What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-05-11 · 411 added, 268 removed, 554 unchanged (55% of the section changed)

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thousands, except par value)

and cash equivalents

receivable, net

portion of notes receivable

Current assets

and cash equivalents

Accounts receivable,

Current portion

of notes receivable

Prepaid insurance

Other current assets

held for sale

current assets

and equipment, net

lease right-of-use assets

receivable, net of current portion

portion of long-term debt

portion of operating lease liabilities

Total current assets

Property and equipment, net

Operating lease right-of-use assets,

Notes receivable, net of current portion

Intangibles, net

LIABILITIES AND EQUITY

Current liabilities

tax liability, net

debt, net of current portion and debt discount and issuance costs

lease liabilities, net of current portion

long-term liabilities

and contingencies (Note 10)

stock, $0.10 par value per share;

Accounts payable

Accrued liabilities

Current portion

of long-term debt, net

portion of operating lease liabilities

Total current liabilities

Deferred tax liability, net

Long-term debt, net of current portion

and debt discount and issuance costs

Operating lease liabilities, net of

current portion

Other long-term

Commitments and contingencies (Note

Preferred stock,

$ 0.10 par value per share;

1,000 shares authorized;

none issued and outstanding

stock, $0.01 par value per share;

Common stock, $ 0.01 par value per

20,000 shares authorized;

9,125 and 9,591 shares issued and outstanding as of March 31,

2020 and September 30, 2019, respectively

paid-in capital

RCIHH stockholders’

9,125 and 9,591 shares issued and outstanding as of June 30, 2020 and September 30, 2019,

Additional paid-in

Total RCIHH stockholders’

Noncontrolling

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the Three Months

the Six Months

the Nine Months

of alcoholic beverages

of food and merchandise

of goods sold

beverages sold

and merchandise sold

cost of goods sold (exclusive of items shown separately below)

general and administrative

and amortization

Sales of food and

Service revenues

Operating expenses

Cost of goods sold

Alcoholic beverages

Food and merchandise

Total cost of goods

sold (exclusive of items shown separately below)

Salaries and wages

Selling, general

and administrative

Depreciation and

charges (gains), net

operating expenses

(loss) from operations

income (expenses)

Income (loss) from operations

Other income (expenses)

Interest expense

Interest income

gain (loss) on equity securities

(loss) before income taxes

tax expense (benefit)

income (loss)

loss (income) attributable to noncontrolling interests

income (loss) attributable to RCIHH common stockholders

(loss) per share

average number of common shares outstanding

Income (loss) before income taxes

Income tax expense

Net income (loss)

Net loss (income)

attributable to noncontrolling interests

Net income (loss)

attributable to RCIHH common stockholders

Earnings (loss) per share

Basic and diluted

Weighted average number of common shares outstanding

Basic and diluted

Dividends per share

Sales of Food and Merchandise [Member]

accompanying notes to unaudited condensed consolidated financial statements.

Service Revenues [Member]

HOSPITALITY HOLDINGS, INC.

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to noncontrolling interest

Reclassification upon adoption of ASU 2016-01

income (loss)

at December 31, 2019

at January 01, 2020

of treasury shares

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to noncontrolling interest

income (loss)

at March 31, 2020

at April 01, 2020

Net income (loss)

at June 30, 2020

at September 30, 2018

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treasury shares

income (loss)

at December 31, 2018

at January 01, 2019

of treasury shares

treasury shares

income (loss)

at March 31, 2019

at April 01, 2019

of treasury shares

treasury shares

to noncontrolling interest

income (loss)

at June 30, 2019

accompanying notes to unaudited condensed consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

the Six Months

FLOWS FROM OPERATING ACTIVITIES

to reconcile net income to net cash provided by operating activities:

and amortization

income tax expense (benefit)

on sale of businesses and assets

loss on equity securities

of debt discount and issuance costs

lease expense

in operating assets and liabilities:

insurance, other current and other assets

the Nine Months

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

Adjustments to reconcile net income

(loss) to net cash provided by operating activities:

Depreciation and

Deferred income

tax expense (benefit)

Gain on sale of

businesses and assets

Impairment of assets

Unrealized loss

on equity securities

Amortization of

debt discount and issuance costs

Deferred rent

Noncash lease expense

Doubtful accounts

expense on notes receivable

Changes in operating

assets and liabilities:

Accounts receivable

Prepaid insurance,

other current and other assets

payable, accrued and other liabilities

cash provided by operating activities

FLOWS FROM INVESTING ACTIVITIES

from sale of businesses and assets

from insurance

from notes receivable

of note receivable

for property and equipment and intangible assets

of businesses, net of cash acquired

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of businesses and

Proceeds from insurance

Proceeds from notes receivable

Issuance of note receivable

Payments for property and equipment

and intangible assets

Acquisition of

businesses, net of cash acquired

cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES

from long-term debt

on long-term debt

of treasury stock

of loan origination costs

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from debt obligations

Payments on debt obligations

Purchase of treasury stock

Payment of dividends

Payment of loan origination costs

to noncontrolling interests

cash used in financing activities

DECREASE IN CASH AND CASH EQUIVALENTS

AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

AND CASH EQUIVALENTS AT END OF PERIOD

PAID DURING PERIOD FOR:

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS

CASH AND CASH

EQUIVALENTS AT BEGINNING OF PERIOD

CASH AND CASH

EQUIVALENTS AT END OF PERIOD

CASH PAID DURING PERIOD FOR:

(net of amounts capitalized of $ 155 and $ 447 , respectively)

investing and financing transactions:

receivable received as proceeds from sale of assets

lease right-of-use assets established upon adoption of ASC 842

rent liabilities reclassified upon adoption of ASC 842

lease liabilities established upon adoption of ASC 842

liabilities on capital expenditures

Noncash investing and financing transactions:

Notes receivable

received as proceeds from sale of assets

Operating lease

right-of-use assets established upon adoption of ASC 842

Deferred rent liabilities

reclassified upon adoption of ASC 842

Operating lease

liabilities established upon adoption of ASC 842

Unpaid liabilities

on capital expenditures

and other transactions:

the six months ended March 31, 2019, in conjunction with the borrowings of $2.35 million from certain investors, the Company exchanged

two notes payable with principal balances of $300,000 and $100,000 for two new notes amounting to $450,000 and $200,000, respectively.

The Company received cash amounting to $1.95 million on the entire transaction.

the six months ended March 31, 2019, the Company acquired two clubs for a total acquisition price of $25.5 million by paying a

the nine months ended June 30, 2019, in conjunction with the borrowings of $ 2.35 million from certain investors, the Company exchanged two notes payable with principal balances of $ 300 ,000

and $ 100 ,000

for two new notes amounting to $ 450 ,000

and $ 200 ,000,

respectively.

The Company received cash amounting to $ 1.95

million on the entire transaction.

the nine months ended June 30, 2019, the Company acquired two clubs for a total acquisition price of $ 25.5 million by paying a

total of $ 13.5 million at closing and executing three seller-financed notes for a total of $ 12.0 million.

the six months ended March 31, 2019, the Company sold a nightclub in Philadelphia for a total sales price of $1.0 million, payable

the nine months ended June 30, 2019, the Company sold a nightclub in Philadelphia for a total sales price of $ 1.0 million, payable

$ 375 ,000 in cash at closing and a $ 625 ,000 note receivable.

the six months ended March 31, 2019, the Company sold a held-for-sale property in Dallas, Texas for a total sales price of $1.4

the nine months ended June 30, 2019, the Company sold a held-for-sale property in Dallas, Texas for a total sales price of $ 1.4

million, payable $ 163 ,000 in cash at closing, net of closing costs and property taxes of $ 87 ,000, and a $ 1.15 million note receivable.

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have been made.

Operating results for the three and six months ended March 31, 2020 are not necessarily indicative of the results

Operating results for the three and nine months ended June 30, 2020 are not necessarily indicative of the results

that may be expected for the year ending September 30, 2020.

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December 15, 2018.

We are still evaluating the impact of this ASU, including all related updates, on the Company’s consolidated

financial statements.

Our evaluation indicates that our consolidated financial statements will not be significantly impacted upon

adoption of this guidance.

HOSPITALITY HOLDINGS, INC.

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the ASU and delay adoption of the additional disclosures until the effective date.

We are still evaluating the impact of this

ASU on the Company’s consolidated financial statements.

Our evaluation indicates that fair value disclosures

in our consolidated financial statements will be minimally impacted by the requirements of this ASU.

HOSPITALITY HOLDINGS, INC.

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fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

We are still evaluating the impact

of this ASU on the Company’s consolidated financial statements.

Our evaluation indicates that

our consolidated financial statements will not be significantly impacted upon adoption of this guidance.

December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

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behavior as social distancing practices, dining room closures and other restrictions that were mandated or encouraged by federal,

state and local governments, and as of March 18, 2020, we temporarily closed all of our clubs and restaurants.

The closure of our clubs and

restaurants caused by the COVID-19 pandemic has presented operational challenges.

Our strategy is to open locations in

accordance with local and state guidelines and it is too early to know when and if they will generate positive cash flows for

Depending on the timing and number of locations we get open, and their ability to generate positive cash flow, we

may need to borrow funds to meet our obligations or consider selling certain assets.

The COVID-19 pandemic is adversely

affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional

liquidity will be readily available or available on favorable terms, especially the longer the COVID-19 pandemic

To augment an expected decline in operating

cash flows caused by the COVID-19 pandemic, we instituted the following measures:

for deferment of principal and interest payment on certain of our debts;

state and local governments, and since March 2020, we have temporarily closed and reopened several of our clubs and restaurants.

closure of our clubs and restaurants caused by the COVID-19 pandemic has presented operational challenges.

Our strategy is to

open locations in accordance with local and state guidelines and it is too early to know when and if they will generate positive

cash flows for us.

Depending on the timing and number of locations we get open, and their ability to generate positive cash flow,

we may need to borrow funds to meet our obligations or consider selling certain assets.

The COVID-19 pandemic is adversely affecting

the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be

readily available or available on favorable terms, especially the longer the COVID-19 pandemic lasts.

augment an expected decline in operating cash flows caused by the COVID-19 pandemic, we instituted the following measures:

and continue to arrange for deferment of principal and interest payment on certain of our debts;

employees working at our clubs and restaurants, except for a limited number of managers;

cut for all remaining salaried and hourly employees and deferral of board of director

compensation;

or modified certain fixed monthly expenses such as insurance, rent, and taxes, among

certain non-essential expenses such as advertising, cable, pest control, point-of-sale

system support, and investor relations coverage, among others.

On May 8, 2020, the Company received approval and funding under

the Paycheck Protection Program (“PPP”) of the CARES Act for its restaurants, shared service entity and lounge.

Ten of our restaurant subsidiaries received amounts ranging from $271,000 to $579,000 for an aggregate amount of $4.2 million;

cut for all remaining salaried and hourly employees and deferral of board of director compensation;

or modified certain fixed monthly expenses such as insurance, rent, and taxes, among others;

certain non-essential expenses such as advertising, cable, pest control, point-of-sale system support, and investor relations

coverage, among others.

May 8, 2020, the Company received approval and funding under the Paycheck Protection Program (“PPP”) of the CARES

Act for its restaurants, shared service entity and lounge.

See Notes 7 and 9.

Ten of our restaurant subsidiaries received amounts

ranging from $ 271 ,000 to $ 579 ,000 for an aggregate amount of $ 4.2 million;

our shared-services subsidiary received $ 1.1 million;

and one of our lounges received $ 124 ,000.

None of our adult nightclub and

other non-core business subsidiaries received funding under the PPP.

None of our adult nightclub and other non-core business subsidiaries received funding

under the PPP.

of the release of this report, we do not know the extent and duration of the impact of COVID-19 on our businesses due to the uncertainty

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Lower sales, as caused by social distancing guidelines, could lead to adverse financial results.

However, we will continually monitor and evaluate the situation and will determine any further measures to be instituted.

as of the release of this report, we have ten locations in Texas that have partially reopened with 25% occupancy requirement.

of Goodwill, Indefinite-Lived Intangibles and Long-Lived tangible Assets

However, we will continually monitor and evaluate the situation and will determine any further measures to be instituted, including

refinancing several of our debt obligations.

We continue to adhere to state and local

government mandates regarding the pandemic and, since March 2020, have closed and reopened several of our locations depending

on changing government mandates.

As of the release of this report, we have reopened many of our club and Bombshells

locations with limited occupancy but some of our bigger clubs are still closed.

of Goodwill, Indefinite-Lived Intangibles and Long-Lived Assets

consider the COVID-19 pandemic as a triggering event in the assessment of recoverability of the goodwill, indefinite-lived intangibles,

and long-lived tangible assets in our clubs and restaurants that are affected.

We evaluated forecasted cash flows considering

future assumed impact of COVID-19 pandemic on sales.

Based on our evaluation, we determined our assets are impaired in a total

amount of approximately $8.2 million comprised of $6.5 million in goodwill, $1.4 million in SOB licenses, and $302,000 in property

and equipment.

and long-lived assets in our clubs and restaurants that are affected.

We evaluated forecasted cash flows considering future assumed

impact of COVID-19 pandemic on sales.

Based on our evaluation as of June 30, 2020, we determined our assets are impaired in a

total amount of approximately $ 9.2 million comprised of $ 6.5 million in goodwill, $ 2.3 million in SOB licenses, $ 302 ,000 in property

and equipment, and $ 104 ,000 in right-of-use operating lease assets.

Company recognizes revenue from the sale of alcoholic beverages, food and merchandise, service and other revenues at the point-of-sale

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magazines and advertising content are recognized when the issue is published and shipped.

Revenues and external expenses related

to the Company’s annual Expo convention are recognized upon the completion of the convention, which normally occurs during

our fiscal fourth quarter.

Other lease revenues are recognized when earned (recognized over time) and are more appropriately covered

by guidance under ASC Topic 842, Leases (ASC 840 in prior year).

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenues and external expenses

related to the Company’s annual Expo convention are recognized upon the completion of the convention, which normally

occurs during our fiscal fourth quarter.

Lease revenue (included in other revenues) is recognized when earned

(recognized over time) and is more appropriately covered by guidance under ASC 842, Leases (ASC 840 in prior

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 12), are shown below (in thousands):

Months Ended March 31, 2020

Months Ended March 31, 2019

of alcoholic beverages

of food and merchandise

at a point in time

Months Ended March 31, 2020

Months Ended March 31, 2019

of alcoholic beverages

of food and merchandise

at a point in time

Lease revenue (included in Other Revenues) as covered by ASC Topic 842 in the current year (and ASC Topic 840 in the prior year).

All other revenues are covered by ASC Topic 606.

Schedule of Disaggregation of Segment Revenues

Months Ended June 30, 2020

Months Ended June 30, 2019

Sales of alcoholic beverages

Sales of food and merchandise

Service revenues

Other revenues

Recognized at a point in time

Recognized over time

Months Ended June 30, 2020

Months Ended June 30, 2019

Sales of alcoholic beverages

Sales of food and merchandise

Service revenues

Other revenues

Recognized at a point in time

Recognized over time

Lease revenue (included in Other Revenues) as covered by ASC 842 in the current year (and ASC 840 in the prior year).

revenues are covered by ASC 606.

Company does not have contract assets with customers.

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of contract liabilities with customers is presented below (in thousands):

Schedule of Reconciliation of Contract Liabilities with Customers

Consideration

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components of accrued liabilities are as follows (in thousands):

and liquor taxes

and related costs

Schedule of Accrued Liabilities

Sales and liquor taxes

Payroll and related costs

Property taxes

Unearned revenues

Lawsuit settlement

Accrued liabilities

components of selling, general and administrative expenses are as follows (in thousands):

the Three Months

the Six Months

and marketing

and professional fees

and maintenance

Schedule of Selling, General and Administrative Expenses

For the Three Months

For the Nine Months

Taxes and permits

Advertising and marketing

Supplies and services

Accounting and professional fees

Charge card fees

Repairs and maintenance

Selling, general and administrative expenses

Assets Held for Sale

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was lower than the fair value at the date reclassified.

the six months ended March 31, 2020, the Company classified as held-for-sale another real estate property.

The aggregate estimated

fair value of the property less cost to sell was $1.9 million.

As of March 31, 2020, the Company has a total of three real estate

properties held for sale with a total value of $4.8 million.

the three months ended December 31, 2019, the Company classified as held-for-sale another real estate property with an aggregate

estimated fair value of the property less cost to sell of $ 1.9

This property was later reclassified

out of held-for-sale assets and back to property and equipment during the three months ended June 30, 2020 due to a change in

management’s plan with the property.

the three months ended June 30, 2020, the Company sold one held-for-sale

property valued at $ 853 ,000

of June 30, 2020, the Company has a total of one real estate property held for sale with a total value of $ 2.0 million.

Company expects the properties held for sale, which are primarily comprised of land and buildings, to be sold within 12 months

through property listings by our real estate brokers.

Liabilities associated with held-for-sale

assets amounting to $1.2 million and $0 as of March 31, 2020 and September 30, 2019, respectively, are included in current portion

of long-term debt in our unaudited consolidated balance sheets.

The gain or loss on the sale of properties held for sale is

included in other charges/gains, net in the unaudited condensed consolidated statements of operations.

liabilities were associated with held-for-sale

assets as of June 30, 2020 and September 30, 2019.

Gains or losses on the sale of properties held for sale are included in other

charges (gains), net within the unaudited condensed consolidated statements of operations.

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-term Debt

December 2019, the Company amended the $ 5.0 million short-term note payable related to the Scarlett’s acquisition in May

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The refinancing did not

have an impact in the Company’s results of operations and cash flows.

have an impact on the Company’s results of operations and cash flows.

February 2020, in relation to a $ 9.9 million 12 % note payable that was partially paid during the December 2017 Refinancing Loan,

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debt issuance cost as interest expense in the unaudited condensed consolidated statement of operations for the quarter ended March

in the balance of long-term debt as of March 31, 2020 and September 30, 2019 is a $500,000 note borrowed from a related party

(see Note 13) and three notes totaling $600,000 borrowed from two non-officer employees and a family member of a non-officer employee

in the balance of debt obligations as of June 30, 2020 and September 30, 2019 is a $ 500,000 note borrowed from a related party

(see Note 13) and three notes totaling $ 600,000 (of which $200,000 was included in the $1,740,000 extension in the

succeeding paragraph) borrowed from two non-officer employees and a family member of a non-officer employee

in which the terms of the notes are the same as the rest of the lender groups.

maturities of long-term debt as of March 31, 2020 are as follows:

$14.8 million, $11.7 million, $11.6 million, $8.1 million, $8.4

million and $87.2 million for the twelve months ending March 31, 2021, 2022, 2023, 2024, 2025, and thereafter, respectively.

the maturity schedule mentioned above, $6.1 million, $2.8 million, $3.8 million, $0, $0 and $56.0 million, respectively, relate

to scheduled balloon payments.

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

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The aggregate amount of debt due on these notes on November 1, 2020 is now $ 1,940,000 .

the three and six months ended March 31, 2020, the Company purchased and retired 132,719 and 465,390 common shares, respectively,

maturities of long-term debt as of June 30, 2020 are as follows:

million, $ 14.6

million, $ 11.6

million, $ 8.4

million, $ 8.5

million and $ 83.5

million for the twelve months ending June

30, 2021, 2022, 2023, 2024, 2025, and thereafter, respectively.

Of the maturity schedule mentioned above, $ 6.5

million, $ 2.4

million, $ 3.7

million, $ 0 ,

million, respectively, relate to scheduled

balloon payments.

Unamortized debt discount and issuance costs amounted to $ 1.3 million and $ 1.5 million as of June 30, 2020

and September 30, 2019, respectively.

in the balance of debt obligations as of June 30, 2020 are PPP loans amounting to $ 5.4

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 and will be payable in 18 equal monthly installments of $ 305,138

starting December 6, 2020.

the three and nine months ended June 30, 2020, the Company purchased and retired 0 and 465,390 common shares, respectively, at

a cost of approximately $ 0 and $ 8.5 million, respectively.

The Company paid $ 0.03 and $ 0.10 per share cash dividends during the

three and nine months ended June 30, 2020 totaling approximately $ 273,000 and $ 920,000 , respectively.

the three and nine months ended June 30, 2019, the Company purchased and retired 17,302 and 102,113 common shares, respectively,

at a cost of approximately $ 403,000 and $ 2.4 million, respectively.

The Company paid $0.04 and $0.07 per share cash dividends during

the three and six months ended March 31, 2020 totaling approximately $368,000 and $647,000, respectively.

the three and six months ended March 31, 2019, the Company purchased and retired 70,700 and 84,811 common shares, respectively,

at a cost of approximately $1.6 million and $2.0 million, respectively.

The Company paid a $ 0.03 per share cash dividend per quarter

totaling approximately $291,000 and $582,000 for the three and six months ended March 31, 2019, respectively.

totaling approximately $ 285 ,000 and $ 867,000 for the three and nine months ended June 30, 2019, respectively.

February 6, 2020, the Company’s Board of Directors authorized an additional $ 10.0 million to repurchase the Company’s

common stock.

As of May 8, 2020, the Company has $11.8 million remaining to purchase additional shares under its share repurchase

As of August 7, 2020, the Company has $ 11.8 million remaining to purchase additional shares under its share repurchase

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

taxes were $1.4 million benefit and $175,000 expense during the three and six months ended March 31, 2020, respectively, compared

to income tax expense of $1.9 million and $3.7 million during the three and six months ended March 31, 2019, respectively.

effective income tax rate was a 28.9% benefit and a 7.6% expense during the three and six months ended March 31, 2020, respectively,

compared to expense rates of 22.3% and 22.2% during the three and six months ended March 31, 2019, respectively.

Our effective

tax rate for both years is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit.

tax benefit was $ 1.4

million and $ 1.3

million during the three and nine months

ended June 30, 2020, respectively, compared to income tax expense of $ 1.8

million and $ 5.5

million during the three and nine months

ended June 30, 2019, respectively.

The effective income tax rate was a benefit of 20.5 %

during the three and nine months ended

June 30, 2020, respectively, compared to expense rates of 24.1 %

during the three and nine months ended

June 30, 2019, respectively.

Our effective tax rate for both years is affected by the estimate of pre-tax accounting income

(loss) for the year, state taxes, permanent differences, and tax credits, including the FICA tip credit.

Company or one of its subsidiaries file income tax returns for U.S.

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September 30, 2017 and thereafter remain open to tax examination.

The Company’s federal income tax returns for the years

ended September 30, 2015, 2014 and 2013 have been examined by the Internal Revenue Service with no changes.

Tax years 2014 through

2017 are now under examination for payroll taxes.

The Company is also being examined for state income taxes, the outcome of which

may occur within the next twelve months.

The Company’s federal income tax returns for the

years ended September 30, 2015, 2014 and 2013 have been examined by the Internal Revenue Service with no changes.

In July 2020,

we have resolved payroll tax audits with the IRS for tax years 2014 through 2017 and have accrued approximately $ 149,000 in

payroll taxes and penalties, which are included in accrued liabilities in our unaudited condensed consolidated balance sheet as

of June 30, 2020.

Company accounts for uncertain tax positions pursuant to ASC Topic 740, Income Taxes .

As of March 31, 2020 and September

As of June 30, 2020 and September

30, 2019, the liability for uncertain tax positions was $ 0 and $ 0 , respectively.

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statements of operations.

On March 27, 2020, President Trump signed

the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act") into law.

As a result of this, additional

avenues of relief may be available to workers and families through enhanced unemployment insurance provisions and to small businesses

through programs administered by the Small Business Administration.

The CARES Act includes, among other items, provisions

relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical

corrections to tax depreciation methods for qualified improvement property.

The Company is currently evaluating the impact of

the provisions of the CARES Act.

The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain

small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.

The loan may be forgiven if the funds

are used for payroll and other qualified expenses.

The Company has submitted its application for a PPP loan and on May 8, 2020

has received approval and funding for its restaurants, shared service entity and lounge.

March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into

As a result of this, additional avenues of relief may be available to workers and families through enhanced unemployment

insurance provisions and to small businesses through programs administered by the Small Business Administration.

The CARES Act

includes, among other items, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative

minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property.

The Company is currently

evaluating the impact of the provisions of the CARES Act.

The CARES Act also established a Paycheck Protection Program (“PPP”),

whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.

The loan may be forgiven

if the funds are used for payroll and other qualified expenses.

The Company has submitted its application for a PPP loan and on

May 8, 2020 has received approval and funding for its restaurants, shared service entity and lounge.

Ten of our restaurant subsidiaries

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was executed followed by 60 equal monthly installments of $ 8,200 without interest.

aggregate balance of Patron Tax settlement liability, which is included in long-term debt in the consolidated balance sheets,

amounted to $2.8 million and $3.4 million as of March 31, 2020 and September 30, 2019, respectively.

aggregate balance of Patron Tax settlement liability, which is included in long-term debt in the unaudited condensed consolidated

balance sheets, amounted to $ 2.5

million and $ 3.4

million as of June 30, 2020 and

September 30, 2019, respectively.

declaratory judgment action was brought by five operating subsidiaries of the Company to challenge a Texas Comptroller administrative

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as it has been applied and enforced by the Comptroller.

The State of Texas has filed a Notice of Appeal.

The State of Texas has filed an appeal.

We will continue to vigorously

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cover any claims arising from actions after that date.

As of March 31, 2020, we have 2 unresolved claims out of the original 71

As of June 30, 2020, we have 2 unresolved claims out of the original

Class and Derivative Actions

May and June 2019, three putative securities class action complaints were filed against RCI Hospitality Holdings, Inc.

of its officers in the Southern District of Texas, Houston Division.

The complaints allege violations of Sections 10(b) and 20(a)

of the Securities Exchange Act of 1934 and 10b-5 promulgated thereunder based on alleged materially false and misleading statements

made in the Company’s SEC filings and disclosures as they relate to various alleged transactions by the Company and management.

certain of its officers in the Southern District of Texas, Houston Division.

The complaints allege violations of Sections

10(b) and 20(a) of the Securities Exchange Act of 1934 and 10b-5 promulgated thereunder based on alleged materially false and

misleading statements made in the Company’s SEC filings and disclosures as they relate to various alleged transactions

by the Company and management.

The complaints seek unspecified damages, costs, and attorneys’ fees.

These lawsuits are Hoffman v.

RCI Hospitality Holdings,

(filed May 21, 2019, naming the Company and Eric Langan);

These lawsuits are

RCI Hospitality Holdings, Inc., et al.

28, 2019, naming the Company, Eric Langan, and Phil Marshall);

(filed May 21, 2019, naming the Company and Eric Langan);

Hospitality Holdings, Inc., et al.

(filed May 28, 2019, naming the Company, Eric Langan, and Phil Marshall);

and Grossman v.

RCI Hospitality Holdings, Inc., et al.

28, 2019, naming the Company, Eric Langan, and Phil Marshall).

The plaintiffs in all three cases moved to consolidate the purported

class actions.

On January 10, 2020 an order consolidating the Hoffman, Grossman, and Gu cases was entered by the Court.

The consolidated

case is styled In re RCI Hospitality Holdings, Inc., No.

(filed June 28, 2019, naming the Company, Eric Langan, and Phil Marshall).

plaintiffs in all three cases moved to consolidate the purported class actions.

On January 10, 2020 an order consolidating

the Hoffman, Grossman, and Gu cases was entered by the Court.

The consolidated case is styled In re RCI Hospitality Holdings,

4:19-cv-01841.

On February 24, 2020, the plaintiffs in the consolidated

case filed an Amended Class Action Complaint, continuing to allege violations of Sections 10(b) and 20(a) of the Securities Exchange

Act of 1934 and 10b-5 promulgated thereunder.

In addition to naming the Company, Eric Langan, and Phil Marshall, the amended complaint

also adds director Nour-Dean Anakar and former director Steven Jenkins as defendants.

On February 24, 2020, the plaintiffs in the consolidated case filed an Amended Class Action

Complaint, continuing to allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and 10b-5

promulgated thereunder.

In addition to naming the Company, Eric Langan, and Phil Marshall, the amended complaint also adds

director Nour-Dean Anakar and former director Steven Jenkins as defendants.

On April 24, 2020, the Company and the individual

defendants moved to dismiss the amended complaint for failure to state a claim upon which relief can be granted.

The plaintiff’s

response to the motion is currently due June 23, 2020.

The Company and the individual defendants will have the opportunity to

file a reply in support of their motion by July 23, 2020.

July 23, 2020, briefing on the motion to dismiss is complete, and we are currently waiting for the court to rule on the

The Company intends to continue to vigorously defend against this action.

This action is in its preliminary phase, and a potential loss cannot yet be estimated.

This action is in its preliminary phase,

and a potential loss cannot yet be estimated.

HOSPITALITY HOLDINGS, INC.

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The appeal process required that a check be deposited in the registry of the court in the amount of $ 690,000 , which was deposited

in April 2019 and included in other current assets in both consolidated balance sheets as of March 31, 2020 and September 30,

in April 2019 and included in other current assets in both consolidated balance sheets as of June 30, 2020 and September 30, 2019.

Management believes that the case has no merit and is vigorously defending itself in the appeal.

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Lawsuits are handled by attorneys with an expertise in the relevant law and are defended vigorously.

to several COVID-19 regulations and restrictions imposed on some of our businesses by local municipalities and/or States, certain

of our subsidiaries are plaintiffs to lawsuits that have been filed on behalf of the affected entities to have the

restrictions eased or removed entirely.

The lawsuits may increase or decrease based on the spread of the disease and new or additional

restrictions placed on our businesses.

the regular course of business affairs and operations, we are subject to possible loss contingencies arising from third-party

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these claims in excess of our insurance coverage.

of lawsuits for the three and six months ended March 31, 2020 total approximately $0 and $24,000, respectively, while for the

three and six months ended March 31, 2019 total $84,000 and $144,000, respectively.

As of March 31, 2020 and September 30, 2019,

of lawsuits for the three and nine months ended June 30, 2020 total approximately $ 50,000 and $ 74,000 , respectively, while for

the three and nine months ended June 30, 2019 total $ 0 and $ 144,000 , respectively.

As of June 30, 2020 and September 30, 2019,

the Company has accrued $ 75,000 and $ 115,000 in accrued liabilities, respectively, related to settlement of lawsuits.

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our media and energy drink divisions that are not significant to the consolidated financial statements.

Schedule of Segment Reporting Information

is the financial information related to the Company’s segments (in thousands):

the Three Months

the Six Months

(loss) from operations

and amortization

For the Three Months

For the Nine Months

General corporate

Income (loss) from operations

General corporate

Depreciation and amortization

General corporate

Capital expenditures

General corporate

HOSPITALITY HOLDINGS, INC.

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The balance of our commercial bank indebtedness,

net of debt discount and issuance costs, as of March 31, 2020 and September 30, 2019 is $86.0 million and $86.8 million, respectively.

net of debt discount and issuance costs, as of June 30, 2020 and September 30, 2019 is $ 84.0 million and $ 86.8 million, respectively.

in the $ 2.35 million borrowing on November 1, 2018 was a $ 500,000 note borrowed from a related party (Ed Anakar, an employee of

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lender group in the November 1, 2018 transaction.

used the services of Nottingham Creations (formerly Sherwood Forest Creations, LLC), a furniture fabrication company that manufactures

tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance.

Nottingham Creations

(as was Sherwood Forest) is owned by a brother of Eric Langan.

Amounts billed to us for goods and services provided by Nottingham

Creations and Sherwood Forest were $53,556 and $72,809 during the three and six months ended March 31, 2020, respectively, and

$98,072 and $107,815 during the three and six months ended March 31, 2019, respectively.

As of March 31, 2020 and September 30,

2019, we owed Nottingham Creations and Sherwood Forest $13,705 and $6,588, respectively, in unpaid billings.

used the services of Nottingham Creations (formerly Sherwood Forest Creations, LLC), a furniture fabrication company that

manufactures tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance.

Nottingham Creations is owned by a brother of Eric Langan (as was Sherwood Forest).

Amounts billed to us for goods and

services provided by Nottingham Creations and Sherwood Forest were $ 0 and

$ 72,809 during

the three and nine months ended June 30, 2020, respectively, and $ 12,990 and

$ 120,805 during

the three and nine months ended June 30, 2019, respectively.

As of June 30, 2020 and September 30, 2019, we owed Nottingham

Creations and Sherwood Forest $ 13,705 and

$ 6,588 , respectively, in unpaid

Mechanical LLC (“TW Mechanical”) provided plumbing and HVAC services to both a third-party general contractor providing

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Amounts billed by TW Mechanical to the third-party general contractor were $ 0

and $30,585 for the three and six months ended March 31, 2020, respectively, and $359,500 and $435,800 for the three and six months

ended March 31, 2019, respectively.

Amounts billed directly to the Company were $24,416 and $26,241 for the three and six months

ended March 31, 2020, respectively, and $206 and $206 for the three and six months ended March 31, 2019, respectively.

31, 2020 and September 30, 2019, the Company owed TW Mechanical $20,401 and $0, respectively, in unpaid direct billings.

for the three and nine months ended

June 30, 2020, respectively, and $ 0

and $ 435,800

for the three and nine months ended June

30, 2019, respectively.

Amounts billed directly to the Company were $ 11,363

for the three and nine months ended June

30, 2020, respectively, and $ 0

for the three and nine months ended June

30, 2019, respectively.

As of June 30, 2020 and September 30, 2019, the Company owed TW Mechanical $ 4,439

respectively, in unpaid direct billings.

HOSPITALITY HOLDINGS, INC.

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that the Company’s CEO rented to the Company for corporate housing for its out-of-town Bombshells management and trainers,

of which lease expense totaled $0 and $19,500 for the three and six months ended March 31, 2020, respectively, and $19,500 and

$39,000 for the three and six months ended March 31, 2019.

of which lease expense totaled $ 0 and $ 19,500 for the three and nine months ended June 30, 2020, respectively, and $ 19,500 and

$ 58,500 for the three and nine months ended June 30, 2019, respectively.

This lease terminated on December 31, 2019 .

future minimum annual lease obligations as of September 30, 2019 are as follows (in thousands):

future minimum lease obligations

Schedule of Future Minimum Rental Payments for Operating Leases

future minimum annual lease obligations as of September 30, 2019 under ASC 840 are as follows (in thousands):

September 30, 2019

Total future minimum lease obligations

in the future minimum lease obligations are billboard and outdoor sign leases.

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expenses, and included in selling, general and administrative expenses in our unaudited condensed consolidated statements of operations.

Under ASC 840, we recorded lease expense amounting to $957,000 and $2.0 million during the three and six months ended March 31,

Under ASC 840, we recorded lease expense amounting to $ 965,000 and $ 2.9 million during the three and nine months ended June 30,

Company adopted ASC 842 as of October 1, 2019.

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adoption of ASC 842 did not have a material impact on our lease revenue accounting as a lessor.

maturities of lease liabilities as of March 31, 2020 are as follows (in thousands):

2020 – March 2021

2021 – March 2022

2022 – March 2023

2023 – March 2024

2024 – March 2025

Schedule of Future Maturities of Lease Liabilities

maturities of ASC 842 lease liabilities as of June 30, 2020 are as follows (in thousands):

2020 - June 2021

2021 - June 2022

2022 - June 2023

2023 - June 2024

2024 - June 2025

Schedule of Lease Expense

lease expense, under ASC 842, was included in selling, general and administrative expenses in our unaudited condensed consolidated

statement of operations, except for sublease income which was included in other revenue, for the three and six months ended March

statement of operations, except for sublease income which was included in other revenue, for the three and nine months ended June

30, 2020 as follows (in thousands):

lease expense –

fixed payments

lease expense

equipment and other lease expense (includes $145 and $291 recorded in advertising and marketing, and $100 and $225 recorded

in repairs and maintenance for the three and six months ended March 31, 2020, respectively;

lease expense, net

cash outflows from operating leases

average remaining lease term

average discount rate

Operating lease expense – fixed payments

Variable lease expense

Short-term equipment and other lease expense (includes $ 12 and $ 303 recorded in advertising and marketing, and $ 72 and $ 297 recorded in repairs and maintenance for the three and nine months ended June 30, 2020, respectively;

Sublease income

Total lease expense, net

Other information:

Operating cash outflows from operating leases

Weighted average remaining lease term

Weighted average discount rate

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements