What changed in this filing

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Item 1. Financial Statements

2025-02-10 compared with 2024-08-08 · 108 added, 254 removed, 379 unchanged (49% of the section changed)

3 unchanged sentences

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

June 30, 2024 September 30, 2023

December 31, 2024 September 30, 2024

Current assets

Cash and cash equivalents $ 34,718 $ 32,350

Accounts receivable, net 6,794 9,846

Current portion of notes receivable 263 249

Receivables, net 3,519 5,832

Inventories 4,640 4,676

26 unchanged sentences

20,000,000 shares authorized;

9,129,790 and 9,397,639 shares issued and outstanding as of June 30, 2024, and September 30, 2023, respectively

8,889,000 and 8,955,000 shares issued and outstanding as of December 31, 2024, and September 30, 2024, respectively

Additional paid-in capital 58,731 61,511

9 unchanged sentences

For the Three Months Ended

June 30, For the Nine Months Ended

2024 2023 2024 2023

Sales of alcoholic beverages $ 32,188 $ 33,316

12 unchanged sentences

Depreciation and amortization 3,569 3,853

Other charges, net 18,260 2,589 26,452 5,693

Other gains, net ( 2,244 ) ( 3 )

Total operating expenses 57,577 60,742

Income (loss) from operations

( 2,536 ) 15,515 15,286 45,840

Income from operations 13,906 13,165

Other income (expenses)

1 unchanged sentence

Interest income 179 94

Income (loss) before income taxes ( 6,646 ) 11,286 3,151 34,428

Income tax expense (benefit) ( 1,426 ) 2,269 378 7,447

Net income (loss) ( 5,220 ) 9,017 2,773 26,981

Net loss (income) attributable to noncontrolling interests ( 13 ) 68 ( 6 ) 74

Net income (loss) attributable to RCIHH common stockholders $ ( 5,233 ) $ 9,085 $ 2,767 $ 27,055

Earnings (loss) per share

Gain on lease termination 979 —

Income before income taxes 10,912 9,043

Income tax expense 1,847 1,799

Net income 9,065 7,244

Net income attributable to noncontrolling interests ( 41 ) ( 18 )

Net income attributable to RCIHH common stockholders $ 9,024 $ 7,226

Earnings per share

Basic and diluted $ 1.01 $ 0.77

Weighted average shares used in computing earnings (loss) per share

Weighted average shares used in computing earnings per share

Basic and diluted 8,920,774 9,367,151

19 unchanged sentences

Balance at December 31, 2024

Purchase of treasury shares — — — — ( 27,265 ) ( 1,530 ) — ( 1,530 )

Canceled treasury shares ( 27,265 ) ( 1 ) ( 1,529 ) — 27,265 1,530 — —

Excise tax on stock repurchases — — ( 15 ) — — — — ( 15 )

Payment of dividends ($ 0.06 per share)

8,889,000 $ 89 $ 58,731 $ 210,160 — $ — $ ( 209 ) $ 268,771

Stock-based compensation — — 471 — — — — 471

Net income (loss) — — — 774 — — ( 25 ) 749

Balance at March 31, 2024 9,332,420 93 77,742 207,928 — — ( 264 ) 285,499

Purchase of treasury shares — — — — ( 202,630 ) ( 9,173 ) — ( 9,173 )

Canceled treasury shares ( 202,630 ) ( 2 ) ( 9,171 ) — 202,630 9,173 — —

Excise tax on stock repurchases — — ( 92 ) — — — — ( 92 )

Payment of dividends ($ 0.06 per share)

— — — ( 552 ) — — — ( 552 )

Stock-based compensation — — 471 — — — — 471

Net income (loss) — — — ( 5,233 ) — — 13 ( 5,220 )

Balance at June 30, 2024

9,129,790 $ 91 $ 68,950 $ 202,143 — $ — $ ( 251 ) $ 270,933

Balance at September 30, 2023

2 unchanged sentences

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

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

Payment of dividends ($ 0.06 per share)

