The accompanying notes are an integral part of the consolidated financial statements.
Notes
to Financial Statements
(Unaudited)
(1) Nature
of Organization, Operations and Summary of Significant Accounting Policies:
Nature
of Organization
Creative
Learning Corporation (the “Company”) operates the wholly owned subsidiaries, BFK Franchise Co., LLC (“BFK”)
and SF Franchise Company, LLC (“SF”) under the trade names Bricks 4 Kidz® and Sew Fun Studios™ respectively
that offer children’s enrichment and education franchises. As of June 30, 2017, BFK franchisees operated in 632 territories in
42 states and 44 countries, and SF franchisees operated in 13 territories in 5 states and 2 countries.
The
Company sold the Challenge Island Franchise Co., LLC (“CI”) concept on December 9, 2015, and as a result the Company
is reporting CI as discontinued operations in the consolidated financial statements. See Note 8.
Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information, with the instructions to Form 10-Q and with Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the
opinion of management, these consolidated financial statements contain all normal recurring adjustments considered necessary for
a fair presentation of the Company’s results for the interim periods that have been included. The results for the nine months
ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year. These statements should be
read in conjunction with the Company’s audited consolidated financial statements and management’s discussion and analysis
included in the Company’s annual report on Form 10-K for the year ended September 30, 2016. In addition, refer to Note 8
regarding the sale of CI and related discontinued operations classification.
Related
Parties
The
Company has been involved in transactions with related parties. A party is considered to be related to the Company if the party
directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the
Company. Related parties include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented
from fully pursuing its own separate interests.
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, recoverability of long lived assets and fair market value of equity
instruments. Actual results could differ from those estimates as the current economic environment has increased the degree of
uncertainty inherent in these estimates and assumptions.
Restricted
Cash
The
Company’s restricted cash is associated with marketing funds collected from the franchisees. Per the franchise agreements
a marketing fund of 2% of franchisees’ gross cash receipts is collected and held to be spent on the promotion of the brand
(see Note 5).
Accounts
and Note Receivables
The
Company reviews accounts and note receivables periodically for collectability, establishes an allowance for doubtful accounts
and records bad debt expense when deemed necessary. The Company records an allowance for doubtful accounts and notes that is based
on historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with
management’s estimate of future potential recoverability. Receivables and notes are written off against the allowance after
all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts at June 30, 2017 and
September 30, 2016 were adequate, but actual write-offs could exceed the recorded allowance.
Property,
Equipment and Depreciation
Property
and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of
the related assets, which range from three to forty years. Expenditures for additions and improvements are capitalized, while
repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of property and equipment
sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal.
Fixed
Assets
|
|
Useful
Life
|
|
Equipment
|
5 years
|
Furniture and Fixtures
|
5 years
|
Property Improvements
|
15-40 years
|
Software
|
3 years
|
Revenue
Recognition
Revenue
is recognized on an accrual basis after services have been performed under contract terms and in accordance with regulatory requirements,
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 complete 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 are recognized as earned on a monthly basis.
Advertising
Costs
Advertising
costs are expensed as incurred. The Company incurred advertising costs for the quarters ended June 30, 2017 and 2016 of approximately
$1,000 and $27,000, respectively.
Income
Taxes
The
provisions for income taxes and deferred income taxes are determined using the asset and liability method. Deferred tax assets
and liabilities are determined based on temporary differences between the financial carrying amounts and the tax basis of assets
and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On
a periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered. If after evaluating
all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the
net deferred tax assets will not be recovered, a valuation allowance is provided by a charge to tax expense to reserve the portion
of the deferred tax assets which are not expected to be realized.
The
Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company is required
to file.
When
there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position the Company
takes has to have at least a “more likely than not” chance of being sustained (based on the position’s technical
merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than
50 percent. Otherwise, the Company may not recognize any of the potential tax benefit associated with the position. The Company
recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax
benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve
management’s judgment regarding the likelihood of the benefit being sustained with the ultimate realization being dependent
on generating sufficient taxable income in future years. In the judgement of management and based upon projected future earnings,
the Company increased its valuation allowance during the quarter from 50% to 100%. The total valuation allowance at June 30, 2017
was $675,433. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our
results of operations, financial position and cash flows.
