What changed in this filing

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Item 1. Financial Statements

2024-02-08 compared with 2023-08-09 · 158 added, 364 removed, 355 unchanged (60% of the section changed)

3 unchanged sentences

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

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

Current assets

4 unchanged sentences

Prepaid expenses and other current assets 10,985 1,943

Assets held for sale — 1,049

Total current assets 45,640 37,473

24 unchanged sentences

20,000,000 shares authorized;

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

9,359,685 and 9,397,639 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively

Additional paid-in capital 78,815 80,437

9 unchanged sentences

For the Three Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

Sales of alcoholic beverages $ 33,316 $ 29,650

18 unchanged sentences

Interest income 94 91

Non-operating gains, net — 127 — 211

Income before income taxes 9,043 13,302

1 unchanged sentence

Net income 7,244 10,271

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

Net income attributable to noncontrolling interests ( 18 ) ( 33 )

Net income attributable to RCIHH common stockholders $ 7,226 $ 10,238

3 unchanged sentences

Basic and diluted 9,367,151 9,230,258

Dividends per share $ 0.06 $ 0.05 $ 0.17 $ 0.14

See accompanying notes to unaudited condensed consolidated financial statements.

12 unchanged sentences

Canceled treasury shares ( 37,954 ) — ( 2,072 ) — 37,954 2,072 — —

Payment of dividends — — — ( 462 ) — — — ( 462 )

Excise tax on stock repurchases — — ( 20 ) — — — — ( 20 )

Payment of dividends ($ 0.06 per share)

— — — ( 562 ) — — — ( 562 )

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

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

Net income — — — 7,226 — — 18 7,244

Balance at December 31, 2023

Issuance of common shares for business combination 200,000 2 16,306 — — — — 16,308

Payment of dividends — — — ( 553 ) — — — ( 553 )

Stock-based compensation — — 706 — — — — 706

Net income (loss) — — — 7,732 — — ( 39 ) 7,693

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

9,359,685 $ 94 $ 78,815 $ 207,714 — $ — $ ( 239 ) $ 286,384

1 unchanged sentence

9,231,725 $ 92 $ 67,227 $ 173,950 — $ — $ 489 $ 241,758

Issuance of common shares for business combination 500,000 5 30,357 — — — — 30,362

Payment of dividends — — — ( 380 ) — — — ( 380 )

Net income (loss) — — — 10,575 — — ( 11 ) 10,564

Balance at December 31, 2021 9,499,910 95 80,397 139,888 — — ( 611 ) 219,769

Purchase of treasury shares — — — — ( 1,500 ) ( 98 ) — ( 98 )

Canceled treasury shares ( 1,500 ) — ( 98 ) — 1,500 98 — —

Payment of dividends — — — ( 474 ) — — — ( 474 )

Net income — — — 10,952 — — 21 10,973

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 )

Payment of dividends ($ 0.05 per share)

— — — ( 462 ) — — — ( 462 )

Stock-based compensation — — 941 — — — — 941

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

Net income — — — 10,238 — — 33 10,271

Balance at June 30, 2022

Balance at December 31, 2022

9,230,225 $ 92 $ 68,070 $ 183,726 — $ — $ ( 78 ) $ 251,810

3 unchanged sentences

(in thousands, except number of shares)

For the Nine Months Ended June 30,

For the Three Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization 3,853 3,307

Impairment of assets 3,293 1,722

Deferred income tax benefit ( 790 ) ( 409 )

Stock-based compensation 470 941

Gain on sale of businesses and assets ( 3 ) ( 686 )

Unrealized loss on equity securities — 1

Amortization of debt discount and issuance costs 163 144

Gain on debt extinguishment — ( 83 )

Noncash lease expense 762 719

15 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from debt obligations, including related party proceeds of $ 0 and $ 650 , respectively

11,595 35,820

Proceeds from debt obligations 701 1,500

Payments on debt obligations ( 6,352 ) ( 3,361 )

3 unchanged sentences

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

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

Net cash used in financing activities ( 8,421 ) ( 3,117 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 132 ( 1,872 )

1 unchanged sentence

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,155 $ 34,108

For the Three Months Ended December 31,

CASH PAID DURING PERIOD FOR:

4 unchanged sentences

Debt incurred in connection with purchase of property and equipment $ — $ 5,584

Note receivable from sale of property $ — $ 2,700

Issuance of shares of common stock for acquisition of businesses:

Number of shares 200,000 500,000

Fair value $ 12,847 $ 30,362

Adjustment to operating lease right-of-use assets related to new and renewed leases $ 1,864 $ 21,247

Adjustment to operating lease liabilities related to new and renewed leases $ 2,163 $ 21,247

Unpaid excise tax on stock repurchases $ 20 $ —

Unpaid liabilities on capital expenditures $ 1,719 $ 1,985

11 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 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.

These assets were acquired by the registrant and presented in Corporate segment but mostly benefit subsidiaries belonging to other reportable segments.

Prior year disclosures were also made to conform to current year presentation.

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

See Note 11 .

Operating results for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2024.

Recent Accounting Standards and Pronouncements

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Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

This ASU amends ASC 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations.

This ASU amends Accounting Standards Codification ("ASC") Topic 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations.

The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

We are still evaluating the impact of this ASU but we do not expect it to have a material impact on our consolidated financial statements.

We adopted ASU 2021-08 on October 1, 2023.

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

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions .

The amendments of this ASU clarify that an entity should measure the fair value of an equity security subject to contractual sale restriction the same way it measures an identical equity security that is not subject to such a restriction.

The amendments in this ASU clarify that an entity should measure the fair value of an equity security subject to contractual sale restriction the same way it measures an identical equity security that is not subject to such a restriction.

The FASB said the contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, should not affect its fair value.

1 unchanged sentence

Early adoption is permitted.

We are still evaluating the impact of this ASU on our consolidated financial statements.

We have not yet evaluated the impact of this ASU on our consolidated financial statements.

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842):

5 unchanged sentences

We are still evaluating the impact of this ASU on our consolidated financial statements.

Current Operating Environment

Our fiscal 2020 was the period hardest hit by the COVID-19 pandemic caused by significant reduction in customer traffic in our clubs and restaurants due to changes in consumer behavior as social distancing practices, dining room closures and other restrictions were mandated or encouraged by federal, state and local governments.

In fiscal 2021, our businesses started to recover from the initial effects of the pandemic when government restrictions eased.

Stimulus money also flowed to the economy at that time which prompted increased discretionary spending.

In fiscal 2022, several coronavirus variants

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

threatened to bring back tight restrictions.

Along with the pandemic, geopolitical and macroeconomic events started to affect the U.S.

economy in general, with global inflation and supply chain disruption impacting our businesses the most.

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 flows could be significantly affected.

Acquisitions and Dispositions

Lubbock Property

On October 10, 2022, the Company purchased real estate in Lubbock, Texas amounting to $ 3.4 million for a future Bombshells location.

The Company paid $ 1.2 million in cash at closing and obtained bank financing for the $ 2.3 million remainder (see Note 7 ).

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

Heartbreakers Gentlemen's Club

On October 26, 2022, the Company completed the acquisition of a club in Dickinson, Texas for a total agreed acquisition price of $ 9.0 million (with a total consideration preliminary fair value of $ 8.9 million based on certain legal contingencies that existed pre-acquisition).

The acquisition included (1) $ 2.5 million for the adult entertainment business covered in a stock purchase agreement paid fully in cash at closing and (2) $ 6.5 million for the real estate property covered in a real estate purchase agreement paid $ 1.5 million in cash at closing and $ 5.0 million under a 6 % 15-year promissory note (see Note 7 ).

In the stock purchase agreement, the Company acquired 100 % of the capital stock of the company which owned the adult entertainment business.

The acquisition gives the Company its first adult club in the Galveston, Texas area market.

The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of October 26, 2022:

Current assets $ 64

Property and equipment 4,884

Licenses 1,170

Tradename 340

Accrued liability ( 95 )

Deferred tax liability ( 374 )

Total net assets acquired 5,989

Goodwill 2,916

Acquisition price fair value $ 8,905

We believe that in this acquisition goodwill represents the existing customer base of the club in the area and the added synergy profitability expansion when we implement the Company's processes into the club.

Goodwill, licenses, and tradename will not be amortized but will be tested at least annually for impairment.

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

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 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

On December 16, 2022, the Company purchased real estate in Fort Worth, Texas amounting to $ 2.4 million in cash.

The property has two buildings, one of which the Company is leasing out to an existing tenant and the other building the Company is remodeling for future adult club operations.

Grange Food Hall

On December 20, 2022, the Company purchased a food hall property in Greenwood Village, Colorado for $ 5.3 million, including direct transaction costs and net of certain accrued taxes amounting to $ 102,000 .

The purchase price was paid $ 1.9 million in cash at closing and $ 3.3 million under a 6.67 % five-year promissory note (see Note 7 ).

The Company allocated $ 2.1 million to land, $ 2.6 million to building improvements, $ 98,000 to furniture, fixtures and equipment, and $ 565,000 to in-place leases based on their relative fair values.

Tomball Parkway Property Sale

On December 28, 2022, the Company sold a property classified as held-for-sale with a carrying value of $ 1.0 million for $ 1.7 million in cash.

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

Bombshells San Antonio

On February 7, 2023, the Company completed the acquisition of a previously franchised Bombshells location in San Antonio, Texas for a total acquisition price of $ 3.2 million.

The transaction was effected through a membership interest purchase agreement under which a subsidiary of the Company purchased 100 % of the issued and outstanding membership interests of the target limited liability company that owns and operates the Bombshells location from the six previous owners of the entity (the "Sellers").

At acquisition date, the Sellers were paid $ 1.2 million in cash and were issued six seller-financed promissory notes totaling $ 2.0 million (see Note 7 ).

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

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 ).

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

June 30, For the Nine Months Ended

2023 2022 2023 2022

Pro forma revenues $ 77,055 $ 76,733 $ 231,479 $ 213,762

Pro forma net income attributable to RCIHH common stockholders $ 9,085 $ 15,824 $ 26,129 $ 40,503

Pro forma earnings per share - basic and diluted $ 0.96 $ 1.65 $ 2.77 $ 4.21

Pro forma weighted average shares used in computing earnings per share - basic and diluted 9,430,225 9,589,675 9,430,236 9,628,461

The above unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2022.

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 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.

• 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.

Recent Accounting Standards and Pronouncements - continued

In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60):

Recognition and Initial Measurement , which addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture's separate financial statements.

The objectives of the ASU are to (1) provide decision-useful information to investors and other allocators of capital in a joint venture's financial statements and (2) reduce diversity in practice.

The FASB decided to require a joint venture to apply a new basis of accounting upon formation that will recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance).

The amendments of this ASU are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025.

Additionally, a joint venture that was formed before January 1, 2025 may elect to apply the amendments retrospectively if it has sufficient information.

early adoptions is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively.

We are still evaluating the impact of this ASU on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

In addition, the amendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements.

The purpose of the amendments is to enable investors to better understand an entity's overall performance and assess potential future cash flows.

The ASU applies to all public entities that are required to report segment information in accordance with ASC 280, and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We are evaluating the impact of this ASU on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

Under the ASU, public business entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate.

The amendments of the ASU are effective for public business entities for annual periods beginning after December 15, 2024.

Entities are permitted to early adopt the standard for annual financial statements that have not been issued or made available for issuance.

We are enhancing our income tax reporting system to be able to capture the required disclosures of this ASU.

RCI HOSPITALITY HOLDINGS, INC.

