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Debt | 12 Months Ended
--- | ---
Sep. 30, 2020
Debt Disclosure [Abstract] |
Debt | 10. Debt Long-term debt consisted of the following (in thousands): Schedule of Long-term Debt
|  |  |  | September 30, |
|  |  |  | 2020 |  |  | 2019 |
Notes payable at 5.5%, matures January 2023 |  | (d)(1) |  | $ | 886 |  |  | $ | 981 |
Non-interest-bearing debts to State of Texas, mature March 2022 and May 2022, interest imputed at 9.6% |  | (d)(2) |  |  | 2,177 |  |  |  | 3,379 |
Note payable at 5.75%, matures December 2027, as amended |  | *(a)(6ii)(7) |  |  | 9,715 |  |  |  | 9,877 |
Note payable at 5.95%, matures December 2027, as amended |  | *(a)(6iii)(7) |  |  | 5,787 |  |  |  | 6,776 |
Note payable at 12%, matures February 2030, as amended |  | (d)(3)(25) |  |  | 5,031 |  |  |  | 5,518 |
Notes payable at 12%, mature November 2021, as amended |  | (d)(4)(26) |  |  | 1,940 |  |  |  | 2,040 |
Note payable at 8%, matures October 2022, as amended |  | (b)(5)(23) |  |  | 3,025 |  |  |  | 3,025 |
Note payable at 8%, matures May 2029 |  | (b)(5) |  |  | 12,599 |  |  |  | 13,569 |
Note payable at 5.75%, matures December 2027, as amended |  | *(a)(6i)(7)(8)(9) |  |  | 49,830 |  |  |  | 51,167 |
Note payable at 5.99%, matures September 2033, as amended |  | (c)(10) |  |  | 6,395 |  |  |  | 6,555 |
Note payable at 5%, matures August 2029 |  | *(a)(12) |  |  | 2,165 |  |  |  | 3,709 |
Note payable at prime plus 0.5% with a 5.5% floor, matures September 2035, as amended |  | *(a)(13) |  |  | 2,099 |  |  |  | 2,099 |
Note payable initially at prime plus 0.5% with a 5.5% floor, matures September 2030 |  | *(a)(13) |  |  | 2,861 |  |  |  | 2,619 |
Note payable at 8%, matures May 2021 |  | (a)(14) |  |  | 582 |  |  |  | 771 |
Note payable at 5.95%, matures August 2039, as amended |  | *(a)(11) |  |  | 6,979 |  |  |  | 6,858 |
Note payable at 12%, matures February 2030, as amended |  | (d)(15)(24) |  |  | 3,875 |  |  |  | 4,000 |
Note payable at 9%, matures September 2028 |  | (a)(17) |  |  | 1,167 |  |  |  | 1,263 |
Note payable at 5.95%, matures September 2028, as amended |  | *(a)(16) |  |  | 1,489 |  |  |  | 1,511 |
Note payable at 6%, matures February 2040, as amended |  | *(a)(22) |  |  | 4,066 |  |  |  | 3,608 |
Note payable at 5.49%, matures March 2039, as amended |  | (c)(21) |  |  | 2,125 |  |  |  | 2,156 |
Note payable at 7%, matures November 2024 |  | (b)(19) |  |  | 3,319 |  |  |  | 3,982 |
Note payable at 7%, matures February 2021, as amended |  | (b)(20) |  |  | 2,000 |  |  |  | 2,000 |
Notes payable at 12%, mature November 2021 |  | (d)(18) |  |  | 2,350 |  |  |  | 2,350 |
Note payable at 8%, matures November 2028 |  | (b)(20) |  |  | 4,790 |  |  |  | 5,190 |
Paycheck Protection Program loans at 1%, matures May 2022 |  | (d)(27) |  |  | 5,422 |  |  |  | - |
Total debt |  |  |  |  | 142,674 |  |  |  | 145,003 |
Less unamortized debt discount and issuance costs |  |  |  |  | (1,239 | ) |  |  | (1,475 | )
Less current portion |  |  |  |  | (16,304 | ) |  |  | (15,754 | )
Total long-term portion of debt, net |  |  |  | $ | 125,131 |  |  | $ | 127,774 |
* | These commercial bank debts are guaranteed by the Company’s CEO. See Note 21.
RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 10. Debt - continued Following is a summary of long-term debt at September 30 (in thousands): Schedule of Long-term Debt Instruments
|  | 2020 |  |  | 2019 |
(a) Secured by real estate |  | $ | 86,740 |  |  | $ | 90,258 |
(b) Secured by stock in subsidiary |  |  | 25,733 |  |  |  | 27,766 |
(c) Secured by other assets |  |  | 8,520 |  |  |  | 8,711 |
(d) Unsecured |  |  | 21,681 |  |  |  | 18,269 |
|  | $ | 142,674 |  |  | $ | 145,003 |
(1) In connection with the acquisition of Silver City in January 2012, the Company executed notes to the seller in the amount of $1.5 million. The notes are payable over eleven years at $12,256 per month including interest and have an adjustable interest rate of 5.5%. The rate adjusts to prime plus 2.5% in the 61st month, not to exceed 9%. In the same transaction, the Company also acquired the related real estate and executed notes to the seller for $6.5 million, which have been paid off in relation to the December 2017 Refinancing Loan, as discussed below. The notes are also payable over eleven years at $53,110 per month including interest and have the same adjustable interest rate of 5.5%. (2) In 2015, the Company reached a settlement with the State of Texas over payment of the state’s Patron Tax on adult club customers. To resolve the issue of taxes owed, the Company agreed to pay $10.0 million in equal monthly installments of $119,000, without interest, over 84 months, beginning in June 2015, for all but two nonsettled locations. For accounting purposes, the Company has discounted the $10.0 million at an imputed interest rate of 9.6%, establishing a net present value for the settlement of $7.2 million. In March 2017, the Company settled with the State of Texas for one of the two remaining unsettled Patron Tax locations. The Company agreed to pay a total of $687,815 with $195,815 paid at the time the settlement agreement was executed followed by 60 equal monthly installments of $8,200 without interest. In March 2017, the present value of the second note was approximately $390,000 after discounting using an imputed interest rate of 9.6%. Going forward, the Company agreed to remit the Patron Tax on a regular basis, based on the current rate of $5 per customer. (3) 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. This note has been partially paid in relation to the first note of the December 2017 Refinancing Loan, as discussed below. Also refer to the February 20, 2020 loan restructuring below. (4) On May 1, 2017, the Company raised $5.4 million through the issuance of 12% unsecured promissory notes to certain investors, which notes mature on May 1, 2020. The notes pay interest-only in equal monthly installments, with a lump sum principal payment at maturity. On August 15, 2018 and September 26, 2018, the Company refinanced $2.0 million and $500,000 of the notes, respectively. The $2.0 million note was exchanged for a $4.0 million 12% note maturing in three years with interest-only payments until maturity, where the full principal is to be paid. The $500,000 note was exchanged for a $1.35 million 9% note maturing in 10 years with monthly payments of $17,101, including interest. On November 1, 2018, the Company refinanced two notes with a total principal of $400,000 with certain investors. See succeeding paragraph related to November 1, 2018 financing below. Included in the balance of long-term debt as of September 30, 2020 and 2019 is a $200,000 note, that is a part of the May 1, 2017 financing, borrowed from a non-officer employee in which the terms of the note are the same as the rest of the lender group. Refer to May 1, 2020 extension below. (5) On May 8, 2017, in relation to the Scarlett’s acquisition (see Note 16), the Company executed two promissory notes with the sellers: (i) a 5% short-term note for $5.0 million payable in lump sum after six months from closing date and (ii) a 12-year amortizing 8% note for $15.6 million. The 12-year note is payable $168,343 per month, including interest. The Company amended the $5.0 million short-term note payable, which had a remaining balance of $3.0 million as of amendment date, several times extending the maturity date to October 1, 2022 and increasing the interest rate to 8% for its remaining term. Refer to December 2019 amendment below. RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 10. Debt - continued (6) On December 14, 2017, the Company entered into a loan agreement (“December 2017 Refinancing Loan”) with a bank for $81.2 million. The December 2017 Refinancing Loan fully refinanced 20 of the Company’s notes payable and partially paid down 1 note payable (collectively, “Repaid Notes”) with interest rates ranging from 5% to 12% covering 43 parcels of real properties the Company previously acquired (“Properties”). The December 2017 Refinancing Loan consists of three promissory notes:
| i) | The first note amounts to $62.5 million with a term of 10 years at a 5.75% fixed interest rate for the first five years, then repriced one time at the then current U.S. Treasury rate plus 3.5%, with a floor rate of 5.75%, and payable in monthly installments of $442,058, based upon a 20-year amortization period, with the balance payable at maturity;
| ii) | The second note amounts to $10.6 million with a term of 10 years at a 5.45% fixed interest rate until July 2020, after which to be repriced at a fixed interest rate of 5.75% until the fifth anniversary of this note, and then to be repriced again at the then interest rate of the first note. This note was payable $78,098 monthly for principal and interest until July 2020, based upon a 20-year amortization period, after which the monthly payment for principal and interest was adjusted accordingly based on the repricing, with the balance payable at maturity; and
| iii) | The third note amounts to $8.1 million with a term of 10 years at a 5.95% fixed interest rate until August 2021, after which to be repriced at 5.75% until the fifth anniversary of this note, and then to be repriced again at the then interest of the first note. This note is payable $100,062 monthly for principal and interest until August 2021, based upon a 20-year amortization period, after which the monthly payment for principal and interest is adjusted accordingly based on the repricing, with the balance payable at maturity.
