What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 153 added, 103 removed, 566 unchanged (31% of the section changed)

3 unchanged sentences

(in thousands, except par value and number of shares)

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

Current assets

31 unchanged sentences

20,000,000 shares authorized;

9,430,225 and 9,231,725 shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively

9,430,225 and 9,231,725 shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively

Additional paid-in capital 82,091 67,227

9 unchanged sentences

For the Three Months Ended

March 31, For the Six Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

13 unchanged sentences

Depreciation and amortization 4,041 2,565 11,108 7,636

Other charges (gains), net 3,758 7 3,104 ( 144 )

Other charges, net 2,589 1,501 5,693 1,357

Total operating expenses 61,540 50,207 172,700 142,743

8 unchanged sentences

Net loss (income) attributable to noncontrolling interests 68 ( 40 ) 74 ( 50 )

Net income attributable to RCIHH common shareholders $ 7,732 $ 10,952 $ 17,970 $ 21,527

Net income attributable to RCIHH common stockholders $ 9,085 $ 13,902 $ 27,055 $ 35,429

Earnings per share

27 unchanged sentences

Balance at March 31, 2023 9,430,225 94 85,082 190,905 — — ( 117 ) 275,964

Adjustment in fair value of common shares issued for business combination — — ( 3,461 ) — — — — ( 3,461 )

Payment of dividends — — — ( 565 ) — — — ( 565 )

Stock-based compensation — — 470 — — — — 470

Net income (loss) — — — 9,085 — — ( 68 ) 9,017

Balance at June 30, 2023

9,430,225 $ 94 $ 82,091 $ 199,425 — $ — $ ( 185 ) $ 281,425

10 unchanged sentences

Balance at March 31, 2022 9,454,267 94 77,553 150,366 — — ( 590 ) 227,423

Purchase of treasury shares — — — — ( 168,069 ) ( 9,212 ) — ( 9,212 )

Canceled treasury shares ( 168,069 ) ( 1 ) ( 9,211 ) — 168,069 9,212 — —

Payment of dividends — — — ( 468 ) — — — ( 468 )

Net income — — — 13,902 — — 40 13,942

Balance at June 30, 2022

9,286,198 $ 93 $ 68,342 $ 163,800 — $ — $ ( 550 ) $ 231,685

3 unchanged sentences

(in thousands, except number of shares)

For the Six Months Ended March 31,

For the Nine Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

3 unchanged sentences

Impairment of assets 3,293 1,722

Deferred income tax benefit ( 790 ) ( 409 )

Stock-based compensation 2,117 —

27 unchanged sentences

Share in return of investment by noncontrolling partner ( 600 ) —

Net cash provided by financing activities 3,196 24,335

Net cash provided by (used in) financing activities ( 2,353 ) 11,282

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 12,396 ) 1,814

26 unchanged sentences

In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made.

Operating results for the six months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.

Operating results for the nine months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.

We made certain reclassification adjustments to segment disclosures related to prepaid insurance and goodwill.

2 unchanged sentences

There is no impact in consolidated total assets, results of operations, and cash flows in all periods presented.

See Note 11 .

Recent Accounting Standards and Pronouncements

30 unchanged sentences

Toward the end of fiscal 2022 and continuing to the current fiscal year, geopolitical and macroeconomic events have impacted our operating results and cash flows by causing inflation on wages and other operating expenses.

In the event global inflation leads to a major economic downturn, our business operations and cash flow could be significantly affected.

In the event global inflation leads to a major economic downturn, our business operations and cash flows could be significantly affected.

Acquisitions and Dispositions

3 unchanged sentences

The site includes extra land that will be listed for sale once the Bombshells unit is completed.

Non-Income-Producing Properties

• On October 11, 2022, the Company purchased a hangar in Arcola, Texas amounting to $ 754,000 in cash.

• On February 6, 2023, in view of the increasing business presence of the Company in the Denver, Colorado area, the Company acquired a non-income-producing corporate property for $ 458,000 in cash, to be used for office space and employee housing.

Heartbreakers Gentlemen's Club

16 unchanged sentences

Approximately $ 1.5 million of the recognized goodwill will be deductible for tax purposes.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In connection with this acquisition, we incurred approximately $ 0 and $ 23,000 in acquisition-related expenses during the three and six months ended March 31, 2023, respectively, which is included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income.

