What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2020-12-14 compared with 2020-02-13 · 193 added, 173 removed, 69 unchanged (84% of the section changed)

Hospitality Holdings, Inc.

(sometimes referred to as “RCIHH”

herein) is a holding company engaged in a number of activities

in the hospitality and related businesses.

Through our subsidiaries, as of September 30, 2019, we operate a total of 46 establishments

(including one that was temporarily closed due to fire and reopened after year-end) that offer live adult entertainment and/or

restaurant and bar operations.

We also operate a leading business communications company (the “Media Group”) serving

the multibillion-dollar adult nightclubs industry.

We have two principal reportable segments—Nightclubs and Bombshells.

The terms “Company,”

“we,”

“our,”

“us”

and similar terms used in this Form 10-K

refer to RCIHH and its subsidiaries.

Except for executive officers of RCIHH, any employment referenced in this document is not

with RCIHH but solely with one of its subsidiaries.

RCIHH was incorporated in the State of Texas in 1994.

RCI Hospitality Holdings, Inc.

Through our subsidiaries, we engaged in a number of activities in the hospitality and related businesses.

September 30, 2020, our subsidiaries operated a total of 48 establishments that offer live adult entertainment and/or restaurant

and bar operations.

Together with its subsidiaries, RCI Hospitality Holdings, Inc.

is collectively referred to as “RCIHH,”

the “Company,” “we,” “us,” or “our” in this report.

We also operate a leading

business communications company serving the multibillion-dollar adult nightclubs industry.

RCIHH was incorporated in the State

of Texas in 1994 and became public in 1995.

fiscal year ends on September 30.

2 unchanged sentences

Our fiscal quarters chronologically end on December 31, March 31, June 30 and September 30.

Our corporate

website address is www.rcihospitality.com.

Upon written request, we make available free of charge our Annual Report on Form 10-K,

Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable

after such material is electronically filed with the SEC under the Securities Exchange Act of 1934, as amended (www.sec.gov).

corporate website address is www.rcihospitality.com.

Upon written request, we make available free of charge our Annual Report

on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably

practicable after such material is electronically filed with the SEC under the Securities Exchange Act of 1934, as amended (www.sec.gov).

Information contained in the corporate website shall not be construed as part of this Form 10-K.

operate several businesses, which we aggregate for financial reporting into two reportable segments –

Nightclubs and Bombshells

and combine other operating segments into “Other.”

In March 2020, President Donald Trump declared

the coronavirus disease 2019 (“COVID-19”) pandemic as a national public health emergency.

The declaration resulted

in a significant reduction in customer traffic in our clubs and restaurants due to changes in consumer behavior as social distancing

practices, dining room closures and other restrictions were mandated or encouraged by federal, state and local governments.

March 2020, we have temporarily closed and reopened several of our clubs and restaurants.

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

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 are allowed to 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 others;

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 Coronavirus Aid, Relief, and Economic Security Act

(the “CARES Act”) for its restaurants, shared service entity and lounge.

See Notes 3, 10 and 11 to our

consolidated financial statements.

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.

The Company believes it has

used the entire loan amount for qualifying expenses.

Under the terms of the PPP, certain amounts of the loan may be forgiven if

they are used for qualifying expenses as described in the CARES Act.

The Company has currently utilized all of the PPP funds and

has submitted its forgiveness applications.

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.

No assurance can be provided that the Company will

in fact obtain forgiveness of the remaining two PPP loans in whole or in part.

As of the release of this report, we do not

know the future extent and duration of the impact of COVID-19 on our businesses.

Lower sales, as caused by local, state

and national 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, including refinancing several of our debt obligations.

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 certain operating hour restrictions and with limited occupancy.

operate several businesses, which we aggregate for financial reporting purposes into two reportable segments – Nightclubs

and Bombshells.

Businesses not included as Nightclubs or Bombshells are combined as “Other.”

operate our adult entertainment nightclubs through several brands that target many different demographics of customers by providing

a unique, quality entertainment environment.

Our clubs do business as Rick’s Cabaret, Jaguars Club, Tootsie’s Cabaret,

XTC Cabaret, Club Onyx, Hoops Cabaret and Sports Bar, Scarlett’s Cabaret, Temptations Adult Cabaret, Foxy’s Cabaret,

Vivid Cabaret, Downtown Cabaret, Cabaret East, The Seville, Silver City Cabaret, and Kappa Men’s Club.

We also operate dance

clubs under the brand name Studio 80.

generate revenue on our nightclubs through the sale of alcoholic beverages, food and merchandise items;

service in the form of

cover charge, dance fees, and room rentals;

and through other related means such as ATM commissions and vending income, among

Our clubs do business as Rick’s Cabaret, Jaguars Club, Tootsie’s Cabaret,

XTC Cabaret, Club Onyx, Hoops Cabaret and Sports Bar, Scarlett’s Cabaret, Temptations Adult Cabaret, Foxy’s Cabaret,

Vivid Cabaret, Downtown Cabaret, Cabaret East, The Seville, Silver City Cabaret, and Kappa Men’s Club.

We also operate one

dance club under the brand name Studio 80.

generate revenue from our nightclubs through the sale of alcoholic beverages, food and merchandise items;

service in the

form of cover charge, dance fees, and room rentals;

and through other related means such as ATM commissions and vending income,

among others.

fiscal 2020, our Nightclub segment sales mix was 46% service revenue;

1 unchanged sentence

and 18% food, merchandise and other.

Segment gross margin (revenues less cost of goods sold) was approximately 89%.

We grew Nightclubs segment revenue by 6.1% and

income from operations by 16.3% from prior year.

November 2018, we acquired a club in Chicago, Illinois for $10.5 million with $6.0 million cash paid at closing and the $4.5 million

in a 6-year seller-financed note with interest at 7%.

We have since rebranded the club as Rick’s Cabaret Chicago.

$5.0 million in revenues during fiscal 2019 since acquisition date.

See Note 15 to our consolidated financial statements for details

of the transaction.

in November 2018, we acquired a club in Pittsburgh, Pennsylvania for $15.0 million with $7.5 million cash paid at closing and

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.

We have since rebranded the club as Rick’s Cabaret Pittsburgh.

It generated $4.6 million in revenues during fiscal 2019

since acquisition date.

See Note 15 to our consolidated financial statements for details of the transaction.

November 5, 2019, the Company announced that its subsidiaries have signed definitive agreements to acquire the assets and

related real estate of a well-established, top gentlemen’s club located in the Northeast Corridor for $15.0 million.

of the filing of this report, closing of this transaction is still pending subject to certain conditions.

Under the terms of

the agreements, Company subsidiaries will pay $7.2 million for the club and $7.8 million for the real estate using $4.0

million in seller financing at 6.0% for the club with the balance of cash from an anticipated $11.0 million bank loan at a

blended rate of 6.25%.

list of our nightclub locations is in Item 2—

“Properties.”

of September 30, 2019, we operated eight Bombshells, all in Texas with one in Dallas, one in Austin, and six in the Greater Houston

The restaurant concept sets itself apart with décor that pays homage to all branches of the U.S.

feature local DJs, large outdoor patios, and more than 75 state-of-the-art flat screen TVs for watching your favorite sports.

Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 89%.

During the COVID-19 pandemic,

our Nightclubs segment revenue declined by 41% and income from operations declined by 74% from the prior year.

Same-stores sales

for Nightclubs in 2020 was -9.0% with the impact of the pandemic excluded from comparable sales.

With the impact of the pandemic

included in comparable sales (see Adjusted Same-Store Sales on page 23), same-store sales would be -41.7%.

Nightclubs segment continues to be heavily affected by the COVID-19 pandemic as most states have reissued directives for lockdowns

and stricter safety restrictions in the fall of 2020 due to the resurgence of cases.

November 5, 2019, the Company announced that its subsidiaries had signed definitive agreements to acquire the assets and related

real estate of a well-established, top gentlemen’s club located in the Northeast Corridor for $15.0 million.

The agreements

terminated prior to closing.

We provided the sellers notice of the termination in April 2020.

list of our nightclub locations is in Item 2— “Properties.”

Bombshells segment operates a restaurant and bar concept that sets itself apart with décor that pays homage to all branches

Locations feature local DJs, large outdoor patios, and more than 75 state-of-the-art flat screen TVs for

watching your favorite sports.

All food and drink menu items have military names.

Bombshell Girls, with their military-inspired uniforms, are a key attraction.

Bombshell Girls, with their military-inspired

uniforms, are a key attraction.

Their mission, in addition to waitressing, is to interact with guests and generate a fun atmosphere.

Bombshells is also open to

franchising under our subsidiary, BMB Franchising Services, Inc., which has been approved to sell franchises in all 50 states.

fiscal 2019, Bombshells sales mix was 58% alcoholic beverages and 42% food, merchandise and other.

Segment gross margin (revenues

less cost of goods sold) was approximately 75%.

We grew Bombshells segment revenue by 27.9% and income from operations by 13.1%

from prior year.

Bombshells is also open to franchising under our subsidiary, BMB Franchising Services, Inc., which has been approved to sell franchises

in all 50 states.

As of September 30, 2020, we operated ten Bombshells locations, all in Texas with one in Dallas, one in Austin,

and eight in the Greater Houston area.

During fiscal 2020, Bombshells sales mix was

63% alcoholic beverages and 37% food, merchandise and other.

Segment gross margin (revenues less cost of goods sold, divided by

revenues) was approximately 77%.

We grew Bombshells segment revenue by 40% and income from operations by 300% from prior year

despite the COVID-19 pandemic.

This was a result of being able to open the Bombshells locations as restaurants while bars were

closed and the contribution of two new locations that opened in fiscal 2020.

Same-stores sales for Bombshells in 2020 was +18.3%

with the impact of the pandemic excluded from comparable sales.

With the impact of the pandemic included in comparable sales (see

Adjusted Same-Store Sales on page 23), same-store sales would be +6.5%.

opened the first Bombshells in March 2013 in Dallas, quickly becoming one of the most popular restaurant destinations in the area.

Within six years, eight more opened in the Austin and Houston, Texas areas, including two that were opened in the current fiscal

Within six years, eight more opened in the Austin and Houston, Texas areas, including two that were opened in fiscal

In September 2016, we closed one Bombshells location in Webster, Texas.

In the current fiscal 2019, we opened one Bombshells

on Interstate 10 (BMB I-10), east of Houston in December 2018, and another one on State Highway 249 (BMB 249), northwest of Houston

in March 2019.

BMB I-10 and BMB 249 generated revenues of $4.3 million and $2.3 million, respectively, during fiscal 2019.

the eight active Bombshells as of September 30, 2019, six are freestanding pad sites and two are inline locations.

Subsequent to fiscal

year 2019, we opened two new Bombshells units, one in October 2019 (BMB Katy) and another in January 2020 (BMB 59).

a list of our Bombshells locations, refer to Item 2—“Properties.”

group together all operating segments other than Nightclubs and Bombshells as Other reportable segment.

This is made up of several

wholly-owned subsidiaries composed primarily of our Media Group and Drink Robust.

Our Media Group is the leading business communications

company serving the multibillion-dollar adult nightclubs industry and the adult retail products industry.

It owns a national industry

convention and tradeshow;

We opened one Bombshells on Interstate 10 (BMB I-10),

east of Houston in December 2018, and another one on State Highway 249 (BMB 249), northwest of Houston in March 2019.

In the current

fiscal 2020, we opened one Bombshells in Katy, Texas (BMB Katy) in October 2019, and another on Southwest Freeway (BMB

59) in Houston, Texas in January 2020.

Of the ten active Bombshells as of September 30, 2020, eight are freestanding pad sites and two are inline

a list of our Bombshells locations, refer to Item 2—“Properties.”

group together all businesses not belonging to either Nightclubs and Bombshells as Other reportable segment.

This is made up of

several wholly-owned subsidiaries composed primarily of our Media Group and Drink Robust.

Our Media Group is the leading business

communications company serving the multibillion-dollar adult nightclubs industry and the adult retail products industry.

a national industry convention and tradeshow;

two national industry trade publications;

two national industry award shows;

and more than a dozen industry

and social media websites.

Included in the Media Group is ED Publications, publishers of the bimonthly ED Club Bulletin, the only

national business magazine serving the 2,200-plus adult nightclubs in North America, which collectively have annual revenues in

excess of $5 billion, according to the Association of Club Executives.

ED Publications, founded in 1991, also publishes the Annual

VIP Guide of adult nightclubs, touring entertainers and industry vendors;

produces the Annual Gentlemen’s Club Owners EXPO,

a national convention and tradeshow;

and offers the exclusive ED VIP Club Card, honored at more than 850 adult nightclubs.

Media Group produces two nationally recognized industry award shows for the readers of both ED Club Bulletin and StorErotica magazines,

and maintains a number of B-to-B and consumer websites for both industries.

Drink Robust is licensed to sell Robust Energy Drink

in the United States.

more than a dozen industry and social media websites.

Included in the Media Group is ED Publications, publishers of the bimonthly

ED Club Bulletin, the only national business magazine serving the 2,200-plus adult nightclubs in North America, which collectively

have annual revenues in excess of $5 billion, according to the Association of Club Executives.

ED Publications, founded in 1991,

also publishes the Annual VIP Guide of adult nightclubs, touring entertainers and industry vendors;

produces the Annual Gentlemen’s

Club Owners EXPO, a national convention and tradeshow;

and offers the exclusive ED VIP Club Card, honored at more than 850 adult

The Media Group produces two nationally recognized industry award shows for the readers of both ED Club Bulletin and

StorErotica magazines, and maintains a number of B-to-B and consumer websites for both industries.

Drink Robust is licensed to

sell Robust Energy Drink in the United States.

overall objective is to create value for our shareholders by developing and operating profitable businesses in the hospitality

9 unchanged sentences

provided however,

that we may deviate from this strategy if the circumstances warrant.

We calculate free cash flow as net cash flows from operating

activities minus maintenance capital expenditures.

Using the after-tax yield of buying our own stock as baseline, management believes

that we are able to make better investment decisions.

that we may deviate from this strategy if other strategic rationale warrants.

We calculate free cash flow as net cash flows

from operating activities minus maintenance capital expenditures.

Using the after-tax yield of buying our own stock as baseline,

management believes that we are able to make better investment decisions.

on our current capital allocation strategy:

consider buying back our own stock if the after-tax yield on free cash flow is above 10%;

consider disposing of underperforming units to free up capital for more productive use;

consider acquiring or developing our own clubs or restaurants that we believe have the potential to provide a minimum cash

on cash return of 25%-33%, absent an otherwise strategic rationale;

consider disposing of underperforming units to free up capital for more productive use;

We consider buying back our own stock if the

after-tax yield on free cash flow is above 10%;

consider paying down our most expensive debt if it makes sense on a tax-adjusted basis, or there is an otherwise strategic

2 unchanged sentences

equals that of ours.

The names “Rick’s”

and “Rick’s Cabaret,”

“Tootsie’s Cabaret,”

“XTC Cabaret,”

“Scarlett’s,”

“Silver City,”

“Club Onyx,”

“Downtown

Cabaret,”

“Temptations,”

“The Seville,”

“Jaguars,”

“Hoops Cabaret,”

“Foxy’s Cabaret”

are proprietary.

In the restaurant/sports bar business, “Bombshells”

is also proprietary.

The names “Rick’s” and “Rick’s Cabaret,” “Tootsie’s Cabaret,”

“XTC Cabaret,” “Scarlett’s,” “Silver City,” “Club Onyx,” “Downtown

Cabaret,” “Temptations,” “The Seville,” “Jaguars,” “Hoops Cabaret,” and

“Foxy’s Cabaret” are proprietary.

In the restaurant/sports bar business, “Bombshells” is also proprietary.

We believe that the combination of our existing brand name recognition and the distinctive entertainment environment that we have

5 unchanged sentences

Particularly in Texas, the authority to

issue a permit to sell alcoholic beverages is governed by the Texas Alcoholic Beverage Commission (“TABC”), which

has the authority, in its discretion, to issue the appropriate permits.

18 unchanged sentences

or other local laws governing the sale of alcohol and sexually oriented businesses.

rights to the trade names “RCI Hospitality Holdings, Inc.,”

“Rick’s,”

“Rick’s Cabaret,”

“Tootsie’s Cabaret,”

“Club Onyx,”

“XTC Cabaret,”

“Temptations,”

“Jaguars,”

“Downtown Cabaret,”

“Cabaret East,”

Bombshells Restaurant and Bar,”

and “Vee Lounge”

are established under common law, based upon our substantial and continuous use of these trade names in interstate commerce, some

of which have been in use at least as early as 1987.

We have registered our service mark, “RICK’S AND STARS DESIGN,”

and the “BOMBSHELLS RESTAURANT & BAR”

logo design with the United States Patent and Trademark Office.

also obtained service mark registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN”

logo, “RCI HOSPITALITY HOLDINGS, INC.,”

“RICK’S,”

“RICK’S CABARET,”

“XTC CABARET,”

“SCARLETT’S CABARET,”

“SILVER CITY CABARET,”

“BOMBSHELLS

RESTAURANT AND BAR”, “THE SEVILLE CLUB”, “DOWN IN TEXAS SALOON”, “CLUB DULCE”, “THE

BLACK ORCHID”, “HOOPS CABARET”, “VEE LOUNGE,”

“STUDIO 80”, “FOXY’S CABARET,”

and “EXOTIC DANCER”

are registered through service mark registrations issued by the United States Patent and Trademark

As of this date, we have pending registration applications for the names “TOOTSIES CABARET”, “Toys for

Tatas”, “In The Biz”, “Better Flight, Better Price!”

and “Bombshells Officer’s Club”.

Our rights to the trade names “RCI Hospitality

Holdings, Inc.,” “Rick’s,” “Rick’s Cabaret,” “Tootsie’s Cabaret,”

“Club Onyx,” “XTC Cabaret,” “Temptations,” “Jaguars,” “Downtown Cabaret,”

“Cabaret East,” “Bombshells Restaurant and Bar,” and “Vee Lounge” are established under

common law, based upon our substantial and continuous use of these trade names in interstate commerce, some of which have been

in use at least as early as 1987.

We have registered our service mark, “RICK’S AND STARS DESIGN,” and the “BOMBSHELLS

RESTAURANT & BAR” logo design with the United States Patent and Trademark Office.

We have also obtained service mark

registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN” logo, “RCI HOSPITALITY

HOLDINGS, INC.,” “RICK’S,” “RICK’S CABARET,” “CLUB ONYX,” “XTC CABARET,”

“SCARLETT’S CABARET,” “SILVER CITY CABARET,” “BOMBSHELLS RESTAURANT AND BAR,”

“THE SEVILLE CLUB,” “DOWN IN TEXAS SALOON,” “CLUB DULCE,” “THE

BLACK ORCHID,” “HOOPS CABARET,” “VEE LOUNGE,” “STUDIO 80,” “FOXY’S

CABARET,” “EXOTIC DANCER,” and “TOYS FOR TATAS” are registered through service mark registrations

issued by the United States Patent and Trademark Office.

As of this date, we have pending registration applications for the names

“TOOTSIES CABARET,” “In The Biz,” and “Bombshells Officer’s Club.”

We also own the rights to numerous trade names associated with our media division.

2 unchanged sentences

AND INDEPENDENT CONTRACTORS

of September 30, 2019, we had approximately 2,200 employees, of which approximately 280 are in management positions, including

corporate and administrative operations, and approximately 1,920 are engaged in entertainment, food and beverage service, including

bartenders, waitresses, and certain entertainers.

Our people are employed by the parent company

or by any of its subsidiaries.

Executive officers are employed by the parent company;

shared services personnel and managers responsible

for multiple clubs or restaurants are employed by RCI Management Services, Inc.;

and the rest are employed by the individual operating

As of September 30, 2020, we had the following employees:

Additionally, as of September 30, 2020,

we had independent contractor entertainers who are self-employed and conduct business at our locations on a non-exclusive

Our entertainers at Rick’s Cabaret in Minneapolis, Minnesota and at Jaguars Club in Phoenix, Arizona act as

commissioned employees.

All employees and independent contractors sign arbitration non-class-action participation agreements

where allowed by federal and state laws.

None of our employees are represented by a union.

We consider our employee relations

Additionally, as of September 30, 2019, we had independent contractor entertainers, who are self-employed and conduct

business at our locations on a non-exclusive basis.

Our entertainers at Rick’s Cabaret in Minneapolis, Minnesota and at

Jaguars Club in Phoenix, Arizona act as commissioned employees.

All employees and independent contractors sign arbitration non-class-action

participation agreements where allowed by federal and state laws.

believe that the adult entertainment industry standard of treating entertainers as independent contractors provides us with safe

harbor protection to preclude payroll tax assessment.

We have prepared plans that we believe will protect our

profitability in the event that the sexually oriented business industry is required in all states to convert entertainers, who

are now independent contractors, into employees.

See related discussion in “Risk Factors”

We have prepared plans that we believe will protect our profitability in

the event that the sexually oriented business industry is required in all states to convert entertainers, who are now independent

contractors, into employees.

See related discussion in “Risk Factors” below.

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-K

Item 1. Business