5 unchanged sentences
A summary of our risk factors is as follows:
−Removed: Risks related to general macroeconomic and safety conditions
−Removed: ◦ The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time.
−Removed: ◦ Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war.
−Removed: ◦ If we are unable to maintain compliance with certain of our debt covenants or unable to obtain waivers, we may be unable to make additional borrowings and be declared in default where our debt will be made immediately due and payable.
−Removed: In addition, global economic conditions may make it more difficult to access new credit facilities.
−Removed: ◦ We have recorded impairment charges in current and past periods and may record additional impairment charges in future periods.
−Removed: Risks related to regulations and/or regulatory agencies
−Removed: ◦ Our business operations are subject to regulatory uncertainties which may affect our ability to continue operations of existing nightclubs, acquire additional nightclubs, or be profitable.
−Removed: ◦ The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
−Removed: If federal or state law mandates that they be classified as employees, our business could be adversely impacted.
−Removed: ◦ Our revenues could be significantly affected by limitations relating to permits to sell alcoholic beverages.
−Removed: ◦ Activities or conduct at our nightclubs may cause us to lose necessary business licenses, expose us to liability, or result in adverse publicity, which may increase our costs and divert management’s attention from our business.
Risks related to our business
7 unchanged sentences
◦ Our acquisitions may result in disruptions in our business and diversion of management’s attention.
−Removed: ◦ We face a variety of risks associated with doing business with franchisees and licensees.
◦ The impact of new club or restaurant openings could result in fluctuations in our financial performance.
2 unchanged sentences
◦ We have identified material weaknesses in our internal control over financial reporting.
−Removed: ◦ We may have uninsured risks in excess of our insurance coverage.
+Added: ◦ We may have uninsured risks in excess of our insurance coverage or self-insurance.
◦ We are subject to increasing legal complexity and could be party to litigation that could adversely affect us.
6 unchanged sentences
◦ Other risk factors may adversely affect our financial performance.
−Removed: Risk related to our common stock
−Removed: ◦ We must continue to meet NASDAQ Global Market Continued Listing Requirements, or we risk delisting.
−Removed: ◦ We may be subject to allegations, defamations, or other detrimental conduct by third parties, which could harm our reputation and cause us to lose customers and/or contribute to a deflation of our stock price.
−Removed: ◦ Our quarterly operating results may fluctuate and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
−Removed: ◦ Anti-takeover effects of the issuance of our preferred stock could adversely affect our common stock.
−Removed: ◦ Future sales or the perception of future sales of a substantial amount of our common stock may depress our stock price.
−Removed: ◦ Our stock price has been volatile and may fluctuate in the future.
−Removed: ◦ Cumulative voting is not available to our stockholders.
−Removed: ◦ Our directors and officers have limited liability and have rights to indemnification.
−Removed: Details of our risk factors are as follows:
Risks related to general macroeconomic and safety conditions
◦ The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time.
−Removed: The COVID-19 pandemic had an adverse effect that was material on our business.
−Removed: The COVID-19 pandemic, federal, state and local government responses to COVID-19, our customers’ responses to the pandemic, and our Company’s responses to the pandemic all disrupted our business.
−Removed: In the United States, state and local governments imposed a variety of restrictions on people and businesses and public health authorities offered regular guidance on health and safety.
−Removed: Once COVID-19 vaccines were approved and moved into wider distribution in the United States in early 2021, public health conditions improved and almost all of the COVID-19 restrictions on businesses eased.
−Removed: During fiscal 2022, increases in the numbers of cases of COVID-19 throughout the United States including the Omicron variant which impacted our restaurants in the second quarter, mostly in January 2022, subjected some of our restaurants to other COVID-19-related restrictions such as mask and/or vaccine requirements for team members, guests or both.
−Removed: Exclusions and quarantines of restaurant team members or groups thereof disrupt an individual restaurant’s operations and often come with little or no notice to the local restaurant management.
−Removed: In the last couple of years, along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold.
−Removed: These events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain.
◦ Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war.
−Removed: The ongoing war between Russia and Ukraine and the more recent Israel-Hamas war could have adverse effects on global macroeconomic conditions which could negatively impact our business, financial condition, and results of operations.
−Removed: These conflicts are highly unpredictable and have already resulted in significant volatility in oil and natural gas prices worldwide.
◦ If we are unable to maintain compliance with certain of our debt covenants or unable to obtain waivers, we may be unable to make additional borrowings and be declared in default where our debt will be made immediately due and payable.
In addition, global economic conditions may make it more difficult to access new credit facilities.
−Removed: Our liquidity position is, in part, dependent upon our ability to borrow funds from financial institutions and/or private individuals.
−Removed: Certain of our debts have financial covenants that require us to maintain certain operating income to debt service ratios.
−Removed: As of September 30, 2023, we were in compliance with all covenants.
−Removed: Due to the impact of COVID-19 and other external factors such as supply chain disruption, the conflicts in Ukraine and in the Gaza Strip, and the potential economic slowdown, our financial performance in future periods could be negatively impacted.
−Removed: A failure to comply with the financial covenants under our credit facility or obtain waivers would give rise to an event of default under the terms of certain of our debts, allowing the lenders to accelerate repayment of any outstanding debt.
◦ We have recorded impairment charges in current and past periods and may record additional impairment charges in future periods.
−Removed: Our nightclubs are often acquired with a purchase price based on historical EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
−Removed: This results in certain nightclubs carrying a substantial amount of intangible asset value, mostly allocated to licenses and goodwill.
−Removed: Generally accepted accounting principles require periodic impairment review of indefinite-lived intangible assets, long-lived assets, and goodwill to determine if, or when events and circumstances indicate that, the fair value of these assets is not recoverable.
−Removed: As a result of our periodic impairment reviews, we recorded impairment charges of $12.6 million in 2023 (representing $4.2 million of goodwill impairment on four clubs, $6.5 million of SOB license impairment on eight clubs, $1.0 million of operating lease right-of-use asset on one club, $814,000 of software impairment on two investment projects, and $58,000 of property and equipment impairment on one club);
−Removed: $1.9 million in 2022 (representing $566,000 of goodwill impairment on one club, $293,000 of SOB license impairment on one club, and $1.0 million of property and equipment impairment on one club and one Bombshells unit);
−Removed: and $13.6 million in 2021 (representing $6.3 million of goodwill impairment on seven clubs, $5.3 million of SOB license impairment on three clubs, and $2.0 million of property and equipment impairment on four clubs and one held-for-sale property).
−Removed: A huge portion, if not all, of the impairments in 2021 related to the then-projected decline in EBITDA caused by the COVID-19 pandemic.
−Removed: If difficult market and economic conditions materialize over the next year and/or we experience a decrease in revenue at one or more nightclubs or restaurants, we could incur a decline in fair value of one or more of our nightclubs or restaurants.
−Removed: This could result in future impairment charges of up to the total value of our tangible and intangible assets, including goodwill.
−Removed: We actively monitor our clubs and restaurants for any indication of impairment.
Risks related to regulations and/or regulatory agencies
◦ Our business operations are subject to regulatory uncertainties which may affect our ability to continue operations of existing nightclubs, acquire additional nightclubs, or be profitable.
−Removed: Adult entertainment nightclubs are subject to local, state and federal regulations.
−Removed: Our business is regulated by local zoning, local and state liquor licensing, local ordinances, and state and federal time place and manner restrictions.
−Removed: The adult entertainment provided by our nightclubs has elements of speech and expression and, therefore, enjoys some protection under the First Amendment to the United States Constitution.
−Removed: However, the protection is limited to the expression, and not the conduct of an entertainer.
−Removed: While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will permit our nightclubs to remain in operation or profitable in the future.
◦ The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
If federal or state law mandates that they be classified as employees, our business could be adversely impacted.
−Removed: The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
−Removed: The Internal Revenue Service regulations and applicable state law guidelines regarding independent contractor classification are subject to judicial and agency interpretation, and it could be determined that the independent contractor classification is inapplicable.
−Removed: Further, if legal standards for classification of independent contractors change, it may be necessary to modify our compensation structure for these adult entertainers, including by paying additional compensation or reimbursing expenses.
−Removed: While we take steps to ensure that our adult entertainers are deemed independent contractors, if our adult entertainers are determined to have been misclassified as independent contractors, we would incur additional exposure under federal and state law, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
−Removed: Any of these outcomes could result in substantial costs to us, could significantly impair our financial condition and our ability to conduct our business as we choose, and could damage our ability to attract and retain other personnel.
◦ Our revenues could be significantly affected by limitations relating to permits to sell alcoholic beverages.
−Removed: We derive a significant portion of our revenues from the sale of alcoholic beverages.
−Removed: States in which we operate may have laws which may limit the availability of a permit to sell alcoholic beverages, or which may provide for suspension or revocation of a permit to sell alcoholic beverages in certain circumstances.
−Removed: The temporary or permanent suspension or revocations of any such permits would have a material adverse effect on our revenues, financial condition and results of operations.
−Removed: In all states where we operate, management believes we are in compliance with applicable city, county, state or other local laws governing the sale of alcohol.
◦ Activities or conduct at our nightclubs may cause us to lose necessary business licenses, expose us to liability, or result in adverse publicity, which may increase our costs and divert management’s attention from our business.
−Removed: We are subject to risks associated with activities or conduct at our nightclubs that are illegal or violate the terms of necessary business licenses.
−Removed: Some of our nightclubs operate under licenses for sexually oriented businesses and are afforded some protection under the First Amendment to the U.S.
−Removed: Constitution.
−Removed: While we believe that the activities at our nightclubs comply with the terms of such licenses, and that the element of our business that constitutes an expression of free speech under the First Amendment to the U.S.
−Removed: Constitution is protected, activities and conduct at our nightclubs may be found to violate the terms of such licenses or be unprotected under the U.S.
−Removed: Constitution.
−Removed: This protection is limited to the expression and not the conduct of an entertainer.
−Removed: An issuing authority may suspend or terminate a license for a nightclub found to have violated the license terms.
−Removed: Illegal activities or conduct at any of our nightclubs may result in negative publicity or litigation.
−Removed: Such consequences may increase our cost of doing business, divert management’s attention from our business and make an investment in our securities unattractive to current and potential investors, thereby lowering our profitability and our stock price.
−Removed: We have developed comprehensive policies aimed at ensuring that the operation of each of our nightclubs is conducted in conformance with local, state and federal laws.
−Removed: We have a “no tolerance” policy on illegal drug use in or around our facilities.
−Removed: We continually monitor the actions of entertainers, waitresses and customers to ensure that proper behavior standards are met.
−Removed: However, such policies, no matter how well designed and enforced, can provide only reasonable, not absolute, assurance that the policies’ objectives are being achieved.
−Removed: Because of the inherent limitations in all control systems and policies, there can be no assurance that our policies will prevent deliberate acts by persons attempting to violate or circumvent them.
−Removed: Notwithstanding the foregoing limitations, management believes that our policies are reasonably effective in achieving their purposes.
+Added: Risk related to our common stock
+Added: ◦ We must continue to meet NASDAQ Global Market Continued Listing Requirements, or we risk delisting.
+Added: ◦ We may be subject to allegations, defamations, or other detrimental conduct by third parties, which could harm our reputation and cause us to lose customers and/or contribute to a deflation of our stock price.
+Added: ◦ Our quarterly operating results may fluctuate and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
+Added: ◦ Anti-takeover effects of the issuance of our preferred stock could adversely affect our common stock.
+Added: ◦ Future sales or the perception of future sales of a substantial amount of our common stock may depress our stock price.
+Added: ◦ Our stock price has been volatile and may fluctuate in the future.
+Added: ◦ Cumulative voting is not available to our stockholders.
+Added: ◦ Our directors and officers have limited liability and have rights to indemnification.
+Added: Details of our risk factors are as follows:
Risks related to our business
29 unchanged sentences
From time to time, private advocacy groups have sought to target our nightclubs by petitioning for non-renewal of certain of our permits and licenses.
−Removed: Furthermore, private advocacy groups which have influences on certain financial institutions have managed to sway these financial institutions into not doing business with us.
+Added: Furthermore, private advocacy groups, which have influence on certain financial institutions, have swayed these institutions to not do business with us.
In addition to possibly limiting our operations and financing options, negative publicity campaigns, lawsuits and boycotts could negatively affect our businesses and cause additional financial harm by discouraging investors from investing in our securities or requiring that we incur significant expenditures to defend our business.
4 unchanged sentences
These problems could adversely affect our results of operations, and remediation could result in significant, unplanned capital investments.
−Removed: We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or
−Removed: confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation.
+Added: We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs, and litigation.
Our technology systems contain personal, financial, and other information that is entrusted to us by our guests and employees, as well as financial, proprietary, and other confidential information related to our business, and a significant portion of our sales are by credit or debit cards.
18 unchanged sentences
If management is unable to fully integrate acquired business, products, or persons with existing operations, we may not receive the benefits of the acquisitions, and our revenues and stock trading price may decrease.
−Removed: We face a variety of risks associated with doing business with franchisees and licensees.
−Removed: We started franchising Bombshells in 2015.
−Removed: We believe that we have selected highly competent operating partners and franchisees with significant experience in restaurant operations, and we are providing them training and support on the Bombshells brand.
−Removed: However, the probability of opening, ultimate success and quality of any franchise or licensed restaurant rests principally with the franchisee.
−Removed: If the franchisee does not successfully open and operate its restaurants in a manner consistent with our standards, or if guests have negative experiences due to issues with food quality or operational execution, our brand value could suffer, which could have an adverse impact on our business.
The impact of new club or restaurant openings could result in fluctuations in our financial performance.
25 unchanged sentences
Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2024, and concluded that we did not maintain effective internal control over financial reporting.
−Removed: Management identified material weaknesses 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, intangibles assets acquired in a business combination and over the precision of management's review of certain valuation assumptions;
−Removed: (2) the impairment of goodwill, indefinite-lived intangibles, and long-lived assets, specifically over the precision of management's review of certain assumptions;
−Removed: and (3) ineffective information technology general controls in the areas of user access and program change-management over certain information technology systems that support the Company's financial reporting processes.
+Added: Management identified material weaknesses related to (1) ineffective design and operation of controls over certain information technology general controls, including change management, user access, and vendor management controls;
+Added: (2) ineffective design and operation of controls , which include management review controls, over the accounting for business combinations;
+Added: and (3) ineffective design and operation of controls, which include management review controls, over the Company's assessments of potential impairment.
See Item 9A, “Controls and Procedures,” below.
While certain actions have been taken to implement a remediation plan to address these material weaknesses and to enhance our internal control over financial reporting, if these material weaknesses are not remediated, it could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which could negatively affect investor confidence in our Company, and, as a result, the value of our common stock could be adversely affected.
−Removed: We may have uninsured risks in excess of our insurance coverage.
−Removed: We maintain insurance in amounts we consider adequate for personal injury and property damage to which the business of the Company may be subject.
−Removed: However, there can be no assurance that uninsured liabilities in excess of the coverage provided by insurance, which liabilities may be imposed pursuant to the Texas “dram shop” statute or similar “dram shop” statutes or common law theories of liability in other states where we operate or expand.
+Added: We may have uninsured risks in excess of our insurance coverage or self-insurance.
+Added: Historically, we have maintained insurance in amounts we consider adequate for personal injury and property damage to which the business of the Company may be subject.
+Added: As of October 1, 2024, however, we discontinued general liability and liquor insurance coverage in a number of establishments due to increasingly prohibitive costs of such coverage, and we are currently in the process of establishing self-insurance for the claims for which third-party insurance coverage is financially prohibitive.
+Added: However, we still carry at least the minimum insurance coverage where it is required by law for licensing requirements.
+Added: There can be no assurance that we will not have uninsured liabilities or liabilities in excess of the coverage provided by insurance or self-insurance, which liabilities may be imposed pursuant to the Texas “dram shop” statute or similar “dram shop” statutes or common law theories of liability in other states where we operate or expand.
For example, the Texas “dram shop” statute provides a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person if it was apparent to the server that the individual being sold, served or provided with an alcoholic beverage was obviously intoxicated to the extent that he presented a clear danger to himself and others.
8 unchanged sentences
Inconsistent standards imposed by governmental authorities can adversely affect our business and increase our exposure to litigation which could result in significant judgments, including punitive and liquidated damages, and injunctive relief.
−Removed: Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an illness or injury they suffered as a result of a visit to our restaurants, or that we have problems with food quality or operations.
+Added: Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an illness or injury they suffered as a result of a visit to our clubs or restaurants, or that we have problems with food quality or operations.
As a Company, we take responsible alcohol service seriously.
9 unchanged sentences
• The scope and terms of insurance or indemnification protections that we may have (if any).
+Added: Claims brought by government authorities have the potential to be especially disruptive to our business and operations.
+Added: As described further under “Legal Matters” in Note 10 to our consolidated financial statements, in 2024, the New York State Attorney General (“NY AG”) and the New York State Department of Taxation and Finance (“NY DTF”) has executed search warrants on the Company’s corporate headquarters in Houston, Texas, three separate clubs in New York, New York, and has sent the Company a subpoena requesting documents and other information with respect to certain clubs in New York and Florida.
+Added: The investigation appears to be related to the Company’s New York State tax filings and possible entertainment benefits provided to NY DTF personnel.
+Added: The Company is cooperating with the NY AG and its investigation.
+Added: As a result of this investigation, a non-executive corporate employee was placed on administrative leave during the pendency of an internal review process.
+Added: It is not possible at this time to determine whether the Company will incur any fines, penalties, or liabilities in connection with the investigation.
+Added: If, however, a government authority was to allege that illegal conduct was committed by the Company or any of its employees or executives, regardless of whether any such claims are valid, such claims have the potential to affect our business and defending such claims may be expensive and may divert time, attention and money away from our operations and hurt our performance.
+Added: Further, adverse publicity resulting from these claims may hurt our business.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time, attention and money away from our operations and hurt our performance.
15 unchanged sentences
It is unknown at this time what effect this uncertainty will have on the Company.
−Removed: As previously stated, since October 25, 2013, the Company obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date.
As of September 30, 2024, we have 1 remaining unresolved claim out of the original 71 claims.
24 unchanged sentences
The market for qualified talent continues to be competitive and we must ensure that we continue to offer competitive wages, benefits, and workplace conditions to retain qualified employees.
−Removed: We have experienced and may continue to experience challenges in hiring and retaining restaurant and club employees and in maintaining full restaurant and or club staffing in various locations, which has resulted in longer wait times for guest orders and potentially decreased employee satisfaction.
+Added: We have experienced and may continue to experience challenges in hiring and retaining restaurant and club employees and in maintaining full restaurant
+Added: and or club staffing in various locations, which has resulted in longer wait times for guest orders and potentially decreased employee satisfaction.
A shortage of qualified candidates who meet all legal work authorization and training requirements, failure to hire and retain new restaurant or club employees in a timely manner or higher than expected turnover levels could affect our ability to open new restaurants, grow sales at existing restaurants and clubs or meet our labor cost objectives.
28 unchanged sentences
We are also subject to the general risks of inflation, increases in minimum wage, health care, and other benefits that may have a material adverse effect on our cost structure, and the disruption in our supply chain caused by several factor, including the COVID-19 pandemic.
+Added: Risks related to general macroeconomic and safety conditions
+Added: The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition and results of operations for an extended period of time.
+Added: The COVID-19 pandemic had an adverse effect that was material on our business.
+Added: The COVID-19 pandemic, federal, state and local government responses to COVID-19, our customers’ responses to the pandemic, and our Company’s responses to the pandemic all disrupted our business.
+Added: In the United States, state and local governments imposed a variety of restrictions on people and businesses and public health authorities offered regular guidance on health and safety.
+Added: Once COVID-19 vaccines were approved and moved into wider distribution in the United States in early 2021, public health conditions improved and almost all of the COVID-19 restrictions on businesses eased.
+Added: During fiscal 2022, increases in the numbers of cases of COVID-19 throughout the United States including the Omicron variant which impacted our restaurants in the second quarter, mostly in January 2022, subjected some of our restaurants to other COVID-19-related restrictions such as mask and/or vaccine requirements for team members, guests or both.
+Added: Exclusions and quarantines of restaurant team members or groups thereof disrupt an individual restaurant’s operations and often come with little or no notice to the local restaurant management.
+Added: In the last couple of years, along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold.
+Added: These events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain.
+Added: Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war.
+Added: The ongoing war between Russia and Ukraine and the more recent Israel-Hamas war could have adverse effects on global macroeconomic conditions which could negatively impact our business, financial condition, and results of operations.
+Added: These conflicts are highly unpredictable and have already resulted in significant volatility in oil and natural gas prices worldwide.
+Added: If we are unable to maintain compliance with certain of our debt covenants or unable to obtain waivers, we may be unable to make additional borrowings and be declared in default where our debt will be made immediately due and payable.
+Added: In addition, global economic conditions may make it more difficult to access new credit facilities.
+Added: Our liquidity position is, in part, dependent upon our ability to borrow funds from financial institutions and/or private individuals.
+Added: Certain of our debts have financial covenants that require us to maintain certain operating income to debt service ratios.
+Added: As of September 30, 2024, we were in compliance with all covenants.
+Added: Due to the impact of macroeconomic, geopolitical, and health and safety factors, and the potential economic slowdown, our financial performance in future periods could be negatively impacted.
+Added: A failure to comply with the financial covenants under our credit facility or obtain waivers would give rise to an event of default under the terms of certain of our debts, allowing the lenders to accelerate repayment of any outstanding debt.
+Added: We have recorded impairment charges in current and past periods and may record additional impairment charges in future periods.
+Added: Our nightclubs are often acquired with a purchase price based on historical EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
+Added: This results in certain nightclubs carrying a substantial amount of intangible asset value, mostly allocated to licenses and goodwill.
+Added: Generally accepted accounting principles require periodic impairment review of indefinite-lived intangible assets, long-lived assets, and goodwill to determine if, or when events and circumstances indicate that, the fair value of these assets is not recoverable.
+Added: As a result of our periodic impairment reviews, we recorded impairment charges of $38.5 million in 2024 (representing $8.9 million of goodwill impairment on four clubs, $11.8 million of SOB license impairment on seven clubs, $10.6 million of property and equipment impairment on four clubs and nine Bombshells units, $6.5 million of operating lease right-of-use assets impairment on five Bombshells units, $693,000 of tradename impairment on one club, and $68,000 related to other assets);
+Added: $12.6 million in 2023 (representing $4.2 million of goodwill impairment on four clubs, $6.5 million of SOB license impairment on eight clubs, $1.0 million of operating lease right-of-use asset on one club, $814,000 of software impairment on two investment projects, and $58,000 of property and equipment impairment on one club);
+Added: and $1.9 million in 2022 (representing $566,000 of goodwill impairment on one club, $293,000 of SOB license impairment on one club, and $1.0 million of property and equipment impairment on one club and one Bombshells unit).
+Added: If difficult market and economic conditions materialize over the next year and/or we experience a decrease in revenue at one or more nightclubs or restaurants, we could incur a decline in fair value of one or more of our nightclubs or restaurants.
+Added: This could result in future impairment charges of up to the total value of our tangible and intangible assets, including goodwill.
+Added: We actively monitor our clubs and restaurants for any indication of impairment.
+Added: Risks related to regulations and/or regulatory agencies
+Added: Our business operations are subject to regulatory uncertainties which may affect our ability to continue operations of existing nightclubs, acquire additional nightclubs, or be profitable.
+Added: Adult entertainment nightclubs are subject to local, state and federal regulations.
+Added: Our business is regulated by local zoning, local and state liquor licensing, local ordinances, and state and federal time place and manner restrictions.
+Added: The adult entertainment provided by our nightclubs has elements of speech and expression and, therefore, enjoys some protection under the First Amendment to the United States Constitution.
+Added: However, the protection is limited to the expression, and not the conduct of an entertainer.
+Added: While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will permit our nightclubs to remain in operation or profitable in the future.
+Added: The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
+Added: If federal or state law mandates that they be classified as employees, our business could be adversely impacted.
+Added: The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
+Added: The Internal Revenue Service regulations and applicable state law guidelines regarding independent contractor classification are subject to judicial and agency interpretation, and it could be determined that the independent contractor classification is inapplicable.
+Added: Further, if legal standards for classification of independent contractors change, it may be necessary to modify our compensation structure for these adult entertainers, including by paying additional compensation or reimbursing expenses.
+Added: While we take steps to ensure that our adult entertainers are deemed independent contractors, if our adult entertainers are determined to have been misclassified as independent contractors, we would incur additional exposure under federal and state law, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
+Added: Any of these outcomes could result in substantial costs to us, could significantly impair our financial condition and our ability to conduct our business as we choose, and could damage our ability to attract and retain other personnel.
+Added: Our revenues could be significantly affected by limitations relating to permits to sell alcoholic beverages.
+Added: We derive a significant portion of our revenues from the sale of alcoholic beverages.
+Added: States in which we operate may have laws which may limit the availability of a permit to sell alcoholic beverages, or which may provide for suspension or revocation of a permit to sell alcoholic beverages in certain circumstances.
+Added: The temporary or permanent suspension or revocations of any such permits would have a material adverse effect on our revenues, financial condition and results of operations.
+Added: In all states where we operate, management believes we are in compliance with applicable city, county, state or other local laws governing the sale of alcohol.
+Added: Activities or conduct at our nightclubs may cause us to lose necessary business licenses, expose us to liability, or result in adverse publicity, which may increase our costs and divert management’s attention from our business.
+Added: We are subject to risks associated with activities or conduct at our nightclubs that are illegal or violate the terms of necessary business licenses.
+Added: Some of our nightclubs operate under licenses for sexually oriented businesses and are afforded some protection under the First Amendment to the U.S.
+Added: Constitution.
+Added: While we believe that the activities at our nightclubs comply with the terms of such licenses, and that the element of our business that constitutes an expression of free speech under the First Amendment to the U.S.
+Added: Constitution is protected, activities and conduct at our nightclubs may be found to violate the terms of such licenses or be unprotected under the U.S.
+Added: Constitution.
+Added: This protection is limited to the expression and not the conduct of an entertainer.
+Added: An issuing authority may suspend or terminate a license for a nightclub found to have violated the license terms.
+Added: Illegal activities or conduct at any of our nightclubs may result in negative publicity or litigation.
+Added: Such consequences may increase our cost of doing business, divert management’s attention from our business and make an investment in our securities unattractive to current and potential investors, thereby lowering our profitability and our stock price.
+Added: We have developed comprehensive policies aimed at ensuring that the operation of each of our nightclubs is conducted in conformance with local, state and federal laws.
+Added: We have a “no tolerance” policy on illegal drug use in or around our facilities.
+Added: We continually monitor the actions of entertainers, waitresses and customers to ensure that proper behavior standards are met.
+Added: However, such policies, no matter how well designed and enforced, can provide only reasonable, not absolute, assurance that the policies’ objectives are being achieved.
+Added: Because of the inherent limitations in all control systems and policies, there can be no assurance that our policies will prevent deliberate acts by persons attempting to violate or circumvent them.
+Added: Notwithstanding the foregoing limitations, management believes that our policies are reasonably effective in achieving their purposes.
Risk related to our common stock
10 unchanged sentences
We may be subject to government or regulatory investigation or other proceedings as a result of such third-party conduct and may be required to spend significant time and incur substantial costs to address such third-party conduct, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all.
−Removed: Any government or
−Removed: regulatory investigations initiated as a result of the above may cause a deflation in our stock price.
+Added: Any government or regulatory investigations initiated as a result of the above may cause a deflation in our stock price.
Additionally, allegations, directly or indirectly against us, may be posted on the internet, including social media platforms by anyone, whether or not related to us, on an anonymous basis.
45 unchanged sentences
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
−Removed: Unresolved Staff Comments.
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.