RCI HOSPITALITY HOLDINGS, INC. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item begins on the next page. 52 Table of Contents RCI HOSPITALITY HOLDINGS, INC. CONSOLIDATED FINANCIAL STATEMENTS Table of Contents Reports of Independent Registered Public Accounting Firms ( CBIZ CPAs P.C. , Firm ID: 199 ; Marcum LLP, Firm ID: 688) 54 Consolidated Financial Statements: Consolidated Statements of Cash Flows for the years ended September 30, 202 5 , 202 4 , and 202 3 57 Consolidated Statements of Income for the years ended September 30, 202 5 , 202 4 , and 202 3 58 Consolidated Statements of Changes in Equity for the years ended September 30, 202 5 , 202 4 , and 202 3 59 Consolidated Balance Sheets at September 30, 202 5 , and 202 4 60 Notes to Consolidated Financial Statements 61 53 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of RCI Hospitality Holdings, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of RCI Hospitality Holdings, Inc. (the “Company”) as of September 30, 2025, the related consolidated statements of income, changes in equity and cash flows for the year ended September 30, 2025, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2025, and the results of its operations and its cash flows for the year ended September 30, 2025, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of September 30, 2025, based on the criteria established in internal control - integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 19, 2026 , expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of the existence of material weaknesses. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Emphasis of a Matter As discussed in Note 11 of the consolidated financial statements, the Company was indicted and is currently subject to an ongoing regulatory investigation. The outcome and potential financial impact of this uncertainty is not estimable at this time, but could be material. Our opinion is not modified with respect to this matter. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 54 Table of Contents Impairment of Goodwill and Indefinite-lived Intangible Assets As discussed in Note 2 to the consolidated financial statements, the Company reviews goodwill and indefinite-lived intangible assets on an annual basis for impairment, or when events and circumstances indicate that the asset might be impaired. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value, and impairment of indefinite-lived intangible assets is recognized in the amount by which the carrying value of the assets exceed their fair value. If these assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined using forecasted cash flows discounted using an estimated weighted average cost of capital. As of September 30, 2025, the Company had goodwill of approximately $62.6 million, and indefinite-lived intangible assets of approximately $153.2 million. During the year ended September 30, 2025 the Company recorded an impairment of these assets of approximately $3.8 million. We identified the evaluation of the impairment analysis of goodwill and indefinite-lived intangible assets as a critical audit matter. There was a high degree of subjective auditor judgment in evaluating the estimated undiscounted future cash flows used to test operating locations for recoverability and the determination of fair value of the relevant assets when required. Specifically, a high degree of subjective auditor judgment was required to evaluate future revenues, operating cash flows and the discount rate. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the Company’s goodwill and indefinite-lived intangible asset impairment process, including controls over the identification of relevant assets at risk of impairment, the determination of estimated undiscounted future cash flows and the fair value of individual reporting unit or asset, as necessary, and controls over the key assumptions as noted above. These procedures also included, among others, (1) testing management’s process for developing the fair value estimates of the reporting unit or assets; (2) evaluating the appropriateness of the underlying discounted and undiscounted cash flow models; (3) testing the completeness and accuracy of underlying data used in the models; and (4) evaluating the reasonableness of the significant assumptions used by management, including the future cash flows, growth rates and discount rates. Evaluating management’s significant assumptions related to future cash flows, growth rates and the discount rates involved, with the assistance of valuation specialists, evaluating whether the assumptions used by management were reasonable considering (1) the historical performance of the reporting unit; (2) the consistency with external market data; and (3) sensitivities over significant inputs and assumptions, including the development of a point estimate. /s/ CBIZ CPAs P.C. CBIZ CPAs P.C. We have served as the Company’s auditor since 2019 (such date takes into account the acquisition of the attest business of Marcum LLP by CBIZ CPAs P.C. effective November 1, 2024). Marlton, New Jersey March 19, 2026 55 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of RCI Hospitality Holdings, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of RCI Hospitality Holdings, Inc. (the “Company”) as of September 30, 2024, the related consolidated statements of income, changes in equity and cash flows for each of the years in the two-year period ended September 30, 2024, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Marcum LLP Marcum LLP We served as the Company’s auditor from 2019 to 2025. Marlton, New Jersey December 16, 2024, except for the effect of the adoption of ASU 2023-07 and ASU 2023-09 described in Note 2, Note 4, and Note 10 to the financial statements, as to which the date is March 19, 2026 56 Table of Contents RCI HOSPITALITY HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended September 30, 2025 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 10,839 $ 3,018 $ 29,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,078 15,395 15,151 Deferred income tax benefit ( 1,004 ) ( 6,450 ) ( 1,781 ) Gain on sale of businesses and assets ( 1,032 ) ( 2,215 ) ( 870 ) Impairment of assets 5,340 38,517 12,629 Amortization and writeoff of debt discount and issuance costs 549 608 615 Credit loss expense on notes receivable 42 — — Gain on insurance ( 2,087 ) ( 522 ) ( 77 ) Noncash lease expense 2,726 2,980 2,978 Stock-based compensation expense 1,373 1,882 2,588 Changes in operating assets and liabilities, net of business acquisitions: Receivables 1,943 4,283 ( 2,383 ) Inventories ( 20 ) ( 309 ) 177 Prepaid expenses, other current, and other assets ( 1,241 ) ( 2,421 ) ( 366 ) Accounts payable, accrued, and other liabilities 16,912 1,118 1,369 Net cash provided by operating activities 49,418 55,884 59,130 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of businesses and assets 1,093 1,969 4,245 Proceeds from notes receivable 292 249 229 Proceeds from insurance 2,101 1,367 86 Payments for property and equipment and intangible assets ( 14,527 ) ( 24,600 ) ( 40,384 ) Acquisition of businesses, net of cash acquired ( 13,000 ) — ( 29,000 ) Net cash used in investing activities ( 24,041 ) ( 21,015 ) ( 64,824 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt obligations, including related party proceeds of $ 200 , $ 0 , and $ 0 , respectively 10,888 22,657 11,595 Payments on debt obligations, including related party payments of $ 500 , $ 0 , and $ 0 , respectively ( 20,502 ) ( 23,001 ) ( 15,650 ) Purchase of treasury stock ( 11,860 ) ( 20,606 ) ( 2,223 ) Payment of dividends ( 2,464 ) ( 2,302 ) ( 2,146 ) Payment of loan origination costs ( 80 ) ( 290 ) ( 239 ) Share in return of investment by noncontrolling partner — — ( 600 ) Net cash used in financing activities ( 24,018 ) ( 23,542 ) ( 9,263 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,359 11,327 ( 14,957 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 32,350 21,023 35,980 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 33,709 $ 32,350 $ 21,023 See accompanying notes to consolidated financial statements. 57 Table of Contents RCI HOSPITALITY HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share and number of shares data) Years Ended September 30, 2025 2024 2023 Revenues Sales of alcoholic beverages $ 122,124 $ 133,124 $ 127,262 Sales of food and merchandise 39,971 44,606 43,906 Service revenues 97,079 98,455 103,577 Other 20,260 19,419 19,045 Total revenues 279,434 295,604 293,790 Operating expenses Cost of goods sold Alcoholic beverages sold 22,143 24,228 23,291 Food and merchandise sold 14,118 16,360 15,429 Service and other 376 397 282 Total cost of goods sold (exclusive of items shown separately below) 36,637 40,985 39,002 Salaries and wages 83,665 84,177 79,500 Selling, general, and administrative 107,839 99,672 93,024 Depreciation and amortization 15,078 15,395 15,151 Impairments and other charges, net 5,948 36,570 15,629 Total operating expenses 249,167 276,799 242,306 Income from operations 30,267 18,805 51,484 Other income (expenses) Interest expense ( 16,352 ) ( 16,679 ) ( 15,926 ) Interest income 565 482 388 Gain on lease termination and other, net 968 — — Income before income taxes 15,448 2,608 35,946 Income tax expense (benefit) 4,609 ( 410 ) 6,846 Net income 10,839 3,018 29,100 Net loss (income) attributable to noncontrolling interests ( 28 ) ( 7 ) 146 Net income attributable to RCIHH common stockholders $ 10,811 $ 3,011 $ 29,246 Earnings per share Basic and diluted $ 1.23 $ 0.33 $ 3.13 Weighted average shares used in computing earnings per share Basic and diluted 8,822,758 9,250,245 9,335,983 See accompanying notes to consolidated financial statements. 58 Table of Contents RCI HOSPITALITY HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Years Ended September 30, 2025, 2024, and 2023 (in thousands, except per share and number of shares data) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Noncontrolling Interests Total Equity Number of Shares Amount Number of Shares Amount Balance at September 30, 2022 9,231,725 $ 92 $ 67,227 $ 173,950 — $ — $ 489 $ 241,758 Issuance of common shares for business combination 200,000 2 12,845 — — — — 12,847 Purchase of treasury shares — — — — ( 34,086 ) ( 2,223 ) — ( 2,223 ) Canceled treasury shares ( 34,086 ) — ( 2,223 ) — 34,086 2,223 — — Payment of dividends ($ 0.23 per share) — — — ( 2,146 ) — — — ( 2,146 ) Stock-based compensation — — 2,588 — — — — 2,588 Share in return of investment by noncontrolling partner — — — — — — ( 600 ) ( 600 ) Net income (loss) — — — 29,246 — — ( 146 ) 29,100 Balance at September 30, 2023 9,397,639 94 80,437 201,050 — — ( 257 ) 281,324 Purchase of treasury shares — — — — ( 442,639 ) ( 20,606 ) — ( 20,606 ) Canceled treasury shares ( 442,639 ) ( 4 ) ( 20,602 ) — 442,639 20,606 — — Excise tax on stock repurchases — — ( 206 ) — — — — ( 206 ) Payment of dividends ($ 0.25 per share) — — — ( 2,302 ) — — — ( 2,302 ) Stock-based compensation — — 1,882 — — — — 1,882 Net income — — — 3,011 — — 7 3,018 Balance at September 30, 2024 8,955,000 90 61,511 201,759 — — ( 250 ) 263,110 Purchase of treasury shares — — — — ( 270,939 ) ( 11,860 ) — ( 11,860 ) Canceled treasury shares ( 270,939 ) ( 3 ) ( 11,857 ) — 270,939 11,860 — — Excise tax on stock repurchases — — ( 119 ) — — — — ( 119 ) Payment of dividends ($ 0.28 per share) — — — ( 2,464 ) — — — ( 2,464 ) Stock-based compensation — — 1,373 — — — — 1,373 Net income — — — 10,811 — — 28 10,839 Balance at September 30, 2025 8,684,061 $ 87 $ 50,908 $ 210,106 — $ — $ ( 222 ) $ 260,879 See accompanying notes to consolidated financial statements. 59 Table of Contents RCI HOSPITALITY HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value and number of shares) September 30, 2025 2024 ASSETS Current assets Cash and cash equivalents $ 33,709 $ 32,350 Receivables, net 3,940 5,832 Inventories 4,857 4,676 Prepaid expenses and other current assets 4,968 4,427 Assets held for sale 3,394 — Total current assets 50,868 47,285 Property and equipment, net 279,027 280,075 Operating lease right-of-use assets, net 25,781 26,231 Notes receivable, net of current portion 3,849 4,174 Goodwill 62,725 61,911 Intangibles, net 171,948 163,461 Other assets 2,737 1,227 Total assets $ 596,935 $ 584,364 LIABILITIES AND EQUITY Current liabilities Accounts payable $ 5,836 $ 5,637 Accrued liabilities 32,607 20,280 Current portion of debt obligations, net 21,198 18,871 Current portion of operating lease liabilities 3,314 3,290 Total current liabilities 62,955 48,078 Deferred tax liability, net 21,689 22,693 Debt, net of current portion and debt discount and issuance costs 214,583 219,326 Operating lease liabilities, net of current portion 27,320 30,759 Other long-term liabilities 9,509 398 Total liabilities 336,056 321,254 Commitments and contingencies ( Note 11 ) Equity Preferred stock, $ 0.10 par value per share; 1,000,000 shares authorized; none issued and outstanding — — Common stock, $ 0.01 par value per share; 20,000,000 shares authorized; 8,684,061 shares and 8,955,000 shares issued and outstanding as of September 30, 2025, and 2024, respectively 87 90 Additional paid-in capital 50,908 61,511 Retained earnings 210,106 201,759 Total RCIHH stockholders’ equity 261,101 263,360 Noncontrolling interests ( 222 ) ( 250 ) Total equity 260,879 263,110 Total liabilities and equity $ 596,935 $ 584,364 See accompanying notes to consolidated financial statements. 60 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 1. Nature of Business RCI Hospitality Holdings, Inc. (the “Company,” “we,” “us,” or “our”) is a holding company incorporated in Texas in 1994. Our subsidiaries own and operate establishments that offer live adult entertainment, restaurant, and/or bar operations. These establishments are located in Houston, Austin, San Antonio, Dallas, Fort Worth, Tomball, Katy, Pearland, Dickinson, Odessa, Lubbock, Longview, Tye, Round Rock, Edinburg, El Paso, Harlingen, Arlington, Beaumont, and Stafford, Texas, as well as Central City and Denver, Colorado; Inkster, Michigan; Minneapolis, Minnesota; Pittsburgh and Allentown, Pennsylvania; Charlotte and Raleigh, North Carolina; New York and Newburgh, New York; Miami, Pembroke Park and Miami Gardens, Florida; Phoenix, Arizona; Sulphur, Louisiana; Portland, Maine; Louisville, Kentucky; Indianapolis, Indiana; Chicago, Washington Park, Sauget, and Kappa, Illinois; and West Columbia, South Carolina. The Company also owns and operates media businesses for the adult industry. The Company’s corporate offices are located in Houston, Texas. 2. Summary of Significant Accounting Policies Basis of Accounting The accounts are maintained and the consolidated financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”). Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries in which a controlling interest is owned. Intercompany accounts and transactions have been eliminated in consolidation. Fiscal Year Our fiscal year ends on September 30. References to years 2025, 2024, and 2023 are for fiscal years ended September 30, 2025, 2024, and 2023, respectively. Our fiscal quarters chronologically end on December 31, March 31, June 30 and September 30. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts in the consolidated financial statements and accompanying notes. Estimates and assumptions are based on historical experience, forecasted future events, and various other inputs that we believe to be reasonable under the circumstances. Estimates and assumptions may vary under different circumstances and conditions. We evaluate our estimates and assumptions on an ongoing basis. Cash and Cash Equivalents The Company considers as cash equivalents all highly liquid investments with a maturity of three months or less when purchased. The Company maintains deposits in several financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to amounts in excess of FDIC limits. 