Driveitaway Holdings, Inc. 10-K

Item 1. Business Creative Learning Corporation, operating under the trade names of Bricks 4 Kidz® and Sew Fun Studios®, offers educational and enrichment programs to children ages 3 to 13+ through its franchisees. The Company’s business model is to sell franchise territories and collect a one-time franchise fee, renewal fees and monthly royalty fees from each territory. Through the Company’s franchise business model, which includes a proprietary curriculum and marketing strategy plus a proprietary franchise management tool, the Company provides a wide variety of programs designed to enhance students’ problem solving and critical thinking skills. As of September 30, 2020, the Company had 451 Bricks 4 Kidz® and Sew Fun Studios® global franchise territories, including 28 Bricks 4 Kidz® master franchises, and 134 Bricks 4 Kidz® sub-franchises operating in 39 countries. Company Background 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. In July 2010, the Company’s name was changed to Creative Learning Corporation. 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. BFK offers a franchise concept known as Bricks 4 Kidz®, a mobile business operated by franchisees within a specific geographic territory offering project-based programs designed to teach principles and methods of engineering to children ages 3-13+. BFK began selling franchises in July 2009. On January 26, 2015 the Company formed SF Franchise Company, LLC (“SF”) for the purpose of offering a second franchise concept known as Sew Fun Studios®. Sew Fun Studios® is a mobile business operated by franchisees within a specific geographic territory offering creative project-based activities, classes, and programs in fashion and interior design and sewing to children and adults. During fiscal year 2020, the Company formed B4K eLearning LLC to offer academic programs including access to Stride, an online educational platform that utilizes artificial intelligence to create lesson plans. In July 2019, the Company entered into an operating agreement for a joint venture known as Bricks4Schoolz, LLC, with BPL Enterprises for Bricks4Schoolz LLC (“BPL”). Under the operating agreement, the joint venture is granted a license to distribute certain intellectual property of the Company through a software system developed by BPL for the joint venture, provided that the joint venture may only distribute the intellectual property to elementary and middle schools in territories which are not covered by an existing franchisee of the Company. The Company has since rescinded its ownership interest in the Bricks4Schoolz, LLC. (See Item 1. Business – Bricks4Schooz ). BFK BFK franchises, which conduct business under the trade name BRICKS 4 KIDZ®, offer programs designed to teach principles and methods of engineering to children between the ages of 3 and 13 using LEGO® plastic bricks and other LEGO® products through classes, field trips, and other organized activities 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 and other LEGO® products. The Company may provide training and corporate franchisee support to all franchisees and recognizes revenue from the sale of its franchises when all initial training, pursuant to the terms of the franchise agreements, is completed. BFK franchises are mobile models, with activities scheduled in locations such as preschools, elementary and middle schools, camps, birthday parties, community centers and churches. 1 At September 30, 2020, BFK had 451 global Bricks 4 Kidz® and Sew Fun Studios® franchise territories, 28 Bricks 4 Kidz® master franchises, and 134 Bricks 4 Kidz® sub-franchises operating in 39 countries. The following table details franchise activity: BFK Franchise Territories September 30, 2018 557 Additions 24 Terminations and non-renewals and cancellations (78 ) September 30, 2019 503 Additions 15 Terminations and non-renewals and cancellations 67 September 30, 2020 451 Current BFK Programs In-school workshops . One-hour classes during school hours. Classes are correlated to the typical science curriculum for a particular grade level. Teacher guides, student worksheets, and step-by-step instructions are provided. After-school classes . One hour, one day a week class held after school. Pre-school classes . Classes can be held in pre-schools for children of pre-school ages. Classes for home-schooled children . Classes can be held in the home of one of the parents of a home-schooled child. Camps . Normally three hours per day for five 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 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). Birthday parties . In the home of the birthday 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. BFK Franchise Program BKF sells franchises both domestically and internationally. International sales can be a single franchise or a master franchise, where the master franchisee operates a franchise in the territory, and is also able to develop, sell and manage sub-franchises in the territory under the master franchise agreement. BFK does not offer master franchises in the United States. Under a franchise agreement, 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 $30,000. If the franchisee is granted an additional geographic area to increase the size of their territory, then the franchisee must pay an additional fee. If the franchisee is in good standing and is granted a second or additional franchise, then the franchisee must pay a franchise fee for each additional franchise. 