(7) In addition to the monthly principal and interest payments as provided above, the Company paid monthly installments of principal of $250,000, applied to the first note, until the loan-to-value ratio of the Properties, based upon reduced principal balance of the December 2017 Refinancing Loan and the then current value of the Properties, is not greater than 65%. The loan-to-value ratio of the Properties fell below 65% in October 2019, hence, we stopped paying the additional $250,000 monthly. The December 2017 Refinancing Loan has eliminated balloon payments of the Repaid Notes worth $2.9 million originally scheduled in fiscal 2018, $19.4 million originally scheduled in fiscal 2020 and $5.3 million originally scheduled in fiscal 2021. There are certain financial covenants with which the Company must be in compliance related to this financing. We obtained waivers of compliance from the bank lender for financial covenants as of September 30, 2020. RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 10. Debt - continued (8) In connection with the Repaid Notes, we wrote off $279,000 of unamortized debt issuance costs to interest expense. Prior to September 30, 2017, the Company paid a portion of debt issuance costs amounting to $612,500, which was included in other assets until the closing of the transaction. At closing, the Company paid an additional $764,000 in debt issuance costs, which together with the $612,500 prepayment will be amortized for the term of the loan using the effective interest rate method. We also paid prepayment penalties amounting to $543,000 on the Repaid Notes, which was included in interest expense in our consolidated statement of operations for the year ended September 30, 2018. (9) Included in the $62.5 million first note of the December 2017 Refinancing Loan was $4.6 million that was escrowed at closing due to the bank lender of one of the Repaid Notes. The amount was released from escrow in June 2018 when the construction, for which the original note was borrowed, was completed. In March and August 2020, certain principal and interest payments for the three notes of the December 2017 Refinancing Loan were deferred to their maturity dates. (10) On December 7, 2017, the Company borrowed $7.1 million from a lender to purchase an aircraft at 5.99% interest. The transaction was partly funded by trading in an aircraft that the Company owned with a carrying value of $3.4 million, with an assumption of the old aircraft’s note payable liability of $2.0 million. The aircraft note is payable in 15 years with monthly payments of $59,869, which includes interest. In March 2020, this loan was extended to September 2033. (11) On February 15, 2018, the Company borrowed $3.0 million from a bank for the purchase of land at a cost of $4.0 million with the difference paid by the Company in cash. The bank note bears interest at 5.25% adjusted after 36 months to prime plus 1% with a floor of 5.2% and matures on February 15, 2038. The bank note is payable interest-only during the first 18 months, after which monthly payments of principal and interest will be made based on a 20-year amortization with the remaining balance to be paid at maturity. On August 28, 2018, this note was refinanced for additional construction loan having a maximum availability of $7.4 million. The new note has an initial interest rate of 5.95%,subject to a repricing after 72 months to prime plus 1% with a 5.9% floor. The note is payable $53,084 per month, including interest, for 72 months, then adjusted based on repriced interest rate until its August 2039 maturity. In May 2020, certain principal and interest payments for this note were deferred to its maturity date. (12) On February 20, 2018, the Company refinanced a bank note with a balance of $1.9 million, bearing interest of 2% over prime with a 5.5% floor, with the same bank for a construction loan with maximum availability of $4.7 million. The construction loan agreement bears an interest rate of prime plus 0.5% with a floor of 5.0% and matures on August 20, 2029. During the first 18 months of the construction loan, the Company will make monthly interest-only payments, and after such, monthly payments of principal and interest will be made based on a 20-year amortization with the remaining balance to be paid at maturity. There are certain financial covenants with which the Company must be in compliance related to this financing. We are in compliance with these financial covenants as of September 30, 2020. (13) On April 24, 2018, the Company acquired certain land for future development of a Bombshells in Houston, Texas for $5.5 million, financed with a bank note for $4.0 million, payable interest only at prime plus 0.5% with a floor of 5% per annum. The note matures in 24 months, by which date the principal is payable in full. In March and July 2020, in view of the pandemic, the bank lender and the Company agreed to defer the maturity of this note to October 2020. In September 2020, they further negotiated to refinance the note with a deferral of maturity to September 2035 with monthly amortization payments of $16,396, including interest. On September 17, 2018, the Company and the bank lender agreed to carve out a portion of the loan that relates to the land where the Bombshells location is to be built amounting to $960,000, and added a construction loan with a maximum availability of $2.9 million. The new $2.9 million construction loan has an interest rate of prime plus 0.5%, with a 5.5% floor, and payable in 12 years. The first 24 months will be interest-only payments, after which monthly payments of principal and interest will be made based on a 20-year amortization. There are certain financial covenants with which the Company must be in compliance related to this financing. We are in compliance with these financial covenants as of September 30, 2020. (14) On May 25, 2018, the Company acquired a club in Kappa, Illinois for $1.5 million, financed by a $1.0 million seller note with interest at 8%. The note matures in three years and is payable in monthly installments of $20,276, including interest, based on a five-year amortization with the remaining balance to be paid at maturity. RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 10. Debt - continued (15) On August 15, 2018, the Company refinanced a $2.0 million note payable for $4.0 million from a private lender by executing a 12% 3-year note payable $40,000 monthly starting September 15, 2018, with the remaining principal and interest balance payable at maturity. See February 20, 2020 extension below. (16) On September 6, 2018, the Company borrowed $1.55 million from a bank lender to finance the acquisition of the remaining not-owned interest in a joint venture. The 10-year note payable has an initial interest rate of 5.95% until after five years when the interest rate is adjusted to the U.S. Treasury rate plus 3.5%, with a 5.95% floor. Monthly payments of $11,138, including interest, is due for five years until an adjustment in monthly payments based on the interest rate repricing. The Company paid approximately $40,000 in debt issuance costs at closing. In March and August 2020, certain principal and interest payments for this note were deferred to its maturity date. There are certain financial covenants with which the Company must be in compliance related to this note. We obtained a waiver of compliance from the bank lender for financial covenants as of September 30, 2020. (17) On September 26, 2018, the Company refinanced a $500,000 12% note payable for $1.35 million from a private lender by executing a 9% 10-year note payable $17,101 monthly, including interest, until maturity. (18) On November 1, 2018, the Company raised $2.35 million through the issuance of 12% unsecured promissory notes to certain investors, which notes mature on November 1, 2021. The notes pay interest-only in equal monthly installments, with a lump sum principal payment at maturity. Among the promissory notes are two notes with a principal of $450,000 and $200,000. The $450,000 note was in exchange for a $300,000 12% note and the $200,000 note was in exchange for a $100,000 note, both of which were included in the May 1, 2017 financing to acquire Scarlett’s Cabaret in Miami. Also included in the $2.35 million borrowing are two notes for $500,000 and $100,000 borrowed from related parties (see Note 21) and one note for $300,000 borrowed from a non-officer employee in which the terms of the notes are the same as the rest of the lender group. (19) On November 1, 2018, we acquired a club in Chicago that was partially financed by a $4.5 million 6-year 7% seller note. See additional details related to the acquisition in Note 16. (20) On November 5, 2018, we acquired a club in Pittsburgh that was partially financed by two seller notes payable. The first note is a 2-year 7% note for $2.0 million and the second is a 10-year 8% note for $5.5 million. See additional details related to the acquisition in Note 16. On September 30, 2020, the maturity date for the first note was extended to February 2021. (21) On December 11, 2018, the Company purchased an aircraft for $2.8 million with a $554,000 down payment and financed the remaining $2.2 million with a 5.49% promissory note payable in 20 years with monthly payments