ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
You should read the following summary together with the
more detailed information and consolidated financial statements and notes thereto and schedules appearing elsewhere in this report.
Throughout this report when we refer to the “Company” “TX Holdings,” “we,” “our”
or “us,” we mean TX Holdings, Inc., a Georgia corporation, and its subsidiary.
This discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements which have been prepared in accordance with GAAP.
The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition and contingencies.
We base our estimates on historical experience, where available, and on various other assumptions we believe to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and
conditions.
Except for historical information, the statements and other
information contained in this Management’s Discussion and Analysis are forward-looking. Our actual results could differ
materially from the results discussed in the forward-looking statements, which include certain risks and uncertainties.
Our independent registered public accounting firm’s
report on the consolidated financial statements included in our Annual Report Form 10-K for the year ended September 30, 2016,
contains an explanatory paragraph wherein they expressed an opinion that there is substantial doubt about our ability to continue
as a going concern. Accordingly, careful consideration of such opinion should be given in determining whether to continue or become
our stockholder.
Please refer to and carefully consider the factors described
in Part I, Item 1A - Risk
Factors
of our Form 10-K for the year ended September 30, 2016, and Part II, Item 1A –
Risk Factors in this report.
Overview
We supply and distribute rail products including tee rail,
switches, ties and related products, and drill bits, augurs, related tools and mining supplies to U.S. coal mining companies and
operators and distributors for use in their production and transportation processes. Our coal mining customers are primarily located
in Ohio, Pennsylvania, Kentucky and West Virginia.
We have experienced, and continue to experience, reduced demand
for sales of our mining and rail products due to a continuing decline in U.S. coal production. The demand for, and production
of, coal has been adversely affected by several factors, including increased environmental regulation, declining coal consumption
in the electric power sector, increased competition from natural gas, and the strong dollar. The U.S. Energy Information Administration
has reported that coal production during the period January 1 through October 29, 2016, was 20% lower than in the comparable period
of 2015 and that total US coal consumption for the first seven months of 2016 was 23% lower than for the first seven months of
2015. As a result, several major U.S. coal producers, including certain of our customers, have sought protection under bankruptcy
laws or are engaged in restructuring their businesses and operations resulting in plant closures. Distress in the U.S. coal mining
industry has and will continue to materially affect our business and operations.
We purchase mining supplies from several manufacturers and
rail material from several suppliers of such products. Our products are either shipped to our warehouse in Ashland, Kentucky for
distribution to our customers or shipped directly to our customers, including products that we import once they have been received
by us at a port and cleared customs. Our products are transported primarily by ground transportation to our customers. Shipping
costs are born by our customers.
We distribute and sell our products through two independent
sales agents who are compensated on a commissioned basis.
Revenues for the three months ended December 31, 2016 was $496,916
as compared to $782,265 for the same period in 2015, a decrease of approximately 36.5%.
During the three months ended December 31, 2016, we had a net
loss of $60,657 as compared to net income of $30,632 for the same period in 2015.
At December 31, 2016, cash and cash equivalents were $2,255
compared to $3,062 at September 30, 2016.
Net cash provided in operating activities was $63,931 during
the three months ended December 31, 2016. Net cash used in operating activities during the same three-month period in 2016 was
$86,599.
There was no cash flow from investing activities for either
of the three month period ended December 31, 2016, or 2015.
During the three months ended December 31, 2016, net cash used
by financing activities was $64,738 primarily due to a net advance repayment of $49,800 to our CEO, William Shrewsbury and, a
term loan payment of $14,938.
Mr. William Shrewsbury, the Company’s Chairman and CEO,
has provided financing in the form of demand notes and advances. Effective February 25, 2014, Mr. Shrewsbury agreed to restructure
the principal and interest under such demand notes and certain advances due as of January 31, 2014, and we issued in exchange
a single Consolidated Secured Promissory Note in the principal amount of $2,000,000 (“Consolidated Note”). The principal
and interest thereunder is due ten years from the date of issuance, the principal bears interest at the rate of 5% per annum or
prime rate if higher than 5% per annum, and is subject to certain events of default. Payment of the Consolidated Note is to be
secured or otherwise payable by us out of the death benefit proceeds of key man insurance of $2 million that has been purchased
by us on the life of Mr. Shrewsbury. As of December 31, 2016, Mr. Shrewsbury had also provided non-interest bearing advances to
us of $148,837.