From the date of acquisition until March 31, 2023, the club contributed revenues of $ 554,000 and $ 901,000 and income from operations of $ 103,000 and $ 160,000 during the three and six months ended March 31, 2023, respectively, which are included in our unaudited condensed consolidated statements of income.

In connection with this acquisition, we incurred approximately $ 0 and $ 23,000 in acquisition-related expenses during the three and nine months ended June 30, 2023, respectively, which is included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income.

From the date of acquisition until June 30, 2023, the club contributed revenues of $ 580,000 and $ 1.5 million and income from operations of $ 93,000 and $ 253,000 during the three and nine months ended June 30, 2023, respectively, which are included in our unaudited condensed consolidated statements of income.

The seller has not maintained historical U.S.

GAAP financial data and it is impracticable to prepare them, therefore, we could not provide supplemental pro forma information of the combined entities.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Aurora CO Property

On November 8, 2022, the Company purchased real estate in Aurora, Colorado amounting to $ 850,000 in cash for a future Bombshells location.

Central City CO Casino Property 1

Central City CO Casino Properties

On December 5, 2022, the Company purchased real estate in Central City, Colorado amounting to $ 2.5 million in cash for the development of a Rick's Cabaret Steakhouse and Casino business.

On February 6, 2023, the Company purchased real estate in Central City, Colorado amounting to $ 2.2 million in cash for the development of another casino business.

Mark IV Property

8 unchanged sentences

The Company used $ 1.2 million of the proceeds to pay off a loan related to the property.

Central City CO Casino Property 2

On February 6, 2023, the Company purchased real estate in Central City, Colorado amounting to $ 2.2 million in cash for the development of another casino business.

Bombshells San Antonio

3 unchanged sentences

The Company allocated the acquisition price $ 61,000 to inventory, $ 2.7 million to property and equipment, and $ 480,000 to favorable lease intangible and right-of-use assets, net of lease liability.

Baby Dolls-Chicas Locas

On March 16, 2023, the Company and certain of its subsidiaries completed the acquisition of five gentlemen's clubs, five related real estate properties, associated intellectual properties, and certain automated teller machines for a total agreed acquisition price of $ 66.5 million, payable with a total of $ 25.0 million in cash, a total of $ 25.5 million in 10-year 7 % seller financing promissory notes, and 200,000 restricted shares of common stock based on an $ 80 per share price, subject to lock-up, leak out restrictions.

The five clubs, which are all located in Texas, were purchased through four different asset purchase agreements and one stock purchase agreement, under each of which a newly formed wholly-owned subsidiary of the Company acquired from each club-owning entity all of the tangible and intangible assets and personal property used in the business of that club, except for certain excluded assets.

The fair value of the common stock consideration was

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Baby Dolls-Chicas Locas

On March 16, 2023, the Company and certain of its subsidiaries completed the acquisition of five gentlemen's clubs, five related real estate properties, associated intellectual properties, and certain automated teller machines for a total purchase price of $ 66.5 million, payable with a total of $ 25.0 million in cash, a total of $ 25.5 million in 10-year 7 % seller financing promissory notes, and 200,000 restricted shares of common stock based on an $ 80 per share price, subject to lock-up, leak out restrictions.

discounted due to lack of marketability during the lock-up period.

The cash consideration at closing was partially funded by the $ 10.0 million line of credit secured by the Company on March 9, 2023 (see Note 7 ).

As of the filing of this report, we have not completed our valuation analysis and related calculations in sufficient detail necessary to arrive at the fair values of the net assets acquired and the debt and stock consideration, but we have preliminarily allocated the acquisition price as follows based on negotiated purchase price:

$ 632,000 to current assets, $ 41.6 million to property and equipment, $ 11.2 million to identifiable intangibles, $ 632,000 to accounts payable, and $ 14.0 million to goodwill.

In connection with this acquisition, we incurred approximately $ 280,000 and $ 292,000 in acquisition-related expenses during the three and six months ended March 31, 2023, respectively, which is included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income.