of $15,118, including interest. Certain principal and interest payments during the quarter ended June 30, 2020 were deferred until maturity date. (22) On February 8, 2019, the Company refinanced a one-year bank note with a balance of $1.5 million, bearing an interest rate of 6.1%, with a construction loan with another bank, which has an interest rate of 6.0% adjusted after five years to prime plus 0.5% with a 6.0% floor per annum. The new construction loan, which has a maximum availability of $4.1 million, matures in 252 months from closing date and is payable interest-only for the first 12 months, then principal and interest of $29,571 monthly for the next 48 months, and the remaining term monthly payments of principal and interest based on the adjusted interest rate. The Company paid approximately $69,000 in loan costs of which approximately $19,600 was capitalized as debt issuance costs on the new construction loan with the remaining charged to interest expense. The Company also wrote off the remaining unamortized debt issuance costs of the old bank note to interest expense. There are certain financial covenants with which the Company must be in compliance related to this financing. In March 2020, certain principal and interest payments for this note were deferred to its maturity date. We are in compliance with these financial covenants as of September 30, 2020. (23) In December 2019, the Company amended the $5.0 million short-term note payable related to the Scarlett’s acquisition in May 2017, which had a balance of $3.0 million as of the amendment date, extending the maturity date to October 1, 2022. The amendment did not have an impact in the Company’s results of operations and cash flows. (24) On February 20, 2020, in relation to a $4.0 million 12% note payable earlier refinanced on August 15, 2018, the Company restructured the note with a private lender by executing a 12% 10-year note payable $57,388 monthly, including interest, starting March 2020. The restructured note eliminates a scheduled balloon principal payment of $4.0 million in August 2021. The refinancing did not have an impact on the Company’s results of operations and cash flows. (25) On February 20, 2020, in relation to a $9.9 million 12% note payable that was partially paid during the December 2017 Refinancing Loan, the Company restructured the note, which had a balance of $5.2 million as of the amendment date, by executing a 12% 10-year note payable $74,515 monthly, including interest, starting March 2020. The restructured note eliminates a scheduled balloon principal payment of $3.8 million in October 2021. As a result of the refinancing, the Company wrote off approximately $25,400 in unamortized debt issuance cost as interest expense in our consolidated statement of operations for the year ended September 30, 2020. (26) On May 1, 2020, the Company negotiated extensions to November 1, 2020 on $1,740,000 of $2,040,000 of notes to individuals that were due on May 1, 2020. The Company paid $300,000 to certain lenders and received $200,000 in new debt from existing lenders and their affiliates. The aggregate amount of debt due on these notes is now $1,940,000. In October 2020, $1,690,000 of these notes were again extended to November 2021. (27) On May 8, 2020, the Company received approval and funding under the PPP of the CARES Act for its restaurants, shared service entity and lounge amounting to $5.4 million. If not forgiven, under the terms of the loans as provided by the CARES Act, the twelve PPP loans bear an interest rate of 1% per annum. As of the filing of this report, we have received ten Notices of PPP Forgiveness Payment from the Small Business Administration out of the twelve of our PPP loans granted. All of the notices received forgave 100% of each of the ten PPP loans totaling the amount of $4.9 million. See Notes 3 and 11. RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 10. Debt – continued Future maturities of debt obligations as of September 30, 2020 consist of the following (in thousands): Schedule of Maturities of Long-term Debt
|  | Regular Amortization |  |  | Balloon Payments |  |  | Total Payments |
2021 |  | $ | 12,098 |  |  | $ | 4,405 |  |  | $ | 16,503 |
2022 |  |  | 11,032 |  |  |  | 2,350 |  |  |  | 13,382 |
2023 |  |  | 8,090 |  |  |  | 3,676 |  |  |  | 11,766 |
2024 |  |  | 8,642 |  |  |  | - |  |  |  | 8,642 |
2025 |  |  | 8,479 |  |  | - |  |  |  | 8,479 |
Thereafter |  |  | 41,911 |  |  |  | 41,991 |  |  |  | 83,902 |
|  | $ | 90,252 |  |  | $ | 52,422 |  |  | $ | 142,674 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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