In November, 2012, we obtained a bank line of credit in the
amount of $250,000 which was subsequently increased to $750,000. The line of credit was secured by a lien on our inventory and
account receivable and guaranteed by Mr. Shrewsbury. On December 3, 2015, we entered into a new loan agreement with a bank under
which we obtained a term loan in the amount of $711,376. We utilized proceeds of the new loan to repay our line of credit. The
loan is for a term of five years and matures on December 3, 2020. As of December 31, 2016, the loan balance was $647,174.
We were incorporated in the State of Georgia
in 2000.
Recent Acquisitions
On November 21, 2014, and with a view to diversifying our business,
we acquired The Bag Rack, LLC. The acquired company owns all rights to a new product, “The Bag Rack” and was in the
preliminary stages of developing the new product. The Bag Rack is a unique device that enables bags with handles to be stored
in the trunk of a motor vehicle preventing the bags from tipping over and causing spillage. We expect to market and sell the new
product online and through certain national retailers, distributors, and discount stores. The Bag Rack, LLC was acquired from
Mr. Shrewsbury, our CEO and Mr. Rickie Hagan, the founding members of The Bag Rack, LLC, who each owned 50% of the company. In
addition to a purchase price of $500, as consideration for the acquisition, we agreed to pay 20% of the net profits to each founding
member (after royalty payment) of The Bag Rack. The Bag Rack has a provisional patent pending related to the new product and is
obligated to pay a royalty to the original developer of the product equal to 20% of the net profit of each product sold.
RESULTS OF OPERATIONS
Three Months Ended December 31,
2016 Compared to Three Months Ended December 31, 2015
Revenues from Operations
Revenue for the three months
ended December 31, 2016 was $496,916 as compared to $782,285 for the same period in 2015, a decrease of $285,349 or 36.5%. The
decrease in revenue is attributable to overall lower sales demand during the current period, due to declining coal production
in the U.S. as a result of a number of factors, discussed above.
Cost of Goods Sold
During the quarter ended
December 31, 2016, our cost of goods sold was $396,812 as compared to cost of goods sold of $543,846 for the quarter ended December
31, 2015, a decrease of $147,034 or 27.0%. The lower cost of goods sold resulted from lower sales during the current period. As
a percentage of sales, cost of goods sold increased from 69.5% in 2015 to 79.9% during the current period, the 10.4% increase
is the direct result of higher sales of a product mix with relatively higher unit cost during the current quarter.
Gross Profit
Gross profit for the period
ended December 31, 2016 decreased as a percentage of revenue to 20.1% from 30.5% for the same period of the prior year. The decrease
in gross profit resulted from sales of lower gross margin products during the current quarter.
Operating Expenses
Operating
expenses for the three months ended December 31, 2016 were $128,881 as compared to $174,254 for the three months ended December
31, 2015, a decrease of $45,373 or 26.0%.
The table below details the components
of operating expense, as well as the dollar and percentage changes for the three-month periods.
.
|
|
Three Months Ended
|
|
|
|
12/31/2016
|
|
|
12/31/2015
|
|
|
$ Change
|
|
|
%Change
|
|
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense
|
|
$
|
23,517
|
|
|
$
|
27,831
|
|
|
$
|
(4,314
|
)
|
|
|
(15.5
|
)
|
Professional fees
|
|
|
4,067
|
|
|
|
21,346
|
|
|
$
|
(17,279
|
)
|
|
|
(80.9
|
)
|
Bad debt expense
|
|
|
905
|
|
|
|
1,926
|
|
|
|
(1,021
|
)
|
|
|
(53.0
|
)
|
Depreciation expense
|
|
|
2,449
|
|
|
|
2,449
|
|
|
$
|
0
|
|
|
|
0.0
|
|
Other operating expense
|
|
|
97,943
|
|
|
|
120,702
|
|
|
$
|
(22,759
|
)
|
|
|
(18.9
|
)
|
Total
|
|
$
|
128,881
|
|
|
$
|
174,254
|
|
|
$
|
(45,373
|
)
|
|
|
(26.0
|
)
|
Commission expense for the three months
ended December 31, 2016 was $23,517 compared to $27,831 for the same period in 2015, a decrease of $4,314 or 15.5%. The lower
commission expense is a direct result of lower sales and lower sales commissions paid to our sales agents, and the introduction
of revised lower sales commission rates payable to our sales agent during 2015.
Professional fees decreased $17,279 or 80.9% during the three
months ended December 31, 2016, as compared to the same period in 2015. The decrease in expense can be attributed to lower legal
expenses of $11,796 and lower advertising expense of $5,483.
Bad debt expense for the
three month period ended December 31, 2016 was $905 as compared to $1,926 for the same period in 2015, a decrease of $1,021 or
53.0%.
Depreciation expense as of December 31, 2016, similar to the
same quarter the prior year, was $2,449.
During the three months ended December 31, 2016, other operating
expenses of $97,943 decreased by $22,759 or 18.9% from $120,702 for the same period in 2015. The lower other operating expenses
resulted primarily from lower truck maintenance expenses of $4,765, lower contract labor$9,374 and, lower operating supplies of
$4,999 during the current quarter.
Loss from operations
Loss from operations for
the quarter ended December 31, 2016 was $28,777 compared to income from operations of $64,165 during the same period in 2015.
When compared to the income for the same period in the prior year, the loss in the current period is the direct result of lower
sales partially offset by lower operating expenses.
Other income and (expense)
Other income and expense for the three months ended December
31, 2016, reflected a net expense of $31,880 as compared to net expense of $33,533 for the quarter ended December 31, 2015, a
decrease of $1,653 due to lower interest expense as a result of our debt restructuring.
Net income (loss)
For the quarter ended December
31, 2016, we incurred a net loss of $60,657 compared to a net income of $30,623 for the quarter ended December 31, 2015. Lower
product sales partially offset by lower operating expenses in the current period account for the increase net loss.
Net earnings (loss) per common share
The net loss $60,657 for
the quarter ended December 31, 2016, as well as the net income of $30,623 for the quarter ended December 31, when divided by the
number of common shares outstanding of 48,053,084 basic shares in both years resulted in a net earnings/(loss) per share of less
than $0.01 in both periods.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of our net cash provided
(used) by operating, investing and financing activities:
|
|
Three Months
Ended
|
|
Liquidity
and capital resources
|
|
|
12/31/2016
|
|
|
|
12/31/2015
|
|
Net cash provided /(used) in operating activities
|
|
$
|
63,931
|
|
|
$
|
(86,599
|
)
|
Net cash used in investing activities
|
|
|
–
|
|
|
|
–
|
|
Net cash provided/(used) by financing activities
|
|
|
(64,738
|
)
|
|
|
27,035
|
|
Net decrease in cash equivalents
|
|
$
|
(807
|
)
|
|
$
|
(59,564
|
)
|
At December 31, 2016, we had cash and cash
equivalents of $2,255 as compared to $3,062 at September 30, 2016, a decrease of $807 or 26.4%.
Cash Flows Provided/( Used) in Operating
Activities
Net cash provided in
operating activities for the three months ended December 31, 2016, was $63,931 compared to cash used in operations of $86,599
in 2015, an increase of $150,530 or 173.8%.
During the three months ended December 31,
2016, we had a net loss of $60,657 as compared to a net income of $30,632 for the same period during the prior year.
In the current three-month period the company
had non-cash expenses for depreciation of $2,449 and bad debt expense of $905.
An increase in accounts receivable
of $138,690, and, a decrease in accrued liabilities of $1,581, were more than offset by a decrease in commission advances of $12,086,
and a decrease in accounts payable of $235,038.
Cash Flows Used in Investing Activities
There was no cash flow used in investing
activities for the period ended December 31, 2016 or 2015.
Cash Flows Provided/(Used) by Financing
Activities
During the three months ended December 31, 2016, cash used
by financing activities was $64,738 compared to cash provided by financing activities of $27,035 during the same period in 2015.
During the current three-month period, the Company made payment on its term loan of $14,938, and made repayment of stockholder
net advances of $49,800. For the three months ended December 31, 2015, the Company received stockholder net advances of $33,000
and made payment on its term loan of $4,892 and on its line of credit of $1,073.
In November 2012, we obtained a $250,000 line of credit from
a bank. On August 26, 2014, the bank increased our existing bank line of credit from $250,000 to $750,000 and extended the term
of the line of credit. The line of credit was secured by a priority security interest in our inventory and accounts receivable
and matured on November 7, 2015. Interest on the line of credit was payable monthly and was calculated on the basis of a variable
index. On December 3, 2015, we entered into a new loan agreement with the bank under which we obtained a term loan in the amount
of $711,376. We utilized proceeds of the new loan to repay our line of credit. The loan is for a term of five years and matures
on December 3, 2020. As of December 31, 2016, the loan balance is $647,174. The current rate of interest under the loan is 3.50%
per annum. Principal, interest and collection costs under the loan are guaranteed by Mr. Shrewsbury.
On February 25, 2014, we and Mr. Shrewsbury entered into an
agreement to consolidate an aggregate of $2,000,000 of amounts due to Mr. Shrewsbury, including $1.062 million due under a Revolving
Promissory Demand Note issued to Mr. Shrewsbury on or about April 30, 2012, $289,997 due under a 10% Promissory Note issued to
Mr. Shrewsbury on or about February 27, 2009, accrued but unpaid interest of $262,157 as of January 31, 2014, under such notes
and advances by Mr. Shrewsbury in the amount of $385,846 as of January 31, 2014, and issued in replacement a Secured Consolidated
Note (“Consolidated Note”) for such amount. The Consolidated Note bears interest at 5% per annum or prime rate if
higher than 5% per annum and principal and interest are repayable ten years from February 25, 2014. The Consolidated Note is subject
to customary events of default. Payment of the Consolidated Note is to be secured or otherwise payable by us out of the death
benefit proceeds of key man insurance of $2 million that has been purchased by us on the life of Mr. Shrewsbury.
During the three months ended December 31, 2016, we received
advances of $7,000, and repaid $56,800 cash advance from Mr. Shrewsbury, bringing the total outstanding advance balance to $148,837.
Cash advances from Mr. Shrewsbury are repayable upon demand and do not bear interest.
Financial Condition and Going Concern
Uncertainties
Except for each of the six consecutive quarters ended June
30, 2014 and the first three month-period of 2016, since inception, the Company has not generated sufficient cash to fund its
operations and has incurred operating losses. Currently, the Company relies substantially upon financing provided by Mr. Shrewsbury,
the Company’s Chief Executive Officer, and a secured bank loan in connection with the financing of its business operations.
In view of these matters, realization of certain assets in the accompanying balance sheet is dependent upon continued operations,
which, in turn, is dependent upon our ability to meet our financial requirements, upon the continued provision of financing from
Mr. Shrewsbury and under the Company’s bank loan, and the success of our future operations.
Our independent registered public accounting firm’s report
on the consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2016, contained
an explanatory paragraph wherein they expressed an opinion that there is a substantial doubt about our ability to continue as
a going concern. Accordingly, careful consideration of such opinion should be given in determining whether to continue or to become
our stockholder.
As of December 31, 2016, we had cash and cash equivalents of
$2,255 as compared to $3,062 as of September 30, 2016.
Our accounts receivable was $373,187 as of December 31, 2016,
as compared to $235,402 as of September 30, 2016, an increase of $137,785 or 58.5%. The higher December 31, 2016 receivable balance
is the direct result of higher sales concentration in the last month of the current quarter.
Inventory (including noncurrent) was $2,097.773 as of December
31, 2016 as compared to $2,106,018 as of September 30, 2016, a decrease of $8,245 or 0.4%. Due to lower sales demand, we are maintaining
inventory at September 30, 2016 levels.
Accounts Payable for the three months ended December 31, 2016
was $860,125 as compared to $625, 087 for the same period in 2015, an increase of $235,038 or 37.6%. The increase in payable resulted
primarily from two invoices for $151,040, related to product purchases, received late in the current quarter and remaining unpaid
at the end of the quarter.
During the three months ended December 31, 2016, our accumulated
deficit increased from $15,431,430 to $15,492,087, an increase of $60,657 or 0.4% due to the reported net loss during the three
months ended December 31, 2016.
During the three months ended December 31, 2016, the Company’s
net loss was $60,657 compared to a net income of $30,632 for the comparable period in 2015. The net loss can be directly attributed
to lower sales, and sales of product mix with relatively lower gross margins. Lower operating expenses during the current quarter
of $45,373 partially offset the loss variance generated by the lower sales.
Currently, we are spending approximately
$40,000-$60,000 per month on operations. Management believes that the Company’s available cash, cash flows from operations,
the loans and advances provided by Mr. Shrewsbury and the loan provided by the bank to be sufficient to fund the Company operations
during the next 12 months.
We continue to rely substantially upon financings
provided by Mr. Shrewsbury and a bank loan to fund our operations. The terms of such financings are discussed below.
BANK LOAN
Under the terms of a business loan agreement, originally entered
on November 7, 2012, and as amended through August 26, 2014, we obtained a secured revolving line of credit in the amount of $750,000
from Town Square Bank. Interest on the loan was payable monthly in arrears. Interest under the loan was variable and was based
upon Wall Street Journal Prime Rate.
On December 3, 2015, we entered into a new loan agreement with
Town Square Bank pursuant to which we obtained a term loan in the amount of $711,376. We utilized proceeds of the new loan to
repay our former line of credit. The loan is for a term of five years and matures on December 3, 2020. As of December 31, 2016,
the loan balance was $647,174.
During the term of the loan, we agreed to
make equal monthly repayments of principal and interest of $6,967 commencing January 3, 2016, and to make a final payment on December
3, 2020, of the outstanding balance of the interest and principal then due, estimated to be approximately $391,896. Early repayment
of amounts due under the loan will not affect the monthly repayment amount, unless otherwise agreed to by the bank.
An event of default
under the loan will occur upon the occurrence of any of the following events:
|
·
|
we
fail to make any payment when due under the note;
|
|
·
|
we
fail to comply with any term, obligation, covenant or condition in the loan documents
or any other agreement with the bank;
|
|
·
|
we
default under any loan, extension of credit, security agreement, purchase or sales agreement
or other agreement with any creditor that materially affects our property or our ability
to repay the note or perform our obligations under the note or related documents;
|
|
·
|
a
warranty, representation or statement made to the bank under the loan documents is or
becomes materially false or misleading;
|
|
·
|
the
dissolution or termination of our existence, our insolvency, the appointment of a receiver
for any part of our property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency
laws by or against us;
|
|
·
|
the
commencement of foreclosure or forfeiture proceedings by any creditor or any governmental
agency against any collateral securing the loan;
|
|
·
|
any
of the preceding events occurs with respect to any loan guarantor;
|
|
·
|
a
25% or more change in the ownership of our common stock;
|
|
·
|
a
material adverse change in our financial condition, or the bank believes the prospect
of payment or performance of the loan is impaired or
|
|
·
|
the
bank in good faith believes itself insecure.
|
The loan agreements contain certain affirmative
covenants, including an obligation to: notify the bank of a material adverse change in our financial condition and of any threatened
litigation or claim or other proceeding which could materially affect our financial condition; maintain certain liability insurance
in amounts acceptable to the bank; maintain qualified executive and management personnel; comply with applicable environmental
laws and perform environmental studies required by the bank; and certify annually to the bank compliance with the representations
and warranties in the bank loan documents. The loan agreements contain certain other customary covenants, terms and conditions.