From the date of acquisition until March 31, 2023, the clubs contributed revenues of $ 1.2 million and $ 1.2 million and loss from operations of $ 154,000 and $ 154,000 during the three and six months ended March 31, 2023, respectively, which are included in our unaudited condensed consolidated statements of income.

The preliminary fair value of the consideration transferred is as follows:

Cash $ 25,000

Notes payable 25,500

Common stock 12,847

Total consideration fair value $ 63,347

We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values, all in our Nightclub reportable segment.

We have not finalized our valuation of the tangible and identifiable intangible assets acquired in this transaction.

As of the release of this report, the fair value of the acquired tangible and identifiable intangible assets are provisional pending completion of the final valuations for those assets.

Based on the allocation of the preliminary fair value of the acquisition price, measurement period adjustments, and subject to any working capital adjustments, the amount of goodwill is estimated at $ 9.9 million.

Goodwill represents the excess of the acquisition price fair value over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, which is essentially the forward earnings potential of the acquired entities.

This acquisition also gives the Company a bigger market share in the Hispanic demographic in the Texas metropolitan areas.

Goodwill will not be amortized but will be tested at least annually for impairment.

Approximately $ 9.9 million of the recognized goodwill will be deductible for tax purposes.

The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of March 16, 2023:

Current assets $ 632

Property and equipment 16,570

Licenses 27,440

Tradename 9,484

Accounts payable ( 632 )

Total net assets acquired 53,494

Goodwill 9,853

Acquisition price fair value $ 63,347

Licenses and tradenames will not be amortized but will be tested at least annually for impairment.

In connection with this acquisition, we incurred approximately $ 0 and $ 292,000 in acquisition-related expenses during the three and nine months ended June 30, 2023, respectively, which is included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income.

From the date of acquisition until June 30, 2023, the clubs contributed revenues of $ 7.0 million and $ 8.2 million and income from operations of $ 2.0 million and $ 2.4 million during the three and nine months ended June 30, 2023, respectively, which are included in our unaudited condensed consolidated statements of income.

The following table presents the unaudited pro forma combined results of operations of the Company and the five acquired clubs and related assets as though the acquisition occurred at the beginning of fiscal 2022 (in thousands, except per share amount and number of shares):

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended

March 31, For the Six Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

5 unchanged sentences

The unaudited pro forma financial information reflects material, nonrecurring adjustments directly attributable to the acquisition including acquisition-related expenses, interest expense, and any related tax effects.

Since we do not yet have a final valuation of the assets that we acquired and the liabilities that we assumed, the unaudited pro forma financial information does not include adjustments related to changes in recognized expenses caused by the fair value of assets acquired, such as depreciation and amortization and related tax effects.

Since the acquired clubs have been integrated with the Company for the entire three months ended June 30, 2023, the results presented for the said period are historical and not pro forma.

Since we do not yet have a final valuation of the assets that we acquired and the liabilities that we assumed, the unaudited pro forma financial information only includes preliminary adjustments related to changes in recognized expenses caused by the fair value of assets acquired, such as depreciation and amortization and related tax effects.

Pro forma net income and pro forma earnings per share include the impact of acquisition-related expenses and interest expense related to the $ 10.0 million line-of-credit facility (see Note 7 ) and the nine seller-financed notes in the acquisition as if they were incurred as of the first day of fiscal 2022.

Pro forma weighted average number of common shares outstanding includes the impact of 200,000 shares of our common stock issued as partial consideration for the acquisition.

Arapahoe Street, Denver CO Property

On June 20, 2023, the Company purchased a restaurant parcel located in a condominium building in Denver, Colorado amounting to $ 4.6 million for a future Bombshells location.

The purchase price was paid $ 1.7 million in cash and $ 2.9 million under a 7.12 % five-year promissory note (see Note 7 ).

Pearland Property Sale

On June 29, 2023, the Company sold a property with a carrying value of $ 1.1 million for $ 1.5 million in cash.

The Company used $ 904,000 of the proceeds to pay off a loan related to the property.

Non-Income-Producing Properties

• On October 11, 2022, the Company purchased a hangar in Arcola, Texas amounting to $ 754,000 in cash.

RCI HOSPITALITY HOLDINGS, INC.