The
Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company
had no accrual for interest or penalties at June 30, 2017 and September 30, 2016, respectively, and has not recognized interest
and/or penalties during the nine months ended June 30, 2017, since there are no material unrecognized tax benefits. Management
believes no material change to the amount of unrecognized tax benefits will occur within the next twelve months.
The
tax years subject to examination by major tax jurisdictions include the years 2013 and forward by the U.S. Internal Revenue Service.
Net
earnings (loss) per share
Basic
earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if stock options or other contracts
to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted
earnings per share are excluded from the calculation.
Recent
accounting pronouncements
Revenue
from Contracts with Customers (Topic 606) has been discussed in several recent Accounting Standards Updates (“ASUs”),
including ASU 2016-12, 2016-11, 2016-10 and 2016-8. In May 2014, the Financial Accounting Standards Board (“FASB”)
issued ASU 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
in its fiscal year beginning October 1, 2018. 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 adoption
of this standard is not expected to be material.
In
March 2016, the FASB issued ASU No. 2016-09, C
ompensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting,
which is intended to improve and simplify several aspects of the accounting for employee share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification
on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax
expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items
in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit
reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as
an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate
the number of awards that are expected to vest or account for forfeitures when they occur. This ASU is effective for fiscal years
beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted.
The Company has chosen early adoption of this standard, and there was no material effect on the consolidated financial statements.
In
November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB
Emerging Issues Task Force)”. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during
the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU
2016-18 becomes effective for fiscal years beginning after December 15, 2017 with early adoption permitted. The Company is currently
evaluating the impact ASU 2016-18 will have on its consolidated financial statements.
(2)
Related Party
MC
Logic, LLC (“MC Logic”) is 100% owned by Michelle Cote, who has served as the Company’s Creative Director since
May 11, 2017, the Company’s President and Secretary from July 2015 until May 11, 2017, and is a former director and founder
of the Company. Subsequent to the end of fiscal year 2015, the Company recorded a related party receivable of $7,500 which
resulted from activities that occurred in 2016. The receivable is a net amount due resulting from pre-approved activities at an
MC Logic Sew Fun Franchise location, which involved using the space for initial evaluation of a potential new franchise concept
and for the Company’s use of the location to consider taking the Sew Fun franchise as a company store. During this time,
MC Logic had been reimbursed for expended funds and had tendered to the Company certain revenues. The Company later changed strategy,
resulting in the reversal of reimbursements to MC Logic and the return of revenues to MC Logic. The net result was $10,218 due
from MC Logic. MC Logic paid the balance in June of 2016. In addition, the Company has entered into an arrangement with MC Logic
under which MC Logic has agreed to pay the standard Sew Fun Studios monthly royalty fee due for this territory effective June
1, 2016. The Company has no receivable due from MC Logic as of June 2017 related to royalties.
The
Company had $11,130 in rent expense for the nine months ended June 30, 2016 for a 1,200 square foot MC Logic leased facility located
in St. Augustine, Florida (the “Store”). This was a month to month arrangement with no lease in the Company’s
name. The Company used the Store as a training center and expected to start holding classes and special events during evenings
and weekends. This arrangement ended in March 2016.
(3) Notes
and Other Receivables
At
June 30, 2017 and September 30, 2016, the Company held certain notes receivables totaling approximately $95,000 and $102,000,
respectively, for extended payment terms of franchise fees, generally non-interest bearing notes. The Company only writes off
franchisees’ receivables in the event that the amounts are deemed uncollectible, which is generally when such franchisees
leave the network. In addition, the Company analyzes the collectability of all receivables and reserves accordingly.
