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Acquisitions and Dispositions
 12 Months Ended
Sep. 30, 2016
Business Combinations [Abstract]  
Acquisitions and Dispositions

N. Acquisitions and Dispositions

 

2014 Acquisitions and Openings

 

In October 2013, the Company purchased 49 percent of a corporation that operates the Dallas club “PT’s Platinum” and also acquired the building and personal property. Total cost of the transaction was $500,000. This subsidiary is being consolidated in the Company’s consolidated financial statements, effective as of the date of the purchase.

 

The following information summarizes the allocation of fair values assigned to the assets at the purchase date.

 

Buildings and land   $ 350  
Property and equipment     20  
SOB license     265  
Noncontrolling interest     (135 )
Net assets   $ 500  

 

A subsidiary of the Company closed a transaction involving the air rights above the Company’s 33rd Street club in Manhattan in October 2013. The subsidiary entered into a contract to buy the land and building for $ 10 million at any time in the next five years. Concurrent with the building transaction, a third party (the “Third Party Purchaser”) purchased the balance of the air rights of the property that are not subject to the Option Agreement. The purchase price for these air rights was $13,000,000, of which the Company’s subsidiary contributed $5,200,000 in connection with the overall business transaction. The transactions are part of a previously announced transaction under which the Company agreed to purchase the land and building for $23.0 million, which closed in January 2016. The new agreement also amends the lease for the three-story building at 50 West 33rd Street to $100,000 per month for the next five years rather than the $180,000 per month called for in the original agreement.

 

2015 Acquisitions and Openings

 

On October 30, 2014, a 51% owned subsidiary of the Company acquired certain assets and liabilities of Robust Energy LLC for $200,000 in cash and 200,000 shares of its restricted common stock for a total purchase price of $3.6 million. The Company has also agreed to issue 50,000 shares of RCIHH common stock each to the two principals of Robust Energy LLC if Robust has net income of at least $1 million during the 2015 calendar year. The principals entered into a Lock-Up Agreement with the Company in connection with the issuance by the Company of its shares of common stock as explained above, which will provide that none of the shares will be sold for a period of one year after the date of issuance and, thereafter, neither principal will sell more than 1/6th of their respective shares per month that they receive in connection herewith. Robust is an energy drink distributor, targeting the on premises bar and mixer market.

 

The following information summarizes the preliminary allocation of fair values assigned to the assets and liabilities at the purchase date (in thousands).

 

Inventory and accounts receivable   $ 500  
Equipment, furniture and fixtures     356  
Definite-lived intangibles     4,931  
Goodwill     5,326  
Accounts payable     (1,482 )
Notes payable     (963 )
Deferred tax liability     (1,726 )
Noncontrolling interest     (3,392 )
Net assets   $ 3,550  

 

In accordance with US GAAP, the Company recorded a gain of approximately $229,000 on the value of its earlier 15% ($750,000) investment in this company.

 

Goodwill from this transaction is deductible for tax purposes.

 

On January 13, 2015 a Company subsidiary purchased Down in Texas Saloon gentlemen’s club in an Austin, Texas suburb. As part of the transaction, another subsidiary also purchased the club’s real estate. Total consideration of $6.8 million consisted of $3.5 million for the club business and $3.3 million for its 3.5 acres of real estate. Payment was in the form of $1 million in cash and $1.4 million in seller financing at 6% annual interest, with the balance provided by commercial bank financing at a variable interest rate equal to the prime rate plus 2%, but in no event less than 6.5%.

 

The following information summarizes the allocation of fair values assigned to the assets at the purchase date (in thousands).

 

Buildings and land   $ 3,130  
Furniture and fixtures     20  
Inventory     4  
SOB license     3,546  
Noncompete     100  
Net assets   $ 6,800  

 

On May 4, 2015, a Company subsidiary purchased The Seville gentlemen’s club in Minneapolis, Minnesota. As part of the transaction, another subsidiary also purchased the club’s real estate. Total consideration of $8.5 million consisted of $4.5 million for the assets of the club business and $4.0 million for the real estate. Payment was made through bank financing of $5.7 million at 5.5% interest, seller financing of $1.8 million at 6% and cash of $1.1 million.

 

The following information summarizes the allocation of fair values assigned to the assets at the purchase date (in thousands).

 

Buildings and land   $ 4,050  
Furniture and fixtures     200  
Inventory     109  
Goodwill     3,941  
Noncompete     200  
Net assets   $ 8,500  

 

Goodwill from this transaction is deductible for tax purposes.

 

2016 Dispositions

 

In September 2016, we sold a 31% interest in Robust for a $2.0 million note back to its former owner, retaining a 20% interest in the business. We recorded a $641,000 gain on the sale (including a $1.7 million tax credit for deferred taxes transferred with the entity) and recognized an impairment charge of $825,000 on the residual interest owned. Beginning as of the date of sale, we have begun to account for Robust as a cost method investment as we do not have significant influence.

 

In September 2016, the Company sold two adult clubs and closed a Bombshells location. Following are the aggregate details of the sales:

 

  ● Sales price — $6.3 million
     
  ● Cash received — $3.5 million
     
  ● Notes receivable — $2.8 million
     
  ● Gain on sale — $1.1 million of adult club
     
  ● Loss on closure of Bombshells — $550,000
     
  ● Deferred gain on sale of adult club (gain recognized as note collected) — $399,000

 

The notes receivable are payable as follows:

 

  ● $1.8 million payable at 6% over 240 months.
     
  ● $1.0 million payable at 9% over 120 months.

 

The gain/loss on sale transactions above include a tax benefit of the deferred tax liabilities amounting to $2.5 million, which were released upon the sale of the entities.