NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions
to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements.
However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated
financial statements for the year ended September 30, 2016 included in the Company’s Annual Report on Form 10-K, as filed
with the Securities and Exchange Commission on December 13, 2016. The interim unaudited condensed consolidated financial statements
should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management,
all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made.
Operating results for the three months ended December 31, 2016 are not necessarily indicative of the results that may be expected
for the year ending September 30, 2017. The September 30, 2016 consolidated balance sheet data were derived from audited financial
statements, but does not include all disclosures required by GAAP.
2.
Recent Accounting Standards and Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09”), which supersedes nearly all existing revenue
recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are
transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods
or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates
may be required within the revenue recognition process than are required under existing GAAP. The standard’s effective date
has been deferred by the issuance of ASU No. 2015-14, and is effective for annual periods beginning after December 15, 2017, and
interim periods therein. The guidance permits using either of the following transition methods: (i) a full retrospective approach
reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients,
or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption
(which includes additional footnote disclosures). Early application is permitted but not before December 15, 2016, the ASU’s
original effective date. The Company does not expect the adoption of this guidance to have a material impact on its consolidated
financial statements.
In
February 2015, the FASB issued ASU No. 2015-02, which amends FASB ASU Topic 810,
Consolidations
. This ASU amends the current
consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar
entities. This ASU requires that limited partnerships and similar legal entities provide partners with either substantive kick-out
rights or substantive participating rights over the general partner in order to be considered a voting interest entity. The specialized
consolidation model and guidance for limited partnerships and similar legal entities have been eliminated. There is no longer
a presumption that a general partner should consolidate a limited partnership. For limited partnerships and similar legal entities
that qualify as voting interest entities, a limited partner with a controlling financial interest should consolidate a limited
partnership. A controlling financial interest may be achieved through holding a limited partner interest that provides substantive
kick-out rights. The standard is effective for annual periods beginning after December 15, 2015. The Company has adopted this
guidance as of October 1, 2016, and its adoption did not have a material impact on the Company’s consolidated financial
statements.
In
July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
. This ASU does
not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to
all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU eliminates
from GAAP the requirement to measure inventory at the lower of cost or market. Market under the previous requirement could be
replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. Entities within scope
of this update will now be required to measure inventory at the lower of cost and net realizable value. Net realizable value is
the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and
transportation. Subsequent measurement is unchanged for inventory using LIFO or the retail inventory method. The amendments in
this update are effective for fiscal years beginning after December 15, 2016, with early adoption permitted, and should be applied
prospectively. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial
statements.
RCI
HOSPITALITY HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
September 2015, the FASB issued ASU No. 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period
Adjustments
. The ASU requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement
period in the reporting period in which the adjustment amounts are determined. Acquirers must recognize, in the same reporting
period, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change
to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This ASU is effective
for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company has adopted
this guidance as of October 1, 2016, and its adoption did not have a material impact on the Company’s consolidated financial
statements.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, on accounting for leases which requires lessees to
recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced
disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases, and will be effective for interim
and annual periods beginning after December 15, 2018. Early adoption is permitted. The guidance requires the use of a modified
retrospective approach. We are evaluating the impact of the guidance on our consolidated financial position, results of operations
and related disclosures.
In
March 2016, the FASB issued amended guidance ASU No. 2016-09,
Compensation–Stock Compensation (Topic 718): Improvement
to Employee Share-Based Payment Accounting
. The guidance requires all income tax effects of awards to be recognized in the
income statement on a prospective basis. The guidance also requires presentation of excess tax benefits as an operating activity
on the statement of cash flows rather than as a financing activity, and can be applied retrospectively or prospectively. The guidance
increases the amount companies can withhold to pay income taxes on awards without triggering liability classification for shares
used to satisfy statutory income tax withholding obligations, and requires application of a modified retrospective transition
method. The amended guidance will be effective for interim and annual periods beginning after December 15, 2016; early adoption
is permitted if all provisions are adopted in the same period. As of December 31, 2016, we do not have any stock-based compensation
awards outstanding. We will adopt ASU 2016-09 when the Company grants stock-based compensation awards in the future.