In addition, the loan agreements contain
certain negative covenants, including that we will not, without the bank’s consent:
|
·
|
incur
any indebtedness other than to the bank or for trade debt incurred in the ordinary course;
|
|
·
|
sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber
any of its assets, except for permitted liens;
|
|
·
|
sell
our accounts receivable, except to the bank;
|
|
·
|
engage
in business activities substantially different from our current activities;
|
|
·
|
cease
operations, liquidate, merge, transfer, acquire or consolidate with another entity, change
our name, dissolve, or sell the inventory or accounts receivable secured under the loan;
|
|
·
|
pay
any dividend other than in stock;
|
|
·
|
lend
money, invest or advance money or assets to another person or entity;
|
|
·
|
purchase,
create or acquire an interest in any other entity;
|
|
·
|
incur
any obligation as a surety or guarantor other than in the ordinary course; or
|
|
·
|
enter
into any agreement containing any provision which would be violated or breached by the
performance of our obligations under the loan agreements.
|
Interest under the loan is variable and is
based upon the Wall Street Journal Prime rate, currently 3.50% per annum. In the event of a default, interest under the loan may
be increased by 2%. The loan is secured by a priority security interest in the Company’s inventory and accounts receivable
and has been guaranteed by our CEO.
ADVANCES AND LOANS FROM MR. SHREWSBURY
In connection with the expansion of our business, Mr. Shrewsbury,
the Company’s Chairman and CEO, provided financing to us in the form of demand notes and advances. On February 25, 2014,
the Company entered into a Note Exchange Agreement (“Exchange Agreement”) with Mr. Shrewsbury pursuant to which an
aggregate of $2,000,000 in indebtedness to Mr. Shrewsbury was consolidated and restructured and issued in exchange for such indebtedness
a Consolidated Secured Promissory Note (the “Consolidated Note) in the principal amount of $2,000,000.. Under
The principal and interest under the Consolidated Note is due
and payable ten years from the date of issuance and is to be secured by the proceeds of key man insurance purchased by us on the
life of Mr. Shrewsbury. The Consolidated Note bears interest at the rate of 5% per annum except that, if the prime rate reported
by the Wall Street Journal (“WSJ Prime Rate”) exceeds 5%, then the Consolidated Note will bear interest at the WSJ
Prime Rate.
An event of default will occur under the Consolidated Note
upon:
|
·
|
we fail to pay
when due any principal or interest under the Consolidated Note;
|
|
·
|
we violate any
covenant or agreement contained in the Consolidated Note, the Exchange Agreement or related
transaction documents;
|
|
·
|
an assignment
for the benefit of creditors by us;
|
|
·
|
the application
for the appointment of a receiver or liquidator for us or our property;
|
|
·
|
the filing of
a petition in bankruptcy by or against us;
|
|
·
|
the issuance
of an attachment or the entry of a judgment against us in excess of $250,000;
|
|
·
|
a default by
us with respect to any other indebtedness or with respect to any installment debt whether
or not owing to Mr. Shrewsbury;
|
|
·
|
the
sale
of all or substantially all of our assets or a transfer of more than 51% of our equity
interests to a person not currently a holder of our equity interests;
|
|
·
|
our termination
of existence or dissolution;
|
|
·
|
the death of
Mr. Shrewsbury; or
|
|
·
|
the failure to
pay when due any premium under the key man policy required to be purchased on the life
of Mr. Shrewsbury under the Exchange Agreement.
|
In addition, in consideration of Mr. Shrewsbury agreeing to
consolidate and restructure the indebtedness, the Company granted to Mr. Shrewsbury options to purchase an aggregate of 500,000
shares of our common stock pursuant to the terms of a Non-Qualified Stock Option Agreement, issued February 25, 2014. The options
are exercisable commencing April 1, 2014, and for a period of three years thereafter. The options are exercisable at a price of
$0.0924 per share subject to certain anti-dilution adjustments in the event of stock dividends, subdivisions, capital reorganizations,
a consolidation or merger, or sale of all or substantially all of our assets.
As of December 31, 2016, Mr. Shrewsbury
had advanced an aggregate of $148,837 to the Company. The advances do not bear interest and are repayable upon demand. As of December
31, 2016, the Company also has a payable of $42,000 to Mr. Shrewsbury for warehouse storage rental.
The Consolidated Note and advances are
subordinate to the Company’s bank indebtedness.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements, transactions,
obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect
upon our financial condition, or results of operations as of December 31, 2016 and September 30, 2016.