise fees are generally in the six-figure range and add significant revenue over the typical franchise fee. Furthermore, in October and November of 2014 the Company experienced a high demand for Bricks 4 Kidz franchise territories that had already been sold (and are currently being operated by franchisees) and therefore could not sell franchises in those territories. In December, the demand returned to a more normal level for territories not sold.

The following table represents the franchise activity for the periods ended December 31, 2014 and 2013:

Royalty Fees increased by $254,000 for the three months ending December 31, 2014 over the same period in 2013. Royalty fees for the three months ending December 31, 2014 and December 31, 2013 were, $554,859 and $300,652 respectively. Royalty Fees will continue to grow with the increase in the number of franchisees and the increase in the amount of time franchisees have been in the system.

The following table represents the royalty fee activity for the periods ended December 31, 2014 and 2013:

Other material changes of items in the Company’s Statement of Operations for the three ended December 31, 2014, as compared period in 2013, are discussed below.

Liquidity and Capital Resources

Sources and (uses) of funds for the three months ended December 31, 2014 and 2013 were as follows:

As of December 31, 2014 the Company’s operating cash requirements were approximately $500,000 per month.

The Company anticipates meeting its capital requirements for the twelve-month period ending September 30, 2015. The capital requirements will be as follows:

The Company collects and allocates 2% of the franchisee gross revenues to a marketing fund, managed by the Company, which is used for the 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.

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 December 31, 2014:

Rent expense was $9,205 and $13,546, respectively, for the three month periods ended December 31, 2014 and 2013.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonable likely to have a current or future material effect on the Company’s financial condition, changes in financial condition, and 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 4. Controls and Procedures.

(a) The Company maintains a system of controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (“1934 Act”), is recorded, processed, summarized and reported, within time periods specified in the SEC's rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act, is accumulated and communicated to the Company’s management, including its Principal Executive and Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of December 31, 2014, the Company’s Principal Executive and Financial Officer evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Principal Executive and Financial Officer concluded that the Company’s disclosure, controls and procedures were deficient and require continued improvements in policies and procedures to become effective.

(b) Changes in Internal Controls. There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2014, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II

Item 1. Legal Proceedings

The Company was involved in arbitration with Sew Fun, LLC (SFLLC), from which the Company previously purchased intellectual property to establish a new sewing franchise concept. On January 23, 2015 the Company and SFLLC entered into a settlement agreement in which the parties agreed to the following:

As the events related to this settlement were known as of December 31, 2014 and September 30, 2014, pursuant to ASC Topic 855 - Subsequent Events, the Company has accrued $106,250 which is the estimated fair market value of the 85,000 shares of common stock to be issued pursuant to this legal settlement under "Legal Settlement" in the accompanying balance sheet at December 31, 2014 and September 30, 2014. The estimated market value of the shares of common stock was $106,250 based on the trading price of the Company's common stock on the date of the settlement.

Item 1A. Risk Factors

Not applicable.

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

On November 11, 2014, the company issued 25,000 shares of CLCN common stock valued at $45,000 to Kidsplorations, LLC as part of the purchase of assets agreement for Challenger Island.

On November 25, 2014, the Company issued 40,000 shares of CLCN common stock valued at $98,400 for stock base commissions.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information 

On January 26, 2015 the Company's board of directors approved a plan pursuant to Securities and Exchange Commission Rule 10b-18 to purchase 100,000 shares of its common stock in the secondary market.

Item 6. Exhibits

 ____________ 

** 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.

SIGNATURES

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

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