In
August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments (a consensus of the Emerging Issues Task Force)
. The ASU intends to reduce diversity in practice on how
the following cash activities are presented in the statement of cash flows: (1) debt prepayment or debt extinguishment costs;
(2) settlement of zero-coupon debt instruments; (3) contingent considerations payments made after a business combination; (4)
proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate and bank-owned life insurance
policies; (6) distributions received from equity method investments; and (7) beneficial interests in securitization transactions.
The guidance also describes a predominance principle in which cash flows with aspects of more than one class that cannot be separated
should be classified based on the activity that is likely to be the predominant source or use of cash flow. The guidance is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted,
provided that all of the amendments are adopted in the same period, and must be applied using a retrospective transition method.
We early adopted this guidance as of October 1, 2016. Our adoption of this guidance did not have a material impact on our consolidated
financial statements.
RCI
HOSPITALITY HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
January 2017, the FASB issued ASU No. 2017-01,
Business Combination (Topic 805): Clarifying the Definition of a Business
.
According to the guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset
(or a group of similar assets), the assets acquired would not represent a business. If met, this initial screen eliminates the
need for further assessment. To be considered a business, an acquisition would have to include an input and a substantive process
that together significantly contribute to the ability to create outputs. ASU 2017-01 provides a framework to evaluate when an
input and a substantive process are present. To be a business without outputs, there will now need to be an organized workforce.
The FASB noted that outputs are a key element of a business and included more stringent criteria for aggregated sets of assets
and activities without outputs. Finally, the guidance narrows the definition of the term “outputs” to be consistent
with how it is described in Topic 606,
Revenue from Contracts with Customers
. Under the final definition, an output is
the result of inputs and substantive processes that provide goods and services to customers, other revenue, or investment income,
such as dividends and interest. The standard is effective in 2018, with early adoption permitted. The amendments can be applied
to transactions occurring before the guidance was issued as long as the applicable financial statements have not been issued.
We are evaluating the impact of the guidance on our consolidated financial position, results of operations and related disclosures.
3.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year financial statement presentation.
4.
Selected Account Information
The
components of accrued liabilities are as follows (in thousands):
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
Lawsuit settlement
|
|
$
|
1,941
|
|
|
$
|
2,704
|
|
Insurance
|
|
|
1,678
|
|
|
|
2,303
|
|
Property taxes
|
|
|
1,570
|
|
|
|
1,017
|
|
Payroll and related costs
|
|
|
1,533
|
|
|
|
1,506
|
|
Patron tax
|
|
|
1,522
|
|
|
|
1,559
|
|
Sales and liquor taxes
|
|
|
887
|
|
|
|
889
|
|
Unearned revenues
|
|
|
516
|
|
|
|
256
|
|
Other
|
|
|
2,546
|
|
|
|
2,572
|
|
|
|
$
|
12,193
|
|
|
$
|
12,806
|
|
The
components of selling, general and administrative expenses are as follows (in thousands):
|
|
For the Three Months
|
|
|
|
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Taxes and permits
|
|
$
|
2,289
|
|
|
$
|
2,125
|
|
Advertising and marketing
|
|
|
1,657
|
|
|
|
1,305
|
|
Supplies and services
|
|
|
1,146
|
|
|
|
1,262
|
|
Insurance
|
|
|
935
|
|
|
|
874
|
|
Legal
|
|
|
703
|
|
|
|
835
|
|
Rent
|
|
|
690
|
|
|
|
948
|
|
Utilities
|
|
|
670
|
|
|
|
710
|
|
Charge card fees
|
|
|
570
|
|
|
|
613
|
|
Security
|
|
|
541
|
|
|
|
539
|
|
Accounting and professional fees
|
|
|
497
|
|
|
|
270
|
|
Repairs and maintenance
|
|
|
466
|
|
|
|
497
|
|
Other
|
|
|
1,029
|
|
|
|
882
|
|
|
|
$
|
11,193
|
|
|
$
|
10,860
|
|
5.
Long-Term Debt
On
October 5, 2016, the Company refinanced $8.0 million of long-term debt by borrowing $9.9 million. The new unsecured debt is payable
$118,817 per month, including interest at 12%, and matures in five years with a balloon payment for the remaining balance at maturity.
The refinanced debt was comprised of interest-only notes that were scheduled to mature with full principal payments in October
2017.
RCI
HOSPITALITY HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.
