What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-10 · 383 added, 402 removed, 242 unchanged (76% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related

notes thereto included in this quarterly report, and the audited consolidated financial statements and related notes included

in our Annual Report on Form 10-K for the year ended September 30, 2020.

following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto

included in this quarterly report, and the audited consolidated financial statements and related notes included in our Annual Report

on Form 10-K for the year ended September 30, 2020.

Hospitality Holdings, Inc.

3 unchanged sentences

All services and management operations are conducted by subsidiaries of RCIHH.

our subsidiaries, as of March 31, 2021, we operated a total of 48 establishments that offer live adult entertainment and/or restaurant

our subsidiaries, as of June 30, 2021, we operated a total of 48 establishments that offer live adult entertainment and/or restaurant

and bar operations, including one club that is being renovated due to hurricane damage.

2 unchanged sentences

We have two principal reportable segments:

Nightclubs and

We combine other operating segments into “Other.” In the context of club and restaurant/sports bar operations,

the terms the “Company,” “we,” “our,” “us” and similar terms used in this report

refer to subsidiaries of RCIHH.

Nightclubs and Bombshells.

We combine other operating segments into “Other.” In the context of club and restaurant/sports bar operations, the terms

the “Company,” “we,” “our,” “us” and similar terms used in this report refer to subsidiaries

RCIHH was incorporated in the State of Texas in 1994.

Our corporate offices are located in Houston,

Our corporate offices are located in Houston, Texas.

of COVID-19 Pandemic

in March 2020, our businesses were heavily impacted by the COVID-19 pandemic through the temporary closure and reopening of a

number of our clubs and restaurants in adherence to federal, state and local government mandates.

Our total revenues for the three

and six months ended March 31, 2021 increased by 9.0% and declined by 7.2%, respectively, versus last year.

The increase in the

quarter ended March 31, 2021 was mainly caused by Bombshells’ same-store sales increase and revenue from two new units.

Though we earned no revenues from our core businesses during the period of closures, we continued to incur expenses.

our cash flow situation, we instituted the following measures:

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 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.

* As of the date of this report, we have

recalled all furloughed employees and reinstated the pay for all salaried and hourly employees.

in March 2020, our businesses were heavily impacted by the COVID-19 pandemic through the temporary closure and reopening of a number

of our clubs and restaurants in adherence to federal, state and local government mandates.

Our total revenues for the three and nine

months ended June 30, 2021 increased by 293.0% and 35.5%, respectively, versus last year due to the impact of the pandemic in fiscal

For illustrative purposes, the current quarter and current year-to-date total revenues increased by 23.0% and 3.3% compared to

the corresponding period in pre-pandemic fiscal 2019.

adapt to the situation, we took significant steps to augment an anticipated decline in operating cash flows, including negotiating deferment

of some of our debts, reducing the number of our employees and related payroll costs where necessary, and deferring or modifying certain

fixed and variable monthly expenses, among others.

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.

operating restrictions, 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.

Accounting Policies and Estimates

preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions

that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and

preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that

affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On a regular basis, we evaluate these estimates.

These estimates are based on management’s historical industry

experience and on various other assumptions that are believed to be reasonable under the circumstances.

Actual results may differ

from these estimates.

a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment

or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial

position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and

Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal

year ended September 30, 2020 filed with the SEC on December 14, 2020.

the three and six months ended March 31, 2021, there were no significant changes in our accounting policies and estimates other

than the newly adopted accounting standards that are disclosed in Note 2 to our unaudited condensed consolidated financial statements.

These estimates are based on management’s historical industry experience and on

various other assumptions that are believed to be reasonable under the circumstances.

Actual results may differ from these estimates.

a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or

involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position,

results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations

– Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020

filed with the SEC on December 14, 2020.

the three and nine months ended June 30, 2021, there were no significant changes in our accounting policies and estimates other than

the newly adopted accounting standards that are disclosed in Note 2 to our unaudited condensed consolidated financial statements.

signed our first franchise agreement for Bombshells in December 2020.

The financial impact of the franchise agreement was immaterial

to the Company’s results of operations and cash flows for the three and six months ended March 31, 2021.

to the Company’s results of operations and cash flows for the three and nine months ended June 30, 2021.

of Operations

of the Company’s operating results are as follows:

revenues were $44.1 million compared to $40.4 million during the comparable prior-year period, a 9.0% increase (Nightclubs

revenue of $30.8 million compared to $31.4 million, a 1.8% decrease;

and Bombshells revenue of $13.1 million compared to $8.8

million, a 49.2% increase)

same-store sales increased by 26.3% (Nightclubs increased by 3.6% while Bombshells increased by 48.7%) (refer to the definition

of same-store sales in the discussion of Revenues below)

on forgiven PPP loans amounted to $380,000

and diluted earnings per share (“EPS”) of $0.68 compared to a basic and diluted loss per share of $0.37 (non-GAAP

diluted EPS* of $0.75 compared to $0.47)

cash provided by operating activities of $11.0 million compared to $1.7 million during the comparable prior-year period, a

revenues were $57.9 million compared to $14.7 million during the corresponding prior-year quarter, a 293.0% increase (Nightclubs

revenue of $41.0 million compared to $6.0 million, a 582.4% increase;

and Bombshells revenue of $16.1 million compared to $8.5 million,

an 88.5% increase)

illustrative purposes, total revenues increased by 23.0% compared to the corresponding period in fiscal 2019 (Nightclubs revenue

increased by 8.3% and Bombshells revenue increased by 83.6%)

club nor Bombshells location qualified for same-store sales comparisons because of closures in fiscal 2020 in connection with

and diluted earnings per share (“EPS”) of $1.37 compared to a basic and diluted loss per share of $0.60 last year (non-GAAP

diluted EPS* of $1.36 compared to a loss of $0.74)

cash provided by operating activities of $15.0 million compared to $166,000 during the comparable prior-year period, an 8,918.7%

increase (free cash flow* of $13.0 million compared to $166,000, a 7,703.6% increase)

revenues were $82.5 million compared to $88.8 million during the comparable prior-year period, a 7.2% decrease (Nightclubs

revenue of $56.0 million compared to $69.2 million, a 19.1% decrease;