1 unchanged sentence

Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 11 ), are shown below (in thousands):

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

Nightclubs Bombshells Other Total Nightclubs Bombshells Other Total

7 unchanged sentences

$ 62,449 $ 14,397 $ 209 $ 77,055 $ 54,684 $ 15,789 $ 241 $ 70,714

Six Months Ended March 31, 2023 Six Months Ended March 31, 2022

Nine Months Ended June 30, 2023 Nine Months Ended June 30, 2022

Nightclubs Bombshells Other Total Nightclubs Bombshells Other Total

16 unchanged sentences

Revenue Balance at

March 31, 2023

June 30, 2023

Ad revenue $ 82 $ 375 $ ( 370 ) $ 87

7 unchanged sentences

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

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

Credit card receivables $ 2,342 $ 2,687

5 unchanged sentences

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

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

Prepaid insurance $ 2,746 $ 191

4 unchanged sentences

Total prepaid expenses and other current assets $ 5,028 $ 1,499

A reconciliation of goodwill as of March 31, 2023 and September 30, 2022, which is substantially all in Nightclubs segment, is as follows (in thousands):

A reconciliation of goodwill as of June 30, 2023 and September 30, 2022, which is substantially all in Nightclubs segment, is as follows (in thousands):

Gross Accumulated Impairment Net

2 unchanged sentences

Acquisitions (see Note 4 )

12,769 — 12,769

Impairment — 1,852 ( 1,852 )

Balance at March 31, 2023

Balance at June 30, 2023

$ 101,690 $ 23,006 $ 78,684

2 unchanged sentences

The components of intangible assets, net are as follows (in thousands):

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

Indefinite-lived:

10 unchanged sentences

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

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

Insurance $ 2,394 $ 30

12 unchanged sentences

For the Three Months Ended

March 31, For the Six Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

13 unchanged sentences

Total selling, general and administrative expenses $ 23,803 $ 19,572 $ 68,561 $ 56,495

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

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

For the Three Months Ended

March 31, For the Six Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

1 unchanged sentence

Settlement of lawsuits 63 132 3,183 709

Loss (gain) on disposal of businesses and assets 3 ( 58 ) ( 587 ) ( 400 )

Gain on disposal of businesses and assets ( 105 ) ( 266 ) ( 692 ) ( 666 )

Gain on insurance — ( 87 ) ( 91 ) ( 408 )

Other charges (gains), net $ 3,758 $ 7 $ 3,104 $ ( 144 )

Other charges, net $ 2,589 $ 1,501 $ 5,693 $ 1,357

During the second quarter ended March 31, 2023, the Company recorded $ 662,000 in goodwill impairment related to one club, and during the third quarter ended June 30, 2023, the Company recorded $ 1.2 million in goodwill impairment related to one club and $ 380,000 in SOB license impairment, $ 58,000 in property and equipment impairment and $ 1.0 million in operating lease right-of-use asset impairment related to one club that was closed.

During the third quarter ended June 2022, the Company recorded $ 293,000 in SOB license impairment, $ 400,000 in goodwill impairment, and $ 1.0 million in property and equipment impairment related to two clubs and one Bombshells unit.

On October 10, 2022, in relation to a real estate purchase (see Note 4 ), the Company borrowed $ 2.3 million from a bank lender.

6 unchanged sentences

This promissory note is secured by the purchased real estate property.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On November 18, 2022, in relation to a real estate purchase on September 12, 2022, the Company borrowed $ 1.5 million from a bank lender.

2 unchanged sentences

This promissory note is secured by the purchased real estate property.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On December 20, 2022, the Company executed a promissory note for $ 3.3 million with a bank lender in relation to a purchase of a food hall property (see Note 4 ).

9 unchanged sentences

There are certain financial covenants with which the Company is to be in compliance related to this loan, including a compensating balance requirement of $ 3.0 million and a minimum tangible net worth requirement of $ 20.0 million.

The compensating balance requirement does not contractually or legally restrict the withdrawal or use of cash.

On March 16, 2023, in relation to the acquisition of five clubs with associated real estate, automated teller machines, and intellectual property (see Note 4 ), the Company executed nine secured promissory notes with a total principal amount of $ 25.5 million.

1 unchanged sentence

The holder of the $ 5.0 million promissory note related to the real estate properties may call due from the Company a principal payment of $ 1.0 million once in every calendar year.