Stockholders’ Equity
During
the quarter ended December 31, 2016, the Company purchased and retired 89,685 common shares at a cost of $1.1 million. The Company
also paid a $0.03 per share cash dividend totaling approximately $290,000.
During
the quarter ended December 31, 2015, the Company purchased and retired 282,762 common shares at a cost of $2.8 million.
7.
Earnings Per Share
Basic
earnings per share (“EPS”) includes no dilution and is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution
of securities that could share in the earnings of the Company. Potential common stock shares consist of shares that may arise
from outstanding dilutive common restricted stock, stock options and warrants (the number of which is computed using the “treasury
stock method”) and from outstanding convertible debentures (the number of which is computed using the “if converted
method”). Diluted EPS considers the potential dilution that could occur if the Company’s outstanding common restricted
stock, stock options, warrants and convertible debentures were converted into common stock that then shared in the Company’s
earnings (as adjusted for interest expense that would no longer occur if the debentures were converted).
The
table below presents the reconciliation of the numerator and the denominator in the calculation of basic and diluted EPS (in thousands,
except per share amounts):
|
|
For the Three Months
|
|
|
|
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Numerator -
|
|
|
|
|
|
|
Net income attributable to RCIHH common shareholders –
basic
|
|
$
|
2,898
|
|
|
$
|
2,552
|
|
Adjustment to net income from assumed conversion of debentures(2)
|
|
|
5
|
|
|
|
85
|
|
Adjusted net income attributable to RCIHH common shareholders – diluted
|
|
$
|
2,903
|
|
|
$
|
2,637
|
|
Denominator(1)(3)
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding – basic
|
|
|
9,768
|
|
|
|
10,296
|
|
Effect of potentially dilutive convertible debentures(2)
|
|
|
46
|
|
|
|
339
|
|
Adjusted weighted average number of common shares outstanding – diluted
|
|
|
9,814
|
|
|
|
10,635
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.30
|
|
|
$
|
0.25
|
|
Diluted earnings per share
|
|
$
|
0.30
|
|
|
$
|
0.25
|
|
(1)
All outstanding restricted stock, warrants and options were considered for the EPS computation. Potentially dilutive options and
warrants of 172,400 for the three months ended December 31, 2015 have been excluded from earnings per share due to their being
anti-dilutive. No restricted stock or options were outstanding during the three months ended December 31, 2016.
(2)
Convertible debentures (principal and accrued interest) outstanding at the beginning of the quarters ended December 31, 2016 and
2015 totaling $859,000 and $3.9 million, respectively, were convertible into common stock at a price of $10.25 and $12.50 per
share in fiscal 2017 and $10.00, $10.25 and $12.50 per share in fiscal 2016.
(3)
As of January 4, 2017, in relation to paying off certain convertible notes (see Note 11), the Company has no more outstanding
restricted stock, stock options, warrants or convertible debt.
RCI
HOSPITALITY HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.
Income Taxes
Income
tax expense was $1.5 million for the first quarter of 2017 compared with a $1.4 million for the same quarter of 2016. The effective
income tax rate for the first quarter of 2017 was 33.3% compared with 35.9% for the comparable period of 2016. Our effective tax
rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit.
The
Company or one of its subsidiaries files income tax returns for U.S. federal, and various state and local jurisdictions. The Company
is no longer subject to federal, state and local income tax examinations by tax authorities for years before 2013. The Company’s
federal income tax returns for the fiscal years ended September 30, 2015, 2014 and 2013 are currently under examination by the
Internal Revenue Service.
The
Company accounts for uncertain tax positions pursuant to ASC Topic 740,
Income Taxes
. As of December 31, 2016 and September
30, 2016, the liability for uncertain tax positions totaled approximately $0.4 million and $1.0 million, respectively, which is
included in current liabilities on our condensed consolidated balance sheets. During the quarter ended December 31, 2016, the
Company settled a city tax audit for approximately $0.6 million, the amount previously recorded as an uncertain tax position.
This settlement did not have an impact on the annual effective tax rate. The Company recognizes interest accrued related to uncertain
tax positions in interest expense and penalties in operating expenses.
9.
