What changed in this filing

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Item 9A. Controls and Procedures

2023-12-14 compared with 2022-12-14 · 183 added, 90 removed, 487 unchanged (36% of the section changed)

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Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the CEO and the CFO, to allow timely decisions regarding required disclosures.

Due to a material weakness in internal control over financial reporting described below, management concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2022.

Notwithstanding the existence of this material weakness, management believes that the consolidated financial statements in this annual report filed on Form 10-K present, in all material respects, the Company’s financial condition as reported, in conformity with United States Generally Accepted Accounting Principles (“U.S.

Due to material weaknesses in internal control over financial reporting described below, management concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2023.

Notwithstanding the existence of these material weaknesses, management believes that the consolidated financial statements in this annual report filed on Form 10-K present, in all material respects, the Company’s financial condition as reported, in conformity with United States Generally Accepted Accounting Principles (“U.S.

Management’s Annual Report on Internal Control over Financial Reporting

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A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We have identified a material weakness in internal control related to the proper design and implementation of controls over management’s review of the Company’s accounting for business combinations, specifically related to the identification of and accounting for, intangible assets acquired in a business combination.

We have identified material weaknesses in internal control related to (1) proper design and implementation of controls over management’s review of the Company’s accounting for business combinations, specifically related to the identification of and accounting for, intangible assets acquired in a business combination, and over the precision of management's review of certain valuation assumptions;

(2) the impairment of goodwill, indefinite-lived intangibles, and long-lived assets, specifically over the precision of management's review of certain assumptions;

and (3) ineffective information technology general controls (ITGCs") in the areas of user access and program change-management over certain information technology ("IT") systems that support the Company's financial reporting processes.

Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted.

We believe that these control deficiencies were a result of inadequate IT controls over the review of user access and imprecise documentation of procedures related to program change management.

Additionally, we rely upon a variety of outsourced IT service providers for key elements of the technology infrastructure impacting our financial reporting process.

Certain outsourced IT service providers could not provide System and Organization Controls ("SOC") reports for periods that closely align with our fiscal year end.

that management did not effectively assess the design and operation of these outsourced IT service providers’ internal controls, some of our controls over IT systems and business processes were also deemed ineffective, but only to the extent that we rely upon information that was subject to the outsourced IT service providers’ control environment.

These deficiencies may have an impact on our financial statements, account balances, and disclosures.

Based on our evaluation, our management, with the participation of our chief executive officer and chief financial officer, concluded that our internal control over financial reporting was not effective as of September 30, 2023.

The Company’s independent registered public accounting firm, Friedman, LLP, has expressed an adverse opinion on our internal control over financial reporting as of September 30, 2022, in the audit report that appears at the end of Part II of this Annual Report on Form 10-K.

Remediation Plan for Existing Material Weakness

Following identification of these material weaknesses, and prior to filing this Annual Report on Form 10-K, we completed substantive procedures for the year ended September 30, 2023.

Based on these procedures, management believes that the consolidated financial statements included in this Form 10-K have been prepared in accordance with U.S.

Our CEO and CFO have certified that, based on their knowledge, the financial statements, and other financial information included in this Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Form 10-K.

The Company’s independent registered public accounting firm, Marcum LLP, has expressed an unqualified opinion on our financial statements and an adverse opinion on our internal control over financial reporting as of September 30, 2023, in the audit report that appears at the end of Part II of this Annual Report on Form 10-K.

Remediation Plan for Existing Material Weaknesses

Review of Accounting for Business Combinations

Management is committed to the remediation of the material weakness described above.

As such, controls will be added to both increase precision of management’s review of each component of business combinations, and if necessary, retain the services of a third-party consultant to assist in the valuation and accounting for intangible assets acquired in a business combination.

It is our belief that these added controls will effectively remediate the existing material weakness.

Previously Reported Material Weakness in Internal Control Over Financial Reporting

As disclosed in Item 9A Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, we identified a material weakness in internal control related to the proper design and implementation of controls over our estimates relating to the impairment of goodwill, indefinite-lived intangibles and long-lived assets, specifically over the precision of management's review of certain assumptions.