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Total
|
|
Payment schedules for Notes Receivable
|
|
$
|
12,972
|
|
|
$
|
29,450
|
|
|
$
|
16,000
|
|
|
$
|
12,950
|
|
|
$
|
12,950
|
|
|
$
|
11,012
|
|
|
$
|
95,334
|
|
(4)
Impairment Loss on Intangible Assets
In fiscal years ending
September 30, 2013 and 2014, the Company purchased franchise rights related to certain BFK franchise territories in various areas,
mainly the Las Vegas and the Denver areas, and the Company had the intention of reselling such rights in the short term. Franchise
rights are valued based upon the market value or current sales activities of franchises with similar market characteristics. During
the current quarter, it became apparent that the franchise rights were overvalued and the Company would not be able to recoup its
investment. Accordingly, during the quarter ended June 30, 2017, the Company recorded an impairment loss of approximately $77,000.
This loss is part of the general and administrative expenses on the accompanying Consolidated Statements of Operations.
(5) Accrued
Marketing Fund
Per
the terms of the franchise agreements, the Company collects 2% of a 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.
At
June 30, 2017 and September 30, 2016, the accrued marketing fund liability balances were approximately $183,000 and $147,000,
respectively.
(6)
Accrued Liabilities
The
Company had accrued liabilities at June 30, 2017, and September 30, 2016 as follows:
|
|
June 30,
|
|
|
September 30,
|
|
Accrued Liabilities
|
|
2017
|
|
|
2016
|
|
Accrued Audit Fees
|
|
|
10,000
|
|
|
|
13,753
|
|
Accrued Legal Fees and Legal Settlements
|
|
|
102,857
|
|
|
|
148,504
|
|
Accrued State Regulatory Settlement
|
|
|
—
|
|
|
|
149,366
|
|
Accrued Other
|
|
|
3,769
|
|
|
|
35,000
|
|
|
|
$
|
116,626
|
|
|
$
|
346,623
|
|
(7)
Stock-Based Compensation
On
May 14, 2017, the Company granted options consistent with its corporate by-laws to purchase shares of the Company’s common
stock to each of the members of the Company’s then Board of Directors, as follows: Charles Grant – 900,000 shares,
Joseph Marucci – 324,000 shares, Michael Gorin – 324,000 shares and JoyAnn Kenny, 216,000 shares. Each of the options
has an exercise price of $0.30 per share, and is exercisable in full at any time during the five-year period commencing on the
date of grant. The option grants were approved by the Company’s Board of Directors (the “Board”) based upon an
independent compensation consultant’s investigation and that consultant’s analysis and compensation recommendations
to the Board. Among other things, the report concluded that the directors have: (i) served entirely without compensation
(other than $4,500 paid to Mr. Marucci in or prior to July 2015) – Messrs. Grant and Marucci since March 2015 and Mr. Gorin
and Ms. Kenny since July 2015; (ii) devoted more time and effort than what is to be expected or considered normal (especially the
audit committee); (iii) been confronted by extenuating circumstances regarding the Company’s affairs that required substantial
additional effort. Finally, the analysis indicated that Board Chair, Charles Grant, had expended a particularly large amount of
effort, spending considerably more time performing board services than the other board members.
Also,
pursuant to the employment agreement of Ms. Kretsch, the Company’s former President, she was entitled to receive equity grants
on the last day of each calendar quarter, as follows (the “Equity Awards”): (1) stock grants valued at $2,500
for each calendar quarter, and (2) option grants valued at $8,750 for each calendar quarter, in each case commencing with the quarter
ending June 30, 2017 and based on the average closing value of the Company’s stock over the 30-day period prior to the date
of the applicable grant.
If
Ms. Kretsch’s employment under the Employment Agreement is terminated by the Company without “Cause” (as
such term is defined in the Employment Agreement), other than under the circumstances described below, Ms. Kretsch will be
entitled to receive the Equity Awards due for the quarter in which termination occurs. If Ms. Kretsch’s employment
under the Employment Agreement is terminated by Ms. Kretsch for “Good Reason” (as such term is defined in the
Employment Agreement), or by the Company for Cause within six months of a change in control of the Company or if the Company
is taken private, Ms. Kretsch will be paid an amount equivalent to her base salary for a period of three months following the
date of termination, and will also be entitled to receive the Equity Awards due for the quarter in which termination occurs
and the immediately following quarter. As described under Note 10 – Subsequent Events, Ms Kretsch informed the Company of her intention
to resign as President of the Company.
On
May 13, 2017, the Company issued 8,000 shares of the Company’s common stock, and granted options to purchase 28,000 shares
of the Company’s common stock at an exercise price of $0.25 per share, exercisable in full at any time during the five-year
period commencing on the date of the grant, to Karla Kretsch, the Company’s former President. The shares and options were
issued pursuant to the terms of Ms. Kretsch’s employment agreement with the Company, on account of Ms. Kretsch’s service
to the Company for the quarter ended March 31, 2017.
Based
on the same employment agreement, for the quarter ending June 30, 2017, the Company issued 12,118 shares of the Company’s
common stock, and granted options to purchase 42,414 shares of the Company’s common stock at an exercise price of $0.2063
per share, exercisable in full at any time during the five-year period commencing on the date of the grant.
The
Company utilizes the Black-Scholes valuation model for estimating fair value of stock compensation for options awarded to officers
and members of the Board. Each grant is evaluated based upon assumptions at the time of the grant. The assumptions used in our
calculations are no dividend yield, expected volatility between 129.03% and 134.69%, risk-free interest rate of 1.85% to 1.89%,
and expected term of 2.5 years. The dividend yield of zero is based on the fact that the Company does not pay cash dividends and
has no present intention to pay cash dividends. Expected volatility is estimated based on the Company’s historical stock
prices over a period equivalent the expected life in years. The risk-free interest rate is based on the US Treasury’s Daily
Treasury Yield Curve Rates at the date of grant with a term consistent with the expected life of the options granted. The expected
term calculation is based on the “simplified method” allowed by the SEC, due to no applicable historical exercise
data available.
The
Company recorded the following stock compensation expense in its Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock grants, per employment agreement
|
|
|
4,500
|
|
|
|
—
|
|
|
|
4,500
|
|
|
|
—
|
|
Total Stock Grants
|
|
|
4,500
|
|
|
|
—
|
|
|
|
4,500
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, per employment agreement
|
|
|
11,292
|
|
|
|
—
|
|
|
|
11,292
|
|
|
|
—
|
|
Stock options, Board of Directors
|
|
|
295,926
|
|
|
|
—
|
|
|
|
295,926
|
|
|
|
—
|
|
Total Stock Options
|
|
|
307,218
|
|
|
|
—
|
|
|
|
307,218
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stock-based Compensation
|
|
|
311,718
|
|
|
|
—
|
|
|
|
311,718
|
|
|
|
—
|
|
Assumptions for Black-Scholes Valuation
|
|
|
Number of
|
|
|
|
Exercise
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Price
|
|
|
|
Term
|
|
|
|
Fair Value
|
|
Options granted May 13, 2017
|
|
|
28,000
|
|
|
$
|
0.25
|
|
|
|
2.5 years
|
|
|
$
|
4,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted May 14, 2017
|
|
|
1,764,000
|
|
|
$
|
0.30
|
|
|
|
2.5 years
|
|
|
$
|
295,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted June 30, 2017
|
|
|
42,414
|
|
|
$
|
0.21
|
|
|
|
2.5 years
|
|
|
$
|
6,396
|
|
(8)
Discontinued Operations
In
September 2015, management committed to a plan to sell the CI concept because it was not a strategic fit with the Company’s
existing BFK franchise brand.
The
Company executed a purchase and sale agreement on December 9, 2015. The sale included substantially all of the assets of the CI
business, which were sold on an “as is where is” basis, with no Company representations or warranties surviving the
consummation of the sale. The purchase price for the assets was $24,750 and consisted of the transfer to the Company of 50,000
shares of the Company’s common stock valued at $16,500 that had been held by the purchaser, reversal of an accrual to issue
25,000 shares of the Company’s common stock valued at $8,250 and the assumption of certain liabilities related to the acquired
assets.
The
following table lists the operating loss on the assets held for sale in 2016, there was no activity in 2017:
|
|
Three months
|
|
|
Nine months
|
|
Operating Loss on discontinued operations
|
|
ended 6/30/16
|
|
|
ended 6/30/16
|
|
Revenue
|
|
$
|
134
|
|
|
$
|
(5,882
|
)
|
Advertising and Promotion
|
|
|
—
|
|
|
|
(7,635
|
)
|
General and Administrative Expenses
|
|
|
—
|
|
|
|
1,430
|
|
Operating Loss on discontinued operations
|
|
$
|
134
|
|
|
$
|
(12,087
|
)
|
(9)
Commitments and Contingencies
Lease
Commitments
Rent
expense was approximately $3,000 and $4,000, respectively, for the three months ended June 30, 2017 and 2016. For the nine months
ended June 30, 2017 and 2016, respectively, the rent expense was approximately $11,500 and $22,000. See Note 2 relating to 2016.
Litigation
From time to time,
the Company has been and may become involved in legal proceedings arising in the ordinary course of its business. Regardless of
the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management
resources, and other factors.
The Company settled
a lawsuit brought by Sew Fun, LLC (SFLLC) and individuals associated with it. The settlement agreement’s financial terms
were negotiated to minimize impact upon the Company’s cash flow.
The Company also settled
a defamation suit brought by a former officer of the Company relating to a SEC Form 8-K the Company filed in September 2014. Per
this settlement, the Company has filed a corrected SEC Form 8-K, and has negotiated financial terms to minimize impact upon the
Company’s cash flow.
The Company also settled
disputes with three different franchisees. Despite the fact that two of the franchisees sought substantial damages, the Company
settled all three of the matters under terms in which two of the franchisees made payments to the Company and the third received
no funds from the Company.
The Company continues
to be engaged in an arbitration proceeding with another franchisee, which matter is in the discovery stage.
Creative Learning
Corporation v. Furlow, et al.
On May 15, 2017, the Company filed a complaint in federal district court in Jacksonville against
two shareholders that were advancing a shareholder consent contest seeking to replace two of the Company's board members with three
new board members. The Company brought suit in challenging the shareholders' conduct in the shareholder consent. The defendants
prevailed in the shareholder consent contest. The case is pending. The newly configured board is evaluating proper handling of
the case.
(10)
Subsequent Events
On July 6, 2017, the
Company received written consent of stockholders representing 51.7% of the issued and outstanding shares of common stock of the
Company to take the following actions: (i) amend the bylaws of the Company to permit stockholders to fix the size of the Board;
(ii) fix the size of the Board at five (5); (iii) remove Charles Grant and Michael Gorin from the Board and from any committees
of the Board of the Company that Messrs. Grant and Gorin may hold with the Company; and (iv) elect Blake Furlow, Gary Herman and
Bart Mitchell to the Board to replace Messrs. Grant and Gorin, and to fill the newly created position.
On July 26, 2017, Karla
Kretsch informed the Company of her intention to resign as President of the Company. Ms. Kretsch remained with the Company through
August 7, 2017, and is expected to provide assistance with transition matters after her departure.
Since
Ms. Kretsch’s employment was terminated by Ms. Kretsch for “Good Reason” (as such term is defined in the Employment
Agreement), Ms. Kretsch will be paid an amount equivalent to her base salary for a period of three months following the date of
termination, and will also be entitled to receive the Equity Awards due for the quarter in which termination occurred, and the
immediately following quarter. The total compensation related to Ms. Kretsch termination of her employment agreement is approximately
$69,000 including stock grants and options.