What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2021-02-09 · 312 added, 237 removed, 573 unchanged (49% of the section changed)

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Prepaid expenses and other current assets

Assets held for sale

Total current assets

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20,000 shares authorized;

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

9,000 and 9,075 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively

Additional paid-in capital

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HOSPITALITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

thousands, except per share data)

For the Three Months

For the Six Months

Sales of alcoholic beverages

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Depreciation and amortization

Other gains, net

Other charges, net

Total operating expenses

Income from operations

Income (loss) from operations

Other income (expenses)

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Interest income

Non-operating gain (losses), net

Income before income taxes

Non-operating gains (losses), net

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Net loss attributable to noncontrolling interests

Net income attributable to RCIHH common shareholders

Earnings per share

Net income (loss) attributable to RCIHH common stockholders

Earnings (loss) per share

Basic and diluted

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Payment of dividends

Payment to noncontrolling interests

Payment to noncontrolling

income (loss)

Balance at December 31, 2020

Payment of dividends

to noncontrolling interest

income (loss)

Balance at March 31, 2021

Balance at September 30, 2019

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Payment of dividends

Payment to noncontrolling interests

to noncontrolling interest

Balance at December 31, 2019

Purchase of treasury shares

Canceled treasury shares

Payment of dividends

Payment to noncontrolling interest

Balance at March 31, 2020

accompanying notes to unaudited condensed consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months

For the Six Months

CASH FLOWS FROM OPERATING ACTIVITIES

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Deferred income tax benefit

Gain on sale of businesses and assets

Loss (gain) on sale of businesses and assets

Impairment of assets

Unrealized loss on equity securities

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Payment of dividends

Payment of loan origination costs

Distribution to noncontrolling interests

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Noncash investing and financing transactions:

Principal of Paycheck Protection Program loans

Principal of Paycheck Protection Program loans forgiven

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

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have been made.

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.

Operating results for the three and six months ended March 31, 2021 are not necessarily indicative of the results

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

Certain reclassifications of cost of goods

sold components with immaterial amounts have been made to prior year’s financial statements to conform to the current year

financial statement presentation.

There is no impact in total cost of goods sold, results of operations, and cash flows in all

periods presented.

Recent Accounting Standards and Pronouncements

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

We adopted ASU 2019-01

as of October 1, 2020.

We adopted ASU 2019-01 as of October

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

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Liquidity and Impact of COVID-19 Pandemic

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

national public health emergency.

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

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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 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.

Starting in March 2020, we closed and reopened a number of our clubs and

restaurants and implemented curfew and capacity restrictions as required by local authorities.

We do not know the effects the

pandemic may have on our operations in the future.

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

was to open locations and operate in accordance with local and state guidelines.

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;

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;

enacted a pay reduction 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 deferred board of director compensation;

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

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

reduced or canceled certain non-essential expenses such as advertising, cable, pest control, point-of-sale system support,

and investor relations coverage, among others.

As of the date of this report, we have recalled all furloughed employees and reinstated the pay for all salaried and hourly employees.

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

See Notes 6 and 8.

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

The Company believes it

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.

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 utilized all of the PPP funds and

submitted its forgiveness applications.

During the three and six months ended March 31, 2021, we received 1 and 11

Notices of PPP Forgiveness Payment, respectively, from the Small Business Administration out of the 12 of our PPP

loans granted.

of the notices received forgave 100% of each of the 11 PPP loans totaling the amount of $ 380,000 and

$ 5.3 million

in principal and interest during the three and six months ended March 31, 2021, respectively, and were included in

non-operating gains (losses), net in our unaudited condensed consolidated statement of operations.

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.

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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.

We continue to adhere to state and local government

mandates regarding the pandemic and, since March 2020, have closed and reopened a number of our locations depending on changing

government mandates, including operating hour and limited occupancy restrictions.

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

consider the COVID-19 pandemic 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 related to the pandemic in our goodwill, indefinite-lived intangibles, and long-lived assets, except for

assets held for sale, as of March 31, 2021.

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 income.

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

The Company recognizes

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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 .

Due to the pandemic, the Expo convention, initially scheduled in August 2020, was moved to May 2021,

hence, no Expo-related revenue in fiscal 2020.

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.

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Schedule of Disaggregation of Segment Revenues

Months Ended December 31, 2020

Months Ended December 31, 2019

Months Ended March 31, 2021

Months Ended March 31, 2020

Sales of alcoholic beverages

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Recognized over time

Months Ended March 31, 2021

Months Ended March 31, 2020

Sales of alcoholic beverages

Sales of food and merchandise

Service revenues

Other revenues

Recognized at a point in time

Recognized over time

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

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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 income.

unaudited condensed consolidated statements of operations.

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

locations 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 restaurant.

Revenue from initial franchise fees is recognized as the performance

obligations are satisfied over the term of the franchise agreement.

HOSPITALITY HOLDINGS, INC.

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Income tax refundable

Insurance receivable

ATM in-transit

Insurance receivable

Other (net of allowance for doubtful accounts of $ 483 and $ 261 , respectively)

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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.

assets with interest rates ranging from 6 % to 9 % per annum and having terms ranging from 1 to 20 years , net of allowance for doubtful

notes amounting to $ 124,000 and $ 182,000 as of March 31, 2021 and September 30, 2020, respectively.

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

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Schedule of Accrued Liabilities

Sales and liquor taxes

Payroll and related costs

Sales and liquor taxes

Property taxes

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For the Three Months

For the Six Months

Taxes and permits

Advertising and marketing

Supplies and services

Advertising and marketing

Charge card fees

Accounting and professional fees

Repairs and maintenance

Accounting and professional fees

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

components of other charges, net are as follows (in thousands):

of Components of Other Charges (Gains), Net

For the Three Months

For the Six Months

Impairment of assets

Settlement of lawsuits

Loss (gain) on disposal of assets

Gain on insurance

Total other charges, net

components of non-operating gains (losses), net are as follows (in thousands):

Components of Non-Operating Gains (Losses), Net

For the Three Months

For the Six Months

Gain on debt extinguishment

Unrealized loss on equity securities

Total non-operating gains (losses), net

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Assets Held for Sale

of March 31, 2021 and September 30, 2020, the Company had net carrying value of assets held for sale at $ 7.4 million and $ 0 , respectively.

the three months ended March 31, 2021, the Company classified as held-for-sale three real estate properties with an aggregate

estimated fair value less cost to sell of $ 7.4 million after

recognizing a Nightclub segment impairment charge of $ 1.4

million, included in other charges, net in our unaudited condensed consolidated statement of operations, on one property.

Company expects the properties, which are primarily comprised of land and buildings, to be sold within 12 months through property

listings by our real estate brokers.

Liabilities that are expected to be paid with the sale of held-for-sale assets were

million as of March 31, 2021, which is included in current portion of debt obligations in our unaudited condensed

consolidated balance sheet.

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

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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:

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.

The 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 Company paid approximately $ 25,000 in debt issuance costs at closing.

in the balance of debt obligations as of March 31, 2021 and September 30, 2020 are two notes borrowed from related parties (see

Note 12)—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 $ 500,000

borrowed from two non-officer employees.

All four notes are part of a larger group of private lenders, with the terms of the notes being the same

as the rest of the lender group.

maturities of debt obligations as of March 31, 2021 are as follows:

million, $ 11.7

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million for the twelve months ending

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

March 31, 2022, 2023, 2024, 2025, 2026, and thereafter, respectively.

Of the maturity schedule mentioned above, $ 4.5

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million and $ 1.2

million as of December 31, 2020 and September

million as of March 31, 2021 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

in the balance of debt obligations as of March 31, 2021 and September 30, 2020 are PPP loans amounting to approximately $ 124,000

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 .

During the three

and six months ended March 31, 2021, we received 1 and 11 notices, respectively, approving the forgiveness of 100 %

of each of the 11 PPP loans amounting to $ 380,000

million, respectively,

in principal and interest, which are included in non-operating gains (losses), net in our unaudited condensed consolidated

statement of operations.

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.

the three and six months ended March 31, 2021, the Company purchased and retired 0 and 74,659

common shares, respectively, at a cost

of approximately $ 0

million, respectively.

The Company paid

share cash dividend during the three and six months ended March 31, 2021 totaling approximately $ 360,000

and $ 720,000 ,

respectively.

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

at a cost of approximately $ 2.0 million and $ 8.5 million, respectively.

The Company paid $ 0.04 and $ 0.07 per share cash dividend

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

HOSPITALITY HOLDINGS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 %

taxes were an expense of $ 1.9

million and $ 1.6

million during the three and six months ended

March 31, 2021, respectively, compared to a benefit of $ 1.4

million and an expense of $ 175,000

during the three and six months ended March 31,

2020, respectively.

The effective income tax rate was an expense of 24.3 %

for the three and six months ended March 31, 2021, respectively, compared

to a benefit of 28.9 %

and an expense of 7.6 %

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)

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

Our effective tax rate is affected by the statutory federal income

tax rate, 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.

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

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

As of December 31, 2020 and September

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

The Company recognizes interest accrued related

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

statements of income.

As of March 31, 2021 and September

30, 2020, there was no liability for uncertain tax positions.

The Company recognizes interest accrued related to uncertain tax

positions in interest expense and penalties in selling, general and administrative expenses in our consolidated statements of

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

As a result of this, additional avenues of relief were made

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

The CARES Act included, 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

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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

The CARES Act also established the Paycheck Protection Program, whereby certain small businesses are eligible for loans

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.

The loans 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

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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.

During the three and six months ended March 31, 2021, we received 1 and 11

Notices of PPP Forgiveness Payment, respectively, from the Small Business Administration out of the 12 of our PPP loans

All of the notices received forgave

100% of each of the 11 PPP loans totaling the amount of $380,000 and $5.3 million in principal and interest during the

three and six months ended March 31, 2021, respectively, and were included in non-operating gains (losses), net

in our unaudited condensed consolidated statement of operations.

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

Commitments and Contingencies

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Patron Tax on a monthly basis, based on the current rate of $ 5 per customer.

For accounting purposes, the Company has discounted

the $ 10.0 million at an imputed interest rate of 9.6 % , establishing a net present value for the settlement of $ 7.2 million.

a consequence, the Company recorded an $ 8.2 million pre-tax gain for the third quarter ended June 30, 2015, representing the difference

between the $ 7.2 million and the amount previously accrued for the tax.

For accounting purposes, the Company discounted the

$ 10.0 million at an imputed interest rate of 9.6 %, establishing a net present value for the settlement of $ 7.2 million.

As a consequence,

the Company recorded an $ 8.2 million pre-tax gain for the third quarter ended June 30, 2015, representing the difference between

the $ 7.2 million and the amount previously accrued for the tax.

March 2017, the Company settled with the State of Texas for one of the two remaining unsettled Patron Tax locations.

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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.

amounted to $ 1.5 million and $ 2.2 million as of March 31, 2021 and September 30, 2020, respectively.

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

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cover any claims arising from actions after that date.

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

As of March 31, 2021, we have 2 unresolved claims out of the original 71

Class and Derivative Actions

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RCI Hospitality Holdings, Inc., et al.

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

(filed May 28, 2019, naming the Company, Eric Langan, and Phil Marshall (who is no longer an officer of the Company));

and Grossman v.

RCI Hospitality Holdings, Inc., et

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

The plaintiffs in all three cases moved to

consolidate the purported class actions.

On January 10, 2020 an order consolidating the Hoffman , Grossman , and Gu

cases was entered by the Court.

The consolidated case is styled In re RCI Hospitality Holdings, Inc.

RCI Hospitality Holdings, Inc., et al.

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

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 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.

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.

On March 31, 2021, the

court denied defendants’ motion to dismiss the lawsuit.

On April 14, 2021, defendants filed their answer and affirmative

defenses, denying liability as to all claims.

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

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

HOSPITALITY HOLDINGS, INC.

50 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 December 31,

2020 and September 30, 2020.

in April 2019 and included in other current assets in both consolidated balance sheets as of March 31, 2021 and September 30,

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 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.

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.

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

15 unchanged sentences

these claims in excess of our insurance coverage.

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.

of lawsuits for the three and six months ended March 31, 2021 amount to approximately $ 1,000 and $ 153,000 , respectively, while

for the three and six months ended March 31, 2020 amount to approximately $ 0 and $ 24,000 , respectively.

As of March 31, 2021 and

September 30, 2020, the Company has accrued $ 228,000 and $ 100,000 in accrued liabilities, respectively, related to settlement

HOSPITALITY HOLDINGS, INC.

14 unchanged sentences

For the Three Months

For the Six Months

Revenues (from external customers)

5 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 .

from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months

ended March 31, 2021 amounting to $ 2.8

million and $ 31,000 ,

respectively, and for the six months ended March 31, 2021 amounting to $ 5.6

million and $ 141,000 ,

respectively, and intercompany sales of Robust Energy Drink of Other segment for the three and six months ended March 31, 2021

amounting to $ 49,000

and $ 75,000 ,

respectively.

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

for the three months ended March 31, 2020 amounting to $ 2.8

million and $ 32,000 ,

respectively, and for the six months ended March 31, 2020 amounting to $ 5.4

million and $ 63,000 ,

respectively, and intercompany sales of Robust Energy Drink of Other segment for the three and six months ended March 31, 2020

amounting to $ 32,000

and $ 54,000 ,

respectively.

These intercompany revenue amounts are eliminated upon consolidation.

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The balance of our commercial bank indebtedness,

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.

net of debt discount and issuance costs, as of March 31, 2021 and September 30, 2020, was $ 84.6 million and $ 83.8 million, respectively.

in the $ 2.35 million borrowing on November 1, 2018 (included in debt obligations as of March 31, 2021 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

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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.

Creations and Sherwood Forest were $ 114,910 and $ 114,910 during the three and six months ended March 31, 2021, respectively, and

$ 53,556 and $ 72,809 during the three and six months ended March 31, 2020, respectively.

As of March 31, 2021 and September 30,

2020, we owed Nottingham Creations and Sherwood Forest $ 64,910 and $ 0 , respectively, in unpaid billings.

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

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

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

Amounts billed directly to the Company were $ 7,130

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.

and $ 0 for the three and six months ended March 31, 2021, respectively, and $ 18,758 and $ 30,585 for the three and six months ended

March 31, 2020, respectively.

Amounts billed directly to the Company were $ 55,621 and $ 62,751 for the three and six months ended

March 31, 2021, respectively, and $ 24,416 and $ 26,241 for the three and six months ended March 31, 2020, respectively.

31, 2021 and September 30, 2020, the Company owed TW Mechanical $ 1,545 and $ 5,700 , respectively, in unpaid direct billings.

HOSPITALITY HOLDINGS, INC.

2 unchanged sentences

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):

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

which was included in other revenue, for the three and six months ended March 31, 2021 and 2020 as follows (in thousands):

Schedule of Lease Expense

For the Three Months

For the Six Months

Operating lease expense – fixed payments

Variable lease expense

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;

Short-term equipment and other lease expense (includes $ 102 and $ 145 recorded in advertising and marketing for the three months ended March 31, 2021 and 2020, respectively, and $ 159 and $ 291 for the six months ended March 31, 2021 and 2020, respectively;

and $ 116 and $ 100 recorded in repairs and maintenance for the three months ended March 31, 2021 and 2020, respectively, and $ 204 and $ 225 for the six months ended March 31, 2021 and 2020, respectively;

Sublease income

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Weighted average discount rate

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

maturities of ASC 842 lease liabilities as of March 31, 2021 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 .

April 2021 – March 2022

April 2022 – March 2023

April 2023 – March 2024

April 2024 – March 2025

April 2025 – March 2026

Subsequent Events

On April 7, 2021, the Company acquired

land near the southern boundary of Houston, Texas for $ 1.3 million.

On May 7, 2021, the Company sold one

of the properties held for sale as of March 31, 2021 for $ 3.1 million.

The property had a carrying value of $ 2.3 million as of

March 31, 2021.

The Company paid related debt amounting to $ 2.0 million from the proceeds of the sale.

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