61 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies - continued Receivables Receivables for club and restaurant operations are primarily comprised of credit card charges, which are generally converted to cash in two to five days after a purchase is made. The media division’s receivables are primarily comprised of receivables for advertising sales and Expo registration. Receivables also include employee advances, construction advances, and other miscellaneous receivables. Long-term notes receivable, which have original maturity of more than one year, include consideration from the sale of certain investment interest entities and real estate. The Company recognizes interest income on notes receivable based on the terms of the agreement and based upon management’s evaluation that the notes receivable and interest income will be collected. The Company recognizes allowances for doubtful accounts or notes when, based on management judgment, circumstances indicate that operating or notes receivable will not be collected. Allowance for doubtful accounts balance related to operating receivables was $ 91,000 and $ 42,000 as of September 30, 2025 and 2024, respectively (see Note 6 ). Allowance for credit losses balance related to notes receivable was $ 42,000 and $ 0 as of September 30, 2025 and 2024, respectively. Inventories Inventories include alcoholic beverages, energy drinks, food, and Company merchandise. Inventories are carried at the lower of cost (on a first-in, first-out (“FIFO”) basis), or net realizable value. Property and Equipment Property and equipment are stated at cost. Provisions for depreciation and amortization are made using straight-line rates over the estimated useful lives of the related assets, and the shorter of useful lives or terms of the applicable leases for leasehold improvements. Buildings have estimated useful lives ranging from 29 to 40 years. Furniture and equipment have estimated useful lives of 5 to 7 years, while leasehold improvements are depreciated at the shorter of the lease term or estimated useful life. Expenditures for major renewals and betterments that extend the useful lives are capitalized. Expenditures for normal maintenance and repairs are expensed as incurred. The cost of assets sold, retired or abandoned and the related accumulated depreciation are written off from the accounts, and any gains or losses are charged or credited in the accompanying consolidated statement of income of the respective period. Interest expense from related debt incurred during site construction is capitalized, which amounted to $ 473,000 in 2025, $ 155,000 in 2024, and $ 0 in 2023. Goodwill and Other Intangible Assets Goodwill and other intangible assets with indefinite lives are not amortized but reviewed on an annual basis for impairment. Definite-lived intangible assets are amortized on a straight-line basis over their estimated lives. The costs of transferable licenses purchased through open markets are capitalized as indefinite-lived intangible assets. The costs of obtaining non-transferable licenses that are directly issued by local government agencies are expensed as incurred. Annual license renewal fees are expensed over their renewal term. Goodwill and other intangible assets that have indefinite useful lives are tested annually for impairment during our fourth fiscal quarter and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. 62 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies - continued For our goodwill impairment review, we have the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value. This assessment is based on several factors, including industry and market conditions, overall financial performance, including an assessment of cash flows in comparison to actual and projected results of prior periods. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value based on our qualitative analysis, or if we elect to skip this step, we perform a Step 1 quantitative analysis to determine the fair value of the reporting unit. The fair value is determined using market-related valuation models, including discounted cash flows and comparable asset market values. We recognize goodwill impairment in the amount that the carrying value of the reporting unit exceeds the fair value of the reporting unit, not to exceed the amount of goodwill allocated to the reporting unit, based on the results of our Step 1 analysis. For the year ended September 30, 2025, we did not identify any goodwill impairment for the reporting unit. For the year ended September 30, 2024, we recognized goodwill impairment loss totaling $ 8.9 million. For the year ended September 30, 2023, we recognized goodwill impairment loss of $ 4.2 million. For indefinite-lived intangibles, specifically sexually-oriented business ("SOB") licenses, we determine fair value by estimating the multiperiod excess earnings of the asset. 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 $ 3.8 million in 2025 related to six clubs, $ 11.8 million in 2024 related to seven clubs, $ 6.5 million in 2023 related to eight clubs, which are included in impairments and other charges, net in the consolidated statements of income. Impairment of Long-Lived Assets The Company reviews long-lived assets , such as property and equipment, intangible assets subject to amortization, and right-of-use assets on operating leases for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. These events or changes in circumstances include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business, and significant negative industry or economic trends. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset group to the estimated undiscounted cash flows over the estimated remaining useful life of the primary asset included in the asset group. If the asset group is not recoverable, the impairment loss is calculated as the excess of the carrying value over the fair value. We define our asset group as an operating club or restaurant location, which is also our reporting unit or the lowest level for which cash flows can be identified. 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. For assets held for sale, we measure fair value using an estimation based on quoted prices for similar items in active or inactive markets (level 2) developed using observable data. The assets and liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet. During fiscal 2025, the Company impaired one location operated by Bombshells for property and equipment for $ 1.6 million. During fiscal 2024, the Company impaired four clubs and nine Bombshells for property and equipment totaling $ 10.6 million and five Bombshells locations for operating lease right-of-use assets totaling $ 6.5 million. During fiscal 2023, the Company impaired one club for operating lease right-of-use assets amounting to $ 1.0 million and property and equipment amounting to $ 58,000 , and two venture projects for software totaling $ 814,000 . See Notes 6 , 7 , and 12 . Fair Value of Financial Instruments The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of receivables, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. The carrying value of notes receivable and short and long-term debt also approximates fair value since these instruments bear market rates of interest. None of these instruments are held for trading purposes. 63 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies - continued Revenue Recognition The Company recognizes revenue from the sale of alcoholic beverages, food and merchandise, service (which include cover charges, dance dollar surcharges, membership fees, and facility use fees, among others), and other revenues (which include commissions from vending and ATM machines, real estate rental, valet parking, and other products and services for both nightclub and restaurant/sports bar operations, among others) at the point-of-sale upon receipt of cash, check, or credit card charge, net of discounts and promotional allowances based on consideration specified in implied contracts with customers. Sales and liquor taxes collected from customers and remitted to governmental authorities are presented on a net basis in the accompanying consolidated statements of income. The Company recognizes revenue when it satisfies a performance obligation (point in time of sale) by transferring control over a product or service to a customer. Commission revenues, such as ATM commission, are recognized when the basis for such commission has transpired. Revenues from the sale of magazines and advertising content are recognized when the issue is published and shipped. Revenues and external expenses related to the Company’s annual Expo convention are recognized upon the completion of the convention, which normally occurs during our fiscal fourth quarter. Lease revenue (included in other revenues) is recognized when earned (recognized over time) and is more appropriately covered by guidance under ASC 842, Leases . Lease revenue is generally recognized ratably over the term of the lease. A substantial portion of our lessor contracts are classified as operating lease and a number of them are month-to-month or short-term contracts. Revenue from initial franchise and area development fees are recognized as the performance obligations are satisfied over the term of the franchise agreement. Franchise royalties and advertising contributions, which are a percentage of net sales of franchised restaurants, are recognized in the period the related sales occur. Refer to Notes 5 and 1 2 for additional disclosures on revenues and leases, respectively. Advertising and Marketing Advertising and marketing expenses are primarily comprised of costs related to public advertisements and giveaways, which are used for promotional purposes. Advertising and marketing expenses are expensed as incurred and are included in selling, general and administrative expenses in the accompanying consolidated statements of income. See Note 6 . Income Taxes The Company and its subsidiaries are subject to U.S. federal income tax and income taxes imposed in the state and local jurisdictions where we operate our businesses. Deferred income taxes are determined using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. U.S. GAAP creates a single model to address accounting for uncertainty in tax positions by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. We recognize penalties related to unrecognized tax benefits as a component of selling, general and administrative expenses, and recognize interest accrued related to unrecognized tax benefits in interest expense. 64 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies - continued Investments Investments in companies in which the company has a 20% to 50% interest are accounted for using the equity method, which are carried at cost and adjusted for the Company’s proportionate share of their undistributed earnings or losses. Investments in companies in which the Company owns less than a 20% interest, or where the Company does not exercise significant influence, are accounted for at cost and reviewed for any impairment. Cost and equity method investments are included in other assets in the Company’s consolidated balance sheets. Earnings Per Share Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings or losses of the Company. Potential common stock shares consist of shares that may arise from outstanding dilutive common restricted stock, stock options and warrants (the number of which is computed using the treasury stock method) and from outstanding convertible debentures (the number of which is computed using the if-converted method). Diluted earnings per share considers the potential dilution that could occur if the Company’s outstanding common restricted stock, stock options, warrants and convertible debentures were converted into common stock that then shared in the Company’s earnings or losses (as adjusted for interest expense, that would no longer be incurred if the debentures were converted). During the years ended September 30, 2025, 2024, and 2023, the Company did not have any adjustment items to reconcile the numerator and the denominator in the calculation of basic and diluted earnings per share. For all fiscals presented, we excluded the impact of 300,000 stock options from the calculation of diluted earnings per share because the effect was anti-dilutive. Business Combinations The Company accounts for business combinations under the acquisition method of accounting, which requires the recognition of acquired tangible and identifiable intangible assets and assumed liabilities at their acquisition date fair values. The excess of the acquisition price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to acquired entities are included prospectively beginning with the date of acquisition. Acquisition-related costs are expensed as incurred. Share Repurchases The Company accounts for treasury stock transactions using the cost method. When treasury shares are retired, we charge the excess of the repurchase price over the par value of the repurchased shares to additional paid-in capital. We also charge additional paid-in capital for any excise tax incurred related to share repurchases. Stock-based Compensation The Company recognizes all employee stock-based compensation in selling, general and administrative expenses in our consolidated statements of income. Equity-classified awards are measured at the grant date fair value of the award and recognized as expense over their requisite service period. The Company estimates grant date fair value of stock options using the Black-Scholes option-pricing model. 65 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies - continued The expected term was estimated using the historical exercise and post-vesting expiration behavior of grantees on stock options awarded prior to the 2022 Plan. The expected volatility was based on historical volatility of the Company's stock price for a period equal to the award's expected term. The expected dividend yield is based on the current dividend payout activity and the exercise price (that is, the expected dividends that would likely be reflected in an amount at which the stock option would be exchanged). The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. We recognize forfeitures when they occur. Legal and Other Contingencies The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. In the opinion of management, there was not at least a reasonable possibility that we may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims. The Company maintains insurance that covers claims arising from risks associated with the Company’s business including claims for workers’ compensation, general liability, property, auto, and business interruption coverage. The Company has historically carried substantial insurance to cover such risks with large deductibles, with such policies being structured to limit our per-occurrence exposure. During fiscal 2025, however, we self-insured certain general liability and liquor insurance coverage in a number of establishments due to increasingly prohibitive costs of such coverage. However, we still carry at least 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 including legal costs 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. The Company believes, and the Company’s experience has been, that such insurance policies have been sufficient to cover such risks. Generally, the Company recognizes gain contingencies when they are realized or when all related contingencies have been resolved. Fair Value Measurement The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: • Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2 – Include other inputs that are directly or indirectly observable in the marketplace. • Level 3 – Unobservable inputs which are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company classifies its marketable securities as available-for-sale, which are reported at fair value. Realized gains and losses (including unrealized holding gains and losses) from securities classified as available-for-sale are included in 66 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies - continued comprehensive income. The Company measures the fair value of its marketable securities based on quoted prices for identical securities in active markets, or Level 1 inputs. In accordance with U.S. GAAP, the Company reviews its marketable securities to determine whether a decline in fair value of a security below the cost basis is other than temporary. Should the decline be considered other than temporary, the Company writes down the cost basis of the security and include the loss in current earnings as opposed to an unrealized holding loss. No losses or other-than-temporary impairments in our marketable securities portfolio were recognized during the years ended September 30, 2025, 2024, and 2023. Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to tangible property and equipment, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value in the consolidated balance sheets. For these assets, the Company does not periodically adjust carrying value to fair value except in the event of impairment. If it is determined that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is included in impairments and other charges, net in the consolidated statements of operations. Assets and liabilities that are measured at fair value on a nonrecurring basis are as follows (in thousands): Fair Value at Reporting Date Using Description September 30, 2025 Quoted Prices in Active Markets for Identical Asset (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Property and equipment 3,252 — 3,252 — Indefinite-lived intangibles 9,713 — — 9,713 Fair Value at Reporting Date Using Description September 30, 2024 Quoted Prices in Active Markets for Identical Asset (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Property and equipment $ 7,975 $ — $ — $ 7,975 Indefinite-lived intangibles 16,575 — — 16,575 Definite-lived intangibles 1,682 — — 1,682 Unrealized Gain (Loss/Impairments†) Recognized Years Ended September 30, Description 2025 2024 2023 Goodwill $ — $ ( 8,861 ) $ ( 4,239 ) Property and equipment, net (including held for sale) ( 1,550 ) ( 10,582 ) ( 58 ) Indefinite-lived intangibles ( 3,790 ) ( 11,243 ) ( 5,516 ) Definite-lived intangibles — ( 1,283 ) ( 1,813 ) Operating lease right-of-use assets — ( 6,480 ) ( 1,003 ) Other assets — ( 68 ) — † Cumulative annual impairments based on interim and year-end testing. 67 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies - continued The significant unobservable inputs used in our level 3 fair value measurements are as follows: Range (Weighted Average) Areas Valuation Techniques Unobservable Input 2025 2024 2023 Goodwill Discounted cash flow EBITDA multiple 12 x ( 12 x) 1 x - 13 x ( 13 x) 9 x - 12 x ( 12 x) Long-term revenue/EBITDA growth rate 2.3 % ( 2.3 %) ( 2.3 )% - 1.6 % ( 0.9 %) 0 % - 2.5 % ( 2.5 %) Weighted average cost of capital 10.5 % ( 10.5 %) 9.6 % ( 9.6 %) 11.0 % ( 11.0 %) SOB licenses Multiperiod excess earnings Long-term revenue/EBITDA growth rate 2.3 % ( 2.3 %) 1.6 % ( 1.6 %) 0 % - 2.5 % ( 2.5 %) Weighted average cost of capital 10.5 % ( 10.5 %) 9.6 % ( 9.6 %) 11.0 % ( 11.0 %) Contributory asset charges rate 6.5 % - 16.2 % ( 15.1 %) 5.1 % - 16.2 % ( 15.1 %) 10.0 % - 21.5 % ( 15.0 %) Tradename Relief-from-royalty method Long-term revenue growth rate 2.3 % ( 2.3 %) 1.6 % ( 1.6 %) 0 % - 2.5 % ( 2.5 %) Royalty rate 1.6 % - 6.0 % ( 4.7 %) 3.0 % - 6.0 % ( 4.4 %) 3.0 % - 6.0 % ( 4.7 %) Weighted average cost of capital 10.5 % ( 10.5 %) 9.6 % ( 9.6 %) 11.0 % ( 11.0 %) Operating lease right-of-use assets Discounted cash flow Long-term EBITDA growth rate None ( 2.3 )% - 1.6 % ( 0.9 %) 1.5 % - 2.5 % ( 2.3 %) Weighted average cost of capital None 9.6 % ( 9.6 %) 11.0 % ( 11.0 %) 68 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies - continued Impact of Recently Issued Accounting Standards In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions . The amendments in this ASU clarify that an entity should measure the fair value of an equity security subject to contractual sale restriction the same way it measures an identical equity security that is not subject to such a restriction. The FASB said the contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, should not affect its fair value. The ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. 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): Common Control Arrangements, which amends certain provisions of ASC 842 that apply to arrangements between related parties under common control. The ASU requires all companies to amortize leasehold improvements associated with common control leases over the asset's useful life to the common control group regardless of the lease term. It also allows private and certain not-for-profit entities to use the written terms and conditions of an agreement to account for common control leases without further assessing the legal enforceability of those terms. The guidance is effective for all entities in fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. 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): Recognition and Initial Measurement , which addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture's separate financial statements. The objectives of the ASU are to (1) provide decision-useful information to investors and other allocators of capital in a joint venture's financial statements and (2) reduce diversity in practice. The FASB decided to require a joint venture to apply a new basis of accounting upon formation that will recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). The amendments of this ASU are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. Additionally, a joint venture that was formed before January 1, 2025 may elect to apply the amendments retrospectively if it has sufficient information. early adoptions is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. We adopted the provisions of ASU 2023-05 on October 1, 2024, and will apply them on future joint ventures. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity's overall performance and assess potential future cash flows. The ASU applies to all public entities that are required to report segment information in accordance with ASC 280, and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We initially adopted the disclosure requirements of ASU 2023-07 during the annual reporting period ended September 30, 2025. Due to certain changes in the composition of reportable segments, we recast prior year information to conform to current year classification, as allowed by ASU 2023-07. See Note 4 . Our adoption of this ASU did not have a significant impact on our consolidated financial statements. 69 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies - continued In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . Under the ASU, public business entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). The amendments of the ASU are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard for annual financial statements that have not been issued or made available for issuance. We initially adopted the disclosure requirements of ASU 2023-09 during the annual reporting period ended September 30, 2025, on a retrospective basis. See Note 10 . 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, as clarified by ASU 2025-01, 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. 3. Supplemental Disclosure of Cash Flow Information Presented below are supplemental cash flow information (in thousands). Years Ended September 30, 2025 2024 2023 CASH PAID DURING THE YEAR FOR: Interest paid, net of amounts capitalized $ 15,847 $ 16,157 $ 15,156 Income taxes paid (net of refunds of $ 51 , $ 173 , and $ 1,656 in 2025, 2024, and 2023, respectively) ( Note 10 ) $ 4,547 $ 5,068 $ 8,636 Non-cash investing and financing transactions: Debt incurred in connection with acquisition of businesses $ 8,000 $ — $ 30,405 Debt incurred in connection with purchase of property and equipment $ — $ — $ 10,476 Debt exchanged in connection with the sale of a restaurant location $ — $ 1,471 $ — Notes receivable received as proceeds from sale of assets $ 60 $ — $ — Issuance of shares of common stock for acquisition of business: Number of shares — — 200,000 Fair value at acquisition date $ — $ — $ 12,847 Adjustment to operating lease right-of-use assets related to new and renewed leases $ — $ 760 $ 1,864 Adjustment to operating lease liabilities related to new and renewed leases $ — $ 760 $ 2,163 Unpaid excise tax on stock repurchases $ 119 $ 206 $ — Unpaid liabilities on capital expenditures $ 1,005 $ 1,474 $ 1,967 70 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 4. Segment Information The Company owns and operates adult nightclubs and Bombshells Restaurants and Bars. The Company has identified such segments based on how the chief operating decision maker assigns management responsibility, how financial information is regularly reviewed, the nature of the Company’s products, services and costs, regulatory environments, and how resources are allocated. There are no major distinctions in geographical areas served as all operations are in the United States. The Company's chief operating decision maker is its chief executive officer. The Company measures segment profit (loss) as income (loss) from operations. Segment assets are those assets controlled by each reportable segment. The Other category below includes our media and energy drink divisions that are not significant to the consolidated financial statements. Below is the financial information related to the Company’s reportable segments (in thousands): 2025 2024 2023 Nightclubs Bombshells Total Nightclubs Bombshells Total Nightclubs Bombshells Total Revenues Third party $ 242,501 $ 35,810 $ 278,311 $ 243,864 $ 50,578 $ 294,442 $ 236,748 $ 55,723 $ 292,471 Intersegment 4,610 — 4,610 4,049 — 4,049 3,355 — 3,355 247,111 35,810 282,921 247,913 50,578 298,491 240,103 55,723 295,826 Reconciliation of revenue Other revenues, including intersegment 1,383 1,432 1,573 Elimination of intersegment revenues ( 4,870 ) ( 4,319 ) ( 3,609 ) Total consolidated revenues 279,434 295,604 293,790 Less: Cost of goods sold, including intersegment 27,722 8,572 36,294 28,411 12,212 40,623 26,266 12,486 38,752 Salaries and wages 56,969 11,636 68,605 54,217 14,643 68,860 50,489 14,949 65,438 Selling, general, and administrative, including intersegment 69,994 17,418 87,412 68,728 21,846 90,574 61,363 21,665 83,028 Depreciation and amortization 12,662 1,344 14,006 11,823 2,399 14,222 10,871 2,574 13,445 Impairment and other charges, net 5,585 460 6,045 22,773 13,529 36,302 14,585 284 14,869 Other segment items — ( 979 ) ( 979 ) — — — — — — Segment income (loss) 74,179 ( 2,641 ) 71,538 61,961 ( 14,051 ) 47,910 76,529 3,765 80,294 Reconciliation of segment income (loss) Other income (loss) ( 218 ) ( 179 ) ( 1,427 ) Interest income (expense), net ( 15,787 ) ( 16,197 ) ( 15,538 ) Elimination of intersegment income ( 6 ) — — Unallocated corporate overhead ( 40,079 ) ( 28,926 ) ( 27,383 ) Consolidated income before income taxes 15,448 2,608 35,946 71 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 4. Segment Information – continued 2025 2024 2023 Nightclubs Bombshells Total Nightclubs Bombshells Total Nightclubs Bombshells Total Segment capital expenditures 5,054 8,460 13,514 9,922 8,080 18,002 11,840 16,578 28,418 Reconciliation to consolidated capital expenditures Other operating segments 548 5,114 8,400 Unallocated corporate 465 1,484 3,566 Consolidated capital expenditures 14,527 24,600 40,384 Segment assets - end of year 477,644 75,582 553,226 455,756 79,410 535,166 483,563 85,215 568,778 Reconciliation to consolidated total assets Other operating segments 7,942 12,984 6,936 Unallocated corporate 35,767 36,214 35,170 Consolidated total assets 596,935 584,364 610,884 General corporate overhead include corporate salaries, health insurance and social security taxes for officers, legal, accounting and information technology employees, corporate taxes and insurance, legal and accounting fees, unallocated self-insurance reserve, depreciation and other corporate costs such as automobile and travel costs. Management considers these to be non-allocable costs for segment purposes. Certain real estate assets previously wholly assigned to Bombshells have been subdivided and allocated to other future development or investment projects. Accordingly, those asset costs have been transferred out of the Bombshells segment. In adopting ASU 2023-07, we recast one of our shared-services subsidiary from Other to Corporate. We also recast three previously planned and previously reported casino-related subsidiaries classified in Other to Nightclubs and Bombshells . 5. Revenues Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 4 ), are shown below (in thousands). 2025 Nightclubs Bombshells Other Total Sales of alcoholic beverages $ 103,495 $ 18,629 $ — $ 122,124 Sales of food and merchandise 22,955 17,016 — 39,971 Service revenues 97,024 55 — 97,079 Other revenues 19,027 110 1,123 20,260 $ 242,501 $ 35,810 $ 1,123 $ 279,434 Recognized at a point in time $ 240,813 $ 35,772 $ 1,120 $ 277,705 Recognized over time 1,688 38 3 1,729 $ 242,501 $ 35,810 $ 1,123 $ 279,434 72 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 5. Revenues - continued 2024 Nightclubs Bombshells Other Total Sales of alcoholic beverages $ 105,669 $ 27,455 $ — $ 133,124 Sales of food and merchandise 22,129 22,477 — 44,606 Service revenues 98,233 222 — 98,455 Other revenues 17,833 424 1,162 19,419 $ 243,864 $ 50,578 $ 1,162 $ 295,604 Recognized at a point in time $ 242,162 $ 50,573 $ 1,162 $ 293,897 Recognized over time 1,702 5 — 1,707 $ 243,864 $ 50,578 $ 1,162 $ 295,604 2023 Nightclubs Bombshells Other Total Sales of alcoholic beverages $ 96,325 $ 30,937 $ — $ 127,262 Sales of food and merchandise 19,995 23,911 — 43,906 Service revenues 103,217 360 — 103,577 Other revenues 17,211 515 1,319 19,045 $ 236,748 $ 55,723 $ 1,319 $ 293,790 Recognized at a point in time $ 234,981 $ 55,677 $ 1,274 $ 291,932 Recognized over time 1,767 46 45 1,858 $ 236,748 $ 55,723 $ 1,319 $ 293,790 The Company does not have contract assets with customers. The Company’s unconditional right to consideration for goods and services transferred to the customer is included in receivables, net in our consolidated balance sheet. A reconciliation of contract liabilities with customers, included in accrued liabilities in our consolidated balance sheets, is presented below (in thousands): Balance at September 30, 2023 Consideration Received (Refunded) Recognized in Revenue Balance at September 30, 2024 Consideration Received Recognized in Revenue Balance at September 30, 2025 Ad revenue $ 49 $ 422 $ ( 440 ) $ 31 $ 417 $ ( 403 ) $ 45 Expo revenue 1 519 ( 519 ) 1 517 ( 517 ) 1 Other (including franchise fees, see below) 46 26 ( 5 ) 67 5 ( 41 ) 31 $ 96 $ 967 $ ( 964 ) $ 99 $ 939 $ ( 961 ) $ 77 Contract liabilities with customers are included in accrued liabilities as unearned revenues in our consolidated balance sheets (see also Note 6 ), while the revenues associated with these contract liabilities are included in other revenues in our consolidated statements of income. 73 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 5. Revenues - continued On December 22, 2020, the Company signed a franchise development agreement with a group of private investors to open three Bombshells locations in San Antonio, Texas over a period of five years , and the right of first refusal for three more locations in Corpus Christi, New Braunfels, and San Marcos, all in Texas. Upon execution of the agreement, the Company collected $ 75,000 in development fees representing 100 % of the initial franchise fee of the first restaurant and 50 % of the initial franchise fee of the second restaurant. The first Bombshells franchised location opened in June 2022. On May 2, 2022, the Company signed a franchise development agreement with a private investor to open three Bombshells locations in the state of Alabama over a period of five years . Upon execution of the agreement, the Company received $ 50,000 in development fees representing 100 % of the initial franchise fee of the first restaurant. In February 2023, the Company purchased the franchised Bombshells unit in San Antonio, Texas, and in September 2024, was sold back to members of the former franchisee group. See Note 16 . 6. Selected Account Information The components of receivables, net are as follows (in thousands): September 30, 2025 2024 Credit card receivables $ 1,637 $ 2,056 Income tax refundable 951 2,017 ATM in-transit 374 877 Current portion of notes receivable 320 269 Other (net of allowance for doubtful accounts of $ 91 and $ 42 , respectively) 658 613 Total receivables, net $ 3,940 $ 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. The components of prepaid expenses and other current assets are as follows (in thousands): September 30, 2025 2024 Prepaid insurance $ 3,367 $ 2,792 Prepaid legal 123 177 Prepaid taxes and licenses 498 522 Prepaid rent 324 322 Other 656 614 Total prepaid expenses and other current assets $ 4,968 $ 4,427 74 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 6. Selected Account Information - continued The components of accrued liabilities are as follows (in thousands): September 30, 2025 2024 Payroll and related costs $ 4,930 $ 4,676 Property taxes 3,501 3,347 Sales and liquor taxes 2,303 2,440 Insurance 1,600 2,390 Legal fees 9,366 28 Interest 524 568 Patron tax 1,078 1,024 Lawsuit settlement 4,173 1,985 Construction in progress 464 1,012 Estimated self-insurance liability 2,555 — Unearned revenues 77 99 Other 2,036 2,711 Total accrued liabilities $ 32,607 $ 20,280 The components of other long-term liabilities are as follows (in thousands): September 30, 2025 2024 Estimated self-insurance liability $ 7,008 $ — Advances from creditors 1,250 — Other 1,251 398 Total other long-term liabilities $ 9,509 $ 398 The components of selling, general and administrative expenses are as follows (in thousands): 2025 2024 2023 Taxes and permits $ 14,186 $ 16,177 $ 11,966 Advertising and marketing 11,512 12,461 11,928 Supplies and services 10,230 10,896 10,724 Insurance 15,024 13,059 10,268 Lease 6,406 7,099 7,206 Legal 14,476 4,155 3,742 Utilities 6,086 6,075 5,760 Charge cards fees 6,976 6,968 7,090 Security 4,205 5,080 5,618 Accounting and professional fees 4,641 4,260 4,286 Repairs and maintenance 5,090 4,690 4,924 Stock-based compensation 1,373 1,882 2,588 Other 7,634 6,870 6,924 Total selling, general, and administrative expenses $ 107,839 $ 99,672 $ 93,024 75 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 6. Selected Account Information - continued The components of impairments and other charges, net are as follows (in thousands): 2025 2024 2023 Impairment of assets $ 5,340 $ 38,517 $ 12,629 Settlement of lawsuits 3,948 520 3,759 Gain on sale of businesses and assets ( 982 ) ( 2,140 ) ( 682 ) Gain on insurance ( 2,358 ) ( 327 ) ( 77 ) Total impairments and other charges, net $ 5,948 $ 36,570 $ 15,629 7. Property and Equipment Property and equipment consisted of the following (in thousands): September 30, 2025 2024 Land $ 95,260 $ 95,539 Buildings and improvements 230,756 224,439 Equipment 53,728 51,075 Furniture 16,867 15,285 Total property and equipment 396,611 386,338 Less accumulated depreciation and impairment ( 117,584 ) ( 106,263 ) Property and equipment, net $ 279,027 $ 280,075 Included in buildings and leasehold improvements above are construction-in-progress amounting to $ 7.9 million and $ 15.0 million as of September 30, 2025, and 2024, respectively, which are mostly related to Bombshells development projects. Depreciation expense was approximately $ 12.7 million, $ 12.9 million, and $ 11.6 million for fiscal years 2025, 2024, and 2023, respectively. Impairment loss for property and equipment, including those later reclassified to assets held for sale, was $ 1.6 million, $ 10.6 million, and $ 58,000 for fiscal 2025, 2024, and 2023, respectively. 76 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 8. Goodwill and Other Intangible Assets Goodwill and other intangible assets consisted of the following (in thousands): September 30, 2025 2024 Indefinite useful lives: Goodwill $ 62,725 $ 61,911 Licenses 132,292 124,492 Tradename and domain name 20,872 19,118 Total goodwill and other intangibles with indefinite lives 215,889 205,521 Amortization Period Definite useful lives: Discounted leases Lease term 185 63 Non-compete agreements 5 years — — Software 5 years 10 40 Licenses Lease term 18,586 19,732 Leases acquired in-place Lease term 3 16 Total other intangibles with definite lives 18,784 19,851 Total goodwill and other intangible assets $ 234,673 $ 225,372 Substantially all of our goodwill and other intangible assets belong to our Nightclubs segment. 2025 2024 Definite- Lived Intangibles Indefinite- Lived Intangibles Goodwill Definite- Lived Intangibles Indefinite- Lived Intangibles Goodwill Beginning balance $ 19,851 $ 143,610 $ 61,911 $ 23,599 $ 155,546 $ 70,772 Acquisitions 1,296 13,494 814 23 — — Impairment — ( 3,790 ) — ( 590 ) ( 11,936 ) ( 8,861 ) Dispositions ( 1 ) ( 150 ) — ( 687 ) — — Amortization ( 2,362 ) — — ( 2,494 ) — — Ending balance $ 18,784 $ 153,164 $ 62,725 $ 19,851 $ 143,610 $ 61,911 77 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 8. Goodwill and Other Intangible Assets - continued Definite-lived intangible assets consist of the following (in thousands): September 30, 2025 2024 Licenses $ 28,886 $ 27,725 Software 2,354 2,355 Leases acquired in-place 826 826 Discounted leases 432 297 Non-compete agreements 1,100 1,100 Distribution agreements 317 317 Total definite-lived intangibles 33,915 32,620 Less accumulated amortization and impairment ( 15,131 ) ( 12,769 ) Definite-lived intangibles, net $ 18,784 $ 19,851 As of September 30, 2025 and 2024, the accumulated impairment balance of indefinite-lived intangibles was $ 32.6 million and $ 28.8 million, respectively, while the accumulated impairment balance of goodwill was $ 34.3 million and $ 34.3 million, respectively. As of September 30, 2025 and 2024, the gross amount of goodwill amounted to $ 97.0 million and $ 96.2 million, respectively. Future amortization expense related to definite-lived intangible assets that are subject to amortization at September 30, 2025 is: 2026 - $ 2.3 million; 2027 - $ 2.2 million; 2028 - $ 1.5 million; 2029 - $ 1.5 million; 2030 - $ 1.5 million; and thereafter - $ 8.7 million. Indefinite-lived intangible assets consist of SOB licenses, liquor licenses, and tradenames, which were obtained as part of acquisitions. These licenses are the result of zoning ordinances, thus are valid indefinitely, subject to filing annual renewal applications, which are done at minimal costs to the Company. We considered certain licenses that are associated with leased locations as definite-lived. The discounted cash flow of the income approach method was used in calculating the value of these licenses in a business combination, while the relief-from-royalty method was used in calculating the value of tradenames. During the fiscal year ended September 30, 2025, the Company recognized a $ 3.8 million impairment related to the SOB licenses of six clubs. During the fiscal year ended September 30, 2024, the Company recognized a $ 11.8 million impairment related to the SOB licenses of seven clubs, a $ 8.9 million impairment related to goodwill of four reporting units, and a $ 693,000 impairment related to tradename of one club. During the fiscal year ended September 30, 2023, the Company recognized a $ 6.5 million impairment related to the SOB licenses of eight clubs and a $ 4.2 million impairment related to the goodwill of four reporting units. 78 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 9. Debt Debt consisted of the following (in thousands): September 30, 2025 2024 Note payable at 8 %, matures October 2027, as amended (b)(1)(4) 3,025 3,025 Note payable at 8 %, matures May 2029 (b)(1) 6,401 7,846 Note payable at 5.99 %, matures September 2033, as amended (c) (2) 4,521 4,950 Note payable at 5.25 %, matures September 2031 *(a)(3) 80,900 84,506 Notes payable at 12 %, matures October 2026, as amended (d)(5)(22) 7,500 9,100 Notes payable at 12 %, matures November 2027, as amended (d)(5)(22) 2,958 3,160 Notes payable at 12 %, matures November 2027, as amended (d)(5)(22) 1,065 3,160 Note payable at 5.25 %, matures October 2031 (a)(6) 1,060 1,099 Note payable at 6 %, matures October 2031 (b)(6) 7,573 8,545 Note payable at 6 % matures October 2041 (b)(6) 7,135 7,381 Note payable at 6 % matures October 2041 (b)(6) 889 921 Note payable at 4 % matures November 2028 (b)(7) 487 628 Note payable at 5.25 % matures January 2032 *(a)(8) 15,297 15,978 Note payable at 4.25 % matures February 2043 *(a)(9) 2,403 2,493 Note payable at 10 % matures September 2026 (b)(10) 2,908 3,534 Note payable at 10 % matures May 2032 (b)(10) 5,000 5,000 Note payable at 6 % matures July 2029 (b)(11) 481 589 Note payable at 6 % matures July 2032 (b)(12) 7,457 8,314 Note payable at 6 % matures August 2032 (a)(12) 3,765 4,191 Note payable at 7.79 % matures August 2039, as amended *(a)(13) 1,513 1,571 Note payable at 4.79 % matures October 2042 (c)(14) 2,550 2,644 Note payable initially at 6 % matured October 2024 *(a)(15) — 2,247 Note payable at 6 % matures October 2037 (a)(16) 4,234 4,478 Note payable initially at 7.79 % matures August 2039, as amended *(a)(17) 1,441 1,495 Note payable at 6.67 % matures January 2028 *(a)(18) 3,192 3,250 Notes payable at 7 % matures March 2033 (a)(b)(20) 20,685 22,712 Note payable initially at 8.75 % matures March 2027 (d)(19)(27) 3,450 2,900 Note payable initially at 7.12 % matures June 2028 *(a)(21) 2,788 2,833 Note payable at 8.50 % matures November 2033 (a)(23) 5,210 2,657 Note payable at 8.25 % matures April 2034 (a)(24) 19,447 19,847 Note payable at 6.99 % matures October 2041 *(a)(25) 5,336 — Note payable at 8 % matures January 2030 (b)(26) 4,718 — Notes payable at 7 % mature June 2030 (b)(28)(29) 2,803 — Total debt 238,192 241,054 Less unamortized debt discount and issuance costs ( 2,411 ) ( 2,857 ) Less current portion ( 21,198 ) ( 18,871 ) Total long-term portion of debt, net $ 214,583 $ 219,326 * These commercial bank debts are guaranteed by the Company’s former CEO. See Note 18 . 79 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 9. Debt - continued Following is a summary of long-term debt at September 30 (in thousands): 2025 2024 (a) Secured by real estate $ 150,642 $ 151,098 (b) Secured by stock in subsidiary 65,506 64,042 (c) Secured by other assets 7,071 7,594 (d) Unsecured 14,973 18,320 $ 238,192 $ 241,054 (1) On May 8, 2017, in relation to the Scarlett’s acquisition, the Company executed two promissory notes with the sellers: (i) a 5 % short-term note for $ 5.0 million payable in lump sum after six months from closing date and (ii) a 12-year amortizing 8 % note for $ 15.6 million. The 12-year note is payable $ 168,343 per month, including interest. The Company has amended the $ 5.0 million short-term note payable several times, which has a remaining balance of $ 3.0 million, extending the maturity date and increasing the interest rate. Presently, the maturity date is October 1, 2027 and the interest rate is 8 % for its remaining term. (2) On December 7, 2017, the Company borrowed $ 7.1 million from a lender to purchase an aircraft at 5.99 % interest. The transaction was partly funded by trading in an aircraft that the Company owned with a carrying value of $ 3.4 million, with an assumption of the old aircraft’s note payable liability of $ 2.0 million. The aircraft note is payable in 15 years with monthly payments of $ 59,869 , which includes interest. In March 2020, this loan was extended to September 2033. (3) On September 30, 2021, we entered into a $ 99.1 million term loan refinancing $ 85.7 million of existing bank and seller-financed real estate debt and to provide $ 12.3 million in cash that will be used to pay off existing high-interest unsecured debt (“September 2021 Refinancing Note”), enabling those creditors to provide financing for the acquisition of 11 clubs and related real estate in fiscal 2022. The $ 99.1 million note has a term of 10 years with an initial interest rate of 5.25 % per annum for the first five years , then adjusted to a rate equal to the then weekly average yield of U.S. Treasury Securities plus 350 basis points, with a floor rate of 5.25 %. The note is payable in monthly payments of principal and interest of $ 668,051 , based on a 20-year amortization period, with the balance paid at maturity. In connection with the transaction, we wrote off to interest expense approximately $ 103,000 of unamortized debt issuance costs related to the paid-off debts. We also paid approximately $ 1.0 million in loan costs, approximately $ 567,000 of which is capitalized and will be amortized together with the remaining unamortized debt issuance costs of some of the existing refinanced debts for the term of the new note using the effective interest method. There are certain financial and non-financial covenants with which the Company is to be in compliance related to this loan. (4) On October 12, 2021, the Company amended the $ 5.0 million short-term note payable related to the Scarlett’s acquisition in May 2017, which had a balance of $ 3.0 million as of the amendment date, extending the maturity date to October 1, 2027. The amendment did not have an impact in the Company’s results of operations and cash flows. (5) On October 12, 2021, we closed on a debt financing transaction with 28 investors for unsecured promissory notes with a total principal amount of $ 17.0 million, all of which bear interest at a rate of 12 % per annum. Of this amount, $ 9.5 million are promissory notes, 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, 2024. The remaining amount of the financing is $ 7.5 million in promissory notes, 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 October 12, 2024. Included in the $ 17.0 million borrowing are two notes for $ 500,000 and $ 150,000 borrowed from related parties (see Note 18 ) and two notes for $ 500,000 and $ 300,000 borrowed from two non-officer employees in which the terms of the notes are the same as the rest of the lender group. See the October 25, 2023 extension of the term of the promissory notes, below. 80 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 9. Debt - continued (6) On October 18, 2021, in relation to an acquisition in fiscal 2022, the Company executed four seller-financed promissory notes. The first promissory note was a 10-year $ 11.0 million 6 % note payable in 120 equal monthly payments of $ 122,123 in principal and interest. The second promissory note was a 20-year $ 8.0 million 6 % note payable in 240 equal monthly payments of $ 57,314 in principal and interest. The third promissory note was a 10-year $ 1.2 million 5.25 % note payable in monthly payments of $ 8,086 in principal and interest based on a 20-year amortization period, with the balance payable at maturity date. The fourth note was a 20-year $ 1.0 million 6 % note payable in 240 equal monthly payments of $ 7,215 in principal and interest. (7) On November 8, 2021, in relation to an acquisition in fiscal 2022, the Company executed a $ 1.0 million 7-year promissory note with an interest rate of 4.0 % per annum. The note is payable $ 13,669 per month, including principal and interest. (8) On January 25, 2022, the Company borrowed $ 18.7 million from a bank lender for working capital purposes by executing a 10-year promissory note with an initial interest rate of 5.25 % per annum to be adjusted after five years to a rate equal to the weekly average yield on U.S. Treasury securities plus 3.98 % with a floor of 5.25 %. The note is payable in monthly payments of $ 126,265 in principal and interest to be adjusted after five years . The promissory note is secured by eleven real estate properties and is personally guaranteed by the Company's former CEO, Eric Langan (see Note 18 ). After the 10-year term, the remaining balance of principal and interest are payable at maturity date. There are certain financial and non-financial covenants with which the Company is to be in compliance related to this loan. (9) On March 1, 2022, the Company borrowed $ 2.6 million from a bank lender in relation to a purchase of real estate in fiscal 2022. The 21-year promissory note has an initial interest rate of 4.25 % per annum, repriced after five years and then again annually to prime plus 1 % with a floor rate of 4.25 %. The note is payable interest only during the first 12 months; then the next 48 months with $ 16,338 equal monthly payments of principal and interest; then the next 191 months at an equal monthly payment based on a 20-year amortization; with the balance of principal and interest payable at the 252nd month. (10) On May 2, 2022, in relation to a club acquisition in fiscal 2022, the Company executed two seller-financed notes totaling $ 11.0 million, comprised of (1) $ 6.0 million under a 10 % three-year promissory note payable in 35 equal monthly payments of $ 79,290 in principal and interest based on a ten-year amortization schedule, with a balloon payment for the remaining principal plus accrued interest due at maturity and (2) $ 5.0 million under a 10 % ten-year interest-only promissory note payable in 119 equal monthly payments of $ 41,667 in interest, with a balloon payment of the total $ 5.0 million in principal plus accrued interest due at maturity. (11) On July 21, 2022, the Company executed an $ 800,000 6 % seller-financed promissory note in relation to an acquisition of a club in Odessa, Texas, in fiscal 2022. The promissory note matures in July 2029 and is payable in 84 equal monthly installments of $ 11,687 of principal and interest. (12) On July 27, 2022, in relation to an acquisition of a club in Hallandale Beach, Florida, in fiscal 2022, the Company executed two seller-financed promissory notes: (1) $ 10.0 million 6 % ten-year promissory note payable in 120 equal monthly payments of $ 111,020 in principal and interest, and (2) $ 5.0 million 6 % ten-year promissory note payable in 120 equal monthly payments of $ 55,510 in principal and interest. (13) On August 18, 2022, in relation to a purchase of real estate for a future Bombshells location amounting to $ 2.1 million in fiscal 2022, the Company borrowed $ 1.6 million from a bank lender. The 5.25 % mortgage note is payable interest-only for eleven months and on its August 18, 2023 maturity date payable with the entire principal balance plus accrued interest. This note has been amended in August 2024 to an amortizing 7.79 % note with monthly installments of $ 14,959 of principal and interest and maturing in August 2039. The fixed 7.79 % interest for the first five years will then be adjusted annually to Wall Street Journal prime plus 0.25 %. There are certain financial and non-financial covenants with which the Company is to be in compliance related to this loan. 81 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 9. Debt - continued (14) On September 23, 2022, in connection with the purchase of an aircraft worth $ 3.5 million in fiscal 2022, the Company entered into a financing transaction for $ 2.8 million. The financing agreement bears an interest of 4.79 % per annum and payable in 240 monthly installments of principal and interest amounting to $ 18,298 . (15) On October 10, 2022, in relation to a real estate purchase (see Note 16 ), the Company borrowed $ 2.3 million from a bank lender. The 18-month promissory note bore an initial interest rate of 6 % per annum adjusted daily to a rate equal to the Wall Street Journal prime rate plus 0.5 % with a floor of 6 %. The promissory note was payable in 17 monthly interest-only installments with the full principal and accrued interest payable at maturity. The Company paid approximately $ 26,000 in debt issuance cost at closing. This promissory note was secured by the purchased real estate property. (16) On October 26, 2022, in relation to a club acquisition (see Note 16 ), the Company executed a promissory note for $ 5.0 million with the seller. The 6 % 15-year promissory note is payable in 180 equal monthly payments of $ 42,193 in principal and interest. This promissory note is secured by the purchased real estate property. (17) On November 18, 2022, in relation to a real estate purchase on September 12, 2022 (see Note 16 ), the Company borrowed $ 1.5 million from a bank lender. The 18-month promissory note bears an initial interest rate of 6 % per annum to be adjusted daily to a rate equal to the Wall Street Journal prime rate plus 0.5 % with a floor of 6 %. The promissory note is payable in 17 monthly interest-only installments with the full principal and accrued interest payable at maturity. This promissory note is secured by the purchased real estate property. This note has been amended in August 2024 to an amortizing 7.79 % note with monthly installments of $ 14,248 of principal and interest and maturing in August 2039. The fixed 7.79 % interest for the first five years will then be adjusted annually to Wall Street Journal prime plus 0.25 %. There are certain financial and non-financial covenants with which the Company is to be in compliance related to this loan. (18) On December 20, 2022, the Company executed a promissory note for $ 3.3 million with a bank lender in relation to a purchase of a food hall property (see Note 16 ). The 6.67 % five-year promissory note is payable in 59 equal monthly installments of $ 22,805 in principal and interest, with the balance of principal and accrued interest payable at maturity. There are certain financial and non-financial covenants with which the Company is to be in compliance related to this loan. (19) On March 9, 2023, the Company closed a $ 10.0 million line-of-credit facility with a lender bank evidenced by a revolving promissory note, with an initial draw of $ 10.0 million at closing. The facility has an initial term of 24 months with a variable interest rate equal to the Wall Street Journal prime rate plus 1 %. On such date that the principal balance is repaid to an amount less than $ 5.0 million, the facility's revolver feature is activated where the Company may draw from the remaining availability up to a maximum of $ 5.0 million. The Company shall also pay a non-usage fee of 0.5 % based on the amount by which the average outstanding balance for the prior twelve months was less than $ 3.0 million or the amount by which the total aggregate advances during the prior twelve months totaled less than $ 3.0 million. The Company paid $ 115,000 in debt issuance costs, which is recorded as deferred charges to be amortized on a straight-line basis over 24 months. There are certain financial and non-financial covenants with which the Company is to be in compliance related to this loan, including a compensating balance requirement of $ 3.0 million and a minimum tangible net worth requirement of $ 20.0 million. The compensating balance requirement does not contractually or legally restrict the withdrawal or use of cash. (20) On March 16, 2023, in relation to the acquisition of five clubs with associated real estate, automated teller machines, and intellectual property (see Note 16 ), the Company executed nine secured promissory notes with a total principal amount of $ 25.5 million. Each of the nine promissory notes have an interest rate of 7 % per annum with a term of 10 years, payable in arrears in 120 equal monthly payments of principal and interest amounting to $ 296,077 per month in the aggregate. The holder of the $ 5.0 million promissory note related to the real estate properties may call due from the Company a principal payment of $ 1.0 million once in every calendar year. 82 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 9. Debt - continued (21) On June 18, 2023, in relation to a purchase of a retail parcel in a condominium property (see Note 16 ), the Company executed a promissory note for $ 2.9 million with a bank lender. The 7.12 % five-year promissory note is payable in monthly installments of $ 20,654 in principal and interest, with the balance of principal and accrued interest payable at maturity. There are certain financial and non-financial covenants with which the Company is to be in compliance related to this loan. (22) 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 will be deemed cancelled as of the end of the day on October 31, 2023, and the new amended promissory notes will have an original issue date, and be deemed effective, as of November 1, 2023. Other than the extension of the maturity dates, there were no other changes to the terms and conditions of the original promissory notes (except for the reduction in principal, as described below, and the corresponding reduction in monthly installments of principal and interest). The new amended notes will continue to bear interest at the rate of 12 % per annum. Of the new amended promissory notes, $ 9.1 million are payable interest-only monthly (or quarterly) in arrears, with a final lump sum payment of principal and accrued and unpaid interest due on October 1, 2026. The remaining $ 6.6 million in promissory notes are payable in monthly payments of principal and interest based on a 10 -year amortization period, with the balance of the entire principal amount together with all accrued and unpaid interest due and payable in full on November 1, 2027. The original promissory notes that were returned and cancelled as consideration for the issuance of the $ 6.6 million in new amended promissory notes had an original principal amount of $ 7.5 million in October 2021. One promissory note with principal amounting to $ 500,000 was paid off on September 30, 2025 (see Note 18 ). The remaining promissory notes were extended on October 1, 2025 (see Note 19 ). (23) 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. There are certain financial and non-financial covenants with which the Company is to be in compliance related to this loan. (24) 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 and non-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. (25) On November 26, 2024, the Company converted a bank loan secured on October 10, 2022 to purchase real property into a construction loan with the same bank lender. The old loan had a remaining principal balance of $ 2.4 million. The new construction loan has maximum principal limit of $ 6.3 million and has a term of 204 months. The loan bears an interest rate of 6.99 % per annum for the first five years after which it will adjust annually to a new rate equal to the then-current Wall Street Journal Prime Rate plus 0.25 % per annum, with a floor of 6.99 % per annum. The loan is payable interest-only during the first 24 months, then payable for the next 36 months in equal installments of $ 60,162 in principal and interest, after which will be payable based on the adjusted interest rate for the next 143 months, with the remaining principal and accrued interest payable at maturity. There are certain financial and non-financial covenants with which the Company is to be in compliance related to this loan. 83 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 9. Debt - continued (26) On January 21, 2025, in relation to a club acquisition (see Note 1 6 ), the Company executed a promissory note for $ 5.0 million with the seller. The 8 % promissory note is payable in 59 monthly installments of $ 67,718 in principal and interest, with the balance of principal and accrued interest payable at maturity. (27) On February 26, 2025, the Company extended its line-of-credit facility (see March 9, 2023, transaction above) with a lender bank for a maximum availability of $ 5.0 million to mature on March 9, 2027. All other terms and conditions in the original line-of-credit remain unchanged. (28) On April 7, 2025, in relation to a club acquisition (see Note 1 6 ), the Company executed a seller-financed promissory note for $ 2.5 million bearing an interest of 7 % per annum. The promissory note matures in five years and is payable in equal monthly installments of $ 49,503 in principal and interest. The promissory note is secured by the assets included in the club acquisition. (29) On June 7, 2025, in relation to a club acquisition (see Note 1 6 ), the Company executed a seller-financed promissory note for $ 500,000 bearing an interest of 7 % per annum. The promissory note matures in five years and is payable in equal monthly installments of $ 9,901 in principal and interest. The promissory note is secured by the assets included in the club acquisition. Future maturities of debt obligations as of September 30, 2025, consist of the following (in thousands): Regular Amortization Balloon Payments Total Payments 2026 $ 19,407 $ 2,276 $ 21,683 2027 16,463 10,950 27,413 2028 16,757 11,204 27,961 2029 16,927 — 16,927 2030 15,682 2,524 18,206 Thereafter 44,777 81,225 126,002 $ 130,013 $ 108,179 $ 238,192 10. Income Taxes Income tax expense consisted of the following (in thousands): 2025 2024 2023 Current Federal $ 3,821 $ 4,570 $ 6,506 State and local 1,792 1,470 2,121 Total current income tax expense 5,613 6,040 8,627 Deferred Federal ( 1,174 ) ( 5,522 ) ( 1,294 ) State and local 170 ( 928 ) ( 487 ) Total deferred income tax expense (benefit) ( 1,004 ) ( 6,450 ) ( 1,781 ) Total income tax expense (benefit) $ 4,609 $ ( 410 ) $ 6,846 The Company and its subsidiaries do not operate in tax jurisdictions outside of the United States. 84 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 10. Income Taxes - continued Income tax expense (benefit) differs from the “expected” income tax expense computed by applying the U.S. federal statutory rate to earnings before income taxes for the years ended September 30 as a result of the following (dollars in thousands): 2025 2024 2023 Amount % Amount %(2) Amount % Federal statutory income tax expense $ 3,244 21.0 % $ 547 21.0 % $ 7,549 21.0 % State and local income taxes, net of federal benefit (1) 1,574 10.2 % 209 8.0 % 1,189 3.3 % Nontaxable or nondeductible items Goodwill impairment — — % 204 7.8 % 288 0.8 % Section 162(m) excess compensation 204 1.3 % 170 6.5 % 177 0.5 % Meals and entertainment 100 0.6 % 98 3.8 % 97 0.3 % Loss (gain) on sale of subsidiary stock 131 0.8 % — — % — — % Other nontaxable or nondeductible items 15 0.1 % 14 0.5 % 42 0.1 % Change in valuation allowance 89 0.6 % 48 1.8 % — — % Tax credits FICA tip credit ( 1,605 ) ( 10.4 ) % ( 1,652 ) ( 63.3 ) % ( 1,754 ) ( 4.9 ) % Work Opportunity Tax credits ( 178 ) ( 1.2 ) % ( 639 ) ( 24.5 ) % ( 377 ) ( 1.0 ) % Expiration of capital loss carryforwards 471 3.0 % — — % — — % Stock-based compensation forfeiture 198 1.3 % — — % — — % Return-to-provision and prior-period adjustments 286 1.9 % 591 22.7 % ( 371 ) ( 1.0 ) % Other (3) 80 0.5 % — — % 6 0.0 % Total income tax expense (benefit) $ 4,609 29.8 % $ ( 410 ) ( 15.7 ) % $ 6,846 19.0 % (1) State taxes in New York, Florida, and Texas make up the majority of the tax effect in this category. (2) For 2024, due to the low pretax income, insignificant dollar amounts appear to present greater than threshold percentages. (3) Includes items that individually fail to meet the 5% of federal rate threshold. 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, nontaxable and nondeductible items, changes in the deferred tax asset valuation allowance, tax credits, and return-to-provision adjustments (which are included in the related reconciling items previously mentioned). 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. 85 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 10. Income Taxes - continued Total income taxes paid, net of refunds, for the fiscal years ended September 30, in the following jurisdictions are presented below (in thousands): 2025 2024 2023 Federal $ 3,400 $ 3,700 $ 6,160 State and local Texas 298 347 321 New York 347 68 504 Florida — 343 633 Illinois 112 188 332 Colorado 52 122 158 Other* 338 300 528 Total income taxes paid, net of refunds $ 4,547 $ 5,068 $ 8,636 * Includes tax jurisdictions that individually fail to meet the 5% threshold in all periods presented. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands): September 30, 2025 2024 Deferred tax assets: Net operating loss carryforwards $ 1,062 $ 961 Capital loss carryforwards — 535 Operating lease right-of-use assets 1,401 2,096 Accrued expenses 3,107 733 Self-insurance reserve 2,307 — Stock-based compensation 1,750 1,629 Other 727 27 Valuation allowance ( 1,015 ) ( 951 ) Total deferred tax assets 9,339 5,030 Deferred tax liabilities: Intangibles ( 21,173 ) ( 19,557 ) Property and equipment ( 9,542 ) ( 7,875 ) Prepaid expenses ( 313 ) ( 291 ) Total deferred tax liabilities ( 31,028 ) ( 27,723 ) Net deferred tax liability $ ( 21,689 ) $ ( 22,693 ) At September 30, 2025, we had net operating loss carryforwards of $ 137,000 for federal income tax and $ 13,000 for state income tax with indefinite carryforward periods. We also had net operating loss carryforwards of $ 912,000 for state and local income taxes with a 20-year carryforward period. The state and local tax net operating loss carryforwards will begin to expire in 2028 if unused prior to that time. 86 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 10. Income Taxes - continued The Company may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. We recognize accrued interest related to unrecognized tax benefits as a component of accrued liabilities. We recognize penalties related to unrecognized tax benefits as a component of selling, general and administrative expenses, and recognize interest accrued related to unrecognized tax benefits in interest expense. The full balance of uncertain tax positions, if recognized, would affect the Company’s annual effective tax rate, net of any federal tax benefits. The Company does not have any uncertain tax position as of September 30, 2025, and 2024. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. The Company ordinarily goes through various federal and state reviews and examinations for various tax matters. Fiscal year ended September 30, 2022, and subsequent years remain open to federal tax examination. On July 4, 2025, President Trump signed into law the legislation formally titled "An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14" (the "Act") and commonly referred to as the One Big Beautiful Bill Act. Among other things, the Act extends certain expiring, and in some cases expired, provisions of the 2017 Tax Cuts and Jobs Act. The Act also adjusted a number of provisions affecting businesses that were subject to sunsets, phase-outs, or phase-ins that would have taken effect in the absence of action by Congress or that have already taken effect. The Company has reviewed the changes from the Act and determined that any impact would be immaterial. 11. Commitments and Contingencies Legal Matters Indemnity Insurance Corporation As previously reported, the Company and its subsidiaries were insured under a liability policy issued by Indemnity Insurance Corporation, RRG (“IIC”) through October 25, 2013. The Company and its subsidiaries changed insurance companies on that date. On November 7, 2013, the Court of Chancery of the State of Delaware entered a Rehabilitation and Injunction Order (“Rehabilitation Order”), which declared IIC impaired, insolvent and in an unsafe condition and placed IIC under the supervision of the Insurance Commissioner of the State of Delaware (“Commissioner”) in her capacity as receiver (“Receiver”). The Rehabilitation Order empowered the Commissioner to rehabilitate IIC through a variety of means, including gathering assets and marshaling those assets as necessary. Further, the order stayed or abated pending lawsuits involving IIC as the insurer until May 6, 2014. On April 10, 2014, the Court of Chancery of the State of Delaware entered a Liquidation and Injunction Order With Bar Date (“Liquidation Order”), which ordered the liquidation of IIC and terminated all insurance policies or contracts of insurance issued by IIC. The Liquidation Order further ordered that all claims against IIC must have been filed with the Receiver before the close of business on January 16, 2015, and that all pending lawsuits involving IIC as the insurer were further stayed or abated until October 7, 2014. As a result, the Company and its subsidiaries no longer have insurance coverage under the liability policy with IIC. The Company has retained counsel to defend against and evaluate these claims and lawsuits. We are funding 100 % of the costs of litigation and will seek reimbursement from the bankruptcy receiver. The Company filed the appropriate claims against IIC with the Receiver before the January 16, 2015 deadline and has provided updates as requested; however, there are no assurances of any recovery from these claims. It is unknown at this time what effect this uncertainty will have on the Company. As of September 30, 2025, we have no remaining unresolved claims out of the original 71 claims. 87 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 11. Commitments and Contingencies - continued New York Indictment and Related Matters 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”). On June 7, 2024, the Company received a subpoena from the NY AG requesting documents and other information with respect to certain clubs in New York and Florida. The Company cooperated with the NY AG during its investigation. As a result of this investigation, a non-executive corporate employee was placed on administrative leave during the pendency of an internal review process. On or about September 16, 2025, the Company, three subsidiaries, and five employees, including two executive officers, were arraigned in connection with an indictment filed by the NY AG in which the defendants were variously charged with committing the crimes of Criminal Tax Fraud in the First Degree in violation of Tax Law §1806, a class B felony; Bribery in the Second Degree in violation of Penal Law §200.03, a class C felony; Criminal Tax Fraud in the Second Degree in violation of Tax Law §1805, a class C felony; Criminal Tax Fraud in the Third Degree in violation of Tax Law §1804, a class D felony; Criminal Tax Fraud in the Fourth Degree in violation of Tax Law §1803, a class E felony; Conspiracy in the Fourth Degree in violation of Penal Law §105.10, a class E felony; and Offering a False Instrument for Filing in the First Degree in violation of Penal Law §175.35(1). According to the NY AG, "an investigation by the Office of the Attorney General revealed that RCI executives bribed an auditor with the NY DTF to avoid paying over $ 8 million in sales taxes to New York City and the state from 2010 to 2024." On November 25, 2025, the board of directors convened and approved a resolution for Eric Langan and Bradley Chhay to step down as CEO and CFO of the Company, respectively, effective November 28, 2025. In the same meeting, the board nominated and approved the appointment of Travis Reese and Albert Molina as Interim President and CEO and Interim CFO, respectively. Messrs. Langan and Chhay remain employed with the Company and will be focusing on operational improvement and strategic efforts as Head of M&A and Head of Corporate Development, respectively. On January 29, 2026, Mr. Langan stepped down as Chairman of the Company’s board of directors. Mr. Langan was replaced by Mr. Reese as Chairman. Mr. Langan remains a member of the board of directors. The non-executive corporate employee mentioned above continues to be on administrative leave during the pendency of the indictment. The defendants entered a plea of not guilty to all of the charges and are vigorously defending themselves against the charges in court. 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 indictment. On or about May 20, 2025, the Company received a subpoena from the U.S. Securities and Exchange Commission ("SEC") seeking certain documents and information related to the NY AG investigation and NY DTF issues. The Company is cooperating with the SEC and its investigation. 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 SEC investigation. 88 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 11. Commitments and Contingencies - continued Shareholder Class and Derivative Actions In September 2025, a putative securities class action was filed against RCI Hospitality Holdings, Inc. and certain of its officers in the Southern District of Texas, Houston Division. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and 10b-5 promulgated thereunder based on alleged materially false and misleading statements made in the Company’s SEC filings and disclosures as they relate to the indictment filed by the NY AG and other related issues. The complaints seek unspecified damages, costs, and attorneys’ fees. This lawsuit is captioned Hernandez v. RCI Hospitality Holdings, Inc., et al. (filed September 21, 2025, naming the Company, Eric S. Langan, and Bradley Chhay). The various plaintiffs sought an order for the appointment of a lead plaintiff and to consolidate the purported class actions. An order has not yet been entered appointing a lead plaintiff or consolidating. The Company has not yet answered or otherwise responded to the complaint, but intends on moving to dismiss the operative pleading for failure to state a claim upon which relief can be granted. The Company intends to continue to vigorously defend against this action. This action is in its early stage, and a potential loss cannot yet be estimated. On November 17, 2025, a shareholder derivative action was filed in Harris County District Court against officers and directors Eric S. Langan, Yura Barabash, Bradley Chhay, Luke Lirot, Elaine J. Martin, Arthur A. Priaulx, Travis Reese, and RCI Hospitality Holdings, Inc., as nominal defendant. The action alleges that the individual officers and directors made or caused the Company to make a series of materially false and/or misleading statements and omissions related to the indictment filed by the NY AG and other related issues and engaged in or caused the Company to, inter alia , fail to maintain internal controls over its business and financial reporting sufficient to ensure the accuracy of its public filings. The action asserts claims for breach of fiduciary duty and unjust enrichment. The complaint seeks injunctive relief, damages, restitution, costs, and attorneys’ fees. The case, Ayers v. Langan, et al. , is in its early stage, and a potential loss cannot yet be estimated. On March 2, 2026, a shareholder derivative action was filed in the Eleventh Division of the Texas Business Court against officers and directors Eric S. Langan, Yura Barabash, Bradley Chhay, Luke Lirot, Elaine J. Martin, Arthur A. Priaulx, Travis Reese, and Ahmed Anakar. The action alleges that the individual officers and directors breached their fiduciary duties by failing to adequately monitor issues related to the indictment filed by the NY AG and other related issues. The action asserts claims for breaches of fiduciary duties respectively owed by the directors and officers. The complaint seeks injunctive relief, damages, restitution, costs, and attorneys’ fees. The case, Taylor v. Langan, et al. , is in its early stage, and a potential loss cannot yet be estimated. Illinois BIPA Matter On April 14, 2025, the Company's subsidiaries, RCI Management Services, Inc., Pooh Bah Enterprises, Inc., and RCI Dining Services (Harvey), Inc. (collectively, "Defendants") entered into a class action settlement agreement to resolve claims under the Illinois Biometric Information Privacy Act ("BIPA"), 740 ILCS 14/1 et seg., arising from the alleged collection of customer fingerprints at Rick's Cabaret in Chicago and Scarlett's Cabaret in Washington Park, Illinois. The settlement resolves two consolidated cases: Rapp et al. v. RCI Management Services, Inc. et al. , Case No. 22LA0884 (St. Clair County, Illinois) and Loera v. Pooh Bah Enterprises, Inc. , Case No. 2021CH04759 (Cook County, Illinois). Under the terms of the agreement, and without admitting any liability, Defendants will provide a settlement fund valued at approximately $ 2.95 million, consisting of $ 1.25 million in cash and $ 1.7 million in VIP cards. The settlement includes payments to class members submitting valid claims, attorneys' fees of up to 40 % of the fund, incentive awards to named plaintiffs, and administrative costs. Any unclaimed funds remaining after payment of valid claims, fees, and costs will revert to the Defendants. The Company denies all allegations of wrongdoing. The settlement remains subject to final court approval. 89 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 11. Commitments and Contingencies - continued Other On June 23, 2014, Mark H. Dupray and Ashlee Dupray filed a lawsuit against Pedro Antonio Panameno and our subsidiary, JAI Dining Services (Phoenix), Inc. (“JAI Phoenix”), in the Superior Court of Arizona for Maricopa County. The complaint alleged that Mr. Panameno injured Mr. Dupray in a traffic accident after being served alcohol at an establishment operated by JAI Phoenix and asserted claims against JAI Phoenix under theories of common law dram shop negligence and dram shop negligence per se. Following a jury trial, in April 2017, the court entered judgment in favor of the plaintiffs and awarded compensatory and punitive damages, allocating approximately $ 1.4 million in compensatory damages and $ 4.0 million in punitive damages to JAI Phoenix. JAI Phoenix filed post-trial motions, which were denied in August 2017, and subsequently filed a notice of appeal in September 2017. In June 2018, the Arizona Court of Appeals heard the matter and, on November 15, 2018, issued a decision vacating the jury’s verdict and remanding the case for a new trial. The retrial was held in June 2025. The jury found Mr. Panameno 94 % responsible and JAI Phoenix 6 % responsible. The jury awarded total damages of $ 5.1 million and punitive damages of $ 125,000 . Based on the jury’s allocation of fault, JAI Phoenix is responsible for $ 332,884 of the total award. Under applicable law, plaintiffs retain the right to appeal; however, it is not known at this time whether an appeal will be filed, but if an appeal is filed, the Company will vigorously defend. 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 6 ). 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. As set forth in the risk factors as disclosed in this report, the adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees. While we take steps to ensure that our adult entertainers are deemed independent contractors, from time to time, we are named in lawsuits related to the alleged misclassification of entertainers. Claims are brought under both federal and where applicable, state law. Based on the industry standard, the manner in which the independent contractor entertainers are treated at the clubs, and the entertainer license agreements governing the entertainer’s work at the clubs, the Company believes that these lawsuits are without merit. Lawsuits are handled by attorneys with an expertise in the relevant law and are defended vigorously. General 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. We assess the probability that we could incur liability in connection with certain of these lawsuits. Our assessments are made in accordance with generally accepted accounting principles, as codified in ASC 450-20, and is not an admission of any liability on the part of the Company or any of its subsidiaries. In certain cases that are in the early stages and in light of the uncertainties surrounding them, we do not currently possess sufficient information to determine a range of reasonably possible liability. 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. Settlement of lawsuits for the years ended September 30, 2025, 2024, and 2023 total $ 3.9 million, $ 520,000 , and $ 3.8 million, respectively. As of September 30, 2025 and 2024, the Company has accrued $ 4.2 million and $ 2.0 million in accrued liabilities, respectively, related to settlement of lawsuits. Lease Commitments See Note 1 2 . 90 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 11. Commitments and Contingencies - continued 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. 91 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 11. Commitments and Contingencies - continued We record a liability for unresolved claims and for an estimate of incurred but not reported claims including legal costs 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. We recorded estimated self-insurance expense amounting to $ 9.6 million during the fiscal year ended September 30, 2025. As of September 30, 2025, the Company has self-insurance liability amounting to $ 9.6 million. 12. Leases The Company leases certain facilities and equipment under operating leases per ASC 842. These leases include renewal or termination options for varying periods which we deemed reasonably certain to exercise. This determination is based on our consideration of certain economic, strategic and other factors that we evaluate at lease commencement date and reevaluate throughout the lease term. Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance and tax payments and additional lease payments contingent on sales. The variable portion of lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expenses recorded in selling, general and administrative expenses in our consolidated statement of income. We have elected to apply the short-term lease exception for all underlying asset classes, which mainly includes equipment leases. That is, leases with a term of 12 months or less are not recognized on the balance sheet, but rather expensed on a straight-line basis over the lease term. We do not include significant restrictions or covenants in our lease agreements, and residual value guarantees are generally not included within our operating leases. Future maturities of operating lease liabilities as of September 30, 2025 are as follows (in thousands): Principal Portion Interest Portion Total Payments October 2025 - September 2026 $ 3,314 $ 1,613 $ 4,927 October 2026 - September 2027 3,320 1,418 4,738 October 2027 - September 2028 2,765 1,239 4,004 October 2028 - September 2029 2,859 1,068 3,927 October 2029 - September 2030 2,438 911 3,349 Thereafter 15,938 2,470 18,408 $ 30,634 $ 8,719 $ 39,353 92 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 12. Leases – continued Total lease expense under ASC 842 is included in selling, general and administrative expenses in our consolidated statement of income, except for sublease income which is included in other revenue, for the years ended September 30, 2025, 2024, and 2023 as follows (in thousands, except years and percentages): 2025 2024 2023 Operating lease expense – fixed payments $ 4,423 $ 5,029 $ 5,166 Variable lease expense 1,612 1,707 1,629 Short-term equipment and other lease expense (includes $ 390 , $ 448 and $ 357 recorded in advertising and marketing for fiscal 2025, 2024, and 2023, respectively, and $ 568 , $ 605 and $ 557 recorded in repairs and maintenance, respectively; see Note 6 ) 1,329 1,416 1,325 Total lease expense, net $ 7,364 $ 8,152 $ 8,120 Other information: Operating cash outflows from operating leases $ 7,665 $ 8,154 $ 7,949 Weighted average remaining lease term 8.9 years 9.4 years 10.5 years Weighted average discount rate 5.8 % 5.7 % 5.8 % In relation to certain rent concessions that we received from certain of our lessors in view of the COVID-19 pandemic, we accounted for those rent concessions as deferral of payments as if the lease is unchanged. Any reduction in total lease expense during the period caused by either an extension of the lease term or a forgiveness of certain lease payments is accounted for as variable lease payment adjustments. We recorded impairment charges of operating lease right-of-use assets amounting to $ 0 , $ 6.5 million, and $ 1.0 million during fiscal years 2025, 2024, and 2023, respectively. We recorded third-party operating lease revenue under ASC 842 amounting to $ 1.7 million, $ 1.7 million, and $ 1.8 million for fiscal 2025, 2024, and 2023, respectively. Minimum future base rentals are as follows: $ 1.5 million for 2026, $ 1.2 million for 2027, $ 1.0 million for 2028, $ 1.0 million for 2029, $ 423,000 for 2030, and $ 240,000 thereafter. 13. 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 9, 2022, the board of directors approved a grant of 50,000 stock options each to six members of management subject to the approval of the 2022 Plan. Stock-based compensation expense for fiscal 2025, 2024, and 2023, which is included in corporate segment selling, general and administrative expenses, amounted to $ 1.4 million, $ 1.9 million, and $ 2.6 million, respectively, with related tax benefit amounting to $ 121,000 , $ 444,000 , and $ 616,000 , respectively. As of September 30, 2025, we had unrecognized compensation cost amounting to $ 589,000 related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of approximately four months . 93 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 13. Stock-based Compensation – continued The February 9, 2022 stock options vest over four years with the first 20 % having vested on the approval of the 2022 Plan at the 2022 annual stockholders' meeting on August 23, 2022, and 20 % vesting on February 9 of each year thereafter, provided however that the options will be subject to earlier vesting under certain events set forth in the Plan, including without limitation a change in control. All of the options will expire, if not vested, at the end of five years . The weighted average grant-date fair value of the stock options was $ 31.37 . No stock options were exercised in fiscal 2025, 2024, and 2023. The following table summarizes information about stock option activity during fiscal 2025 under the 2022 Plan: Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at September 30, 2024 300,000 Granted — Exercised — Forfeited ( 50,000 ) $ 100.00 Outstanding at September 30, 2025 250,000 $ 100.00 1.4 $ — Exercisable at September 30, 2025 200,000 $ 100.00 1.4 $ — 14. Employee Retirement Plan The Company sponsors a Simple IRA plan (the “Plan”), which covers all of the Company’s corporate employees. The Plan allows corporate employees to contribute up to the maximum amount allowed by law, with the Company making a matching contribution of up to 3 % of the employee’s salary. Expenses related to matching contributions to the Plan approximated $ 280,000 , $ 280,000 , and $ 287,000 for the years ended September 30, 2025, 2024, and 2023, respectively. 15. Insurance Recoveries We 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. We wrote off the net carrying value of the assets destroyed in the said events and recorded corresponding recovery of losses or gains in as much as the insurers have paid us or where contingencies relating to the insurance claims have been resolved. In relation to these casualty events, we recorded the following in our consolidated financial statements (in thousands): Included in 2025 2024 2023 Consolidated statements of income – gain Business interruption Impairments and other charges, net $ ( 413 ) $ — $ — Property Impairments and other charges, net $ ( 1,945 ) $ ( 327 ) $ ( 77 ) Consolidated statements of cash flows Proceeds from business interruption insurance claims Operating activity $ 413 $ — $ — Proceeds from property insurance claims Investing activity $ 2,101 $ 1,367 $ 86 94 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 14. Insurance Recoveries – continued The net property insurance gain/loss amount in fiscal 2025, 2024, and 2023 was net of assets written off and expenses amounting to $ 14,000 , $ 845,000 , and $ 9,000 , respectively. 16. Acquisitions and Dispositions 2023 Acquisitions Lubbock Property On October 10, 2022, the Company purchased real estate in Lubbock, Texas amounting to $ 3.4 million for a future Bombshells location. The Company paid $ 1.2 million in cash at closing and obtained bank financing for the $ 2.3 million remainder (see Note 9 ). The site includes extra land that will be listed for sale once the Bombshells unit is completed. Heartbreakers Gentlemen's Club On October 26, 2022, the Company completed the acquisition of a club in Dickinson, Texas for a total agreed acquisition price of $ 9.0 million (with an acquisition date fair value of $ 8.9 million based on certain legal contingencies that existed pre-acquisition). The acquisition includes (1) $ 2.5 million for the adult entertainment business covered in a stock purchase agreement paid fully in cash at closing and (2) $ 6.5 million for the real estate property covered in a real estate purchase agreement paid $ 1.5 million in cash at closing and $ 5.0 million under a 6 % 15-year promissory note (see Note 9 ). In the stock purchase agreement, the Company acquired 100 % of the capital stock of the company which owned the adult entertainment business. The acquisition gives the Company its first adult club in the Galveston, Texas area market. The following is our allocation of the fair value of the acquisition price (in thousands) as of October 26, 2022: Current assets $ 64 Property and equipment 4,884 Licenses 1,170 Tradename 340 Accrued liability ( 95 ) Deferred tax liability ( 363 ) Total net assets acquired 6,000 Goodwill 2,905 Acquisition price fair value $ 8,905 We believe that in this acquisition goodwill represents the existing customer base of the club in the area and the added synergy profitability expansion when we implement the Company's processes into the club. Goodwill, licenses, and tradename will not be amortized but will be tested at least annually for impairment. Approximately $ 1.5 million of the recognized goodwill will be deductible for tax purposes. In connection with this acquisition, we incurred approximately $ 23,000 in acquisition-related expenses during 2023, which is included in selling, general and administrative expenses in our consolidated statement of income. From the date of acquisition until September 30, 2023, the club contributed revenues $ 2.0 million and loss from operations of $ 3.1 million, which are included in our consolidated statement of income. The Company is not providing supplemental pro forma disclosures for this acquisition as it does not materially contribute to the consolidated operations of the Company. Aurora CO Property On November 8, 2022, the Company purchased real estate in Aurora, Colorado amounting to $ 850,000 in cash for a future Bombshells location. 95 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 16. Acquisitions and Dispositions - continued Central City CO Casino Properties On December 5, 2022, the Company purchased real estate in Central City, Colorado amounting to $ 2.5 million in cash for the development of a Rick's Cabaret Steakhouse and Casino business. On February 6, 2023, the Company purchased real estate in Central City, Colorado amounting to $ 2.2 million in cash for the development of another casino business. Mark IV Property On December 16, 2022, the Company purchased real estate in Fort Worth, Texas amounting to $ 2.4 million in cash. The property has two buildings, one of which the Company is leasing out to an existing tenant and the other building the Company is remodeling for future adult club operations. Grange Food Hall On December 20, 2022, the Company purchased a food hall property in Greenwood Village, Colorado for $ 5.3 million, including direct transaction costs and net of certain accrued taxes amounting to $ 102,000 . The purchase price was paid $ 1.9 million in cash at closing and $ 3.3 million under a 6.67 % five-year promissory note (see Note 9 ). The Company allocated $ 2.1 million to land, $ 2.6 million to building improvements, $ 98,000 to furniture, fixtures and equipment, and $ 565,000 to in-place leases based on their relative fair values. The in-place lease intangible has a weighted average amortization period of 1.7 years. Bombshells San Antonio On February 7, 2023, the Company completed the acquisition of a previously franchised Bombshells location in San Antonio, Texas for a total acquisition price of $ 3.2 million. The transaction was effected through a membership interest purchase agreement under which a subsidiary of the Company purchased 100 % of the issued and outstanding membership interests of the target limited liability company that owns and operates the Bombshells location from the six previous owners of the entity (the "Sellers"). At acquisition date, the Sellers were paid $ 1.2 million in cash and were issued six seller-financed promissory notes totaling $ 2.0 million (see Note 9 ). The Company allocated the acquisition price $ 61,000 to inventory, $ 2.7 million to property and equipment, and $ 480,000 to favorable lease intangible and right-of-use assets (which both have amortizable life of 13.4 years), net of lease liability. Baby Dolls-Chicas Locas On March 16, 2023, the Company and certain of its subsidiaries completed the acquisition of five gentlemen's clubs, five related real estate properties, associated intellectual properties, and certain automated teller machines for a total agreed acquisition price of $ 66.5 million, payable with a total of $ 25.0 million in cash, a total of $ 25.5 million in 10-year 7 % seller financing promissory notes, and 200,000 restricted shares of common stock based on an $ 80 per share price, subject to lock-up, leak out restrictions. The five clubs, which are all located in Texas, were purchased through four different asset purchase agreements and one stock purchase agreement, under each of which a newly formed wholly-owned subsidiary of the Company acquired from each club-owning entity all of the tangible and intangible assets and personal property used in the business of that club, except for certain excluded assets. The fair value of the common stock consideration was discounted due to lack of marketability during the lock-up period. The cash consideration at closing was partially funded by the $ 10.0 million line of credit secured by the Company on March 9, 2023 (see Note 9 ). The fair value of the consideration transferred is as follows: Cash $ 25,000 Notes payable 25,500 Common stock 12,847 Total consideration fair value $ 63,347 96 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 16. Acquisitions and Dispositions - continued We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values, all in our Nightclub reportable segment. Upon finalization of our valuation of the assets acquired in this transaction, we reallocated certain amounts from goodwill to indefinite-lived intangible assets. Based on the allocation of the fair value of the acquisition price, measurement period adjustments, and subject to any working capital adjustments, the amount of goodwill is estimated at $ 4.3 million. Goodwill represents the excess of the acquisition price fair value over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, which is essentially the forward earnings potential of the acquired entities. This acquisition also gives the Company a bigger market share in the Hispanic demographic in the Texas metropolitan areas. Goodwill will not be amortized but will be tested at least annually for impairment. Approximately $ 4.3 million of the recognized goodwill will be deductible for tax purposes. The following is our allocation of the fair value of the acquisition price (in thousands) as of March 16, 2023: Current assets $ 632 Property and equipment 16,570 Licenses 36,110 Tradename 6,328 Accounts payable ( 632 ) Total net assets acquired 59,008 Goodwill 4,339 Acquisition price fair value $ 63,347 Licenses and tradenames will not be amortized but will be tested at least annually for impairment. In connection with this acquisition, we incurred approximately $ 304,000 in acquisition-related expenses during 2023, which is included in selling, general and administrative expenses in our consolidated statement of income. During fiscal 2025, 2024, and 2023 (from the date of acquisition), the five acquired clubs contributed the following, which are included in our consolidated statements of income (in thousands): 2025 2024 2023 Revenues $ 31,645 $ 34,781 $ 16,132 Income from operations $ 11,938 $ 8,279 $ 4,827 The following table presents the unaudited pro forma combined results of operations of the Company and the five acquired clubs and related assets in the March 16, 2023 acquisition transaction above as though the acquisition occurred at the beginning of fiscal 2022 (in thousands, except per share amount and number of shares): 2025 2024 2023 Pro forma revenues $ 279,434 $ 295,604 $ 306,729 Pro forma net income attributable to RCIHH common stockholders $ 10,811 $ 3,011 $ 28,329 Pro forma earnings per share - basic and diluted $ 1.23 $ 0.33 $ 3.01 Pro forma weighted average number of common shares outstanding - basic and diluted 8,822,758 9,250,245 9,426,942 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. The unaudited pro forma financial information includes adjustments related to changes in recognized expenses caused by the fair value of 97 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 16. Acquisitions and Dispositions - continued assets acquired, such as depreciation and amortization and related tax effects. Pro forma net income and pro forma earnings per share include the impact of acquisition-related expenses and interest expense related to the $ 10.0 million line-of-credit facility (see Note 9 ) and the nine seller-financed notes in the acquisition as if they were incurred as of the first day of fiscal 2022. Pro forma weighted average number of common shares outstanding includes the impact of 200,000 shares of our common stock issued as partial consideration for the acquisition. Since the results of operations during fiscal 2025 and 2024 were subsequent to the fiscal year of acquisition and that fiscal 2024 fully includes the results of operations of the five acquired clubs, the amounts presented for fiscal 2025 and 2024 above do not reflect any pro forma adjustments. Arapahoe Street, Denver CO Property On June 20, 2023, the Company purchased a restaurant parcel located in a condominium building in Denver, Colorado amounting to $ 4.6 million for a future Bombshells location. The purchase price was paid $ 1.7 million in cash and $ 2.9 million under a 7.12 % five-year promissory note (see Note 9 ). Non-Income-Producing Properties • On October 11, 2022, the Company purchased a hangar in Arcola, Texas amounting to $ 754,000 in cash. • On February 6, 2023, in view of the increasing business presence of the Company in the Denver, Colorado area, the Company acquired a non-income-producing corporate property for $ 458,000 in cash, to be used for office space and employee housing. • On August 3, 2023, the Company purchased real estate and office space in Central City, Colorado amounting to $ 2.9 million in cash to house administrative operations in the region. 2023 Dispositions On November 4, 2022, the Company received $ 1.0 million from the Texas Department of Transportation for one of the Company's club properties in Lubbock, Texas due to eminent domain. On June 29, 2023, the Company sold a property with a carrying value of $ 1.1 million for $ 1.5 million in cash. The Company used $ 904,000 of the proceeds to pay off a loan related to the property. 2024 Acquisitions Non-Income-Producing Properties • On October 24, 2023, the Company purchased an administrative building in Central City, Colorado for $ 1.0 million in cash. • On October 24, 2023, the Company purchased a vacant lot in Central City, Colorado for $ 65,000 in cash. 2024 Dispositions South Houston Property On May 31, 2024, the Company sold parking lot properties with a combined carrying value of $ 74,000 related to a previously owned club in South Houston, Texas for $ 160,000 in cash. The Company paid approximately $ 9,500 in closing costs related to the transaction. 98 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 16. Acquisitions and Dispositions - continued Airplane On June 6, 2024, the Company sold an aircraft with a carrying value of approximately $ 2.0 million for $ 1.8 million in cash. The Company paid approximately $ 53,000 in closing costs related to the transaction. The proceeds of the sale were used to pay off related debt. Bombshells San Antonio Effective September 1, 2024, the Company sold Bombshells San Antonio to members of its former franchisee group for a noncash exchange of the Company's membership interest in the owner-subsidiary for the forgiveness of notes payable to the former franchisee group members. The transaction resulted in a $ 2.3 million gain, which is included in impairments and other charges, net in our consolidated statements of income. 2025 Acquisitions Flight Club On January 21, 2025, the Company completed the acquisition of a club in the Detroit, Michigan, market for a total agreed acquisition price of $ 11.0 million, consisting of $ 3.0 million in cash and $ 5.0 million in a seller-financed 8.0 % promissory note (see Note 9 ) for the club, and $ 3.0 million in cash for the associated real estate through asset purchase agreements. The preliminary fair value of the consideration is as follows (in thousands): Cash $ 6,000 Note payable 5,000 Total fair value of consideration $ 11,000 We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values in our Nightclubs reportable segment. We have not finalized our valuation of the tangible and identifiable intangible assets acquired in this transaction. As of the release of this report, the fair value of the acquired tangible and identifiable intangible assets are provisional pending the completion of the final valuations for those assets. Based on the allocation of the preliminary fair value of the acquisition price and subject to any working capital adjustments, the amount of goodwill is estimated at $ 613,000 . Goodwill represents the excess of the acquisition price fair value over the fair values of the tangible and identifiable intangible assets acquired, which is essentially the forward earnings potential of the acquired club and our entry into a new market. Goodwill will not be amortized but will be tested at least annually for impairment. Approximately $ 613,000 of the recognized goodwill will be deductible for income tax purposes. The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of January 21, 2025: Current assets $ 73 Property and equipment 3,305 Licenses 5,928 Tradename 1,081 Total net assets acquired 10,387 Goodwill 613 Total fair value of net assets acquired $ 11,000 Licenses and tradename will not be amortized but will be tested at least annually for impairment. In connection with this acquisition, we incurred approximately $ 141,000 in acquisition-related expenses in fiscal 2025, which are included in selling, general and administrative expenses in our consolidated statements of income. 99 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 16. Acquisitions and Dispositions - continued From the date of acquisition until September 30, 2025, the acquired club contributed the following, which are included in our consolidated statements of income (in thousands): Revenues $ 3,047 Income from operations $ 1,123 The seller has not provided the fiscal 2024 financial statements, therefore, we could not provide supplemental pro forma information for the combined entities. Platinum West and Platinum Plus On April 7, 2025, the Company completed the acquisition of a club in West Columbia, South Carolina, for a total purchase price of $ 8.0 million, consisting of $ 3.75 million cash and $ 2.5 million in a seller-financed 7 % promissory note (see Note 9 ) for the club, and $ 1.75 million cash for the associated real estate. On June 13, 2025, the Company completed the acquisition of a club in Allentown, Pennsylvania, for a total purchase price of $ 2.0 million, consisting of $ 1.5 million cash and $ 500,000 in seller-financed 7 % promissory note (see Note 9 ). The acquisitions were completed through asset purchase agreements. The Allentown club transaction was completed several weeks after the West Columbia club due to delays in the issuance of licenses. The preliminary fair value of the consideration is as follows (in thousands): Cash $ 7,000 Notes payable 3,000 Total fair value of consideration $ 10,000 We recognized the assets and liabilities for this combined acquisition based on our estimates of their acquisition date fair values in our Nightclubs reportable segment. We have not finalized our valuation of the tangible and identifiable intangible assets acquired in this transaction. As of the release of this report, the fair value of the acquired tangible and identifiable intangible assets are provisional pending the completion of the final valuations for those assets. Based on the allocation of the preliminary fair value of the acquisition price and subject to any working capital adjustments, the amount of goodwill is estimated at $ 201,000 . Goodwill represents the excess of the acquisition price fair value over the fair values of the tangible and identifiable intangible assets acquired, which is essentially the forward earnings potential of the acquired club and our entry into a new market. Goodwill will not be amortized but will be tested at least annually for impairment. Approximately $ 201,000 of the recognized goodwill will be deductible for income tax purposes. The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of acquisition date: Current assets $ 128 Property and equipment 2,026 Licenses 6,972 Tradename 674 Operating lease right-of-use asset 2,276 Favorable lease asset 135 Lease liability ( 2,412 ) Total net assets acquired 9,799 Goodwill 201 Total fair value of net assets acquired $ 10,000 100 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 16. Acquisitions and Dispositions - continued Licenses and tradename will not be amortized but will be tested at least annually for impairment. In connection with this combined acquisition, we incurred approximately $ 103,000 in acquisition-related expenses in fiscal 2025, which are included in selling, general and administrative expenses in our consolidated statements of income. From the date of acquisition until September 30, 2025, the acquired clubs contributed the following, which are included in our consolidated statements of income (in thousands): Revenues $ 2,839 Income from operations $ 866 The seller has not provided the fiscal 2024 financial statements, therefore, we could not provide supplemental pro forma information for the combined entities. 2025 Dispositions Sale of Bombshells Austin On November 14, 2024, the Company sold Bombshells Austin for $ 70,000 in cash and $ 60,000 in a 6 % 12-month promissory note (see Note 9 ). The Company recognized a $ 1.3 million gain on the sale due in part to an impairment of its operating lease right-of-use asset in a prior year. Sale of Aurora CO Property On March 31, 2025, the Company sold a real estate property in Aurora, Colorado, for $ 825,000 . The Company recognized a loss of $ 153,000 on the sale, net of closing costs. 101 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 17. Quarterly Results of Operations (Unaudited) The following tables summarize unaudited quarterly data for fiscal 2025, 2024, and 2023 (in thousands, except share and per share data): For the Three Months Ended December 31, 2024 March 31, 2025 June 30, 2025 September 30, 2025 Revenues $ 71,483 $ 65,876 $ 71,145 $ 70,930 Income (loss) from operations (1) $ 13,906 $ 8,171 $ 8,713 $ ( 523 ) Net income (loss) attributable to RCIHH stockholders (1) $ 9,024 $ 3,231 $ 4,058 $ ( 5,502 ) Earnings (loss) per share (1) Basic and diluted $ 1.01 $ 0.36 $ 0.46 $ ( 0.63 ) Weighted average shares used in computing earnings (loss) per share Basic and diluted 8,920,774 8,861,854 8,793,809 8,715,129 Dividends per share declared and paid $ 0.07 $ 0.07 $ 0.07 $ 0.07 For the Three Months Ended December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024 Revenues (2) $ 73,907 $ 72,283 $ 76,180 $ 73,234 Income (loss) from operations (2) $ 13,165 $ 4,657 $ ( 2,536 ) $ 3,519 Net income (loss) attributable to RCIHH stockholders (2) $ 7,226 $ 774 $ ( 5,233 ) $ 244 Earnings (loss) per share (2) Basic and diluted $ 0.77 $ 0.08 $ ( 0.56 ) $ 0.03 Weighted average shares used in computing earnings (loss) per share Basic and diluted 9,367,151 9,350,292 9,278,921 9,006,014 Dividends per share declared and paid $ 0.06 $ 0.06 $ 0.06 $ 0.07 102 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 17. Quarterly Results of Operations (Unaudited) – continued For the Three Months Ended December 31, 2022 March 31, 2023 June 30, 2023 September 30, 2023 Revenues (3) $ 69,968 $ 71,517 $ 77,055 $ 75,250 Income from operations (3) $ 16,898 $ 13,427 $ 15,515 $ 5,644 Net income attributable to RCIHH stockholders (3) $ 10,238 $ 7,732 $ 9,085 $ 2,191 Earnings per share (3) Basic and diluted $ 1.11 $ 0.83 $ 0.96 $ 0.23 Weighted average shares used in computing earnings per share Basic and diluted 9,230,258 9,265,781 9,430,225 9,417,166 Dividends per share declared and paid $ 0.05 $ 0.06 $ 0.06 $ 0.06 (1) Fiscal year 2025 results of operations were mainly impacted by $ 5.3 million in asset impairments ($ 1.8 million in the second quarter and $ 3.6 million in the fourth quarter); $ 3.9 million in lawsuit settlements ($ 179,000 in the first quarter, $ 127,000 in the second quarter, $ 3.3 million in the third quarter, and $ 361,000 in the fourth quarter); $ 9.0 million in legal fees accrual in the fourth quarter; and $ 2.4 million in gain on insurance ($ 1.0 million in the first quarter, $ 1.1 million in the third quarter, and $ 207,000 in the fourth quarter). Quarterly effective income tax rate was 16.9 %, 25.1 %, 15.3 %, and ( 21.3 )% from first to fourth quarter, respectively. (2) Fiscal year 2024 results of operations were mainly impacted by $ 38.5 million in asset impairments ($ 8.0 million in the second quarter, $ 17.9 million in the third quarter, and $ 12.6 million in the fourth quarter). Quarterly effective income tax rate was 19.9 %, 0.7 %, 21.5 %, and 145.1 % from first to fourth quarter, respectively. (3) Fiscal year 2023 results of operations were mainly impacted by the six newly acquired clubs and the lower same-store sales. Net income attributable to RCIHH stockholders and earnings per share were impacted by $ 12.6 million in asset impairments ($ 662,000 in the second quarter, $ 2.6 million in the third quarter, and $ 9.3 million in the fourth quarter) and $ 3.8 million in lawsuit settlements ($ 3.1 million in the second quarter, $ 63,000 in the third quarter, and $ 576,000 in the fourth quarter). Quarterly effective income tax expense (benefit) rate was 22.8 %, 21.8 %, 20.1 %, and ( 39.6 )% from first to fourth quarter, respectively, including the impact of the release of a $ 176,000 deferred tax asset valuation allowance and the pretax loss in the fourth quarter. Our nightclub operations are normally affected by seasonal factors. Historically, we have experienced reduced revenues from April through September (our fiscal third and fourth quarters) with the strongest operating results occurring during October through March (our fiscal first and second quarters). Our revenues in certain markets are also affected by sporting events that cause unusual changes in sales from year to year. 18. Related Party Transactions Presently, our director and former Chairman, President, and CEO, Eric Langan, personally guarantees all of the commercial bank indebtedness of the Company. Mr. 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 September 30, 2025 and 2024 was $ 139.6 million and $ 135.3 million, respectively. Included in the $ 17.0 million borrowing on October 12, 2021 (see Note 9 ) are notes borrowed from related parties—one note for $ 500,000 (Ed Anakar, President of RCI Management Services, Inc. and our Director of Operations) and another note for $ 150,000 (from a brother of the Company's former CFO, Bradley Chhay, see above) in which the terms of the notes are the same as the rest of the lender group. Refer to Note 9 for October 2023 extension of term of promissory notes. As of September 30, 2025, the amount borrowed from Ed Anakar has been fully paid. 103 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Notes to Consolidated Financial Statements 18. Related Party Transactions – continued We used the services of Tall Oak Custom Furniture and Nottingham Barrels and Furniture, previously Nottingham Creations, all furniture fabrication companies that manufacture tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance. Tall Oak Custom Furniture and Nottingham Barrels and Furniture are owned by a brother of Eric Langan (as was Nottingham Creations). Amounts billed to us for goods and services provided by Tall Oak Custom Furniture, Nottingham Barrels and Furniture, and Nottingham Creations were approximately $ 19,477 in fiscal 2025, $ 350,000 in fiscal 2024, and $ 195,000 in fiscal 2023. As of September 30, 2025, 2024, and 2023, we owed Tall Oak Custom Furniture, Nottingham Barrels and Furniture, and Nottingham Creations $ 3,312 , $ 18,700 , and $ 10,700 respectively, in unpaid billings. TW Mechanical LLC (“TW Mechanical”) provided plumbing and HVAC services to both a third-party general contractor providing construction services to the Company, as well as directly to the Company during fiscal 2025, 2024, and 2023. 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 approximately $ 555 , $ 16,491 , and $ 443,295 for the fiscal years 2025, 2024, and 2023, respectively. Amounts billed directly to the Company were approximately $ 4,615 , $ 3,160 , and $ 9,430 for the fiscal years 2025, 2024, and 2023, respectively. As of September 30, 2025, 2024, and 2023, the Company owed TW Mechanical approximately $ 0 , $ 0 , and $ 0 respectively, in unpaid direct billings. 19. Subsequent Events Share Repurchase Subsequent to September 30, 2025, through March 13, 2026, we purchased 153,061 shares of the Company's common stock pursuant to our share repurchase plan, excluding the November 21, 2025, repurchase below, at a cost of $ 3.7 million. These shares were subsequently retired. On November 21, 2025, the Company repurchased 821,000 shares of its own common stock from a single stockholder for $ 30.0 million, paid $ 8.0 million in cash and $ 22.0 million under a two-year 12 % unsecured promissory note. Debt On October 1, 2025, the Company entered into a debt modification transaction with 22 investors by extending their promissory notes' maturity date to October 2028. Two new investors joined with a combined $ 2.1 million and two existing investors increased their participation by a combined $ 250,000 . The promissory notes continue to bear a 12 % annual interest rate with interest-only monthly installments until full balance at maturity. Dispositions On October 7, 2025, the Company sold 100 % of the common stock of a club subsidiary located in Harlingen, Texas, for $ 600,000 . The sale did not include the real estate where the club is located. The Company recognized a loss of approximately $ 17,000 on the sale. On February 6, 2026, the Company sold a club located in Edinburg, Texas, for $ 1.1 million recognizing a $ 219,000 loss on the sale. Proceeds from the sale were used to pay down certain related debt. Investment On November 17, 2025, the Company entered into a strategic partnership with an adult club entrepreneur by accepting a 49 % interest in one of our clubs in Austin, Texas, for $ 1.8 million in cash. This partnership will strengthen our Austin club with more local management and marketing expertise. 104 Table of Contents RCI HOSPITALITY HOLDINGS, INC. Schedule of Valuation and Qualifying Accounts (Amounts in Thousands) Balance at beginning of year Charged to costs and expenses (1) Deductions (2) Balance at end of year Allowance for doubtful operating receivables Fiscal 2023 $ 30 $ 47 $ ( 15 ) $ 62 Fiscal 2024 $ 62 $ 60 $ ( 80 ) $ 42 Fiscal 2025 $ 42 $ 73 $ ( 24 ) $ 91 Allowance for credit losses on notes receivable Fiscal 2023 $ — $ — $ — $ — Fiscal 2024 $ — $ — $ — $ — Fiscal 2025 $ — $ 42 $ — $ 42 Deferred tax asset valuation allowance (3) Fiscal 2023 $ 984 $ ( 176 ) $ — $ 808 Fiscal 2024 $ 808 $ 143 $ — $ 951 Fiscal 2025 $ 951 $ 63 $ — $ 1,014 (1) Charged to bad debts or credit losses expense (under other selling, general and administrative expenses) in the consolidated statements of income. (2) Write off of gross amount against allowance. (3) Included in deferred tax liability, net in the consolidated balance sheets. 105 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no disagreements with accountants on accounting and financial disclosure.