Remediation Efforts to Address Previous Material Weakness

In response to the previously reported material weakness for the fiscal year ended September 30, 2021, management has developed and implemented enhanced review procedures that are performed by senior management over the precision of management’s review of certain assumptions and estimates related to the impairment process as noted above.

During the fourth quarter of 2022, we completed our testing of the operating effectiveness of the implemented controls.

The Company has completed the documentation and testing of the corrective actions described above and has concluded that the remediation activities implemented are sufficient to conclude that the previously disclosed material weakness on the proper design and implementation of controls over our estimates relating to the impairment of goodwill, indefinite-lived intangibles and long-lived assets, specifically over the precision of management’s review of certain assumptions within the impairment valuation model has been remediated as of September 30, 2022.

Review of Accounting for Impairment of Goodwill and Intangible Assets

As most of the assumptions used in the valuation models employed in impairment analyses are subjective in nature, Management will employ additional controls to validate these assumptions, including the engagement of a third-party consultant to assist developing valuation models and establishing sound and reasonable assumptions.

Information Technology General Controls

As a result of the material weakness, we have initiated and will continue to implement remediation measures to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively.

The remediation actions include:

(i) strengthening and enhancing the review and documentation procedures in our controls over user access review;

(ii) define and communicate clear and concise program change management policy and procedures;

(iii) enhancing the reporting requirements of accounting system audit logs;

(vi) continuous improvement over our ITGC controls related to third party applications;

and (vi) enhanced quarterly reporting on the remediation measures to the Audit Committee of the board of directors.

It is our belief that these added controls will effectively remediate the existing material weaknesses.

We believe that these actions will remediate the material weaknesses.

The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

We expect that the remediation of these material weaknesses will be completed prior to the end of fiscal 2024.

Changes in Internal Control Over Financial Reporting

During fiscal year 2022, the Company completed several business combinations as described in Note 16.

Acquisitions and Dispositions to our audited Consolidated Financial Statements.

• On October 18, 2021, we completed our acquisition of eleven gentlemen’s clubs, six related real estate properties, and associated intellectual property.

• On November 8, 2021, we acquired a club and related real estate.

• On May 2, 2022, we completed an acquisition of a club.

• On July 21, 2022, we acquired a club including real estate and the adult entertainment business.

• On July 27, 2022, we completed the acquisition of a club for the adult entertainment business and for the real estate property

During fiscal year 2023, the Company completed several business combinations as described in Note 14 - Acquisitions and Dispositions to our audited Consolidated Financial Statements.

• On October 26, 2022, the Company completed the acquisition of a club in Dickinson, Texas.

• 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.

The scope of management’s assessment of the effectiveness of the Company’s disclosure controls and procedures for fiscal year end 2023 did not include the internal control over the financial reporting of these acquisitions, in accordance with the SEC’s staff guidance that permits exclusion of acquisitions from their final assessment of internal control over financial reporting for the fiscal year in which the acquisition occurred.

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The businesses are wholly owned subsidiaries whose total assets and total revenues are excluded from management’s assessment and represent approximately 7% and 6%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2023.

30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Except for the remediation efforts as discussed above, there have been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Other Information.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Stockholders and Board of Directors of

RCI Hospitality Holdings, Inc.

Adverse Opinion on Internal Control over Financial Reporting

We have audited RCI Hospitality Holdings, Inc.’s (the “Company’s”) internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, because of the effect of the material weakness described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management’s assessment:

Ineffective controls related to management’s review of the Company’s accounting for business combinations, specifically related to the identification of and accounting for, intangible assets acquired in a business combination.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report dated December 14, 2022, on those consolidated financial statements.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets and the related consolidated statements of operations, changes in equity, and cash flows of the Company, and our report dated December 14, 2022, expressed an unqualified opinion.

We have audited RCI Hospitality Holdings, Inc.’s (the "Company’s") internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, because of the effect of the material weaknesses described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in Management's Annual Report on Internal Control Over Financial Reporting:

• The Company had ineffective design, implementation and, operation of controls over program change management, user access and vendor management controls to ensure:

1) IT program and data changes affecting the Company’s financial IT applications and underlying accounting records, are identified, tested, authorized, and implemented appropriately to validate that data produced by its relevant IT system(s) were complete and accurate.

Automated process-level and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency;

2) appropriate restrictions that would adequately prevent users from gaining inappropriate access to the financially relevant systems;

3) key third party service provider SOC reports were obtained and reviewed.

• Ineffective design, implementation, and operation of controls, which include management review controls, over the accounting for business combinations.

• Ineffective design, implementation, and operation of controls, which include management review controls, over the Company's assessments of potential impairment.

These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the fiscal 2023 consolidated financial statements and financial statement schedule, and this report does not affect our report dated December 14, 2023 on those consolidated financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet as of September 30, 2023 and the related consolidated statement of operations, changes in equity, and cash flows and the related financial statement schedule for the year ended September 30, 2023 of the Company and our report dated December 14, 2023 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

Explanatory Paragraph – Excluded Subsidiaries

As described in “Management’s Annual Report on Internal Control Over Financial Reporting”, management has excluded the Company’s acquisition of two businesses that occurred during the year ended September 30, 2023, from its assessment of internal control over financial reporting as of September 30, 2023 because these entities were acquired by the Company in purchase business combinations during the year ended September 30, 2023.

We have also excluded these two businesses from our audit of internal control over financial reporting.

These businesses are wholly owned subsidiaries whose

combined total assets and total revenues represent approximately 7% and 6%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2023.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A - Management’s Annual Report on Internal Control over Financial Reporting”.

The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management Annual Report on Internal Control Over Financial Reporting”.

Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

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We believe that our audit provides a reasonable basis for our opinion.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded the Company’s acquisition of five businesses that occurred during the year ended September 30, 2022, from its assessment of internal control over financial reporting as of September 30, 2022, as they were acquired by the Company in purchase business combinations during the year ended September 30, 2022.

We have also excluded the businesses from our audit of internal control over financial reporting.

The businesses are wholly owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent

approximately 22% and 15%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2022.

Definition and Limitations of Internal Control over Financial Reporting

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and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Friedman LLP

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.

/s/ Marcum LLP

Marlton, New Jersey

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Yura Barabash became a director on September 19, 2017.

Barabash has been a Vice President of Business Development at AVI-SPL, a global market leader in audio visual and unified communications based in Florida since October 2021.

Barabash has extensive corporate finance experience across multiple industries domestically and internationally, and has been involved in multiple equity and debt financings and M&A transactions for public and private companies in the US, China, Brazil, EU and Russia.

Since October 2021, he has served as the Vice President of Business Development at AVI-SPL, the world's largest AV/UCC integrator, and digital solutions provider based in Florida.

Barabash brings with him extensive corporate finance experience across various industries both domestically and internationally.

He has played a key role in numerous equity and debt financings, as well as mergers and acquisitions transactions involving public and private companies in the United States, Mexico, China, Brazil and the European Union.

From August 2019 to January 2021, Mr.

Barabash was a Chief Operating Officer of Gingko Online Learning LLC, private online learning company in Florida and a consultant to Chengdu Gingko Education Management, educational management company in Chengdu, China.

From 2016 to June 2019 he was a Senior Vice President of Finance at Motorsport Network LLC (www.motorsportnetwork.com) in Miami, the largest motorsport data enabled digital media company in the world.

From 2016 to June 2019, he was a Senior Vice President of Finance at Motorsport Network LLC (www.motorsportnetwork.com) in Miami, the largest motorsport digital media company in the world.

Prior to joining Motorsport Network, he was an investment banker at Primary Capital from 2011 until 2016.

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from Sevastopol City University in Ukraine and a Master in International Affairs from Columbia University in New York City, and is fluent in Russian.

Barabash is a valuable member of the Board of Directors based on his extensive corporate finance and investment banking experience across multiple industries domestically and internationally with a wide range of transactions (debt and equity).

He also possesses extensive financial modeling and investor relationship experience, and experience in diligence, governance and accounting.

Barabash has recently attended the Harvard Business School Executive Education programs focusing on Audit and Compensation Committees.

Martin became a director on August 8, 2019.

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He attended Dartmouth College and University of Southampton in the U.K.

He has also completed graduate-level courses at INSEAD Business School in France and the

Wharton School of the University of Pennsylvania.

He has also completed graduate-level courses at INSEAD Business School in France and the Wharton School of the University of Pennsylvania.

His volunteer activities have included serving as national vice president of United Cerebral Palsy.

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Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own beneficially more than ten percent of our common stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission.

Based solely upon a review of Forms 3, 4 and 5 furnished to us during the fiscal year ended September 30, 2022, we believe that the directors, executive officers, and greater than ten percent beneficial owners have complied with all applicable filing requirements during the fiscal year ended September 30, 2022, except for (i) a Form 4 for a single transaction that was not filed on a timely basis by Yura Barabash, a director, and (ii) two Form 4s for a total of three transactions that were not filed on a timely basis by Elaine Martin, a director.

Based solely upon a review of Forms 3, 4 and 5 furnished to us during the fiscal year ended September 30, 2023, we believe that the directors, executive officers, and greater than ten percent beneficial owners have complied with all applicable filing requirements during the fiscal year ended September 30, 2023.

CODE OF ETHICS

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This compensation discussion and analysis focuses on the information contained in the following tables and related footnotes.

The individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2022, as well as any other individuals included in the Summary Compensation Table, are referred to as “named executive officers.”

The individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2023, as well as any other individuals included in the Summary Compensation Table, are referred to as “named executive officers” ("NEOs").

Overview of Compensation Committee Role and Responsibilities

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The Company reimburses each executive officer for all reasonable business and other expenses incurred by them in connection with the performance of their duties and obligations.

The Company does not provide named executive officers with any significant perquisites or other personal benefits except for personal travel using Company-owned automobiles and/or aircrafts, and housing and living expenses for our former CFO.

In September 2019, the board of directors approved an aircraft policy allowing personal use of Company aircrafts as follows:

(1) 25 hours per fiscal quarter for our CEO, and (2) 12 hours each per fiscal quarter for other executive officers.

The Company does not provide named executive officers with any significant perquisites or other personal benefits except for personal travel using Company-owned automobiles and aircrafts.

On August 28, 2023, the board of directors, after a recommendation from the Audit Committee, amended the corporate aircraft policy changing the allowed use to a maximum personal use each fiscal year, as follows:

(i) 100 hours flown for the CEO and (ii) 48 hours flown each for other executive officers.

Refer to footnote on All Other Compensation in the Summary Compensation Table below.

SUMMARY COMPENSATION TABLE

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Information about the assumptions used to value these stock option awards can be found in Note 2 to the consolidated financial statements in this Annual Report on Form 10-K.

(2) All Other Compensation consists of SIMPLE IRA matching contributions, automobile expenses, personal use of aircraft, and housing and living expenses.

(2) All Other Compensation consists of SIMPLE IRA matching contributions, automobile expenses, and personal use of aircraft.

We account for personal use of aircraft to be the aggregate incremental cost of personal use of the company aircraft as calculated based on a cost-per-flight-hour charge developed by a nationally recognized and independent service.

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As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported below, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

The compensation for our CEO in fiscal 2022 of $3,419,853 was approximately 135 times the compensation of our fiscal 2022 median employee of $25,294.

The compensation for our CEO in fiscal 2023 of $1,862,465 was approximately 57 times the $32,496 compensation of our fiscal 2023 median employee.

We are providing the following information about the relationship between executive compensation actually paid and certain financial performance measures of the Company as required by Section 953(a) of the Dodd-Frank and Consumer Protection Act, and Item 402(v) of Regulation S-K for fiscal 2023, 2022, and 2021, as it relates to our principal executive officer ("PEO") and certain non-PEO NEOs.

Value of Initial Fixed $100 Investment Based On:

Year Summary Compensation Table Total for PEO Compensation Actually Paid to PEO Average Summary Compensation Table Total for Non-PEO NEOs Average Compensation Actually Paid to Non-PEO NEOs RICK Total Shareholder Return DJUSRU Total Shareholder Return Net Income Free Cash Flow

2023 $1,862,465 $ 1,900,987 $ 536,608 $ 575,130 $ 296.39 $ 98.12 $ 29,100,000 $ 53,176,000

2022 $3,419,853 $ 3,329,003 $ 2,066,195 $ 1,975,345 $ 319.02 $ 129.93 $ 46,060,000 $ 58,911,000

2021 $1,545,218 $ 1,545,218 $ 504,181 $ 504,181 $ 336.19 $ 88.89 $ 30,150,000 $ 36,084,000

(1) Non-PEO NEOs represent Bradley Chhay and Travis Reese for each of the fiscal years presented.

(2) We selected the Dow Jones U.S.

Restaurants & Bars Index as our peer group for the purpose of calculating comparable total shareholder return ("TSR").

Also refer to Item 5 of this report for our and our peer group's five-year TSR.

(3) We selected free cash flow as our Company-selected measure for this purpose.

(4) "Compensation Actually Paid" is computed in the table below, in accordance with Item 402(v) of Regulation S-K.

2023 2022 2021

PEO Average for Non-PEO NEOs PEO Average for Non-PEO NEOs PEO Average for Non-PEO NEOs

Summary Compensation Table total $ 1,862,465 $ 536,608 $ 3,419,853 $ 2,066,195 $ 1,545,218 $ 504,181

Deduct option awards granted during the year — — (1,568,500) (1,568,500) — —

Add fair value of options granted and vested at the same year — — 313,700 313,700 — —

Add fair value of options granted during the year and remain unvested at year-end — — 1,163,950 1,163,950 — —

Increase (decrease) for change in fair value from prior year-end to current year-end of options granted in prior year (62,527) (62,527) — — — —

Increase (decrease) for change in fair value from prior year-end to current year vesting date of options granted in prior year 101,049 101,049 — — — —

Compensation Actually Paid $ 1,900,987 $ 575,130 $ 3,329,003 $ 1,975,345 $ 1,545,218 $ 504,181

The mix of compensation paid to our PEO and non-PEO NEOs is mostly cash salary that is fixed, as shown in the Summary Compensation Table above.

Except for the stock options granted in fiscal 2022, there had been no stock-based compensation awarded since fiscal 2014.

We also currently do not have long-term incentive plans that are based on the Company's stock price or any of our financial measures.

As shown in the charts below, the compensation actually paid to our PEO and non-PEO NEOs is not directly aligned with our Company and peer group total shareholder return or with our Company's net income and free cash flow in the fiscal years presented.

GRANTS OF PLAN-BASED AWARDS

The following table sets forth information regarding grants of plan-based awards made to our named executive officers during fiscal 2022.

Estimated Future Payouts Under Equity Incentive Plan Awards

Date Threshold

(#) All Other

Exercise Price

($/Sh) Grant Date

Langan 2/9/2022 — — — 50,000 100.00 1,568,500

Bradley Chhay 2/9/2022 — — — 50,000 100.00 1,568,500

Travis Reese 2/9/2022 — — — 50,000 100.00 1,568,500

(1) This column reflects stock options that vest ratably over a four-year period (i.e., 20% on the annual stockholders' meeting following the grant date and 20% on each of the four anniversary dates).

There were no grants of plan-based awards for fiscal 2023.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

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The term of each of the agreements commenced on September 1, 2022, and will end on August 31, 2024.

On August 28, 2023, we entered into a new two-year employment agreement with Bradley Chhay, which terminated his employment agreement mentioned above.

Under the agreement, Mr.

Chhay's annual salary increased to $600,000.

The term of the agreement commenced on August 28, 2023, and will end on August 31, 2025.

Each of the new employment agreements also provides for bonus eligibility, expense reimbursement, health benefits, participation in our benefit plans, use of a company-owned automobile, access to company-owned aircraft (subject to the terms and conditions of our corporate aircraft policy), and two weeks paid vacation annually.

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The address of BlackRock is 55 East 52nd Street, New York, New York 10055.

(7) Based on the most recently available Schedule 13G filed with the SEC on June 10, 2022 by ADW Capital Partners, L.P., ADW Capital Management, LLC and Adam D.

(7) Based on the most recently available Form 4 filed with the SEC on September 28, 2023 by ADW Capital Partners, L.P., ADW Capital Management, LLC and Adam D.

ADW Capital Management, LLC is the general partner and investment manager of ADW Capital Partners, L.P.

Wyden is the sole manager of ADW Capital Management, LLC.

ADW Capital Partners, L.P is the record and direct beneficial owner of 949,000 shares (including 50,000 represented by call options), with sole voting power and sole dispositive power over all such shares.

The address of each of these reporting persons is 1133 Broadway, Suite 719, New York, New York 10010.

ADW Capital Partners, L.P is the record and direct beneficial owner of 941,000 shares, with sole voting power and sole dispositive power over all such shares.

The address of each of these reporting persons is 6431 Allison Road, Miami Beach, Florida 33141.

The Company is not aware of any arrangements that could result in a change in control of the Company.

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

Two adult children of Mr.

Three adult children of Mr.

Langan are also employed by the Company in corporate shared services.

Colby Langan, one of Eric Langan's adult children mentioned above, is currently the President of RCI Development Services, Inc., which manages strategy on the Company's new business ventures, and received $138,762 in employment compensation during the fiscal year ended September 30, 2022.

In October 2021, we borrowed $500,000 from Ed Anakar, the brother of a former member of our board of directors, and $150,000 from Allen Chhay as part of a larger group of private lenders (see Note 9 to our consolidated financial statements).

Colby Langan, one of Eric Langan's adult children mentioned above, is currently the President of RCI Development Services, Inc., which manages strategy on the Company's new business ventures, and received $184,068 and $138,762 in employment compensation during the fiscal year ended September 30, 2023 and 2022, respectively.

In October 2021, we borrowed $500,000 from Ed Anakar, President of RCI Management Services, Inc.

and our Director of Operations and brother of former director Nourdean Anakar, and $150,000 from Allen Chhay, brother of Company CFO, Bradley Chhay, as part of a larger group of private lenders (see Note 8 to our consolidated financial statements).

Their promissory notes bear interest at the rate of 12% per annum and mature in October 2024.

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

We paid Ed Anakar, our director of operations – club division, employment compensation of $720,492, $655,289, and $502,404 during the fiscal years ended September 30, 2022, 2021, and 2020, respectively.

Refer to Note 8 to our consolidated financial statements for the October 2023 extension of term of promissory notes.

We paid Ed Anakar employment compensation of $718,539, $720,492, and $655,289 during the fiscal years ended September 30, 2023, 2022, and 2021, respectively.

We used the services of Nottingham Creations, and previously Sherwood Forest Creations, LLC, both furniture fabrication companies that manufacture tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance.

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Principal Accounting Fees and Services.

The following table sets forth the aggregate fees paid or accrued for professional services and the aggregate fees paid or accrued for audit-related services and all other services rendered by Friedman LLP for the fiscal 2022 and 2021.

Marcum 2023 Friedman 2023 Friedman 2022

Audit fees $ 659,789 $ 523,017 $ 1,256,537

Audit-related fees — — —

Tax fees — — —

All other fees — — —

Total $ 659,789 $ 523,017 $ 1,256,537

Effective September 1, 2022, Friedman LLP, our independent registered public accounting firm of record in fiscal 2022, combined with Marcum LLP and continued to operate as an independent registered public accounting firm.

“Audit fees” include fees billed for professional services rendered in connection with the annual audit and quarterly reviews of the Company’s consolidated financial statements, the audit of internal control over financial reporting as required by the Sarbanes-Oxley Act of 2002, and assistance with securities filings other than periodic reports.

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“All other fees” include fees billed for professional services rendered in connection with the SEC investigation.

All above audit services, audit-related services and tax services were pre-approved by the Audit Committee, which concluded that the provision of such services by Friedman, LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.

All above audit services, audit-related services and tax services were pre-approved by the Audit Committee, which concluded that the provision of such services by Marcum LLP and Friedman, LLP was compatible with the maintenance of those firms’ independence in the conduct of their auditing functions.

The Audit Committee’s outside auditor independence policy provides for pre-approval of all services performed by the outside auditors.

8 unchanged sentences

4.1 Consolidated, Amended and Restated Promissory Note for $99,145,838.22 with Centennial Bank (Incorporated by reference from Form 8-K filed with the SEC on October 4, 2021) *

4.2 12% Unsecured Promissory Note (form of interest-only version of the note) (Incorporated by reference from Form 8-K filed with the SEC on October 18, 2021) *

4.3 12% Unsecured Promissory Note (form of amortizing payment schedule version of the note) (Incorporated by reference from Form 8-K filed with the SEC on October 18, 2021) *

4.2 10-Year Secured Promissory Note for $11,000,000 by Big Sky Hospitality Holdings, Inc.

6 unchanged sentences

to Club Licensing, LLC (Incorporated by reference from Form 8-K filed with the SEC on October 21, 2021) *

4.8 The description of our common stock (Incorporated by reference from Form 10-K filed with the SEC on December 14, 2020) *

4.6 Promissory Note for $18,740,000 with Centennial Bank (Incorporated by reference from Form 8-K filed with the SEC on January 27, 2022) *

4.7 Revolving Promissory Note for $10,000,000 with Centennial Bank (Incorporated by reference from Form 8-K filed with the SEC on March 15, 2023) *

4.8 Form of Promissory Note dated March 16, 2023 (in connection with Baby Dolls/Chicas Locas acquisition transaction) (Incorporated by reference from Form 8-K filed with the SEC on March 17, 2023) *

4.9 Promissory Note (Real Estate) with Duncan Burch dated March 16, 2023 (Incorporated by reference from Form 8-K filed with the SEC on March 17, 2023) *

4.10 Amended and Restated 12% Unsecured Promissory Note (form of interest-only version of the note) (Incorporated by reference from Form 8-K filed with the SEC on October 26, 2023) *

4.11 Amended and Restated 12% Unsecured Promissory Note (form of amortizing payment schedule version of the note) (Incorporated by reference from Form 8-K filed with the SEC on October 26, 2023) *

4.1 The description of our common stock (Incorporated by reference from Form 10-K filed with the SEC on December 14, 2020) *

10.1 Employment Agreement with Eric S.

(Incorporated by reference from Form 8-K filed with the SEC on July 2, 2021) *

10.2 Employment Agreement with Bradley Chhay (Incorporated by reference from Form 8-K filed with the SEC on July 2, 2021) *

10.2 Employment Agreement with Bradley Chhay (Incorporated by reference from Form 8-K filed with the SEC on A ugust 30, 2023 ) *

10.3 Employment Agreement with Travis Reese (Incorporated by reference from Form 8-K filed with the SEC on July 2, 2021) *

10.4 Asset Purchase Agreement with Glenarm Restaurant Concepts, LLC dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.5 Asset Purchase Agreement with Glendale Restaurant Concepts, LLC dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.6 Asset Purchase Agreement with Illinois Restaurant Concepts, LLC dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.7 Asset Purchase Agreement with Indy Restaurant Concepts, LLC dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.8 Asset Purchase Agreement with MRC, LLC dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.9 Asset Purchase Agreement with Raleigh Restaurant Concepts, LLC dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.10 Asset Purchase Agreement with Stout Restaurant Concepts, LLC dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.11 Asset Purchase Agreement with VCG Restaurants Denver, LLC dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.12 Asset Purchase Agreement with Market Entertainment, Inc.

dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.13 Asset Purchase Agreement with OG1, LLC dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.14 Stock Purchase Agreement with HWL-3 LLLP (for the purchase of Kenkev, Inc.) dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.15 Real Estate Purchase and Sale Agreement with Real Property Sellers dated July 23, 2021 (Incorporated by reference from Form 8-K filed with the SEC on July 28, 2021) *

10.4 Loan Agreement between RCI Holdings, Inc.

4 unchanged sentences

Langan (Incorporated by reference from Form 8-K filed with the SEC on October 4, 2021) *

10.19 Intellectual Property Purchase Agreement between Big Sky Hospitality Holdings, Inc.

and Club Licensing, LLC (Incorporated by reference from Form 8-K filed with the SEC on October 21, 2021) *

10.7 Guaranty by RCI Hospitality Holdings, Inc.

14 unchanged sentences

Langan dated January 25, 2022 (Incorporated by reference from Form 8-K filed with the SEC on January 27, 2022) *

10.15 Asset Purchase Agreement with TTNA, Inc.