1 unchanged sentence

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 ($ 0.06 per share)

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

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 ($ 0.06 per share)

— — — ( 565 ) — — — ( 565 )

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

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

Balance at June 30, 2023

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 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 3,569 3,853

Impairment of assets 25,964 3,293

Deferred income tax benefit

Stock-based compensation 470 470

Loss (gain) on sale of businesses and assets 116 ( 872 )

Gain on sale of businesses and assets ( 1,463 ) ( 3 )

Amortization of debt discount and issuance costs 63 163

3 unchanged sentences

Changes in operating assets and liabilities, net of business acquisitions:

Accounts receivable 3,052 1,480

Receivables 2,373 1,229

Inventories ( 4 ) ( 218 )

7 unchanged sentences

Payments for property and equipment and intangible assets ( 5,754 ) ( 5,135 )

Acquisition of businesses, net of cash acquired — ( 29,000 )

Net cash used in investing activities ( 4,404 ) ( 5,080 )

5 unchanged sentences

Payment of loan origination costs — ( 136 )

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

Net cash used in financing activities ( 6,572 ) ( 8,421 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,924 ( 12,396 )

NET INCREASE IN CASH AND CASH EQUIVALENTS 2,368 132

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,350 21,023

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34,718 $ 21,155

For the Nine Months Ended June 30,

CASH PAID DURING PERIOD FOR:

2 unchanged sentences

Noncash investing and financing transactions:

Debt incurred in connection with acquisition of businesses $ — $ 30,405

Debt incurred in connection with purchase of property and equipment $ — $ 10,476

Issuance of shares of common stock for acquisition of businesses:

Number of shares — 200,000

Fair value $ — $ 12,847

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

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

Unpaid excise tax on stock repurchases $ 33 $ 20

12 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, 2024 are not necessarily indicative of the results that may be expected for the year ending September 30, 2024.

Operating results for the three months ended December 31, 2024 are not necessarily indicative of the results that may be expected for the year ending September 30, 2025.

Recent Accounting Standards and Pronouncements

In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2021-08, Business Combinations (Topic 805):

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

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 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):

4 unchanged sentences

Early adoption is permitted.

We are evaluating the impact of this ASU and we believe that the adoption of this guidance will not have a significant impact on our consolidated financial statements.

We adopted ASU 2022-03 on October 1, 2024.

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

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

4 unchanged sentences

Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance.

We are still evaluating the impact of this ASU but we believe that the adoption of this guidance will not have a significant impact on our consolidated financial statements.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Standards and Pronouncements - continued

We adopted ASU 2023-01 on October 1, 2024.

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

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

5 unchanged sentences

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.

We adopted the provisions of ASU 2023-05 on October 1, 2024, and will apply them on future joint ventures.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Standards and Pronouncements — continued

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

11 unchanged sentences

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

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses , which expands disclosures about income statement expenses.

The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated statements of income in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization.

The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

The amendments in this ASU should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of the ASU or (2) retrospectively to any or all prior periods presented in the financial statements.

We are currently evaluating the impact of this guidance on our financial statement disclosures.

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, 2024 Three Months Ended June 30, 2023

Nightclubs Bombshells Other Total Nightclubs Bombshells Other Total

Sales of alcoholic beverages $ 27,413 $ 7,029 $ — $ 34,442 $ 26,144 $ 8,007 $ — $ 34,151

Sales of food and merchandise 5,904 5,832 — 11,736 5,288 6,117 — 11,405

Service revenues 25,103 165 — 25,268 26,497 166 — 26,663

Other revenues 4,403 113 218 4,734 4,520 107 209 4,836

$ 62,823 $ 13,139 $ 218 $ 76,180 $ 62,449 $ 14,397 $ 209 $ 77,055

Recognized at a point in time $ 62,411 $ 13,137 $ 218 $ 75,766 $ 61,986 $ 14,396 $ 209 $ 76,591

Recognized over time 412 * 2 — 414 463 * 1 — 464

$ 62,823 $ 13,139 $ 218 $ 76,180 $ 62,449 $ 14,397 $ 209 $ 77,055

Nine Months Ended June 30, 2024 Nine Months Ended June 30, 2023

Three Months Ended December 31, 2024 Three Months Ended December 31, 2023

Nightclubs Bombshells Other Total Nightclubs Bombshells Other Total

9 unchanged sentences

All other revenues are covered by ASC 606.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenues - continued

The Company does not have contract assets with customers.

3 unchanged sentences

Net Consideration

Received (Refunded) Recognized in

Revenue Balance at June 30, 2024

Recognized in

Revenue Balance at December 31, 2024

Ad revenue $ 31 $ 102 $ ( 109 ) $ 24

3 unchanged sentences

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

Segment Information

7 unchanged sentences

For the Three Months Ended

June 30, For the Nine Months Ended

2024 2023 2024 2023

Revenues (from external customers)

9 unchanged sentences

$ 13,906 $ 13,165

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment Information - continued

For the Three Months Ended

June 30, For the Nine Months Ended

2024 2023 2024 2023

Depreciation and amortization

1 unchanged sentence

Bombshells 320 643

Other 3 212 7 338

Corporate 265 303

6 unchanged sentences

$ 5,754 $ 5,135

June 30, 2024 September 30, 2023

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment Information — continued

December 31, 2024 September 30, 2024

Nightclubs $ 458,354 $ 454,892

3 unchanged sentences

$ 586,218 $ 584,364

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended June 30, 2024, amounting to $ 4.7 million and $ 21,000 , respectively, and for the nine months ended June 30, 2024, amounting to $ 13.8 million and $ 269,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three and nine months ended June 30, 2024 amounting to $ 66,000 and $ 194,000 , respectively.

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

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

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended December 31, 2024, amounting to $ 4.7 million and $ 385,000 , respectively, and for the three months ended December 31, 2023, amounting to $ 4.5 million and $ 227,000 , respectively;

and intercompany sales of Robust Energy Drink included in Other segment for the three months ended December 31, 2024, and 2023 amounting to $ 72,000 and $ 39,000 , respectively.

These intercompany revenue amounts are eliminated upon consolidation.

3 unchanged sentences

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

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Selected Account Information

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

June 30, 2024 September 30, 2023

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

December 31, 2024 September 30, 2024

Credit card receivables $ 1,647 $ 2,056

1 unchanged sentence

ATM in-transit 594 877

Current portion of notes receivable 329 269

Other (net of allowance for doubtful accounts of $ 57 and $ 42 , respectively)

Total accounts receivable, net $ 6,794 $ 9,846

Total receivables, net $ 3,519 $ 5,832

Notes receivable consist primarily of secured promissory notes executed between the Company and various buyers of our businesses and assets with interest rates ranging from 6 % to 9 % per annum and having original terms ranging from 1 to 20 years.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Selected Account Information — continued

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

June 30, 2024 September 30, 2023

December 31, 2024 September 30, 2024

Prepaid insurance $ 2,657 $ 2,792

5 unchanged sentences

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

June 30, 2024 September 30, 2023

December 31, 2024 September 30, 2024

Insurance $ 1,751 $ 2,390

5 unchanged sentences

Unearned revenues 194 99

Income taxes 216 —

Lawsuit settlement 2,027 1,985

Construction in progress 2,091 1,012

Estimated self-insurance liability 896 —

Other 1,781 2,739

Total accrued liabilities $ 20,514 $ 20,280

The components of other long-term liabilities are as follows (in thousands):

December 31, 2024 September 30, 2024

Estimated self-insurance liability

Other 395 398

Total other long-term liabilities $ 3,611 $ 398

RCI HOSPITALITY HOLDINGS, INC.

3 unchanged sentences

For the Three Months Ended

June 30, For the Nine Months Ended

2024 2023 2024 2023

Taxes and permits $ 3,828 $ 4,042

12 unchanged sentences

Total selling, general and administrative expenses $ 26,207 $ 25,201

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

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

For the Three Months Ended

June 30, For the Nine Months Ended

2024 2023 2024 2023

Impairment of assets $ 17,931 $ 2,631 $ 25,964 $ 3,293

Settlement of lawsuits $ 179 $ —

Loss (gain) on disposal of businesses and assets 188 ( 105 ) 180 ( 692 )

Gain on insurance — — — ( 91 )

Total other charges, net

$ 18,260 $ 2,589 $ 26,452 $ 5,693

During the second quarter ended March 31, 2024, we recorded $ 4.4 million in SOB license impairment related to four clubs, $ 2.9 million in goodwill impairment related to two clubs, and $ 693,000 in tradename impairment related to one club.

During the third quarter ended June 30, 2024, we recorded $ 6.0 million in goodwill impairment related to four clubs, $ 5.7 million in operating lease right-of-use asset impairment related to five Bombshells restaurants, $ 1.4 million in SOB license impairment related to two clubs, and $ 4.8 million in property and equipment impairment related to one club and five restaurants.

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 related to one club that was closed, we recorded $ 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.

During the second quarter ended March 31, 2023, we recognized lawsuit settlements of $ 3.1 million, of which $ 2.8 million related to a settlement with the New York Department of Labor related to the assessment by the New York Department of Labor for state unemployment insurance.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 the amended 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 April 30, 2024, the Company entered into a term loan with a bank lender for $ 20.0 million for additional working capital.

The loan has a 10 -year term and an interest rate of 8.25 % per annum for the first five years , after which the interest rate is to be adjusted to a rate equal to the then weekly average yield on U.S.

Treasury Securities plus 362 basis points, with a 6.5 % floor.

The promissory note is payable in equal monthly installments of $ 170,408 for principal and interest, based on a 20 -year amortization period, during the first five years , after which the monthly payments shall adjust based on the new interest rate to continue until April 30, 2034, at which time the remaining principal amount and accrued interest shall be paid.

The Company paid $ 356,000 in debt issuance costs at the time of closing.

There are certain financial covenants with which the Company is to be in compliance with related to this loan, including a minimum tangible net worth requirement of $ 25.0 million.

Future maturities of long-term debt as of June 30, 2024 are as follows:

$ 29.4 million, $ 13.6 million, $ 23.7 million, $ 28.7 million, $ 15.5 million and $ 137.4 million for the twelve months ending June 30, 2025, 2026, 2027, 2028, 2029, and thereafter, respectively.

Of the maturity schedule mentioned above, $ 15.3 million, $ 0.0 million, $ 9.1 million, $ 7.9 million, $ 0.2 million and $ 84.9 million, respectively, relate to scheduled balloon payments.

Unamortized debt discount and issuance costs amounted to $ 3.0 million and $ 2.9 million as of June 30, 2024 and September 30, 2023, respectively.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock-based Compensation

On February 7, 2022, our board of directors approved the 2022 Stock Option Plan (the “2022 Plan”).

The board’s adoption of the 2022 Plan was approved by the shareholders during the annual stockholders' meeting on August 23, 2022.

The 2022 Plan provides that the maximum aggregate number of shares of common stock underlying options that may be granted under the 2022 Plan is 300,000 .

The options granted under the 2022 Plan may be either incentive stock options or non-qualified options.

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 7, 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, which is included in corporate segment selling, general and administrative expenses amounted to $ 471,000 and $ 1.4 million during the three and nine months ended June 30, 2024, respectively, and $ 470,000 and $ 2.1 million during the three and nine months ended June 30, 2023, respectively.

As of June 30, 2024, we had unrecognized compensation cost amounting to $ 3.1 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of 1.6 years.

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

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

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

No stock options were exercised during the three and nine months ended June 30, 2024.

As of June 30, 2024, 180,000 stock options were vested and exercisable.

For the three and nine months ended June 30, 2024 and 2023, 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 taxes were a benefit of $ 1.4 million and an expense of $ 378,000 during the three and nine months ended June 30, 2024, respectively, compared to $ 2.3 million and $ 7.4 million during the three and nine months ended and June 30, 2023, respectively.

The effective income tax rate was 21.5 % and 12.0 % for the three and nine months ended June 30, 2024 compared to 20.1 % and 21.6 % for the three and nine months ended June 30, 2023, respectively.

The disproportionate tax rates during the nine months ended June 30, 2024, were caused by the decrease in the expected annual effective tax rate.

Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, and the pretax loss in the three months ended June 30, 2024, as presented below.

For the Three Months Ended

June 30, For the Nine Months Ended

Gain on sale of businesses and assets

( 1,406 ) ( 3 )

Gain on insurance ( 1,017 ) —

Total other gains, net $ ( 2,244 ) $ ( 3 )

Income tax expense was $ 1.8 million and $ 1.8 million during the three months ended December 31, 2024, and 2023, respectively.

The effective income tax rate was 16.9 % and 19.9 % for the three months ended December 31, 2024, and 2023, 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 December 31, 2024 For the Three Months Ended December 31, 2023

Amount % Amount %

Federal statutory income tax expense $ 2,292 21.0 % $ 1,899 21.0 %

4 unchanged sentences

Total income tax expense $ 1,847 16.9 % $ 1,799 19.9 %

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes — continued

The Company or one of its subsidiaries files income tax returns in the U.S.

2 unchanged sentences

The Company ordinarily goes through various federal and state reviews and examinations for various tax matters.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

Legal Matters

Texas Patron Tax

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

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

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

On November 19, 2018, the Court issued an order that a key aspect of the administrative rule is invalid based on it exceeding the scope of the Comptroller’s authority.

On March 6, 2020, the U.S.

District Court for the Western District of Texas, Austin Division, ruled that the Texas Patron Tax is unconstitutional as it has been applied and enforced by the Comptroller.

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

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

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

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

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, 2024, we have 1 remaining unresolved claim out of the original 71 claims.

As of December 31, 2024, we have 1 remaining unresolved claim out of the original 71 claims.

RCI HOSPITALITY HOLDINGS, INC.

1 unchanged sentence

Commitments and Contingencies — continued

Shareholder Derivative Action

On January 21, 2022, Shiva Stein and Kevin McCarty filed a shareholder derivative action in the Southern District of Texas, Houston Division against former director Nourdean Anakar, Yura Barabash, former director Steven L.

Jenkins, Eric Langan, Luke Lirot, former CFO Phillip K.

Marshall, Elaine J.

Martin, Allan Priaulx, and Travis Reese as defendants, as well as against RCI Hospitality Holdings, Inc.

as nominal defendant.

The action, styled Stein v.

Anakar, et al., No.

4:22-mc-00149 (S.D.

Tex.), alleges claims for breach of fiduciary duty based on alleged dissemination of inaccurate information and failure to maintain internal controls.

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

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

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

On July 19 2024, the Court approved the settlement.

On July 30, 2024, the final order of settlement was entered by the Court.

The case is now closed, and the Company believes that payments under the settlement agreement will be covered by insurance.

On June 23, 2014, Mark H.

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In March 2023, the New York State Department of Labor assessed a final judgment against one of our subsidiaries in a state unemployment tax matter for the years 2009-2022.

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 (see Note 5 ).

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.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies - continued

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

On or about May 29, 2024, search warrants were executed on the Company’s corporate headquarters in Houston, Texas, three separate clubs in New York, New York, and for the mobile phone of three individuals (including two executive officers and a non-executive corporate employee) by the New York State Attorney General (“NY AG”) and the New York State Department of Taxation and Finance (“NY DTF”).

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It is not possible at this time to determine whether the Company will incur (or to reasonably estimate the amount of) any fines, penalties, or liabilities in connection with the investigation.

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies — continued

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.

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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.

The Company recorded lawsuit settlements incurred amounting to $ 141,000 and $ 308,000 for the three and nine months ended June 30, 2024, respectively, and $ 63,000 and $ 3.2 million for the three and nine months ended June 30, 2023, respectively.

As of June 30, 2024, and September 30, 2023, the Company has accrued $ 2.3 million and $ 2.4 million, respectively, related to settlement of lawsuit, which is included in accrued liabilities in our unaudited condensed consolidated balance sheets.

The Company recorded lawsuit settlements incurred amounting to $ 179,000 and $ 0 for the three months ended December 31, 2024, and 2023, respectively.

As of December 31, 2024, and September 30, 2024, the Company has accrued $ 2.0 million and $ 2.0 million, respectively, related to settlement of lawsuits, which is included in accrued liabilities in our unaudited condensed consolidated balance sheets.

Self-insurance Liability

In fiscal 2025, the Company started self-insuring a significant portion of expected losses under its general liability and liquor insurance programs due to increasingly prohibitive costs of such coverage from third-party insurers.

The Company continues to purchase insurance for workers' compensation, property, auto, and business interruption, as well as the minimum insurance coverage where it is required by law for licensing requirements.

We record a liability for unresolved claims and for an estimate of incurred but not reported claims based on historical experience.

The estimated liability is based on a number of assumptions and factors regarding economic conditions, the frequency and severity of claims development history, and settlement practices.

Our assumptions are reviewed, monitored, and adjusted when warranted by changing circumstances.

Our initial accrual for estimated self-insurance liability during the quarter ended December 31, 2024, amounted to $ 4.1 million (see Note 5 ).

Related Party Transactions

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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, 2024 and September 30, 2023, was $ 136.4 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.

The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of December 31, 2024 and September 30, 2024, was $ 135.1 million and $ 135.3 million, respectively.

Included in the debt balance as of December 31, 2024, and September 30, 2024, are notes borrowed from related parties—one note for $ 500,000 (from 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 $ 344,798 during the three and nine months ended June 30, 2024, respectively, and $ 0 and $ 188,285 during the three and nine months ended June 30, 2023, respectively.

As of June 30, 2024 and September 30, 2023, we owed Nottingham Creations and Sherwood Forest $ 24,163 and $ 10,700 , respectively, in unpaid billings.

Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were $ 2,780 and $ 142,098 during the three months ended December 31, 2024, and 2023, respectively.

As of December 31, 2024, and September 30, 2024, we owed Nottingham Creations and Sherwood Forest $ 3,300 and $ 18,700 , respectively, in unpaid billings.

RCI HOSPITALITY HOLDINGS, INC.

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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 and nine months ended June 30, 2024, respectively, and $ 171,435 and $ 235,738 for the three and nine months ended June 30, 2023, respectively.

Amounts billed directly to the Company were $ 0 and $ 3,160 for the three and nine months ended June 30, 2024, respectively, and $ 8,823 and $ 9,202 for the three and nine months ended June 30, 2023, respectively.

As of June 30, 2024 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 and nine months ended June 30, 2024 and 2023 is as follows (in thousands):

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

2024 2023 2024 2023

Amounts billed by TW Mechanical to the third-party general contractor were $ 0 and $ 0 for the three months ended December 31, 2024, and 2023, respectively.

Amounts billed directly to the Company were $ 720 and $ 2,932 for the three months ended December 31, 2024, and 2023, respectively.

As of December 31, 2024 and September 30, 2024, 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, 2024, and 2023 is as follows (in thousands):

Three Months Ended December 31,

Operating lease expense – fixed payments $ 1,109 $ 1,292

Variable lease expense 395 450

Short-term and other lease expense (includes $ 117 and $ 116 recorded in advertising and marketing for the three months ended June 30, 2024 and 2023, respectively, and $ 342 and $ 243 for the nine months ended June 30, 2024 and 2023, respectively;

and $ 159 and $ 145 recorded in repairs and maintenance for the three months ended June 30, 2024 and 2023, respectively, and $ 447 and $ 410 for the nine months ended June 30, 2024 and 2023, respectively;

365 364 1,042 950

Short-term and other lease expense (includes $ 102 and $ 107 recorded in advertising and marketing for the three months ended December 31, 2024, and 2023, respectively;

and $ 142 and $ 141 recorded in repairs and maintenance for the three months ended December 31, 2024, and 2023, respectively;

Sublease income — —

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Weighted average discount rate – operating leases 5.7 % 5.8 %

Future maturities of operating lease liabilities as of June 30, 2024 are as follows (in thousands):

Future maturities of operating lease liabilities as of December 31, 2024, are as follows (in thousands):

Principal Payments Interest Payments Total Payments

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 1,345 4,426

July 2028 - June 2029 3,081 1,168 4,249

January - December 2025 $ 3,008 $ 1,584 $ 4,592

January - December 2026 3,266 1,403 4,669

January - December 2027 3,004 1,218 4,222

January - December 2028 2,621 1,055 3,676

January - December 2029 2,603 895 3,498

Thereafter 15,977 2,698 18,675

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Pro Forma Information on Prior Year Business Acquisition

In relation to the acquisition of the Baby Dolls-Chicas Locas clubs in March 2023, below are certain 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 amounts and number of shares):

Three Months Ended

June 30, Nine Months Ended

2024 2023 2024 2023

Pro forma revenues $ 76,180 $ 77,055 $ 222,370 $ 231,479

Pro forma net income (loss) attributable to RCIHH common stockholders $ ( 5,233 ) $ 9,085 $ 2,767 $ 26,129

Pro forma earnings (loss) per share - basic and diluted $ ( 0.56 ) $ 0.96 $ 0.30 $ 2.77

Pro forma weighted average shares used in computing earnings (loss) per share - basic and diluted 9,278,921 9,430,225 9,332,249 9,430,236

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.

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.

Pro forma net income and pro forma earnings per share include the impact of acquisition-related expenses and interest expense related to a $ 10.0 million line-of-credit facility 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 shares used in computing earnings per share include the impact of 200,000 shares of our common stock issued as partial consideration for the acquisition.

Since the results of operations during the three and nine months ended June 30, 2024 were in a fiscal year subsequent to the fiscal year of acquisition and that the periods fully include the results of operations of the five acquired clubs, the amounts presented do not reflect any pro forma adjustments.

Subsequent Events

On July 10, one of our clubs in Fort Worth, Texas, was razed by fire.

The insurance claim is still in process and no insurance proceeds have been received or recorded as of the filing of this report.

On July 11, 2024, our Board of Directors approved a $ 25.0 million increase in the Company's share repurchase program.

On July 23, 2024, the Company amended a promissory note related to a club acquisition on May 2, 2022, with a remaining principal balance of $ 5.2 million.

The amendment called for a 16-month extension to the original term of the note.

In turn, the Company paid down $ 1.5 million of the note's principal and a 1 % fee on the remaining principal balance.

The monthly installment payment of $ 79,290 in principal and interest was unchanged in the amended note and the balloon payment at the extended maturity date was adjusted accordingly.

Subsequent to the balance sheet date through August 5, 2024, we repurchased 133,244 shares of our common stock at an average price of $ 44.86 .

On January 21, 2025, the Company completed the acquisition of a club in the Detroit, Michigan market for a total purchase price of $ 11.0 million, consisting of $ 3.0 million in cash and $ 5.0 million in a seller-financed 8 % promissory note for the club, and $ 3.0 million in cash for the associated real estate.

As of the filing of this report, we have not completed our valuation and do not have estimates of fair value for the acquired assets and any assumed liability, if any.

Subsequent to the balance sheet date through February 7, 2025, we repurchased 22,125 shares of our common stock at an average price of $ 55.00 per share.

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