RCI HOSPITALITY HOLDINGS, INC. 10-Q

Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures, defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that the information required to be filed or submitted with the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management of the company with the participation of its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, an evaluation was performed under the supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on their evaluation, they have concluded that our disclosure controls and procedures were not effective as of June 30, 2020. This determination is based on the previously reported material weakness management previously identified in our internal control over financial reporting, as described below. We are in the process of remediating the material weakness in our internal control, as described below. We believe the completion of these processes should remedy our disclosure controls and procedures. We will continue to monitor these issues. Previously Reported Material Weakness in Internal Control Over Financial Reporting In our Annual Report for the year ended September 30, 2019, filed with the SEC on February 13, 2020, management concluded that our internal control over financial reporting was not effective as of September 30, 2019. In the evaluation, management identified a material weakness in internal control related to ineffective financial statement close and reporting controls in the areas of management review of financial statement information, independent review of journal entries, disclosure of related party transactions, and accounting for loss contingencies. Remediation Efforts to Address Material Weakness Management is committed to the remediation of the material weakness described above, as well as the continued improvement of the Company’s internal control over financial reporting. Management has been implementing, and continues to implement, measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. To address the material weakness, management has completed, or is in the process of: ● developing policies and procedures to enhance the precision of management review of financial statement information; ● implementing policies and procedures to enhance independent review of journal entries; ● developing and implementing procedures to ensure the completeness of related party disclosures; and ● developing and implementing procedures related to the identification and accounting for loss contingencies. We believe that these actions will remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Changes in Internal Control Over Financial Reporting Other than as described above, no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 35 PART II—OTHER INFORMATION Item 1. Legal Proceedings. See the “Legal Matters” section within Note 10 of the unaudited condensed consolidated financial statements within this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.