What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-12-16 compared with 2023-12-14 · 63 added, 75 removed, 577 unchanged (19% of the section changed)

8 unchanged sentences

The following are our operating segments:

Nightclubs Our wholly-owned subsidiaries own and/or operate upscale adult nightclubs serving primarily businessmen and professionals.

Nightclubs Our wholly-owned subsidiaries own and/or operate upscale adult nightclubs.

These nightclubs are in Houston, Austin, San Antonio, Dallas, Fort Worth, Beaumont, Longview, Harlingen, Edinburg, Tye, Lubbock, Round Rock, El Paso and Odessa, Texas;

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We also own and lease to third parties real properties that are adjacent to (or used to be locations of) our clubs.

Bombshells Our wholly-owned subsidiaries own and operate restaurants and sports bars in Houston, Dallas, Austin, Spring, Pearland, Tomball, Katy, Arlington, and San Antonio, Texas under the brand name Bombshells Restaurant & Bar.

Bombshells Our wholly-owned subsidiaries own and operate restaurants and sports bars in Houston, Dallas, Austin, Spring, Pearland, Tomball, Katy, Arlington, and Stafford, Texas under the brand name Bombshells Restaurant & Bar.

Bombshells also operates a food hall in Denver, Colorado.

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Key estimates in the undiscounted cash flow model include management’s estimate of the projected revenues and operating margins.

If fair value is used to determine an impairment loss, an additional key assumption is the selection of a weighted-average cost of capital to discount cash flows.

Fair value is determined using the market, income, or cost approaches.

If fair value is used to determine using the income approach, an additional key assumption is the selection of a weighted-average cost of capital to discount cash flows.

Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated.

During the third quarter of 2024, we impaired six properties for $4.8 million in property and equipment and $5.7 million in operating lease right-of-use assets.

During the fourth quarter of 2024, we impaired ten properties for $5.8 million in property and equipment and $747,000 in operating lease right-of-use assets.

These properties are predominantly comprised of leased Bombshells locations.

During the third quarter of 2023, we impaired one property for $58,000 for its property and equipment and $1.0 million for its operating lease right-of-use asset before the club's permanent closure.

During the third quarter of 2022, we impaired two properties for a total of $1.0 million one due to eminent domain by the state of Texas and the other due to underperformance.

During the second quarter of 2021, we impaired one property that was reclassified to assets held for sale for $1.4 million, and during the fourth quarter of 2021, we impaired four clubs for $584,000.

During the fourth quarter of 2023, we also recognized software impairments amounting to $814,000 related to two venture projects.

During the third quarter of 2022, we impaired two properties for a total of $1.0 million one due to eminent domain by the state of Texas and the other due to underperformance.

Key assumptions and estimates used in long-lived asset impairment testing, the most significant of which is our estimated future cash flows, may produce materially different amounts of fair value, which could significantly impact our results of operations.

Goodwill and Other Intangible Assets

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For the year ended September 30, 2024, we identified four reporting units that were impaired and recognized a total goodwill impairment of $8.9 million.

For the year ended September 30, 2023, we identified four reporting units that were impaired and recognized a total goodwill impairment of $4.2 million.

For the year ended September 30, 2022, we identified one reporting unit that was impaired and recognized a goodwill impairment loss of $566,000.

For the year ended September 30, 2021, we identified seven reporting units that were impaired and recognized a goodwill impairment loss totaling $6.3 million.

For indefinite- and definite-lived intangibles, specifically SOB licenses, we determine fair value by estimating the multiperiod excess earnings of the asset with key assumptions being similar to those used in the goodwill impairment valuation model.

We recorded impairment charges for SOB licenses amounting to $11.8 million in 2024 related to seven clubs, $6.5 million in 2023 related to eight clubs, and $293,000 in 2022 related to one club.

For indefinite-lived tradename, we determine fair value by using the relief from royalty method.

The fair value is then compared to the carrying value and an impairment charge is recognized by the amount by which the carrying amount exceeds the fair value of the asset.

We recorded impairment charges for SOB licenses amounting to $6.5 million in 2023 related to eight clubs, $293,000 in 2022 related to one club, and $5.3 million in 2021 related to three clubs.

We recorded impairment charges for tradenames amounting to $693,000 in 2024 related to one club, $0 in 2023, and $0 in 2022.

Business Combinations

37 unchanged sentences

Bombshells -18.4 % -14.6 %

Income from operations

Income (loss) from operations

Consolidated $ 18,805 (63.5) % $ 51,484 (28.0) % $ 71,459

2 unchanged sentences

Diluted earnings per share $ 0.33 (89.5) % $ 3.13 (36.3) % $ 4.91

Non-GAAP diluted earnings per share* $ 4.72 (3.6) % $ 4.90 (8.9) % $ 5.38

Net cash provided by operating activities $ 55,884 (5.5) % $ 59,130 (8.3) % $ 64,509

19 unchanged sentences

Depreciation and amortization 5.2 % 5.2 % 4.6 %

Other charges, net 5.3 % 0.2 % 6.8 %

Impairments and other charges, net 12.4 % 5.3 % 0.2 %

Total operating expenses 93.6 % 82.5 % 73.3 %

5 unchanged sentences

Income before income taxes 0.9 % 12.2 % 22.5 %

Income tax expense 2.3 % 5.3 % 2.0 %

Income tax expense (benefit) (0.1) % 2.3 % 5.3 %

Net income 1.0 % 9.9 % 17.2 %

19 unchanged sentences

Depreciation and amortization (244) (1.6) % (2,760) (22.3) %

Other charges, net (15,162) (3,246.7) % 12,719 96.5 %

Impairments and other charges, net (20,941) (134.0) % (15,162) (3,246.7) %

Total operating expenses (34,493) (14.2) % (46,145) (23.5) %

6 unchanged sentences

Income tax expense/benefit 7,256 106.0 % 7,225 51.3 %

Net income/loss $ (16,960) (36.8) % $ 15,910 *

Net income $ (26,082) (89.6) % $ (16,960) (36.8) %

* Not meaningful.

Consolidated revenues increased by $26.2 million, or 9.8%, from 2022 to 2023 due mainly from newly acquired locations partially offset by a decrease in same-store sales and a sales decrease from locations closed in 2023.

From 2021 to 2022, consolidated revenues increased by $72.4 million, or 37.1%, due to increases in same-store sales, newly acquired and constructed locations, and from locations closed in 2021 and reopened in 2022.

Consolidated revenues increased by $1.8 million, or 0.6%, from 2023 to 2024 due mainly from recently acquired clubs and a newly opened Bombshells, partially offset by a decrease in same-store sales and a sales decrease from locations that were closed or rebranded in 2024.

From 2022 to 2023, consolidated revenues increased by $26.2 million, or 9.8%, due mainly to newly acquired locations, partially offset by a decrease in same-store sales and a sales decrease from locations closed in 2023.

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

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2023 2023 vs.

Impact of 3.5% decrease and 10.1% increase in same-store sales, respectively, to total revenues

Impact of 2.1% and 3.5% decrease in same-store sales, respectively, to total revenues

(2.0) % (3.2) %

2 unchanged sentences

Other (1.3) % — %

14.8 % 50.2 %

Net Nightclubs revenue increase 3.0 % 14.8 %

Nightclubs segment sales mix for the three fiscal years, below:

8 unchanged sentences

See Note 14 to our consolidated financial statements for more information on our club acquisitions.

In total, these 2023 and 2022 newly acquired clubs contributed $18.2 million and $41.9 million in revenues, respectively, during their year of acquisition.

No new clubs were acquired in 2024.

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Bombshells segment revenues.

Bombshells revenues decreased by 7.0% from 2022 to 2023 and increased by 5.8% from 2021 to 2022, as explained below.

Bombshells revenues decreased by 9.2% from 2023 to 2024 and decreased by 7.0% from 2022 to 2023, as explained below.

2023 2023 vs.

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Other (0.2) % — %

(7.0) % 5.8 %

Net Bombshells revenue decrease (9.2) % (7.0) %

Bombshells segment sales mix for the three fiscal years is as follows:

4 unchanged sentences

100.0 % 100.0 % 100.0 %

No new Bombshells location was opened in 2021.

Bombshells Arlington was opened in the first quarter of 2022.

1 unchanged sentence

We also acquired a food hall in Greenwood Village, Colorado during the first quarter of 2023.

We opened Bombshells Stafford in the first quarter of 2024 and sold Bombshells San Antonio in the fourth quarter of 2024.

Other segment revenues.

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For the Nightclubs segment, cost of goods sold was 11.7%, 11.1%, and 10.5% for fiscal 2024, 2023, and 2022, respectively, which was primarily caused by shifts in sales mix among the three fiscal years.

Bombshells cost of goods sold was 22.4%, 23.5%, and 23.8% for fiscal 2022, 2021, and 2020, respectively, which was mainly driven by menu price increases in 2023 and 2022 in response to inflation, and the shift in sales mix to lower-margin food sales in 2021.

Bombshells cost of goods sold was 24.1%, 22.4%, and 23.5% for fiscal 2024, 2023, and 2022, respectively, which was mainly driven by food cost inflation.

Salaries and wages .

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28.5 % 27.1 % 25.6 %

Bombshells and Other segment salaries and wages decreased in 2024 but as a percentage of revenue they increased due to their decrease in revenue.

Selling, general and administrative expenses .

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Bombshells expenses increased as a percentage of segment revenue due to lower sales.

Taxes and permits increased mainly due to the increase in the Texas patron tax.

Insurance expense increased due to additional clubs and restaurants, with additional impact from insurance premium refunds received in 2023.

Depreciation and amortization .

Depreciation and amortization increased by $2.8 million, or 22.3%, from 2022 to 2023 and increased by $4.2 million, or 50.4%, from 2021 to 2022.

The increase from 2021 to 2022 was mainly caused by the growth in our depreciable asset base and amortizable intangibles caused by acquired clubs and a new Bombshells unit, while the increase from 2022 to 2023 was mainly from newly acquired clubs.

Other charges, net .

The components of other charges, net are in the table below (dollars in thousands):

Depreciation and amortization increased by $244,000, or 1.6%, from 2023 to 2024 and increased by $2.8 million, or 22.3%, from 2022 to 2023.

The increase from 2022 to 2023 was mainly from newly acquired clubs, while the smaller increase from 2023 to 2024 was mainly caused by a decrease in the amortization of intangibles due to previous impairment.

Impairments and other charges, net .

The components of impairments and other charges, net are in the table below (dollars in thousands):

2024 Inc (Dec) 2023 Inc (Dec) 2022

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$ 36,570 134.0 % $ 15,629 3,246.7 % $ 467

The significant variances in other charges, net are discussed below:

The significant variances in impairments and other charges, net are discussed below:

During 2024, we recorded aggregate impairment charges amounting to $38.5 million related to goodwill of four clubs ($8.9 million), SOB licenses of seven clubs ($11.8 million), operating lease right-of-use assets of five Bombshells locations ($6.5 million), tradename of one club ($693,000), property and equipment of four clubs and nine Bombshells locations ($10.6 million).

During 2023, we recorded aggregate impairment charges amounting to $12.6 million related to goodwill of four clubs ($4.2 million), SOB licenses of eight clubs ($6.5 million), operating lease right-of-use asset and property and equipment of a closed club ($1.1 million), and software of two investment projects ($814,000).

During 2022, we recorded aggregate impairment charges amounting to $1.9 million related to goodwill of one club ($566,000), SOB license of one club ($293,000), and property and equipment of one club and one Bombshells unit ($1.0 million).

During 2021, we recorded aggregate impairment charges amounting to $13.6 million related to goodwill of seven clubs ($6.3 million), SOB licenses of three clubs ($5.3 million), and property and equipment of five clubs, one of which is held for sale ($2.0 million).

In 2023, we recognized settlements with the New York Department of Labor amounting to $3.1 million related to the assessment by the New York Department of Labor for state unemployment insurance.

In 2022, we settled several cases including the image infringement lawsuit and the securities class actions part of which was paid by insurance.

In 2021, we settled a case with one of our Bombshells landlords for $1.0 million.

See Note 10 to our consolidated financial statements.

Going forward, settlements might be more volatile and higher in value due to self-insurance.

Refer to dispositions in Note 14 to our consolidated financial statement for details on gains or losses on sale of businesses and assets.

In relation to insurance claims and recoveries, we recognized a $77,000 gain in 2023, $463,000 gain in 2022, and $1.3 million gain in 2021 mainly related to a fire in one of our clubs in Washington Park, Illinois toward the end of fiscal 2018 and a hurricane that damaged one of our clubs in Sulphur, Louisiana in August 2020.

In relation to insurance claims and recoveries, we recognized a $77,000 gain in 2023 and $463,000 gain in 2022 mainly related to a fire in one of our clubs in Washington Park, Illinois, toward the end of fiscal 2018 and a hurricane that damaged one of our clubs in Sulphur, Louisiana, in August 2020.

The rest of the claims for the Sulphur club were received in 2022.

Gains related to insurance recoveries are recognized when the contingencies related to the insurance claims have been resolved, which may be in a subsequent reporting period.

We also partially recovered and recognized a $327,000 gain related to a fire in one of our clubs in Fort Worth, Texas, during the fourth quarter of 2024.

See Note 13 to our consolidated financial statements.

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Impairment of assets 1,238 650 — — 1,888

Costs and charges related to debt refinancing 17 — — 40 57

Loss (gain) on sale of businesses and assets (2,010) 17 — (382) (2,375)

Gain on insurance (463) — — — (463)

Stock-based compensation — — — 2,353 2,353

Non-GAAP operating income (loss) $ 84,892 $ 12,195 $ 118 $ (20,808) $ 76,397

2 unchanged sentences

Other Income/Expenses

Interest expense increased by approximately $4.0 million from 2022 to 2023 and by approximately $2.0 million from 2021 to 2022.

The increase in interest expense was primarily caused by the significantly higher average debt balance from borrowings to finance our acquisitions.

Interest expense increased by approximately $753,000 from 2023 to 2024 and by approximately $4.0 million from 2022 to 2023.

The increase in interest expense was primarily caused by the significantly higher average debt balance from borrowings to finance our acquisitions in 2023 and the additional interest expense from construction loans in 2024 related to build-out projects.

We consider lease plus interest expense as our occupancy costs since most of our debts are for real properties where our clubs and restaurants are located.

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Total occupancy cost 8.0 % 7.9 % 7.0 %

The 2021 interest expense rate above excludes certain costs and charges related to the September 2021 Refinancing Note amounting to approximately $637,000, or 0.3% of consolidated revenues.

The $637,000 interest expense includes $103,000 in unamortized debt issuance costs that were written off and $228,000 in expensed new loan costs.

In fiscal 2021, we received 11 notices of forgiveness for our PPP loans approving the forgiveness of 100% of each of the 11 PPP loans amounting to $5.3 million in principal and interest, which were included in non-operating gains (losses), net.

In November 2021, we received a partial forgiveness of the remaining $124,000 PPP loan for $85,000 in principal and interest.

See Note 8 to our consolidated financial statements.

Income tax expense was approximately $6.8 million in 2023, $14.1 million in 2022, and $4.0 million in 2021.

Our effective income tax rate was 19.0% in 2023, 23.4% expense in 2022, and 11.7% expense in 2021.

Income tax was approximately a $410,000 benefit in 2024, a $6.8 million expense in 2023, and a $14.1 million expense in 2022.

Our effective income tax rate was (15.7)% in 2024, 19.0% in 2023, and 23.4% in 2022.

The components of our annual effective income tax rate are the following:

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The effective income tax rate difference from the statutory federal corporate tax rate of 21% comes from offsetting impact of state income tax, net of federal benefit, changes in the deferred tax asset valuation allowance, and tax credits that are mostly FICA tip credits.

The effective income tax rate for fiscal 2024 was also affected by the low pretax income that caused a high offsetting rate for tax credits, whose dollar value does not change based on pretax income.

Non-GAAP Financial Measures

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We calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin:

(a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) settlement of lawsuits, (f) costs and charges related to debt refinancing, and (g) stock-based compensation.

(a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) settlement of lawsuits, and (f) stock-based compensation.

We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.

2 unchanged sentences

Adjustment items are:

(a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) unrealized loss on equity securities, (f) settlement of lawsuits, (g) gain on debt extinguishment, (h) costs and charges related to debt refinancing, (i) stock-based compensation, (j) the income tax effect of the above-described adjustments, and (k) change in deferred tax asset valuation allowance.

Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 20.6%, 22.8%, and 13.5% effective tax rate of the pre-tax non-GAAP income before taxes for the 2023, 2022, and 2021, respectively, and the GAAP income tax expense.

(a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) settlement of lawsuits, (f) gain on debt extinguishment, (g) stock-based compensation, (h) the income tax effect of the above-described adjustments, and (i) change in deferred tax asset valuation allowance.

Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 0.0%, 20.6%, and 22.8% effective tax rate of the pre-tax non-GAAP income before taxes for 2024, 2023, and 2022, respectively, and the GAAP income tax expense.

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

1 unchanged sentence

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

(a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) unrealized gains or losses on equity securities, (g) impairment of assets, (h) settlement of lawsuits, (i) gain on debt extinguishment, and (j) stock-based compensation.

(a) depreciation and amortization, (b) income tax expense, (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) impairment of assets, (g) settlement of lawsuits, (h) gain on debt extinguishment, and (i) stock-based compensation.

We believe that adjusting for such items helps management and investors better understand our operating activities.

9 unchanged sentences

Net income attributable to RCIHH common stockholders $ 3,011 $ 29,246 $ 46,041

Income tax expense 6,846 14,071 3,989

Income tax expense (benefit) (410) 6,846 14,071

Interest expense, net 16,197 15,538 11,539

3 unchanged sentences

Depreciation and amortization 15,395 15,151 12,391

Unrealized loss on equity securities — — 84

Gain on debt extinguishment — — (138)

8 unchanged sentences

Gain on sale of businesses and assets (2,140) (682) (2,375)

Costs and charges related to debt refinancing* — — 694

Unrealized loss on equity securities — — 84

Gain on debt extinguishment — — (138)

12 unchanged sentences

Gain on sale of businesses and assets (0.23) (0.07) (0.25)

Costs and charges related to debt refinancing* — — 0.08

Unrealized loss on equity securities — — 0.01

Gain on debt extinguishment — — (0.01)

9 unchanged sentences

Impairment of assets 38,517 12,629 1,888

Costs and charges related to debt refinancing* — — 57

Gain on sale of businesses and assets (2,140) (682) (2,375)

2 unchanged sentences

Non-GAAP operating income $ 59,751 $ 73,229 $ 76,397

2023 2022 2021

Reconciliation of GAAP operating margin to non-GAAP operating margin

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Impairment of assets 13.0 % 4.3 % 0.7 %

Costs and charges related to debt refinancing* — % 0.0 % — %

Gain on sale of businesses and assets (0.7) % (0.2) % (0.9) %

2 unchanged sentences

Non-GAAP operating margin 20.2 % 24.9 % 28.5 %

* Costs and charges related to debt refinancing in 2021 consist of $637,000 in interest expense and $57,000 in legal and professional fees.

The $637,000 interest expense portion above includes $103,000 in unamortized debt issuance costs that were written off and $228,000 in expensed new loan costs.

The adjustments to reconcile net income attributable to RCIHH common stockholders to non-GAAP net income exclude the impact of adjustments related to noncontrolling interests, which is immaterial.

2 unchanged sentences

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

As of September 30, 2023, we had negative working capital of $10.5 million compared to a working capital of $18.6 million as of September 30, 2022, excluding net assets held for sale amounting to $0 and $1.0 million as of September 30, 2023 and 2022, respectively.

As of September 30, 2024, we had negative working capital of $793,000 compared to a negative working capital of $10.5 million as of September 30, 2023.

We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms.

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We also have historically utilized these cash flows to invest in property and equipment, adult nightclubs, and restaurants/sports bars.

During 2023, we acquired six clubs at an aggregate acquisition date fair value of $72.3 million, of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and $16.0 million in equity (200,000 shares of our common stock with an acquisition date fair value of $12.8 million, discounted for lack of marketability due to the lock-up period).

During 2022, we acquired fifteen clubs at an aggregate acquisition date fair value of $132.6 million, of which $55.3 million was in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million) and $30.0 million in equity (500,000 shares of our common stock with an acquisition date fair value of $29.9 million, discounted for lack of marketability due to the lock-up period).

We did not have any business acquisition in 2024.

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

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Net cash provided by operating activities $ 55,884 $ 59,130 $ 64,509

Net cash flows from operating activities decreased from 2022 to 2023 mainly due to the lower same-store sales and the higher interest expense paid, partially offset by the lower income taxes paid.

Net cash flows from operating activities increased from 2021 to 2022 mainly due to the operating results of the fifteen acquired clubs and one Bombshells opened.

Net cash flows from operating activities decreased from 2022 to 2023 and from 2023 to 2024 mainly due to the lower same-store sales and the higher interest expense paid, partially offset by the lower income taxes paid.

In the next five years, we expect interest payments on our debts to range from $16.0 million in the early years to $9.0 million annually in the latter years for debts we owe as of September 30, 2024.

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We did not receive payment for the eminent domain property mentioned above until November 2022.

In 2021, we acquired four real estate properties either for future club or restaurant locations or for corporate use.

On one of the real properties purchased, we opened a Bombshells restaurant on December 6, 2021 in Arlington, Texas.

There were no new Bombshells units opened in 2021.

We also sold two real estate properties in 2021.

We opened two new Bombshells units in 2020 (one in Katy, Texas and another on U.S.

Highway 59 in Houston, Texas) and sold three real estate properties.

As of September 30, 2023, 2022, and 2021, we had $7.7 million, $1.5 million, and $3.4 million in construction-in-progress related mostly to Bombshells opening in the subsequent fiscal years.

As of September 30, 2024, 2023, and 2022, we had $14.0 million, $7.7 million, and $1.5 million in construction-in-progress related mostly to Bombshells units that are opening in subsequent fiscal years.

See Note 14 to our consolidated financial statements for details of our acquisition and disposition activities.

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We purchased shares of our common stock representing 442,639 shares, 34,086 shares, and 268,185 shares in 2024, 2023, and 2022, respectively.

We paid quarterly dividends of $0.04 per share in fiscal 2021 through the first quarter of 2022.

We paid quarterly dividends of $0.04 per share in the first quarter of 2022.

In the second quarter of 2022 through the first quarter of 2023, we increased our quarterly dividends to $0.05 per share.

Then starting in the second quarter of 2023, we increased our quarterly dividends to $0.06 per share.

Then starting in the second quarter of 2023 through the third quarter of 2024, we increased our quarterly dividends to $0.06 per share.

We paid $0.07 per share in the fourth quarter of 2024.

We expect annual dividend payments of $2.5 million in 2025 based on our current quarterly dividend rate.

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This is because, based on our capital allocation strategy, acquisitions and development of our own clubs and restaurants are our primary uses of free cash flow.

Other than the impact of uncertainties caused by near-term macro environment, including commodity and labor inflation and the lingering effect of the COVID-19 pandemic, and the contractual obligations described above, we are not aware of any event or trend that would adversely impact our liquidity.

Other than the impact of uncertainties caused by near-term macro environment, including supply chain challenges, and commodity and labor inflation, and the contractual obligations described above, we are not aware of any event or trend that would adversely impact our liquidity.

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

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During fiscal years 2024, 2023, and 2022, we paid for treasury stock amounting to $20.6 million, $2.2 million, and $15.1 million, representing 442,639 shares, 34,086 shares, and 268,185 shares, respectively.

On May 24, 2022, the board of directors approved a $25.0 million increase in the Company's share repurchase program.

On each of May 24, 2022 and July 9, 2024, the board of directors approved a $25.0 million increase in the Company's share repurchase program.

We have approximately $21.0 million remaining to purchase additional shares as of September 30, 2024.

8 unchanged sentences

We believe that we can continue to grow organically and through careful entry into markets with high growth potential.

Our growth strategy includes acquiring existing clubs, opening new clubs after market analysis, developing new club concepts that are consistent with our management and marketing skills, franchising our Bombshells brand, and developing and opening our Bombshells concept as our capital and manpower allow.

Our growth strategy includes acquiring existing clubs, opening new clubs after market analysis and developing new club concepts that are consistent with our management and marketing skills as our capital and manpower allow.

We also strive to enter into businesses that complement our own, such as gaming, if they can enhance shareholder value.

All twelve of the existing Bombshells as of September 30, 2023 are located in Texas.

Our food hall, which is currently being operated under our Bombshells segment, is located in Colorado.

Our growth strategy is to diversify our operations with these units which do not require SOB licenses, which are sometimes difficult to obtain.

While we are searching for adult nightclubs to acquire, we are able to also search for restaurant/sports bar locations that are consistent with our income targets.

Recovering from the COVID-19 pandemic, we did not acquire any clubs nor open any new Bombshells units in 2021.

In 2022, we acquired fifteen clubs with an aggregate acquisition date fair value of $132.6 million, of which $55.3 million in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million), and 500,000 shares of our common stock in equity.

In fiscal 2022, we acquired fifteen clubs with an aggregate acquisition date fair value of $132.6 million, of which $55.3 million in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million), and 500,000 shares of our common stock in equity.

We also opened a new Bombshells location in Arlington, Texas in December 2021 and our first franchised location in San Antonio, Texas opened in June 2022.

In 2023, we acquired six clubs with an aggregate acquisition date fair value of $72.3 million, of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and 200,000 shares of our common stock in equity.

In fiscal 2023, we acquired six clubs with an aggregate acquisition date fair value of $72.3 million, of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and 200,000 shares of our common stock in equity.

In fiscal 2024, we did not have any club business acquisitions but opened a new Bombshells location in Stafford, Texas in November 2023.

See Note 14 to our consolidated financial statements.

4 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis