What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-12-30 compared with 2020-04-01 · 267 added, 202 removed, 177 unchanged (73% of the section changed)

Management's Discussion and Analysis of Financial Condition

and Results of Operations

The following discussion

and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this

All information presented herein is based on the Company’s fiscal year, which ends September 30.

Unless otherwise

stated, references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September

and the associated quarters, months and periods of those fiscal years.

The Company experienced

a year of decline in the number of active franchises, compared to fiscal year 2018, decreasing from 557 franchise territories to

503, within the two brands.

The reduction in the growth rate of franchises sold in fiscal year 2019 resulted in a decrease in initial

franchise fees of approximately $36,000 in a year-to-year comparison, not including the effects of FASB ASC 606 which was implemented

on October 1, 2018.

The decrease in franchise sales was due to a lack of marketing sales worldwide and more stringent qualification

Sales were also negatively affected by a prolonged audit wherein the company was not able to file an updated FDD;

requirement to sell franchises domestically.

The loss of the territories during the period is the result of the company working

to discharge our non-performing franchisees from the system.

The Company’s royalty

fees revenue decreased to $1,695,788 in fiscal year 2019 from $2,207,442 in the prior year, a decrease of $511,654 (23%), primarily

due to an increasing number of non-performing franchisees.

Operating Expenses remained fairly consistent overall between fiscal

year 2019 and 2018 with a 2% decrease year over year.

The Company had net income of $2,017,340 in fiscal year 2019, up from a net

loss of $218,833 the prior year, an increase of $2,236,173 primarily due to the effects of applying FASB ASC 606 during the year.

During fiscal year 2018,

the Company, in accordance to FTC Franchise Rule 436.7(a), suspended sales of new franchises in the United States as the Company

awaited the completion of its audited financial statements.

Results of Operations

The following table represents

the Company’s franchise sales activity for the fiscal years ended September 30, 2019 and 2018:

Management's Discussion and Analysis of Financial Condition and Results of Operations

following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included

elsewhere in this Form 10-K.

All information presented herein is based on the Company’s fiscal year, which ends September

Unless otherwise stated, references to particular years, quarters, months or periods refer to the Company’s fiscal years

ended in September and the associated quarters, months and periods of those fiscal years.

2020, the Company experienced a year of decline in the number of active franchises, compared to fiscal year 2019, decreasing from

503 franchise territories to 451, within the two brands.

The reduction in the overall number of franchises was to the termination

of franchises during the period is the result of the company working to discharge non-performing franchisees from the system,

the interruption of sales of new franchises as a result of the Coronavirus (“COVID-19”) pandemic, and the cessation

of sales while the Company completed its audit for the fiscal year ended September 30, 2019.

The reduction in the growth rate

of franchises sold in fiscal year 2020 resulted in a decrease in initial franchise fees of approximately $1,242,000 in a year-to-year

Company’s royalty fees revenue decreased to approximately $1,448,000 in fiscal year 2020 from approximately $1,696,000 in

the prior year, a decrease of $248,000 (15%), primarily due to an increasing number of non-performing franchisees.

Marketing fund

revenue decreased approximately $92,000 in the year ended September 30, 2020 primarily due to the impact of COVID-19.

fees increased by 87% in the year ended September 30, 2020 due to the Company beginning to charge franchisees for the use of their

online platform in the prior year.

expenses remained fairly consistent overall in fiscal year 2020 as compared to fiscal 2019 with a 4% decrease year over year.

The Company had net income of approximately $620,000 in fiscal year 2020, down from a net income of approximately $2,018,000 the

prior year, a decrease of approximately $1,397,000 primarily due to the acceleration of deferred revenues in 2019, the slowdown

in new franchise sales, and franchisees that were provided a discount by the Company due to the impact of the COVID-19 pandemic

on their operations.

of Operations

following table represents the Company’s franchise sales activity for the fiscal years ended September 30, 2020 and 2019:

Franchises Sold

Fiscal Years Ended

Franchise Activity

Learning Corporation

Franchise Company LLC

(a) US/Canada

First Territories

US/Canada Second Territories

International First

International Second

Creative Learning Corporation

BFK Franchise Company LLC

(a) US/Canada First Territories

(b) US/Canada Second Territories

Total US/Canada

International First Territories

International Second Territories

Master Agreements

Sub-franchise

International

Franchise Company LLC

Master Sub-franchise

Total International

SF Franchise Company LLC

US First Territories

International

Total Franchises

Territory refers to the original territory purchased with the Franchise Agreement.

International Territories

Total Franchises Sold

First Territory refers to the original territory purchased with the Franchise Agreement.

Territory refers to a secondary territory purchased in addition to the territory purchased with the Franchise Agreement.

changes of items in the Company’s Statement of Operations for the fiscal year ended September 30, 2019 as compared to the

changes of items in the Company’s Statement of Operations for the fiscal year ended September 30, 2020 as compared to the

prior year are discussed below .

Initial franchise

fees, Royalty fees and Merchandise sales

franchise fees, Royalty fees and Merchandise sales

Fiscal year Ended

(rounded to $1,000)

Item Description

Initial franchise

Royalties fees

September 30,

Initial franchise fees

$ (1,241,927 )

Marketing fund revenue

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Merchandise sales

primary increase in Initial franchise fees and marketing fund revenue is due to the accounting entries made during the year to

record the effects of FASB ASC 606 which the Company adopted on October 1, 2018.

The increase in technology fees is the result

of franchisee’s being charged monthly fees for the use of the Company’s Franchise Management Tool software which went

into service in December 2018.

The decrease in royalty fees is due to the loss of some franchisees that the Company has not been

able to replace with the sales of new franchises.

The loss of territories during the period is the result of the Company working

to discharge our non-performing franchisees from the system.

The Company began selling merchandise during the year ended September

The merchandise revenue was made up of lanyards and other promotional items.

We expect our royalty revenue to decrease

in 2020 as a result of the widespread school closures in the United States in response to the Covid-19 pandemic, which has resulted

in a drastic reduction of programs conducted by our franchisees in schools, which has drastically reduced their revenue.

not expect our royalty revenue to return to normal levels until the widespread school closures in the United States have ended.

Total Revenue

$ (1,479,524 )

The primary cause of the

decrease in initial franchise fees was due to the interruption of new franchise sales in fiscal 2020 as a result of the COVID-19

pandemic and delays in completing the Company’s audit for the fiscal year ending September 30, 2019.

The primary cause of

the decrease in royalties and marketing fund revenue is due to the acceleration of deferred revenues in 2019, fewer franchises

paying royalties as a result of the loss of territories during the period from the termination of non-performing franchisees from

the system, and the interruption of normal operation at remaining franchises because of the COVID-19 pandemic.

Also, due to the

impact of the COVID-19 pandemic on the business of our franchisees, we voluntarily elected to cease pursuing collections of our

marketing fees from our franchisees in March 2020.

The increase in technology fees is the result of the Company beginning to charge

franchisees for the use of their online platform in the prior year.

operating expenses for the comparable periods ended September 30, 2020 and 2019 were approximately $2,453,000 and $2,564,000,

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All other G&A expenses

The changes in

significant operating expenses are explained as follows:

commissions increased primarily as a result of the application of FASB ASC 606 during the year ended September 30, 2019.

changes in significant operating expenses are explained as follows:

commissions decreased primarily as a result of lower franchise sales.

Company incurred salaries, payroll expenses and stock-based compensation for the fiscal years ended September 30, 2020 and 2019

of approximately $885,000 and $696,000, respectively, an increase of approximately $189,000, or 27%.

The increase in total payroll

expenses is primarily due to increased executive compensation –

made up of common shares and cash - which was approved to

be paid to the board of directors during the year ended September 30, 2019 for their services provided since July of 2017.

of approximately $614,000 and $885,000, respectively, a decrease of approximately $271,000, or 31%.

The decrease in total payroll

expenses is primarily due to the reduction of both employee headcount and remaining salaries.

Company paid general marketing expenses for the fiscal years ended September 30, 2020 and 2019 of approximately $81,000 and $21,000,

respectively, a decrease of approximately $9,000, or 31%.

The decrease related to the implementation of more lead marketing in

the year ended September 30, 2018, particularly through social media channels.

marketing of $223,000 was paid out of the marketing fund using funds collected from franchisees as per the terms of their franchise

These funds were collected and remitted for the cost of national branding of the Company’s concepts to benefit

the franchisees.

marketing fund amounts owed to the Company are accounted for as a liability on the balance sheet and the actual collections are

deposited into a marketing fund bank account.

Expenses pertaining to the marketing fund activities are paid from the marketing

fund and reduce the liability account.

Upon adoption of FASB 606 on October 1, 2018, the Company presents these revenues on a

gross revenue basis on its statement of operations.

Any unused funds at the end of the period are recorded on the balance sheet

as accrued marketing fees.

to adoption of FASB ASC 606, these collections and expenses were all recorded on the balance sheet, therefore, Franchise marketing

expense at September 30, 2018 was $0 on the statement of operations in the prior year.

respectively, an increase of approximately $60,000, or 287%.

The increase related to higher lead advertising expenses.

marketing of approximately $130,000 was paid out of the marketing fund using funds collected from franchisees as per the terms

of their franchise agreements.

These funds were collected and remitted for the cost of national branding of the Company’s

concepts to benefit the franchisees.

The marketing fund amounts owed to the Company are accounted for as a liability on the balance

sheet and the actual collections are deposited into a marketing fund bank account.

Expenses pertaining to the marketing fund activities

are paid from the marketing fund and reduce the liability account.

Upon adoption of FASB 606 on October 1, 2018, the Company presents

these revenues on a gross revenue basis on its statement of operations.

Any unused funds at the end of the period are recorded

on the balance sheet as accrued marketing fees.

Company paid professional, legal and consulting fees for the fiscal years ended September 30, 2020 and 2019 of approximately $566,000

and $598,000, respectively, a decrease of approximately $58,000, or 10%.

decrease in professional, legal & consulting fees is primarily due to the elevated level of professional fees in the prior

The professional fees in fiscal year 2018 were due predominantly to SEC related matters, franchise regulatory matters and

corporate governance matters that resulted from the prior management’s decisions.

light of the substantial drop in royalty revenues that we expect for 2020 as a result of the Covid-19 pandemic, we are actively

considering various cost reduction measures, including reductions in general and administrative expenses, suspension of franchise

marketing, and reductions in legal and professional fees in order to align our expenses with our expected revenues during the

disruption caused by the Covid-19 pandemic.

There is no assurance that we will be able to reduce our expenses to the same extent

that our revenues are impacted by the pandemic, with the result that we may report of loss from operations until the disruptions

caused by the Covid-19 pandemic have abated.

and $540,000, respectively, an increase of approximately $26,000, or 5%.

The increase in professional, legal and consulting fees

is primarily due to the higher legal costs incurred in relation to a shareholder proxy solicitation in fiscal 2020, offset by

lower audit fees and lower legal costs from ongoing litigation.

Company recorded an additional reserve for both notes receivable and accounts receivable during the year ended September 30, 2019

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receivables deemed uncollectible in the prior year were collected causing a credit to bad debt expense.

The Company recorded an

additional reserve for accounts receivable during fiscal year 2020.

and Capital Resources

the current year, the Company had net income of approximately $2,000,000 and has sufficient cash on hand to cover expenses for

the next 12 months.

had cash flows provided by operating activities of approximately $398,000 for the year ended September 30, 2019 compared to cash

flows used in operating activities of approximately $26,000 for the year ended September 30, 2018.

The increase in cash flows

provided by operating activities for the year ended September 30, 2019 compared to the year ended September 30, 2018 relates primarily

to the increase in net income.

the current year, the Company had net income of approximately $620,000 and has sufficient cash on hand to cover expenses for the

next 12 months.

recent COVID-19 outbreak has been declared a pandemic by the World Health Organization, has spread to the United States and many

other parts of the world and has adversely affected our business operations, employee availability, financial condition, liquidity

and cash flow and the length of such impacts are uncertain.

outbreak of COVID-19 continues to grow both in the United States and globally, and related government and private sector responsive

actions have and will continue to adversely affect our business operations.

It is impossible to predict the effect and ultimate

impact of the COVID-19 pandemic as the situation is rapidly evolving.

spread of COVID-19 has caused public health officials to recommend precautions to mitigate the spread of the virus, including

warning against congregating in heavily populated areas, such as malls and shopping centers.

Among the precautions has been the

closure of a substantial portion of the schools in the United States, which has adversely impacted our royalty revenue from franchisees

and our ability to sell new franchises.

There is significant uncertainty around the breadth and duration of these school closures

and other business disruptions related to COVID-19, as well as its impact on the U.S.

and global economy.

The extent to which

COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including

new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

have asked our corporate employees whose jobs allow them to work remotely to do so for the foreseeable future.

Such precautionary

measures could create operational challenges, as we adjust to a remote workforce, which could adversely impact our business.

had cash flows used in operating activities of approximately $306,000 for the year ended September 30, 2020 compared to cash flows

provided by operating activities of approximately $398,000 for the year ended September 30, 2019.

The decrease in cash flows provided

by operating activities for the year ended September 30, 2020 compared to the year ended September 30, 2019 relates primarily

to lower initial franchise fees and royalty revenues which resulted in a lower net income.

had cash flows provided by investing activities of approximately $94,000 for the year ended September 30, 2020 compared to cash

flows used in investing activities of approximately $203,000 for the year ended September 30, 2018.

flows provided by investing activities of approximately $39,000 for the year ended September 30, 2019.

The increase in cash flows

provided investing activities was primarily due to the sale of assets held for sale during the year ended September 30, 2019.

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

the fiscal years ended September 30, 2019 and 2018, the Company purchased property and equipment totaling approximately $118,000

and $193,000, respectively, and no intangible property.

Company has currently temporarily suspended domestic franchise offers and sales of Bricks 4 Kidz®

and Sew Fun Studios®

franchises in compliance with FTC Franchise Rule, Section 436.7(a) due to delay in completion of the Company’s fiscal year

2018 and 2019 consolidated audited financial statements.

In turn, this delayed completion of the Company’s 2018 and 2019

FDDs for the Bricks 4 Kidz®

provided investing activities was primarily due to lower investments in property and equipment, offset by a reduction in assets

held for sale as we contemplated the liquidation of unneeded real estate assets in the 2020 fiscal year.

During the fiscal years

ended September 30, 2020 and 2019, the Company purchased property and equipment totaling approximately $0 and $119,000, respectively,

and no intangible property.

had cash flows provided by financing activities of approximately $120,000 for the year ended September 30, 2020 compared to cash

flows provided by financing activities of $0 for the year ended September 30, 2019.

The increase in cash flows provided financing

activities was primarily due to receipt of a Paycheck Protection Program (the “PPP”) under Division A, Title I of

the CARES Act, which was enacted March 27, 2020 in the amount of $119,980 in fiscal 2020.

The loan, which was in the form of a

note dated April 24, 2020 issued by the Company, matures on April 23, 2022 and bears interest at a rate of 1% per annum, payable

monthly commencing on October 23, 2020.

The note may be prepaid by the Company at any time prior to maturity with no prepayment

Funds from the loan may only be used for payroll costs, cost used to continue group health care benefits, mortgage

payments, rent, utilities and interest on other debt obligations incurred before February 15, 2020.

The Company used the entire

loan amount for qualifying expenses.

Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used

for qualifying expenses as described in the CARES Act.

During the first half

of fiscal 2020, the Company temporarily suspended domestic franchise offers and sales of Bricks 4 Kidz®

and Sew Fun Studios®

franchise offerings

franchises in compliance with FTC Franchise Rule, Section 436.7(a) due to delays in completion of the Company’s fiscal year

2018 and 2019 consolidated audited financial statements, in the second half of fiscal 2020 the Company’s sales of new franchises

was hindered by the COVID-19 pandemic.

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

Contractual Obligations

Company entered into a Business Lease with Village Square at Palencia in July 2014, to lease unit 114 located at 701 Market Street,

Augustine, Florida.

The contract period began July 1, 2014 and ended June 15, 2019, upon which time, the Company relocated

all of its physical operations to Boise, Idaho and signed a month-to-month lease agreement until October 2019 when the Company

signed a 21 month lease for office space at 5995 W State Street Suite B, Garden City, ID 83703.

The monthly lease amount is $833.

Off-Balance Sheet Arrangements

On November 1, 2020

the Company leased office space at 475 W Townplace, Suite, A, St.

Augustine, FL 32092, for monthly rent of $750, where it maintains

its principal office.

In October 2019, the

Company signed a 21 month lease for office space at 5995 W State Street Suite B, Garden City, ID 83703, where it previously maintained

its principal office.

The Company has prepaid rent for the remainder of the lease term at this space, and has no further obligation

under the lease.

Sheet Arrangements

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, and results of operations, liquidity or capital

Related Party

effect on the Company’s financial condition, changes in financial condition, and results of operations, liquidity or capital

Party Transactions

December 2017, the Company granted a total of 14,286 warrants to two Directors of the Company.

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common stock.

The Company agreed to waive the $2,000 exercise price owed in total from these warrant holders, therefore this exercise

was done on a cashless basis.

The Company agreed to waive the $2,000 exercise price owed in total from these warrant holders.

September 30, 2019, Blake Furlow resigned as Chief Executive Officer of the Company.

Furlow will receive a severance payment

of $30,000 pursuant to the terms of a Severance Agreement.

In connection with the obligations of his former employment agreement,

the Company issued an aggregate of 566,176 shares of Common Stock to Mr.

Bart Mitchell entered

into an Employment Agreement with the Company as of October 1, 2019 for the term of one year.

In addition to cash compensation,

he will receive stock grants valued at lesser of $15,000 or 200,000 Shares of Common Stock on the last day of the completed year

of employment.

Mitchell continued to serve as a member of the Board of Directors of the Company, but no longer served as the

Company’s Chief Financial Officer.

On September 30, 2019, the Company approved the issuance of 166,667 shares to Mr.

as per his CFO agreement for compensation earned during the year ended September 30, 2019.

September 27, 2019, in connection with their service on the Board of Directors for fiscal years 2017, 2018 and 2019, the Company

approved the issuance of (i) 99,362, (ii) 272,472, (iii) 112,739 and (iv) 272,472 shares of Common Stock to Blake Furlow, Gary

Herman, Bart Mitchell and JoyAnn Kenny-Charlton, respectively as well as a total of cash payments of $85,041.

Furlow received a severance payment of

$30,000 pursuant to the terms of a Severance Agreement.

Pursuant to his employment agreement, the Company also issued an aggregate

of 566,176 shares of Common Stock to Mr.

Effective September

30, 2019, Bart Mitchell, the Company’s Chief Financial Officer, was appointed Chief Executive Officer of the Company.

connection with his appointment, Mr.

Mitchell entered into an Employment Agreement with the Company as of October 1, 2019 for the

term of one year.

In addition to cash compensation, he was entitled to receive stock grants valued at the lesser of $15,000 or

200,000 Shares of Common Stock on the last day of the completed year of employment.

Mitchell continued to serve as a member

of the Board of Directors of the Company, but no longer served as the Company’s Chief Financial Officer.

On September 30,

2019, the Company approved the issuance of 166,667 shares to Mr.

Mitchell pursuant to his prior employment agreement for compensation

earned during the year ended September 30, 2019.

Mitchell resigned as President on June 8, 2020.

At such time he received a

severance package of $50,000.

During fiscal year 2020, Mr.

Mitchell no longer wanted his 279,406 shares and returned them to the

Company for no consideration and then the Company cancelled them.

On September 27, 2019,

in connection with their service on the Board of Directors for fiscal years 2017, 2018 and 2019, the Company approved the issuance

of (i) 99,362, (ii) 272,472, (iii) 112,739 and (iv) 272,472 shares of Common Stock to Blake Furlow, Gary Herman, Bart Mitchell

and JoyAnn Kenny-Charlton, respectively, as well as a total of cash payments of $85,041.

Rego has been a director since February 5, 2020, and our Chief Executive Officer since May 1, 2020.

Prior to his appointment,

Rego purchased an active franchise in California.

During the year ended September 30, 2020 the Company recognized royalty

revenue from the franchise of $16,650 and recognized marketing fee revenue from the franchise of $829.

Total payments made by

the franchisee were $7,681.

As of September 30, 2020 and 2019 the accounts receivable balance with the franchise was $11,894 and

$21,536, respectively and the franchises had deferred revenue balances of $0.

John Simento has been

a director of the Company since May 19, 2020.

Rego’s and Mr.

Simento’s appointments with the Company,

they purchased a Company franchise in the United Arab Emirates (the “UAE”).

The Company filed an arbitration complaint

against them in December 2019 regarding issues related to opening the franchise.

The complaint was resolved by a Settlement Agreement

dated February 5, 2020.

Under the Settlement Agreement, the Company forgave all back royalty fees through July 2019, equally $18,825,

and agreed to defer all other fees until the franchise was able to obtain a business license to operate in the U.A.E., which is

currently delayed due to the Coronavirus pandemic.

The franchise is currently non-operational as a result of an inability to obtain

the issuance of a business license form the UAE due to the Coronavirus pandemic.

If the franchise is not able to procure the necessary

authorizations to operate, the franchisees would not owe any franchise fees.

As a consequence, we have not realized any revenue

from the franchise.

Rego is also the

CEO of Teknowland, a software development company, with which the Company entered into an agreement on March 10, 2020.

of the agreement is nine months and calls for a development fee of $12,900 per month.

During the year ended September 30, 2020

the Company paid seven months payments of $12,900 in accordance with the terms of the agreement and paid an additional $15,700

for additional services, for a total of $106,000.

or about December 6, 2019, Christopher Rego and Rod Whiton (the “Solicitors”), prior to their appointments as officers

or directors of the Company, commenced a consent solicitation to the shareholders of the Company and on February 5, 2020, the Company

and the Solicitors entered into an agreement to settle their dispute over the consent solicitation.

The settlement resulted in

the Company agreeing to pay $10,000 as reimbursement for certain costs that they incurred related to the consent solicitation,

the Company agreeing to appoint Mr.

Whiton to the board, and the Company’s agreeing to appoint Mr.

Rego as chief

executive officer, among other provisions.

The Company ultimately paid a total of $20,000 in costs incurred by Messrs.

Whiton in relation to the consent solicitation.

Accounting Policies

Management’s

Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements,

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see Note 1 of the Consolidated Financial Statements.

Revenue Recognition

Company generates almost all of its revenue from contracts with customers.

The Company’s franchise agreements enter the

parties into a contractual agreement, typically over a ten years term, and include performance obligations as follows:

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company website access, Franchise Management Tool access, lessons and model plans, project kits, Duplo bricks, frames stop motion

animation software, and use of the franchisor’s intellectual property (IP) (e.g., trade name – Bricks for Kidz).

animation software, and use of the franchisor’s intellectual property (IP) (e.g., trade name –

Bricks for Kidz).

entering into a franchise agreement, the Company charges an initial franchise fee, which is fully collectible and nonrefundable

as of the date of the signing of the franchise agreement.

Further, because the Company’s franchises are primarily a mobile

concept and do not require finding locations or construction, the franchisees can begin operations as soon as they complete training.

the terms of the franchise agreements, the Company charges for royalty fees on a monthly basis, generally set at a fixed amount,

but in some cases are based on a percentage of franchisee’s monthly gross revenues.

The Company also charges fees for a

marketing fund, generally based on 2% of franchisee’s monthly gross revenues, which is managed by the Company, to allocate

towards national branding of the Company’s concepts to benefit the franchisees.

marketing fund, generally based on 2% of franchisee’s monthly gross revenues, which is managed by the Company, to allocate

towards national branding of the Company’s concepts to benefit the franchisees.

Lastly, the Company charges for technology

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The Company elected to apply the new standard retrospectively with an adjustment to the opening balance of

retained earnings, therefore comparative information from prior year periods has not been adjusted and continue to be reported

under the accounting standards in effect for those periods, specifically under ASC 605.

the year ended September 30, 2018, under ASC 605, the Company recognized revenue on an accrual basis after services were performed

under contract terms and in accordance with regulatory requirements, the service price to the client was fixed or determinable,

and collectability was reasonably assured.

Accordingly, initial franchise fees were not recognized as revenue until initial training

was completed and when substantially all of the services required by the franchise agreement were fulfilled by the Company in

accordance with ASC Topic 952-605 Revenue Recognition-Franchisor .

Further, royalties and technology fees were recognized

as earned on a monthly basis.

Lastly, the Company recorded marketing funds collected as a liability on the balance sheet with

expenses pertaining to the marketing fund reducing the liability account, thus no income statement impact.

At September 30, 2018

the Company had no unearned revenue for franchise fees collected but not yet earned per their ASC 605 revenue recognition policy.

October 1, 2018 the Company began recognizing revenue under ASC 606.

The Company considers initial franchise fees to be a part

of the license of symbolic intellectual property (“IP”), therefore the performance obligation related to these fees

is satisfied over time as the Company fulfills its promise to grant the customer rights to use, and benefit from, the Company’s

IP, as well as support and maintain the IP.

The initial franchise fee, then, is recorded as deferred revenue at inception and

recognized on a straight-line basis over the contract term.

retained earnings as of the date of adoption.

Under ASC 606, the Company considers initial franchise fees to be a part of the

license of symbolic intellectual property (“IP”), therefore the performance obligation related to these fees is satisfied

over time as the Company fulfills its promise to grant the customer rights to use, and benefit from, the Company’s IP, as

well as support and maintain the IP.

The initial franchise fee, then, is recorded as deferred revenue at inception and recognized

on a straight-line basis over the contract term.

accordance with ASC 606-10-55-65, the Company has determined that the royalty fees, marketing fees, and technology fees are subject

to a sales and usage-based royalties’ constraint on licenses of IP.

to a sales and usage-based royalties’

constraint on licenses of IP.

Accordingly, these fees are recognized as revenue at

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the Company any deferred revenue associated with the terminated contract is recognized into revenue at the time of termination,

along with any early termination fees, in the initial franchise fee line on the Company’s Statement of Operations.

Company generates revenue from sales of merchandise where the performance obligation is met, and therefore revenue recognized,

upon the delivery of merchandise to the customer.

for Doubtful Accounts — Methodology

for Doubtful Accounts —

Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records

1 unchanged sentence

The Company records an allowance for doubtful accounts that is based on historical trends,

customer knowledge, any known disputes, and considers the aging of the accounts receivable balances combined with management’s

estimate of future potential recoverability.

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of Property, Plant and Equipment and Goodwill and Other Intangible Assets

Company’s long-lived assets currently consist of property and equipment, and prior to the year ended September 30, 2018

Company’s long-lived assets currently consist of property and equipment, and prior to the year ended September 30, 2020

included intangible assets.

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by the amount by which the carrying amount of the asset exceeds its fair value.

Impairment evaluations involve management’s

estimates of asset useful lives and future cash flows.

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independent appraisals, as considered necessary.

fiscal year 2018, the Company recognized an Impairment Loss on long-lived assets relating to concepts and trademarks for SF LLC.

The Company abandoned the revenue stream for Sew Fun Studios, for which the previously recorded intangible assets were intended

to provide future economic value, and therefore determined that the intangible assets were fully impaired as of September 30,

$23,200 was recorded as an impairment loss in the operating expenses on the Consolidated Statements of Operations for the

year ended September 30, 2018.

provision for income taxes and deferred income taxes are determined using the asset and liability method.

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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

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

The term “more likely than not”

means a likelihood of more than

Otherwise, the Company may not recognize any of the potential tax benefit associated with the position.

recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax

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.

Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

had no accrual for interest or penalties at September 30, 2020 and 2019, respectively, and has not recognized interest and/or

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as they occur.

Recent Accounting

Pronouncements

Accounting Pronouncements

February 2016, the FASB issued ASU No.

2016-02, “Leases”, which requires lessees to recognize a right-to-use asset

and a lease obligation for all leases.

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Additional qualitative and quantitative disclosures, including significant

judgments made by management, will be required.

The new standard will become effective for the Company beginning with the first

quarter in the fiscal year ending September 30, 2020 and requires a modified retrospective transition approach and includes a

number of practical expedients.

Early adoption of the standard is permitted.

The Company is currently evaluating the impact the

adoption of this accounting guidance will have on the consolidated financial statements.

judgments made by management, are required.

The new standard was adopted by the Company in fiscal year 2020 but had no impact

on the Company’s financial statements as the Company does not have any leases that meet the criteria under this standard.

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

Quantitative and Qualitative Disclosures about Market Risk

reporting company, we are not required to provide the information required by this Item.

a smaller reporting company, we are not required to provide the information required by this Item.

Financial Statements and Supplementary Data

consolidated financial statements and related notes required by this item are set forth as a separate section of this Report.

See Part IV, Item 15 of this Form 10-K.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis