What changed in this filing

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Item 1. Financial Statements

2021-02-09 compared with 2020-08-10 · 401 added, 556 removed, 409 unchanged (70% of the section changed)

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Current assets

and cash equivalents

Accounts receivable,

Current portion

of notes receivable

Prepaid insurance

Other current assets

held for sale

Cash and cash equivalents

Accounts receivable, net

Current portion of notes receivable

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Operating lease right-of-use assets,

Operating lease right-of-use assets, net

Notes receivable, net of current portion

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Accrued liabilities

Current portion

of long-term debt, net

portion of operating lease liabilities

Current portion of debt obligations, net

Current 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

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

Operating lease liabilities, net of current portion

Other long-term liabilities

Total liabilities

Commitments and contingencies (Note 9)

Preferred stock,

$ 0.10 par value per share;

Preferred stock, $ 0.10 par value per share;

1,000 shares authorized;

none issued and outstanding

Common stock, $ 0.01 par value per

Common stock, $ 0.01 par value per share;

20,000 shares authorized;

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

liabilities and equity

9,000 and 9,075 shares issued and outstanding as of December 31, 2020 and September 30, 2020, respectively

Additional paid-in capital

Retained earnings

Total RCIHH stockholders’ equity

Noncontrolling interests

Total liabilities and equity

accompanying notes to unaudited condensed consolidated financial statements.

HOSPITALITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF INCOME

thousands, except per share data)

the Three Months

the Nine Months

of alcoholic beverages

Sales of food and

For the Three Months

Sales of alcoholic beverages

Sales of food and merchandise

Service revenues

Total revenues

Operating expenses

Cost of goods sold

Alcoholic beverages

Food and merchandise

Total cost of goods

sold (exclusive of items shown separately below)

Alcoholic beverages sold

Food and merchandise sold

Service and other

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

Income (loss) from operations

Selling, general and administrative

Depreciation and amortization

Other gains, net

Total operating expenses

Income from operations

Other income (expenses)

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Interest income

gain (loss) on equity securities

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

Non-operating gain (losses), net

Income before income taxes

Income tax expense (benefit)

Net loss attributable to noncontrolling interests

Net income attributable to RCIHH common shareholders

Earnings per share

Basic and diluted

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Dividends per share

Sales of Food and Merchandise [Member]

accompanying notes to unaudited condensed consolidated financial statements.

Service Revenues [Member]

HOSPITALITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Comprehensive

Noncontrolling

at September 30, 2019

of treasury shares

treasury shares

to noncontrolling interest

Reclassification upon adoption of ASU 2016-01

income (loss)

at December 31, 2019

at January 01, 2020

of treasury shares

treasury shares

to noncontrolling interest

income (loss)

at March 31, 2020

at April 01, 2020

Net income (loss)

at June 30, 2020

at September 30, 2018

Reclassification

upon adoption of ASU 2016-01

of treasury shares

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

Balance at September 30, 2020

Purchase of treasury shares

Canceled treasury shares

Payment of dividends

Payment to noncontrolling interests

Balance at December 31, 2020

Balance at September 30, 2019

Purchase of treasury shares

Canceled treasury shares

Payment of dividends

Payment to noncontrolling interests

Balance at December 31, 2019

accompanying notes to unaudited condensed consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

the Nine Months

For the Three 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

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

Depreciation and amortization

Deferred income tax benefit

Gain on sale of businesses and assets

Unrealized loss on equity securities

Amortization of debt discount and issuance costs

Gain on debt extinguishment

Noncash lease expense

Doubtful accounts

expense on notes receivable

Changes in operating

assets and liabilities:

Gain on insurance

Doubtful accounts reversal 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

Prepaid expenses, other current and other assets

Accounts payable, accrued and other liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of businesses and

Proceeds from sale of businesses and assets

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

Payments for property and equipment and intangible assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

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Payment of dividends

Payment of loan origination costs

to noncontrolling interests

cash used in financing activities

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS

CASH AND CASH

EQUIVALENTS AT BEGINNING OF PERIOD

CASH AND CASH

EQUIVALENTS AT END OF PERIOD

Distribution to noncontrolling interests

Net cash used in financing activities

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)

Interest (net of amounts capitalized of $ 0 and $ 120 , respectively)

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 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 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 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.

Principal of Paycheck Protection Program loans

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

accompanying notes to unaudited condensed consolidated financial statements.

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statements for the year ended September 30, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the

Securities and Exchange Commission on February 13, 2020.

Securities and Exchange Commission on December 14, 2020.

The interim unaudited condensed consolidated financial statements should

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have been made.

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.

Operating results for the three months ended December 31, 2020 are not necessarily indicative of the results that

may be expected for the year ending September 30, 2021.

Recent Accounting Standards and Pronouncements

February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016-02, Leases (Topic 842) , on accounting for leases which requires lessees to recognize most leases on their balance

sheets for the rights and obligations created by those leases.

The guidance requires enhanced disclosures regarding the amount,

timing, and uncertainty of cash flows arising from leases, and will be effective for interim and annual periods beginning after

December 15, 2018.

Early adoption is permitted.

In July 2018, the FASB issued ASU 2018-11 providing for certain practical expedients

in the implementation of ASU 2016-02.

The guidance requires the use of a modified retrospective approach.

We adopted ASU 2016-02

and related amendments as of October 1, 2019 and elected the package of practical expedients permitted under the transition guidance

within the new standard, which among other things, allows us to retain historical lease classification, as well as relief from

reviewing expired and existing contracts to determine if they contain leases.

Our adoption of the new leasing standard resulted

in an increase of $ 27.3 million in our total assets as of October 1, 2019 due to the recognition of operating lease right-of-use

assets net of the reclassification of deferred rent liability of $ 1.2 million and an increase in total liabilities due to the

recognition of a $ 28.6 million operating lease liabilities.

Our adoption of ASC 842 did not have an impact on our consolidated

statements of operations and cash flows, except for additional required disclosures.

See additional disclosures in Note 14.

June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses

on Financial Instruments .

This ASU requires, among other things, the measurement of all expected credit losses for financial

assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking

information to calculate credit loss estimates.

It also eliminates the concept of other-than-temporary impairment and requires

credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than

as a reduction in the amortized cost basis of the securities.

June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

This ASU requires, among other things, the measurement of all expected credit losses for financial assets held at the reporting

date based on historical experience, current conditions, and reasonable and supportable forecasts.

ASU 2016-13 replaces the existing

incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate

credit loss estimates.

It also eliminates the concept of other-than-temporary impairment and requires credit losses related to

available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized

cost basis of the securities.

These changes will result in earlier recognition of credit losses.

The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2018.

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

adoption of this guidance.

The ASU is effective for fiscal

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

Early application will be permitted for

all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

We adopted ASU

2016-13 as of October 1, 2020.

Our adoption of this guidance did not have a significant impact on our consolidated financial statements.

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220):

Reclassification

of Certain Tax Effects from Accumulated Other Comprehensive Income.

This ASU provides financial statement preparers with an

option to reclassify stranded tax effects within accumulated other comprehensive income (“AOCI”) to retained earnings

in each period in which the effect of the change in the U.S.

federal corporate income tax rate in the Tax Cuts and Jobs Act (“Tax

Act”) is recorded.

The ASU requires financial statement preparers to disclose (1) a description of the accounting policy

for releasing income tax effects from AOCI;

(2) whether they elect to reclassify the stranded income tax effects from the Tax

and (3) information about the other income tax effects that are reclassified.

The amendments affect any organization that

is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income , and has items

of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.

The ASU is effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those

fiscal years.

Early adoption is permitted.

Organizations should apply the proposed amendments either in the period of adoption

or retrospectively to each period (or periods) in which the effect of the change in the U.S.

federal corporate income tax rate

in the Tax Act is recognized.

We adopted ASU 2018-02 as of October 1, 2019.

Our adoption of this guidance did not have an impact

on our consolidated financial statements.

August 2018, the FASB issued ASU No.

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

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.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We adopted ASU 2018-13 as of October 1, 2020.

Our adoption of this guidance did not have a significant impact on our consolidated financial statements.

March 2019, the FASB issued ASU No.

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

Our evaluation indicates that

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

We adopted ASU 2019-01

as of October 1, 2020.

Our adoption of this guidance did not have an impact on our consolidated financial statements.

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

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Liquidity and Impact of COVID-19 Pandemic

March 2020, President Donald Trump declared the coronavirus disease 2019 (“COVID-19”) pandemic as a national public

health emergency.

COVID-19 is the disease caused by a novel strain of a coronavirus that originated from Wuhan, China in November

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 that were mandated or encouraged by federal,

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

March 2020, former 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.

Since 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.

is to open locations in accordance with local and state guidelines and we are uncertain as to 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.

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:

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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;

enacted a pay reduction 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;

reduced or canceled 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 Coronavirus

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

Notes 6 and 8.

Ten of our restaurant subsidiaries received amounts ranging from $ 271,000

for an aggregate amount of $ 4.2

our shared-services subsidiary

received $ 1.1

and one of our lounges received

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

about the spread of the virus.

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, 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 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.

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.

During the quarter ended December 31, 2020, we 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 and included in non-operating

gains (losses), net in our unaudited condensed consolidated statement of income.

to December 31, 2020, we received another forgiveness notice for one PPP loan which forgave 100% of the loan or $ 378,000

in principal .

No assurance can be provided

that the Company will in fact obtain forgiveness of the remaining PPP loan in whole or in part.

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

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.

Valuation of Goodwill, Indefinite-Lived

Intangibles and Long-Lived Assets

We consider the COVID-19 pandemic as a triggering

event in the assessment of recoverability of the goodwill, indefinite-lived intangibles, and long-lived assets in our clubs and

restaurants that are affected.

Based on our evaluation, we determined that there is no impairment in our goodwill, indefinite-lived

intangibles, and long-lived assets as of December 31, 2020.

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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Sales and liquor taxes collected from customers and remitted to governmental authorities

are presented on a net basis in the accompanying unaudited condensed consolidated statements of operations.

are presented on a net basis in the accompanying unaudited condensed consolidated statements of income.

The Company recognizes

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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.

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

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 .

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 10), are shown below (in thousands):

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

Months Ended December 31, 2020

Months Ended December 31, 2019

Sales of alcoholic beverages

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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.

revenue (included in Other Revenues) as covered by ASC 842.

All other revenues are covered by ASC 606.

Company does not have contract assets with customers.

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sheets (see also Note 5), while the revenues associated with these contract liabilities are included in other revenues in our

unaudited condensed consolidated statements of operations.

unaudited condensed consolidated statements of income.

December 22, 2020, the Company signed a franchise development agreement with a group of private investors to open three Bombshells

location in San Antonio, Texas over a period of five years, and the right of first refusal for three more locations in Corpus

Christi, New Braunfels, and San Marcos, all in Texas.

Upon execution of the agreement, the Company collected $ 75,000 in development

fees representing 100 % of the initial franchise fee of the first restaurant and 50 % of the initial franchise fee of the second

HOSPITALITY HOLDINGS, INC.

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Selected Account Information

components of accounts receivable, net are as follows (in thousands):

Schedule of Accounts Receivable

Credit card receivables

Income tax refundable

Insurance receivable

ATM in-transit

Other (net of allowance for doubtful accounts of $ 357 and $ 261 , respectively)

Total accounts receivable, net

receivable consist primarily of secured promissory notes executed between the Company and various buyers of our businesses and

assets with interest rates ranging from 6 %

per annum and having terms ranging from

years, net of allowance for doubtful

notes amounting to $ 88,000 and $ 182,000 as of December 31, 2020 and September 30, 2020, respectively.

components of prepaid expenses and other current assets are as follows (in thousands):

Schedule of Prepaid Expenses and Other Current Assets

Prepaid insurance

Prepaid legal

Prepaid taxes and licenses

Total prepaid expenses and other current assets

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

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Lawsuit settlement

Accrued liabilities

Total accrued liabilities

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

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For the Three Months

For the Nine Months

Taxes and permits

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Supplies and services

Accounting and professional fees

Charge card fees

Accounting and professional fees

Repairs and maintenance

Selling, general and administrative expenses

Assets Held for Sale

of September 30, 2019, the Company had two real estate properties for sale.

The aggregate estimated fair value of the properties

less cost to sell as of September 30, 2019 was approximately $ 2.9 million and was reclassified to assets held for sale in the

Company’s consolidated balance sheet.

The assets were measured at the carrying value as adjusted for depreciation, which

was lower than the fair value at the date reclassified.

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 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.

Total selling, general and administrative expenses

The components of non-operating gains (losses),

net are as follows:

Components of Non-Operating Gains (Losses),

the Three Months

on debt extinguishment

loss on equity securities

Non-operating

gains (losses), net

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

February 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.

February 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 the unaudited condensed consolidated statement of operations for the quarter ended March

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.

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

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

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

October 31, 2020, the Company negotiated extensions to November 1, 2021 on $ 1,690,000 of $ 1,940,000 of notes to individuals that

were due on November 1, 2020 .

The Company paid $ 250,000 to a certain lender who only extended a portion of his original note.

in the balance of debt obligations as of December 31, 2020 and September 30, 2020 are two notes borrowed from related

parties (see Note 11)—one note for $ 500,000 (from an employee of the Company who is also the brother of our director, Nourdean

Anakar) and another note for $ 100,000 (from a brother of Company CFO, Bradley Chhay)—and two notes totaling

borrowed from two non-officer employees, all four notes part of a larger group of private lenders.

The terms of the

notes are the same as the rest of the lender group.

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

million, $ 11.5

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million and $ 82.7

million for the twelve months ending June

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

million for the twelve months ending

December 31, 2021, 2022, 2023, 2024, 2025, and thereafter, respectively.

Of the maturity schedule mentioned above, $ 6.5

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million, $ 651 ,000 , $ 0 ,

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 a $ 0.03 per share cash dividend per quarter

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

Unamortized debt discount and issuance costs amounted to $ 1.2

million and $ 1.2

million as of December 31, 2020 and September

30, 2020, respectively.

in the balance of debt obligations as of December 31, 2020 and September 30, 2020 are PPP loans amounting to approximately $ 502,000

million, respectively.

During the quarter

ended December 31, 2020, we received ten notices approving the forgiveness of 100 %

of ten of the PPP loans amounting to $ 4.9

million, which are included in non-operating

gains (losses), net in our unaudited condensed consolidated statement of income.

to December 31, 2020, we received another Notice for one PPP loan which forgave 100% of the loan or $ 378,000

in principal.

As of the date of the filing of

this report, we have not received a forgiveness notice for only one PPP loan that, if not forgiven, under the terms

of the loans as provided by the CARES Act, bears an interest rate of 1% per annum.

On January 25, 2021, the Company borrowed

$ 2.175 million from a bank lender by executing a 20 -year promissory note with an initial interest rate of 3.99 % per annum.

note is payable $ 13,232 per month for the first five years after which the interest rate will be repriced at the then-current

prime rate plus 1.0 % per annum, with a floor rate of 3.99 % .

The note is guaranteed by the Company’s CEO, Eric Langan.

the quarter ended December 31, 2020, the Company purchased and retired 74,659 common shares at a cost of approximately $ 1.8 million.

The Company paid a $ 0.04 per share cash dividend during the quarter totaling approximately $ 360,000 .

the quarter ended December 31, 2019, the Company purchased and retired 332,671 common shares at a cost of approximately $ 6.4 million.

The Company paid a $ 0.03 per share cash dividend during the quarter totaling approximately $ 279,000 .

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

taxes were a benefit of $ 384,000

during the quarter ended December 31,

2020 compared to an expense of $ 1.6

million during the quarter ended December

The effective income tax rate was a benefit of 4.2 %

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.

and an expense of 22.0 %

for the quarter ended December 31, 2020

and 2019, respectively.

Our effective tax rate is affected by state taxes, permanent differences, and tax credits, including the

FICA tip credit, for both years, and the change in the deferred tax asset valuation allowance and the impact of the

forgiveness of the PPP loans in the current period, as presented below.

Schedule of Effective Income Tax Rate Reconciliation

For the Three Months

Ended December 31,

Computed expected income tax expense

State income taxes, net of federal benefit

Permanent differences

Change in valuation allowance

Total income tax expense (benefit)

Company or one of its subsidiaries files income tax returns in the U.S.

federal jurisdiction, and various states.

Fiscal years ended

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.

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.

The Company’s

federal income tax returns for the years ended September 30, 2013 through 2017 have been examined by the Internal Revenue Service

with only immaterial changes.

Fiscal year ended September 30, 2018 and subsequent years remain open to federal tax examination.

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

As of June 30, 2020 and September

As of December 31, 2020 and September

30, 2020, the liability for uncertain tax positions was $ 0 and $ 0 , respectively.

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to uncertain tax positions in interest expense and penalties in selling, general and administrative expenses in our consolidated

statements of operations.

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

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;

statements of income.

March 27, 2020, former President Trump signed 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

The CARES Act also established a Paycheck Protection Program, 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

The Company submitted its application for a PPP loan and on May 8, 2020 received approval and funding for its

restaurants, shared service entity and lounge.

Ten of our restaurant subsidiaries received amounts ranging from $ 271,000

for an aggregate amount of $ 4.2

our shared-services subsidiary

received $ 1.1

and one of our lounges received

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

funding under the PPP.

There is no certainty that the loan will qualify for forgiveness.

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.

During the quarter ended December 31, 2020, we received ten Notices of PPP Forgiveness

Payment from the Small Business Administration out of the twelve of our PPP loans granted.

of the notices received forgave 100% of each of the ten PPP loans totaling the amount of $4.9 million and included in non-operating

gains (losses), net in our unaudited condensed consolidated statement of income.

Subsequent to December 31, 2020, we received

another Notice for one PPP loan which forgave 100% of the loan or $378,000 in principal.

assurance can be provided that the Company will in fact obtain forgiveness of the remaining PPP loan in whole or in part.

Commitments and Contingencies

11 unchanged sentences

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 unaudited condensed consolidated

balance sheets, amounted to $ 2.5

million and $ 3.4

million as of June 30, 2020 and

September 30, 2019, respectively.

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

amounted to $ 1.9 million and $ 2.2 million as of December 31, 2020 and September 30, 2020, respectively.

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

42 unchanged sentences

cover any claims arising from actions after that date.

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

As of December 31, 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.

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.

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

RCI Hospitality Holdings, Inc., et al.

These lawsuits are Hoffman v.

RCI Hospitality Holdings,

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

Hospitality Holdings, Inc., et al.

RCI 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.

RCI Hospitality Holdings, Inc., et

(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,

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.

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 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.

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.

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 Nourdean 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.

As of February 5, 2021, briefing on the motion to dismiss is complete,

and we are currently waiting for the court to rule on the motion.

The Company intends to continue to vigorously defend against

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

HOSPITALITY HOLDINGS, INC.

2 unchanged sentences

and directors Eric S.

Langan, Phillip Marshall, Nour-Dean Anakar, Yura Barabash, Luke Lirot, Travis Reese, former director Steven

Langan, Phillip Marshall, Nourdean Anakar, Yura Barabash, Luke Lirot, Travis Reese, former director Steven

Jenkins, and RCI Hospitality Holdings, Inc., as nominal defendant.

12 unchanged sentences

yet be estimated.

Matter and Internal Review

mid- and late 2018, a series of negative articles about the Company was anonymously published in forums associated with the short-selling

Subsequently in 2019, the SEC initiated an informal inquiry.

In connection with these events, a special committee of

the Company’s audit committee engaged independent outside counsel to conduct an internal review.

Management of the Company

fully cooperated with the internal review conducted by the special committee and its outside counsel.

The board of directors has

implemented the recommendations resulting from the internal review.

As of the date hereof, the internal review has been completed

subject to any ongoing cooperation with regulatory authorities.

the initiation of the informal inquiry by the SEC in early 2019, the Company and its management have fully cooperated and continue

to fully cooperate with the SEC matter, which has now converted to a formal investigation and is ongoing.

At this time, the Company

is unable to predict the duration, scope, result or related costs associated with the investigation.

The Company is also unable

to predict what, if any, action may be taken as a result of the investigation.

Any determination by the SEC that the Company’s

activities were not in compliance with federal securities laws or regulations, however, could result in the imposition of fines,

penalties, disgorgement, or equitable relief, which could have a material adverse effect on the Company.

March 26, 2016, an image infringement lawsuit was filed in federal court in the Southern District of New York against the Company

31 unchanged sentences

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 June 30, 2020 and September 30, 2019.

in April 2019 and included in other current assets in both consolidated balance sheets as of December 31,

2020 and September 30, 2020.

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

22 unchanged sentences

defend itself.

set forth in the risk factors as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September

30, 2019, the adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.

While we take steps to ensure that our adult entertainers are deemed independent contractors, from time to time, we are named

in lawsuits related to the alleged misclassification of entertainers.

Claims are brought under both federal and where applicable,

Based on the industry standard, the manner in which the independent contractor entertainers are treated at the clubs,

and the entertainer license agreements governing the entertainer’s work at the clubs, the Company believes that these lawsuits

are without merit.

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

set forth in the risk factors as disclosed in our most recent Annual Report on Form 10-K, the adult entertainment industry

standard is to classify adult entertainers as independent contractors, not employees.

While we take steps to ensure that our adult

entertainers are deemed independent contractors, from time to time, we are named in lawsuits related to the alleged misclassification

of entertainers.

Claims are brought under both federal and where applicable, state law.

Based on the industry standard, the manner

in which the independent contractor entertainers are treated at the clubs, and the entertainer license agreements governing the

entertainer’s work at the clubs, the Company believes that these lawsuits are without merit.

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.

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

10 unchanged sentences

these claims in excess of our insurance coverage.

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.

November 5, 2019, we announced that our 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.

of lawsuits for the quarter ended December 31, 2020 and 2019 amount to approximately $ 152,000 and $ 24,000 , respectively.

December 31, 2020 and September 30, 2020, the Company has accrued $ 33,000 and $ 100,000 in accrued liabilities, respectively, related

to settlement of lawsuits.

HOSPITALITY HOLDINGS, INC.

2 unchanged sentences

Company owns and operates adult nightclubs and Bombshells Restaurants and Bars.

The Company has identified such reportable segments

based on management responsibility and the nature of the Company’s products, services, and costs.

The Company has identified such segments based

on management responsibility and the nature of the Company’s products, services and costs.

There are no major distinctions

5 unchanged sentences

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):

of Segment Reporting Information

For the Three Months

For the Nine Months

General corporate

Revenues (from external customers)

Income (loss) from operations

4 unchanged sentences

General corporate

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the quarter ended

December 31, 2020 amounting to $ 2.8 million and $ 110,000 , respectively, and intercompany sales of Robust Energy Drink of Other

segment amounting to $ 26,000 .

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and

corporate segments for the quarter ended December 31, 2019 amounting to $ 2.7 million and $ 31,000 , respectively, and intercompany

sales of Robust Energy Drink of Other segment amounting to $ 22,000 .

These intercompany revenue amounts are eliminated upon consolidation.

corporate expenses include corporate salaries, health insurance and social security taxes for officers, legal, accounting and

9 unchanged sentences

The balance of our commercial bank indebtedness,

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

the Company and brother of our director Nourdean Anakar).

The terms of this related party note are the same as the rest of the

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 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

net of debt discount and issuance costs, as of December 31, 2020 and September 30, 2020, was $ 83.5

million and $ 83.8

million, respectively.

in the $ 2.35 million

borrowing on November 1, 2018 (included in debt obligations as of December 31, 2020 and September 30, 2020) were notes borrowed

from related parties—one note for $ 500,000

(from an employee of the Company who is

also the brother of our director Nourdean Anakar) and another note for $ 100,000

(from a brother of Company CFO, Bradley

Chhay) as part of a larger group of private lenders.

The terms of these related party notes are the same as the

rest of the 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

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 $ 19,144 during the three months ended December 31, 2020 and 2019, respectively.

both December 31, 2020 and September 30, 2020, we owed Nottingham Creations and Sherwood Forest $ 0 in unpaid billings.

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

3 unchanged sentences

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

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.

and $ 11,827 for the three months ended December 31, 2020 and 2019, respectively.

Amounts billed directly to the Company were $ 7,130

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.

and $ 1,825 for the three months ended December 31, 2020 and 2019, respectively.

As of December 31, 2020 and September 30, 2020,

the Company owed TW Mechanical $ 2,800 and $ 5,700 , respectively, in unpaid direct billings.

HOSPITALITY HOLDINGS, INC.

1 unchanged sentence

Company leases certain facilities and equipment under operating leases.

Under ASC 840, lease expense for the Company’s operating

leases, which generally have escalating rentals over the term of the lease, is recorded using the straight-line method over the

initial lease term whereby an equal amount of lease expense is attributed to each period during the term of the lease, regardless

of when actual payments are made.

Generally, this results in lease expense in excess of cash payments during the early years of

a lease and lease expense less than cash payments in the later years.

The difference between lease expense recognized and actual

lease payments is accumulated and included in other long-term liabilities in the consolidated balance sheets.

in lease expense in our unaudited condensed consolidated statements of operations (see Note 5) were lease payments for a house

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 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 .

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.

These leases were recorded as advertising and marketing

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 $ 965,000 and $ 2.9 million during the three and nine months ended June 30,

Company adopted ASC 842 as of October 1, 2019.

The Company’s adoption of ASC 842 included renewal or termination options

for varying periods which we deemed reasonably certain to exercise.

This determination is based on our consideration of certain

economic, strategic and other factors that we evaluate at lease commencement date and reevaluate throughout the lease term.

leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for

insurance and tax payments.

The variable portion of lease payments is not included in our right-of-use assets or lease liabilities.

Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments

is incurred and are included in lease expenses recorded in selling, general and administrative expenses in our unaudited condensed

consolidated statement of operations.

have elected to apply the short-term lease exception for all underlying asset classes, which mainly includes equipment leases.

That is, leases with a term of 12 months or less are not recognized on the balance sheet, but rather expensed on a straight-line

basis over the lease term.

We do not include significant restrictions or covenants in our lease agreements, and residual value

guarantees are generally not included within our operating leases.

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

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

Total lease expense, under ASC 842, was included in selling,

general and administrative expenses in our unaudited condensed consolidated statement of income, except for sublease income which

was included in other revenue, for the three months ended December 31, 2020 and 2019 as follows (in thousands):

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 nine months ended June

30, 2020 as follows (in thousands):

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;

Short-term equipment and other lease expense (includes $ 57 and $ 146 recorded in advertising and marketing, and $ 88 and $ 125 recorded in repairs and maintenance for the three months ended December 31, 2020 and 2019, respectively;

Sublease income

4 unchanged sentences

Weighted average discount rate

maturities of ASC 842 lease liabilities as of December 31, 2020 are as follows (in thousands):

Schedule of Future Maturities of Lease Liabilities

January - December 2021

January - December 2022

January - December 2023

January - December 2024

January - December 2025

in lease expense in our unaudited condensed consolidated statements of income (see Note 5) were lease payments for a house 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 $ 19,500 for the three months ended December 31, 2019.

This lease terminated on December 31, 2019 .

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