1 unchanged sentence

Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 4 ), are shown below (in thousands):

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

Nightclubs Bombshells Other Total Nightclubs Bombshells Other Total

Sales of alcoholic beverages $ 26,144 $ 8,007 $ — $ 34,151 $ 21,061 $ 8,677 $ — $ 29,738

Sales of food and merchandise 5,288 6,117 — 11,405 4,639 6,935 — 11,574

Service revenues 26,497 166 — 26,663 25,287 157 — 25,444

Other revenues 4,520 107 209 4,836 3,697 20 241 3,958

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

Recognized at a point in time $ 61,986 $ 14,396 $ 209 $ 76,591 $ 54,320 $ 15,777 $ 241 $ 70,338

Recognized over time 463 * 1 — 464 364 * 12 — 376

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

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

Three Months Ended December 31, 2023 Three Months Ended December 31, 2022

Nightclubs Bombshells Other Total Nightclubs Bombshells Other Total

16 unchanged sentences

Revenue Balance at

June 30, 2023

December 31, 2023

Ad revenue $ 49 $ 142 $ ( 114 ) $ 77

2 unchanged sentences

$ 96 $ 323 $ ( 116 ) $ 303

Contract liabilities with customers are included in accrued liabilities as unearned revenues in our unaudited condensed consolidated balance sheets (see also Note 5 ), while the revenues associated with these contract liabilities are included in other revenues in our unaudited condensed consolidated statements of income.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contract liabilities with customers are included in accrued liabilities as unearned revenues in our unaudited condensed consolidated balance sheets (see also Note 6 ), while the revenues associated with these contract liabilities are included in other revenues in our unaudited condensed consolidated statements of income.

Segment Information

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

The Company has identified such segments based on management responsibility and the nature of the Company’s products, services, and costs.

There are no major distinctions in geographical areas served as all operations are in the United States.

The Company measures segment profit (loss) as income (loss) from operations.

Segment assets are those assets controlled by each reportable segment.

The Other category below includes our media and energy drink divisions that are not significant to the unaudited condensed consolidated financial statements.

Below is the financial information related to the Company’s segments (in thousands):

For the Three Months Ended

Revenues (from external customers)

Nightclubs $ 61,033 $ 56,325

Bombshells 12,731 13,431

Other 143 212

$ 73,907 $ 69,968

Income (loss) from operations

Nightclubs $ 20,369 $ 22,740

Bombshells 86 1,847

Other ( 196 ) ( 185 )

Corporate ( 7,094 ) ( 7,504 )

$ 13,165 $ 16,898

Depreciation and amortization

Nightclubs $ 2,905 $ 2,485

Bombshells 643 458

Corporate 303 301

$ 3,853 $ 3,307

Capital expenditures

Nightclubs $ 1,532 $ 4,144

Bombshells 1,908 8,319

Other 1,498 37

Corporate 197 53

$ 5,135 $ 12,553

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment Information - continued

December 31, 2023 September 30, 2023

Nightclubs $ 491,046 $ 483,563

Bombshells 86,730 85,215

Other 7,628 6,936

Corporate 33,811 35,170

$ 619,215 $ 610,884

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended December 31, 2023, amounting to $ 4.5 million and $ 227,000 , respectively, and for the three months ended December 31, 2022, amounting to $ 3.7 million and $ 231,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three months ended December 31, 2023 and 2022 amounting to $ 39,000 and $ 37,000 , respectively.

These intercompany revenue amounts are eliminated upon consolidation.

General corporate expenses include corporate salaries, health insurance and social security taxes for officers, legal, accounting and information technology employees, corporate taxes and insurance, legal and accounting fees, depreciation and other corporate costs such as automobile and travel costs.

Management considers these to be non-allocable costs for segment purposes.

Certain real estate assets previously wholly assigned to Bombshells have been subdivided and allocated to other future development or investment projects.

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

Selected Account Information

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

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

Credit card receivables $ 4,297 $ 4,141

5 unchanged sentences

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

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

Prepaid insurance $ 9,297 $ 375

4 unchanged sentences

Total prepaid expenses and other current assets $ 10,985 $ 1,943

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

Balance at September 30, 2022

$ 88,921 $ 21,154 $ 67,767

Acquisitions (see Note 4 )

12,769 — 12,769

Impairment — 1,852 ( 1,852 )

Balance at June 30, 2023

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

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

June 30, 2023 September 30, 2022

Indefinite-lived:

Licenses $ 132,202 $ 103,972

Trademarks 22,943 13,119

Domain names 23 23

Definite-lived:

Licenses 24,187 25,962

Leases acquired in-place 157 117

Noncompete agreements 13 55

Favorable leases 828 78

Software 909 723

Total intangible assets, net $ 181,262 $ 144,049

Selected Account Information - continued

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

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

Insurance $ 9,022 $ 9

8 unchanged sentences

Total accrued liabilities $ 26,564 $ 16,051

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

For the Three Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

Taxes and permits $ 4,042 $ 2,684

12 unchanged sentences

Total selling, general and administrative expenses $ 25,201 $ 22,732

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

For the Three Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

Impairment of assets $ 2,631 $ 1,722 $ 3,293 $ 1,722

Settlement of lawsuits 63 132 3,183 709

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

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

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.

The 18-month promissory note bears an initial interest rate of 6 % per annum adjusted daily to a rate equal to the Wall Street Journal prime rate plus 0.5 % with a floor of 6 %.

The promissory note is payable in 17 monthly interest-only installments with the full principal and accrued interest payable at maturity.

The Company paid approximately $ 26,000 in debt issuance cost at closing.

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

On October 26, 2022, in relation to a club acquisition (see Note 4 ), the Company executed a promissory note for $ 5.0 million with the seller.

The 6 % 15-year promissory note is payable in 180 equal monthly payments of $ 42,193 in principal and interest.

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.

The 18-month promissory note bears an initial interest rate of 6 % per annum to be adjusted daily to a rate equal to the Wall Street Journal prime rate plus 0.5 % with a floor of 6 %.

The promissory note is payable in 17 monthly interest-only installments with the full principal and accrued interest payable at maturity.

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

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 ).

The 6.67 % five-year promissory note is payable in 59 equal monthly installments of $ 22,805 in principal and interest, with the balance of principal and accrued interest payable at maturity.

On October 25, 2023, the Company entered into a debt modification transaction under which 26 investors holding a total principal amount of $ 15.7 million in unsecured promissory notes agreed to extend the maturity dates of such notes, with no other changes to the terms and conditions of the original promissory notes, which original promissory notes were issued in October 2021 and had original maturity dates in October 2024.

The transaction was effected by the 26 investors returning for cancellation their original promissory notes, with us issuing new amended and restated promissory notes to such investors.

The original promissory notes were deemed cancelled as of the end of the day on October 31, 2023, and the new amended promissory notes will have an original issue date, and be deemed effective, as of November 1, 2023.

Other than the extension of the maturity dates, there were no other changes to the terms and conditions of the original promissory notes (except for the reduction in principal, as described below, and the corresponding reduction in monthly installments of principal and interest).

The new amended notes will continue to bear interest at the rate of 12 % per annum.

Of the new amended promissory notes, $ 9.1 million are payable interest-only monthly (or quarterly) in arrears, with a final lump sum payment of principal and accrued and unpaid interest due on October 1, 2026.

The remaining $ 6.6 million in promissory notes are payable in monthly payments of principal and interest based on a 10 -year amortization period, with the balance of the entire principal amount together with all accrued and unpaid interest due and payable in full on November 1, 2027.

The original promissory notes that were returned and cancelled as consideration for the issuance of the $ 6.6 million in new amended promissory notes had an original principal amount of $ 7.5 million in October 2021.

On November 17, 2023, the Company closed on a construction loan agreement with a bank lender for a total amount of $ 7.2 million bearing an interest rate of 8.5 % per annum for the construction of a Bombshells restaurant in Rowlett, Texas.

The promissory note is payable in 120 monthly payments, the first 18 months of which will be interest-only.

The succeeding 101 monthly payments will be payable in equal installments of $ 63,022 in principal and interest, and the remaining balance in principal and accrued interest payable on the 120th month.

The loan is secured by the real estate property under construction.

There are certain financial covenants with which the Company is to be in compliance related to this loan.

On February 7, 2023, in relation to the acquisition of a franchised Bombshells location in San Antonio, Texas (see Note 4 ), the Company entered into six separate seller-financing promissory notes totaling $ 2.0 million.

Each of the promissory notes has an interest rate of 7 % per annum, has a term of 24 months, and is payable in monthly installments totaling $ 39,602 of principal and interest for the first 23 months based on a 60-month amortization schedule with the remaining unpaid principal and interest paid at maturity.

On March 9, 2023, the Company closed a $ 10.0 million line-of-credit facility with a lender bank evidenced by a revolving promissory note, with an initial draw of $ 10.0 million at closing.

The facility has an initial term of 24 months with a variable interest rate equal to the Wall Street Journal prime rate plus 1 %.

On such date that the principal balance is repaid to an amount less than $ 5.0 million, the facility's revolver feature is activated where the Company may draw from the remaining availability up to a maximum of $ 5.0 million.

The Company shall also pay a non-usage fee of 0.5 % based on the amount by which the average outstanding balance for the prior twelve months was less than $ 3.0 million or the amount by which the total aggregate advances during the prior twelve months totaled less than $ 3.0 million.

The Company paid $ 115,000 in debt issuance costs, which is recorded as deferred charges to be amortized on a straight-line basis over 24 months.

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.

Each of the nine promissory notes have an interest rate of 7 % per annum with a term of 10 years, payable in arrears in 120 equal monthly payments of principal and interest amounting to $ 296,077 per month in the aggregate.

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.

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 $ 3.1 million and $ 3.4 million as of June 30, 2023 and September 30, 2022, respectively.

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

$ 20.4 million, $ 24.1 million, $ 22.6 million, $ 21.9 million, $ 19.9 million and $ 128.2 million for the twelve months ending December 31, 2024, 2025, 2026, 2027, 2028, and thereafter, respectively.

Of the maturity schedule mentioned above, $ 5.7 million, $ 11.1 million, $ 9.1 million, $ 7.9 million, $ 5.7 million and $ 70.6 million, respectively, relate to scheduled balloon payments.

Unamortized debt discount and issuance costs amounted to $ 2.9 million and $ 2.9 million as of December 31, 2023 and September 30, 2023, 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 months ended December 31, 2023 and 2022, which is included in corporate segment selling, general and administrative expenses, amounted to $ 470,000 and $ 941,000 , respectively.

As of December 31, 2023, we had unrecognized compensation cost amounting to $ 4.0 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of 2.1 years.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Stock-based Compensation - continued

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.

1 unchanged sentence

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 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.

No stock options were exercised during the three months ended December 31, 2023.

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

For the three months ended December 31, 2023 and 2022, we excluded 300,000 stock options from the calculation of diluted earnings per share because their effect was anti-dilutive.

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 $ 2.3 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.

Income tax expense was $ 1.8 million and $ 3.0 million during the three months ended December 31, 2023 and 2022, respectively.

The effective income tax expense rate was 19.9 % and 22.8 % for the three months ended December 31, 2023 and 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

June 30, For the Nine Months Ended

2023 2022 2023 2022

Federal statutory income tax expense 21.0 % 21.0 %

12 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

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

as traditional nude entertainment.

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

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

6 unchanged sentences

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

Commitments and Contingencies - continued

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

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

Shareholder Derivative Action

10 unchanged sentences

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.

On October 10, 2023, the parties submitted an agreement to settle the action to the Court for the Court's preliminary approval.

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

6 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

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

Commitments and Contingencies - continued

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.

5 unchanged sentences

The assessment of $ 2.8 million, which was recorded by the Company during the quarter ended March 31, 2023, was issued in final notice by the NY DOL after several appeals were denied by the Supreme Court of the State of New York, Appellate Division, Third Department.

In September 2023, the NY DOL assessed another of our subsidiaries for approximately $ 280,000 on the same matter for the period January 2015 through June 2022.

We recorded this latter assessment during the quarter ended September 30, 2023.

In the regular course of business affairs and operations, we are subject to possible loss contingencies arising from third-party litigation and federal, state, and local environmental, labor, health and safety laws and regulations.

3 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 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment Information

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

The Company has identified such segments based on management responsibility and the nature of the Company’s products, services and costs.

There are no major distinctions in geographical areas served as all operations are in the United States.

The Company measures segment profit (loss) as income (loss) from operations.

Segment assets are those assets controlled by each reportable segment.

The Other category below includes our media and energy drink divisions that are not significant to the unaudited condensed consolidated financial statements.

Below is the financial information related to the Company’s segments (in thousands):

For the Three Months Ended

June 30, For the Nine Months Ended

2023 2022 2023 2022

Revenues (from external customers)

Nightclubs $ 62,449 $ 54,684 $ 175,805 $ 149,639

Bombshells 14,397 15,789 42,143 45,893

Other 209 241 592 710

$ 77,055 $ 70,714 $ 218,540 $ 196,242

Income (loss) from operations

Nightclubs $ 20,392 $ 22,459 $ 61,127 $ 60,321

Bombshells 1,701 3,065 5,323 9,335

Other ( 300 ) ( 82 ) ( 653 ) ( 159 )

Corporate ( 6,278 ) ( 4,935 ) ( 19,957 ) ( 15,998 )

$ 15,515 $ 20,507 $ 45,840 $ 53,499

Depreciation and amortization

Nightclubs $ 2,915 $ 1,880 $ 7,864 $ 5,633

Bombshells 611 449 2,000 1,332

Other 212 6 338 19

Corporate 303 230 906 652

$ 4,041 $ 2,565 $ 11,108 $ 7,636

Capital expenditures

Nightclubs $ 5,915 $ 1,678 $ 14,598 $ 12,568

Bombshells 1,438 1,188 11,940 3,393

Other 165 145 243 693

Corporate 1,511 172 3,138 519

$ 9,029 $ 3,183 $ 29,919 $ 17,173

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023 September 30, 2022

Nightclubs $ 495,412 $ 437,096

Bombshells 84,207 62,021

Other 2,635 2,635

Corporate 37,853 28,986

$ 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 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.

Management considers these to be non-allocable costs for segment purposes.

Certain real estate assets previously wholly assigned to Bombshells have been subdivided and allocated to other future development or investment projects.

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

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

There were no lawsuit settlements incurred during the three months ended December 31, 2023 and 2022.

As of December 31, 2023 and September 30, 2023, the Company has accrued $ 2.1 million and $ 2.4 million in accrued liabilities, respectively, related to settlement of lawsuits.

Related Party Transactions

1 unchanged sentence

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 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.

The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of December 31, 2023 and September 30, 2023, was $ 116.7 million and $ 119.2 million, respectively.

Included in the October 2023 debt transaction (see Note 6 ) 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.

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.

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

Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were $ 0 and $ 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 contractor were $ 171,435 and $ 235,738 for the three and nine months ended June 30, 2023, respectively, and $ 0 and

Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were $ 142,098 and $ 0 during the three months ended December 31, 2023 and 2022, respectively.

As of December 31, 2023 and September 30, 2023, we owed Nottingham Creations and Sherwood Forest $ 36,308 and $ 10,700 , respectively, in unpaid billings.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

$ 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

Related Party Transactions - continued

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

Amounts billed by TW Mechanical to the third-party general contractor were $ 0 and $ 0 for the three months ended December 31, 2023 and 2022, respectively.

Amounts billed directly to the Company were $ 2,932 and $ 0 for the three months ended December 31, 2023 and 2022, respectively.

As of December 31, 2023 and September 30, 2023, the Company owed TW Mechanical $ 0 and $ 0 , 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 months ended December 31, 2023 and 2022 is as follows (in thousands):

Three Months Ended December 31,

Operating lease expense – fixed payments $ 1,292 $ 1,259

Variable lease expense 450 427

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

Short-term and other lease expense (includes $ 107 and $ 64 recorded in advertising and marketing for the three months ended December 31, 2023 and 2022, respectively;

and $ 141 and $ 127 recorded in repairs and maintenance for the three months ended December 31, 2023 and 2022, respectively;

Sublease income — —

4 unchanged sentences

Weighted average discount rate – operating leases 5.8 % 5.6 %

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

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

Principal Payments Interest Payments Total Payments

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

January - December 2024 $ 3,037 $ 2,014 $ 5,051

January - December 2025 3,296 1,835 5,131

January - December 2026 3,594 1,640 5,234

January - December 2027 3,355 1,438 4,793

January - December 2028 2,996 1,256 4,252

Thereafter 21,151 4,333 25,484

$ 37,429 $ 12,516 $ 49,945

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