and Bombshells revenue of $26.1 million compared to

$19.2 million, a 36.5% increase)

same-store sales increased by 6.9% (Nightclubs decreased by 4.4% while Bombshells increased by 27.9%) (refer to the definition

of same-store sales in the discussion of Revenues below)

on forgiven PPP loans amounted to $5.3 million

and diluted EPS of $1.75 compared to $0.24 (non-GAAP diluted EPS* of $1.15 compared to $1.09)

cash provided by operating activities of $17.2 million compared to $12.0 million during the comparable prior-year period,

a 43.9% increase (free cash flow* of $14.7 million compared to $9.9 million, a 48.5% increase)

revenues were $140.3 million compared to $103.5 million during the corresponding prior-year period, a 35.5% increase (Nightclubs

revenue of $97.0 million compared to $75.2 million, a 28.9% increase;

and Bombshells revenue of $42.2 million compared to $27.7 million,

a 52.5% increase)

illustrative purposes, total revenues increased by 3.3% compared to the corresponding period in fiscal 2019 (Nightclubs revenue decreased

by 13.9% and Bombshells revenue increased by 89.4%)

and diluted EPS of $3.11 compared to a basic and diluted loss per share of $0.36 (non-GAAP diluted EPS* of $2.50 compared to $0.36)

cash provided by operating activities of $32.2 million compared to $12.1 million during the comparable prior-year period, a 165.2%

increase (free cash flow* of $27.6 million compared to $10.0 million, a 175.1% increase)

Reconciliation

and discussion of non-GAAP financial measures are included in the “Non-GAAP Financial Measures” section below.

Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

following table summarizes our results of operations for the three months ended March 31, 2021 (dollars in thousands):

Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

following table summarizes our results of operations for the three months ended June 30, 2021 (dollars in thousands):

the Three Months Ended

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Depreciation and amortization

Other charges, net

Other charges (gains), net

Total operating expenses

3 unchanged sentences

Interest income

Non-operating gains (losses), net

Non-operating gains, net

Income (loss) before income taxes

4 unchanged sentences

revenue line.

revenues increased by approximately $3.6 million, or 9.0%, due primarily to the timing of closures caused by the COVID-19 pandemic.

Consolidated same-store sales increased by 26.3%.

The 9.0% increase in consolidated revenues was primarily from the 8.7% impact

of the same-store increase and a 2.6% increase from new Bombshells units, partially offset by a 2.0% decrease due to closures

from COVID-19 and a 0.3% decline in other revenues.

calculate same-store sales by comparing year-over-year revenues from nightclubs and restaurants/sports bars starting in the first full

quarter of operations after at least 12 full months for Nightclubs and at least 18 full months for Bombshells.

We consider the first

six months of operations of a Bombshells unit to be the “honeymoon period” where sales are significantly higher than normal.

We exclude from a particular month’s calculation units previously included in the same-store sales base that have closed temporarily

for more than 15 days until its next full month of operations.

We also exclude from the same-store sales base units that are being reconcepted

or are closed due to renovations or remodels.

Acquired units are included in the same-store sales calculation as long as they qualify,

based on the definition stated above.

Revenues outside of our Nightclubs and Bombshells reportable segments are excluded from same-store

sales calculation.

revenues increased by approximately $43.1 million, or 293.0%, due primarily to last year’s impact of closures caused by the COVID-19

No club or Bombshells location qualified for same-store sales since all units exceeded

the number of closure days in the prior year to be considered not comparable.

For illustrative purposes, we are including a comparison

to the corresponding quarter of fiscal 2019 in the revenue discussion below.

contribution to total revenues was as follows (in thousands):

For the Three Months

revenues decreased by 1.8% for the quarter ended March 31, 2021 compared to the prior-year quarter.

For Nightclubs that were open

enough days to qualify for same-store sales (refer to the definition of same-store sales in the preceding paragraph), sales increased

The remaining decline in revenues reflects lower sales for clubs in states where the number of days closed did not qualify

them for same-store sales.

revenues increased by 49.2%, of which 37.1% was due to the impact of the same-store sales increase with the remaining 12.1% increase

generated by two new locations.

operating expenses, as a percent of revenues, decreased to 77.7% from 106.1% from last year’s second quarter, with a $8.7

million decrease, or 20.2%, which is mainly caused by the higher impairment in the prior year.

Significant contributors

to the changes in operating expenses are explained below.

the Three Months Ended June 30,

Sales of alcoholic beverages

Sales of food and merchandise

Service revenues

Other revenues

Sales of alcoholic beverages

Sales of food and merchandise

Service revenues

Other revenues

revenues increased by 582.4% for the quarter ended June 30, 2021 compared to the prior-year quarter mainly due to the closure of all

clubs in April 2020.

Compared to pre-pandemic third quarter of 2019, current quarter Nightclubs revenues increased by 8.3% due to

alcoholic beverages sales and food and merchandise sales increases of 10.5% and 52.8%, respectively, from higher traffic partially

offset by a service revenue decrease of 2.8% due to social distancing restrictions.

revenues increased by 88.5% compared to last year mainly due to closures in April 2020, while also up 83.6% compared to the 2019 quarter

primarily due to two new locations.

operating expenses, as a percent of revenues, for the third quarter ended June 30, 2021 decreased to 68.0% from 131.6% from last

year’s third quarter, with a $20.0 million decrease, or 103.1%, which is mainly caused by the overall impact of last year’s

pandemic closures.

Significant contributors to the changes in operating expenses for the quarter are explained below.

of goods sold increased by $6.5 million, or 271.2%, mainly due to higher sales in the current quarter.

As a percent of total revenues,

cost of goods sold increased to 15.4% from 14.3% mainly due to the sales mix shifting from higher-margin service revenues.

and wages decreased by $1.0 million, or 8.4%.

As a percent of total revenues, salaries and wages were lower at 25.4% from

30.2% mainly due to fixed salaries paid on lower sales during the prior-year quarter.

general and administrative expenses decreased by $1.8 million, or 12.7%, primarily due to decreased audit and legal fees from

prior year’s SEC matters and controlled advertising and marketing expenses due to uncertainty brought about by the pandemic.

As a percent of total revenues, selling, general and administrative expenses decreased to 28.6% from 35.7% due to the lower

expenses from the above-cited reasons leveraged on higher sales in the current quarter.

total occupancy costs, defined as the sum of lease expense and interest expense (see below), were $3.3 million and $3.5 million

for the quarter ended March 31, 2021 and 2020, respectively.

As a percentage of revenue, total occupancy costs were 7.6% and 8.6%

during the quarter ended March 31, 2021 and 2020, respectively, primarily due to higher sales base in the current quarter.

cost of goods sold decreased to 15.3% from 16.2% mainly due to the sales mix shifting to higher-margin service revenues.

and wages increased by $8.4 million, or 155.9%, due to the closures last year.

As a percent of total revenues, salaries and wages were

lower at 24.0% from 36.8% mainly due to fixed salaries paid on lower sales during the prior-year quarter.

general and administrative expenses increased by $5.8 million, or 65.0%, primarily due to the increase in most of the variable expenses

as caused by higher sales in the current year.

As a percent of total revenues, selling, general and administrative expenses decreased

to 25.4% from 60.5% due to last year’s fixed expenses on significantly lower sales.

total occupancy costs, defined as the sum of lease expense and interest expense (see below), were $3.3 million and $3.5 million for the

quarter ended June 30, 2021 and 2020, respectively.

As a percentage of revenue, total occupancy costs were 5.7% and 23.6% during the

quarter ended June 30, 2021 and 2020, respectively, primarily due to the lower sales base in last year’s quarter.

and amortization decreased by $178,000, or 8.0% partly due to fully depreciated real estate and software assets.

Other charges, net decreased to $1.5 million from

$8.2 million, which was primarily caused by impairment charges of $1.4 million and $8.2 million during the quarter ended March 31, 2021

and 2020, respectively.

charges (gains), net was a net gain of $143,000 from a net charge of $424,000, which was primarily due to the current quarter’s

lower impairment charges.

(Loss) from Operations

the three months ended March 31, 2021 and 2020, our consolidated operating margin was 22.3% and (6.1)%, respectively.

drivers for the increase in operating margin are the current quarter’s higher sales and the impairment charges in both quarters.

the three months ended June 30, 2021 and 2020, our consolidated operating margin was 32.0% and (31.6)%, respectively.

The main driver

for the increase in operating margin is the current quarter’s higher sales.

contribution to income (loss) from operations is presented in the table below (in thousands):

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General corporate

margin for the Nightclubs segment was 34.0% and 7.3% for the three months ended March 31, 2021 and 2020, respectively,

while operating margin for Bombshells was 23.9% and 7.8%, respectively.

The increase in Nightclubs operating margin was mainly due to

last year’s impairment charges as triggered by the pandemic.

The increase in Bombshells operating margin was mainly from higher

sales and a decrease in pre-opening expenses from several Bombshells openings in prior periods.

margin for the Nightclubs segment was 44.7% and (50.5)% for the three months ended June 30, 2021 and 2020, respectively, while operating

margin for Bombshells was 27.4% and 21.7%, respectively.

The increase in Nightclubs operating margin was mainly due to last year’s

closures caused by the pandemic.

The increase in Bombshells operating margin was mainly from higher sales and a decrease in pre-opening

expenses from several Bombshells openings in prior periods.

certain items, non-GAAP operating income (loss) and non-GAAP operating margin are computed in the table below (dollars in thousands).

See further discussion in the “Non-GAAP Financial Measures” section below.

the Three Months Ended March 31, 2021

the Three Months Ended March 31, 2020

the Three Months Ended June 30, 2021

the Three Months Ended June 30, 2020

(loss) from operations

6 unchanged sentences

Non-Operating

the quarter ended March 31, 2021, we received one notice of forgiveness for one PPP loan, which forgave 100% of the PPP loan’s

principal and interest amounting to $380,000.

expense decreased by $178,000, or 7.2%.

taxes were an expense of $1.9 million during the quarter ended March 31, 2021 compared to a benefit of $1.4 million during the

quarter ended March 31, 2020.

The effective income tax rate was an expense of 24.3% and a benefit of 28.9% for the quarter ended

March 31, 2021 and 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 impact of the forgiveness of the PPP loans

in the current period, as presented below.

taxes were an expense of $4.0 million during the quarter ended June 30, 2021 compared to a benefit of $1.4 million during the quarter

ended June 30, 2020.

The effective income tax rate was an expense of 24.4% and a benefit of 20.5% for the quarter ended June 30, 2021

and 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, as presented below.

For the Three Months

3 unchanged sentences

Effective income tax rate

Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020

following table summarizes our results of operations for the six months ended March 31, 2021 (dollars in thousands):

the Six Months Ended

Months Ended June 30, 2021 Compared to Nine Months Ended June 30, 2020

following table summarizes our results of operations for the nine months ended June 30, 2021 (dollars in thousands):

the Nine Months Ended

Sales of alcoholic beverages

18 unchanged sentences

Non-operating gains (losses), net

Income before income taxes

Income tax expense

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Percentages may not foot due to rounding.

1 unchanged sentence

revenue line.

revenues decreased by approximately $6.4 million, or 7.2%, due primarily to the closures caused by the COVID-19 pandemic.

same-store sales increased by 6.9%.

The 7.2% decrease in consolidated revenues was primarily from the 13.5% decrease due to closures

from COVID-19 and a 0.1% decline in other revenues, partially offset by the 3.4% impact of the same-store increase and a 3.0%

increase from new Bombshells units.

calculate same-store sales by comparing year-over-year revenues from nightclubs and restaurants/sports bars starting in the first full

quarter of operations after at least 12 full months for Nightclubs and at least 18 full months for Bombshells.

We consider the first

six months of operations of a Bombshells unit to be the “honeymoon period” where sales are significantly higher than normal.

We exclude from a particular month’s calculation units previously included in the same-store sales base that have closed temporarily

for more than 15 days until its next full month of operations.

We also exclude from the same-store sales base units that are being reconcepted

or are closed due to renovations or remodels.

Acquired units are included in the same-store sales calculation as long as they qualify,

based on the definition stated above.

Revenues outside of our Nightclubs and Bombshells reportable segments are excluded from same-store

sales calculation.

revenues increased by approximately $36.8 million, or 35.5%, due primarily to reopenings after the closures caused by the COVID-19 pandemic.