Future maturities of long-term debt as of March 31, 2023 are as follows:

$ 21.6 million, $ 38.0 million, $ 16.8 million, $ 12.7 million, $ 19.6 million and $ 140.3 million for the twelve months ending March 31, 2023, 2024, 2025, 2026, 2027, and thereafter, respectively.

On June 18, 2023, in relation to a purchase of a retail parcel in a condominium property (see Note 4 ), the Company executed a promissory note for $ 2.9 million with a bank lender.

The 7.12 % five-year promissory note is payable in monthly installments of $ 20,654 in principal and interest, with the balance of principal and accrued interest payable at maturity.

Future maturities of long-term debt as of June 30, 2023 are as follows:

$ 24.4 million, $ 39.1 million, $ 12.3 million, $ 13.1 million, $ 22.6 million and $ 135.5 million for the twelve months ending June 30, 2023, 2024, 2025, 2026, 2027, and thereafter, respectively.

Of the maturity schedule mentioned above, $ 7.5 million, $ 26.8 million, $ 0.0 million , $ 0 , $ 8.7 million and $ 70.6 million, respectively, relate to scheduled balloon payments.

Unamortized debt discount and issuance costs amounted to $ 3.2 million and $ 3.4 million as of March 31, 2023 and September 30, 2022, respectively.

Unamortized debt discount and issuance costs amounted to $ 3.1 million and $ 3.4 million as of June 30, 2023 and September 30, 2022, respectively.

Stock-based Compensation

4 unchanged sentences

The 2022 Plan is administered by the compensation committee of the board of directors.

The compensation committee has the exclusive power to select individuals to receive grants, to establish the terms of the options granted to each participant, provided that all options granted shall be granted at an exercise price not less than the fair market value of the common stock covered by the option on the grant date, and to make all determinations necessary or advisable under the 2022 Plan.

On February 9, 2022, the board of directors approved a grant of 50,000 stock options to each of six members of management subject to the approval of the 2022 Plan.

Stock-based compensation for the three and six months ended March 31, 2023, which is included in corporate segment selling, general and administrative expenses, amounted to $ 706,000 and $ 1.6 million, respectively.

No stock-based compensation expense was recognized during the three and six months ended March 31, 2022.

As of March 31, 2023, we had unrecognized compensation cost amounting to $ 5.4 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of 2.9 years.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

provided however that the options will be subject to earlier vesting under certain events set forth in the Plan, including without limitation a change in control.

fair market value of the common stock covered by the option on the grant date, and to make all determinations necessary or advisable under the 2022 Plan.

On February 9, 2022, the board of directors approved a grant of 50,000 stock options to each of six members of management subject to the approval of the 2022 Plan.

Stock-based compensation for the three and nine months ended June 30, 2023, which is included in corporate segment selling, general and administrative expenses, amounted to $ 470,000 and $ 2.1 million, respectively.

No stock-based compensation expense was recognized during the three and nine months ended June 30, 2022.

As of June 30, 2023, we had unrecognized compensation cost amounting to $ 4.9 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of 2.6 years.

The February 9, 2022 stock options vest over four years with the first 20 % having vested on the approval of the 2022 Plan at the 2022 annual stockholders' meeting on August 23, 2022, and 20 % vesting on February 9 of each year thereafter, provided however that the options will be subject to earlier vesting under certain events set forth in the Plan, including without limitation a change in control.

All of the options will expire, if not exercised, at the end of five years .

The weighted average grant-date fair value of the stock options was $ 31.37 per share.

No stock options were exercised during the three and six months ended March 31, 2023.

As of March 31, 2023, 120,000 stock options were vested and exercisable.

For the three and six months ended March 31, 2023, we excluded 300,000 stock options from the calculation of diluted earnings per share because their effect was anti-dilutive.

There were no stock options outstanding during the three and six months ended March 31, 2022.

No stock options were exercised during the three and nine months ended June 30, 2023.

As of June 30, 2023, 120,000 stock options were vested and exercisable.

For the three and nine months ended June 30, 2023, we excluded 300,000 stock options from the calculation of diluted earnings per share because their effect was anti-dilutive.

There were no stock options outstanding during the three and nine months ended June 30, 2022.