Commitments and Contingencies
Legal
Matters
New
York Settlement
Filed
in 2009, the case claimed Rick’s Cabaret New York misclassified entertainers as independent contractors. Plaintiffs sought
minimum wage for the hours they danced and return of certain fees. RCI Entertainment (New York), Inc. and Peregrine Enterprises,
Inc. maintained the dancers were properly classified, and alternatively, amounts earned were well in excess of the minimum wage
and should satisfy any obligations.
On
April 1, 2015, we and our subsidiaries, RCI Entertainment (New York), Inc. and Peregrine Enterprises, Inc., entered into an agreement
to settle in full a New York based federal wage and hour class and collective action filed in the United States District Court
for the Southern District of New York. On September 22, 2015, the Court granted final approval of the settlement. Under the terms
of the agreement, Peregrine Enterprises, Inc. was to make up to $15.0 million available to class members and their attorneys.
The actual amount paid was determined based on the number of class members responding by the end of a two-month notice period
which ended on December 4, 2015. Unclaimed checks or payments reverted back to Peregrine at that time. Based on the current schedule,
an initial payment for attorneys’ fees of $1,833,333 was made in October 2015, with two subsequent payments of $1,833,333
each being made in equal annual installments. As part of the settlement, RCIHH was required to guarantee the obligations of RCI
Entertainment (New York), Inc. and Peregrine Enterprises, Inc. under the settlement.
The
Company expensed $11.1 million during the year ended September 30, 2015 as the final liability for its obligations under the settlement,
which was included as settlement of lawsuits and other one-time costs in the consolidated statement of income. Of this amount,
$5.6 million was paid to entertainers and $5.5 million has been or will be paid to the lawyers. As of December 31, 2016 and September
30, 2016, the Company has a total amount of $1.9 million and $2.7 million, respectively, recorded in accrued liabilities on the
Company’s consolidated balance sheets for future payments to the lawyers.
RCI
HOSPITALITY HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Indemnity
Insurance Corporation
As
previously reported, the Company and its subsidiaries were insured under a liability policy issued by Indemnity Insurance Corporation,
RRG (“IIC”) through October 25, 2013. The Company and its subsidiaries changed insurance companies on that date.
On
November 7, 2013, the Court of Chancery of the State of Delaware entered a Rehabilitation and Injunction Order (“Rehabilitation
Order”), which declared IIC impaired, insolvent and in an unsafe condition and placed IIC under the supervision of the Insurance
Commissioner of the State of Delaware (“Commissioner”) in her capacity as receiver (“Receiver”). The Rehabilitation
Order empowered the Commissioner to rehabilitate IIC through a variety of means, including gathering assets and marshaling those
assets as necessary. Further, the order stayed or abated pending lawsuits involving IIC as the insurer until May 6, 2014.
On
April 10, 2014, the Court of Chancery of the State of Delaware entered a Liquidation and Injunction Order With Bar Date (“Liquidation
Order”), which ordered the liquidation of IIC and terminated all insurance policies or contracts of insurance issued by
IIC. The Liquidation Order further ordered that all claims against IIC must be filed with the Receiver before the close of business
on January 16, 2015 and that all pending lawsuits involving IIC as the insurer are further stayed or abated until October 7, 2014.
As a result, the Company and its subsidiaries no longer have insurance coverage under the liability policy with IIC. Currently,
there are several civil lawsuits pending against the Company and its subsidiaries. The Company has retained counsel to defend
against and evaluate these claims and lawsuits. We are funding 100% of the costs of litigation and will seek reimbursement from
the bankruptcy receiver. The Company filed the appropriate claims against IIC with the Receiver before the January 16, 2015 deadline;
however, there are no assurances of any recovery from these claims. It is unknown at this time what effect this uncertainty will
have on the Company. As previously stated, since October 25, 2013, the Company has obtained general liability coverage from other
insurers, which have covered and/or will cover any claims arising from actions after that date.
General
The
Company is involved in various suits and claims arising in the normal course of business. The ultimate outcome of these items
will not have a material adverse effect on the Company’s consolidated statements of income or financial position.
The
Company has been sued by a landlord in the 33rd Judicial District Court of Harris County, Texas for a Houston Bombshells which
was under renovation in 2015. The plaintiff alleges RCI Hospitality Holdings, Inc.’s subsidiary, BMB Dining Services (Willowbrook),
Inc., breached a lease agreement by constructing an outdoor patio, which allegedly interfered with the common areas of the shopping
center, and by failing to provide Plaintiff with proposed plans before beginning construction. Plaintiff also asserts RCI Hospitality
Holdings, Inc. is liable as guarantor of the lease. The lease was for a Bombshells restaurant to be opened in the Willowbrook
Shopping Center in Houston, Texas. Both RCI Hospitality Holdings, Inc. and BMB Dining Services (Willowbrook), Inc. have denied
liability and assert that Plaintiff has failed to mitigate its claimed damages. Further, BMB Dining Services (Willowbrook), Inc.
asserts that Plaintiff affirmatively represented that the patio could be constructed under the lease and has filed counter claims
and third-party claims against Plaintiff, Plaintiff’s manager, and Plaintiff’s broker asserting that they committed
fraud and that the landlord breached the applicable agreements. It is unknown at this time whether the resolution of this uncertainty
will have a material effect on the Company’s financial condition.
Settlements
of lawsuits for the quarters ended December 31, 2016 and 2015 totaled $73,000 and $540,000, respectively. As of December 31, 2016
and September 30, 2016, the Company has accrued $1.9 million and $2.7 million in accrued liabilities, respectively, related to
settlement of lawsuits.
RCI
HOSPITALITY HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10.
Segment Information
The
Company owns and operates adult nightclubs and Bombshells Restaurants and Bars. The Company has identified such reportable segments
based on management responsibility and the nature of the Company’s products, services and costs. There are no major distinctions
in geographical areas served as all operations are in the United States. The Company measures segment profit (loss) as income
(loss) from operations. Segment assets are those assets controlled by each reportable segment. The other category below includes
our media divisions and rental income that are not significant to the consolidated financial statements.
Below
is the financial information related to the Company’s segments (in thousands):
|
|
For the Three Months
|
|
|
|
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
29,282
|
|
|
$
|
28,170
|
|
Bombshells
|
|
|
4,295
|
|
|
|
4,379
|
|
Other
|
|
|
162
|
|
|
|
926
|
|
|
|
$
|
33,739
|
|
|
$
|
33,475
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
9,216
|
|
|
$
|
8,508
|
|
Bombshells
|
|
|
638
|
|
|
|
487
|
|
Other
|
|
|
(341
|
)
|
|
|
(648
|
)
|
General corporate
|
|
|
(3,180
|
)
|
|
|
(2,630
|
)
|
|
|
$
|
6,333
|
|
|
$
|
5,717
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
1,242
|
|
|
$
|
1,142
|
|
Bombshells
|
|
|
218
|
|
|
|
231
|
|
Other
|
|
|
5
|
|
|
|
171
|
|
General corporate
|
|
|
153
|
|
|
|
273
|
|
|
|
$
|
1,618
|
|
|
$
|
1,817
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
795
|
|
|
$
|
391
|
|
Bombshells
|
|
|
1,104
|
|
|
|
40
|
|
Other
|
|
|
1
|
|
|
|
2
|
|
General corporate
|
|
|
1,108
|
|
|
|
456
|
|
|
|
$
|
3,008
|
|
|
$
|
889
|
|
|
|
December
31, 2016
|
|
|
September
30, 2016
|
|
Total assets
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
245,174
|
|
|
$
|
244,464
|
|
Bombshells
|
|
|
9,350
|
|
|
|
8,673
|
|
Other
|
|
|
1,056
|
|
|
|
896
|
|
General corporate
|
|
|
21,870
|
|
|
|
22,455
|
|
|
|
$
|
277,450
|
|
|
$
|
276,488
|
|
RCI
HOSPITALITY HOLDINGS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General
corporate expenses include corporate salaries, health insurance and social security taxes for officers, legal, accounting and
information technology employees, corporate taxes and insurance, legal and accounting fees, depreciation and other corporate costs
such as automobile and travel costs. Management considers these to be non-allocable costs for segment purposes.
11.
Subsequent Events
On
January 4, 2017, the Company paid off $392,000 of convertible 6% notes, which would have matured on March 4, 2023.
On
January 13, 2017, we closed the sale on one of our non-income producing properties for $2.2 million in cash, recognizing approximately
$116,000 loss on the sale. Proceeds were used to pay off the remaining $1.5 million of a related 11% balloon note, which was due
in 2018. The Company paid a $75,000 prepayment penalty to pay off the debt.