For illustrative purposes, we are including a comparison to the corresponding quarter of fiscal 2019 in the revenue discussion below.

contribution to total revenues was as follows (in thousands):

For the Six Months

revenues decreased by 19.1% for the six-month period ended March 31, 2021 compared to the prior-year period.

For Nightclubs that

were open enough days to qualify for same-store sales (refer to the definition of same-store sales in the preceding paragraph),

sales decreased by 4.4%.

The remaining decline in revenues reflects lower sales for clubs in states where the number of days closed

did not qualify them for same-store sales.

revenues increased by 36.5%, of which 22.5% was due to the impact of the same-store sales increase with the remaining 14.0% increase

generated by two new locations.

operating expenses, as a percent of revenues, decreased to 80.1% from 91.9% from the comparable period last year, with a $15.6

million decrease, or 19.1%, which is mainly caused by the higher impairment in the prior year, a $6.2 million decrease

in selling, general and administrative expenses, and a $2.8 million decrease in salaries and wages.

Significant contributors to the changes

in operating expenses are explained below.

of goods sold increased by $448,000, or 3.6%, mainly due to a shift in sales mix from higher-margin service revenues to alcohol

and food sales in the current six-month period.

As a percent of total revenues, cost of goods sold increased to 15.8% from 14.1%

mainly due to the shift in sales mix.

and wages decreased by $2.8 million, or 10.8%, mainly due to COVID-19-related closures.

As a percent of total revenues, salaries

and wages were lower at 27.5% from 28.6% mainly due to fixed salaries paid on lower sales during the prior-year period.

general and administrative expenses decreased by $6.2 million, or 20.0%, primarily due to decreased audit and legal fees from

prior year’s SEC matters, controlled advertising and marketing expenses due to uncertainty brought about by the pandemic,

and lower taxes and permits and charge card fees due to lower sales.

As a percent of total revenues, selling, general and administrative

expenses decreased to 30.0% from 34.9% due to legal and accounting fees and advertising and marketing expenses.

total occupancy costs, defined as the sum of lease expense and interest expense (see below), were $6.7 million and $7.0 million

for the six months ended March 31, 2021 and 2020, respectively.

As a percentage of revenue, total occupancy costs were 8.2% and

7.9% during the six months ended March 31, 2021 and 2020, respectively, primarily due to lower sales base in the current six-month

the Nine Months Ended June 30,

Sales of alcoholic beverages

Sales of food and merchandise

Service revenues

Other revenues

Sales of alcoholic beverages

Sales of food and merchandise

Service revenues

Other revenues

revenues increased by 28.9% for the nine-month period ended June 30, 2021 compared to the comparable prior-year period mainly due to

pandemic restrictions in 2020.

Compared to pre-pandemic nine-month period of fiscal 2019, current year Nightclubs revenues decreased

by 13.9% due to alcoholic beverages sales and service revenue decreases of 11.8% and 25.8%, respectively, caused by stricter pandemic

restriction at the early part of fiscal 2021 partially offset by food and merchandise sales increase of 28.1% due to customer spending

revenues increased by 52.5% compared to last year mainly due to closures in April 2020, and increased by 89.4% compared to the

2019 nine-month period primarily due to two new locations.

operating expenses, as a percent of revenues, for the nine months ended June 30, 2021 decreased to 75.1% from 97.5% from the comparable

period last year, with a $4.4 million increase, or 4.4%, which is mainly caused by a $6.9 million increase in cost of goods sold and

a $5.7 million increase in salaries and wages, partially offset by a higher impairment in the prior year.

Significant contributors to

the changes in operating expenses for the year-to-date period are explained below.

of goods sold increased by $6.9 million, or 46.4%, mainly due the increase in sales.

As a percent of total revenues, cost of goods sold

increased to 15.6% from 14.4% mainly due to the shift in sales mix.

and wages increased by $5.7 million, or 18.4%, mainly due to increased staffing for reopenings after COVID-19-related closures.

percent of total revenues, salaries and wages were lower at 26.1% from 29.8% mainly due to fixed salaries paid on lower sales during

the prior-year period.

general and administrative expenses decreased by $422,000, or 1.1%, primarily due to decreased audit and legal fees from prior year’s

SEC matters, and controlled advertising and marketing expenses due to uncertainty brought about by the pandemic.

As a percent of total

revenues, selling, general and administrative expenses decreased to 28.1% from 38.5% due to legal and accounting fees and advertising

and marketing expenses.

total occupancy costs, defined as the sum of lease expense and interest expense (see below), were $10.0 million and $10.5 million for

the nine months ended June 30, 2021 and 2020, respectively.

As a percentage of revenue, total occupancy costs were 7.1% and 10.1% during

the nine months ended June 30, 2021 and 2020, respectively, primarily due to lower sales base in the prior-year nine-month period.

and amortization decreased by $499,000, or 7.5% partly due to fully depreciated real estate and software assets.

Other charges, net decreased to $1.4 million from

$8.2 million, which was primarily caused by impairment charges of $1.4 million and $8.2 million during the six months ended March 31,

2021 and 2020, respectively.

charges, net decreased to $1.3 million from $8.6 million, which was primarily caused by impairment charges of $1.7 million and $9.2 million

during the nine months ended June 30, 2021 and 2020, respectively.

from Operations

the six months ended March 31, 2021 and 2020, our consolidated operating margin was 19.9% and 8.1%, respectively.

The main drivers

for the increase in operating margin are the current period’s lower sales and gain on debt extinguishment, and the prior-year period’s

the nine months ended June 30, 2021 and 2020, our consolidated operating margin was 24.9% and 2.5%, respectively.

The main drivers for

the increase in operating margin are the current period’s higher sales and gain on debt extinguishment, and the prior-year period’s

higher impairment charges.

contribution to income (loss) from operations is presented in the table below (in thousands):

For the Six Months

For the Nine Months

General corporate

margin for the Nightclubs segment was 33.9% and 23.2% for the six months ended March 31, 2021 and 2020, respectively, while operating

margin for the Nightclubs segment was 38.5% and 17.3% for the nine months ended June 30, 2021 and 2020, respectively, while operating

margin for Bombshells was 24.3% and 14.8%, respectively.

The increase in Nightclubs operating margin was mainly due to last year’s

impairment charges as triggered by the pandemic.

The increase in Bombshells operating margin was mainly from higher sales and a decrease

in pre-opening expenses from several Bombshells openings in prior periods.

The increase in Nightclubs operating margin was mainly due to this year’s

higher sales and last year’s impairment charges triggered by the pandemic.

The increase in Bombshells operating margin was mainly

from higher sales and a decrease in pre-opening expenses from several Bombshells openings in prior periods.

certain items, non-GAAP operating income (loss) and non-GAAP operating margin are computed in the table below (dollars in thousands).

See further discussion in the “Non-GAAP Financial Measures” section below.

the Six Months Ended March 31, 2021

the Six Months Ended March 31, 2020

Income (loss) from operations

Amortization of intangibles

Settlement of lawsuits

Impairment of assets

Loss (gain) on sale of businesses and assets

Gain on insurance

Non-GAAP operating income (loss)

GAAP operating margin

Non-GAAP operating margin

the Nine Months Ended June 30, 2021

the Nine Months Ended June 30, 2020

(loss) from operations

of intangibles

(gain) on sale of businesses and assets

operating income (loss)

operating margin

Non-Operating

the six months ended March 31, 2021, we received 11 notices of forgiveness for a PPP loan, which forgave 100% of the PPP

loans’ principal and interest amounting to $5.3 million.

the nine months ended June 30, 2021, we received 11 notices of forgiveness for a PPP loan, which forgave 100% of the PPP loans’

principal and interest amounting to $5.3 million.

expense decreased by $324,000, or 4.4%.

tax expense was $1.6 million during the six months ended March 31, 2021 compared to $175,000 during the six months ended March

The effective income tax rate was 9.1% and 7.6% for the six months ended March 31, 2021 and 2020, respectively.

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, as presented below.

For the Six Months

taxes were an expense of $5.5 million during the nine months ended June 30, 2021 compared to a benefit of $1.3 million during the nine

months ended June 30, 2020.

The effective income tax rate was an expense of 16.6% and a benefit of 26.9% for the nine months ended June

30, 2021 and 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, as presented below.

For the Nine Months

Statutory federal income tax rate

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Financial Measures

addition to our financial information presented in accordance with GAAP, management uses certain non-GAAP financial measures,

within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future.

Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position

or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated

addition to our financial information presented in accordance with GAAP, management uses certain non-GAAP financial measures, within

the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future.

a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that

excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance

We monitor non-GAAP financial measures because it describes the operating performance of the Company and helps management

and investors gauge our ability to generate cash flow, excluding (or including) some items that management believes are not representative

of the ongoing business operations of the Company, but are included in (or excluded from) the most directly comparable measures calculated

and presented in accordance with GAAP.

We monitor non-GAAP financial measures because it describes the operating performance of

the Company and helps management and investors gauge our ability to generate cash flow, excluding (or including) some items that

management believes are not representative of the ongoing business operations of the Company, but are included in (or excluded

from) the most directly comparable measures calculated and presented in accordance with GAAP.

Relative to each of the non-GAAP

financial measures, we further set forth our rationale as follows:

Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows:

Operating Income and Non-GAAP Operating Margin.

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businesses and assets, (c) gains or losses on insurance, (d) impairment of assets, and (e) settlement of lawsuits.

that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without

the impact of items that are not a result of our day-to-day business and operations.

We believe that excluding

these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact

of items that are not a result of our day-to-day business and operations.

Net Income and Non-GAAP Net Income per Diluted Share .

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(a) amortization of intangibles, (b) gains or losses on sale of businesses and assets, (c) gains or losses on insurance, (d)

unrealized gains or losses on equity securities, (e) impairment of assets, (f) settlement of lawsuits, (g) gain on debt

extinguishment, and (h) the income tax effect of the above described adjustments.

Included in the income tax effect of the above

adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 24.2% and 7.6% effective tax rate of the pre-tax

non-GAAP income before taxes for the six months ended March 31, 2021 and 2020, respectively, and the GAAP income tax expense (benefit).

We believe that excluding and including such items help management and investors better understand our operating activities.

unrealized gains or losses on equity securities, (e) impairment of assets, (f) settlement of lawsuits, (g) gain on debt extinguishment,

and (h) the income tax effect of the above described adjustments.

Included in the income tax effect of the above adjustments is the net

effect of the non-GAAP provision for income taxes, calculated at 24.3% and 26.9% effective tax rate of the pre-tax non-GAAP income before

taxes for the nine months ended June 30, 2021 and 2020, respectively, and the GAAP income tax expense (benefit).

We believe that excluding

and including such items help management and investors better understand our operating activities.

We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders:

(a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses

and assets, (e) gains or losses on insurance, (f) unrealized gains or losses on equity securities, (g) impairment of assets, (h)

settlement of lawsuits, and (i) gain on debt extinguishment.

We believe that adjusting for such items helps management and investors

better understand our operating activities.

Adjusted EBITDA provides a core operational performance measurement that compares results

without the need to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions.

are, therefore, without consideration of financing alternatives of capital employed.

We use adjusted EBITDA as one guideline to assess

our unleveraged performance return on our investments.

and assets, (e) gains or losses on insurance, (f) unrealized gains or losses on equity securities, (g) impairment of assets, (h) settlement

of lawsuits, and (i) gain on debt extinguishment.

We believe that adjusting for such items helps management and investors better understand

our operating activities.

Adjusted EBITDA provides a core operational performance measurement that compares results without the need

to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions.

The results are, therefore,

without consideration of financing alternatives of capital employed.

We use adjusted EBITDA as one guideline to assess our unleveraged

performance return on our investments.

Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.

also use certain non-GAAP cash flow measures such as free cash flow.

See “Liquidity and Capital Resources” section

for further discussion.

following tables present our non-GAAP performance measures for the three and six months ended March 31, 2021 and 2020 (in thousands,

See “Liquidity and Capital Resources” section for further

following tables present our non-GAAP performance measures for the three and nine months ended June 30, 2021 and 2020 (in thousands,

except per share amounts and percentages):

For the Three Months

For the Six Months

For the Nine Months

Reconciliation of GAAP net income (loss) to Adjusted EBITDA

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Impairment of assets

Loss (gain) on sale of businesses and assets

Gain on sale of businesses and assets

Gain on debt extinguishment

Unrealized loss on equity securities

Unrealized loss (gain) on equity securities

Gain on insurance

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Impairment of assets

Loss (gain) on sale of businesses and assets

Gain on sale of businesses and assets

Gain on debt extinguishment

Unrealized loss on equity securities

Unrealized loss (gain) on equity securities

Gain on insurance

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Impairment of assets

Loss (gain) on sale of businesses and assets

Gain on sale of businesses and assets

Gain on debt extinguishment

Unrealized loss on equity securities

Unrealized loss (gain) on equity securities

Gain on insurance

7 unchanged sentences

Gain on insurance

Loss (gain) on sale of businesses and assets

Gain on sale of businesses and assets

Non-GAAP operating income (loss)

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Gain on insurance

Loss (gain) on sale of businesses and assets

Gain on sale of businesses and assets

Non-GAAP operating margin

3 unchanged sentences

and Capital Resources

March 31, 2021, our cash and cash equivalents were approximately $20.2 million compared to $15.6 million at September 30,

Because of the large volume of cash we handle, we have very stringent cash controls.

As of March 31, 2021, we had positive working

capital of $175,000 compared to a negative working capital of $5.9 million as of September 30, 2020, excluding assets

held for sale (net of associated liabilities of $3.2 million and $0, respectively) amounting to $4.2 million

and $0 as of March 31, 2021 and September 30, 2020, respectively.

Although we believe that our ability to generate cash from

operating activities is one of our fundamental financial strengths, the temporary closure of our clubs and restaurants caused

At June 30, 2021, our cash and cash equivalents were

approximately $29.1 million compared to $15.6 million at September 30, 2020.

Because of the large volume of cash we handle, we have very

stringent cash controls.

As of June 30, 2021, we had positive working capital of $7.3 million compared to a negative working capital

of $5.9 million as of September 30, 2020, excluding assets held for sale (net of associated liabilities of $1.1 million and $0, respectively)

amounting to $3.8 million and $0 as of June 30, 2021 and September 30, 2020, respectively.

Although we believe that our ability to generate

cash from operating activities is one of our fundamental financial strengths, the temporary closure of our clubs and restaurants caused

by the COVID-19 pandemic presented operational challenges.

Our strategy was to open locations and operate in accordance with

local and state guidelines.

Based upon the current state of allowed openings, revenues seem favorable.

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.

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

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

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 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.

* 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 of the CARES Act for its restaurants,

shared service entity and lounge.

Ten of our restaurant subsidiaries received amounts ranging from $271,000 to $579,000 for an

aggregate amount of $4.2 million;

Our strategy is to open locations and operate in accordance with local

and state guidelines.

Revenues seem favorable now that all our locations are not under pandemic-related closure mandates.

that we can borrow capital if need be but currently we do not have unused credit facilities so there can be no guarantee that additional

liquidity will be readily available or available on favorable terms.

adapt to the situation, we took significant steps to augment an anticipated decline in operating cash flows, including negotiating deferment

of some of our debts, reducing the number of our employees and related payroll costs where necessary, and deferring or modifying certain

fixed and variable monthly expenses, among others.

May 8, 2020, the Company received approval and funding under the Paycheck Protection Program of the CARES Act for its restaurants, shared

service entity and lounge.

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

of $4.2 million;

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 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 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 (“Notice”), respectively, from the Small Business Administration out of the 12 of our PPP

loans granted.

All of the notices received forgave 100% of each of the ten 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.

None of our adult nightclub

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

The Company believes it used the entire loan amount for qualifying

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 nine months

ended June 30, 2021, we received 0 and 11 Notices of PPP Forgiveness Payment (“Notice”), respectively, from the Small Business

Administration out of the 12 of our PPP loans granted.

All of the notices received forgave 100% of each of the 11 PPP loans totaling

the amount of $0 and $5.3 million in principal and interest during the three and nine months ended June 30, 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 one remaining PPP loan in whole or in part.

that the Company will in fact obtain forgiveness of the $124,000 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 our cash flow 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 a number of our locations depending on changing

government mandates, including operating hour and limited occupancy restrictions.

operating restrictions, as caused by local, state and national guidelines, could lead to adverse financial results.

However, we will

continually monitor and evaluate our cash flow situation and will determine any further measures to be instituted.

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, where applicable.

Currently, all of our locations are open except two clubs that are being renovated and/or remodeled.

have not recently raised capital through the issuance of equity securities.

Instead, we use debt financing to lower our overall

cost of capital and increase our return on stockholders’ equity.

We have a history of borrowing funds in private transactions

and from sellers in acquisition transactions and have secured traditional bank financing on our new development projects and refinancing

of our existing notes payable, but with the significant global impact of the COVID-19 pandemic, there can be no assurance that

any of these financing options would be presently available on favorable terms, if at all.

We also have historically utilized

these cash flows to invest in property and equipment, adult nightclubs, and restaurants/sports bars.

Instead, we use debt financing to lower our overall cost

of capital and increase our return on stockholders’ equity.

We have a history of borrowing funds in private transactions and from

sellers in acquisition transactions and have secured traditional bank financing on our new development projects and refinancing of our

existing notes payable, but with the significant global impact of the COVID-19 pandemic, there can be no assurance that any of these

financing options would be presently available on favorable terms, if at all.

We also have historically utilized these cash flows to

invest in property and equipment, adult nightclubs, and restaurants/sports bars.

expect to generate adequate cash flows from operations for the next 12 months from the issuance of this report.

following table presents a summary of our cash flows from operating, investing, and financing activities (in thousands):

For the Six Months

For the Nine Months

Operating activities

1 unchanged sentence

Financing activities

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Flows from Operating Activities

are our summarized cash flows from operating activities (in thousands):

For the Six Months

For the Nine Months

Net income (loss)

Depreciation and amortization

4 unchanged sentences

Net cash provided by operating activities

cash provided by operating activities increased from year to year due primarily to higher income from operations and lower income

taxes paid, partially offset by higher interest expense paid.

cash provided by operating activities increased from year to year due primarily to higher income from operations and lower income taxes

paid, partially offset by higher interest expense paid.

Flows from Investing Activities

are our cash flows from investing activities (in thousands):

the Six Months

the Nine Months

Payments for property and equipment and intangible assets

3 unchanged sentences

Net cash used in investing activities

is a breakdown of our payments for property and equipment and intangible assets for the six months ended March 31, 2021 and 2020

(in thousands):

the Six Months

Ended March 31,

is a breakdown of our payments for property and equipment and intangible assets for the nine months ended June 30, 2021 and 2020 (in

the Nine Months

Ended June 30,

New facilities, equipment and intangible assets

1 unchanged sentence

Total capital expenditures

expenditures for new facilities during the six months ended March 31, 2021 were composed primarily of real estate and construction

of one new Bombshells location, a newly renovated club that was damaged by hurricane, and a liquor license purchase.

Capital expenditures for new facilities during the six months ended March 31, 2020 were composed primarily of construction and

development costs for two new Bombshells locations that opened in the first and second quarters of fiscal 2020.

Maintenance capital

expenditures refer mainly to capitalized replacement of productive assets in already existing locations.

Variances in capital

expenditures are primarily due to the number and timing of new, remodeled, or reconcepted locations under construction.

expenditures for new facilities during the nine months ended June 30, 2021 were composed primarily of real estate and construction of

one new Bombshells location, a newly renovated club that was damaged by hurricane, and a liquor license purchase.

Capital expenditures

for new facilities during the nine months ended June 30, 2020 were composed primarily of construction and development costs for two new

Bombshells locations that opened in the first and second quarters of fiscal 2020 and the rehabilitation of a club that was damaged by

Maintenance capital expenditures refer mainly to capitalized replacement of productive assets in already existing locations.

in capital expenditures are primarily due to the number and timing of new, remodeled, or reconcepted locations under construction.

On July 23, 2021, we and certain of our

subsidiaries entered into definitive agreements (the “Agreements”) to acquire eleven gentlemen’s clubs, nine of

which are controlled by club entrepreneur Troy Lowrie of Lakewood, Colorado, six related real estate properties, and associated

intellectual property for a total acquisition price of $88.0 million (the “Acquisition”).The Agreements for the eleven

clubs being purchased include ten Asset Purchase Agreements and one Stock Purchase Agreement.

The sellers collectively own and

operate adult entertainment clubs in six states, four of which we do not currently have a presence.

Closing of the Acquisition is

subject to transfer of all necessary permits, licenses, and other authorizations;

closing on the bank financing;

and other customary

closing conditions.

See our current report on Form 8-K filed on July 28, 2021 for more information regarding this

We have not completed our valuation analysis and

related calculations in sufficient detail necessary to arrive at the fair values of the assets acquired, along with the determination

of any goodwill or gain on the transaction.

Since the initial accounting of the acquisition is incomplete, we also could not provide

supplemental pro forma information of the combined entities as of this time.

As of the filing of this report, we are in negotiations with our bank lender to refinance

most of our existing real estate debt and to partially finance the real estate purchases related to the Acquisition.

Flows from Financing Activities

are our cash flows from financing activities (in thousands):

For the Six Months

For the Nine Months

Proceeds from debt obligations

5 unchanged sentences

Net cash used in financing activities

purchased 74,659 shares of our common stock at an average price of $24.03 during the six months ended March 31, 2021, while we

purchased 465,390 shares of our common stock at an average price of $18.24 during the same period last year.

We paid quarterly

dividends of $0.04 per share during the six months ended March 31, 2021 compared to $0.03 per share in the first quarter and $0.04

in the second quarter during the prior year.

purchased 74,659 shares of our common stock at an average price of $24.03 during the nine months ended June 30, 2021, while we purchased

465,390 shares of our common stock at an average price of $18.24 during the same period last year.

We paid quarterly dividends of $0.04

per share during the nine months ended June 30, 2021 compared to $0.03 per share in the first and third quarters and $0.04 in the second

quarter of the prior year.

also uses certain non-GAAP cash flow measures such as free cash flow.

1 unchanged sentence

less maintenance capital expenditures.

Net cash provided by operating activities was $17.2 million and $12.0 million during the

six months ended March 31, 2021 and 2020, respectively.

Maintenance capital expenditures were $2.6 million and $2.1 million during the

six months ended March 31, 2021 and 2020, respectively.

Net cash provided by operating activities was $32.2 million and $12.1 million during the nine

months ended June 30, 2021 and 2020, respectively.

Maintenance capital expenditures were $4.6 million and $2.1 million during the nine

months ended June 30, 2021 and 2020, respectively.

We use free cash flow as the baseline for the implementation of our capital allocation

is a table reconciling free cash flow to its most directly comparable GAAP measure (in thousands):

For the Six Months

For the Nine Months

Net cash provided by operating activities

1 unchanged sentence

Free cash flow

free cash flow for the current six-month period increased by 48.5% compared to the comparable prior-year period primarily due

to higher income from operations and lower income taxes paid, partially offset by higher interest expense paid and higher maintenance

capital expenditures.

than the potentially prolonged effect of the COVID-19 pandemic and the notes payable financing described above, we are not aware

of any event or trend that would potentially significantly affect liquidity.

In our opinion, working capital is not a true indicator

of our financial status.

Typically, businesses in our industry carry current liabilities in excess of current assets because businesses

in our industry receive substantially immediate payment for sales, with nominal receivables, while inventories and other current

liabilities normally carry longer payment terms.

Vendors and purveyors often remain flexible with payment terms, providing businesses

in our industry with opportunities to adjust to short-term business down turns.

We consider the primary indicators of financial

status to be the long-term trend of revenue growth, the mix of sales revenues, overall cash flow, profitability from operations

and the level of long-term debt.

following table presents a summary of such indicators for the six months ended March 31 (in thousands, except percentages):

free cash flow for the current nine-month period increased by 175.1% compared to the comparable prior-year period primarily due to higher

income from operations and lower income taxes paid, partially offset by higher interest expense paid and higher maintenance capital expenditures.

than the potentially prolonged effect of the COVID-19 pandemic and the notes payable financing described above, we are not aware of any

event or trend that would potentially significantly affect liquidity.

In our opinion, working capital is not a true indicator of our

financial status.

Typically, businesses in our industry carry current liabilities in excess of current assets because businesses in our

industry receive substantially immediate payment for sales, with nominal receivables, while inventories and other current liabilities

normally carry longer payment terms.

Vendors and purveyors often remain flexible with payment terms, providing businesses in our industry

with opportunities to adjust to short-term business down turns.

We consider the primary indicators of financial status to be the long-term

trend of revenue growth, the mix of sales revenues, overall cash flow, profitability from operations and the level of long-term debt.

following table presents a summary of such indicators for the nine months ended June 30 (in thousands, except percentages):

Sales of alcoholic beverages

6 unchanged sentences

Debt (end of period)

definition and calculation of Adjusted EBITDA and Free Cash Flow above in the Non-GAAP Financial Measures subsection of Results

of Operations.

purchased 74,659 shares of our common stock at an average price of $24.03 during the six months ended March 31, 2021, while we

purchased 465,390 shares of our common stock at an average price of $18.24 during the same period last year.

As of March 31, 2021,

we have approximately $9.0 million remaining to purchase additional shares.

definition and calculation of Adjusted EBITDA and Free Cash Flow above in the Non-GAAP Financial Measures subsection of Results of

purchased 74,659 shares of our common stock at an average price of $24.03 during the nine months ended June 30, 2021, while we purchased

465,390 shares of our common stock at an average price of $18.24 during the same period last year.

As of June 30, 2021, we have approximately

$9.0 million remaining to purchase additional shares.

have not experienced a material overall impact from inflation in our operations during the past several years.

1 unchanged sentence

by competition, we have managed to recover increased costs through price increases and may continue to do so.

However, there can

be no assurance that we will be able to do so in the future.

However, there can be no

assurance that we will be able to do so in the future.

nightclub operations are affected by seasonal factors.

Historically, we have experienced reduced revenues from April through September

(our fiscal third and fourth quarters) with the strongest operating results occurring during October through March (our fiscal

first and second quarters).

Our revenues in Bombshells are also affected by sporting events that cause unusual changes in sales

from year to year.

(our fiscal third and fourth quarters) with the strongest operating results occurring during October through March (our fiscal first

and second quarters).

Our revenues in Bombshells are also affected by sporting events that cause unusual changes in sales from year to

Allocation Strategy

capital allocation strategy provides us with disciplined guidelines on how we should use our free cash flows;

provided however,

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

We calculate free cash flow as net cash flows from

operating activities minus maintenance capital expenditures.

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

believes that we are able to make better investment decisions.

provided however, that

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

We calculate free cash flow as net cash flows from operating

activities minus maintenance capital expenditures.

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

that we are able to make better investment decisions.

on our current capital allocation strategy:

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

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

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

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

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

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

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

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

growth strategy involves the following:

(i) to acquire existing units in locations that are consistent with our growth and income

targets and which appear receptive to the upscale club formula we have developed;

(i) to acquire existing units in locations that are consistent with our growth and income targets

and which appear receptive to the upscale club formula we have developed;

(ii) to open new units after market analysis;

(iii) to franchise our Bombshells brand;

(iv) to form joint ventures or partnerships to reduce start-up and operating costs, with

us contributing equity in the form of our brand name and management expertise;

(v) to develop new club concepts that are consistent

with our management and marketing skills;

(iii) to franchise

our Bombshells brand;

(iv) to form joint ventures or partnerships to reduce start-up and operating costs, with us contributing equity

in the form of our brand name and management expertise;

(v) to develop new club concepts that are consistent with our management and

marketing skills;

(vi) to develop and open our restaurant concepts as our capital and manpower allow;

and (vii) to control the real estate in connection with club operations, although some units may be in leased premises.

believe that our nightclub operations can continue to grow organically and through careful entry into markets and demographic

segments with high growth potential.

continue to evaluate opportunities to acquire new nightclubs and anticipate acquiring new locations that fit our business model

as we have done in the past.

The acquisition of additional clubs may require us to take on additional debt or issue our common

stock, or both.

There can be no assurance that we will be able to obtain additional financing on reasonable terms in the future,

if at all, should the need arise.

An inability to obtain such additional financing could have an adverse effect on our growth

believe that Bombshells can grow organically and through careful entry into markets and demographic segments with high growth

All ten of the existing Bombshells as of March 31, 2021 are located in Texas.

Part of our growth strategy is to continue

to appeal to men, women, families, friends, singles, couples, and millennials through better quality of food, service and experience

that is more upscale than a traditional sports bar.

continue to search for suitable markets where we can open new Bombshells and are currently in the process of development in several

of these locations.

We have also increased our efforts on Bombshells franchising and have recently signed our first franchisee

for Bombshells restaurants in the San Antonio, Texas area.

and (vii) to control the real estate

in connection with club operations, although some units may be in leased premises.

believe that our nightclub operations can continue to grow organically and through careful entry into markets and demographic segments

with high growth potential.

continue to evaluate opportunities to acquire new nightclubs and anticipate acquiring new locations that fit our business model as we

have done in the past.

The acquisition of additional clubs may require us to take on additional debt or issue our common stock, or both.

There can be no assurance that we will be able to obtain additional financing on reasonable terms in the future, if at all, should the

An inability to obtain such additional financing could have an adverse effect on our growth strategy.

believe that Bombshells can grow organically and through careful entry into markets and demographic segments with high growth potential.

All ten of the existing Bombshells as of June 30, 2021 are located in Texas.

Part of our growth strategy is to continue to appeal to

men, women, families, friends, singles, couples, and millennials through better quality of food, service and experience that is more

upscale than a traditional sports bar.

continue to search for suitable markets where we can open new Bombshells and are currently in the process of development in several of

these locations.

We have also increased our efforts on Bombshells franchising and signed our first franchisee for Bombshells restaurants

in the San Antonio, Texas area in December 2020.

Quantitative and Qualitative Disclosures About Market Risk.

of March 31, 2021, there were no material changes to the information provided in Item 7A of the Company’s Annual Report

on Form 10-K for fiscal year ended September 30, 2020.

of June 30, 2021, there were no material changes to the information provided in Item 7A of the Company’s Annual Report on Form

10-K for fiscal year ended September 30, 2020.

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 2. Management’s Discussion and Analysis