Aside from the outstanding stock options, there were no other potentially dilutive securities for inclusion in the calculation of diluted earnings per share.

Income tax expense was $ 2.1 million and $ 5.2 million during the three and six months ended March 31, 2023, respectively, compared to $ 3.4 million and $ 6.3 million during the three and six months ended March 31, 2022, respectively.

The effective income tax expense rate was 21.8 % and 22.4 % for the three and six months ended March 31, 2023, respectively, compared to 23.4 % and 22.6 % for the three and six months ended March 31, 2022, respectively.

Income tax expense was $ 2.3 million and $ 7.4 million during the three and nine months ended June 30, 2023, respectively, compared to $ 3.8 million and $ 10.1 million during the three and nine months ended June 30, 2022, respectively.

The effective income tax expense rate was 20.1 % and 21.6 % for the three and nine months ended June 30, 2023, respectively, compared to 21.3 % and 22.1 % for the three and nine months ended June 30, 2022, respectively.

Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, as presented below.

For the Three Months Ended

March 31, For the Six Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

13 unchanged sentences

A declaratory judgment action was brought by five operating subsidiaries of the Company to challenge a Texas Comptroller administrative rule related to the $ 5 per customer Patron Tax Fee assessed against Sexually Oriented Businesses.

An administrative rule attempted to expand the fee to cover venues featuring dancers using latex cover as well as traditional nude entertainment.

An administrative rule attempted to expand the fee to cover venues featuring dancers using latex cover as well

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

as traditional nude entertainment.

The administrative rule was challenged on both constitutional and statutory grounds.

3 unchanged sentences

The State of Texas appealed to the Fifth Circuit Court of Appeals, who affirmed that the Texas Patron Fee is unconstitutional as applied.

The State of Texas next sought review from the Supreme Court, but the high court declined to take the case.

The State of Texas next sought review from the Supreme Court, but the high court declined to take the case and in doing so exhausted the State's rights to appeal the judgment.

The lawsuit was sent back to the trial court for post-trial proceedings, which resulted in the award of attorneys' fees to the operating subsidiaries.

Pursuant to the rulings, the Texas Patron Fee is unconstitutional as applied to clubs featuring dancers using latex cover.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Indemnity Insurance Corporation

13 unchanged sentences

As previously stated, since October 25, 2013, the Company has obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date.

As of March 31, 2023, we have 1 remaining unresolved claim out of the original 71 claims.

As of June 30, 2023, we have 1 remaining unresolved claim out of the original 71 claims.

Shareholder Derivative Action

9 unchanged sentences

These allegations are substantively similar to claims asserted in a prior securities class action that was settled in August of 2022 and a prior derivative action that was dismissed in June of 2021.

Plaintiffs do not demand any specific amount of damages, which if awarded would be paid by the individual defendants to the Company.

Plaintiffs also seek unspecified changes to the Company’s internal controls.

On April 2, 2022, the Company and its current and former officers and directors named in the shareholder derivative complaint filed Motions to Dismiss.

On March 31, 2023, the Court denied the Company’s motion, which was based on its rejections of the shareholders’ pre-litigation demands that the Company sue the individual defendants;

granted the motion of two current individuals who were not members of the Company’s Board of Directors at the time of the alleged events at issue, Ms.

Martin and Mr.

and denied the motions of the remaining defendants.

RCI intends to vigorously defend its position.

On July 24, 2023, the parties reached an agreement in principle to resolve the action.

The parties are preparing a settlement agreement and anticipate seeking Court approval of the proposed settlement in the next 30 days.

The Company believes that payments under the settlement agreement will be covered by insurance.

On June 23, 2014, Mark H.

5 unchanged sentences

The suit alleged that JAI Phoenix was liable under theories of common law dram shop negligence and dram shop negligence per se.

After a jury trial proceeded to a verdict in favor of the plaintiffs against both defendants, in April 2017 the Court entered a judgment under which JAI Phoenix’s share of compensatory damages is approximately $ 1.4 million and its share of punitive damages is $ 4.0 million.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

$ 1.4 million and its share of punitive damages is $ 4.0 million.

In May 2017, JAI Phoenix filed a motion for judgment as a matter of law or, in the alternative, motion for new trial.

5 unchanged sentences

JAI Phoenix will continue to vigorously defend itself.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As set forth in the risk factors as disclosed in this report, the adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.

10 unchanged sentences

In matters where there is insurance coverage, in the event we incur any liability, we believe it is unlikely we would incur losses in connection with these claims in excess of our insurance coverage.

Settlements of lawsuits for the three and six months ended March 31, 2023 amount to $ 3.1 million and $ 3.1 million, respectively, and for the three and six months ended March 31, 2022 amount to approximately $ 385,000 and $ 577,000 , respectively.

As of March 31, 2023 and September 30, 2022, the Company has accrued $ 3.1 million and $ 246,000 in accrued liabilities, respectively, related to settlement of lawsuits.

Settlements of lawsuits for the three and nine months ended June 30, 2023 amount to $ 0.1 million and $ 3.2 million, respectively, and for the three and nine months ended June 30, 2022 amount to approximately $ 132,000 and $ 709,000 , respectively.

As of June 30, 2023 and September 30, 2022, the Company has accrued $ 1.9 million and $ 246,000 in accrued liabilities, respectively, related to settlement of lawsuits.

RCI HOSPITALITY HOLDINGS, INC.

9 unchanged sentences

For the Three Months Ended

March 31, For the Six Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

24 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

Nightclubs $ 495,412 $ 437,096

3 unchanged sentences

$ 620,107 $ 530,738

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended March 31, 2023 amounting to $ 3.9 million and $ 31,000 , respectively, and for the six months ended March 31, 2023 amounting to $ 7.6 million and $ 262,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three and six months ended March 31, 2023 amounting to $ 78,000 and $ 115,000 , 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, 2022 amounting to $ 3.3 million and $ 31,000 , and for the six months ended March 31, 2022 amounting to $ 6.5 million and $ 199,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three and six months ended March 31, 2022 amounting to $ 53,000 and $ 122,000 , respectively.

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended June 30, 2023 amounting to $ 4.3 million and $ 32,000 , respectively, and for the nine months ended June 30, 2023 amounting to $ 11.9 million and $ 294,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three and nine months ended June 30, 2023 amounting to $ 73,000 and $ 188,000 , respectively.

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended June 30, 2022 amounting to $ 3.4 million and $ 32,000 , and for the nine months ended June 30, 2022 amounting to $ 9.9 million and $ 231,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three and nine months ended June 30, 2022 amounting to $ 42,000 and $ 164,000 , respectively.

These intercompany revenue amounts are eliminated upon consolidation.

3 unchanged sentences

Accordingly, those asset costs have been transferred out of the Bombshells segment.

As of March 31, 2023, we reclassified $ 9.4 million of goodwill from Corporate to Nightclubs and $ 4.7 million of prepaid insurance to $ 3.7 million in Nightclubs, $ 961,000 in Bombshells, and $ 29,000 in Other.

As of September 30, 2022, we reclassified $ 9.0 million of goodwill from Corporate to Nightclubs to conform to current year presentation.

2 unchanged sentences

Langan receives no compensation or other direct financial benefit for any of the guarantees.

The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of March 31, 2023 and September 30, 2022, was $ 119.1 million and $ 115.1 million, respectively.

The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of June 30, 2023 and September 30, 2022, was $ 120.2 million and $ 115.1 million, respectively.

Included in the $ 17.0 million borrowing on October 12, 2021 are notes borrowed from related parties—one note for $ 500,000 (Ed Anakar, an employee of the Company and brother of our former director Nourdean Anakar) and another note for $ 150,000 (from a brother of Company CFO, Bradley Chhay) in which the terms of the notes are the same as the rest of the lender group.

1 unchanged sentence

Nottingham Creations is owned by a brother of Eric Langan (as was Sherwood Forest).

Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were $ 188,285 and $ 188,285 during the three and six months ended March 31, 2023, respectively, and $ 3,112 and $ 27,149 during the three and six months ended March 31, 2022, respectively.

As of March 31, 2023 and September 30, 2022, we owed Nottingham Creations and Sherwood Forest $ 110,809 and $ 92,808 , respectively, in unpaid billings.

Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were $ 0 and $ 188,285 during the three and nine months ended June 30, 2023, respectively, and $ 42,093 and $ 69,242 during the three and nine months ended June 30, 2022, respectively.

As of June 30, 2023 and September 30, 2022, we owed Nottingham Creations and Sherwood Forest $ 17,386 and $ 92,808 , respectively, in unpaid billings.

TW Mechanical LLC provided plumbing and HVAC services to both a third-party general contractor providing construction services to the Company, as well as directly to the Company during fiscal 2023 and 2022.

A son-in-law of Eric Langan owns a 50 % interest in TW Mechanical.

Amounts billed by TW Mechanical to the third-party general

Amounts billed by TW Mechanical to the third-party general contractor were $ 171,435 and $ 235,738 for the three and nine months ended June 30, 2023, respectively, and $ 0 and

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

contractor were $ 18,000 and $ 64,000 for the three and six months ended March 31, 2023, respectively, and $ 3,809 and $ 3,809 for the three and six months ended March 31, 2022, respectively.

Amounts billed directly to the Company were $ 379 and $ 379 for the three and six months ended March 31, 2023, respectively, and $ 3,704 and $ 84,700 for the three and six months ended March 31, 2022, respectively.

As of March 31, 2023 and September 30, 2022, the Company owed TW Mechanical $ 0 and $ 9,338 , respectively, in unpaid direct billings.

Total lease expense included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income for the three and six months ended March 31, 2023 and 2022 is as follows (in thousands):

Three Months Ended March 31, Six Months Ended March 31,

$ 3,809 for the three and nine months ended June 30, 2022, respectively.

Amounts billed directly to the Company were $ 8,823 and $ 9,202 for the three and nine months ended June 30, 2023, respectively, and $ 16,500 and $ 101,200 for the three and nine months ended June 30, 2022, respectively.

As of June 30, 2023 and September 30, 2022, the Company owed TW Mechanical $ 0 and $ 9,338 , respectively, in unpaid direct billings.

Total lease expense included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income for the three and nine months ended June 30, 2023 and 2022 is as follows (in thousands):

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 2023 2022

1 unchanged sentence

Variable lease expense 406 404 1,192 971

Short-term and other lease expense (includes $ 63 and $ 58 recorded in advertising and marketing for the three months ended March 31, 2023 and 2022, respectively, and $ 127 and $ 130 for the six months ended March 31, 2023 and 2022, respectively;

and $ 138 and $ 107 recorded in repairs and maintenance for the three months ended March 31, 2023 and 2022, respectively, and $ 265 and $ 190 for the six months ended March 31, 2023 and 2022, respectively;

Short-term and other lease expense (includes $ 116 and $ 53 recorded in advertising and marketing for the three months ended June 30, 2023 and 2022, respectively, and $ 243 and $ 183 for the nine months ended June 30, 2023 and 2022, respectively;

and $ 145 and $ 120 recorded in repairs and maintenance for the three months ended June 30, 2023 and 2022, respectively, and $ 410 and $ 310 for the nine months ended June 30, 2023 and 2022, respectively;

364 290 950 988

5 unchanged sentences

Weighted average discount rate – operating leases 5.8 % 5.6 %

Future maturities of operating lease liabilities as of March 31, 2023 are as follows (in thousands):

Future maturities of operating lease liabilities as of June 30, 2023 are as follows (in thousands):

Principal Payments Interest Payments Total Payments

April 2023 - March 2024 $ 2,951 $ 2,189 $ 5,140

April 2024 - March 2025 3,185 2,016 5,201

April 2025 - March 2026 3,460 1,829 5,289

April 2026 - March 2027 3,665 1,626 5,291

April 2027 - March 2028 3,303 1,423 4,726

July 2023 - June 2024 $ 2,923 $ 2,098 $ 5,021

July 2024 - June 2025 3,161 1,926 5,087

July 2025 - June 2026 3,445 1,740 5,185

July 2026 - June 2027 3,580 1,538 5,118

July 2027 - June 2028 3,081 1,344 4,425

Thereafter 22,674 4,939 27,613

$ 38,864 $ 13,585 $ 52,449

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Events

On August 3, 2023, the Company purchased real estate in Central City, Colorado amounting to $ 2.9 million in cash for future business development.

Subsequent to the balance sheet date through August 4, 2023, we repurchased 10,440 shares of our common stock at an average price of $ 69.48 .

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