2 International franchise fees vary and are set relative to the potential of the franchised territories. During the fiscal year ended September 30, 2020, BFK sold no master franchises. In the case of a master franchise, BFK receives a percentage of the franchise fee paid to the master franchisee by any sub-franchisee operating in the master franchisee’s territory. The Company uses a network of franchise marketing and promotion media to contact prospective franchisees. When a potential contact is received, the initial information relating to a buyer is passed to a franchise sales broker or director of business development to initiate contact with the potential new franchisees. The responsibility of the sales broker and/or director of business development is to vet the potential franchisee for compatibility with the franchise concept, among other things. As part of the process of vetting potential franchisees, the Company requires all prospective franchisees to complete a Request for Consideration form. Upon completion of the process the sales broker is paid a commission typically ranging from 20% to 30% of the franchise fee while the director of business development commission ranges between 5% to 7% and the Marketing Director earns 1%. The franchisee is granted a limited exclusive territory and a license to use the “Bricks 4 Kidz®” name, trademarks and course materials in the franchised territory. The franchisee is required to conform to certain standards of business practices and comply with all applicable laws. Each franchise is run as an independent business and, as such, is responsible for its operation, including employment of adequate staff. The term of the franchise is for ten years. Subject to any applicable laws, 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. During FY2018, the Company, in accordance with 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. Franchise Disclosure Document Under federal law, the Company is required to (a) prepare a franchise disclosure document (“FDD”) including federally mandated information, (b) provide each prospective franchisee with a copy of the FDD, and (c) wait 14 calendar days before entering into a binding agreement with the prospective franchisee or collecting any payment from any prospective franchisee. Federal law does not regulate the franchise relationship or require any filing or registration of the FDD on the part of a franchisor. The Company is also required to comply with certain state regulations in connection with the offer and sale of franchises, including the requirement to submit the FDD for registration with a number of states before offering or selling franchises within those states. The states requiring registration of the FDD are: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. In these states, state regulatory agencies review the FDD to confirm compliance with state statutory requirements. These state agencies can deny registration of the FDD if they determine that the FDD fails to meet state statutory requirements. If a state denies the issuance of an effective registration, a franchisor is prohibited from offering or selling franchises in that state. See "Government Regulation" below for more information. Royalty and Marketing Fees The Company invoices all applicable franchisees a royalty fee on a monthly basis based on either a flat fee structure or seven percent of revenue. Every U.S. franchisee, upon signing a franchise agreement, has authorized and provided the required banking information to allow the electronic collection of all fees. Approximately three days after the invoice has been issued to the franchisee, an ACH draft (automatic deduction from the franchisee bank account) for the royalty fee withdrawal is processed through the Company’s banking system. When the Company changes its royalty structure, existing franchisees maintain their contractual franchise royalty rate unless they agree to amend those rates. 3 The following is the royalty fee structure: Time Period During the Initial Term of Franchise Agreement Royalty Fees Amount (U.S. Dollars) (per month) October 1, 2016 through September 30, 2017 $ 425 USD October 1, 2017 through September 30, 2018 $ 450 USD October 1, 2018 through September 30, 2019 $ 475 USD October 1, 2019 through September 30, 2020 $ 500 USD October 1, 2020 and for the remainder of the initial term of the Franchise Agreement $ 500 USD If any franchisee owns and operates more than one territory, the royalty fees payable to the Company for the second territory and each additional territory shall be as follows: Time Period During the Initial Term of Franchise Agreement Royalty Fees Amount (U.S. Dollars) (per month) October 1, 2016 through September 30, 2017 $ 225 USD October 1, 2017 through September 30, 2018 $ 250 USD October 1, 2018 and for the remainder of the initial term of the Franchise Agreement $ 250 USD 4 BFK administers a marketing fund for domestic and Canadian franchisees for the purpose of building brand awareness in their respective countries. The marketing fund expenditures are funded by BFK collecting a 2% marketing fee, based upon gross receipts reported in the Franchise Management Tool (“FMT”), from domestic and Canadian franchisees. The respective franchisees are typically invoiced the middle of each month for the prior month’s receipts. These marketing fee receipts and expenses are reported on the statement of operations on a gross revenue basis, presenting receipts as revenue and expenses as operating expenses. Any receipts that exceed expenditures are recorded as a liability on the balance sheet. The collections of these funds are done using the Company’s ACH program, as agreed to by each franchisee in their Franchise Agreement. The Marketing Fund is segregated into a separate bank account. In April 2018, the third party provider of the FMT restricted the Company’s access to the software. As a result, franchisees were instructed to self-report their marketing fees, however many franchisees did not comply with this request. These past due marketing fees will be addressed once COVID-19 is no longer an issue. During 2020, the Company eased up on collection efforts for the marketing fees due to the impact of the COVID-19. BFK Competition Although BFK pioneered the LEGO® modeling-based curriculum for afterschool programs, we believe there are at least two other companies franchising a model similar to that of Bricks 4 Kidz®, Engineering 4 Kids and Snapology. Play-Well Teknologies offers after-school classes, camps and birthday parties using LEGO® bricks. Vision Education and Media offers after school classes using LEGO® bricks in the New York metropolitan area. 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. Sew Fun Studios As a result of an unexpectedly lengthy audit process for fiscal year 2018, the Company was unable to sell franchises for a good portion of the year, because the Company’s FDD required audited financial statements. When the audit was completed, the Company focused its efforts on the Bricks4Kidz franchises. Plans for expanding and marketing Sew Fun Studies were placed on hold. At September 30, 2020, SF had 1franchise territory. Bricks4Schoolz In July 2019, the Company entered into an operating agreement for a joint venture known as Bricks4Schoolz, LLC, with BPL. Under the operating agreement, the joint venture is granted a license to distribute certain intellectual property of the Company through a software system developed by BPL for the joint venture, provided that the joint venture may only distribute the intellectual property to elementary and middle schools in territories which are not covered by an existing franchisee of the Company. The Company owns 49% of the joint venture, and BPL owns the remaining 51%, and is entitled to a 12% royalty on all gross sales generated by the joint venture. In addition, BPL is the exclusive manager of the joint venture, and in that capacity has sole control of the joint venture. BPL is responsible contributing all capital required by the joint venture, and is entitled to recoup all of its capital contributions before any profits or distributions are allocable to the Company’s interest. Due to disputes regarding the scope of the license, and the fact that neither Bricks4Schoolz, LLC or BPL were legal entities at the time the operating agreement was executed, the Company has rescinded the operating agreement. As of December 28, 2020, the Company has not contributed any capital to Bricks4Schoolz, LLC, and Bricks4Schoolz, LLC has not generated any revenues. Franchising Process Initial contact between a potential franchisee and the Company may result from a potential franchisee contacting the Company, either by phone or electronically. Potential franchisees may also be introduced to the Company by brokers and/or other parties, and the Company may pay commissions and consulting fees to the brokers. The Company has discontinued its previous practice of introducing franchisee candidates to third party financing sources to cover franchising expenses, as well as, paying commissions and consulting fees to the Company’s directors and officers. After initial contact, one of the Company’s franchise consultants and/or internal sales personnel interviews each prospective franchisee (the “candidate”) to determine whether the candidate may make a successful franchisee. If the franchise consultant determines that the candidate may make a successful franchisee, the candidate submits a request for consideration (“RFC”). The Company reviews the RFC, and if the RFC is approved, the franchise consultant continues the vetting process, which focuses on financial and other factors. 5 Upon receipt of the RFC, the candidate is emailed a copy of the Company’s franchise disclosure document. The franchise consultant reviews the franchise disclosure document with the candidate and answers any questions concerning the franchise and the franchise agreement. The Company does not provide projections of a franchise’s financial model or performance to prospective franchisees Assuming the candidate has cleared the initial vetting process and remains interested in operating one of the Company’s franchises, the candidate is invited to attend a “discovery day” held at the Company’s headquarters, or in some instances at another location, during which representatives of the Company and the candidate meet face to face. If the Company decides that the candidate meets its objectives for the franchise, the required disclosure waiting period has expired and the candidate wants to move forward and become a franchisee, the parties execute a franchise agreement. The Company will sell a franchise for a particular territory only when the Company has a reasonable belief that the potential franchisee meets the Company minimum criteria. If a franchisee is not successful, the Company may terminate the franchise agreement by providing notice to the franchisee or repurchasing the franchise from the franchisee. Until the Company provides a notice of termination or repurchases the franchise and terminates the franchise by mutual agreement, the Company considers the franchise to be active. Government Regulation The offer and sale of franchises is regulated by the Federal Trade Commission (the “FTC”) and some state governments. In 1979, the FTC promulgated what became known as the FTC Franchise Rule. The FTC Franchise Rule requires that the franchisor provide a FDD to each prospective franchisee prior to execution of a binding franchise agreement or payment of money by the prospective franchisee. The FTC Franchise Rule does not regulate the franchise relationship or require any filing or registration on the part of a franchisor. However, the FTC Franchise Rule does not preempt state law and, as a result, states may (and, some have) impose additional requirements on franchisors. For example, the following states require franchisors (i) to register their franchise offerings (or qualify for an exemption) with the state prior to the offer and sale of franchises in the state, and (ii) subject to certain exemptions, to provide all prospective franchisees with a registered FDD prior to the offer and sale of a franchise in the state: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin (the “Franchise Registration States”). The registration process is not uniform in each Franchise Registration State. Most Franchise Registration States require the franchisor to submit an application, which includes a FDD, in order to register to sell franchises within that state. Many, but not all, of the state regulatory agencies in the Franchise Registration States review the franchisor’s registration application, the FDD, the proposed franchise agreement and any other agreements franchisees must sign, the financial condition of the franchisor, and other material information provided by the franchisor in its application. These state agencies have the authority to deny a franchisor’s application for registration and prohibit the franchisor from offering or selling franchises in the state. In addition, there are numerous states that have laws that regulate the relationship between a franchisor and a franchisee after the sale of the franchise. 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 Franchise Registration States has similar authority to seek penalties for violations of their state franchise registration and disclosure laws. Violations may include offering or selling an unregistered franchise, failing to timely provide the disclosure document to a prospective franchisee or making misrepresentations in the FDDs. Additionally, officers, directors and individuals with management responsibility for the franchisor may have personal liability for violations of franchise laws if they had knowledge of (or should have had knowledge of) or participated in the violations. There is no direct, private right of action for a violation of the FTC Franchise Rule. However, most of the Franchise Registration States provide for a private right of action for a violation of the state’s franchise registration and disclosure law. Remedies available under these laws typically include damages, rescission of the franchise agreement and attorneys’ fees. 6 On January 29, 2016, the Company 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 2015 consolidated audited financial statements. In turn, this delayed completion of the Company’s 2016 FDDs for the Bricks 4 Kidz® and Sew Fun Studios® franchise offerings. The Company restarted selling efforts of Bricks 4 Kidz in September of 2016. This temporary suspension of domestic franchise offer and sales did not affect the Company’s international franchise offer and sales activity or its royalty fee collections from existing franchisees. The Company has also 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 consolidated audited financial statements. In turn, this delayed completion of the Company’s 2018 and 2019 FDDs for the Bricks 4 Kidz® and Sew Fun Studios® franchise offerings. General During fiscal 2020, the Company sold its two properties in Florida and transitioned to a Boise, Idaho location for which a new office lease was signed at 5995 W State Street Suite B, Garden City, ID 83703. On November 1, 2020 the company relocated its office to an office complex located 475 W Townplace, Suite, A, St Augustine, FL 32092. At September 30, 2020, the Company had six full-time employees and two part-time employees. Available Information We make available free of charge on our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission, or (the “SEC”). Our corporate website is www.creativelearningcorp.com. The information in this website is not a part of this report. 7