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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2017

2023
[  ]
oTransition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 001-13992

RCI HOSPITALITY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Texas

State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.)

Texas76-0458229
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
10737 Cutten Road
Houston, Texas 77066

(Address of principal executive offices)

(281) (Zip Code)

(281) 397-6730

(Registrant’s telephone number, including area code

code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.01 Par Value

(Title of class)

NASDAQ Stock Market LLC

Name of each exchange on which registered

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueRICKThe Nasdaq Global Market
Securities registered pursuant to sectionSection 12(g) of the Act:

None

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ]o No [X]

x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ]o No [X]

x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [  ]x No [X]

o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]x No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]

o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [  ]o Accelerated filer [X]x Non-accelerated filer [  ]o Smaller reporting company [  ]o Emerging growth company [  ]

o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act [  ]

(15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes [  ]o No [X]

x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $155,616,355.

$680,203,604.

As of January 31, 2018,December 8, 2023, there were approximately 9,718,7119,359,685 shares of common stock outstanding.


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NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Forward-looking statements may appear throughout this report, including without limitation, the following sections: Item 1 – “Business,” Item 1A – “Risk Factors,” and Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and, in particular, the risks discussed under the caption “Risk Factors” in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Important factors that in our view could cause material adverse effects on our financial condition and results of operations include, but are not limited to, the risks and uncertainties associated with (i) operating and managing an adult business, (ii) the business climates in cities where it operates,we operate, (iii) the success or lack thereof in launching and building the company’sour businesses, risks and uncertainties related to(iv) cyber security, (v) conditions relevant to real estate transactions, (vi) the impact of the COVID-19 pandemic, and (vii) numerous other factors such as laws governing the operation of adult entertainment businesses, competition and dependence on key personnel. We undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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PART I

Item 1. Business.

INTRODUCTION

OVERVIEW
RCI Hospitality Holdings, Inc. (sometimes referred to as RCIHH herein) isa holding company engagedthat, through its subsidiaries, engages in a number of activities in the hospitality and related businesses. All services and management operations are conducted by subsidiaries of RCIHH, including RCI Management Services, Inc.

Through our subsidiaries, as of November 30, 2017, we operated a total of 45 establishmentsbusinesses that offer live adult entertainment and/or restaurant and bar operations.high-quality dining experiences to its guests. Our subsidiaries operated 69 establishments in 13 states as of September 30, 2023. Together with its subsidiaries, RCI Hospitality Holdings, Inc. is collectively referred to as “RCIHH,” "RCI," the “Company,” “we,” “us,” or “our” in this report. We also operatedoperate a leading business communications company (the “Media Group”) serving the multibillion-dollar adult nightclubs industry. We have two principal reportable segments: Nightclubs and Bombshells.In the context of club and restaurant/sports bar operations, the terms“Company,” “we,” “our,” “us” and similar terms used in this Form 10-K refer to subsidiaries of RCIHH. Excepting executive officers of RCIHH,any employment referenced in this document is not with RCIHH but solely with one of its subsidiaries.RCIHH was incorporated in the State of Texas in 1994.

1994 and became public in 1995.

Our fiscal year ends on September 30. References to years 2017, 20162023, 2022, and 20152021 are for fiscal years ended September 30, 2017, 20162023, 2022, and 2015,2021, respectively. Our fiscal quarters chronologically end on December 31, March 31, June 30 and September 30.

Our corporate website address is www.rcihospitality.com. Upon written request, we make available free of charge our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the SEC under the Securities Exchange Act of 1934, as amended.amended (www.sec.gov). Information contained in the corporate website shall not be construed as part of this Form 10-K.

OUR BUSINESS

We operate several businesses, which we aggregate for financial reporting purposes into two reportable segments – Nightclubs and Bombshells. Businesses that are not included as Nightclubs or Bombshells –are combined as “Other.”
During fiscal 2023, 2022, and combine other operating segments into “Other.”

2021, consolidated revenues were $293.8 million, $267.6 million, and $195.3 million, respectively, generating diluted earnings per share of $3.13, $4.91, and $3.37, respectively.

The table below shows the number of Nightclubs

and Bombshells open by state as of September 30, 2023:

Nightclubs
Bombshells(1)
Total
Arizona1—1
Colorado516
Florida4—4
Illinois5—5
Indiana1—1
Kentucky1—1
Louisiana1—1
Maine1—1
Minnesota3—3
New York4—4
North Carolina2—2
Pennsylvania1—1
Texas271239
561369
(1) Includes one food hall location.

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Nightclubs Segment
We operate our adult entertainment nightclubs through the followingseveral brands that target many different demographics of customers by providing a unique, quality entertainment environment. Our adult entertainment clubs do business as Rick’s Cabaret, Jaguar’sJaguars Club, Tootsie’s Cabaret, XTC Cabaret, Club Onyx, Hoops Cabaret and Sports Bar, Scarlett’s Cabaret, Diamond Cabaret, Cheetah Gentlemen's Club, PT's Showclub, Playmates Club, Country Rock Cabaret, Temptations Adult Cabaret, Foxy’s Cabaret, Vivid Cabaret, Downtown Cabaret, Cabaret East, The Seville, and Silver City Cabaret.Cabaret, Heartbreakers Gentlemen's Club, Kappa Men’s Club, Baby Dolls, and Chicas Locas. We also operate one dance clubsclub under the brand name Studio 80.

We generate revenue onfrom our nightclubs through the sale of alcoholic beverages, food, and merchandise items; service in the form of cover charge, dancelicensing fees, and room rentals; and through other related means such as ATM commissions and vending income, among others.

During fiscal 2017,2023, our Nightclub segment sales mix was 47%43.6% service revenue; 39%40.7% alcoholic beverages; and 14%15.7% food, merchandise, and other, which had a combined segmentother. Segment gross margin (revenues less cost of goods sold) ofsold, divided by revenues) was approximately 87%88.9%.

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Our Nightclubs segment revenue increased by approximately 14.8% and income from operations decreased by 11.6% compared to the prior year. Same-stores sales for Nightclubs in 2023 was -3.5%.

WeDuring fiscal 2023, we acquired Hollywood Showclubsix gentlemen’s clubs, certain related real estate properties, and other properties in the Greater St. Louis area in April 2017 for a total purchaseassociated intellectual property through two transactions with an aggregate acquisition price of $4.2 million. In May 2017, we acquired Scarlett’s Cabaret Miami$75.5 million (with a combined fair value of $72.3 million). These six clubs contributed $18.2 million in revenues during fiscal 2023. See Note 14 to our consolidated financial statements for a total purchase price of approximately $26.0 million. In July 2017, we relaunched Hollywood Showclub as Scarlett’s Cabaret St. Louis, and in August 2017, we opened Hollywood Hunt Club, a 51% joint venture, located on onedetails of the other Greater St. Louis properties we acquired.

Atransactions.

For a list of our nightclub locations, is inrefer to Item 2— “Properties.“Properties.”

Bombshells

As of September 30, 2017, our five

Bombshells were located in Texas with one in Dallas, one in AustinSegment
Our Bombshells segment operates a restaurant and three in the Houston area. In 2015, our subsidiary, BMB Franchising Services, Inc. (“BMB Franchising”), announcedbar concept that it was beginning a nationwide franchising program for Bombshells. As of March 2016, BMB Franchising has received approval to sell franchises in all 50 states. The restaurant sets itself apart with décor that pays homage to all branches of the U.S. military. Locations feature local DJs, large outdoor patios, and more than 75 state-of-the-art flat screen TVs for watching your favorite sports. All food and drink menu items have military names. Bombshell Girls, with their military-inspired uniforms, are a key attraction. Their mission, in addition to waitressing, is to interact with guests and generate a fun atmosphere.

Bombshells is also franchising under our subsidiary, BMB Franchising Services, Inc., which has been approved to sell franchises in all 50 states. 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. On May 2, 2022, the Company signed its second franchise development agreement with a private investor to open three Bombshells locations in the state of Alabama over a period of five years. We opened one company-owned location in Arlington, Texas (Dallas area), in December 2021 and our first franchised location opened in June 2022 in San Antonio, Texas. In February 2023, we acquired the firstSan Antonio franchise location and terminated our franchise and development agreement. As of September 30, 2023, we have twelve company-owned Bombshells locations, all in March 2013 in Dallas, quickly becoming one of the most popular restaurant destinationsTexas with two in the area. Within a year, four more openedDallas area, one in Austin, one in San Antonio, and eight in the Austin andGreater Houston Texas areas. Of the five, three are freestanding pad sites and two are inline locations.area. In September 2016,December 2022, we closedacquired a food hall in Denver, Colorado. Subsequent to our fiscal 2023 year-end, we opened one Bombshells location in Webster, Texas. In July 2017, we opened another Bombshells locationStafford, Texas in Houston.

November 2023.

During fiscal 2017,2023, Bombshells sales mix was 63%55.5% alcoholic beverages and 37%44.5% food, merchandise, and other, which had a combined segmentother. Segment gross margin (revenues less cost of goods sold) of 75%sold, divided by revenues) was approximately 78%.

Bombshells segment revenue decreased by 7.0%, while income from operations decreased by 43.5% from prior year. Same-stores sales for Bombshells in 2023 was -14.6%.

For a list of our Bombshells locations, refer to Item 2—“Properties.”

Media Group

The Media Group,


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Other Segment
We group together all businesses not belonging to either Nightclubs and Bombshells as Other reportable segment. This is made up of several wholly-owned subsidiaries composed primarily of our Media Group and Drink Robust. Our Media Group is the leading business communications company serving the multibillion-dollar adult nightclubs industry and the adult retail products industry. It owns a national industry convention and tradeshow;trade show; two national industry trade publications; two national industry award shows; and more than a dozen industry and social media websites. Included in the Media Group is ED Publications, publishers of the bimonthly ED Club Bulletin, the only national business magazine serving the 2,200-plus adult nightclubs in North America, which collectively have annual revenues in excess of $5 billion, according to the Association of Club Executives. ED Publications, founded in 1991, also publishes the Annual VIP Guide of adult nightclubs, touring entertainers and industry vendors; and produces the Annual Gentlemen’s Club Owners EXPO, a national convention and tradeshow; and offers the exclusive ED VIP Club Card, honored at more than 850 adult nightclubs.trade show. The Media Group produces two nationally recognized industry award shows for the readers of both ED Club Bulletin and StorErotica magazines, and maintains a number of B-to-B and consumer websites for both industries.

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Drink Robust is licensed to sell Robust Energy Drink in the United States.

OUR STRATEGY

Our overall objective is to create value for our shareholders by developing and operating profitable businesses in the hospitality and related space. We strive to achieve that by providing an attractive price-value entertainment, dining experience, and dining experience;top-notch service; by attracting and retaining quality personnel; and by focusing on unit-level operating performance. Aside from our operating strategy, we employ a capital allocation strategy.

Capital Allocation Strategy

Our capital allocation strategy provides us with disciplined guidelines on how we should use our free cash flows; provided however, that we may deviate from this strategy if the circumstances warrant.other strategic rationale warrants. We calculate free cash flow as net cash flows from operating activities minus maintenance capital expenditures. Using the after-tax yield of buying our own stock or other strategic rationale in management’s opinion, as baseline, we believemanagement believes that we are able to make better investment decisions.

Based on our current capital allocation strategy:

●We consider acquiring or developing our own clubs or restaurants that we believe have the potential to provide a minimum cash on cash return of 25%-33%, absent an otherwise strategic rationale;
●We consider disposing of underperforming units to free up capital for more productive use;
●We consider buying back our own stock if the after-tax yield on free cash flow climbs over 10%;
●We consider paying down our most expensive debt if it makes sense on a tax adjusted basis, or there is an otherwise strategic rationale.

•We consider buying back our own stock if the after-tax yield on free cash flow is above 10%;
•We consider acquiring or developing our own clubs or restaurants that we believe have the potential to provide a minimum cash on cash return of 25%-33%, absent an otherwise strategic rationale;
•We consider disposing of underperforming units to free up capital for more productive use;
•We consider paying down our most expensive debt if it makes sense on a tax-adjusted basis, or there is an otherwise strategic rationale.
Over a five-year period from fiscal 2018 through fiscal 2023, we improved diluted earnings per share at a compound annual growth rate (“CAGR”) of approximately 8%, which was mainly caused by increasing revenue at a CAGR of approximately 12%, and flowing through net income at a CAGR of approximately 7%. As a result, net cash provided by operating activities improved at approximately 18% and free cash flow at also approximately 18% CAGR for the same period. See discussions of our non-GAAP financial measures starting on page 41.

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COMPETITION

The adult entertainment and the restaurant/sports bar businesses are highly competitive with respect to price, service and location. All of our nightclubs compete with a number of locally owned adult clubs, some of whose brands may have name recognition that equals that of ours. The names “Rick’s” and “Rick’s Cabaret,” “Tootsie’s Cabaret,” “XTC Cabaret,” “Scarlett’s,” “Silver City,” “Club Onyx,” “Downtown Cabaret,” “Temptations,” “The Seville,” “Jaguars,” “Hoops Cabaret,” “Foxy’s Cabaret,” "Studio 80," “Country Rock Cabaret,” “PT’s,” “Diamond Cabaret,” “Baby Dolls Saloon," "Baby Dolls," and “Foxy’s Cabaret”"Chicas Locas" are proprietary. In the restaurant/sports bar business, “Bombshells” is also proprietary. We believe that the combination of our existing brand name recognition and the distinctive entertainment environment that we have created allows us to compete effectively in the industry and within the cities where we operate. Although we believe that we are well positioned to compete successfully, there can be no assurance that we will be able to maintain our high level of name recognition and prestige within the marketplace.

GOVERNMENTAL REGULATIONS

We are subject to various federal, state and local laws affecting our business activities. Particularly in Texas, the authority to issue a permit to sell alcoholic beverages is governed by the Texas Alcoholic Beverage Commission (“TABC”), which has the authority, in its discretion, to issue the appropriate permits. We presently hold a Mixed Beverage Permit and a Late Hour Permit at numerous Texas locations. Colorado, Minnesota, North Carolina, Indiana, Louisiana, Arizona, Pennsylvania, Florida, and New York, Kentucky, Maine, Indiana, and Illinois have similar laws that may limit the availability of a permit to sell alcoholic beverages or that may provide for suspension or revocation of a permit to sell alcoholic beverages in certain circumstances. It is our policy, prior to expanding into any new market, to take steps to ensure compliance with all licensing and regulatory requirements for the sale of alcoholic beverages, as well as the sale of food.

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In addition to various regulatory requirements affecting the sale of alcoholic beverages, in many cities where we operate, the location of an adult entertainment cabaret is subject to restriction by city, county or other governmental ordinance. The prohibitions deal generally with distance from schools, churches and other sexually oriented businesses, and contain restrictions based on the percentage of residences within the immediate vicinity of the sexually oriented business. The granting of a sexually oriented business permit is not subject to discretion; the permit must be granted if the proposed operation satisfies the requirements of the ordinance. In all states where we operate, management believes we are in compliance with applicable city, county, state or other local laws governing the sale of alcohol and sexually oriented businesses.

TRADEMARKS

Our rights to the trade names “RCI Hospitality Holdings, Inc.,” “Rick’s,” “Rick’s Cabaret,” “Tootsie’s Cabaret,” “Club Onyx,” “XTC Cabaret,” “Temptations,” “Jaguars,” “Downtown Cabaret,” “Cabaret East,” Bombshells“Bombshells Restaurant and Bar,” “Vee Lounge,” “Mile High Men’s Club,” “Country Rock Cabaret,” “PT’s,” and “Vee Lounge”“Diamond Cabaret” are established under common law, based upon our substantial and continuous use of these trade names in interstate commerce, some of which have been in use at least as early as 1987. We have registered our service mark, “RICK’S AND STARS DESIGN,” and the “BOMBSHELLS RESTAURANT & BAR” logo design with the United States Patent and Trademark Office. We have also obtained service mark registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN” logo, “RCI HOSPITALITY HOLDINGS, INC.,” “RICKS,“RICK’S,” “RICK’S CABARET,” “CLUB ONYX,” “XTC CABARET,” “SCARLETT’S CABARET,” “SILVER CITY CABARET,” “BOMBSHELLS RESTAURANT AND BAR”,BAR,” “THE SEVILLE CLUB”,CLUB,” “DOWN IN TEXAS SALOON”, “CLUB DULCE”, “THE BLACK ORCHID”,SALOON,” “HOOPS CABARET”,CABARET,” “VEE LOUNGE,” “STUDIO 80”,80,” “FOXY’S CABARET”CABARET,” “EXOTIC DANCER,” “TOYS FOR TATAS,” "LA BOHEME GENTLEMAN'S CLUB," “MILE HIGH MEN’S CLUB,” “MHMC logo,” “AFTER DARK,” “COUNTRY ROCK CABARET,” “PT’S,” “DIAMOND CABARET,” "CABARET ROYALE," "BABY DOLLS SALOON," "BABY DOLLS TOPLESS SALOON," "BABY DOLLS," "JAGUARS," and “EXOTIC DANCER”“BOMBSHELLS OFFICER’S CLUB” are registered through service mark registrations issued by the United States Patent and Trademark Office. As of this date, we have pending registration applications for the namenames “TOOTSIES CABARET”CABARET,” “RICK'S REWARDS,” “VENICE CABARET,” "CHERRY CREEK FOOD HALL AND BREWERY," and “THE MANSION.” We also own the rights to numerous trade names associated with our media division. There can be no assurance that these steps we have taken to protect our service marks will be adequate to deter misappropriation of our protected intellectual property rights.

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EMPLOYEES AND INDEPENDENT CONTRACTORS

Our people are employed by the parent company or by its subsidiaries. Executive officers are employed by the registrant (parent company); shared services personnel and managers responsible for multiple clubs or restaurants are employed by RCI Management Services, Inc.; and the rest are employed by the individual operating entities. As of September 30, 2017,2023, we had approximately 2,130 employees, of which approximately 180 are in management positions, including corporate and administrative operations, and approximately 1,950 are engaged in entertainment, food and beverage service, including bartenders, waitresses, and certain entertainers. None of our employees are represented by a union. We consider our employee relations to be good. the following employees:
Operations
ManagersNon-ManagersCorporateTotal
Hourly243,183193,226
Salaried4085985552
4323,2421043,778
Additionally, as of September 30, 2017,2023, we had independent contractor entertainers who are self-employed and conduct business at our locations on a non-exclusive basis. Our entertainers at Rick’s Cabaret in Minneapolis, Minnesota and at Jaguars Club in Phoenix, Arizona may elect to act as commissioned employees. All employees and independent contractors sign arbitration non-class actionnon-class-action participation agreements.

agreements, where allowed by federal and state laws. None of our employees are represented by a union. We consider our employee relations to be good.

We believe that the adult entertainment industry standard of treating entertainers as independent contractors provides us with safe harbor protection to preclude payroll tax assessment for prior years.assessment. We have prepared plans that we believe will protect our profitability in the event that the sexually oriented business industry is required in all states to convert entertainers, who are now independent contractors, into employees. See related discussion in “Risk Factors.”

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Factors” below.

Item 1A. Risk Factors.

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below before deciding to purchase shares of our common stock. If any of the events, contingencies, circumstances or conditions described in the risks below actually occurs, our business, financial condition, or results of operations could be seriously harmed. The trading price of our common stock could, in turn, decline and you could lose all or part of your investment.

A summary of our risk factors is as follows:
Risks related to general macroeconomic and safety conditions
◦The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time.
◦Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war.
◦If we are unable to maintain compliance with certain of our debt covenants or unable to obtain waivers, we may be unable to make additional borrowings and be declared in default where our debt will be made immediately due and payable. In addition, global economic conditions may make it more difficult to access new credit facilities.
◦We have recorded impairment charges in current and past periods and may record additional impairment charges in future periods.

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Risks related to regulations and/or regulatory agencies
◦Our business operations are subject to regulatory uncertainties which may affect our ability to continue operations of existing nightclubs, acquire additional nightclubs, or be profitable.

◦The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees. If federal or state law mandates that they be classified as employees, our business could be adversely impacted.
◦Our revenues could be significantly affected by limitations relating to permits to sell alcoholic beverages.
◦Activities or conduct at our nightclubs may cause us to lose necessary business licenses, expose us to liability, or result in adverse publicity, which may increase our costs and divert management’s attention from our business.
Risks related to our business
◦We may deviate from our present capital allocation strategy.
◦We may need additional financing, or our business expansion plans may be significantly limited.
◦There is substantial competition in the nightclub entertainment industry, which may affect our ability to operate profitably or acquire additional clubs.
◦The adult entertainment industry is extremely volatile.
◦Private advocacy group actions targeted at the kind of adult entertainment we offer could result in limitations and our inability to operate in certain locations and negatively impact our business.
◦We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business.
◦We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation.

◦Our acquisitions may result in disruptions in our business and diversion of management’s attention.
◦We face a variety of risks associated with doing business with franchisees and licensees.
◦The impact of new club or restaurant openings could result in fluctuations in our financial performance.
◦Our ability to grow sales through delivery orders is uncertain.
◦We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives.
◦We have identified material weaknesses in our internal control over financial reporting.
◦We may have uninsured risks in excess of our insurance coverage.
◦We are subject to increasing legal complexity and could be party to litigation that could adversely affect us.
◦Our previous liability insurer may be unable to provide coverage to us and our subsidiaries.
◦The protection provided by our service marks is limited.
◦We are dependent on key personnel.
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◦If we are not able to hire, develop, and retain qualified club and restaurant employees and/or appropriately plan our workforce, our growth plan and profitability could be adversely affected.
◦A failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business.
◦Our venture, expansion, and renovation projects may face significant inherent risks.
◦Other risk factors may adversely affect our financial performance.
Risk related to our common stock
◦We must continue to meet NASDAQ Global Market Continued Listing Requirements, or we risk delisting.
◦We may be subject to allegations, defamations, or other detrimental conduct by third parties, which could harm our reputation and cause us to lose customers and/or contribute to a deflation of our stock price.
◦Our quarterly operating results may fluctuate and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
◦Anti-takeover effects of the issuance of our preferred stock could adversely affect our common stock.
◦Future sales or the perception of future sales of a substantial amount of our common stock may depress our stock price.
◦Our stock price has been volatile and may fluctuate in the future.
◦Cumulative voting is not available to our stockholders.
◦Our directors and officers have limited liability and have rights to indemnification.
Details of our risk factors are as follows:
Risks related to general macroeconomic and safety conditions
The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition and results of operations for an extended period of time.
The COVID-19 pandemic had an adverse effect that was material on our business. The COVID-19 pandemic, federal, state and local government responses to COVID-19, our customers’ responses to the pandemic, and our Company’s responses to the pandemic all disrupted our business. In the United States, state and local governments imposed a variety of restrictions on people and businesses and public health authorities offered regular guidance on health and safety. Once COVID-19 vaccines were approved and moved into wider distribution in the United States in early 2021, public health conditions improved and almost all of the COVID-19 restrictions on businesses eased. During fiscal 2022, increases in the numbers of cases of COVID-19 throughout the United States including the Omicron variant which impacted our restaurants in the second quarter, mostly in January 2022, subjected some of our restaurants to other COVID-19-related restrictions such as mask and/or vaccine requirements for team members, guests or both. Exclusions and quarantines of restaurant team members or groups thereof disrupt an individual restaurant’s operations and often come with little or no notice to the local restaurant management. In the last couple of years, along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold. These events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain.

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Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war.
The ongoing war between Russia and Ukraine and the more recent Israel-Hamas war could have adverse effects on global macroeconomic conditions which could negatively impact our business, financial condition, and results of operations. These conflicts are highly unpredictable and have already resulted in significant volatility in oil and natural gas prices worldwide.
If we are unable to maintain compliance with certain of our debt covenants or unable to obtain waivers, we may be unable to make additional borrowings and be declared in default where our debt will be made immediately due and payable. In addition, global economic conditions may make it more difficult to access new credit facilities.
Our liquidity position is, in part, dependent upon our ability to borrow funds from financial institutions and/or private individuals. Certain of our debts have financial covenants that require us to maintain certain operating income to debt service ratios. As of September 30, 2023, we were in compliance with all covenants. Due to the impact of COVID-19 and other external factors such as supply chain disruption, the conflicts in Ukraine and in the Gaza Strip, and the potential economic slowdown, our financial performance in future periods could be negatively impacted. A failure to comply with the financial covenants under our credit facility or obtain waivers would give rise to an event of default under the terms of certain of our debts, allowing the lenders to accelerate repayment of any outstanding debt.
We have recorded impairment charges in current and past periods and may record additional impairment charges in future periods.
Our nightclubs are often acquired with a purchase price based on historical EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). This results in certain nightclubs carrying a substantial amount of intangible asset value, mostly allocated to licenses and goodwill. Generally accepted accounting principles require periodic impairment review of indefinite-lived intangible assets, long-lived assets, and goodwill to determine if, or when events and circumstances indicate that, the fair value of these assets is not recoverable. As a result of our periodic impairment reviews, we recorded impairment charges of $12.6 million in 2023 (representing $4.2 million of goodwill impairment on four clubs, $6.5 million of SOB license impairment on eight clubs, $1.0 million of operating lease right-of-use asset on one club, $814,000 of software impairment on two investment projects, and $58,000 of property and equipment impairment on one club); $1.9 million in 2022 (representing $566,000 of goodwill impairment on one club, $293,000 of SOB license impairment on one club, and $1.0 million of property and equipment impairment on one club and one Bombshells unit); and $13.6 million in 2021 (representing $6.3 million of goodwill impairment on seven clubs, $5.3 million of SOB license impairment on three clubs, and $2.0 million of property and equipment impairment on four clubs and one held-for-sale property). A huge portion, if not all, of the impairments in 2021 related to the then-projected decline in EBITDA caused by the COVID-19 pandemic. If difficult market and economic conditions materialize over the next year and/or we experience a decrease in revenue at one or more nightclubs or restaurants, we could incur a decline in fair value of one or more of our nightclubs or restaurants. This could result in future impairment charges of up to the total value of our tangible and intangible assets, including goodwill. We actively monitor our clubs and restaurants for any indication of impairment.
Risks related to regulations and/or regulatory agencies
Our business operations are subject to regulatory uncertainties which may affect our ability to continue operations of existing nightclubs, acquire additional nightclubs, or be profitable.
Adult entertainment nightclubs are subject to local, state and federal regulations. Our business is regulated by local zoning, local and state liquor licensing, local ordinances, and state and federal time place and manner restrictions. The adult entertainment provided by our nightclubs has elements of speech and expression and, therefore, enjoys some protection under the First Amendment to the United States Constitution. However, the protection is limited to the expression, and not the conduct of an entertainer. While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will permit our nightclubs to remain in operation or profitable in the future.

Our business has been, and may continue to be, adversely affected by conditions in the U.S. financial markets and economic conditions generally.

Our nightclubs are often acquired with a purchase price based on historical EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). This results in certain nightclubs carrying a substantial amount

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Table of intangible value, mostly allocated to licenses and goodwill. Generally accepted accounting principles require an annual impairment review of these indefinite-lived intangible assets. As a result of our annual impairment review, we recorded impairment charges of $7.6 million in 2017 (including $4.7 million of goodwill impairment on three operating clubs and one property held for sale, $385,000 of property and equipment impairment on one operating club, $1.4 million of license impairment on two clubs, and $1.2 million of other-than-temporary impairment recognized on our cost method investment in Robust), $3.5 million in 2016 (including $1.4 million in one of our properties held for sale and $2.1 million of license impairment on one club), and $1.7 million in 2015 (for license impairment of two clubs). If difficult market and economic conditions materialize over the next year and/or we experience a decrease in revenue at one or more nightclubs, we could incur a decline in fair value of one or more of our nightclubs. This could result in future impairment charges of up to the total value of the indefinite-lived intangible assets.

We may deviate from our present capital allocation strategy.

We believe that our present capital allocation strategy will provide us with optimized returns. However, implementation of our capital allocation strategy depends on the interplay of different factors such as our stock price, our outstanding common shares, the interest rates on our debt, and the rate of return on available investments. If these factors are not conducive to implementing our present capital allocation strategy, or we determine that adopting a different capital allocation strategy is in the best interest of shareholders, we reserve the right to deviate from this approach. There can be no assurance that we will not deviate from or adopt an alternative capital allocation strategy moving forward.

We may need additional financing, or our business expansion plans may be significantly limited.

If cash generated from our operations is insufficient to satisfy our working capital and capital expenditure requirements, we will need to raise additional funds through the public or private sale of our equity or debt securities. The timing and amount of our capital requirements will depend on a number of factors, including cash flow and cash requirements for nightclub acquisitions and new restaurant development. If additional funds are raised through the issuance of equity or convertible debt securities, the ownership percentage of our then-existing shareholders will be reduced. We cannot assure you that additional financing will be available on terms favorable to us, if at all. Any future equity financing, if available, may result in dilution to existing shareholders; and debt financing, if available, may include restrictive covenants. Any failure by us to procure timely additional financing, if needed, will have material adverse consequences on our business operations.

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There is substantial competition in the nightclub entertainment industry, which may affect our ability to operate profitably or acquire additional clubs.

Our nightclubs face substantial competition. Some of our competitors may have greater financial and management resources than we do. Additionally, the industry is subject to unpredictable competitive trends and competition for general entertainment dollars. There can be no assurance that we will be able to remain profitable in this competitive industry.

The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees. If federal or state law mandates that they be classified as employees, our business could be adversely impacted.

The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees. The Internal Revenue Service regulations and applicable state law guidelines regarding independent contractor classification are subject to judicial and agency interpretation, and it could be determined that the independent contractor classification is inapplicable. Further, if legal standards for classification of independent contractors change, it may be necessary to modify our compensation structure for these adult entertainers, including by paying additional compensation or reimbursing expenses. While we take steps to ensure that our adult entertainers are deemed independent contractors, if our adult entertainers are determined to have been misclassified as independent contractors, we would incur additional exposure under federal and state law, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings. Any of these outcomes could result in substantial costs to us, could significantly impair our financial condition and our ability to conduct our business as we choose, and could damage our ability to attract and retain other personnel.

The adult entertainment industry is extremely volatile.

Historically, the adult entertainment, restaurant and bar industry has been an extremely volatile industry. The industry tends to be extremely sensitive to the general local economy, in that when economic conditions are prosperous, entertainment industry revenues increase, and when economic conditions are unfavorable, entertainment industry revenues decline. Coupled with this economic sensitivity are the trendy personal preferences of the customers who frequent adult cabarets. We continuously monitor trends in our customers’ tastes and entertainment preferences so that, if necessary, we can make appropriate changes which will allow us to remain one of the premiere adult cabarets. However, any significant decline in general corporate conditions or uncertainties regarding future economic prospects that affect consumer spending could have a material adverse effect on our business. In addition, we have historically catered to a clientele base from the upper end of the market. Accordingly, further reductions in the amounts of entertainment expenses allowed as deductions from income under the Internal Revenue Code of 1954, as amended, could adversely affect sales to customers dependent upon corporate expense accounts.

Private advocacy group actions targeted at the kind of adult entertainment we offer could result in limitations and our inability to operate in certain locations and negatively impact our business.

Our ability to operate successfully depends on the protection provided to us under the First Amendment to the U.S. Constitution. From time to time, private advocacy groups have sought to target our nightclubs by petitioning for non-renewal of certain of our permits and licenses. Furthermore, private advocacy groups which have influences on certain financial institutions have managed to sway these financial institutions into not doing business with us. In addition to possibly limiting our operations and financing options, negative publicity campaigns, lawsuits and boycotts could negatively affect our businesses and cause additional financial harm by discouraging investors from investing in our securities or requiring that we incur significant expenditures to defend our business.

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Our revenues could be significantly affected by limitations relating to permits to sell alcoholic beverages.

We derive a significant portion of our revenues from the sale of alcoholic beverages. States in which we operate may have laws which may limit the availability of a permit to sell alcoholic beverages, or which may provide for suspension or revocation of a permit to sell alcoholic beverages in certain circumstances. The temporary or permanent suspension or revocations of any such permits would have a material adverse effect on our revenues, financial condition and results of operations. In all states where we operate, management believes we are in compliance with applicable city, county, state or other local laws governing the sale of alcohol.

Activities or conduct at our nightclubs may cause us to lose necessary business licenses, expose us to liability, or result in adverse publicity, which may increase our costs and divert management’s attention from our business.

We are subject to risks associated with activities or conduct at our nightclubs that are illegal or violate the terms of necessary business licenses. Some of our nightclubs operate under licenses for sexually oriented businesses and are afforded some protection under the First Amendment to the U.S. Constitution. While we believe that the activities at our nightclubs comply with the terms of such licenses, and that the element of our business that constitutes an expression of free speech under the First Amendment to the U.S. Constitution is protected, activities and conduct at our nightclubs may be found to violate the terms of such licenses or be unprotected under the U.S. Constitution. This protection is limited to the expression and not the conduct of an entertainer. An issuing authority may suspend or terminate a license for a nightclub found to have violated the license terms. Illegal activities or conduct at any of our nightclubs may result in negative publicity or litigation. Such consequences may increase our cost of doing business, divert management’s attention from our business and make an investment in our securities unattractive to current and potential investors, thereby lowering our profitability and our stock price.

We have developed comprehensive policies aimed at ensuring that the operation of each of our nightclubs is conducted in conformance with local, state and federal laws. We have a “no tolerance” policy on illegal drug use in or around theour facilities. We continually monitor the actions of entertainers, waitresses and customers to ensure that proper behavior standards are met. However, such policies, no matter how well designed and enforced, can provide only reasonable, not absolute, assurance that the policies’ objectives are being achieved. Because of the inherent limitations in all control systems and policies, there can be no assurance that our policies will prevent deliberate acts by persons attempting to violate or circumvent them. Notwithstanding the foregoing limitations, management believes that our policies are reasonably effective in achieving their purposes.

Risks related to our business
We may deviate from our present capital allocation strategy.
We believe that our present capital allocation strategy will provide us with optimized returns. However, implementation of our capital allocation strategy depends on the interplay of several factors such as our stock price, our outstanding common shares, the interest rates on our debt, and the rate of return on available investments. If these factors are not conducive to implementing our present capital allocation strategy, or we determine that adopting a different capital allocation strategy is in the best interest of shareholders, we reserve the right to deviate from this approach. There can be no assurance that we will not deviate from or adopt an alternative capital allocation strategy moving forward.
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We may need additional financing, or our business expansion plans may be significantly limited.
If cash generated from our operations is insufficient to satisfy our working capital and capital expenditure requirements, we will need to raise additional funds through the public or private sale of our equity or debt securities. The timing and amount of our capital requirements will depend on a number of factors, including cash flow and cash requirements for nightclub acquisitions and new restaurant development. If additional funds are raised through the issuance of equity or convertible debt securities, the ownership percentage of our then-existing shareholders will be diluted. We cannot ensure that additional financing will be available on terms favorable to us, if at all. Any future equity financing, if available, may result in dilution to existing shareholders; and debt financing, if available, may include restrictive covenants. Any failure by us to procure timely additional financing, if needed, will have material adverse consequences on our business operations.
There is substantial competition in the nightclub entertainment industry, which may affect our ability to operate profitably or acquire additional clubs.
Our nightclubs face substantial competition. Some of our competitors may have greater financial and management resources than we do. Additionally, the industry is subject to unpredictable competitive trends and competition for general entertainment dollars. There can be no assurance that we will be able to remain profitable in this competitive industry.
The adult entertainment industry is extremely volatile.
Historically, the adult entertainment, restaurant and bar industry has been an extremely volatile industry. The industry tends to be extremely sensitive to the general local economy, in that when economic conditions are prosperous, adult entertainment industry revenues increase, and when economic conditions are unfavorable, entertainment industry revenues decline. Coupled with this economic sensitivity are the trendy personal preferences of the customers who frequent adult nightclubs. We continuously monitor trends in our customers’ tastes and entertainment preferences so that, if necessary, we can make appropriate changes which will allow us to remain one of the premiere adult nightclubs. However, any significant decline in general corporate conditions or uncertainties regarding future economic prospects that affect consumer spending could have a material adverse effect on our business. In addition, we have historically catered to a clientele base from the upper end of the market. Accordingly, further reductions in the amounts of entertainment expenses allowed as deductions from income under the Internal Revenue Code of 1954, as amended, could adversely affect sales to customers dependent upon corporate expense accounts.
Private advocacy group actions targeted at the kind of adult entertainment we offer could result in limitations in our inability to operate in certain locations and negatively impact our business.
Our ability to operate successfully depends on the protection provided to us under the First Amendment to the U.S. Constitution. From time to time, private advocacy groups have sought to target our nightclubs by petitioning for non-renewal of certain of our permits and licenses. Furthermore, private advocacy groups which have influences on certain financial institutions have managed to sway these financial institutions into not doing business with us. In addition to possibly limiting our operations and financing options, negative publicity campaigns, lawsuits and boycotts could negatively affect our businesses and cause additional financial harm by discouraging investors from investing in our securities or requiring that we incur significant expenditures to defend our business.
We rely heavily on information technology in our operations and any material failure, weakness, interruption, or breach of security could prevent us from effectively operating our business.

Our operations and corporate functions rely heavily on information systems, including point-of-sale processing, management of our supply chain, payment of obligations, collection of cash, electronic communications, data warehousing to support analytics, finance and accounting systems, mobile technologies to enhance the customer experience, and other various processes and procedures, some of which are handled by third parties. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security relating to these systems could result in delays in consumer service and reduce efficiency in our operations. These problems could adversely affect our results of operations, and remediation could result in significant, unplanned capital investments.

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Security breachesWe are exposed to risks related to cyber security and protection of confidential customer information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or

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confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation.
Our technology systems contain personal, employeefinancial, and other information may adversely affectthat is entrusted to us by our business.

Aguests and employees, as well as financial, proprietary, and other confidential information related to our business, and a significant portion of our revenuessales are paid throughby credit or debit and credit cards. Other restaurants and retailers have experienced significant security breaches in which debit and credit card information or other personal information of their customers have been stolen. We also maintain certain personal information regarding our employees. Although we aim to safeguardIf our technology systems, theyor those of third-party services providers we rely upon, are compromised as a result of a cyber-attack (including whether from circumvention of security systems, denial-of-service attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, or social engineering) or other external or internal method, it could potentially be vulnerableresult in an adverse and material impact on our reputation, operations, and financial condition. The cyber risks we face range from cyber-attacks common to damage, disability or failuresmost industries, to attacks that target us due to physical theft, fire, power outage, telecommunication failurethe confidential consumer information we obtain through our electronic processing of credit and debit card transactions. Such security breaches could also result in litigation or other catastrophic events,governmental investigation against us, as well as from internal and external security breaches, employee errorthe imposition of penalties. These impacts could also occur if we are perceived either to have had an attack or malfeasance, denial of service attacks, viruses, worms and other disruptive problems caused by hackers and cyber criminals. A breach in our systems that compromises the information of our customers or employees could result in widespread negative publicity, damage to our reputation, a loss of customers, and legal liabilities. have failed to properly respond to an incident.

We may in the future becomeare subject to lawsuits or other proceedings for purportedly fraudulent transactions arising froma variety of continually evolving and developing laws and regulations regarding privacy, data protection, and data security, including those related to the actual or alleged theftcollection, storage, handling, use, disclosure, transfer, and security of our customers’ debitpersonal data. The use and credit card information or if customer or employeedisclosure of such information is obtained by unauthorized personsregulated and enforced at the federal, state and international levels, and these laws, rules and regulations are subject to change.
As privacy and information security laws and regulations change or used inappropriately. Any such claimcyber risks evolve pertaining to data, we may incur significant additional costs in technology, third-party services, and personnel to maintain systems designed to anticipate and prevent cyber-attacks. As with many public companies, our defenses are under attack regularly. There might be minor intrusions from time to time. We have added certain preventive measures to reduce cyber risks. However, we cannot provide assurance that our security frameworks and measures will be successful in preventing future significant cyber-attacks or proceeding, or any adverse publicity resulting from such an event, may have a material adverse effect on our business.

data loss.

Our acquisitions may result in disruptions in our business and diversion of management’s attention.

We have made and may continue to make acquisitions of complementary nightclubs, restaurants or related operations. Any acquisitions will require the integration of the operations, products and personnel of the acquired businesses and the training and motivation of these individuals. Such acquisitions may disrupt our operations and divert management’s attention from day-to-day operations, which could impair our relationships with current employees, customers and partners. We may also incur debt or issue equity securities to pay for any future acquisitions. These issuances could be substantially dilutive to our stockholders. In addition, our profitability may suffer because of acquisition-related costs or amortization, or impairment costs for acquired goodwill and other intangible assets. If management is unable to fully integrate acquired business, products or persons with existing operations, we may not receive the benefits of the acquisitions, and our revenues and stock trading price may decrease.

We face a variety of risks associated with doing business with franchisees and licensees.
We started franchising Bombshells in 2015. We believe that we have selected highly competent operating partners and franchisees with significant experience in restaurant operations, and we are providing them training and support on the Bombshells brand. However, the probability of opening, ultimate success and quality of any franchise or licensed restaurant rests principally with the franchisee. If the franchisee does not successfully open and operate its restaurants in a manner consistent with our standards, or if guests have negative experiences due to issues with food quality or operational execution, our brand value could suffer, which could have an adverse impact on our business.
The impact of new club or restaurant openings could result in fluctuations in our financial performance.

Performance of any new club or restaurant location will usually differ from its originally targeted performance due to a variety of factors, and these differences may be material. New clubs and restaurants typically encounter higher customer traffic and sales in their initial months, which may decrease over time. Accordingly, sales achieved by new or reconcepted locations may not be indicative of future operating results. Additionally, we incur substantial pre-opening expenses each time we open a new establishment, which expenses may be higher than anticipated. Due to the foregoing factors, results for any one fiscal quarter are not necessarily indicative of results to be expected for any other fiscal quarter or for a full fiscal year.

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Our ability to grow sales through delivery orders is uncertain.
Part of our strategy for restaurant growth is dependent on increased sales from guests that want our food delivered to them. We must continuecurrently rely on third-party delivery providers for the ordering and payment platforms that receive guest orders and that send orders directly to meet NASDAQ Global Market Continued Listing Requirements,our point-of-sale system. These platforms could be damaged or we risk delisting.

Our securities are currently listed for trading on the NASDAQ Global Market. We must continue to satisfy NASDAQ’s continued listing requirementsinterrupted by technological failures, cyber-attacks, or risk delisting which would have an adverse effect on our business. If our securities are ever delisted from NASDAQ, they may trade on the over-the-counter market,other factors, which may adversely impact our sales through these channels.

Delivery providers generally fulfill delivery orders through drivers that are independent contractors. These drivers may make errors, fail to make timely deliveries, damage our food, or poorly represent our brands, which may lead to customer disappointment, reputational harm and unmet sales expectations. Our sales may also be adversely impacted if there is a less liquid market. In such case,shortage of drivers that are willing and available to make deliveries from our shareholders’ ability to traderestaurants. We also incur additional costs associated with delivery orders, and it is possible that these orders could cannibalize more profitable in-restaurant visits or obtain quotations of the market value of shares of our common stock would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities. There is no assurance that we will be able to maintain compliance with the NASDAQ continued listing requirements.

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take-out orders.

We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives.

We will incur significant legal, accounting and other expenses that our non-public competition does not incur. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as well as new rules subsequently implemented by the SEC, have imposed various requirements on public companies, including requiring certain corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and effective disclosure controls and procedures. In particular, under Section 404 of the Sarbanes-Oxley Act, we are required to perform system and process evaluation and testing on the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm is required to report on the effectiveness of our internal control over financial reporting. In performing this evaluation and testing, both our management and our independent registered public accounting firm concluded that our internal control over financial reporting is not effective as of September 30, 2017 because of certain material weaknesses.2023. We are, however, addressing these issuesthis issue and updatingremediating our policies and procedures. Upon finalizing these policies and procedures and ensuring they are effectively applied,material weaknesses. When we believe our internal control will be deemed effective. Correcting thiswere to identify a material weakness, correcting that issue, and thereafter our continued compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. Moreover, if we are not able to correct ouran internal control issuesissue and comply with the requirements of Section 404 in a timely manner, or if in the future we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

We have identified material weaknesses in our internal control over financial reporting

reporting.

Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 20172023, and concluded that we did not maintain effective internal control over financial reporting. Specifically, managementManagement identified material weaknesses related to (1) proper design and implementation of controls over (1)management's review of the Company's accounting for business combinations, specifically related to the identification of and accounting for, intangibles assets acquired in a business combination and over the precision of management's review of certain valuation assumptions; (2) the impairment of goodwill, indefinite-lived intangibles, and long-lived assets, specifically over the precision of management's review of certain assumptions; and (3) ineffective information technology general controls in the areas of user access and program change-management over certain information technology application and general computer controls, (2) complex accounting matters related to assets held for sale, business combinations, cost method investments, income taxes, andsystems that support the impairment analyses for indefinite-lived intangible assets, goodwill, and property and equipment, and (3)Company's financial reporting and disclosures—seeprocesses. See Item 9A, “Controls and Procedures,” below. While certain actions have been taken to implement a remediation plan to address these material weaknesses and to enhance our internal control over financial reporting, if these material weaknesses are determined to have not been remediated, it could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which could negatively affect investor confidence in our company,Company, and, as a result, the value of our common stock could be adversely affected.

Our quarterly operating results may fluctuate and could fall below the expectations

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Table of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.

Our nightclub operations are affected by seasonal factors. Historically, we have experienced reduced revenues from April through September with the strongest operating results occurring during October through March. As a result, our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly as a result of seasonality and the factors discussed above. Accordingly, results for any one fiscal quarter are not necessarily indicative of results to be expected for any other fiscal quarter or for any fiscal year and same-store sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our common stock would likely decrease.

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Contents

We may have uninsured risks in excess of our insurance coverage.

We maintain insurance in amounts we consider adequate for personal injury and property damage to which the business of the Company may be subject. However, there can be no assurance that uninsured liabilities in excess of the coverage provided by insurance, which liabilities may be imposed pursuant to the Texas “Dram Shop”“dram shop” statute or similar “Dram Shop”“dram shop” statutes or common law theories of liability in other states where we operate or expand. For example, the Texas “Dram Shop”“dram shop” statute provides a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person if it was apparent to the server that the individual being sold, served or provided with an alcoholic beverage was obviously intoxicated to the extent that he presented a clear danger to himself and others. An employer is not liable for the actions of its employee who over-serves if (i) the employer requires its employees to attend a seller training program approved by the TABC; (ii) the employee has actually attended such a training program; and (iii) the employer has not directly or indirectly encouraged the employee to violate the law. It is our policy to require that all servers of alcohol working at our clubs in Texas be certified as servers under a training program approved by the TABC, which certification gives statutory immunity to the sellers of alcohol from damage caused to third parties by those who have consumed alcoholic beverages at such establishment pursuant to the Texas Alcoholic Beverage Code.TABC. There can be no assurance, however, that uninsured liabilities may not arise in the markets in which we operate which could have a material adverse effect on the Company.

We are subject to increasing legal complexity and could be party to litigation that could adversely affect us.
Increasing legal complexity will continue to affect our operations and results. We could be subject to legal proceedings that may adversely affect our business, including class actions, administrative proceedings, government investigations, employment and personal injury claims, claims alleging violations of federal and state laws regarding consumer, workplace and employment matters, wage and hour claims, discrimination and similar matters, landlord/tenant disputes, disputes with current and former suppliers, claims by current and former franchisees, contractors, data privacy claims and intellectual property claims (including claims that we infringed upon another party’s trademarks, or copyrights). Inconsistent standards imposed by governmental authorities can adversely affect our business and increase our exposure to litigation which could result in significant judgments, including punitive and liquidated damages, and injunctive relief.
Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an illness or injury they suffered as a result of a visit to our restaurants, or that we have problems with food quality or operations. As a Company, we take responsible alcohol service seriously. However, we are subject to "dram shop" statutes. These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that served alcoholic beverages to the intoxicated person. Some litigation against restaurant chains has resulted in significant judgments, including punitive damages, under dram shop statutes. Because a plaintiff may seek punitive damages, which may not be covered by insurance, this type of action could have an adverse impact on our financial condition and results of operations.
Litigation involving our relationship with contractors and the legal distinction between our contractors and us for employment law purposes, if determined adversely, could increase costs, negatively impact the business prospects of our operations and subject us to incremental liability for their actions.
Our operating results could also be affected by the following:

•The relative level of our defense costs and nature and procedural status of pending proceedings;

•The cost and other effects of settlements, judgments or consent decrees, which may require us to make disclosures or to take other actions that may affect perceptions of our brands and products;

•Adverse results of pending or future litigation, including litigation challenging the composition and preparation of our products, or the appropriateness or accuracy of our marketing or other communication practices; and

•The scope and terms of insurance or indemnification protections that we may have (if any).
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time, attention and money away from our operations and hurt our performance. A judgment significantly in excess of any applicable insurance coverage could have significant adverse effect on our financial condition or results of operations. Further, adverse publicity resulting from these claims may hurt our business.
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Our previous liability insurer may be unable to provide coverage to us and our subsidiaries.

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 had insurance coverage under the liability policy with IIC. Currently, there are several civil lawsuits pending against the Company and its subsidiaries. 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 previously stated, since October 25, 2013, the Company obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date. WeAs of September 30, 2023, we have 81 remaining unresolved cases leftclaim out of the original 71 cases.

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claims.

The protection provided by our service marks is limited.

Our rights to the trade names “RCI Hospitality Holdings, Inc.,” “Rick’s,” “Rick’s Cabaret,” “Tootsie’s Cabaret,” “Club Onyx,” “XTC Cabaret,” “Temptations,” “Jaguars,” “Downtown Cabaret,” “Cabaret East,” “Bombshells Restaurant and Bar,” “Vee Lounge,” “Mile High Men’s Club,” “Country Rock Cabaret,” “PT’s,” and “Vee Lounge”“Diamond Cabaret” are established under common law, based upon our substantial and continuous use of these trade names in interstate commerce, some of which have been in use at least as early as 1987. We have registered our service mark, “RICK’S AND STARS DESIGN,” and the “BOMBSHELLS RESTAURANT & BAR” logo design with the United States Patent and Trademark Office. We have also obtained service mark registrations from the Patent and Trademark Office for “RICK’S AND STARS DESIGN” logo, “RCI HOSPITALITY HOLDINGS, INC.,” “RICKS,“RICK’S,” “RICK’S CABARET,” “CLUB ONYX,” “XTC CABARET,” “SCARLETT’S CABARET,” “SILVER CITY CABARET,” “BOMBSHELLS RESTAURANT AND BAR,” “THE SEVILLE CLUB,” “DOWN IN TEXAS SALOON,” “THE BLACK ORCHID,” “HOOPS CABARET,” “VEE LOUNGE,” “STUDIO 80,” “FOXY’S CABARET,” “CLUB DULCE”“EXOTIC DANCER,” “TOYS FOR TATAS,” “MILE HIGH MEN’S CLUB,” “MHMC logo,” “AFTER DARK,” “COUNTRY ROCK CABARET,” “PT’S,” “DIAMOND CABARET,” "CABARET ROYALE," BABY DOLLS SALOON," "BABY DOLLS TOPLESS SALOON," "BABY DOLLS," "JAGUARS," and “EXOTIC DANCER”BOMBSHELLS OFFICER’S CLUB are registered through service mark registrations issued by the United States Patent and Trademark Office. As of this date, we have pending registration applicationapplications for the name “TOOTSIE’S CABARET.names “TOOTSIES CABARET,” "RICK'S REWARDS," "VENICE CABARET," “CHERRY CREEK FOOD HALL AND BREWERY”, and “THE MANSION.” We also own the rights to numerous trade names associated with our media division. There can be no assurance that these steps we have taken to protect our service marks will be adequate to deter misappropriation of our protected intellectual property rights. Litigation may be necessary in the future to protect our rights from infringement, which may be costly and time consuming. The loss of the intellectual property rights owned or claimed by us could have a material adverse effect on our business.

Anti-takeover effects


17
Table of the issuance of our preferred stock could adversely affect our common stock.

Our Board of Directors has the authority to issue up to 1,000,000 shares of preferred stock in one or more series, to fix the number of shares constituting any such series, and to fix the rights and preferences of the shares constituting any series, without any further vote or action by the stockholders. The issuance of preferred stock by the Board of Directors could adversely affect the rights of the holders of our common stock. For example, such issuance could result in a class of securities outstanding that would have preferences with respect to voting rights and dividends and in liquidation over the common stock, and could (upon conversion or otherwise) enjoy all of the rights appurtenant to common stock. The Board’s authority to issue preferred stock could discourage potential takeover attempts and could delay or prevent a change in control of the Company through merger, tender offer, proxy contest or otherwise by making such attempts more difficult to achieve or costlier. There are no issued and outstanding shares of preferred stock; there are no agreements or understandings for the issuance of preferred stock; and the Board of Directors has no present intention to issue preferred stock.

Future sales or the perception of future sales of a substantial amount of our common stock may depress our stock price.

The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market, or as a result of the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of common stock.

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Contents

Our stock price has been volatile and may fluctuate in the future.

The trading price of our securities may fluctuate significantly. This price may be influenced by many factors, including:

●our performance and prospects;
●the depth and liquidity of the market for our securities;
●sales by selling shareholders of shares issued or issuable in connection with certain convertible notes;
●investor perception of us and the industry in which we operate;
●changes in earnings estimates or buy/sell recommendations by analysts;
●general financial and other market conditions; and
●domestic economic conditions.

Public stock markets have experienced, and may experience, extreme price and trading volume volatility. These broad market fluctuations may adversely affect the market price of our securities.

We are dependent on key personnel.

Our future success is dependent, in a large part, on retaining the services of Eric Langan, our President and Chief Executive Officer, and Bradley Chhay, our Chief Financial Officer. Mr. Langan possesses a unique and comprehensive knowledge of our industry. While Mr. Langan has no present plans to leave or retire in the near future, his loss could have a negative effect on our operating, marketing and financial performance if we are unable to find an adequate replacement with similar knowledge and experience within our industry. Mr. Chhay possesses thorough familiarity with our accounting system and how it affects our operations. Mr. Chhay is also vital in our due diligence efforts when acquiring clubs. We maintain key-man life insurance with respect to Mr. Langan.Langan but not for Mr. Chhay. Although Mr.Messrs. Langan is under anand Chhay have signed employment agreementagreements with us (as described herein), there can be no assurance that Mr. Langan or Mr. Chhay will continue to be employed by us.

Cumulative voting is

If we are not availableable to hire, develop, and retain qualified club and restaurant employees and/or appropriately plan our workforce, our growth plan and profitability could be adversely affected.
We rely on our restaurant- and club-level employees to consistently provide high-quality food and positive experiences to our stockholders.

Cumulative voting in the election of Directors is expressly deniedguests. In addition, our ability to continue to open new restaurants depends on us attracting, hiring, developing, and retaining high-quality managers. Maintaining appropriate staffing in our Articles of Incorporation. Accordingly,restaurants requires precise workforce planning, which planning has become more complex due to predictive scheduling laws (also called “fair workweek” or “secure scheduling”) and “just cause” termination legislation in certain geographic areas where we operate, and the holder or holders of a majority of the outstanding shares of our common stock may elect all of our Directors.

Our directorsso-called “great resignation” trend. The market for qualified talent continues to be competitive and officers have limited liability and have rights to indemnification.

Our Articles of Incorporation and Bylaws provide, as permitted by governing Texas law, that our directors and officers shall not be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director or officer, with certain exceptions. The Articles further providewe must ensure that we will indemnify our directorscontinue to offer competitive wages, benefits, and officers against expenses and liabilities they incurworkplace conditions to defend, settle, or satisfy any civil litigation or criminal action brought against them on account of their being or having been its directors or officers unless, in such action, they are adjudged toretain qualified employees. We have acted with gross negligence or willful misconduct.

The inclusion of these provisions in the Articles may have the effect of reducing the likelihood of derivative litigation against directors and officers,experienced and may discouragecontinue to experience challenges in hiring and retaining restaurant and club employees and in maintaining full restaurant and or deter stockholdersclub staffing in various locations, which has resulted in longer wait times for guest orders and potentially decreased employee satisfaction. A shortage of qualified candidates who meet all legal work authorization and training requirements, failure to hire and retain new restaurant or management from bringingclub employees in a lawsuit against directorstimely manner or higher than expected turnover levels could affect our ability to open new restaurants, grow sales at existing restaurants and officers for breach of their duty of care, even though such an action, if successful, might otherwise have benefited usclubs or meet our labor cost objectives. In addition, failure to adequately monitor and proactively respond to employee dissatisfaction could lead to poor guest satisfaction, higher turnover, litigation and unionization efforts, which could negatively impact our stockholders.

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ability to meet our growth targets.

The Articles provide for the indemnification of our officers and directors, and the advancement to them of expenses in connection with any proceedings and claims, to the fullest extent permitted by Texas law. The Articles include related provisions meant to facilitate the indemnitee’s receipt of such benefits. These provisions cover, among other things: (i) specification of the method of determining entitlement to indemnification and the selection of independent counsel that will in some cases make such determination, (ii) specification of certain time periods by which certain payments or determinations must be made and actions must be taken, and (iii) the establishment of certain presumptions in favor of an indemnitee.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

A failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business.

Food safety is a top priority, and we dedicate substantial resources to ensuring that our guests enjoy safe, quality food products. However, food safety issues could be caused at the point of source or by food suppliers or distributors and, as a result, be out of our control. In addition, regardless of the source or cause, any report of food-borne illnesses such as E. coli, hepatitis A, trichinosis or salmonella, and other food safety issues including food tampering or contamination, at one of our restaurants or clubs could adversely affect the reputation of our brands and have a negative impact on our sales. Even instances of food-borne illness, food tampering or food contamination occurring solely at restaurants of our competitors could result in negative publicity about the food service industry generally and adversely impact our sales. The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.

Recently enacted legislation

Our venture, expansion, and renovation projects may face significant inherent risks.
Investment in certain projects we may undertake will be subject to the many risks inherent in the expansion or renovation of an existing enterprise or construction of a new enterprise, including unanticipated design, construction, regulatory, environmental and operating problems and lack of demand for our projects.
Our current and future projects could also experience:
•delays and significant cost increases;
•delays in obtaining or inability to obtain necessary permits, licenses and approvals;
•lack of sufficient, or delays in the availability of, financing;
18
•shortages of materials;
•shortages of skilled labor, work stoppages or labor disputes;
•poor performance or nonperformance by any third parties on whom we place reliance;
•unforeseen construction scheduling, engineering, environmental, permitting, construction or geological problems, including defective plans and specifications;
•weather interference, floods, fires or other casualty losses; and
•COVID-19 related delays.
The completion dates of any of our projects could differ significantly affectfrom expectations for construction-related or other reasons. Actual costs and construction periods for any of our projects can differ significantly from initial expectations. Our initial project costs and construction periods are based upon budgets, conceptual design documents and construction schedule estimates prepared at inception of the project in consultation with architects and contractors. Many of these costs can increase over time as the project is built to completion.
We can provide no assurance that any project will be completed on time, if at all, or within established budgets, or that any project will result in increased earnings to us. Significant delays, cost overruns, or failures of our projects to achieve market acceptance could have a material adverse effect on our business, financial condition and results of operations, cash flows and financial condition.

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act contains significant changes to corporate taxation, including reduction of the corporate tax rate from 35% to 21%, additional limitations on the tax deductibility of interest, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modification or repeal of many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain, and our results of operations, cash flows and financial condition, as well as the trading price of our common stock, could be adversely affected.

operations.

Other risk factors may adversely affect our financial performance.

Other risk factors that could cause our actual results to differ materially from those indicated in the forward-looking statements by affecting, among many things, pricing, consumer spending and consumer confidence, include, without limitation, changes in economic conditions and financial and credit markets, credit availability, increased fuel costs and availability for our employees, customers and suppliers, health epidemics or pandemics or the prospects of these events (such as reports on avian flu)flu or COVID-19), consumer perceptions of food safety, changes in consumer tastes and behaviors, governmental monetary policies, changes in demographic trends, terrorist acts, energy shortages and rolling blackouts, and weather (including, major hurricanes and regional snow storms) and other acts of God.

We are also subject to the general risks of inflation, increases in minimum wage, health care, and other benefits that may have a material adverse effect on our cost structure, and the disruption in our supply chain caused by several factor, including the COVID-19 pandemic.
Risk related to our common stock
We must continue to meet NASDAQ Global Market Continued Listing Requirements, or we risk delisting.
Our securities are currently listed for trading on the NASDAQ Global Market. We must continue to satisfy NASDAQ’s continued listing requirements or risk delisting which would have an adverse effect on our business. If our securities are ever delisted from NASDAQ, they may trade on the over-the-counter market, which may be a less liquid market. In such case, our shareholders’ ability to trade or obtain quotations of the market value of shares of our common stock would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities.
We may be subject to allegations, defamations, or other detrimental conduct by third parties, which could harm our reputation and cause us to lose customers and/or contribute to a deflation of our stock price.
We have been subject to allegations by third parties or purported former employees, negative internet postings, and other adverse public exposure on our business, operations and staff compensation. We may also become the target of defamations or other detrimental conduct by third parties or disgruntled former or current employees. Such conduct may include complaints, anonymous or otherwise, to regulatory agencies, media or other organizations. We may be subject to government or regulatory investigation or other proceedings as a result of such third-party conduct and may be required to spend significant time and incur substantial costs to address such third-party conduct, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Any government or
19
regulatory investigations initiated as a result of the above may cause a deflation in our stock price. Additionally, allegations, directly or indirectly against us, may be posted on the internet, including social media platforms by anyone, whether or not related to us, on an anonymous basis. Any negative publicity on us or our management can be quickly and widely disseminated. Social media platforms and devices immediately publish the content of their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information posted may be inaccurate and adverse to us, and it may harm our reputation, business or prospects. The harm may be immediate without affording us an opportunity for redress or correction. Our reputation may be negatively affected as a result of the public dissemination of negative and potentially false information about our business and operations, which in turn may cause us to lose customers.
Our quarterly operating results may fluctuate and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
Our nightclub operations are affected by seasonal factors. Historically, we have experienced reduced revenues from April through September with the strongest operating results occurring from October through March. As a result, our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly as a result of seasonality and the factors discussed above. Accordingly, results for any one fiscal quarter are not necessarily indicative of results to be expected for any other fiscal quarter or for any fiscal year and same-store sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our common stock would likely decrease.
Anti-takeover effects of the issuance of our preferred stock could adversely affect our common stock.
Our board of directors has the authority to issue up to 1,000,000 shares of preferred stock in one or more series, to fix the number of shares constituting any such series, and to fix the rights and preferences of the shares constituting any series, without any further vote or action by the stockholders. The issuance of preferred stock by the board of directors could adversely affect the rights of the holders of our common stock. For example, such issuance could result in a class of securities outstanding that would have preferences with respect to voting rights and dividends and in liquidation over the common stock, and could (upon conversion or otherwise) enjoy all of the rights appurtenant to common stock. The Board’s authority to issue preferred stock could discourage potential takeover attempts and could delay or prevent a change in control of the Company through merger, tender offer, proxy contest or otherwise by making such attempts more difficult to achieve or costlier. There are no issued and outstanding shares of preferred stock; there are no agreements or understandings for the issuance of preferred stock; and the board of directors has no present intention to issue preferred stock.
Future sales or the perception of future sales of a substantial amount of our common stock may depress our stock price.
The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market, or as a result of the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of common stock.
Our stock price has been volatile and may fluctuate in the future.
The trading price of our securities may fluctuate significantly. This price may be influenced by many factors, including:
•our performance and prospects;
•the depth and liquidity of the market for our securities;
•investor perception of us and the industry in which we operate;
•changes in earnings estimates or buy/sell recommendations by analysts;
•general financial and other market conditions; and
•domestic economic conditions.
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Public stock markets have experienced, and may experience, extreme price and trading volume volatility. These broad market fluctuations may adversely affect the market price of our securities.
Cumulative voting is not available to our stockholders.
Cumulative voting in the election of Directors is expressly denied in our Articles of Incorporation. Accordingly, the holder or holders of a majority of the outstanding shares of our common stock may elect all of our Directors.
Our directors and officers have limited liability and have rights to indemnification.
Our Articles of Incorporation and Bylaws provide, as permitted by governing Texas law, that our directors and officers shall not be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director or officer, with certain exceptions. The Articles further provide that we will indemnify our directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil litigation or criminal action brought against them on account of their being or having been its directors or officers unless, in such action, they are adjudged to have acted with gross negligence or willful misconduct.
The inclusion of these provisions in the Articles may have the effect of reducing the likelihood of derivative litigation against directors and officers and may discourage or deter stockholders or management from bringing a lawsuit against directors and officers for breach of their duty of care, even though such an action, if successful, might otherwise have benefited us and our stockholders.
The Articles provide for the indemnification of our officers and directors, and the advancement to them of expenses in connection with any proceedings and claims, to the fullest extent permitted by Texas law. The Articles include related provisions meant to facilitate the indemnitee’s receipt of such benefits. These provisions cover, among other things: (i) specification of the method of determining entitlement to indemnification and the selection of independent counsel that will in some cases make such determination, (ii) specification of certain time periods by which certain payments or determinations must be made and actions must be taken, and (iii) the establishment of certain presumptions in favor of an indemnitee.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Item 1B. Unresolved Staff Comments.

None.

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Item 2. Properties.

We currentlyProperties.

As of September 30, 2023, we own 4688 real estate properties. On 3255 of these properties, we operate clubs or restaurants.restaurants, including those temporarily closed. We lease multiple other properties to third-party tenants. FourNine of our owned properties are in locations where we previously operated clubs or are adjacent to acquired clubs, but now lease the buildings to third parties. FourTwenty four are non-income producingnon-income-producing properties for corporate use including(including our corporate office. Three other properties are currently offered for sale. The remaining three properties are for two under constructionoffice) or future Bombshells sites and one adjacent property thatclub or restaurant locations, or may be offered for sale in the future. ThirteenFourteen of our clubs and restaurants are in leased locations.

Our principal corporate office is located at 10737 Cutten Road, Houston, Texas 77066, consisting of a 21,000-square foot corporate office and an 18,000-square foot warehouse facility.

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Below is a list of locations we operate:

Name of Establishment Year
Acquired/Opened
Club Onyx, Houston, TX  1995 
Rick’s Cabaret, Minneapolis, MN  1998 
XTC Cabaret, Austin, TX  1998 
XTC Cabaret, San Antonio, TX  1998 
XTC Cabaret, Houston, TX  2004(2)
Rick’s Cabaret, New York City, NY  2005 
Club Onyx, Charlotte, NC  2005(2)
Rick’s Cabaret, San Antonio, TX  2006 
XTC Cabaret, South Houston, TX  2006(2)
Rick’s Cabaret, Fort Worth, TX  2007 
Tootsie’s Cabaret, Miami Gardens, FL  2008 
XTC Cabaret, Dallas, TX  2008 
Club Onyx, Dallas, TX  2008 
Club Onyx, Philadelphia, PA  2008 
Rick’s Cabaret, Round Rock, TX  2009 
Cabaret East, Fort Worth, TX  2010 
Rick’s Cabaret DFW, Fort Worth, TX  2011 
Downtown Cabaret, Minneapolis, MN  2011 
Temptations, Aledo, TX  2011(2)
Silver City Cabaret, Dallas, TX  2012 
Jaguars Club, Odessa, TX  2012 
Jaguars Club, Phoenix, AZ  2012 
Jaguars Club, Lubbock, TX  2012 
Jaguars Club, Longview, TX  2012 
Jaguars Club, Tye, TX  2012 
Jaguars Club, Edinburg, TX  2012 
Jaguars Club, El Paso, TX  2012 
Jaguars Club, Harlingen, TX  2012 
Studio 80, Fort Worth, TX  2013(2)
Bombshells, Dallas, TX  2013 
Temptations, Sulphur, LA  2013 
Temptations, Beaumont, TX  2013 
Vivid Cabaret, New York, NY  2014(2)
Bombshells, Austin, TX  2014(2)
Rick’s Cabaret, Odessa, TX  2014 
Bombshells, Spring TX  2014(2)
Bombshells, Houston, TX  2014(2)
Foxy’s Cabaret, Austin TX  2015 
The Seville, Minneapolis, MN  2015 
Hoops Cabaret and Sports Bar, New York, NY  2016(2)
Studio 80, Webster, TX  2017(1)(2)
Bombshells, Highway 290 Houston, TX  2017(2)
Scarlett’s Cabaret, Washington Park, IL  2017 
Scarlett’s Cabaret, Miami, FL  2017(2)
Hollywood Hunt Club, Centerville, IL  2017 

operated as of September 30, 2023:

Name of EstablishmentFiscal Year Acquired/Opened
Club Onyx, Houston, TX1995
Rick’s Cabaret, Minneapolis, MN1998
XTC Cabaret, Austin, TX1998
Scarlett's Cabaret, San Antonio, TX1998
Rick’s Cabaret, New York City, NY2005
Club Onyx, Charlotte, NC2005(1)
Jaguars Club, San Antonio, TX2006

Rick’s Cabaret, Fort Worth, TX2007
Tootsie’s Cabaret, Miami Gardens, FL2008
XTC Cabaret, Dallas, TX2008
Rick’s Cabaret, Round Rock, TX2009
Cabaret East, Fort Worth, TX2010
Rick’s Cabaret DFW, Fort Worth, TX2011
Downtown Cabaret, Minneapolis, MN2011
Silver City Cabaret, Dallas, TX2012
Jaguars Club, Odessa, TX2012
Jaguars Club, Phoenix, AZ2012
Jaguars Club, Longview, TX2012
Jaguars Club, Tye, TX2012
Jaguars Club, Edinburg, TX2012
Jaguars Club, El Paso, TX2012
Jaguars Club, Harlingen, TX2012
Studio 80, Fort Worth, TX2013(1)
Bombshells, Dallas, TX2013
Scarlett's Cabaret, Sulphur, LA2013
Temptations, Beaumont, TX2013
Vivid Cabaret, New York, NY2014(1)
Bombshells, Austin, TX2014(1)
Rick’s Cabaret, Odessa, TX2014
Bombshells, Spring, TX2014(1)
Bombshells Fuqua, Houston, TX2014(1)
Foxy’s Cabaret, Austin TX2015
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The Seville, Minneapolis, MN2015
Hoops Cabaret and Sports Bar, New York, NY2016(1)
Bombshells, Highway 290 Houston, TX2017(1)
Scarlett’s Cabaret, Washington Park, IL2017
Scarlett’s Cabaret, Miami, FL2017
Bombshells, Pearland, TX2018
Kappa Men’s Club, Kappa, IL2018
Rick’s Cabaret, Chicago, IL2019
Rick’s Cabaret, Pittsburgh, PA2019
Bombshells I-10, Houston, TX2019
Bombshells 249, Houston, TX2019
Bombshells, Katy, TX2020
Bombshells 59, Houston, TX2020
Diamond Cabaret, Denver, CO2022(1)
Scarlett's Cabaret, Denver, CO2022
PT's Showclub, Denver, CO2022
Rick's Cabaret, Denver, CO2022(1)
Diamond Cabaret, St. Louis, IL2022(1)
Country Rock Cabaret, St. Louis, IL2022(1)
PT's Showclub, Indianapolis, IN2022
Rick's Cabaret, Raleigh, NC2022(1)
Rick's Cabaret, Portland, ME2022
PT's Showclub, Louisville, KY2022
PT's Centerfold, Denver, CO2022
Mansion Gentlemen's Club & Steakhouse, Newburgh, NY2022
Bombshells, Arlington, TX2022
Playmates Club, Miami, FL2022
Cheetah Gentlemen's Club, Miami, FL2022
PT's Showclub, Odessa, TX2022
Heartbreakers Gentlemen's Club, Dickinson, TX2023
Cherry Creek Food Hall, Denver, CO2023
Bombshells, San Antonio, TX2023(1)
Baby Dolls, Dallas, TX2023
Chicas Locas, Dallas, TX2023
Chicas Locas, Arlington, TX2023
Chicas Locas, Houston, TX2023
Baby Dolls, Fort Worth, TX2023
(1) Reconcepted in 2017.

(2) Leased location.

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Our property leases are typically for a fixed rental rate without revenue percentage rentals.with contingent rent for certain locations. The lease terms generally have initial terms of 10 to 20 years with renewal terms of 5 to 20 years. At September 30, 2017,2023, certain of our ownedthe properties we own were collateral for mortgage debt amounting to approximately $74.8$136.1 million. Also, see moreWe believe that our existing facilities, both owned and leased, are in good condition and adequate and suitable for the conduct of our business.

See related information in Notes 5 8 and 118 to our consolidated financial statements.

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Item 3. Legal Proceedings.

See the “Legal Matters”“Legal Matters” section within Note 1110 to our consolidated financial statements within this Annual Report on Form 10-K for the requirements of this Item, which section is incorporated herein by reference.

Item 4. Mine Safety Disclosures.

Not applicable.

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24

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is quoted on the NASDAQ Global Market under the symbol “RICK.” The following table sets forth the quarterly high and low of sales prices per share for the common stock for the last two fiscal years.

COMMON STOCK PRICE RANGE High  Low 
       
Fiscal Year Ended September 30, 2017        
First Quarter $17.99  $10.92 
Second Quarter $18.00  $16.02 
Third Quarter $25.47  $16.32 
Fourth Quarter $26.85  $21.91 
         
Fiscal Year Ended September 30, 2016        
First Quarter $10.75  $9.38 
Second Quarter $9.94  $7.50 
Third Quarter $11.10  $8.77 
Fourth Quarter $11.60  $9.90 

Holders
On January 31, 2018,December 8, 2023, the closing stock price for our common stock as reported by NASDAQ was $29.38. On January 31, 2018,$62.30, and there were approximately 164120 stockholders of record of our common stock (excluding broker held shares in “street name”). WeCurrently, we estimate that there are approximately 6,50012,900 stockholders having beneficial ownership in street name.

TRANSFER AGENT AND REGISTRAR

Transfer Agent and Registrar
The transfer agent and registrar for our common stock is AmericanColonial Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, New York 11219.

DIVIDEND POLICY

Inc., 66 Exchange Place, 1st Floor, Salt Lake City, Utah 84111.

Dividend Policy
Prior to 2016, we havehad not paid cash dividends on our common stock. Starting in March 2016, in conjunction with our share buyback program (see discussion below), our Boardboard of Directors hasdirectors declared regular quarterly cash dividends of $0.03 per share, ($0.12except for the fourth quarter of fiscal 2019, the second and fourth quarters of fiscal 2020, all four quarters of fiscal 2021, and the first quarter of fiscal 2022 when we paid $0.04 per share on an annual basis). share. In the second quarter of fiscal 2022, we increased our regular quarterly dividends to $0.05 per share. In the second quarter of 2023, we increased our regular quarterly dividends to $0.06 per share.
During fiscal 20172023, 2022, and 2016,2021, we paid an aggregate amount of $1.2cash dividends totaling $2.1 million, $1.8 million, and $862,000, respectively, for cash dividends.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER

During$1.4 million, respectively.

Purchases of Equity Securities by the fiscal year ended September 30, 2017, we purchased a total of 89,685 shares of common stock in the open market at prices ranging from $11.24 to $13.87. As of September 30, 2017, we have $3.1 million remaining to purchase additional shares.

We did notIssuer

Our share repurchase shares of the Company’s common stockactivity during the three months ended September 30, 2017.

 19
2023 was as follows:

PeriodTotal Number of Shares (or Units) Purchased
Average Price Paid per Share (or Unit)(1)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(2)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs
July 1-31, 20238,870 $69.47 8,870 $18,150,893 
August 1-31, 20239,922 $66.16 9,922 $17,494,464 
September 1-30, 202313,794 $61.85 13,794 $16,641,326 
32,586 32,586 

EQUITY COMPENSATION PLAN INFORMATION

We have no

(1)    Prices include any commissions and transaction costs.
(2)    All shares were purchased pursuant to the repurchase plans approved by the board of directors as disclosed in our most recent Annual Report on Form 10-K.

25
Equity Compensation Plan Information
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 nor any other equity award outstandingor 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 equity compensation plans asthe 2022 Plan. On February 9, 2022, the board of September 30, 2017.

STOCK PERFORMANCE GRAPH

directors approved a grant of 50,000 stock options each to six members of management subject to the approval of the 2022 Plan.

See Note 11 to our consolidated financial statements for details.

26
Stock Performance Graph
The following chart compares the 5-yearfive-year cumulative total stock performance of our common stock; the NASDAQ Composite Index (IXIC); the Russell 2000 Index (RUT); and the Dow Jones U.S. Restaurant & Bar Index (DJUSRU), our peer index. The graph assumes a hypothetical investment of $100 on September 30, 20122018 in each of our common stock and each of the indices, and that all dividends were reinvested. The measurement points utilized in the graph consist of the last trading day as of September 30 each year, representing the last day of our fiscal year. The calculations exclude trading commissions and taxes. We have selected the Dow Jones U.S. Restaurant & Bar Index as our peer index since it represents a broader group of restaurant and bar operators that are more aligned to our core business operations. RICK is a component of both the NASDAQ Composite Index and the Russell 2000 Index. The historical stock performance presented below is not intended to and may not be indicative of future stock performance.

 

 20

Picture1.jpg

9/30/20189/30/20199/30/20209/30/20219/30/20229/30/2023
RCI Hospitality Holdings, Inc.$100.00 $69.81 $69.03 $232.06 $220.21 $204.59 
NASDAQ Composite Index$100.00 $99.42 $138.79 $179.57 $131.43 $164.29 
Dow Jones U.S. Restaurant & Bar Index$100.00 $130.41 $132.11 $161.94 $139.22 $158.58 
Russell 2000 Index$100.00 $89.79 $88.87 $129.93 $98.12 $105.22 
Item 6. Selected Financial Data.

The following tables set forth certain[Reserved]

27
Table of the Company’s historical financial data. The selected historical consolidated financial position data as of September 30, 2017 and 2016 and results of operations data for the years ended September 30, 2017, 2016 and 2015 have been derived from the Company’s audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The selected historical consolidated financial data as of September 30, 2015, 2014 and 2013 and for the years ended September 30, 2014 and 2013 have been derived from the Company’s audited financial statements for such years, as revised (see footnote 3 below), which are not included in this Annual Report on Form 10-K. The selected historical consolidated financial data set forth are not necessarily indicative of the results of future operations and should be read in conjunction with the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical consolidated financial statements and accompanying notes included herein. The historical results are not necessarily indicative of the results to be expected in any future period.

Please read the following selected consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K for a discussion of information that will enhance understanding of these data (in thousands, except per share data and percentages).

Financial Statement Data:

  Years Ended September 30, 
  2017  2016  2015  2014  2013 
Revenue(1) $144,896  $134,860  $135,449  $121,432  $105,921 
Income from operations(3) $23,139  $20,693  $20,727  $18,875  $21,883 
Net income attributable to RCIHH(3) $8,259  $11,218  $

9,214

  $11,161  $9,191 
Diluted earnings per share $0.85  $1.11  $0.89  $1.13  $0.96 
Capital expenditures $11,249  $28,148  $19,259  $16,034  $9,675 
Dividends declared per share $0.12  $0.09  $-  $-  $- 

  September 30, 
  2017  2016  2015  2014  2013 
Cash and cash equivalents $9,922  $11,327  $8,020  $9,964  $10,638 
Total current assets(3) $26,242  $29,387  $16,935  $17,973  $16,042 
Total assets(3) $299,884  $276,061  $266,527  $233,383  $218,242 
Total current liabilities (excluding current portion of long-term debt)(3) $13,671  $17,087  $15,580  $28,527  $20,083 
Long-term debt (including current portion) $124,352  $105,886  $94,349  $70,092  $78,352 
Total liabilities(3) $164,659  $146,722  $138,973  $120,918  $121,127 
Total RCIHH stockholders’ equity(3) $132,745  $126,755  $121,691  $109,455  $93,781 
Common shares outstanding  9,719   9,808   10,285   10,067   9,504 

Non-GAAP Measures and Other Data:

  Years Ended September 30, 
  2017  2016  2015  2014  2013 
Adjusted EBITDA(2) $37,348  $34,531  $34,125  $31,703  $27,733 
Non-GAAP operating income(2)(3) $30,668  $27,566  $27,974  $25,762  $23,864 
Non-GAAP operating margin(2)(3)  21.2%  20.4%  20.7%  21.2%  22.5%
Non-GAAP net income(2)(3) $13,953  $13,302  $13,873  $11,882  $10,780 
Non-GAAP diluted net income per share(2)(3) $1.43  $1.32  $1.34  $1.19  $1.13 
Free cash flow(2) $19,281  $20,513  $14,889  $18,734  $17,153 
Same-store sales  4.9%  -1.3%  -1.5%  2.8%  -1.2%

 21
Contents

(1)Due to a change in accounting policy, we have reported revenues net of sales taxes and other revenue related taxes since the beginning of fiscal 2016. Prior year revenues and expenses have been revised to reflect this change. Refer to Note 2 to the consolidated financial statements for further discussion.
(2)Reconciliation and discussion of non-GAAP financial measures are included under the “Non-GAAP Financial Measures” section of Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that follows. See also notes on comparability of adjustment items at the end of this section. These measures should be considered in addition to, rather than as a substitute for, U.S. GAAP measures.
(3)

We revised the financial statements for the years ended September 30, 2016, 2015 and 2014 due to misstatements that could have been material if corrected cumulatively in the current year. See Note 3 to the consolidated financial statements for details.

 22

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand RCI Hospitality Holdings, Inc., our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto contained in Item 8 – “Financial Statements and Supplementary Data” of this report. This overview summarizes the MD&A, which includes the following sections:

●Our Business — a general description of our business and the adult nightclub industry, our objective, our strategic priorities, our core capabilities, and challenges and risks of our business.
●Critical Accounting Policies and Estimates — a discussion of accounting policies that require critical judgments and estimates.
●Operations Review — an analysis of our Company’s consolidated results of operations for the three years presented in our consolidated financial statements.
●Liquidity and Capital Resources — an analysis of cash flows, aggregate contractual obligations, and an overview of financial position.

•Our Business — a general description of our business and the adult nightclub industry, our objective, our strategic priorities, our core capabilities, and challenges and risks of our business.
•Critical Accounting Policies and Estimates — a discussion of accounting policies that require critical judgments and estimates.
•Operations Review — an analysis of our Company’s consolidated results of operations for the three years presented in our consolidated financial statements.
•Liquidity and Capital Resources — an analysis of cash flows, aggregate contractual obligations, and an overview of financial position.
OUR BUSINESS

The following are our operating segments:

Nightclubs
NightclubsOur wholly-owned subsidiaries own and/or operate upscale adult nightclubs serving primarily businessmen and professionals. These nightclubs are in Houston, Austin, San Antonio, Dallas, Fort Worth, Beaumont, Longview, Harlingen, Edinburg, Tye, Lubbock, Round Rock, El Paso and Odessa, Texas; Denver, Colorado; Charlotte and Raleigh, North Carolina; Minneapolis, Minnesota; New York and Newburgh, New York; Miami Gardens, and Pembroke Park and Miami, Florida; Philadelphia,Pittsburgh, Pennsylvania; Phoenix, Arizona; Louisville, Kentucky; Portland, Maine; Indianapolis, Indiana; and Washington Park, Kappa, Sauget and Chicago, Illinois. No sexual contact is permitted at any of our locations. We also own and operate a Studio 80 dance clubsclub in Fort Worth, Texas. We also own and Webster, Texas.lease to third parties real properties that are adjacent to (or used to be locations of) our clubs.
BombshellsOur wholly-owned subsidiaries own and operate non-adult nightclubs, restaurants and sports bars in Houston, Dallas, Austin, Spring, Pearland, Tomball, Katy, Arlington, and Spring,San Antonio, Texas under the brand name Bombshells Restaurant & Bar. Bombshells also operates a food hall in Denver, Colorado.
Media GroupOtherOur wholly-owned subsidiaries own a media division (“Media Group”), including the leading trade magazine serving the multibillion-dollar adult nightclubs industry and the adult retail products industry. We also own an industry trade show, an industry trade publication and more than a dozen industry and social media websites. Included here is Drink Robust, which is licensed to sell Robust Energy Drink in the United States.

Our

We generate our revenues are derived from the sale of liquor, beer, wine, food, merchandise,and merchandise; service revenues such as cover charges, membership fees, and facility use fees,fees; and other revenues such as commissions from vending and ATM machines, real estate rental, valet parking, and other products and services for both nightclub and restaurant/sports bar operations. Other revenues include Media Group revenues includefor the sale of advertising content and revenues from our annual Expo convention.convention, and Drink Robust sales. Our fiscal year-end is September 30.

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28

Same-Store Sales.We calculate same-store sales by comparing year-over-year revenues from nightclubs and restaurants/sports bars operatingstarting in the first full quarter of operations after at least 12 full months.months for Nightclubs and at least 18 full months for Bombshells. We consider the first six months of operations of a Bombshells unit to be the “honeymoon period” where sales are significantly higher than normal. We exclude from a particular month’s calculation units previously included in the same-store sales base that have closed temporarily for more than 15 days until its next full monthquarter of operations. We also exclude from the same-store sales base units that are being reconcepted or are closed due to renovations or remodels. Acquired units are included in the same-store sales calculation as long as they qualify based on the definitiondefinitions stated above. Revenues outside of our Nightclubs and Bombshells reportable segmentssegments’ core business are excluded from same-store sales calculation.

Our goal is to use our Company’s assets—our brands, financial strength, and the talent and strong commitment of our management and associates—employees—to become more competitive and to accelerate growth in a manner that creates value for our shareholders.

growth.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires our management to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are based on management’s historical and industry experience and on various other assumptions that are believed to be reasonable under the circumstances. On a regular basis, we evaluate these accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results may differ from our estimates, and such differences could be material.

A full discussion of our significant accounting policies is contained in Note 2 to our consolidated financial statements, which is included in Item 8 – “Financial Statements and Supplementary Data” of this report. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our financial results. These estimates require our most difficult, subjective or complex judgments because they relate to matters that are inherently uncertain. We have reviewed these critical accounting policies and estimates and related disclosures with our Audit Committee.

Impairment of Long-Lived Assets

We review long-lived assets, such as property and equipment, and intangible assets subject to amortization, 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. Key estimates in the undiscounted cash flow model include management’s estimate of the projected revenues and operating margins. If fair value is used to determine an impairment loss, an additional key assumption is the selection of a weighted-average cost of capital to discount cash flows. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. During the fourththird quarter of fiscal 2017,2023, we impaired one clubproperty for $58,000 for its property and equipment and $1.0 million for its operating lease right-of-use asset before the club's permanent closure. During the third quarter of 2022, we impaired two properties for a total of $1.0 million one due to eminent domain by $385,000,the state of Texas and the other due to underperformance. During the second quarter of 2021, we impaired one property that was reclassified to assets held for sale for $1.4 million, and during the fourth quarter of fiscal 2016,2021, we impaired one property heldfour clubs for sale by $1.4 million.

Investment

$584,000. During the fourth quarter of fiscal 2017,2023, we also fully impaired our remaining investment in Drink Robustrecognized software impairments amounting to $1.2 million.

$814,000 related to two venture projects.


29
Goodwill and Other Intangible Assets

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.

 24

Our impairment calculations require management to make assumptions and to apply judgment in order to estimate fair values. If our actual results are not consistent with our estimates and assumptions, we may be exposed to impairments that could be material. We do not believe that there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to calculatethat could cause a material change in our calculated impairment charges.

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 earnings multiples, discounted cash flows and comparable asset market values. As detailed within Note 2Key estimates in the discounted cash flow model include management’s estimate of our consolidated financial statements, we adopted ASU 2017-04,Intangibles – Goodwillthe projected revenues and Other (Topic 350): Simplifyingoperating margins, along with the Test for Goodwill Impairment, during Q4selection of 2017, and accordingly, wea weighted-average cost of capital to discount cash flows. 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, 2017,2023, we identified four reporting units that were impaired and recognized a total goodwill impairment of $4.2 million. For the year ended September 30, 2022, we identified one reporting unit that was impaired and recognized a goodwill impairment loss of $566,000. For the year ended September 30, 2021, we identified seven reporting units that were impaired and recognized a goodwill impairment loss totaling $4.7$6.3 million.

For indefinite-livedindefinite- and definite-lived intangibles, specifically SOB licenses, we determine fair value by estimating the multiperiod excess earnings of the asset.asset with key assumptions being similar to those used in the goodwill impairment valuation model. 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 $1.4$6.5 million for 2017, $2.1 million for 2016 and $1.7 million for 2015,in 2023 related to twoeight clubs, $293,000 in 2017,2022 related to one club, and $5.3 million in 20162021 related to three clubs.
Business Combinations
The Company accounts for business combinations under the acquisition method of accounting, which requires the recognition of acquired tangible and two clubsidentifiable intangible assets and assumed liabilities at their acquisition date fair values. These fair values are a result of valuation techniques that use significant assumptions that are subject to a high degree of judgment. 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.
Stock-based Compensation
We recognize expense for stock-based compensation awards, which is equal to the fair value of the awards at grant date, ratably in 2015.

selling, general and administrative expenses in our consolidated statements of income over their requisite service period. Calculating the grant date fair value of stock-based compensation awards requires the input of subjective assumptions. We determine the fair value of each stock option grant using the Black-Scholes option-pricing model with assumptions based primarily on historical data. Specific inputs to the model include the expected term of the stock options, stock price volatility, dividend yield, and risk-free interest rate.

We used our historical exercise and post-vesting expiration behavior of grantees on stock options awarded prior to the 2022 Plan which may not be reflective of current stock market environment and current mix of grantees. We estimated expected volatility based on historical volatility of the Company's stock price for a period equal to the award's expected term. We estimated expected dividend yield 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.
30
Income Taxes

We estimate certain components of our provision for income taxes.taxes including the recoverability of deferred tax assets that arise from temporary differences between the tax and book carrying amounts of existing assets and liabilities and their respective tax bases. These estimates include depreciation and amortization expense allowable for tax purposes, allowable tax credits for items such as taxes paid on employee tip income, effective rates for state and local income taxes, and the deductibility of certain other items, among others. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available.

On December 22, 2017, the Tax Act was signed into law. The Tax Act contains significant changes When necessary, we record a valuation allowance to corporate taxation, including reduction of the corporatereduce deferred tax rate from 35%assets to 21%, additional limitations on the tax deductibility of interest, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modification or repeal of many business deductions and credits. Our annual effective tax rate willa balance that is more likely than not to be adjusted in our first quarter ended December 31, 2017, the period when the Tax Act has been enacted.

realized.

Legal and Other Contingencies

As mentioned in Item 3 – “Legal Proceedings” and in a more detailed discussion in Note 1110 to our consolidated financial statements, we are involved in various suits and claims in the normal course of business. We record 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. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

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In matters where there is insurance coverage, in the event we incur any liability, we believe it is unlikely we would incur losses in connection with these claims in excess of our insurance coverage.

31

OPERATIONS REVIEW

Highlights of operations from fiscal 2023, 2022, and 2021 are as follows (in thousands, except percentages and per share amounts):
2023Inc (Dec)2022Inc (Dec)2021
Revenues
Consolidated$293,790 9.8 %$267,620 37.1 %$195,258 
Nightclubs$236,748 14.8 %$206,251 50.2 %$137,348 
Bombshells$55,723 (7.0)%$59,925 5.8 %$56,621 
Same-store sales
Consolidated-6.0 %+5.6 %
Nightclubs-3.5 %+10.1 %
Bombshells-14.6 %-4.6 %
Income from operations
Consolidated$51,484 (28.0)%$71,459 85.4 %$38,548 
Nightclubs$73,187 (11.6)%$82,798 89.0 %$43,815 
Bombshells$6,502 (43.5)%$11,504 (13.3)%$13,264 
Diluted earnings per share$3.13 $4.91 $3.37 
Net cash provided by operating activities$59,130 (8.3)%$64,509 53.6 %$41,991 
Free cash flow*$53,176 (9.7)%$58,911 63.3 %$36,084 
*Reconciliation and discussion of non-GAAP financial measures are included under the “Non-GAAP Financial Measures” section of this Item. These measures should be considered in addition to, rather than as a substitute for, U.S. GAAP measures.
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The following common size tables present a comparison of our results of operations as a percentage of total revenues for the past three most recently completed fiscal years:

  2017  2016  2015 
Sales of alcoholic beverages  41.7%  42.4%  41.2%
Sales of food and merchandise  12.6%  13.3%  13.8%
Service revenues  40.1%  38.0%  39.1%
Other  5.6%  6.3%  5.8%
Total revenues  100.0%  100.0%  100.0%
             
Cost of goods sold            
Alcoholic beverages  21.7%  22.1%  21.6%
Food and merchandise  40.5%  38.0%  39.9%
Service and other  0.3%  1.9%  1.3%
Total cost of goods sold (exclusive of items shown separately below)  14.3%  15.2%  15.0%
Salaries and wages  27.6%  27.8%  27.9%
Selling, general and administrative  32.3%  31.9%  32.2%
Depreciation and amortization  4.8%  5.4%  5.2%
Other charges  5.0%  4.3%  4.5%
Total operating expenses  84.0%  84.7%  84.7%
Income from operations  16.0%  15.3%  15.3%
             
Interest expense  -6.0%  -5.9%  -5.1%
Interest income  0.2%  0.1%  0.0%
Non-operating gains  0.0%  0.0%  0.2%
Income before income taxes  10.1%  9.5%  10.3%
Income taxes  4.4%  1.8%  3.8%
Net income  5.7%  7.8%  6.6%

*

202320222021
Revenues
Sales of alcoholic beverages43.3 %42.3 %44.4 %
Sales of food and merchandise14.9 %16.6 %21.1 %
Service revenues35.3 %35.1 %28.4 %
Other6.5 %6.0 %6.1 %
Total revenues100.0 %100.0 %100.0 %
Operating expenses
Cost of goods sold
Alcoholic beverages sold18.3 %17.8 %18.3 %
Food and merchandise sold35.1 %35.1 %33.6 %
Service and other0.2 %0.3 %0.6 %
Total cost of goods sold (exclusive of items shown separately below)13.3 %13.5 %15.4 %
Salaries and wages27.1 %25.6 %25.9 %
Selling, general and administrative31.7 %29.5 %28.0 %
Depreciation and amortization5.2 %4.6 %4.2 %
Other charges, net5.3 %0.2 %6.8 %
Total operating expenses82.5 %73.3 %80.3 %
Income from operations17.5 %26.7 %19.7 %
Other income (expenses)
Interest expense(5.4)%(4.5)%(5.1)%
Interest income0.1 %0.2 %0.1 %
Non-operating gains, net— %0.1 %2.7 %
Income before income taxes12.2 %22.5 %17.5 %
Income tax expense2.3 %5.3 %2.0 %
Net income9.9 %17.2 %15.4 %
†Percentages may not foot due to rounding.rounding in this and in all of the succeeding tables presenting percentages in this report. Percentage of revenue for individual cost of goods sold items pertains to their respective revenue line.

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33

We have revised prior year financial statements to correct certain misstatements that could have a material impact if corrected cumulatively in the current year. See Note 3 to the consolidated financial statements for details.

Below is a table presenting the changes in each line item of the income statement for the last three fiscal years (dollar amounts in thousands)

  Increase (Decrease) 
  2017 vs. 2016  2016 vs. 2015 
  Amount  %  Amount  % 
Sales of alcoholic beverages $3,223   5.6% $1,387   2.5%
Sales of food and merchandise  356   2.0%  (813)  -4.3%
Service revenues  6,856   13.4%  (1,738)  -3.3%
Other  (399)  -4.7%  575   7.3%
Total revenues  10,036   7.4%  (589)  -0.4%
                 
Cost of goods sold                
Alcoholic beverages  490   3.9%  588   4.9%
Food and merchandise  588   8.6%  (657)  -8.8%
Service and other  (903)  -81.2%  298   36.6%
Total cost of goods sold (exclusive of items shown separately below)  175   0.9%  229   1.1%
Salaries and wages  2,572   6.9%  (275)  -0.7%
Selling, general and administrative  3,700   8.6%  (523)  -1.2%
Depreciation and amortization  (408)  -5.6%  283   4.0%
Other charges, net  1,551   26.9%  (269)  -4.5%
Total operating expenses  7,590   6.6%  (555)  -0.5%
Income from operations  2,446   11.8%  (34)  -0.2%
                 
Interest expense  (782)  9.8%  (1,013)  14.5%
Interest income  135   103.1%  116   773.3%
Non-operating gains  -   0.0%  (229)  -100.0%
Income before income taxes  1,799   14.0%  (1,160)  -8.3%
Income taxes  3,986   168.0%  (2,738)  -53.6%
Net income $(2,187)  -20.9% $1,578   

17.7

%

Better (Worse)
2023 vs. 20222022 vs. 2021
Amount%Amount%
Revenues
Sales of alcoholic beverages$13,946 12.3 %$26,631 30.7 %
Sales of food and merchandise(388)(0.9)%3,183 7.7 %
Service revenues9,689 10.3 %38,427 69.3 %
Other2,923 18.1 %4,121 34.3 %
Total revenues26,170 9.8 %72,362 37.1 %
Operating expenses
Cost of goods sold
Alcoholic beverages sold(3,136)(15.6)%(4,272)(26.9)%
Food and merchandise sold108 0.7 %(1,743)(12.6)%
Service and other35 11.0 %57 15.2 %
Total cost of goods sold (exclusive of items shown separately below)(2,993)(8.3)%(5,958)(19.8)%
Salaries and wages(11,053)(16.1)%(17,820)(35.2)%
Selling, general and administrative(14,177)(18.0)%(24,239)(44.4)%
Depreciation and amortization(2,760)(22.3)%(4,153)(50.4)%
Other charges, net(15,162)(3,246.7)%12,719 96.5 %
Total operating expenses(46,145)(23.5)%(39,451)(25.2)%
Income from operations(19,975)(28.0)%32,911 85.4 %
Other income/expenses
Interest expense(3,976)(33.3)%(1,958)(19.6)%
Interest income(23)(5.6)%158 62.5 %
Non-operating gains/losses, net(211)(100.0)%(5,119)*
Income/loss before income taxes(24,185)(40.2)%25,992 76.1 %
Income tax expense/benefit7,225 51.3 %(10,082)*
Net income/loss$(16,960)(36.8)%$15,910 *
*Not meaningful.
Revenues

Our total consolidated

Consolidated revenues for fiscal 2017 amounted to $144.9 million compared to $134.9 million for fiscal 2016 and $135.4 million for fiscal 2015. The increase of $10.0increased by $26.2 million, or 7.4%9.8%, from 20162022 to 2017 was primarily2023 due to 7.4% increase in new or reconceptedmainly from newly acquired locations and the impact of the 4.9% full year increase in same-store sales, partially offset by a 3.8% decrease from closed locations and a minimal decrease from other revenue items. The $589,000, or 0.4%, decrease from 2015 to 2016 was primarily due to the impact of the 1.3% decrease in same-store sales partially offsetand a sales decrease from locations closed in 2023. From 2021 to 2022, consolidated revenues increased by an increase$72.4 million, or 37.1%, due to increases in rental incomesame-store sales, newly acquired and saleconstructed locations, and from locations closed in 2021 and reopened in 2022.

34

By reportable segment,Segment contribution to total revenues werewas as follows (in(dollar amounts in thousands):

  2017  2016  2015 
Business segment revenues:            
Nightclubs $124,687  $113,941  $115,493 
Bombshells  18,830   18,690   17,639 
Other  1,379   2,229   2,317 
  $144,896  $134,860  $135,449 

2023Inc (Dec)2022Inc (Dec)2021
Nightclubs
Sales of alcoholic beverages$96,325 20.4 %$80,001 47.3 %$54,305 
Sales of food and merchandise19,995 9.3 %18,289 6.2 %17,221 
Service revenues103,217 10.4 %93,481 69.5 %55,146 
Other revenues17,211 18.9 %14,480 35.6 %10,676 
236,748 14.8 %206,251 50.2 %137,348 
Bombshells
Sales of alcoholic beverages30,937 (7.1)%33,315 2.9 %32,380 
Sales of food and merchandise23,911 (8.1)%26,005 8.9 %23,890 
Service revenues360 (11.5)%407 29.2 %315 
Other revenues515 160.1 %198 450.0 %36 
55,723 (7.0)%59,925 5.8 %56,621 
Other
Other revenues1,319 (8.7)%1,444 12.0 %1,289 
$293,790 9.8 %$267,620 37.1 %$195,258 
Nightclubs segment revenues.Nightclubs revenues increased by 9.4%14.8% from 20162022 to 2017, while decreasing2023 and by 1.3%50.2% from 20152021 to 2016. A breakdown of2022, as explained below.
2023 vs. 20222022 vs. 2021
Impact of 3.5% decrease and 10.1% increase in same-store sales, respectively, to total revenues(3.2)%9.5 %
Newly acquired units18.4 %30.5 %
Closed units(0.4)%10.1 %
Other— %0.1 %
14.8 %50.2 %
Nightclubs segment sales mix for the changes is as follows:

  2017 vs. 2016  2016 vs. 2015 
Impact of 5.1% increase and 2.3% decrease in same-store sales, respectively  4.8%  (2.2%)
New and reconcepted units  7.7%  1.4%
Closed units  (3.2%)  (1.1%)
Other  0.1%  0.5%
   9.4%  (1.3%)

Included in 2017three fiscal years, below:

202320222021
Sales of alcoholic beverages40.7 %38.8 %39.5 %
Sales of food and merchandise8.4 %8.9 %12.5 %
Service revenues43.6 %45.3 %40.2 %
Other7.3 %7.0 %7.8 %
100.0 %100.0 %100.0 %
The 2023 new units areinclude six clubs, one of which was acquired in the third quarterOctober 2022 and five acquired in March 2023. The 2022 new units include fifteen clubs, of 2017, Scarlett’s Cabaret Miamiwhich eleven were acquired in October 2021, one acquired in November 2021, one acquired in May 2022, and Hollywood Showclub (the latter now relaunchedtwo acquired in July 2022. See Note 14 to our consolidated financial statements for more information on our club acquisitions. In total, these 2023 and rebranded as Scarlett’s Cabaret St. Louis), which2022 newly acquired clubs contributed a combined $5.6$18.2 million and $41.9 million in revenues, sincerespectively, during their year of acquisition. No new clubs were acquired in 2021.
Included in other revenues of the acquisition dates.

Nightclubs segment is real estate rental revenue amounting to $1.8 million in 2023, $1.6 million in 2022, and $1.5 million in 2021.

35
Bombshells segment revenues.Bombshells revenues increaseddecreased by 0.7%7.0% from 20162022 to 2017,2023 and increased by 6.0%5.8% from 20152021 to 2016. A breakdown of2022, as explained below.
2023 vs. 20222022 vs. 2021
Impact of 14.6% and 4.6% decrease in same-store sales, respectively, to total revenues(13.5)%(4.6)%
New units6.5 %10.1 %
Closed units— %— %
Other— %0.3 %
(7.0)%5.8 %
Bombshells segment sales mix for the changesthree fiscal years is as follows:

  2017 vs. 2016  2016 vs. 2015 
Impact of 3.5% and 5.1% increase in same-store sales, respectively  3.2%  4.8%
New units  5.8%  1.2%
Closed units  (8.3%)  0.0%
   0.7%  6.0%

202320222021
Sales of alcoholic beverages55.5 %55.6 %57.2 %
Sales of food and merchandise42.9 %43.4 %42.2 %
Service and other revenues1.6 %1.0 %0.6 %
100.0 %100.0 %100.0 %
No new Bombshells Websterlocation was closed towardopened in 2021. Bombshells Arlington was opened in the end of the fourthfirst quarter of 2016, while2022. Bombshells 290San Antonio was opened earlyacquired from our franchisee in the fourthsecond quarter of 2017.

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

Other segment revenues.Other revenues included revenues from Drink Robust in all three fiscal years presented. Drink Robust sales were $145,000, $201,000, and $249,000 in fiscal 2023, 2022, and 2021, respectively, which was sold during the fourth quarter of 2016.

exclude intercompany sales to Nightclubs and Bombshells units amounting to $254,000, $261,000, and $141,000 in fiscal 2023, 2022, and 2021, respectively. Media business revenues were $1.1 million, $1.2 million, and $1.0 million in fiscal 2023, 2022, and 2021, respectively.

Operating Expenses

Total operating expenses, as a percent of consolidated revenues, were 84.0%82.5%, 84.7%73.3%, and 84.7%80.3% for the fiscal year 2017, 20162023, 2022, and 2015,2021, respectively. Significant contributors to the change in operating expenses as a percent of revenues are explained below.

Cost of goods sold. Cost of goods sold includes cost of alcoholic and non-alcoholic beverages, food, cigars and cigarettes, merchandise, media printing/binding, and media.Drink Robust. As a percentage of consolidated revenues, totalconsolidated cost of goods sold was 14.3%13.3%, 15.2%13.5%, and 15.0%, respectively, mainly due to the increase in service revenue in the mix, which contributes a higher gross margin.15.4% for fiscal 2023, 2022, and 2021, respectively. See page 31 above for the breakdown of percentages for each line item of consolidated cost of goods sold as it relates to the respective consolidated revenue line.

 28
For the Nightclubs segment, cost of goods sold was 11.1%, 10.5%, and 11.8% for fiscal 2023, 2022, and 2021, respectively, which was primarily caused by shifts in sales mix among the three fiscal years. Bombshells cost of goods sold was 22.4%, 23.5%, and 23.8% for fiscal 2022, 2021, and 2020, respectively, which was mainly driven by menu price increases in 2023 and 2022 in response to inflation, and the shift in sales mix to lower-margin food sales in 2021.

Salaries and wages. Consolidated salaries and wages increased by $2.6$11.1 million, or 6.9%16.1%, from 20162022 to 2017,2023 and decreasedincreased by $275,000,$17.8 million, or 0.7%35.2%, from 20152021 to 2016.2022. The increasedollar increases are mostly from 2016 to 2017 was mainly due to additional corporate headcount to support the commencement of our franchising effort, our return to a growth model (see discussion in our Growth Strategy section below), and a shift to employee status of certain entertainers in Minneapolis and Phoenix (as discussed in the Business section above).newly acquired or constructed locations. As a percentage of revenues, consolidated salaries and wages remained relatively flat at 27.6%were 27.1%, 27.8%25.6%, and 27.9%25.9% in 2023, 2022, and 2021, respectively, mainly due to sales trend and the impact of fixed salaries on change in sales.

36
By reportable segment, salaries and wages are broken down as follows (dollar amounts in thousands):
2023Inc (Dec)2022Inc (Dec)2021
Nightclubs$50,489 23.6 %$40,859 51.4 %$26,986 
Bombshells14,949 2.5 %14,585 11.8 %13,041 
Other604 0.5 %601 3.3 %582 
Corporate13,458 8.5 %12,402 23.8 %10,018 
$79,500 16.1 %$68,447 35.2 %$50,627 
Unit-level manager payroll is included in salaries and wages of each location, while payroll for fiscal year 2017, 2016regional manager and 2015, respectively.

above are included in Corporate.

Salaries and wages as a percentage of segment revenue (except Corporate, which is based on consolidated revenues):
202320222021
Nightclubs21.3 %19.8 %19.6 %
Bombshells26.8 %24.3 %23.0 %
Other45.8 %41.6 %45.2 %
Corporate4.6 %4.6 %5.1 %
27.1 %25.6 %25.9 %
Selling, general and administrative expenses. The components of consolidated selling, general and administrative expenses are in the tables below (dollars(dollar amounts in thousands):

  Years Ended September 30,  Percentage of Revenues 
  2017  2016  2015  2017  2016  2015 
Taxes and permits $8,026  $8,089  $8,031   5.5%  6.0%  5.9%
Advertising and marketing  6,704   5,374   5,610   4.6%  4.0%  4.1%
Supplies and services  4,873   4,815   4,726   3.4%  3.6%  3.5%
Insurance  4,006   3,575   3,364   2.8%  2.7%  2.5%
Rent  3,258   3,278   4,526   2.2%  2.4%  3.3%
Legal  3,074   3,130   3,556   2.1%  2.3%  2.6%
Utilities  2,824   2,871   2,999   1.9%  2.1%  2.2%
Charge card fees  2,783   2,252   2,176   1.9%  1.7%  1.6%
Security  2,251   2,042   1,905   1.6%  1.5%  1.4%
Accounting and professional fees  2,159   1,353   1,025   1.5%  1.0%  0.8%
Repairs and maintenance  2,091   2,088   1,916   1.4%  1.5%  1.4%
Other  4,726   4,208   3,764   3.3%  3.1%  2.8%
  $46,775  $43,075  $43,598   32.3%  31.9%  32.2%

202320222021
Amount%Amount%Amount%
Taxes and permits$11,966 4.1 %$9,468 3.5 %$8,701 4.5 %
Advertising and marketing11,928 4.1 %9,860 3.7 %6,676 3.4 %
Supplies and services10,724 3.7 %8,614 3.2 %6,190 3.2 %
Insurance10,268 3.5 %10,152 3.8 %5,676 2.9 %
Lease7,206 2.5 %6,706 2.5 %3,942 2.0 %
Legal3,742 1.3 %1,995 0.7 %3,997 2.0 %
Utilities5,760 2.0 %4,585 1.7 %3,366 1.7 %
Charge card fees7,090 2.4 %6,292 2.4 %3,376 1.7 %
Security5,618 1.9 %4,404 1.6 %3,892 2.0 %
Accounting and professional fees4,286 1.5 %3,909 1.5 %2,031 1.0 %
Repairs and maintenance4,924 1.7 %3,754 1.4 %2,767 1.4 %
Stock-based compensation2,588 0.9 %2,353 0.9 %— — %
Other6,924 2.4 %6,755 2.5 %3,994 2.0 %
$93,024 31.7 %$78,847 29.5 %$54,608 28.0 %
37
By reportable segment, selling, general and administrative expenses are broken down as follows (dollar amounts in thousands):
2023Inc (Dec)2022Inc (Dec)2021
Nightclubs$61,350 19.6 %$51,285 56.7 %$32,725 
Bombshells18,928 9.4 %17,295 16.2 %14,883 
Other602 44.0 %418 76.4 %237 
Corporate12,144 23.3 %9,849 45.6 %6,763 
$93,024 18.0 %$78,847 44.4 %$54,608 
Selling, general and administrative expenses as a percentage of segment revenue (except Corporate, which is based on consolidated revenues):
202320222021
Nightclubs25.9 %24.9 %23.8 %
Bombshells34.0 %28.9 %26.3 %
Other45.6 %28.9 %18.4 %
Corporate4.1 %3.7 %3.5 %
31.7 %29.5 %28.0 %
The significant variances in selling, general and administrative expenses are as follows:

Advertising and marketing increased by $1.3 million, or 24.7%, from 2016 to 2017 mainly due to the acquisition of Scarlett’s Miami in the third quarter of 2017 and the additional spending in relation to increase in revenues, and decreased by $236,000, or 4.2%, from 2015 to 2016 primarily due to reduced spending on live entertainment in Bombshells and marketing support reimbursement in our Media Group.

As a percentage of revenues, advertisingrelatively fixed expenses tend to be higher in rate due to lower sales, while more variable expenses tend to keep their rates even if dollar amounts are increasing. Nightclubs expenses increased as a percentage of segment revenue due to newly acquired clubs. Bombshells expenses increased as a percentage of segment revenue due to lower sales.
Depreciation and marketing was 4.6%, 4.0amortization. Depreciation and 4.1% for 2017, 2016 and 2015, respectively.

Insuranceamortization increased by $431,000,$2.8 million, or 12.1%22.3%, from 20162022 to 2017,2023 and $211,000,increased by $4.2 million, or 6.3%50.4%, from 20152021 to 2016 primarily due2022. The increase from 2021 to an2022 was mainly caused by the growth in our depreciable asset base and amortizable intangibles caused by acquired clubs and a new Bombshells unit, while the increase from 2022 to 2023 was mainly from newly acquired clubs.

Other charges, net. The components of other charges, net are in general liability insurance premiums.

Rent expense decreased by $1.2the table below (dollars in thousands):

2023Inc (Dec)2022Inc (Dec)2021
Impairment of assets$12,629 568.9 %$1,888 (86.1)%$13,612 
Settlement of lawsuits3,759 165.3 %1,417 5.0 %1,349 
Gain on sale of businesses and assets(682)(71.3)%(2,375)355.0 %(522)
Gain on insurance(77)(83.4)%(463)(63.0)%(1,253)
$15,629 3,246.7 %$467 (96.5)%$13,186 
The significant variances in other charges, net are discussed below:
During 2023, we recorded aggregate impairment charges amounting to $12.6 million or 27.6% from 2015related to 2016 principally duegoodwill of four clubs ($4.2 million), SOB licenses of eight clubs ($6.5 million), operating lease right-of-use asset and property and equipment of a closed club ($1.1 million), and software of two investment projects ($814,000). During 2022, we recorded aggregate impairment charges amounting to the acquisition$1.9 million related to goodwill of one club ($566,000), SOB license of one club ($293,000), and property and equipment of one club and one Bombshells unit ($1.0 million). During 2021, we recorded aggregate impairment charges amounting to $13.6 million related to goodwill of seven clubs ($6.3 million), SOB licenses of three clubs ($5.3 million), and property and equipment of five clubs, one of which is held for sale ($2.0 million).

38
In 2023, we recognized settlements with the New York property in 2015 through 2016. PriorDepartment of Labor amounting to $3.1 million related to the assessment by the New York property acquisition,Department of Labor for state unemployment insurance. In 2022, we settled several cases including the location’s annual average rentimage infringement lawsuit and the securities class actions part of which was paid by insurance. In 2021, we settled a case with one of our Bombshells landlords for $1.0 million. See Note 10 to our consolidated financial statements.
Refer to dispositions in Note 14 to our consolidated financial statement for details on gains or losses on sale of businesses and assets.
In relation to insurance claims and recoveries, we recognized a $77,000 gain in 2023, $463,000 gain in 2022, and $1.3 million gain in 2021 mainly related to a fire in one of our clubs in Washington Park, Illinois toward the end of fiscal 2018 and a hurricane that damaged one of our clubs in Sulphur, Louisiana in August 2020. The rest of the claims for the Sulphur club were received in 2022. Gains related to insurance recoveries are recognized when the contingencies related to the insurance claims have been resolved, which may be in a subsequent reporting period. See Note 13 to our consolidated financial statements.
Income from Operations
During fiscal 2023, 2022, and 2021, our consolidated operating margin was 17.5%, 26.7%, and 19.7%, respectively.
Below is a table which reflects segment contribution to income from operations (in thousands):
202320222021
Nightclubs$73,187 $82,798 $43,815 
Bombshells6,502 11,504 13,264 
Other(1,446)57 35 
Corporate(26,759)(22,900)(18,566)
$51,484 $71,459 $38,548 
Nightclubs operating margin was 30.9%, 40.1%, and 31.9% in 2023, 2022, and 2021. Bombshells operating margin was 11.7%, 19.2%, and 23.4% in 2023, 2022, and 2021, respectively.
Excluding certain items, non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands). Refer to discussion of Non-GAAP Financial Measures on page 41.
2023
NightclubsBombshellsOtherCorporateTotal
Income (loss) from operations$73,187 $6,502 $(1,446)$(26,759)$51,484 
Amortization of intangibles2,497 530 484 17 3,528 
Settlement of lawsuits3,552 207 — — 3,759 
Impairment of assets11,815 — 814 — 12,629 
Loss (gain) on sale of businesses and assets(734)77 — (25)(682)
Gain on insurance(48)— — (29)(77)
Stock-based compensation— — — 2,588 2,588 
Non-GAAP operating income (loss)$90,269 $7,316 $(148)$(24,208)$73,229 
GAAP operating margin30.9 %11.7 %(109.6)%(9.1)%17.5 %
Non-GAAP operating margin38.1 %13.1 %(11.2)%(8.2)%24.9 %
39
2022
NightclubsBombshellsOtherCorporateTotal
Income (loss) from operations$82,798 $11,504 $57 $(22,900)$71,459 
Amortization of intangibles2,042 6 61 9 2,118 
Settlement of lawsuits1,287 18 — 112 1,417 
Impairment of assets1,238 650 — — 1,888 
Loss (gain) on sale of businesses and assets(2,010)17 — (382)(2,375)
Gain on insurance(463)— — — (463)
Stock-based compensation— — — 2,353 2,353 
Non-GAAP operating income (loss)$84,892 $12,195 $118 $(20,808)$76,397 
GAAP operating margin40.1 %19.2 %3.9 %(8.6)%26.7 %
Non-GAAP operating margin41.2 %20.4 %8.2 %(7.8)%28.5 %
2021
NightclubsBombshellsOtherCorporateTotal
Income (loss) from operations$43,815 $13,264 $35 $(18,566)$38,548 
Amortization of intangibles187 14 57 — 258 
Settlement of lawsuits275 59 5 1,010 1,349 
Impairment of assets13,612 — — — 13,612 
Costs and charges related to debt refinancing17 — — 40 57 
Loss (gain) on sale of businesses and assets(580)72 — (14)(522)
Gain on insurance(1,209)— — (44)(1,253)
Non-GAAP operating income (loss)$56,117 $13,409 $97 $(17,574)$52,049 
GAAP operating margin31.9 %23.4 %2.7 %(9.5)%19.7 %
Non-GAAP operating margin40.9 %23.7 %7.5 %(9.0)%26.7 %
Other Income/Expenses
Interest expense increased by approximately $4.0 million from 2022 to 2023 and by approximately $2.0 million from 2021 to 2022. The increase in interest expense was $1.1 million for the last three years. As a percentage of revenues, rent expense has gone down to 2.2% in 2017 from 2.4% in 2016 and 3.3% in 2015.

Legal expenses decreased by $426,000, or 12.0%, from 2015 to 2016 primarily due to decreased legal activity and settlement after the New York labor lawsuit.

Charge card fees increased by $531,000, or 23.6%, from 2016 to 2017, and had an immaterial change from 2015 to 2016. The increase from 2016 to 2017 was mainly from additional revenues caused by the significantly higher same-store sales and the acquisition of two new clubs in 2017. As a percentage of revenues, charge card fees have remained flat at 1.9%, 1.7% and 1.6% in 2017, 2016 and 2015, respectively.

Accounting and professional fees increased by $806,000, or 59.6%,average debt balance from 2016borrowings to 2017, and $328,000, or 32.0%, from 2015 to 2016 primarily due tofinance our hiring of tax consultants to evaluate certain tax positions and our change of auditors.

 29
acquisitions.

We consider rentlease plus interest expense as our occupancy costs since most of our debts are for real propertyproperties where our clubs and restaurants are located. AsFor occupancy cost purposes, we exclude non-real-estate-related interest expense. Total occupancy cost rate (total occupancy cost as a percentage of revenues, rent has consistently dropped asrevenues) is shown in the table below.

202320222021
Lease2.5 %2.5 %2.0 %
Interest5.4 %4.5 %4.8 %
Total occupancy cost7.9 %7.0 %6.8 %
The 2021 interest expense rate above excludes certain costs and charges related to the September 2021 Refinancing Note amounting to approximately $637,000, or 0.3% of consolidated revenues. The $637,000 interest expense includes $103,000 in unamortized debt issuance costs that were written off and $228,000 in expensed new loan costs.
In fiscal 2021, we bought propertiesreceived 11 notices of forgiveness for our PPP loans approving the forgiveness of 100% of each of the 11 PPP loans amounting to $5.3 million in principal and interest, expense has increased, butwhich were included in total, occupancy costs have decreased.

  2017  2016  2015 
Rent  2.2%  2.4%  3.3%
Interest  6.0%  5.9%  5.1%
Total occupancy cost  8.3%  8.3%  8.5%

Depreciationnon-operating gains (losses), net.

40
In November 2021, we received a partial forgiveness of the remaining $124,000 PPP loan for $85,000 in principal and amortization decreased by $408,000, or 5.6%, from 2016 to 2017 mainly due to the cessation of depreciation on properties held for sale; and increased by $283,000, or 4.0%, from 2015 to 2016 mainly due to an increase in the number of clubs we own. Refer to interest. See Note 38 to our consolidated financial statements for the impact of the revision of prior year financial statements.

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

  Years Ended September 30,  Percentage of Revenues 
  2017  2016  2015  2017  2016  2015 
Impairment of assets $7,639  $3,492  $1,705   5.3%  2.6%  1.3%
Settlement of lawsuits  317   1,881   11,684   0.2%  1.4%  8.6%
Loss (gain) on sale of assets  (542)  388   808   -0.4%  0.3%  0.6%
Gain on settlement of patron tax  (102)  -   (8,167)  -0.1%  0.0%  -6.0%
Total other charges, net $7,312  $5,761  $6,030   5.0%  4.3%  4.5%

The significant variances in other charges, net are as follows:

During the year ended September 30, 2015, we recorded an impairment of $1.7 million ($1.4 million in the first quarter and $347,000 in the fourth quarter) for the indefinite-lived intangible assets at two clubs that were closed. During the fourth quarter of 2016, we recorded an impairment of $3.5 million, of which $2.1 million was for indefinite-lived intangible assets of one club and $1.4 million was for one property held for sale. During the year ended September 30, 2017, we recorded aggregate impairment charges of $7.6 million ($1.4 million in the third quarter and $6.2 million in the fourth quarter) for the goodwill of four club locations ($4.7 million), including one that we have put up for sale during the fiscal year; for property and equipment of one club ($385,000); for SOB license of two club locations ($1.4 million), and for our remaining investment in Drink Robust ($1.2 million). See Note 16 to our consolidated financial statements for further discussion.

Settlement of lawsuits in 2015 consists principally of settlement of suits relating to the New York based federal wage and hour class and collective action, as explained in Note 11 to our consolidated financial statements.

In 2015, the Company reached a settlement with the State of Texas over the payment of the state’s Patron Tax on adult club customers. We recorded the difference between the present value of the $10.0 million settlement amount and the previously accrued tax amount as a gain in the amount of $8.2 million. See Note 11 to our consolidated financial statements for details of the gain on settlement of patron tax in 2015.

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Income from Operations

Below is a table which reflects segment contribution to income from operations (in thousands):

  2017  2016  2015 
          
Nightclubs $35,138  $33,211  $30,428 
Bombshells  3,084   1,152   1,638 
Other  (522)  (2,650)  (1,921)
General corporate  (14,561)  (11,020)  (9,418)
  $23,139  $20,693  $20,727 

Our operating margin (total income from operations divided by total revenues) was 16.0% in 2017, 15.3% in 2016 and 15.3% in 2015. Nightclubs operating margin was 28.2%, 29.1% and 26.3% in 2017, 2016 and 2015, respectively, primarily due to the closure of underperforming units, the leverage on increasing same-store sales of fixed expenses, and impairment of assets of $6.5 million, $2.1 million and $1.7 million for 2017, 2016 and 2015, respectively. Bombshells operating margin was 16.4%, 6.2% and 9.3% in 2017, 2016 and 2015, respectively, mainly due to increasing sales partially offset by increasing depreciation expense from higher unit count and the loss on sale of assets in 2016 caused by the closure of one underperforming unit.

Excluding the impact of settlement of lawsuits, impairment of assets, gain on patron tax settlement and gain on sale of assets, operating margin for the Nightclub segment would have been 33.1%, 32.3% and 30.9% for 2017, 2016 and 2015, respectively. Excluding the impact of loss on sale of assets, which caused fiscal 2016 and 2015 operating margin to be low, Bombshells segment operating margin would have been 16.4%, 13.5% and 13.9% for 2017, 2016 and 2015, respectively.

Non-Operating Items

Interest expense decreased in 2015 due to the significant paydown and refinance of high-interest debt during the last two years. We are now able to finance property acquisition with bank debt which is at significantly lower rates than the debt we previously had. We added more debt in 2017 and 2016 to acquire certain properties, which in turn increased our interest expense and also decreased rent expense.

Income Taxes

Income tax expense increased bywas approximately $6.8 million in 2023, $14.1 million in 2022, and $4.0 million from 2016 to 2017, and decreased by $2.8 million from 2015 to 2016.in 2021. Our effective income tax rate was 43.4%, 18.5%19.0% in 2023, 23.4% expense in 2022, and 36.5% during fiscal 2017, 2016 and 2015, respectively.11.7% expense in 2021. The difference incomponents of our annual effective income tax rate was primarily due toare the following:

  2017  2016  2015 
Computed expected income tax expense  34.0%  34.0%  34.0%
State income taxes, net of federal benefit  2.0%  5.7%  1.6%
Transfer of deferred tax liabilities to sold subsidiaries  0.0%  -6.5%  0.0%
Permanent differences  0.7%  -0.8%  0.9%
Change in deferred tax liability rate  9.1%  0.0%  0.0%
Reserve for uncertain tax position  2.8%  1.9%  0.0%
Tax credits  -3.9%  -15.7%  0.0%
Other  -1.3%  0.0%  0.0%
Total income tax expense  43.4%  18.5%  36.5%

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202320222021
Federal statutory income tax expense/benefit21.0 %21.0 %21.0 %
State income taxes, net of federal benefit4.5 %3.0 %2.1 %
Permanent differences1.7 %0.2 %(1.3)%
Change in tax rates(0.7)%1.5 %(2.4)%
Change in valuation allowance(0.5)%0.6 %(1.9)%
Tax credits(5.9)%(3.0)%(3.5)%
Other(1.0)%0.2 %(2.4)%
Total effective income tax rate19.0 %23.4 %11.7 %

During fiscal year 2017, due to higher income before tax, our

The effective income tax rate has increased to 37%,difference from the statutory federal corporate tax rate of which has impacted the fourth quarter with the change in rate21% comes from 35%offsetting impact of state income tax, net of federal benefit, changes in the first nine months of the year and in prior years. A full year impact in the change in rate of our deferred tax liability has also been recognized in the fourth quarter. The change in deferredasset valuation allowance, and tax liability rate for 2017 is due to the 1% increase in our effective tax rate from the increase in the federal rate and also an increase in the states rate. This amount results from increasing by 2% the rate applied to our entire deferred tax liabilities at the beginning of the year. The reserve for uncertain tax positions results from an audit of the returns of one of the states in which we operate. As a result of the items discussed above which affected the fiscal year, the fourth quarter effective tax rate rose to 99.6% expense on a pre-tax loss.

During fiscal year 2016, we recognized a $2.0 million tax benefit representing the net amount to be realized from fiscal 2016 and from amending certain prior year federal tax returns to take availablecredits that are mostly FICA tip tax credits, which were not taken in prior years.

Refer to Note 3 to our consolidated financial statements for the impact of the revision of prior year financial statements.

 32
credits.

Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, management uses certain non-GAAP financial measures, within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of the Company and helps management and investors gauge our ability to generate cash flow, excluding (or including) some items that management believes are not representative of the ongoing business operations of the Company, but are included in (or excluded from) the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the non-GAAP financial measures, we further set forth our rationale as follows:

Non-GAAP Operating Income and Non-GAAP Operating Margin. We exclude fromcalculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: (a) amortization of intangibles, gain on settlement(b) impairment of patron tax case,assets, (c) gains or losses on sale of businesses and assets, impairment of assets, stock-based compensation, and(d) gains or losses on insurance, (e) settlement of lawsuits.lawsuits, (f) costs and charges related to debt refinancing, and (g) stock-based compensation. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.

Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share. We exclude fromcalculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income attributable to RCIHH common stockholders and diluted earnings per share. Adjustment items are: (a) amortization of intangibles, gain on settlement(b) impairment of patron tax case, income tax expense, impairment charges, gain on acquisition of controlling interest in subsidiary,assets, (c) gains or losses on sale of businesses and assets, stock-based compensation, and(d) gains or losses on insurance, (e) unrealized loss on equity securities, (f) settlement of lawsuits, (g) gain on debt extinguishment, (h) costs and includecharges related to debt refinancing, (i) stock-based compensation, (j) the income tax effect of the above-described adjustments, and (k) change in deferred tax asset valuation allowance. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for current and deferred income taxes, calculated as the tax effect at 37%20.6%, 35%22.8%, and 35% in 2017, 2016 and 2015, respectively,13.5% effective tax rate of the pre-tax non-GAAP income before taxes because wefor the 2023, 2022, and 2021, respectively, and the GAAP income tax expense. We believe that excluding and including such items help management and investors better understand our operating activities.


41
Adjusted EBITDA. We exclude fromcalculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) income tax expense amortization of intangibles, impairment of assets, income taxes,(benefit), (c) net interest expense, interest income,(d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) unrealized gains or losses on equity securities, (g) impairment of assets, (h) settlement of lawsuits, (i) gain on settlement of patron tax case,debt extinguishment, and gain on acquisition of controlling interest in subsidiary because we(j) stock-based compensation. We believe that adjusting for such items helps management and investors better understand our operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions. The results are, therefore, without consideration of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess the unleveraged performance return on our investments. Adjusted EBITDA multiple is also theused as a target benchmark for our acquisitions of nightclubs.

We also use certain non-GAAP cash flow measures such as free cash.cash flow. See “Liquidity and Capital Resources” section for further discussion.

 33

The following tables present our non-GAAP performance measures for the periods indicated (in thousands, except per share amounts and percentages):

  For the Year Ended 
  September 30, 
  2017  2016  2015 
Reconciliation of GAAP net income to Adjusted EBITDA            
Net income attributable to RCIHH common shareholders $8,259  $11,218  $9,214 
Income tax expense  6,359   2,373   5,111 
Interest expense, net  8,498   7,851   6,954 
Settlement of lawsuits  317   1,881   11,684 
Gain on settlement of patron tax case  (102)  -   (8,167)
Impairment of assets  7,639   3,492   1,705 
Loss (gain) on sale of assets  (542)  388   808 
Depreciation and amortization  6,920   7,328   7,045 
Gain on acquisition of controlling interest in subsidiary  -   -   (229)
Adjusted EBITDA $37,348  $34,531  $34,125 
             
Reconciliation of GAAP net income to non-GAAP net income            
Net income attributable to RCIHH common shareholders $8,259  $11,218  $9,214 
Amortization of intangibles  217   752   737 
Stock-based compensation  -   360   480 
Settlement of lawsuits  317   1,881   11,684 
Gain on settlement of patron tax case  (102)  -   (8,167)
Impairment of assets  7,639   3,492   1,705 
Income tax expense  6,359   2,373   5,111 
Loss (gain) on sale of assets  (542)  388   808 
Gain on acquisition of controlling interest in subsidiary  -   -   (229)
Non-GAAP provision for income taxes            
Current  (6,218)  (4,482)  (6,094)
Deferred  (1,976)  (2,680)  (1,376)
Non-GAAP net income $13,953  $13,302  $13,873 

202320222021
Reconciliation of GAAP net income to Adjusted EBITDA
Net income attributable to RCIHH common stockholders$29,246 $46,041 $30,336 
Income tax expense6,846 14,071 3,989 
Interest expense, net15,538 11,539 9,739 
Settlement of lawsuits3,759 1,417 1,349 
Impairment of assets12,629 1,888 13,612 
Gain on sale of businesses and assets(682)(2,375)(522)
Depreciation and amortization15,151 12,391 8,238 
Unrealized loss on equity securities— — 84 
Gain on debt extinguishment— (138)(5,329)
Gain on insurance(77)(463)(1,253)
Stock-based compensation2,588 2,353 — 
Adjusted EBITDA$84,998 $86,724 $60,243 
   
Reconciliation of GAAP net income to non-GAAP net income
Net income attributable to RCIHH common stockholders$29,246 $46,041 $30,336 
Amortization of intangibles3,528 2,118 258 
Settlement of lawsuits3,759 1,417 1,349 
Impairment of assets12,629 1,888 13,612 
Gain on sale of businesses and assets(682)(2,375)(522)
Costs and charges related to debt refinancing*— — 694 
Unrealized loss on equity securities— — 84 
Gain on debt extinguishment— (138)(5,329)
Gain on insurance(77)(463)(1,253)
Stock-based compensation2,588 2,353 — 
Change in deferred tax asset valuation allowance(176)343 (632)
Net income tax effect(5,068)(729)(1,845)
Non-GAAP net income$45,747 $50,455 $36,752 
42
202320222021
Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share
Diluted shares9,335,9839,383,4459,004,744
GAAP diluted earnings per share$3.13 $4.91 $3.37 
Amortization of intangibles0.38 0.23 0.03 
Settlement of lawsuits0.40 0.15 0.15 
Impairment of assets1.35 0.20 1.51 
Gain on sale of businesses and assets(0.07)(0.25)(0.06)
Costs and charges related to debt refinancing*— — 0.08 
Unrealized loss on equity securities— — 0.01 
Gain on debt extinguishment— (0.01)(0.59)
Gain on insurance(0.01)(0.05)(0.14)
Stock-based compensation0.28 0.25 — 
Change in deferred tax asset valuation allowance(0.02)0.04 (0.07)
Net income tax effect(0.54)(0.08)(0.20)
Non-GAAP diluted earnings per share$4.90 $5.38 $4.08 
   
Reconciliation of GAAP operating income to non-GAAP operating income
Income from operations$51,484 $71,459 $38,548 
Amortization of intangibles3,528 2,118 258 
Settlement of lawsuits3,759 1,417 1,349 
Impairment of assets12,629 1,888 13,612 
Costs and charges related to debt refinancing*— — 57 
Gain on sale of businesses and assets(682)(2,375)(522)
Gain on insurance(77)(463)(1,253)
Stock-based compensation2,588 2,353 — 
Non-GAAP operating income$73,229 $76,397 $52,049 
    
202320222021
Reconciliation of GAAP operating margin to non-GAAP operating margin
GAAP operating margin17.5 %26.7 %19.7 %
Amortization of intangibles1.2 %0.8 %0.1 %
Settlement of lawsuits1.3 %0.5 %0.7 %
Impairment of assets4.3 %0.7 %7.0 %
Costs and charges related to debt refinancing*— %0.0 %— %
Gain on sale of businesses and assets(0.2)%(0.9)%(0.3)%
Gain on insurance— %(0.2)%(0.6)%
Stock-based compensation0.9 %0.9 %— %
Non-GAAP operating margin24.9 %28.5 %26.7 %
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*Costs and charges related to debt refinancing in 2021 consist of $637,000 in interest expense and $57,000 in legal and professional fees. The $637,000 interest expense portion above includes $103,000 in unamortized debt issuance costs that were written off and $228,000 in expensed new loan costs.

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  For the Year Ended 
  September 30, 
  2017  2016  2015 
          
Reconciliation of GAAP diluted net income per share to non-GAAP diluted net income per share            
Fully diluted shares  9,743   10,229   10,406 
GAAP diluted net income per share $0.85  $1.11  $0.89 
Amortization of intangibles  0.02   0.07   0.07 
Stock-based compensation  -   0.04   0.05 
Settlement of lawsuits  0.03   0.18   1.12 
Gain on settlement of patron tax case  (0.01)  -   (0.78)
Impairment of assets  0.78   0.34   0.16 
Income tax expense  0.65   0.23   0.49 
Loss (gain) on sale of assets  (0.06)  0.04   0.08 
Gain on acquisition of controlling interest in subsidiary  -   -   (0.02)
Non-GAAP provision for income taxes            
Current  (0.64)  (0.43)  (0.59)
Deferred  (0.20)  (0.26)  (0.13)
Non-GAAP diluted net income per share $1.43  $1.32  $1.34 
             
Reconciliation of GAAP operating income to non-GAAP operating income            
Income from operations $23,169  $20,693  $20,727 
Amortization of intangibles  217   752   737 
Stock-based compensation  -   360   480 
Settlement of lawsuits  317   1,881   11,684 
Gain on settlement of patron tax case  (102)  -   (8,167)
Impairment of assets  7,639   3,492   1,705 
Loss (gain) on sale of assets  (542)  388   808 
Non-GAAP operating income $30,668  $27,566  $27,974 
             
Reconciliation of GAAP operating margin to non-GAAP operating margin            
GAAP operating margin  16.0%  15.3%  15.3%
Amortization of intangibles  0.1%  0.6%  0.5%
Stock-based compensation  0.0%  0.3%  0.4%
Settlement of lawsuits  0.2%  1.4%  8.6%
Gain on settlement of patron tax case  -0.1%  0.0%  -6.0%
Impairment of assets  5.3%  2.6%  1.3%
Loss (gain) on sale of assets  -0.4%  0.3%  0.6%
Non-GAAP operating margin  21.2%  20.4%  20.7%

* Per share amounts and percentages may not foot due to rounding.

 35

The adjustments to reconcile net income attributable to RCIHH common shareholdersstockholders to non-GAAP net income exclude the impact of adjustments related to noncontrolling interests, which is immaterial. In the calculation of non-GAAP diluted net income per share, we take into consideration the adjustment to net income from assumed conversion of debentures (see Note 2 to the consolidated financial statements).

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2023, our cash and cash equivalents were $21.0 million as compared to $36.0 million at September 30, 2022. Because of the large volume of cash we handle, we have very stringent cash controls. As of September 30, 2023, we had negative working capital of $10.5 million compared to a working capital of $18.6 million as of September 30, 2022, excluding net assets held for sale amounting to $0 and $1.0 million as of September 30, 2023 and 2022, respectively. We believe our ability to generate cash from operating activities is one of our fundamental financial strengths. The near-term outlook for our business remains strong, andthat we expect to generate substantial cash flows from operations in fiscal 2018. As a result of our expected cash flows from operations,can borrow capital if needed but currently we do not have significant flexibility to meet our financial commitments. The Company hasunused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms.
We have not recently raised capital through the issuance of equity securities.securities although we have used equity recently in our acquisitions. Instead, we use debt financing to lower our overall cost of capital and increase our return on stockholders’ equity. We have a history of borrowing funds in private transactions and from sellers in acquisition transactions and continue to have the ability to borrow fundssecured traditional bank financing on our new development projects and refinancing of our existing notes payable. There can be no assurance though that any of these financing options would be presently available on favorable terms, if at reasonable interest rates in that manner.all. We also have historically utilized these cash flows to invest in property and equipment, adult nightclubs, and restaurants/sports bars.

As

During 2023, we acquired six clubs at an aggregate acquisition date fair value of September 30, 2017, we had negative working capital$72.3 million, of $10.6which $29.0 million (excluding the impactwas in cash, $30.5 million in debt (with an acquisition date fair value of assets held$30.4 million), and $16.0 million in equity (200,000 shares of our common stock with an acquisition date fair value of $12.8 million, discounted for sale amounting to $5.8 million) compared to negative working capitallack of $5.3 million as of September 30, 2016 (excluding the impact of assets held for sale amounting to $7.7 million). The decrease in working capital is principallymarketability due to the following items:

●Operating cash flowlock-up period).
During 2022, we acquired fifteen clubs at an aggregate acquisition date fair value of $132.6 million, of which $55.3 million was in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million) and $30.0 million in equity (500,000 shares of our common stock with an acquisition date fair value of $29.9 million, discounted for lack of marketability due to the lock-up period).
We expect to generate adequate cash flows from operations for the year;
●Increase in current portion of long-term debt; and
●Partially offset by a net increase in current assets, excluding cash, mainly from prepaid income taxes and insurance.

We believe that our current sources of liquidity and capital will be sufficient to finance our continued operations and growth plans not only within the next 12 months but forfrom the next 18 to 24 months. Refer to sections on Debt Financing and Contractual Obligations and Commitments below for a discussionissuance of long-term liquidity and capital resources.

 36
this report.

Cash Flows from Operating Activities

Following are our summarized cash flows from operating activities (in thousands):

  Year Ended September 30, 
  2017  2016  2015 
Net income $8,282  $10,469  $8,891 
Depreciation and amortization  6,920   7,328   7,045 
Deferred tax expense  2,273   1,143   3,882 
Stock-based compensation expense  -   360   480 
Gain on settlement of patron tax  (102)  -   (8,167)
Impairment of assets  7,639   3,492   1,705 
Net change in operating assets and liabilities  (3,645)  (503)  1,951 
Other  (273)  742   577 
  $21,094  $23,031  $16,364 

Net cash flows from operating activities decreased from 2016 to 2017 due to a decrease in working capital caused by year-end vendor payments, higher income taxes and higher interest expense paid in 2017; while net cash flows from operating activities increased from 2015 to 2016 due to lower income taxes paid and higher pre-tax income partially offset by higher interest expense paid in 2016.

Cash Flows from Investing Activities

Following are our summarized cash flows from investing activities (in thousands):

  Year Ended September 30, 
  2017  2016  2015 
Proceeds from sale of property $2,145  $3,427  $- 
Proceeds from notes receivable and sale of marketable securities  107   621   - 
Additions to property and equipment  (11,249)  (28,148)  (19,259)
Additions of businesses, net of cash acquired  (9,527)  -   (2,328)
  $(18,524) $(24,100) $(21,587)

We opened five new units in 2017 (including two acquired and one reconcepted from a Bombshells to a club); reconcepted one club and acquired one club in 2016; and opened two clubs (including one acquired) in 2015. We also constructed and moved to a new corporate office in 2016.

Following is a reconciliation of our additions to property and equipment for the years ended September 30, 2017, 2016 and 2015 (in thousands):

  Year Ended September 30, 
  2017  2016  2015 
Acquisition of real estate $-  $22,174  $23,843 
Capital expenditures funded by debt  -   -   (7,978)
New capital expenditures in new clubs and corporate building  9,436   3,456   1,919 
Maintenance capital expenditures  1,813   2,518   1,475 
Total capital expenditures in consolidated statements of cash flows $11,249  $28,148  $19,259 

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Cash Flows from Financing Activities

Following are our summarized cash flows from financing activities (in thousands):

  Year Ended September 30, 
  2017  2016  2015 
Proceeds from long-term debt $12,399  $32,049  $18,283 
Payments on long-term debt  (13,080)  (19,159)  (12,579)
Payment of dividends  (1,170)  (862)  - 
Purchase of treasury stock  (1,099)  (7,311)  (2,296)
Exercise of stock options and warrants  -   500   87 
Payment of loan origination costs  (735)  (624)  - 
Debt prepayment penalty  (75)  -   - 
Distribution of noncontrolling interests  (215)  (217)  (216)
  $(3,975) $4,376  $3,279 

We purchased treasury stock representing 89,685 shares, 747,081 shares and 225,280 shares in 2017, 2016 and 2015, respectively. During the second quarter of 2016, we started paying quarterly dividends in the amount of $0.03 per share. See Note 8 to our consolidated financial statements for a detailed discussion of our debt obligations and Note 20 related to the refinancing of several of our real estate notes payable. We expect freed up liquidity from lower interest payments and the elimination of near-term balloon payments.

In summary, theThe following table presents a summary of our net cash flows from operating, investing, and financing activities (in thousands):

The following table presents a summary of our cash flows from operating, investing, and financing activities (in thousands):

  Year Ended September 30, 
  2017  2016  2015 
Operating activities $21,094  $23,031  $16,364 
Investing activities  (18,524)  (24,100)  (21,587)
Financing activities  (3,975)  4,376   3,279 
Net increase (decrease) in cash $(1,405) $3,307  $(1,944)

202320222021
Operating$59,130 $64,509 $41,991 
Investing(64,824)(67,797)(6,814)
Financing(9,263)3,582 (15,096)
Net increase (decrease) in cash and cash equivalents$(14,957)$294 $20,081 
We require capital principally for the acquisition of new units,clubs, construction of new Bombshells, renovation of older units, and investments in technology. We also utilize capital to repurchase our common stock as part of our share repurchase program, based on our capital allocation strategy guidelines, and to pay our quarterly dividends.

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Cash Flows from Operating Activities
Following are our summarized cash flows from operating activities (in thousands):
202320222021
Net income$29,100 $46,060 $30,150 
Depreciation and amortization15,151 12,391 8,238 
Deferred tax expense (benefit)(1,781)3,080 (1,253)
Stock-based compensation expense2,588 2,353 — 
Impairment of assets12,629 1,888 13,612 
Gain on debt extinguishment— (83)(5,298)
Net change in operating assets and liabilities(1,203)(1,421)(3,451)
Other2,646 241 (7)
Net cash provided by operating activities$59,130 $64,509 $41,991 
Net cash flows from operating activities decreased from 2022 to 2023 mainly due to the lower same-store sales and the higher interest expense paid, partially offset by the lower income taxes paid. Net cash flows from operating activities increased from 2021 to 2022 mainly due to the operating results of the fifteen acquired clubs and one Bombshells opened.
In the next five years, we expect interest payments on our debts to range from $15.0 million in the early years to $8.0 million annually in the latter years for debts we owe as of September 30, 2023.
See Note 18 for our operating lease payment schedule for the next five years and thereafter.
Cash Flows from Investing Activities
Following are our summarized cash flows from investing activities (in thousands):
202320222021
Proceeds from sale of businesses and assets$4,245 $10,669 $5,415 
Proceeds from notes receivable229 182 130 
Proceeds from insurance86 648 1,152 
Payments for property and equipment and intangible assets(40,384)(24,003)(13,511)
Acquisition of businesses, net of cash acquired(29,000)(55,293)— 
Net cash used in investing activities$(64,824)$(67,797)$(6,814)
In 2023, we acquired six clubs for a combined sum of $75.5 million (with an aggregate acquisition date fair value of $72.3 million), of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and 200,000 shares of our common stock in equity (with an acquisition date fair value of $12.8 million). We also acquired several real estate properties for club and Bombshells sites totaling $19.7 million, and invested $7.5 million for future casino locations.
In 2022, we acquired fifteen clubs for a combined sum of $134.2 million (with an aggregate acquisition date fair value of $132.6 million), of which $55.3 million was in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million), and 500,000 shares of our common stock in equity (with an acquisition date fair value of $29.9 million). We also purchased an aircraft and six real estate properties, of which, four are for future Bombshells locations, one for a club that we were leasing, and another to replace a club location which was taken by eminent domain. Also in 2022, we received payment for four real estate properties. We did not receive payment for the eminent domain property mentioned above until November 2022. In 2021, we acquired four real estate properties either for future club or restaurant locations or for corporate use. On one of the real properties purchased, we opened a Bombshells restaurant on December 6, 2021 in Arlington, Texas. There were no new Bombshells units opened in 2021. We also sold two real estate properties in 2021. We opened two new Bombshells units in 2020 (one in Katy, Texas and another on U.S. Highway 59 in Houston, Texas) and sold three real estate properties.
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As of September 30, 2023, 2022, and 2021, we had $7.7 million, $1.5 million, and $3.4 million in construction-in-progress related mostly to Bombshells opening in the subsequent fiscal years.
See Note 14 to our consolidated financial statements for details of our acquisition and disposition activities.
Following is a reconciliation of our additions to property and equipment for the years ended September 30, 2023, 2022, and 2021 (in thousands):
202320222021
New capital expenditures in new clubs and Bombshells units and equipment*$34,430 $18,405 $7,604 
Maintenance capital expenditures5,954 5,598 5,907 
Total capital expenditures, excluding business acquisitions$40,384 $24,003 $13,511 
*Includes real estate except those acquired through business acquisitions.
We expect capital expenditure payments in the range of $35.0 million to $40.0 million in 2024, $6.0 million to $8.0 million of which relate to maintenance capital expenditures to support our existing clubs and restaurants and our corporate office.
Cash Flows from Financing Activities
Following are our summarized cash flows from financing activities (in thousands):
202320222021
Proceeds from debt obligations$11,595 $35,820 $38,490 
Payments on debt obligations(15,650)(14,894)(49,178)
Purchase of treasury stock(2,223)(15,097)(1,794)
Payment of dividends(2,146)(1,784)(1,440)
Payment of loan origination costs(239)(463)(1,174)
Distribution to noncontrolling interests(600)— — 
Net cash provided by (used in) financing activities$(9,263)$3,582 $(15,096)
See Note 8 to our consolidated financial statements for a detailed discussion of our debt obligations, including the future maturities of our debt obligations in the next five years and thereafter.
We purchased shares of our common stock representing 34,086 shares, 268,185 shares, and 74,659 shares in 2023, 2022, and 2021, respectively. We paid quarterly dividends of $0.04 per share in fiscal 2021 through the first quarter of 2022. In the second quarter of 2022 through the first quarter of 2023, we increased our quarterly dividends to $0.05 per share. Then starting in the second quarter of 2023, we increased our quarterly dividends to $0.06 per share. We expect annual dividend payments of $2.2 million in 2024 based on our current quarterly dividend rate.
Non-GAAP Cash Flow Measure

Management

We also usesuse certain non-GAAP cash flow measures, such as free cash flows. Freeflow. We define free cash flow is derived fromas net cash provided by operating activities less maintenance capital expenditures.

  2017  2016  2015 
Net cash provided by operating activities $21,094  $23,031  $16,364 
Less: Maintenance capital expenditures  1,813   2,518   1,475 
Free cash flow $19,281  $20,513  $14,889 

Debt Financing

See Note 8 to our consolidated financial statements We use free cash flow as the baseline for detail regarding our long-term debt activity and Note 20 discussing the refinancingimplementation of our long-term debt.

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capital allocation strategy. See table below (in thousands):

202320222021
Net cash provided by operating activities$59,130 $64,509 $41,991 
Less: Maintenance capital expenditures5,954 5,598 5,907 
Free cash flow$53,176 $58,911 $36,084 
As a % of revenue18.1 %22.0 %18.5 %

Contractual Obligations

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We do not include total capital expenditures as a reduction from net cash flow from operating activities to arrive at free cash flow. This is because, based on our capital allocation strategy, acquisitions and Commitments

We have long-termdevelopment of our own clubs and restaurants are our primary uses of free cash flow.

Other than the impact of uncertainties caused by near-term macro environment, including commodity and labor inflation and the lingering effect of the COVID-19 pandemic, and the contractual obligations primarily in the form of debt obligations and operating leases. The following table (in thousands) summarizes our contractual obligations and their aggregate maturities as well as future minimum rent payments. Future interest payments related to variable interest rate debt were estimated using the interest rate in effect at September 30, 2017.

  Payments Due by Period 
  Total  2018  2019  2020  2021  2022  Thereafter 
Long-term debt – regular $61,788  $9,512  $9,653  $8,270  $6,116  $4,923  $23,314 
Long-term debt – balloon  63,161   7,928   2,370   24,816   5,285   8,317   14,445 
Interest payments  39,099   8,626   7,509   6,075   4,297   2,652   9,940 
Operating leases  38,696   2,967   2,797   2,841   2,830   2,784   24,477 
Uncertain tax positions(a)(b)  -   -   -   -   -   -   - 

(a)We have $865,000 of uncertain tax positions recorded in accrued liabilities. It is expected that these assessments will be settled within the next twelve months. See Note 9 to our consolidated financial statements.
(b)On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law (the “Act”). The Act provides, among others, the reduction of the statutory corporate income tax rate from 35% to 21% effective January 1, 2018.

On December 14, 2017, the Company entered into a loan agreement (“New Loan”) with a bank for $81.2 million. The New Loan fully refinances 20 of the Company’s notes payable and partially pays down 1 note payable (collectively, “Repaid Notes”) with interest rates ranging from 5% to 12% covering 43 parcels of real properties the Company previously acquired (“Properties”). The New Loan consists of three promissory notes:

i)

The first note amounts to $62.5 million with a term of 10 years at a 5.75% fixed interest rate for the first five years, then repriced one time at the then current U.S. Treasury rate plus 3.5%, with a floor rate of 5.75%, and payable in monthly installments of $442,058, based upon a 20-year amortization period, with the balance payable at maturity;

ii)

The second note amounts to $10.6 million with a term of 10 years at a 5.45% fixed interest rate until July 2020, after which to be repriced at a fixed interest rate of 5.75% until the fifth anniversary of this note, and then to be repriced again at the then interest rate of the first note. This note is payable $78,098 monthly for principal and interest until July 2020, based upon a 20-year amortization period, after which the monthly payment for principal and interest is adjusted accordingly based on the repricing, with the balance payable at maturity; and

iii)

The third note amounts to $8.1 million with a term of 10 years at a 5.95% fixed interest rate until August 2021, after which to be repriced at 5.75% until the fifth anniversary of this note, and then to be repriced again at the then interest of the first note. This note is payable $100,062 monthly for principal and interest until August 2021, based upon a 20-year amortization period, after which the monthly payment for principal and interest is adjusted accordingly based on the repricing, with the balance payable at maturity.

In addition to the monthly principal and interest payments as provided above, the Company will pay monthly installments of principal of $250,000, applied to the first note, until such time as the loan-to-value ratio of the Properties, based upon reduced principal balance of the New Loan and the then current value of the Properties, is not greater than 65%. The New Loan has eliminated balloon payments of the Repaid Notes worth $2.9 million originally scheduled in fiscal 2018, $19.4 million originally scheduled in fiscal 2020 and $5.3 million originally scheduled in fiscal 2021.

In connection with the Repaid Notes, we wrote off $279,000 of unamortized debt issuance costs to interest expense. Prior to September 30, 2017, the Company paid a portion of debt issuance costs amounting to $612,500, which was included in other assets until the closing of the transaction. At closing, the Company paid an additional $764,000 in debt issuance costs, which together with the $612,500 prepayment will be amortized for the term of the loan using the effective interest rate method.

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Other than the debt refinancing described above, wewe are not aware of any event or trend that would potentially significantly affectadversely impact our liquidity. In the event such a trend develops, we believe our working capital and capital expenditure requirements will be adequately met by cash flows from operations. In our opinion, working capital is not a true indicator of our financial status. Typically, businesses in our industry carry current liabilities in excess of current assets because businesses in our industry receive substantially immediate payment for sales, with nominal receivables, while inventories and other current liabilities normally carry longer payment terms. Vendors and purveyors often remain flexible with payment terms, providing businesses in our industry with opportunities to adjust to short-term business down turns.downturns. We consider the primary indicators of financial status to be the long-term trend of revenue growth, the mix of sales revenues, overall cash flow, profitability from operations and the level of long-term debt.

We continue to monitor the macro environment and will adjust our overall approach to capital allocation as events and trends unfold.

The following table presents a summary of such indicators (dollars in thousands):

     Increase     Increase    
  2017  (Decrease)  2016  (Decrease)  2015 
                
Sales of alcoholic beverages $60,439   5.6% $57,216   2.5% $55,829 
Sales of food and merchandise  18,256   2.0%  17,900   -4.3%  18,713 
Service revenues  58,132   13.4%  51,276   -3.3%  53,014 
Other  8,069   -4.7%  8,468   7.3%  7,893 
Total revenues $144,896   7.4% $134,860   -0.4% $135,449 
Net cash provided by operating activities $21,094   -8.4% $23,031   40.7% $16,364 
Adjusted EBITDA* $37,348   8.2% $34,531   1.2% $34,125 
Long-term debt $124,352   17.4% $105,886   12.2% $94,349 

2023Inc (Dec)2022Inc (Dec)2021
Sales of alcoholic beverages$127,262 12.3 %$113,316 30.7 %$86,685 
Sales of food and merchandise43,906 (0.9)%44,294 7.7 %41,111 
Service revenues103,577 10.3 %93,888 69.3 %55,461 
Other revenues19,045 18.1 %16,122 34.3 %12,001 
Total revenues$293,790 9.8 %$267,620 37.1 %$195,258 
Net income attributable to RCIHH common stockholders$29,246 (36.5)%$46,041 51.8 %$30,336 
Net cash provided by operating activities$59,130 (8.3)%$64,509 53.6 %$41,991 
Adjusted EBITDA*$84,998 (2.0)%$86,724 44.0 %$60,243 
Free cash flow*$53,176 (9.7)%$58,911 63.3 %$36,084 
Debt (end of period)$239,751 18.4 %$202,463 61.8 %$125,168 
*See definition and calculation of Adjusted EBITDA and Free Cash Flow under the Non-GAAP Financial Measures subsection of Results of Operationsand Liquidity and Capital Resources above.

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We have not established financing other than the notes payable including the New Loan in Note 20, and our existing line of credit facility discussed in Note 8 to the consolidated financial statements. There can be no assurance that we will be able to obtain additional financing on reasonable terms in the future, if at all, should the need arise.

Share Repurchase

As part of our capital allocation strategy, we buy back shares in the open market or through negotiated purchases, as authorized by our Boardboard of Directors.directors. During fiscal years 2017, 20162023, 2022, and 2015,2021, we paid for treasury stock amounting to $1.1$2.2 million, $7.3$15.1 million, and $2.3$1.8 million, representing 89,68534,086 shares, 747,081268,185 shares, and 225,28074,659 shares, respectively. On May 24, 2022, the board of directors approved a $25.0 million increase in the Company's share repurchase program. We have $3.1approximately $16.6 million remaining to purchase additional shares as of September 30, 2017.

2023.

For additional details regarding our Board approved share repurchase plans, please refer to Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

IMPACT OF INFLATION

We have not experienced a material overall impact from inflation in our operations during the past several years.

To the extent permitted by competition, we have managed to recover increased costs through price increases and may continue to do so. However, there can be no assurance that we will be able to do so in the future.

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SEASONALITY

Our nightclub operations are 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.

GROWTH STRATEGY

We believe that our nightclub operationswe can continue to grow organically and through careful entry into markets and demographic segments with high growth potential. Our growth strategy involves the following: (i) to acquireincludes acquiring existing units in locations that are consistent with our growth and income targets and which appear receptive to the upscale club formula we have developed; (ii) to openclubs, opening new unitsclubs after market analysis; (iii) to franchise our Bombshells brand; (iv) to form joint ventures or partnerships to reduce start-up and operating costs, with us contributing equity in the form of our brand name and management expertise; (v) to developanalysis, developing new club concepts that are consistent with our management and marketing skills; (vi) to developskills, franchising our Bombshells brand, and opendeveloping and opening our restaurant conceptsBombshells concept as our capital and manpower allow; and (vii)allow. We also strive to control the real estate in connection with club operations, although some units may be in leased premises.

We believeenter into businesses that Bombshellscomplement our own, such as gaming, if they can grow organically and through careful entry into markets and demographic segments with high growth potential. enhance shareholder value.

All fivetwelve of the currently existing Bombshells as of September 30, 2023 are located in Texas. Our food hall, which is currently being operated under our Bombshells segment, is located in Colorado. Our growth strategy is to diversify our operations with these units which do not require SOB licenses, which are sometimes difficult to obtain. While we are searching for adult nightclubs to acquire, we are able to also search for restaurant/sports bar locations that are consistent with our income targets.

During fiscal 2015, we acquired 51% of Drink Robust for $3.6 million. Prior to fiscal 2015, we owned 15% of Drink Robust for a $750,000 investment. In fiscal 2016, we sold 31% of our 51% interest in Robust, and in fiscal 2017, we fully impaired

Recovering from the remaining 20%. We also acquired an adult nightclub in Austin, Texas for $6.8 million, including the building in which it operates. We also acquired another adult nightclub in Minneapolis, Minnesota for $8.5 million, including the building in which it operates.

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During fiscal 2016,COVID-19 pandemic, we did not acquire any clubs nor open any new club, restaurant or investment,Bombshells units in adherence2021.

In 2022, we acquired fifteen clubs with an aggregate acquisition date fair value of $132.6 million, of which $55.3 million in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million), and 500,000 shares of our common stock in equity. We also opened a new Bombshells location in Arlington, Texas in December 2021 and our first franchised location in San Antonio, Texas opened in June 2022.
In 2023, we acquired six clubs with an aggregate acquisition date fair value of $72.3 million, of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and 200,000 shares of our common stock in equity.
See Note 14 to our capital allocation strategy. We acquired land for $5.9 million for future Bombshells sites. In September 2016, we opened Hoops Cabaret and Sports Bar in New York City.

During fiscal 2017, we acquired two clubs, one in Florida (Scarlett’s Miami) and another in Illinois (Hollywood Showclub) and certain adjacent real estate for an aggregate purchase price of $30.2 million. See Note 14 to the consolidated financial statements for details of the transactions. We subsequently relaunched Hollywood Showclub as Scarlett’s St. Louis, and opened a club (Hollywood Hunt Club) on the real estate acquired in Illinois.

We plan to open at least two Bombshells in fiscal 2018.

statements.

We continue to evaluate opportunities to acquire new nightclubs and anticipate acquiring new locations that fit our business model as we have done in the past. The acquisition of additional clubs may require us to take on additional debt or issue our common stock, or both. There can be no assurance that we will be able to obtain additional financing on reasonable terms in the future, if at all, should the need arise. An inability to obtain such additional financing could have an adverse effect on our growth strategy.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The items in our financial statements subject to market risk are potential debt instruments with variable interest rates. We have certain debts that have variable interest rates aggregating $4.3 million atin effect as of September 30, 2017. The note bears2023. An increase in interest at 2% above prime withrates in the future may have a floor of 5%. If the prime rate were to rise, the effectnegative impact on our results of operations and cash flows. A hypothetical 10% change in interest rates would have had a $680,000 impact on the Company's annual statementresults of income would be $43,000, before taxes, for each 1% rise above a prime rate of 3.5%.

operations and cash flows.

Item 8. Financial Statements and Supplementary Data.

The information required by this Item begins on page 43.

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49.

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RCI HOSPITALITY HOLDINGS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

ReportsReports of Independent Registered Public Accounting Firms (Marcum LLP, Firm ID: 688; Friedman LLP, Firm ID: 711)
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Consolidated Statements of Comprehensive Income for the years ended September 30, 2017, 2016 and 201548
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Report

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors and Stockholders

of

RCI Hospitality Holdings, Inc.

Houston, Texas

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, 2017 and2023, the related consolidated statements of income, comprehensive income, stockholders’changes in equity, and cash flows for the year then ended. Theseended September 30, 2023, and the related notes and schedule(collectively referred to as the “consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RCI Hospitality Holdings, Inc. atthe Company as of September 30, 2017,2023, and the results of its operations and its cash flows for the year then ended, September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for testing goodwill for impairment for its fiscal 2017 annual impairment test as of September 30, 2017 due to the adoption of Accounting Standards Update No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), RCI Hospitality Holdings, Inc.’sthe Company's internal control over financial reporting as of September 30, 2017,2023, based onthe criteria established inInternal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013and our report dated FebruaryDecember 14, 2018 2023,expressed an adverse opinion thereon.

/s/ BDO USA, LLP

Cleveland, Ohio

February 14, 2018

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Toon the Board of Directors and Stockholders of

RCI Hospitality Holdings, Inc.

We have audited the accompanying consolidated balance sheet of RCI Hospitality Holdings, Inc. and subsidiaries (the “Company”), as of September 30, 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for eacheffectiveness of the years inCompany’s internal control over financial reporting because of the two-year period ended September 30, 2016. The Company’s management is responsibleexistence of material weaknesses.

Basis for theseOpinion
These consolidated financial statements.statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company's consolidated financial statements based on our audits.

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 auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States).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. Anmisstatement, whether due to error or fraud. Our audit includesincluded 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 supportingregarding the amounts and disclosures in the consolidated financial statements. AnOur audit also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.

In our opinion,

Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements referredthat were communicated or required to abovebe 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.
Impairment of Goodwill, Indefinite-lived Intangible Assets, and Long-lived 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. Additionally, 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. 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. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset groups to the future undiscounted cash flows expected to be generated by the asset groups. If these assets are
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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, 2023, the Company had goodwill of approximately $70.8 million, and indefinite-lived intangible assets of approximately $155.5 million. Long-lived assets consisted of property and equipment, right of use assets, and intangible assets subject to amortization totaling approximately $341.2 million. During the year ended September 30, 2023 the Company recorded an impairment of these assets of approximately $12.6 million.
We identified the evaluation of the impairment analysis of goodwill, indefinite-lived intangible assets, and long-lived 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, indefinite-lived intangible asset, and long-lived 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 units 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 or asset group; (2) the consistency with external market data; and (3) sensitivities over significant inputs and assumptions, including the development of a point estimate.
Fair Value Measurement of Consideration and, Tangible and Intangible Assets Acquired in Business Acquisitions
As described in Note 14 to the consolidated financial statements, the Company completed two business acquisitions with an aggregate acquisition price totaling approximately $72.3 million during the year ended September 30, 2023.
The Company accounts for business combinations using the acquisition method, which requires recognition of assets acquired and liabilities assumed at their respective fair values at the date of acquisition. The fair value of the tangible assets acquired were measured using adjusted market prices and/or cost models. The fair values of intangible assets acquired are typically estimated using an income approach, which is based on the present fairly,value of future discounted cash flows. Management applied significant judgment in all material respects,estimating the fair value of the consideration and, tangible and intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the rate of future revenue growth, profitability of the acquired business and the discount rate, among other factors. In addition, the discount for lack of marketability applied to the common stock consideration was estimated based on an analysis of restricted stock studies, empirical data for discounts, and quantitative models.
The principal considerations for our determination that performing procedures relating to the fair value measurement of the consideration and assets acquired related to the acquisitions is a critical audit matter are (1) the significant judgment by management, including the use of specialists, when estimating the fair values of assets acquired; (2) a high degree of auditor judgment and subjectivity in performing procedures relating to the fair value measurement of assets acquired; (3) the significant audit effort in evaluating the reasonableness of the significant assumptions relating to the rate of future revenue growth and profitability of the acquired business and the discount rate; and (4) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial positionstatements. These procedures included identifying and evaluating the design and testing the operating effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the assets acquired and consideration, and controls over the development of the valuation models, as well as the significant assumptions related to the rate of future revenue growth, profitability of the acquired business, and the discount rate. These procedures also included, among others: (1) Reading the purchase agreement.; (2) Testing management’s process for estimating the fair values of the net assets acquired. Testing management’s process included evaluating the appropriateness of the valuation method, testing the completeness and accuracy of data provided by
51
management, and evaluating the reasonableness of significant assumptions related to the rate of future revenue growth, profitability of the acquired business, and the discount rate. Evaluating the reasonableness of the rate of future revenue growth and the profitability of the acquired business involved considering the historical performance of the acquired businesses and market comparable information, as well as economic and industry forecasts. The reasonableness of the discount rate was evaluated by considering the cost of capital of comparable businesses and other industry factors.; (3) Developing an independent point estimate for the consideration.; and (4) Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the discounted cash flow models, the reasonableness of the discount rate, and evaluating the assumptions for the fair value of the assets. They also assisted us in developing an independent model and assumptions for the consideration.

/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2019 (such date takes into account the acquisition of Friedman LLP by Marcum LLP effective September 1, 2022).
Marlton, New Jersey
December 14, 2023



52
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. and subsidiaries,(the “Company”) as of September 30, 2016,2022, the related consolidated statements of income, changes in equity and the results of their operations and their cash flows for each of the years in the two-year period ended September 30, 2016,2022 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, 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2022 in conformity with accounting principles generally accepted in the United States of America.

/s/ Whitley Penn LLP
Dallas, Texas
December 13, 2016

 45

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 audits 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/ Friedman LLP
Friedman LLP
We have served as the Company’s auditor from 2019 to 2023.
Marlton, New Jersey
December 14, 2022
53
RCI HOSPITALITY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

  September 30, 
  2017  2016 
ASSETS        
Current assets        
Cash and cash equivalents $9,922  $11,327 
Accounts receivable, net  3,187   4,365 
Inventories  2,149   2,019 
Prepaid insurance  3,826   2,897 
Other current assets  1,399   1,108 
Assets held for sale  5,759   7,671 
Total current assets  26,242   29,387 
Property and equipment, net  148,410   141,073 
Notes receivable  4,993   4,800 
Goodwill  

43,866

   45,847 
Intangibles, net  74,424   52,766 
Other assets  1,949   2,188 
Total assets $299,884  $276,061 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities        
Accounts payable $2,147  $1,701 
Accrued liabilities  11,524   15,386 
Current portion of long-term debt  17,440   9,950 
Total current liabilities  31,111   27,037 
Deferred tax liability, net  25,541   23,266 
Long-term debt  106,912   95,936 
Other long-term liabilities  1,095   483 
Total liabilities  164,659   146,722 
         
Commitments and contingencies (Note 11)        
         
Stockholders’ equity        
Preferred stock, $0.10 par value per share; 1,000 shares authorized; none issued and outstanding  -   - 
Common stock, $0.01 par value per share; 20,000 shares authorized; 9,719 and 9,808 shares issued and outstanding as of September 30, 2017 and 2016, respectively  97   97 
Additional paid-in capital  63,453   64,552 
Retained earnings  69,195   62,106 
Total RCIHH stockholders’ equity  132,745   126,755 
Noncontrolling interests  2,480   2,584 
Total stockholders’ equity  135,225   129,339 
Total liabilities and stockholders’ equity $299,884  $276,061 

par value and number of shares)

September 30,
20232022
ASSETS
Current assets
Cash and cash equivalents$21,023 $35,980 
Accounts receivable, net9,846 8,510 
Current portion of notes receivable249 230 
Inventories4,412 3,893 
Prepaid expenses and other current assets1,943 1,499 
Assets held for sale— 1,049 
Total current assets37,473 51,161 
Property and equipment, net282,705 224,615 
Operating lease right-of-use assets, net34,931 37,048 
Notes receivable, net of current portion4,443 4,691 
Goodwill70,772 67,767 
Intangibles, net179,145 144,049 
Other assets1,415 1,407 
Total assets$610,884 $530,738 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$6,111 $5,482 
Accrued liabilities16,051 11,328 
Current portion of debt obligations, net22,843 11,896 
Current portion of operating lease liabilities2,977 2,795 
Total current liabilities47,982 31,501 
Deferred tax liability, net29,143 30,562 
Debt, net of current portion and debt discount and issuance costs216,908 190,567 
Operating lease liabilities, net of current portion35,175 36,001 
Other long-term liabilities352 349 
Total liabilities329,560 288,980 
Commitments and contingencies (Note 10)
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; 9,397,639 shares and 9,231,725 shares issued and outstanding as of September 30, 2023 and 2022, respectively94 92 
Additional paid-in capital80,437 67,227 
Retained earnings201,050 173,950 
Total RCIHH stockholders’ equity281,581 241,269 
Noncontrolling interests(257)489 
Total equity281,324 241,758 
Total liabilities and equity$610,884 $530,738 
See accompanying notes to consolidated financial statements.

 46

54

RCI HOSPITALITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share and number of shares data)

  Years Ended September 30, 
  2017  2016  2015 
Revenues            
Sales of alcoholic beverages $60,439  $57,216  $55,829 
Sales of food and merchandise  18,256   17,900   18,713 
Service revenues  58,132   51,276   53,014 
Other  8,069   8,468   7,893 
Total revenues  144,896   134,860   135,449 
Operating expenses            
Cost of goods sold            
Alcoholic beverages sold  13,114   12,624   12,036 
Food and merchandise sold  7,398   6,810   7,467 
Service and other  209   1,112   814 
Costof goods sold (exclusive of items shown separately below)  20,721   20,546   20,317 
Salaries and wages  40,029   37,457   37,732 
Selling, general and administrative  46,775   43,075   43,598 
Depreciation and amortization  6,920   7,328   7,045 
Other charges, net  7,312   5,761   6,030 
Total operating expenses  121,757   114,167   114,722 
Income from operations  23,139   20,693   20,727 
Other income (expenses)            
Interest expense  (8,764)  (7,982)  (6,969)
Interest income  266   131   15 
Non-operating gains  -   -   229 
Income before income taxes  14,641   12,842   14,002 
Income taxes  6,359   2,373   5,111 
Net income  8,282   10,469   8,891 
Net loss (income) attributable to noncontrolling interests  (23)  749   323 
Net income attributable to RCIHH common shareholders $8,259  $11,218  $9,214 
             
Earnings per share attributable to RCIHH common shareholders            
Basic $0.85  $1.13  $0.89 
Diluted $0.85  $1.11  $0.89 
             
Weighted average number of common shares outstanding            
Basic  9,731   9,941   10,359 
Diluted  9,743   10,229   10,406 

Years Ended September 30,
202320222021
Revenues
Sales of alcoholic beverages$127,262 $113,316 $86,685 
Sales of food and merchandise43,906 44,294 41,111 
Service revenues103,577 93,888 55,461 
Other19,045 16,122 12,001 
Total revenues293,790 267,620 195,258 
Operating expenses
Cost of goods sold
Alcoholic beverages sold23,291 20,155 15,883 
Food and merchandise sold15,429 15,537 13,794 
Service and other282 317 374 
Total cost of goods sold (exclusive of items shown separately below)39,002 36,009 30,051 
Salaries and wages79,500 68,447 50,627 
Selling, general and administrative93,024 78,847 54,608 
Depreciation and amortization15,151 12,391 8,238 
Other charges, net15,629 467 13,186 
Total operating expenses242,306 196,161 156,710 
Income from operations51,484 71,459 38,548 
Other income (expenses)
Interest expense(15,926)(11,950)(9,992)
Interest income388 411 253 
Non-operating gains, net— 211 5,330 
Income before income taxes35,946 60,131 34,139 
Income tax expense6,846 14,071 3,989 
Net income29,100 46,060 30,150 
Net loss (income) attributable to noncontrolling interests146 (19)186 
Net income attributable to RCIHH common stockholders$29,246 $46,041 $30,336 
Earnings per share
Basic and diluted$3.13 $4.91 $3.37 
Weighted average shares used in computing earnings per share
Basic and diluted9,335,9839,383,4459,004,744
Dividends per share$0.23 $0.19 $0.16 
See accompanying notes to consolidated financial statements.

 47

55

RCI HOSPITALITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CHANGES IN EQUITY

Years Ended September 30, 2023, 2022, and 2021
(in thousands)

  Years Ended September 30, 
  2017  2016  2015 
Net income $8,282  $10,469  $8,891 
Amount reclassified from accumulated other comprehensive income  -   (109)  - 
Other comprehensive income:            
Unrealized holding gain on securities available for sale  -   -   18 
Comprehensive income  8,282   10,360   8,909 
Comprehensive loss (income) attributable to noncontrolling interests  (23)  749   323 
Comprehensive income attributable to RCI Hospitality Holdings, Inc. $8,259  $11,109  $9,232 

thousands, except number of shares)

Common StockAdditional
Paid-In
Capital		Retained
Earnings		Treasury StockNoncontrolling
Interests		Total
Equity
Number
of Shares		AmountNumber
of Shares		Amount
Balance at September 30, 20209,074,569$91 $51,833 $100,797 —$— $(414)$152,307 
Purchase of treasury shares—— — — (74,569)(1,794)— (1,794)
Canceled treasury shares(74,659)(1)(1,793)— 74,5691,794 — — 
Payment of dividends—— — (1,440)—— — (1,440)
Net income (loss)—— — 30,336 —— (186)30,150 
Balance at September 30, 20218,999,91090 50,040 129,693 —— (600)179,223 
Issuance of common shares for business combination500,0005 29,928 — —— — 29,933 
Purchase of treasury shares—— — — (268,185)(15,097)— (15,097)
Canceled treasury shares(268,185)(3)(15,094)— 268,18515,097 — — 
Payment of dividends—— — (1,784)—— — (1,784)
Stock-based compensation expense—— 2,353 — —— — 2,353 
Investment from noncontrolling partner—— — — —— 1,070 1,070 
Net income—— — 46,041 —— 19 46,060 
Balance at September 30, 20229,231,72592 67,227 173,950 —— 489 241,758 
Issuance of common shares for business combination200,0002 12,845 — —— — 12,847 
Purchase of treasury shares—— — — (34,086)(2,223)— (2,223)
Canceled treasury shares(34,086)— (2,223)— 34,0862,223 — — 
Payment of dividends—— — (2,146)—— — (2,146)
Stock-based compensation expense—— 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, 20239,397,639$94 $80,437 $201,050 —$— $(257)$281,324 
See accompanying notes to consolidated financial statements.

 48

56

RCI HOSPITALITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years Ended September 30, 2017, 2016 and 2015

CASH FLOWS

(in thousands)

  Common Stock  Additional     Accumulated
Other		  Treasury Stock     Total 
  Number     Paid-In  Retained  Comprehensive  Number     Noncontrolling  Stockholders’ 
  of Shares  Amount  Capital  Earnings  Income  of Shares  Amount  Interests  Equity 
Balance at September 30, 2014  10,067  $101  $66,727  $42,536  $91   -  $-  $3,010  $112,465 
Purchase of treasury shares  -   -   -   -   -   (225)  (2,296)  -   (2,296)
Canceled treasury shares  (225)  (2)  (2,294)  -   -   225   2,296   -   - 
Stock options exercised  10   -   87   -   -   -   -   -   87 
Common stock issued for acquisition  200   2   2,373   -   -   -   -   -   2,375 
Common stock issued for debt and interest  233   2   2,356   -   -   -   -   -   2,358 
Stock-based compensation  -   -   480   -   -   -   -   -   480 
Payments to noncontrolling interests  -   -   -   -   -   -   -   (216)  (216)
Noncontrolling interests at acquisition of business  -   -   -   -   -   -   -   3,392   3,392 
Change in marketable securities  -   -   -   -   18   -   -   -   18 
Net income (loss)  -   -   -   9,214   -   -   -   (323)  8,891 
                                     
Balance at September 30, 2015  10,285  $103  $69,729  $51,750  $109   -  $-  $5,863  $127,554 
Purchase of treasury shares  -   -   -   -   -   (747)  (7,311)  -   (7,311)
Canceled treasury shares  (747)  (8)  (7,303)  -   -   747   7,311   -   - 
Vesting of restricted stock  96   1   (1)  -   -   -   -   -   - 
Common stock issued for debt and interest  125   1   1,267   -   -   -   -   -   1,268 
Warrants exercised  49   -   500   -   -   -   -   -   500 
Stock-based compensation  -   -   360   -   -   -   -   -   360 
Payment of dividends  -   -   -   (862)  -   -   -   -   (862)
Payments to noncontrolling interests  -   -   -   -   -   -   -   (217)  (217)
Divestiture in Drink Robust  -   -   -   -   -   -   -   (2,313)  (2,313)
Change in marketable securities  -   -   -   -   (109)  -   -   -   (109)
Net income (loss)  -   -   -   11,218   -   -   -   (749)  10,469 
                                     
Balance at September 30, 2016  9,808  $97  $64,552  $62,106  $-   -  $-  $2,584  $129,339 
Purchase of treasury shares  -   -   -   -   -   (89)  (1,099)  -   (1,099)
Canceled treasury shares  (89)  -   (1,099)  -   -   89   1,099   -   - 
Payment of dividends              (1,170)                  (1,170)
Payments to noncontrolling interests                              (215)  (215)
Divestiture in Drink Robust                              88   88 
Net income              8,259               23   8,282 
                                     
Balance at September 30, 2017  9,719  $97  $63,453  $69,195  $-   -  $-  $2,480  $135,225 

Years Ended September 30,
202320222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$29,100 $46,060 $30,150 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization15,151 12,391 8,238 
Deferred tax expense (benefit)(1,781)3,080 (1,253)
Gain on sale of businesses and assets(870)(2,970)(714)
Impairment of assets12,629 1,888 13,612 
Amortization and writeoff of debt discount and issuance costs615 314 311 
Doubtful accounts expense (reversal) on notes receivable— 753 (80)
Unrealized loss on equity securities— — 84 
Gain on insurance(77)(463)(1,337)
Noncash lease expense2,978 2,607 1,729 
Stock-based compensation expense2,588 2,353 — 
Gain on debt extinguishment— (83)(5,298)
Changes in operating assets and liabilities, net of business acquisitions:   
Accounts receivable(2,383)(175)(769)
Inventories177 (554)(287)
Prepaid expenses, other current, and other assets(366)387 4,120 
Accounts payable, accrued, and other liabilities1,369 (1,079)(6,515)
Net cash provided by operating activities59,130 64,509 41,991 
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of businesses and assets4,245 10,669 5,415 
Proceeds from notes receivable229 182 130 
Proceeds from insurance86 648 1,152 
Payments for property and equipment and intangible assets(40,384)(24,003)(13,511)
Acquisition of businesses, net of cash acquired(29,000)(55,293)— 
Net cash used in investing activities(64,824)(67,797)(6,814)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt obligations, including related party proceeds of $0, $650, and $0, respectively11,595 35,820 38,490 
Payments on debt obligations(15,650)(14,894)(49,178)
Purchase of treasury stock(2,223)(15,097)(1,794)
Payment of dividends(2,146)(1,784)(1,440)
Payment of loan origination costs(239)(463)(1,174)
Share in return of investment by noncontrolling partner(600)— — 
Net cash provided by (used in) financing activities(9,263)3,582 (15,096)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(14,957)294 20,081 
57
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR35,980 35,686 15,605 
CASH AND CASH EQUIVALENTS AT END OF YEAR$21,023 $35,980 $35,686 
CASH PAID DURING THE YEAR FOR:
Interest paid, net of amounts capitalized$15,156 $11,227 $10,362 
Income taxes paid (net of refunds of $1,656, $2,256, and $2,201, in 2023, 2022, and 2021, respectively)$8,636 $9,500 $5,389 
Non-cash investing and financing transactions:
Years Ended September 30,
202320222021
Debt incurred in connection with acquisition of businesses$30,405 $49,000 $— 
Debt incurred in connection with purchase of property and equipment$10,476 $9,201 $— 
Notes receivable received as proceeds from sale of assets$— $2,700 $— 
Investment from noncontrolling partner in connection with purchase of property$— $1,070 $— 
Issuance of shares of common stock for acquisition of business:
Number of shares200,000500,000—
Fair value at acquisition date$12,847 $29,933 $— 
Refinanced long-term debt$— $— $62,832 
Adjustment to operating lease right-of-use assets related to new and renewed leases$1,864 $21,424 $491 
Adjustment to operating lease liabilities related to new and renewed leases$2,163 $21,424 $491 
Unpaid liabilities on capital expenditures$1,967 $1,503 $830 
Receivable on eminent domain disposition$— $1,047 $— 
See accompanying notes to consolidated financial statements.

 49

58

RCI HOSPITALITY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

  Years Ended September 30, 
  2017  2016  2015 
CASH FLOWS FROM OPERATING ACTIVITIES            
Net income $8,282  $10,469  $8,891 
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization  6,920   7,328   7,045 
Deferred tax expense  2,273   1,143   3,882 
Loss (gain) on sale of assets  (838)  388   808 
Impairment of assets  7,639   3,492   1,705 
Amortization of debt issuance costs, note discount and beneficial conversion  218   455   36 
Gain on acquisition of controlling interest in subsidiary  -   -   (229)
Gain on settlement of patron tax  (102)  -   (8,167)
Gain on sale of marketable securities  -   (116)  - 
Deferred rent expense (credit)  272   15   (38)
Stock-based compensation expense  -   360   480 
Debt prepayment penalty  75   -   - 
Changes in operating assets and liabilities:            
Accounts receivable  878   (3,986)  (339)
Inventories  (19)  (124)  54 
Prepaid expenses and other assets  (1,526)  (18)  852 
Accounts payable and accrued liabilities  (2,978)  3,625   1,384 
Net cash provided by operating activities  21,094   23,031   16,364 
             
CASH FLOWS FROM INVESTING ACTIVITIES            
Proceeds from sale of assets  2,145   3,427   - 
Proceeds from sale of marketable securities  -   621   - 
Proceeds from notes receivable  107   -   - 
Additions to property and equipment  (11,249)  (28,148)  (19,259)
Acquisition of businesses, net of cash acquired  (9,527)  -   (2,328)
Net cash used in investing activities  (18,524)  (24,100)  (21,587)
             
CASH FLOWS FROM FINANCING ACTIVITIES            
Proceeds from long-term debt  12,399   32,049   18,283 
Payments on long-term debt  (13,080)  (19,159)  (12,579)
Exercise of stock options and warrants  -   500   87 
Purchase of treasury stock  (1,099)  (7,311)  (2,296)
Payment of dividends  (1,170)  (862)  - 
Payment of loan origination costs  (735)  (624)  - 
Debt prepayment penalty  (75)  -   - 
Distribution to noncontrolling interests  (215)  (217)  (216)
Net cash provided by (used in) financing activities  (3,975)  4,376   3,279 
             
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  (1,405)  3,307   (1,944)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD  11,327   8,020   9,964 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,922  $11,327  $8,020 
             
CASH PAID DURING PERIOD FOR:            
Interest paid, net of amounts capitalized $8,081  $7,719  $6,540 
Income taxes $4,185  $1,914  $3,776 

 50

Non-cash transactions:

  Years Ended September 30, 
  2017  2016  2015 
Issue of shares of common stock for debt and interest            
Number of shares  -   125   233 
Value of shares $-  $1,268  $2,358 
Debt incurred in connection with seller in connection with acquisition of businesses and property and equipment $20,552  $-  $3,379 
Notes receivable received as proceeds from sale of assets $-  $4,800  $- 
Accrued liabilities due settled with debt $-  $-  $7,234 
Unrealized gain on marketable securities $-  $-  $18 
Issue of shares of common stock for acquiring a business            
Number of shares  -   -   200 
Value of shares $-  $-  $2,375 
Note payable reduction from sale proceeds of property $1,500  $-  $- 
Refinanced long-term debt $8,000  $-  $- 

See accompanying notes to consolidated financial statements.

 51

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

1. Nature of Business

RCI Hospitality Holdings, Inc. (the “Company”“Company,” “we,” “us,” or “our”) is a holding company incorporated in Texas in 1994. Through its subsidiaries, the Company currently owns and operates 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, LubbockArlington, and Beaumont, Texas, as well as Denver, Colorado; Minneapolis, Minnesota; Philadelphia,Pittsburgh, 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; and Chicago, Washington Park, Sauget, and Kappa, Illinois. The Company also owns and operates media businesses for adults.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 2017, 20162023, 2022, and 20152021 are for fiscal years ended September 30, 2017, 20162023, 2022, and 2015,2021, 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 assumptions 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. We believe the accounting policies below are critical in the portrayal of our financial condition and results of operations.

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.

 52


59
RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies - continued

Accounts and Notes Receivable

Accounts receivable 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 accounts receivable are primarily comprised of receivables for advertising sales and Expo registration. Accounts receivable 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 accounts or notes receivable will not be collected.

Allowance for doubtful accounts balance related to accounts receivable was $62,000 and $30,000 as of September 30, 2023 and 2022, respectively (see Note 4). Allowance for doubtful accounts balance related to notes receivable was $0 and $0 as of September 30, 2023 and 2022, 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 market.

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 from related debt is capitalized, amountingwhich amounted to $43,000$0 in all three fiscal 2017 and $59,000 in fiscal 2016.

See Note 3 in relation to revision of prior year financial statements. 

years presented.

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 purchasing 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.

 53


60
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 earnings multiples, discounted cash flows and comparable asset market values. As detailed in the “Impact of Recently Issued Accounting Standards” section of this Note, we adopted ASU 2017-04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, during Q4 of 2017, and accordingly, weWe 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, 2017,2023, we identified four reporting units that were impaired and recognized a goodwill impairment loss totaling $4.7$4.2 million. See Note 16.

For the year ended September 30, 2022, we identified one reporting unit that was impaired and recognized a goodwill impairment loss of $566,000. For the year ended September 30, 2021, we identified seven reporting units that were impaired and recognized a goodwill impairment loss totaling $6.3 million.

For indefinite-lived intangibles, specifically SOBsexually-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 $1.4$6.5 million for 2017, $2.1 million for 2016 and $1.7 million for 2015,in 2023 related to twoeight clubs, $293,000 in 2017,2022 related to one club, $5.3 million in 2016 and two2021 related to three clubs, which are included in 2015. See Note 16

See related discussionother charges, net in the consolidated statements of the early adoption of ASU 2017-04 at the end of Note 2.

income.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, such as property plant, and equipment, and 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 the fourth quarter of fiscal 2017,2023, the Company impaired one club for $385,000,$58,000; during 2022, the Company impaired one club and one Bombshells for a total of $1.0 million; and during the fourth quarter of fiscal 2016,2021, the Company recognized a loss on disposal onimpaired five clubs (including one propertylater reclassified as held for salesale) for a total of $2.0 million. The Company also impaired one club in Fort Worth, Texasfiscal 2023 for $1.4 million.operating lease right-of-use assets amounting to $1.0 million and software amounting to $814,000 related to two venture projects. See Note 16.

Notes 5 and 18.

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 accounts receivable, 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.

Comprehensive Income

Comprehensive income is the total

61
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 and other revenues at the point-of-sale upon receipt of cash, check, or credit card charge, net of discounts and promotional allowances.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. Other rental revenuesconvention, 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 when earned.

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 3and 18 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 4.

4.

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.

 55

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies - continued

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.

See Note 3 in relation to revision of prior year financial statements.

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. During
62
RCI HOSPITALITY HOLDINGS, INC.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies - continued
Paycheck Protection Program
The Company’s policy is to account for the year ended September 30, 2013, the Company acquired approximately 12% of Drink Robust, Inc.Paycheck Protection Program (“Robust”PPP”) for $600,000. This investment was increased to 15% during the year ended September 30, 2014, and to 51% in October 2014, at which time the subsidiary became part of the consolidated group.loans as debt (see Note 8). The Company sold 31% of this company on September 29, 2016, retaining 20% (see additional discussion in Note 14). Becausewill continue to record the loans as debt until either (1) the loans are partially or entirely forgiven and the Company has no ability to directbeen legally released from the management ofobligation, at which point the investee companyamount forgiven will be recorded as income, or exert significant influence,(2) the investment is being accounted for at cost beginning onCompany pays off the date of sale. The carrying value of the cost-method investment in Robust was $1.2 million as of September 30, 2016. During the fourth quarter of fiscal 2017, we determined our investment in Drink Robust was impaired and recognized an other-than temporary impairment totaling $1.2 million which brought our carrying value of this investment to zero.

loans.

Earnings Per Common 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 “treasurytreasury stock method”)method) and from outstanding convertible debentures (the number of which is computed using the “if converted method”)if-converted method). Diluted earnings per share (“EPS”) 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 occurbe incurred if the debentures were converted).

 56

RCI HOSPITALITY HOLDINGS, INC.

NotesDuring the years ended September 30, 2023, 2022, and 2021, the Company did not have any adjustment items to Consolidated Financial Statements

2. Summary of Significant Accounting Policies - continued

Net earnings applicable to common stockreconcile the numerator and the weighted average numberdenominator in the calculation of shares used for basic and diluted earnings (loss)per share. For fiscal 2023 and 2022, we excluded 300,000 stock options from the calculation of diluted earnings per share computationsbecause the effect was anti-dilutive. There were no other potentially dilutive securities outstanding during fiscal 2021.

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 summarized inincluded prospectively beginning with the table that follows (in thousands, except perdate 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 data):

  For the Year Ended 
  September 30, 
  2017  2016  2015 
Basic earnings per share:            
Net income attributable to RCIHH shareholders $8,259  $11,218  $9,214 
Weighted average number of common shares outstanding - basic  9,731   9,941   10,359 
Basic earnings per share $0.85  $1.13  $0.89 
Diluted earnings per share:            
Net income attributable to RCIHH shareholders $8,259  $11,218  $9,214 
Adjustment to net earnings from assumed conversion of debentures (1)  5   153   29 
Adjusted net income attributable to RCIHH shareholders  8,264   11,371   9,243 
Weighted average number of common shares outstanding - diluted:            
Weighted average number of common shares outstanding - basic  9,731   9,941   10,359 
Effect of potentially dilutive restricted stock, warrants and options (2)  -   60   - 
Effect of potentially dilutive convertible debentures (1)  12   228   47 
Weighted average number of common shares outstanding - diluted  9,743   10,229   10,406 
Diluted earnings per share $0.85  $1.11  $0.89 

*EPS may not foot due to rounding.

(1) Represents interest expense on dilutive convertible securities that would not occur if they were assumed converted.

(2) All outstanding warrants and options were considered for the EPS computation.

Additional shares for options, warrants and debentures amounting to zero, 72,400 and 353,400 for the year ended September 30, 2017, 2016 and 2015 were not considered since they would be antidilutive.

Convertible debentures (principal and accrued interest) outstanding at September 30, 2017, 2016 and 2015 totaling $0, $0.5 million and $4.6 million, respectively, were convertible into common stock at prices ranging from $10.00 to $12.50 in each of fiscal year 2016 and 2015. Convertible debentures amounting to $0.9 million, $0.5 million and $0.5 million were dilutive in 2017, 2016 and 2015, respectively.

See Note 3 in relation to revision of prior year financial statements.

 57
repurchases.

Stock-based Compensation

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies - continued

Stock Options

At September 30, 2017 and 2016, the Company has no stock options outstanding.

The Company recognizes all employee stock-based compensation as a cost in theselling, general and administrative expenses in our consolidated financial statements.statements of operations. 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.
The critical estimates arefollowing table provides the significant assumptions used in determining the estimated grant date fair value of the stock options granted in fiscal 2022. No grants were awarded in fiscal 2023 and 2021.
Expected term (in years)4.45
Expected volatility64.42 %
Expected dividend yield0.20 %
Risk-free rate3.23 %
63
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 lifeterm. 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.

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 recognizes legal fees and expenses, including those related to legal contingencies, as incurred.

Generally, the Company recognizes gain contingencies when they are realized or when all related contingencies have been resolved.

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 carries substantial insurance to cover such risks with large deductibles and/or self-insured retention. These policies have been structured to limit our per-occurrence exposure. The Company believes, and the Company’s experience has been, that such insurance policies have been sufficient to cover such risks.
Fair Value Accounting

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.

•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. Unrealized holding gains and losses, net of the related income tax effect, if any, on available-for-sale securities are excluded from income and are reported as accumulated other comprehensive income in stockholders’ equity. Realized gains and losses (including unrealized holding gains and losses) from securities classified as available for-saleavailable-for-sale are included in 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. Available-for-sale securities had zero balance as

64
Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies - continued

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 for other than temporaryor other-than-temporary impairments in our marketable securities portfolio were recognized during the years ended September 30, 2017, 20162023, 2022, and 2015.

2021.

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 other charges, net in the consolidated statements of income.

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 
     Quoted Prices in     Significant 
     Active Markets for  Significant Other  Unobservable 
  September 30,  Identical Asset  Observable Inputs  Inputs 
Description 2017  (Level 1)  (Level 2)  (Level 3) 
Goodwill $

4,572

  $-  $-  $

4,572

 
Property and equipment, net  4,678   -   4,678   - 
Indefinite-lived intangibles  25,740   -   -   25,740 
Definite-lived intangibles, net  600   -   -   600 

     Fair Value at Reporting Date Using 
     Quoted Prices in     Significant 
     Active Markets for  Significant Other  Unobservable 
  September 30,  Identical Asset  Observable Inputs  Inputs 
Description 2016  (Level 1)  (Level 2)  (Level 3) 
Assets held for sale $2,199  $-  $-  $2,199 
Other assets  1,156   -   -   1,156 

 59

Fair Value at Reporting Date Using
DescriptionSeptember 30,
2023		Quoted Prices in Active Markets for Identical Asset
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
Property and equipment*$21,454 $— $— $21,454 
Indefinite-lived intangibles*43,948 — — 43,948 
Indefinite-lived intangibles**2,996 — — 2,996 
Definite-lived intangibles**8,220 — — 8,220 
Goodwill*6,881 — — 6,881 
Goodwill**1,084 — — 1,084 
Current assets*696 — — 696 

Fair Value at Reporting Date Using
DescriptionSeptember 30,
2022		Quoted Prices in Active Markets for Identical Asset
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
Property and equipment*$32,904 $— $— $32,904 
Property and equipment**3,432 — — 3,432 
Indefinite-lived intangibles*50,454 — — 50,454 
Definite-lived intangibles*27,986 — — 27,986 
Goodwill*20,608 — — 20,608 
Goodwill**663 — — 663 
Current assets*681 — — 681 
*Certain assets and liabilities measured at the acquisition dates.
** Measured at year-end impairment testing.
65
RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies - continued

  Impairments Recognized 
  Years Ended September 30, 
Description 2017  2016  2015 
Goodwill $(4,697) $-  $- 
Property and equipment, net  (385)  -   - 
Indefinite-lived intangibles  (1,401)  (2,092)  (1,705)
Assets held for sale  -   (1,400)  - 
Other assets  (1,156)  -   - 

Impact

Unrealized Gain (Loss/Impairments) Recognized
Years Ended September 30,
Description202320222021
Goodwill$(4,239)$(566)$(6,307)
Property and equipment, net (including held for sale)(58)(1,029)(2,202)
Indefinite-lived intangibles(5,516)(293)(5,296)
Definite-lived intangibles(1,813)— — 
Operating lease right-of-use assets(1,003)— — 
Other assets (equity securities)— — (84)
The significant unobservable inputs used in our level 3 fair value measurements are as follows:
Range (Weighted Average)
AreasValuation TechniquesUnobservable Input202320222021
Property and equipmentDiscounted cash flowEBITDA multiple1x - 12x (11x)9x - 10x (10x)8x (8x)
Revenue/EBITDA growth rate0% - 2.5% (1.25%)0% - 2.5% (1.5%)0% - 2.5% (1%)
Weighted average cost of capital11% (11.0%)12.5% (12.5%)13% - 17% (15%)
GoodwillDiscounted cash flowEBITDA multiple9x - 12x (12x)8x - 10x (9x)8x (8x)
Revenue/EBITDA growth rate0% - 2.5% (2.5%)0% - 2.5% (1.5%)0% - 2.5% (1%)
Weighted average cost of capital11% (11%)12.5% (12.5%)13% - 17% (15%)
SOB licensesMultiperiod excess earningsEBITDA multiple12x (12x)9x - 10x (10x)8x (8x)
Revenue/EBITDA growth rate0% - 2.5% (2.5%)0% - 2.5% (1.5%)0% - 2.5% (1%)
Weighted average cost of capital11% (11%)12.5% (12.5%)13% - 17% (15%)
Contributory asset charges rate10% - 21.5% (15%)0.5% - 7.4% (2.3%)1.4% - 8.0% (4%)
TradenameRelief-from-royalty methodRevenue growth rate0% - 2.5% (2.5%)0% - 2.5% (1.5%)0% - 2.5% (2.5%)
Terminal multiple12x (12x)9x - 10x (9x)8x (8x)
Royalty rate3% - 6% (4.7%)3.5% - 4.5% (4%)None
Weighted average cost of capital11% (11%)12.5% (12.5%)15% (15%)
Operating lease right-of-use assetsDiscounted cash flowEBITDA growth rate1.5% - 2.5% (2.3%)0% - 2.5% (1.5%)0% - 2.5% (1%)
Weighted average cost of capital11% (11%)12.5% (12.5%)13% - 17% (15%)
Business combinationsVarious*Growth rate0% - 11.2% (5.5%)2.5% - 10% (4.8%)None
Weighted average cost of capital16.5% - 18.0% (17.8%)15% - 19.5% (18.1%)None
Internal rate of return16.5% - 30.0% (22.4%)15% - 21.5% (19.4%)None
Contributory asset charges rate15.6% - 21.5% (16.3%)8.5% - 10.2% (9.3%)None
* Includes all of Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers(“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principlevaluation techniques for each of ASU 2014-09 isthe fair valued assets above as of each acquisition date.

Reclassification
We made certain reclassification adjustments to recognize revenues when promised goods or services are transferredsegment disclosures related to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principleprepaid insurance and in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard’s effective date has been deferredgoodwill. These assets were acquired by the issuance of ASU No. 2015-14,registrant and is effective for annual periods beginning after December 15, 2017, and interim periods therein. The guidance permits using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standardpresented in each prior reporting period with the optionCorporate segment but mostly benefit subsidiaries belonging to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early application is permitted but not before December 15, 2016, the ASU’s original effective date. The Company is still evaluating the impact of the standard and which transition method it is goingother reportable segments. Prior year disclosures were also made to use upon adoption.

In February 2015, the FASB issued ASU No. 2015-02, which amends FASB ASU Topic 810,Consolidations. This ASU amends theconform to current consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. This ASU requires that limited partnerships and similar legal entities provide partners with either substantive kick-out rights or substantive participating rights over the general partner in order to be considered a voting interest entity. The specialized consolidation model and guidance for limited partnerships and similar legal entities have been eliminated.year presentation. There is no longer a presumption that a general partner should consolidate a limited partnership. For limited partnershipsimpact in consolidated total assets, results of operations, and similar legal entities that qualify as voting interest entities, a limited partner with a controlling financial interest should consolidate a limited partnership. A controlling financial interest may be achieved through holding a limited partner interest that provides substantive kick-out rights. The standard is effective for annualcash flows in all periods beginning after December 15, 2015. The Company has adopted this guidance aspresented. See Note 16.

66
Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies - continued

Impact of Recently Issued Accounting Standards
In July 2015,October 2021, the FASBFinancial Accounting Standards Board ("FASB") issued ASUAccounting Standards Update ("ASU") No. 2015-11,Inventory2021-08, Business Combinations (Topic 330)805): Simplifying the Measurement of InventoryAccounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU does notamends Accounting Standards Codification ("ASC") Topic 805 to require acquiring entities to apply ASC 606 to inventory thatrecognize and measure contract assets and contract liabilities in business combinations. The ASU is measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using FIFO or average cost. This ASU eliminates from U.S. GAAP the requirement to measure inventory at the lower of cost or market. Market under the previous requirement could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. Entities within scope of this update will now be required to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchangedeffective for inventory using LIFO or the retail inventory method. The amendments in this update are effectivepublic entities for fiscal years beginning after December 15, 2016, with early adoption permitted, and should be applied prospectively. The Company does2022, including interim periods within those fiscal years. We are still evaluating the impact of this ASU but we do not expect the adoption of this guidanceit to have a material impact on itsour consolidated financial statements.

In September 2015,June 2022, the FASB issued ASU No. 2015-16,Business Combinations2022-03, Fair Value Measurement (Topic 805)820): SimplifyingFair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that an entity should measure the Accountingfair 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 Measurement-Period Adjustments.public entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. We have not yet evaluated the impact of this ASU on our consolidated financial statements.
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): 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 acquireragreement 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 are still evaluating the impact of this ASU 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 adjustmentsand initially measure its assets and liabilities at fair value (with exceptions to provisional amountsfair value measurement that are identified duringconsistent with the measurement periodbusiness 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 the reportingany interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. We are still evaluating the adjustment amounts are determined. Acquirers must recognize,impact of this ASU on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments in the same reporting period, the effect on earningsASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of changes in depreciation, amortization,profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other income effects, if any, as a resultdisclosure requirements. The purpose of the changeamendments is to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Thisenable 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, 2015, including interim periods within those fiscal years. The Company has adopted this guidance as of October 1, 2016, and its adoption did not have an impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842), on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases, and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The guidance requires the use of a modified retrospective approach. We expect our consolidated balance sheets to be materially impacted upon adoption due to the recognition of right-of-use assets and lease liabilities related to currently classified operating leases. We do not expect ASU 2016-02 to have a material impact on our consolidated statements of income though we expect a shift in the classification of expenses, the materiality of which we are currently evaluating.

In March 2016, the FASB issued amended guidance ASU No. 2016-09,Compensation–Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting. The guidance requires all income tax effects of awards to be recognized in the income statement on a prospective basis. The guidance also requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity, and can be applied retrospectively or prospectively. The guidance increases the amount companies can withhold to pay income taxes on awards without triggering liability classification for shares used to satisfy statutory income tax withholding obligations, and requires application of a modified retrospective transition method. The amended guidance will be effective for interim and annual periods beginning after December 15, 2016; early adoption is permitted if all provisions are adopted in the same period. The Company has early adopted ASU 2016-09 as of October 1, 2016. As of September 30, 2017 and 2016, we do not have any stock-based compensation awards outstanding.

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RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies - continued

In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). The ASU intends to reduce diversity in practice on how the following cash activities are presented in the statement of cash flows: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments; (3) contingent considerations payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate and bank-owned life insurance policies; (6) distributions received from equity method investments; and (7) beneficial interests in securitization transactions. The guidance also describes a predominance principle in which cash flows with aspects of more than one class that cannot be separated should be classified based on the activity that is likely to be the predominant source or use of cash flow. The guidance is effective for fiscal years,2023 and interim periods within those fiscal years beginning after December 15, 2017.2024. Early adoption is permitted, provided that allpermitted. We are evaluating the impact of the amendments are adopted in the same period, and must be applied using a retrospective transition method. We early adopted this guidance as of October 1, 2016. There were no prior period transactions that need to be adjusted.

In January 2017, the FASB issued ASU No. 2017-01,Business Combination (Topic 805): Clarifying the Definition of a Business. According to the guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. If met, this initial screen eliminates the need for further assessment. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017-01 provides a framework to evaluate when an input and a substantive process are present. To be a business without outputs, there will now need to be an organized workforce. The FASB noted that outputs are a key element of a business and included more stringent criteria for aggregated sets of assets and activities without outputs. Finally, the guidance narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606,Revenue from Contracts with Customers. Under the final definition, an output is the result of inputs and substantive processes that provide goods and services to customers, other revenue, or investment income, such as dividends and interest. The standard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The amendments can be applied to transactions occurring before the guidance was issued as long as the applicable financial statements have not been issued.

In January 2017, the FASB issued ASU No. 2017-04,Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The amount of goodwill impairment will now be the excess of a reporting unit’s carrying value over its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment (Step 0) to determine if a quantitative impairment test is necessary. The same one-step test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The revised guidance will be applied prospectively, and is effective for calendar year-end SEC filers in 2020; other public business entities will have an additional year. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Company early adopted this ASU in the fourth quarteron our consolidated financial statements.

67
Table of fiscal 2017 and recognized goodwill impairments of $3.3 million as a result of the excess of the fair value calculated in Step 1 as compared to the carrying value of goodwill.

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Contents

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

2. Summary

3. Revenues
Revenues, as disaggregated by revenue type, timing of Significant Accounting Policiesrecognition, and reportable segment (see also Note 16), are shown below (in thousands).
Fiscal 2023
NightclubsBombshellsOtherTotal
Sales of alcoholic beverages$96,325 $30,937 $— $127,262 
Sales of food and merchandise19,995 23,911 — 43,906 
Service revenues103,217 360 — 103,577 
Other revenues17,211 515 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 time1,767 46 45 1,858 
$236,748 $55,723 $1,319 $293,790 
Fiscal 2022
NightclubsBombshellsOtherTotal
Sales of alcoholic beverages$80,001 $33,315 $— $113,316 
Sales of food and merchandise18,289 26,005 — 44,294 
Service revenues93,481 407 — 93,888 
Other revenues14,480 198 1,444 16,122 
$206,251 $59,925 $1,444 $267,620 
   
Recognized at a point in time$204,644 $59,918 $1,443 $266,005 
Recognized over time1,607 7 1 1,615 
$206,251 $59,925 $1,444 $267,620 
Fiscal 2021
NightclubsBombshellsOtherTotal
Sales of alcoholic beverages$54,305 $32,380 $— $86,685 
Sales of food and merchandise17,221 23,890 — 41,111 
Service revenues55,146 315 — 55,461 
Other revenues10,676 36 1,289 12,001 
$137,348 $56,621 $1,289 $195,258 
   
Recognized at a point in time$135,799 $56,617 $1,284 $193,700 
Recognized over time1,549 4 5 1,558 
$137,348 $56,621 $1,289 $195,258 

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RCI HOSPITALITY HOLDINGS, INC.
Notes to Consolidated Financial Statements
3. Revenues - continued

In May 2017, the FASB issued ASU No. 2017-09,Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.

The amendments of this ASU provide guidance about which changesCompany does not have contract assets with customers. The Company’s unconditional right to consideration for goods and services transferred to the terms or conditionscustomer is included in accounts receivable, net in our consolidated balance sheet. A reconciliation of a share-based payment award require an entity to apply modification accountingcontract liabilities with customers, included in Topic 718. An entity should account foraccrued liabilities in our consolidated balance sheets, is presented below (in thousands):
Balance at September 30, 2021Consideration ReceivedRecognized in RevenueBalance at September 30, 2022Consideration Received (Refunded)Recognized in RevenueBalance at September 30, 2023
Ad revenue$84 $611 $(613)$82 $451 $(484)$49 
Expo revenue151 426 (569)8 574 (581)1 
Other (including franchise fees, see below)119 33 (8)144 (51)(47)46 
$354 $1,070 $(1,190)$234 $974 $(1,112)$96 
Contract liabilities with customers are included in accrued liabilities as unearned revenues in our consolidated balance sheets (see also Note 4), while the effects of a modification unless all of the followingrevenues associated with these contract liabilities are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the modification. The current disclosure requirementsincluded in Topic 718 are not changed. The amendmentsother revenues in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. As of June 30, 2017, we do not have any stock-based compensation awards outstanding. We will adopt ASU 2017-09 when the Company modifies any stock-based compensation awards in the future.

3. Revision of Prior Year Immaterial Misstatements and Reclassifications

During the Company’s preparation of its fiscal year 2017 financial statements, the Company assessed the materiality of certain prior year depreciation expense and income tax misstatements that could have a material impact if corrected in the current year. The misstatement in depreciation expense relates to certain leasehold improvements to which incorrect depreciable lives were assigned. The misstatement in income taxes relates to certain differences in deferred taxes in prior years, partially offset by income taxes payable. The Company has revised its consolidated financial statements as of and for the years ended September 30, 2016 and 2015, and the opening balance of retained earnings as of September 30, 2014.

The table below presents the impact of the revision in the Company’s consolidated financial statements:

  Fiscal Year Ended September 30, 2016 Fiscal Year Ended September 30, 2015 
  As Previously Reported  Adjustments  As Revised  As Previously Reported  Adjustments  As Revised 
Statements of Income/ Comprehensive Income:                        
Depreciation and amortization $7,173  $155  $7,328  $6,894  $151  $7,045 
Total operating expenses  114,012   155   114,167   114,571   151   114,722 
Income from operations  20,848   (155)  20,693   20,878   (151)  20,727 
Income before income taxes  12,997   (155)  12,842   14,153   (151)  14,002 
Income taxes  2,657   (284)  2,373   5,164   (53)  5,111 
Net income  10,340   129   10,469   8,989   (98)  8,891 
Net income attributable to RCIHH common shareholders  11,089   129   11,218   9,312   (98)  9,214 
Earnings per share - basic $1.12  $0.01  $1.13  $0.90  $(0.01) $0.89 
Earnings per share - diluted $1.10  $0.01  $1.11  $0.90  $(0.01) $0.89 
Comprehensive income $10,231  $129  $10,360  $9,007  $(98) $8,909 
Comprehensive income attributable to RCI Hospitality Holdings, Inc.  10,980   129   11,109   9,330   (98)  9,232 

  September 30, 2016 
  As Previously Reported  Reclassifications  Adjustments  As Revised 
Balance Sheets/Statements of Changes in Stockholders’ Equity            
Property and equipment, net $142,003  $(503) $(427) $141,073 
Goodwill  45,921   (74)  -   45,847 
Intangibles, net  52,189   577   -   52,766 
Total assets  276,488   -   (427)  276,061 
Accrued liabilities  12,806   -   2,580   15,386 
Total current liabilities  24,457   -   2,580   27,037 
Deferred tax liability  25,470   -   (2,204)  23,266 
Total liabilities  146,346   -   376   146,722 
Retained earnings  62,909   -   (803)  62,106 
Total RCIHH stockholders’ equity  127,558   -   (803)  126,755 
Total stockholders’ equity  130,142   -   (803)  129,339 
Total liabilities and stockholders’ equity  276,488   -   (427)  276,061 

The net cash provided by or used in operating, investing and financing activities did not change as a result of the revision. Certain components of net cash provided by operating activities, as presented above, changed but net change amounted to zero for each prior year statement of cash flows presented.

During the quarter ended September 30, 2017, the Company revised its presentation of cost of goods sold in itsour consolidated statements of income.

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 determined that this revision is not materialsigned a franchise development agreement with a private investor to any prior period and has reflected this revisionopen three Bombshells locations in the resultsstate of operations for the fiscal years ended September 30, 2016 and 2015. This presentation did not affect total costAlabama over a period of goods sold, total operating expenses, income from operations, net income, or net income attributable to RCIHH common shareholders.

During the quarter ended September 30, 2017, we revised the classification of certain goodwill assets to indefinite-lived intangible assets in our September 30, 2016 consolidated balance sheet amounting to $74,000 to conform to GAAP. In the same period, we revised the classification of computer software from property and equipment, net to intangible assets with a net carrying value of $503,000 as of September 30, 2016.

During the year ended September 30, 2016 in relation to the salefive years. Upon execution of the 31% interestagreement, the Company received $50,000 in Drink Robust, we previously reported a gain on saledevelopment fees representing 100% of $641,000 and an impairment chargethe initial franchise fee of $825,000 on the remaining 20% interest. We have revisedfirst restaurant. In February 2023, the disclosureCompany purchased the franchised Bombshells unit in Note 14 to our consolidated financial statements to disclose a loss on sale of $164,000. There is no impact in the financial statements since both the gain and impairment were included in other charges, net in the consolidated statement of income for the year ended September 30, 2016.

San Antonio, Texas.

4. Selected Account Information

The components of accounts receivable, net are as follows (in thousands):
September 30,
20232022
Credit card receivables$4,141 $2,687 
Income tax refundable2,989 2,979 
ATM-in-transit1,675 819 
Other (net of allowance for doubtful accounts of $62 and $30, respectively)1,041 2,025 
Total accounts receivable, net$9,846 $8,510 
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.
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RCI HOSPITALITY HOLDINGS, INC.
Notes to Consolidated Financial Statements
4. Selected Account Information - continued
The components of prepaid expenses and other current assets are as follows (in thousands):
September 30,
20232022
Prepaid insurance$375 $191 
Prepaid legal184 61 
Prepaid taxes and licenses486 391 
Prepaid rent346 296 
Other552 560 
Total prepaid expenses and other current assets$1,943 $1,499 
The components of accrued liabilities are as follows (in thousands):

  September 30, 
  2017  2016 
Insurance $3,160  $2,303 
Payroll and related costs  1,889   1,506 
Property taxes  1,270   1,017 
Sales and liquor taxes  990   889 
Patron tax  801   1,559 
Lawsuit settlement  295   2,704 
Unearned revenues  196   256 

Income taxes

  

549

   

559

 
Other  2,374   4,593 
  $11,524  $15,386 

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September 30,
20232022
Payroll and related costs$4,412 $3,186 
Property taxes3,086 2,618 
Sales and liquor taxes2,468 2,227 
Insurance9 30 
Interest654 499 
Patron tax914 467 
Lawsuit settlement2,448 246 
Unearned revenues96 234 
Other1,964 1,821 
Total accrued liabilities$16,051 $11,328 

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

4. Selected Account Information - continued

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

  Years Ended September 30, 
  2017  2016  2015 
Taxes and permits $8,026  $8,089  $8,031 
Advertising and marketing  6,704   5,374   5,610 
Supplies and services  4,873   4,815   4,726 
Insurance  4,006   3,575   3,364 
Rent  3,258   3,278   4,526 
Legal  3,074   3,197   3,318 
Utilities  2,824   2,871   2,999 
Charge cards fees  2,783   2,252   2,176 
Security  2,251   2,042   1,905 
Accounting and professional fees  2,159   1,286   1,263 
Repairs and maintenance  2,091   2,088   1,916 
Other  4,726   4,208   3,764 
  $46,775  $43,075  $43,598 

202320222021
Taxes and permits$11,966 $9,468 $8,701 
Advertising and marketing11,928 9,860 6,676 
Supplies and services10,724 8,614 6,190 
Insurance10,268 10,152 5,676 
Lease7,206 6,706 3,942 
Legal3,742 1,995 3,997 
Utilities5,760 4,585 3,366 
Charge cards fees7,090 6,292 3,376 
Security5,618 4,404 3,892 
Accounting and professional fees4,286 3,909 2,031 
Repairs and maintenance4,924 3,754 2,767 
Stock-based compensation2,588 2,353 — 
Other6,924 6,755 3,994 
Total selling, general and administrative expenses$93,024 $78,847 $54,608 
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RCI HOSPITALITY HOLDINGS, INC.
Notes to Consolidated Financial Statements
4. Selected Account Information - continued
The components of other charges, net are as follows (in thousands):

  Years Ended September 30, 
  2017  2016  2015 
Impairment of assets $7,639  $3,492  $1,705 
Settlement of lawsuits  317   1,881   11,684 
Loss (gain) on sale of assets  (542)  388   808 
Gain on settlement of patron tax  (102)  -   (8,167)
  $7,312  $5,761  $6,030 

202320222021
Impairment of assets$12,629 $1,888 $13,612 
Settlement of lawsuits3,759 1,417 1,349 
Gain on sale of businesses and assets(682)(2,375)(522)
Gain on insurance(77)(463)(1,253)
Total other charges, net$15,629 $467 $13,186 
5. Property and Equipment

Property and equipment consisted of the following (in thousands):

  September 30, 
  2017  2016 
Buildings and land $122,996  $121,645 
Equipment  30,107   26,715 
Leasehold improvements  31,969   24,942 
Furniture  8,612   8,009 
Total property and equipment  193,684   181,311 
Less accumulated depreciation  (45,274)  (40,238)
         
Property and equipment, net $148,410  $141,073 

September 30,
20232022
Land$95,018 $78,116 
Buildings and improvements204,947 159,037 
Equipment49,632 45,648 
Furniture13,959 12,391 
Total property and equipment363,556 295,192 
Less accumulated depreciation(80,851)(70,577)
Property and equipment, net$282,705 $224,615 
Included in buildings and leasehold improvements above are construction-in-progress projects amounting to $1.6$7.7 million and $6.3$1.5 million as of September 30, 20172023 and 2016, respectively.

2022, respectively, which are mostly related to Bombshells development projects.

Depreciation expense was approximately $6.7$11.6 million, $6.6$10.3 million, and $6.3$8.0 million for fiscal years 2017, 20162023, 2022, and 2015,2021, respectively.

See Note 3 in relation to revision of prior year financial statements.

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RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

6. Assets Held Impairment loss for Sale

During the fourth quarter of fiscal 2016, the Company had decided to offer six real estate properties for sale. The aggregate estimated fair value of the properties less cost to sell as of September 30, 2016 was approximately $7.7 million, which is primarily comprised of landproperty and buildings, andequipment, including those later reclassified to assets held for sale, in the Company’s consolidated balance sheet.

During the quarter ended March 31, 2017,was $58,000, $1.0 million, and $2.0 million for fiscal 2023, 2022, and 2021, respectively.

6. Assets Held for Sale
As of September 30, 2022, the Company soldhad one of the properties held for sale for $2.2 million, recognizing a $116,000 loss. During the quarter ended June 30, 2017, the Company sold another property held for sale for $1.5 million, recognizing a $0.9 million gain. The gain or loss on the sale of these properties is included in other charges, net in our consolidated statements of income.

At the end of the quarter ended June 30, 2017, Company management decided to close an underperforming club in Dallas. The Company wrote off the balance of goodwill for that location and recorded an impairment charge amounting to $1.4 million, which is included in other charges, net in our consolidated statements of income for the three months ended June 30, 2017. The Company also recorded in assets held for sale the carrying value of the property for sale consisting principally of land and building amounting to $5.2 million, which is lower than fair value less cost to sell.

At the end of the quarter ended September 30, 2017, two properties classified as held for sale with an aggregate net realizable value less cost to sell of $1.0 million, and with no associated liabilities.

On December 28, 2022, the Company sold the property classified as held-for-sale with a carrying value of $4.3$1.049 million were reclassifiedfor $1.7 million in cash. The Company used $1.2 million of the proceeds to property and equipment, net inpay off a loan related to the consolidated balance sheet. At September 30, 2017, we determined the assets no longer met the criteria for held for sale asproperty. Gains or losses on the sale of one property was no longer likely to be completed within one year and that the other property was no longer available for immediate sale in its present condition due to a lease executed during the period. The assets were measured at the carrying value as adjusted for depreciation which was lower than the fair value at the date reclassified.

The Company expects the properties held for sale are included in other charges, net within the consolidated statements of income (see Note 4).

As of September 30, 2023, there were no assets held-for-sale.
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Notes to be sold within 12 months through property listings by our real estate brokers.

The assets held for sale do not have liabilities associated with them that need to be directly settled from the proceeds in the event of a transaction.

Consolidated Financial Statements


7. Goodwill and Other Intangible Assets

Goodwill and other intangible assets consisted of the following (in thousands):

  September 30, 
  2017  2016 
Indefinite useful lives:        
Goodwill $43,866  $45,847 
Licenses  

70,644

   51,849 
Tradename  2,215   - 

  Amortization      
  Period      
Definite useful lives:          
Discounted leases 18 & 6 years  116   123 
Non-compete agreements 5 years  681   291 
Software 5 years  768   503 
     1,565   917 
Total goodwill and other intangible assets   $118,290  $98,613 

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September 30,
20232022
Indefinite useful lives:
Goodwill$70,772 $67,767 
Licenses135,735 103,972 
Tradename and domain name19,811 13,142 
226,318 184,881 

Amortization Period
Definite useful lives:
Discounted leasesLease term811 78 
Non-compete agreements5 years3 55 
Software5 years55 723 
LicensesLease term22,597 25,962 
Leases acquired in-placeLease term133 117 
23,599 26,935 
Total goodwill and other intangible assets$249,917 $211,816 
Substantially all of our goodwill and other intangible assets belong to our Nightclubs segment.
20232022
Definite- Lived IntangiblesIndefinite- Lived IntangiblesGoodwillDefinite- Lived IntangiblesIndefinite- Lived IntangiblesGoodwill
Beginning balance$26,935 $117,114 $67,767 $400 $67,424 $39,379 
Acquisitions2,005 43,948 7,244 28,653 50,453 28,954 
Impairment(1,813)(5,516)(4,239)— (293)(566)
Dispositions— — — — (470)— 
Amortization(3,528)— — (2,118)— — 
Ending balance$23,599 $155,546 $70,772 $26,935 $117,114 $67,767 

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Notes to Consolidated Financial Statements

7. Goodwill and Other Intangible Assets - continued

  2017  2016 
  Definite- Lived Intangibles  Indefinite-Lived Intangibles  Goodwill  Definite- Lived Intangibles  Indefinite-Lived Intangibles  Goodwill 
Beginning balance $917  $51,849  $45,847  $5,176  $55,902  $52,567 
Intangibles acquired  865   22,411   2,716   496   -   - 
Impairment  -   (1,401)  (4,697)  -   (2,092)  - 
Sale/closure of reporting units  -   -   -   (4,003)  (1,961)  (6,720)
Amortization  (217)  -   -   (752)  -   - 
Ending balance $1,565  $

72,859

  $

43,866

  $917  $51,849  $45,847 

Definite-lived intangible assets consist of the following (in thousands):
September 30,
20232022
Licenses$27,725 $27,725 
Software2,332 1,671 
Leases acquired in-place826 261 
Discounted leases1,076 297 
Non-compete agreements1,100 1,100 
Distribution agreements317 317 
Total definite-lived intangibles33,376 31,371 
Less accumulated amortization and impairment(9,777)(4,436)
Definite-lived intangibles, net$23,599 $26,935 
As of September 30, 2023 and 2022, the accumulated impairment balance of indefinite-lived intangibles was $16.9 million and $11.4 million, respectively, while the accumulated impairment balance of goodwill was $25.4 million and $21.2 million, respectively. As of September 30, 2023 and 2022, the gross amount of goodwill amounted to $96.2 million and $88.9 million, respectively. Future amortization expense related to definite-lived intangible assets that are subject to amortization at September 30, 20172023 is: 20182024 - $352,000; 2019$2.5 million; 2025 - $321,000; 2020$2.4 million; 2026 - $305,000; 2021$2.4 million; 2027 - $281,000; 2022$2.3 million; 2028 - $228,000;$1.5 million; and thereafter - $78,000.

$12.5 million.

Indefinite-lived intangible assets consist of sexually oriented businessSOB licenses, liquor licenses, and tradename,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 method of the income approach method was used in calculating the value of these licenses in a business combination, while the relief from royaltyrelief-from-royalty method was used in calculating the value of tradenames. During the fiscal year ended September 30, 2017,2023, the Company recognized ana $6.5 million impairment lossrelated to the SOB licenses of $4.7eight clubs and a $4.2 million impairment related to goodwill of four reporting units. During the fiscal year ended September 30, 2022, the Company recognized a $293,000 impairment related to the SOB license of one club and a $566,000 impairment related to goodwill of one reporting unit. During the fiscal year ended September 30, 2021, the Company recognized a $5.3 million impairment related to three clubs’ SOB licenses and a $6.3 million impairment related to the goodwill of fourseven reporting units, including one held for sale, as well as an impairment lossunits.
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Table of $1.4 million related to two locations’ SOB licenses. The Company impaired one reporting unit during the year ended September 30, 2016 amounting to $2.1 million for indefinite-lived intangibles. The Company impaired two reporting units during the year ended September 30, 2015 in the aggregate amount of $1.7 million for indefinite-lived intangible and zero for goodwill. See Note 16.

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Notes to Consolidated Financial Statements

8. Long-term Debt

Long-term debt

Debt consisted of the following (in thousands):

    September 30, 
    2017  2016 
         
Notes payable at 10-11%, mature August 2022 and December 2024 * $2,358  $2,662 
Note payable at 7%, matures December 2019 *  95   133 
Notes payable at 5.5%, matures January 2023 *  1,157   1,238 
Notes payable at 5.5%, matures January 2023 and January 2022 *  4,510   4,864 
Note payable refinanced at 6.25%, matures July 2018 *  1,120   1,227 
Note payable at 6.3%, matures June 2030, collateralized by aircraft    -   422 
Note payable at 9.5%, matures August 2024 **  6,941   10,642 
Notes payable at 9.5%, mature September 2024 *  6,423   7,040 
6% convertible debentures, mature March 2023 **  -   406 
Notes payable at 13%, matures October 2016 and 2017 **  -   4,000 
Notes payable at 5-7%, mature from 2018 to 2028 *  1,679   1,867 
Note payable at 11%, matures June 2018 *  -   1,500 
9% convertible debentures mature October 2016    -   452 
7.45% note payable collateralized by aircraft, matures January 2019    2,740   3,013 
Notes payable at 12%, mature December 2017 and September 2018 **  -   4,000 
Non-interest-bearing debt to State of Texas, matures May 2022, interest imputed at 9.6%    5,613   6,201 
Note payable at 6.5%, matures January 2020 *  4,484   4,621 
Note payable at 6%, matures January 2019 *  504   857 
Notes payable at 5.5%, matures May 2020 *  5,320   5,493 
Note payable at 6%, matures May 2020 *  1,037   1,386 
Note payable at 5.25%, matures December 2024 *  1,777   1,842 
Note payable at 5.45%, matures July 2020 *  10,620   10,962 
Note payable at the greater of 2% above prime or 5% (6.25% at September 30, 2017), matures October 2025 *  4,303   4,430 
Note payable at 5%, matures January 2026 *  9,672   9,882 
Note payable at 5.25%, matures March 2037 *  4,651   4,442 
Note payable at 5%, matures July 2017 *  -   2,157 
Note payable at 6.25%, matures February 2018 *  1,894   1,894 
Note payable at 5.95%, matures August 2021 *  8,267   8,945 
Note payable at 12%, matures October 2021 **  9,671   - 
Note payable at 4.99%, matures April 2037, collateralized by aircraft    941   - 
Notes payable at 12%, mature May 2020 **  5,440   - 
Note payable at 5%, matures November 2017 **  5,000     
Note payable at 8%, matures May 2029 **  15,291   - 
Note payable at 5%, matures May 2038 *  3,441   - 
Total debt    124,949   106,578 
Less unamortized debt issuance costs    (597)  (692)
Less current portion    (17,440)  (9,950)
           
Total long-term debt   $106,912  $95,936 

September 30,
20232022
Notes payable at 5.5%, fully paid in January 2023(d)(1)$— $678 
Note payable at 8%, matures October 2027, as amended(b)(2)(6)3,025 3,025 
Note payable at 8%, matures May 2029(b)(2)9,180 10,412 
Note payable at 5.99%, matures September 2033, as amended(c) (3)5,351 5,731 
Note payable at 5.49%, matures March 2039, as amended(c)(4)1,937 2,008 
Note payable at 5.25%, matures September 2031*(a)(5)87,937 92,062 
Notes payable at 12%, matures October 2024(d)(7)9,500 9,500 
Notes payable at 12%, matures October 2024(d)(7)3,331 3,561 
Notes payable at 12%, matures October 2024(d)(7)3,331 3,561 
Note payable at 5.25% matures October 2031(a)(8)1,136 1,172 
Note payable at 6% matures October 2031(b)(8)9,459 10,321 
Note payable at 6% matures October 2041(b)(8)7,611 7,828 
Note payable at 6% matures October 2041(b)(8)950 978 
Note payable at 4% matures November 2028(b)(9)764 895 
Note payable at 5.25% matures January 2032*(a)(10)16,622 18,391 
Note payable at 4.25% matures February 2043*(a)(11)2,583 2,625 
Note payable at 10% matures May 2025(b)(12)5,501 5,881 
Note payable at 10% matures May 2032(b)(12)5,000 5,000 
Note payable at 5% matures November 2023*(a)(13)2,195 2,195 
Note payable at 6% matures July 2029(b)(14)690 785 
Note payable at 6% matures July 2032(b)(15)9,119 9,880 
Note payable at 6% matures August 2032(a)(15)4,592 4,970 
Note payable at 5.25% matures February 2024*(a)(16)1,575 1,575 
Note payable at 4.79% matures October 2042(c)(17)2,731 2,806 
Note payable initially at 6% matures April 2024*(a)(18)2,259 — 
Note payable at 6% matures October 2037(a)(19)4,708 — 
Note payable initially at 6% matures May 2024*(a)(20)1,500 — 
Note payable at 6.67% matures January 2028*(a)(21)3,302 — 
Notes payable at 7% matures February 2025(b)(22)1,801 — 
Notes payable at 7% matures March 2033(a)(b)(24)24,603 — 
Note payable initially at 8.75% matures March 2025(d)(23)7,500 — 
Note payable initially at 7.12% matures June 2028*(a)(25)2,874 — 
Total debt242,667 205,840 
Less unamortized debt discount and issuance costs(2,916)(3,377)
Less current portion(22,843)(11,896)
Total long-term portion of debt, net$216,908 $190,567 
* CollateralizedThese commercial bank debts are guaranteed by real estate

** Collateralized by stock in subsidiary

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the Company’s CEO. See Note 17.

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Notes to Consolidated Financial Statements

8. Long-term Debt - continued

Following is a summary of long-term debt at September 30 (in thousands):

  2017  2016 
Secured by real estate $73,312  $76,204 
Secured by stock in subsidiary  42,343   19,048 
Secured by other assets  3,681   3,435 
Unsecured  5,613   7,891 
  $124,949  $106,578 

In April 2010, the Company acquired the real estate for the club in Austin, Texas formerly known as Rick’s Cabaret. In connection with the purchase, the Company executed a note to the seller amounting to $ 2.2 million. The note was collateralized by the real estate and was payable in monthly installments through April 2025 of $19,774, including principal and interest at the prime rate plus 4.5% with a minimum rate of 7%. The Company refinanced this debt in 2013 with a note of $1.5 million, payable in monthly installments of $15,090 through July 2018, including principal and interest at 6.25%.

In June 2010, the Company borrowed $518,192 from a lender. The funds were used to purchase an aircraft. The debt bore interest at 6.30% with monthly principal and interest payments of $3,803 beginning in July 2010, maturing June 2030. This note was refinanced with a bank in April 2017 with the borrowing of $952,690 at 4.99% for 20 years, together with a purchase of a new aircraft. Monthly payments for the new note is at $6,286, including interest, beginning in May 2017. This note has been paid off in 2017.

20232022
(a) Secured by real estate$136,107 $122,990 
(b) Secured by stock in subsidiary72,879 55,005 
(c) Secured by other assets10,019 10,545 
(d) Unsecured23,662 17,300 
$242,667 $205,840 
(1)In connection with the acquisition of Silver City in January 2012, the Company executed notes to the seller in the amount of $ 1.5$1.5 million. The notes are payable over eleven years at $12,256 per month including interest and have an adjustable interest rate of 5.5%. The rate adjusts to prime plus 2.5% in the 61st month, not to exceed 9%. In the same transaction, the Company also acquired the related real estate and executed notes to the seller for $6.5 million.million, which have been paid off in December 2017. The notes arewere also payable over eleven years at $53,110 per month including interest and have the same adjustable interest rate of 5.5%.

As consideration for the purchase of nine operating adult cabarets and two other licensed location under development at that time (collectively, the “Foster Clubs”), a subsidiary paid to the sellers at closing $3.5 million cash and $22.0 million pursuant to a secured promissory note (the “Club Note”). The Club Note bears interest at the rate of 9.5% per annum, is payable in 144 equal monthly installments of $ 256,602 per month and is secured by the assets purchased from the Companies.

In connection with the acquisition of the Foster Clubs, as explained above, the Company’s wholly owned subsidiary, Jaguars Holdings, Inc. (“JHI”), entered into a Commercial Contract (the “Real Estate Agreement”), which agreement provided for JHI to purchase the real estate where the Foster Clubs are located. The transactions contemplated by the Real Estate Agreement closed on October 16, 2012. The purchase price of the real estate was $10.1 million (discounted to $9.6 million as explained below) and was paid with $350,000 in cash, $9.1 million in mortgage notes, and an agreement to make a one-time payment of $650,000 in twelve years that bears no interest. The note bears interest at the rate of 9.5%, is payable in 143 equal monthly installments and is secured by the real estate properties. The Company has recorded a debt discount of $431,252 related to the one-time payment of $650,000.

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RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

8. Long-term Debt – continued

The Club Note from the Jaguars acquisition also provides that in the event any regulatory or administrative authority seeks to enforce or attempts to collect any tax or obligation or liability that may be due pursuant to the Texas Patron Tax (sometimes referred to as the “Pole Tax”) or related legislation, then the then outstanding principal amount of the Club Note, as of the date the tax is enforced, will immediately be reduced by an amount calculated by multiplying 1,200,000 by the dollar amount of the per-person tax implemented (the “Reduction Amount”). The Reduction Amount cannot exceed $6.0 million. By way of example, if exactly two years after closing, a $2.00 per person tax is implemented and enforced, the Reduction Amount would be $2.4 million and the then principal amount of the Club Note would be reduced $2.4 million. The Texas Patron Tax is currently enacted to be $5 per person which equates to a $6.0 million Reduction Amount. The State of Texas has demanded payment and this provision was invoked in July 2014 and the Company recorded a gain of $6 million, less related debt discount.

During the year ended September 30, 2013, the Company acquired four parcels of real estate at a cost aggregating $3,230,000 and incurred debt aggregating $2.6 million in connection therewith. The notes bear interest at rates ranging from 5 - 7% and are payable $25,660 monthly, including principal and interest. The notes mature from 2018 to 2028.

On October 15, 2013, the Company sold to certain investors (i) 9% Convertible Debentures with an aggregate principal amount of $4,525,000 (the “Debentures”), under the terms and conditions set forth in the Debentures, and (ii) warrants to purchase a total of 72,400 shares of the Company’s common stock (the “Warrants”), under the terms and conditions set forth in the Warrants. Each of the Debentures had a term of three years, was convertible into shares of our common stock at a conversion price of $12.50 per share (subject to adjustment), and had an annual interest rate of 9%, with one initial payment of interest only due April 15, 2014. Thereafter, the principal amount was payable in 10 equal quarterly principal payments, which amounts to a total of $452,500, plus accrued and unpaid interest. Six months after the issue date of the Debentures, we had the right to redeem the Debentures if the Company’s common stock has a closing price of $16.25 (subject to adjustment) for 20 consecutive trading days. The Warrants had an exercise price of $12.50 per share (subject to adjustment) and expired on October 15, 2016. The Company sold the Debentures and Warrants to the investors in a private transaction and received consideration of $4,525,000. The These notes were fully paid off in October 2016.

The fair value of the warrants was estimated to be $105,318 using a Black-Scholes option-pricing model using the following weighted average assumptions:

Volatility28%
Expected life1.5 years
Expected dividend yield-
Risk free rate0.33%

The cost of the warrants has been recognized as a discount on the related debt and will be amortized to interest expense over the life of the debt. The warrants expired in October 2016.

In December 2013, the Company borrowed $3.6 million from a lender. The funds were used to purchase an aircraft. The debt bears interest at 7.45% with monthly principal and interest payments of $40,653 beginning March 2012. The note matures in January 2019.

In December 2014, the Company refinanced certain real estate debt amounting to $2.1 million with new bank debt of $2.0 million. The new debt is payable $13,270 per month, including interest at 5.25% and matures in ten years.

In December 2014, the Company borrowed $1.0 million from an individual. The note is collateralized by certain real estate, is payable $13,215 per month, including interest at 10% and matures in ten years.

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2023.

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

8. Long-term Debt – continued

On January 13, 2015 a Company subsidiary purchased Down in Texas Saloon gentlemen’s club in an Austin, Texas suburb. As part of the transaction, another subsidiary also purchased the club’s real estate. Total consideration of $6.8 million consisted of $3.5 million for the club business and $3.3 million for its 3.5 acres of real estate. Payment was in the form of $1 million in cash and $1.4 million in seller financing at 6% annual interest, with the balance provided by commercial bank financing in the form of a note at a variable interest rate equal to the prime rate plus 2%, but in no event less than 6.5%. Payments on these notes aggregate $68,829 per month. See Note 14.

On May 4, 2015 a Company subsidiary purchased The Seville gentlemen’s club in Minneapolis Minnesota. As part of the transaction, another subsidiary also purchased the club’s real estate. Total consideration of $8.5 million consisted of $4.5 million for the assets of the club business and $4.0 million for the real estate. Payment was made through bank financing of $5.7 million at 5.5% interest, seller financing of $1.8 million at 6% and cash of $1.1 million. See Note 14. There are certain financial covenants with which the Company must be in compliance related to this financing. The Company is in compliance with such covenants as of September 30, 2017. Payments on these notes aggregate to $65,355 per month.

On July 30, 2015, a subsidiary of the Company acquired the building in which the Company’s Miami Gardens, Florida nightclub operates. The cost was $15,300,000 and was purchased with an $11,325,000 note, payable in monthly installments of approximately $78,000, including interest at 5.45% and matures in five years and the balance with cash. The building has several other third-party tenants in addition to the Company’s nightclub. There are certain financial covenants with which the Company must be in compliance related to this financing. The Company is in compliance with such covenants as of September 30, 2017.

In 2015, the Company reached a settlement with the State of Texas over payment of the state’s Patron Tax on adult club customers. To resolve the issue of taxes owed, the Company agreed to pay $10.0 million in equal monthly installments of $119,000, without interest, over 84 months, beginning in June 2015, for all but two nonsettled locations. Going forward, the Company agreed to remit the Patron Tax on a monthly basis, based on the current rate of $5 per customer. For accounting purposes, the Company has discounted the $10.0 million at an imputed interest rate of 9.6%, establishing a net present value for the settlement of $7.2 million. This is included as long-term debt in the consolidated balance sheets.

In October 2015, the Company refinanced certain real estate debt amounting to $2.3 million with new bank debt of $4.6 million. After closing costs, the Company received $2.0 million in cash from the transaction. The new debt is payable $30,244 per month, including interest at the prime rate plus 2% (5.5% at September 30, 2016) and matures in ten years. There are certain financial covenants with which the Company must be in compliance related to this financing. The Company is in compliance with such covenants as of September 30, 2017.

In October 2015, the Company entered into a $4.7 million construction loan with a commercial bank for a new corporate headquarters building. The note, which was fully funded upon the finish of construction of the building in October 2016, is payable over 20 years at $31,988 per month including interest and has an adjustable interest rate of 5.25%. The rate adjusts to prime plus 1% in the 61st month, with a floor of 5.25%.

In January 2016, a subsidiary of the Company acquired the building in which the Company’s Rick’s Cabaret New York nightclub operates. The cost was $10.5 million, including closing costs and was purchased with a $10.0 million note, payable in monthly installments of approximately $59,000, including interest at 5.0% and matures in ten years. There are certain financial covenants with which the Company must be in compliance related to this financing. The Company is in compliance with such covenants as of September 30, 2017.

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RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

8. Long-term Debt – continued

In July 2016, the Company acquired certain land for future development of a Bombshells in Harris County, Texas for $3.3 million, financed with a bank note for $2.2 million, payable interest only at 5.0% monthly until its maturity in 12 months. This note has been paid off in 2017.

In August 2016, the Company acquired certain land for future development of a Bombshells in Harris County, Texas for $2.5 million, financed with a bank note for $1.9 million, payable interest only at 5.0% monthly until its maturity in 18 months.

In August 2016, the Company refinanced two notes payable with an aggregate carrying value of $6.1 million with a $9.0 million bank note at an interest rate of 5.95%. The note matures in 10 years with monthly installments of $100,062 and a balloon payment at maturity for the remaining balance. There are certain financial covenants with which the Company must be in compliance related to this financing, which the Company would not have been in compliance with as of September 30, 2017, except for the subsequent effect of the New Loan (see Note 20).

On October 5, 2016, the Company refinanced $8.0 million of long-term debt by borrowing $9.9 million. The new unsecured debt is payable $118,817 per month, including interest at 12%, and matures in five years with a balloon payment for the remaining balance at maturity. The refinanced debt was comprised of interest-only notes that were scheduled to mature with full principal payments in fiscal 2018.

On January 4, 2017, the Company paid off $392,000 of convertible 6% notes, which would have matured on March 4, 2023.

On March 13, 2017, the Company entered into a promissory note with a bank, which provides for a $1.0 million revolving line of credit maturing on March 13, 2018. The interest rate under this revolving line of credit is at 6.5% per annum payable every 13th of each month starting April 13, 2017 for all outstanding borrowings. In an event of a default, as defined in the agreement, the interest rate shall be increased to 17% per annum. As of September 30, 2017, the Company had available borrowing capacity of $1.0 million under the revolving line of credit.

On May 1, 2017, the Company raised $5.4 million through the issuance of 12% unsecured promissory notes to certain investors, which notes mature on May 1, 2020. The notes pay interest-only in equal monthly installments, with a lump sum principal payment at maturity.

On May 4, 2017, the Company entered into a construction loan agreement with a bank for the construction of the Company’s Bombshells Pearland location. The maximum availability of the 5% promissory note is $4.8 million with advances based on the progress of construction. On June 4, 2017, an initial advance of $2.2 million was used to pay off a previous interest-only note for the same construction project. The new loan is payable interest-only until after one year from the date of the initial advance when the construction loan, including all advances as its principal, converts to an amortizing 20-year note with scheduled monthly payments to be determined on the date of conversion. The Company paid loan costs amounting to $24,000, which will be amortized for the term of the note.

(2)On May 8, 2017, in relation to the Scarlett’s acquisition, (see Note 14), 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.

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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.

(3)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.

(4)On December 11, 2018, the Company purchased an aircraft for $2.8 million with a $554,000 down payment and financed for the remaining $2.2 million with a 5.49% promissory note payable in 20 years with monthly payments of $15,118, including interest. Certain principal and interest payments during the quarter ended June 30, 2020 were deferred until maturity date.
(5)    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 (see Note 14). 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 covenants with which the Company is to be in compliance related to this loan.
(6)    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.
(7)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
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Notes to Consolidated Financial Statements

8. Long-term Debt –- continued

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 17) 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.
(8)On October 18, 2021, in relation to an acquisition (see Note 14), 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.
(9)On November 8, 2021, in relation to an acquisition (see Note 14), 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.
(10)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 CEO, Eric Langan (see Note 17). After the 10-year term, the remaining balance of principal and interest are payable at maturity date. There are certain financial covenants with which the Company is to be in compliance related to this loan.
(11)On March 1, 2022, the Company borrowed $2.6 million from a bank lender in relation to a purchase of real estate (see Note 14). 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.
(12)On May 2, 2022, in relation to a club acquisition (see Note 14), 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.
(13)On May 23, 2022, the Company borrowed $2.2 million from a bank lender in relation to a purchase of real estate (see Note 14). The 18-month promissory note has an initial interest rate of 4.5% per annum to be adjusted daily to a rate equal to the Wall Street Journal prime rate plus 1% with a floor of 4.5%. The promissory note is payable in 17 monthly interest-only installments with the full principal and accrued interest payable at maturity. The Company paid loan costs amounting to $25,000 for this note.
(14)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 (see Note 14). The promissory note matures in seven years and is payable in 84 equal monthly installments of $11,687 of principal and interest.
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Notes to Consolidated Financial Statements
8. Debt - continued
(15)On July 27, 2022, in relation to an acquisition of a club in Hallandale Beach, Florida (see Note 14), 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.
(16)On August 18, 2022, in relation to a purchase of real estate for a future Bombshells location amounting to $2.1 million (see Note 14), 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. The maturity date of this mortgage note was extended to February 18, 2024.
(17) On September 23, 2022, in connection with the purchase of an aircraft worth $3.5 million (see Note 14), 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.
(18)    On October 10, 2022, in relation to a real estate purchase (see Note 14), the Company borrowed $2.3 million from a bank lender. The 18-month promissory note bears an initial interest rate of 6% per annum adjusted daily to a rate equal to the Wall Street Journal prime rate plus 0.5% with a floor of 6%. The promissory note is payable in 17 monthly interest-only installments with the full principal and accrued interest payable at maturity. The Company paid approximately $26,000 in debt issuance cost at closing. This promissory note is secured by the purchased real estate property.
(19)    On October 26, 2022, in relation to a club acquisition (see Note 14), 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.
(20)    On November 18, 2022, in relation to a real estate purchase on September 12, 2022 (see Note 14), 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. There are certain financial covenants with which the Company is to be in compliance related to this loan.
(21)    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 14). 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 covenants with which the Company is to be in compliance related to this loan.
(22)    On February 7, 2023, in relation to the acquisition of a franchised Bombshells location in San Antonio, Texas (see Note 14), the Company entered into six separate seller-financing promissory notes totaling $2.0 million. Each of the promissory notes has an interest rate of 7% per annum, has a term of 24 months, and is payable in monthly installments totaling $39,602 of principal and interest for the first 23 months based on a 60-month amortization schedule with the remaining unpaid principal and interest paid at maturity.
(23)    On March 9, 2023, the Company closed a $10.0 million line-of-credit facility with a lender bank evidenced by a revolving promissory note, with an initial draw of $10.0 million at closing. The facility has an initial term of 24 months with a variable interest rate equal to the Wall Street Journal prime rate plus 1%. On such date that the principal balance is repaid to an amount less than $5.0 million, the facility's revolver feature is activated where the Company may draw from the remaining availability up to a maximum of $5.0 million. The Company shall also pay a non-usage fee of 0.5% based on the amount by which the average outstanding balance for the prior twelve months was less than $3.0 million or the amount by which the total aggregate advances during the prior twelve months totaled less than $3.0 million. The Company paid $115,000 in debt issuance costs, which is recorded as deferred charges to be amortized on a straight-line basis over 24 months. There are certain financial covenants with which the Company is to be in compliance related to this loan, including a compensating balance requirement of $3.0 million and a minimum tangible net worth requirement of $20.0 million. The compensating balance requirement does not contractually or legally restrict the withdrawal or use of cash.
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Notes to Consolidated Financial Statements
8. Debt - continued
(24)    On March 16, 2023, in relation to the acquisition of five clubs with associated real estate, automated teller machines, and intellectual property (see Note 14), 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.
(25)    On June 18, 2023, in relation to a purchase of a retail parcel in a condominium property (see Note 14), the Company executed a promissory note for $2.9 million with a bank lender. The 7.12% five-year promissory note is payable in monthly installments of $20,654 in principal and interest, with the balance of principal and accrued interest payable at maturity.
Future maturities of long-term debt obligations as of September 30, 2023 consist of the following net of debt discount (in thousands):

  Regular  Balloon  Total 
  Amortization  Payments  Payments 
2018 $9,512  $7,928  $17,440 
2019  9,653   2,370   12,023 
2020  8,270   24,816   33,086 
2021  6,116   5,285   11,401 
2022  4,923   8,317   13,240 
Thereafter  23,314   14,445   37,759 
  $61,788  $63,161  $124,949 

Regular AmortizationBalloon PaymentsTotal Payments
2024$15,837 $7,529 $23,366 
202512,149 26,772 38,921 
202612,498 — 12,498 
202713,287 — 13,287 
202814,050 8,731 22,781 
Thereafter61,273 70,541 131,814 
$129,094 $113,573 $242,667 
9. Income Taxes

The provision for income taxes

Income tax expense consisted of the following (in thousands):

  Years Ended September 30, 
  2017  2016  2015 
Current            
Federal $2,989  $260  $894 
State and local  1,097   970   335 
Total current income tax expense  4,086   1,230   1,229 
             
Deferred            
Federal  1,545   1,110   3,771 
State and local  728   33   111 
Total deferred income tax expense  2,273   1,143   3,882 
             
Total income tax expense $6,359  $2,373  $5,111 

See Note 3 in relation to revision of prior year financial statements.

202320222021
Current
Federal$6,506 $8,335 $4,598 
State and local2,121 2,656 644 
Total current income tax expense8,627 10,991 5,242 
Deferred
Federal(1,294)2,080 (161)
State and local(487)1,000 (1,092)
Total deferred income tax expense (benefit)(1,781)3,080 (1,253)
Total income tax expense$6,846 $14,071 $3,989 
The Company and its subsidiaries do not operate in tax jurisdictions outside of the United States.

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Notes to Consolidated Financial Statements
9. Income Taxes - continued
Income tax expense 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 (in thousands):

  Years Ended September 30, 
  2017  2016  2015 
Computed expected income tax expense $4,979  $4,366  $4,759 
State income taxes, net of federal benefit  291   730   221 
Transfer of deferred tax liabilities with subsidiaries sold  -   (841)  - 
Permanent differences  108   (109)  131 
Change in deferred tax liability rate  1,329   -   - 
Reserve for uncertain tax position  406   240   - 
Tax credits  (564)  (2,013)  - 
Other  (190)  -     
Total income tax expense $6,359  $2,373  $5,111 

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202320222021
Federal statutory income tax expense$7,549 $12,628 $7,169 
State income taxes, net of federal benefit1,620 1,801 716 
Permanent differences605 96 (434)
Change in tax rates(255)896 (804)
Change in valuation allowance(176)343 (632)
Tax credits(2,131)(1,796)(1,207)
Other(366)103 (819)
Total income tax expense$6,846 $14,071 $3,989 

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

9. Income Taxes - continued

During the fiscal year ended September 30, 2016 the Company deconsolidated three subsidiaries. Two of these subsidiaries were 100 percent owned subsidiaries, 100 percent of the stock of both of these subsidiaries were sold to third parties. The third subsidiary was a 51 percent owned subsidiary that was accounted for under the consolidated method; 31 percent of the 51 percent ownership of the stock was sold during the year to a third party, and the investment is now accounted for under the cost method. In accordance with U.S. GAAP, the company has elected to account for the deferred taxes on the inside basis differences of all three deconsolidated subsidiaries as a component of the gain or loss on the sale of the shares. All outside basis differences in the investment in subsidiaries stock are accounted for as a component of the tax provision.

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, 
  2017  2016 
Deferred tax assets:        
Patron tax $1,954  $2,074 
Other  231   2,172 
   2,185   4,246 
Deferred tax liabilities:        
Intangibles  (18,549)  (19,034)
Property and equipment  (9,177)  (8,478)
   (27,726)  (27,512)
Net deferred tax liability $(25,541) $(23,266)

For the year ended September 30, 2016, income tax expense includes a tax benefit in the amount of $2.0 million representing the net amount to be realized from fiscal year 2016 and from amending certain prior year federal tax returns to take the available FICA tip tax credits which were not taken in prior years. The Company will continue to utilize FICA tip credits in future tax filings.

Included in the Company’s deferred tax liabilities at September 30, 2017 and 2016 is approximately $15.9 million and $16.3 million, respectively, representing the tax effect of indefinite-lived intangible assets from club acquisitions which are not deductible for tax purposes. These deferred tax liabilities will remain in the Company’s consolidated balance sheet until the related clubs are sold.

September 30,
20232022
Deferred tax assets:
Net operating loss carryforwards$827 $1,022 
Capital loss carryforwards651 234 
Right-of-use assets946 626 
Accrued expenses748 240 
Stock-based compensation1,185 569 
Other123 — 
Valuation allowance(808)(984)
3,672 1,707 
Deferred tax liabilities:
Intangibles(21,468)(21,927)
Property and equipment(11,085)(10,119)
Prepaid expenses(262)(205)
Other— (18)
(32,815)(32,269)
$(29,143)$(30,562)
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. During the year ended September 30, 2017, the Company has accrued $865,000 (all related to previous years’ taxes) in uncertain state tax positions. In fiscal 2017, the Company also accrued $223,000 and $266,000 in penalties and interest, respectively, related to uncertain tax positions.

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Notes to Consolidated Financial Statements

9. Income Taxes - continued

The following table shows the changes in the Company’s uncertain tax positions (in thousands):

  Years Ended September 30, 
  2017  2016  2015 
Balance at beginning of year $240  $-  $- 
Additions for tax positions of prior years  625   240   - 
             
Balance at end of year $865  $240  $- 

The full balance of $865,000,uncertain tax positions, if recognized, would affect the Company’s annual effective tax rate, net of any federal tax benefits. As of September 30, 2023 and 2022, the Company does not have any uncertain tax position. The Company does not expect any changes that will significantly impact its uncertain tax positions within the next twelve months.

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, 2016 remains2020 and subsequent years remain open to federal tax examination. The Company’s federal income tax returns for
On March 27, 2020, former President Trump signed the years ended September 30, 2015, 2014CARES Act into law. As a result of this, additional avenues of relief were available to workers and 2013 are currently being examined by the Internal Revenue Service. The Company is also being examined for state income taxes, the settlement of which may occur within the next twelve months.

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RCI HOSPITALITY HOLDINGS, INC.

Notesfamilies through enhanced unemployment insurance provisions and to Consolidated Financial Statements

10. Stock-Based Compensation

In 2010, the Company’s Board of Directors approved the 2010 Stock Option Plan (the “2010 Plan”). The 2010 Plan was approved by the shareholders of the Company at the 2011 Annual Meeting of Stockholders. At the 2012 Annual Meeting of Stockholders, shareholders approved amending the 2010 Plan to increase the maximum aggregate number of shares of common stock that may be optioned and sold from 500,000 to 800,000. The options granted under the Plans may be either incentive stock options or non-qualified options. The 2010 Plan issmall businesses through programs administered by the BoardSmall Business Administration. The CARES Act included, among other items, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program, whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs. The loan may be forgiven if the funds are used for payroll and other qualified expenses. The Company submitted its application for a PPP loan and on May 8, 2020 received approval and funding for its restaurants, shared service entity and lounge. Ten of Directors or by a compensation committeeour restaurant subsidiaries received amounts ranging from $271,000 to $579,000 for an aggregate amount of the Board$4.2 million; our shared-services subsidiary received $1.1 million; and one of Directors. The Boardour lounges received $124,000. None of Directors 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 dateour adult nightclub and to make all determinations necessary or advisableother non-core business subsidiaries received funding under the 2010 Plan. There were no options outstanding as of September 30, 2017 or 2016.

In July 2014, the Company granted to an executive officer and an officer of a subsidiary a total of 96,325 shares of restricted stock. The total grant date fair value of all of these awards was $963,000, or $10.00 per share, and vest in two years. Restricted stock awards are awards of common stock that are subject the restrictions on transfer and to a risk of forfeiture if the awardee terminates employment with the Company prior to the lapse of the restrictions. The fair value of such stock was determined using the closing price on the grant date and compensation expense is recorded over the applicable requisite service periods. Forfeitures are recognized as a reversal of expense of any unvested amounts in the period incurred. These restricted stock awards vested in July 2016 at an aggregate intrinsic value of $969,000. There was no restricted stock outstanding as of September 30, 2017 and 2016.

Stock-based compensation expense recognized during the fiscal years ended September 30, 2017, 2016 and 2015 amounted to $0, $360,000 and $480,000, respectively.

11. Commitments and Contingencies

Leases

PPP. The Company leases certain equipment and facilities under operating leases, of which rent expense was approximately $3.3 million, $3.3 million and $4.5 millionbelieves it used the entire loan amount for the years ended September 30, 2017, 2016 and 2015, respectively. Rent expense for the Company’s operating leases, which generally have escalating rentals over the term of the lease, is recorded using the straight-line method over the initial lease term whereby an equal amount of rent expense is attributed to each period during the term of the lease, regardless of when actual payments are made. Generally, this results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in the later years. The difference between rent expense recognized and actual rental payments is included in other long-term liabilities in the consolidated balance sheets.

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Notes to Consolidated Financial Statements

11. Commitments and Contingencies - continued

Future minimum annual lease obligations as of September 30, 2017 are as follows:

2018 $2,967 
2019  2,797 
2020  2,841 
2021  2,830 
2022  2,784 
Thereafter  24,477 
Total future minimum lease obligations $38,696 

Legal Matters

Texas Patron Tax

In 2015, the Company reached a settlement with the State of Texas over the payment of the state’s Patron Tax on adult club customers. To resolve the issue of taxes owed, the Company agreed to pay $10.0 million in equal monthly installments of $119,000, without interest, over 84 months, beginning in June 2015, for all but two nonsettled locations. The Company agreed to remit the Patron Tax on a monthly basis, based on the current rate of $5 per customer. For accounting purposes, the Company has discounted the $10.0 million at an imputed interest rate of 9.6%, establishing a net present value for the settlement of $7.2 million. As a consequence, the Company has recorded an $8.2 million pre-tax gain for the third quarter ending June 30, 2015, representing the difference between the $7.2 million and the amount previously accrued for the tax.

In March 2017, the Company settled with the State of Texas for one of the two remaining unsettled Patron Tax locations. To resolve the issue of taxes owed, the Company agreed to pay a total of $687,815 with $195,815 paid at the time the settlement agreement was executed followed by 60 equal monthly installments of $8,200 without interest.

The aggregate balance of Patron Tax settlement liability amounted to $5.6 million and $6.2 million as of September 30, 2017 and 2016, respectively, and is included in long-term debt in the consolidated balance sheets.

New York Settlement

Filed in 2009, the case claimed Rick’s Cabaret New York misclassified entertainers as independent contractors. Plaintiffs sought minimum wage for the hours they danced and return of certain fees. RCI Entertainment (New York), Inc. and Peregrine Enterprises, Inc. maintained the dancers were properly classified, and alternatively, amounts earned were well in excess of the minimum wage and should satisfy any obligations.

On April 1, 2015, we and our subsidiaries, RCI Entertainment (New York), Inc. and Peregrine Enterprises, Inc., entered into an agreement to settle in full a New York based federal wage and hour class and collective action filed in the United States District Court for the Southern District of New York. On September 22, 2015, the Court granted final approval of the settlement.qualifying expenses. Under the terms of the agreement, Peregrine Enterprises, Inc. was to make up to $15.0 million available to class members and their attorneys. The actual amount paid was determined based on the number of class members responding by the end of a two-month notice period which ended on December 4, 2015. Unclaimed checks or payments reverted back to Peregrine at that time. Based on the current schedule, an initial payment for attorneys’ fees of $1,833,333 was made in October 2015, with two subsequent payments of $1,833,333 each being made in equal annual installments. As partPPP, certain amounts of the settlement, RCIHH was required to guaranteeloan may be forgiven if they are used for qualifying expenses as described in the obligations of RCI Entertainment (New York), Inc. and Peregrine Enterprises, Inc. under the settlement.

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Notes to Consolidated Financial Statements

Legal Matters – continued

CARES Act. The Company expensed $11.1utilized all of the PPP funds and submitted its forgiveness applications. During fiscal 2022, we received 11 Notices of PPP Forgiveness Payment from the Small Business Administration out of the 12 of our PPP loans granted. All of the notices received forgave 100% of each of the 11 PPP loans totaling the amount of $5.3 million duringin principal and interest and were included in non-operating gains (losses), net in our consolidated statement of income for the fiscal year ended September 30, 20152022. In November 2021, we received a partial forgiveness of the remaining $124,000 PPP loan for $85,000 in principal and interest. The remaining unforgiven portion of approximately $41,000 in principal was fully paid as debt plus accrued interest in fiscal 2022.

10. Commitments and Contingencies
Legal Matters
Texas Patron Tax
A declaratory judgment action was brought by five operating subsidiaries of the final liabilityCompany to challenge a Texas Comptroller administrative rule related to the $5 per customer Patron Tax Fee assessed against Sexually Oriented Businesses. An administrative rule attempted to expand the fee to cover venues featuring dancers using latex cover as well as traditional nude entertainment. The administrative rule was challenged on both constitutional and statutory grounds. On November 19, 2018, the Court issued an order that a key aspect of the administrative rule is invalid based on it exceeding the scope of the Comptroller’s authority. On March 6, 2020, the U.S. District Court for its obligations under the settlement,Western District of Texas, Austin Division, ruled that the Texas Patron Tax is unconstitutional as it has been applied and enforced by the Comptroller. The State of Texas appealed to the Fifth Circuit Court of Appeals, who affirmed that the Texas Patron Fee is unconstitutional as applied. The State of Texas next sought review from the Supreme Court, but the high court declined to take the case and in doing so exhausted the State's rights to appeal the judgment. The lawsuit was sent back to the trial court for post-trial proceedings, which was included in other charges, netresulted in the consolidated statementaward of income. Of this amount, $5.6 million was paid to entertainers and $5.5 million has been or will be paidattorneys' fees to the lawyers. As of September 30, 2017 and 2016,operating subsidiaries. Pursuant to the Company has a remaining balance of $37,000 and $2.7 million, respectively, recorded in accrued liabilities onrulings, the Company’s consolidated balance sheets.

Texas Patron Fee is unconstitutional as applied to clubs featuring dancers using latex cover.

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.

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Notes to Consolidated Financial Statements
10. Commitments and Contingencies - continued
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. Currently, there are several civil lawsuits pending against the Company and its subsidiaries. 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 previously stated, since October 25, 2013, the Company has obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date. We have 8As of September 30, 2023, we had 1 remaining unresolved cases leftclaim out of the original 71 cases.

General

The Company has been sued byclaims.

Shareholder Derivative Action
On January 21, 2022, Shiva Stein and Kevin McCarty filed a landlordshareholder derivative action in the 33rd JudicialSouthern District Court of Harris County, Texas, for a Houston Bombshells which was under renovation in 2015. The plaintiff allegesDivision against former director Nourdean Anakar, Yura Barabash, former director Steven L. Jenkins, Eric Langan, Luke Lirot, former CFO Phillip K. Marshall, Elaine J. Martin, Allan Priaulx, and Travis Reese as defendants, as well as against RCI Hospitality Holdings, Inc.’s subsidiary, BMB Dining Services (Willowbrook) as nominal defendant. The action, styled Stein v. Anakar, et al., Inc.No. 4:22-mc-00149 (S.D. Tex.), breachedalleges claims for breach of fiduciary duty based on alleged dissemination of inaccurate information and failure to maintain internal controls. These allegations are substantively similar to claims asserted in a leaseprior securities class action that was settled in August of 2022 and a prior derivative action that was dismissed in June of 2021. On July 24, 2023, the parties reached an agreement by constructingin principle to resolve the action. On October 10, 2023, the parties submitted an outdoor patio, which allegedly interfered withagreement to settle the common areas ofaction to the shopping center, and by failing to provide Plaintiff with proposed plans before beginning construction. Plaintiff also asserts RCI Hospitality Holdings, Inc. is liable as guarantor ofCourt for the lease.Court's preliminary approval. The lease was for a Bombshells restaurant to be opened in the Willowbrook Shopping Center in Houston, Texas. Both RCI Hospitality Holdings, Inc. and BMB Dining Services (Willowbrook), Inc. have denied liability and assertCompany believes that Plaintiff has failed to mitigate its claimed damages. Further, BMB Dining Services (Willowbrook), Inc. asserts that Plaintiff affirmatively represented that the patio could be constructedpayments under the lease and has filed counter claims and third-party claims against Plaintiff, Plaintiff’s manager, and Plaintiff’s broker asserting that they committed fraud and that the landlord breached the applicable agreements. It is unknown at this time whether the resolution of this uncertaintysettlement agreement will have a material effect on the Company’s financial condition.

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be covered by insurance.

Other

RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

Legal Matters – continued

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 suit allegesalleged that Mr. Panameno injured Mr. Dupray in a traffic accident after being served alcohol at an establishment operated by JAI Phoenix. The suit allegesalleged that JAI Phoenix iswas liable under theories of common law dram shop negligence and dram shop negligence per se. After a jury trial proceeded to a verdict in favor of the plaintiffs against both defendants, in April 2017 the Court entered a judgment under which JAI Phoenix’s share of compensatory damages is approximately $1.4 million and its share of punitive damages is $4 million. In May 2017, JAI Phoenix filed a motion for judgment as a matter of law or, in the alternative, motion for new trial. The Court denied this motion in August 2017. In September 2017, JAI Phoenix filed a notice of appeal. A hearing date forIn June 2018, the appeal has not yet been scheduled. JAI Phoenix believes the Court’s assessments of liability and damages are unsupportablematter was heard by the factsArizona Court of Appeals. On November 15, 2018 the Court of Appeals vacated the jury’s verdict and remanded the case andto the law, andtrial court. It is anticipated that a new trial will occur at some point in the future. JAI Phoenix will continue to vigorously defend itself.
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.
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Notes to Consolidated Financial Statements
10. Commitments and Contingencies - continued
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. 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.
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 a party toan admission of any liability on the lawsuit. Thepart of the Company estimates a possible lossor 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 $0 to $5.0 millionreasonably possible liability. In matters where there is insurance coverage, in this matter.

Settlementsthe 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, 2017, 20162023, 2022, and 20152021 total $316,000, $1.9$3.8 million, $1.4 million, and $11.7$1.3 million, respectively. As of September 30, 20172023 and 2016,2022, the Company has accrued $295,000$2.4 million and $2.7 million$246,000 in accrued liabilities, respectively, related to settlement of lawsuits.

12. Common

Leases
See Note 18 for lease commitments.
11. Stock-based Compensation
On February 7, 2022, our board of directors approved the 2022 Stock

During Option Plan (the “2022 Plan”). The board’s adoption of the year ended2022 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 2023, 2022, and 2021, which is included in corporate segment selling, general and administrative expenses, amounted to $2.6 million, $2.4 million, and $0, respectively, with related tax benefit amounting to $616,000, $569,000, and $0, respectively. No stock-based compensation was recognized during fiscal 2021. As of September 30, 2015,2023, we had unrecognized compensation cost amounting to $4.5 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of 2.4 years.
The February 9, 2022 stock options vest over four years with the first 20% having vested on the approval of the 2022 Plan at the 2022 annual stockholders' meeting on August 23, 2022, and 20% vesting on February 9 of each year thereafter, provided however that the options will be subject to earlier vesting under certain events set forth in the Plan, including without limitation a change in control. All of the options will expire, if not 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 2023.

The following commontable summarizes information about stock transactions occurred:

●The Company acquired 225,280 shares of its own common stock at a cost of $2.3 million. These shares were subsequently retired.
●The Company issued 232,506 common shares for the conversion of debt and interest in the aggregate amount of $2.4 million.
●The Company issued 200,000 common shares for a portion of the acquisition cost of an energy drink company. The value of the shares was $2.4 million.
●Options exercised during the year amounted to 10,000 shares and $86,900.

Duringoption activity under the year ended September 30, 2016, the following common stock transactions occurred:

●The Company acquired 747,081 shares of its own common stock at a cost of $7.3 million. These shares were subsequently retired.
●The Company issued 125,610 common shares for the conversion of debt and interest in the aggregate amount of $1.3 million.
●Warrants exercised during the year amounted to 48,780 shares amounting to $500,000.
●The Company paid quarterly dividends of $0.03 per share starting the second quarter for an aggregate amount of $862,000.

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2022 Plan:


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Notes to Consolidated Financial Statements

12. Common Stock

11. Stock-based Compensation - continued

During the year ended September 30, 2017, the following common stock transactions occurred:

●The Company acquired 89,685 shares of its own common stock at a cost of $1.1 million. These shares were subsequently retired.
●The Company paid quarterly dividends of $0.03 per share for an aggregate amount of $1.2 million.

13.

Number of SharesWeighted-Average Exercise PriceWeighted-Average Remaining Contractual Term (in years)Aggregate Intrinsic Value (in thousands)
Outstanding at September 30, 2022300,000 $100.00 
Granted— 
Outstanding at September 30, 2023300,000 $100.00 3.4$— 
Exercisable at September 30, 202360,000 $100.00 3.4$— 
12. Employee Retirement Plan

The Company sponsors a Simple IRA plan (the “Plan”), which covers all of the Company’s corporate employees. The Plan allows the 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 $130,000, $108,000$287,000, $258,000, and $94,000$209,000 for the years ended September 30, 2017, 20162023, 2022, and 2015,2021, respectively.

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13. Insurance Recoveries
One of our clubs in Washington Park, Illinois was temporarily closed due to a fire during the third quarter of 2019, and another club in Fort Worth, Texas sustained weather-related damage toward the end of fiscal 2019. Both of these casualties received insurance recoveries in subsequent fiscal years. During the fourth quarter of 2021, one club in Sulphur, Louisiana incurred damage from a hurricane. 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 in202320222021
Consolidated balance sheets (period end)
Insurance receivableAccount receivable, net$— $— $186 
Consolidated statements of income – gain   
PropertyOther charges, net$(77)$(463)$(1,337)
Consolidated statements of cash flows   
Proceeds from business interruption insurance claimsOperating activity$— $— $106 
Proceeds from property insurance claimsInvesting activity$86 $648 $1,152 
The net property insurance gain/loss amount in fiscal 2023, 2022, and 2021 was net of assets written off and expenses amounting to $9,000, $0, and $88,000, respectively.
14. Acquisitions and Dispositions
2021 Acquisitions
On December 28, 2020, the Company acquired the real estate and other business assets of a club in Centreville, Illinois for $500,000 in cash.
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Notes to Consolidated Financial Statements

14. Acquisitions and Dispositions

2015 Acquisitions

– continued

On October 30, 2014, a 51% owned subsidiary ofJanuary 26, 2021, the Company acquired certain assets and liabilities of Robust Energy LLCland for $200,000a future Bombshells location in Arlington, Texas for $2.9 million. The Company paid approximately $754,000 in cash including closing costs and 200,000 sharesfinanced $2.175 million with a bank lender for a 20-year promissory note with an initial interest rate of its restricted common stock3.99% per annum. See Note 8.
On March 10, 2021, the Company acquired approximately 57,000-square foot of land across the street from our corporate office for $475,000 in cash. The Company plans to build a warehouse on that land.
On March 22, 2021, the Company acquired land adjacent to a Bombshells location in Houston, Texas for $1.04 million in cash.
On April 7, 2021, the Company acquired land near our Bombshells location in Pearland, Texas for $1.275 million in cash.
2021 Dispositions
On May 7, 2021, the Company sold one of the properties held for sale for $3.1 million. The property had a carrying value of $2.3 million. We recorded a net gain of approximately $657,000 after closing costs and we paid related debt amounting to $2.0 million from the proceeds of the sale.
On September 21, 2021, the Company sold land where a club used to be operated for $2.25 million with a net gain of approximately $54,000 after closing costs. We paid $1.2 million of related debt with the proceeds of the sale.
2022 Acquisitions
On October 18, 2021, we and certain of our subsidiaries completed our acquisition of eleven gentlemen’s clubs, six related real estate properties, and associated intellectual property for a total purchaseagreed acquisition price of $3.6 million. The Company also agreed to issue 50,000 shares$88.0 million (with a total consideration fair value of RCIHH common$87.9 million based on the Company’s stock eachprice at acquisition date and discounted due to the lock-up period, with interest rates on promissory notes reflective of market yields). We used the Finnerty Model to estimate the discount on stock marketability. The acquisition was structured by entering into nine asset purchase agreements, which allowed the Company to acquire from each club all of the tangible and intangible assets and personal property in that business except certain excluded assets, and two principalsstock purchase agreements, where a newly formed subsidiary purchased 100% of Robust Energy LLC if Robust has net incomethe capital stock of at least $1 million duringtwo club-owning entities. Along with the 2015 calendar year. The principalsasset and stock purchase agreements, the Company also entered into a Lock-Up Agreement withreal estate purchase and sale agreement for six real estate properties, and an intellectual property purchase agreement for substantially all of the intellectual property used in the adult entertainment establishment business owned and operated by the sellers. The acquisition gives the Company presence in connectionfour additional states. We paid for the acquisition with the issuance by the Company of its$36.8 million in cash, $21.2 million in four seller-financed notes (see Note 8), and 500,000 shares of our common stock as explained above, which will provide that nonestock.
The fair value of the shares will be sold for a period of one year after the date of issuance and, thereafter, neither principal will sell more than 1/6th of their respective shares per month that they receive in connection herewith. Robustconsideration transferred is an energy drink distributor, targeting the on-premises bar and mixer market.

The following information summarizes the allocation of fair values assigned toas follows (in thousands):

Cash$36,800 
Notes payable21,200 
Common stock29,933 
Total consideration fair value$87,933 
We recognized the assets and liabilities at the purchasefor this acquisition based on our estimates of their acquisition date (in thousands).

Inventory and accounts receivable $500 
Equipment, furniture and fixtures  356 
Definite-lived intangibles  4,931 
Goodwill  5,326 
Accounts payable  (1,482)
Notes payable  (963)
Deferred tax liability  (1,726)
Noncontrolling interest  (3,392)
Net assets $3,550 

In accordance with U.S. GAAP, the Company recorded a gain of approximately $229,000fair values, all in our Nightclubs reportable segment. Based on the value of its earlier 15% ($750,000) investment in this company.

Goodwill from this transaction is deductible for tax purposes.

On January 13, 2015, a Company subsidiary purchased Down in Texas Saloon gentlemen’s club in an Austin, Texas suburb. As part of the transaction, another subsidiary also purchased the club’s real estate. Total consideration of $6.8 million consisted of $3.5 million for the club business and $3.3 million for its 3.5 acres of real estate. Payment was in the form of $1 million in cash and $1.4 million in seller financing at 6% annual interest, with the balance provided by commercial bank financing at a variable interest rate equal to the prime rate plus 2%, but in no event less than 6.5%. See Note 8.

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RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

14. Acquisitions and Dispositions - continued

The following information summarizes the allocation of fair values assigned to the assets at the purchase date (in thousands).

Buildings and land $3,130 
Furniture and fixtures  20 
Inventory  4 
SOB license  3,546 
Noncompete  100 
Net assets $6,800 

On May 4, 2015, a Company subsidiary purchased The Seville gentlemen’s club in Minneapolis, Minnesota. As part of the transaction, another subsidiary also purchased the club’s real estate. Total consideration of $8.5 million consisted of $4.5 million for the assets of the club business and $4.0 million for the real estate. Payment was made through bank financing of $5.7 million at 5.5% interest, seller financing of $1.8 million at 6%, and cash of $1.1 million. See Note 8.

The following information summarizes the allocation of fair values assigned to the assets at the purchase date (in thousands).

Buildings and land $4,050 
Furniture and fixtures  200 
Inventory  109 
Goodwill  3,941 
Noncompete  200 
Net assets $8,500 

Goodwill from this transaction is deductible for tax purposes.

2016 Dispositions

In September 2016, we sold a 31% interest in Robust for a $2.0 million note back to its former owner, retaining a 20% interest in the business. The sale of the 31% interest resulted in a loss in control of Robust and we recognized a loss of $184,000 at the date of deconsolidation. The loss was measured as the excess of the carrying amount of the assets and liabilities over the aggregate of 1) the fair value of the $2acquisition price, measurement period adjustments, and subject to any working capital adjustments, the amount of goodwill was estimated at $15.4 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. Goodwill will not be amortized but will be tested at least annually for impairment. Approximately $7.1 million note received, 2)of the recognized goodwill for this transaction will be deductible for tax purposes.

The following is our allocation of the fair value of retained non-controllingthe acquisition price (in thousands) as of October 18, 2021:
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Notes to Consolidated Financial Statements
14. Acquisitions and Dispositions – continued
Current assets$386 
Property and equipment19,273 
Licenses47,390 
Tradenames6,934 
Leases acquired in-place261 
Deferred tax liability(1,741)
Total net assets acquired72,503 
Goodwill15,430 
Acquisition price fair value$87,933 
Licenses and tradenames, except for those associated with certain leased locations, will not be amortized but will be tested at least annually for impairment.
The Company entered into leases with third parties for certain acquired clubs where the real estate was not part of the acquisition.
In connection with this acquisition, we incurred acquisition-related expenses of approximately $414,000, of which $173,000 was recognized in fiscal 2021 and $241,000 was recognized in fiscal 2022, and in both periods included in selling, general and administrative expenses in our consolidated statements of income. We recorded $1.8 million in measurement period adjustments related to amortization of definite-lived intangibles and debt discount during fiscal 2022.
On November 8, 2021, the Company acquired a club and related real estate in Newburgh, New York for a total acquisition price of $3.5 million, of which $2.5 million was paid in cash at closing and $1.0 million through a seller-financed 7-year promissory note with an interest measured atrate of 4.0% per annum. The $3.5 million acquisition price was allocated $2.1 million to real estate, $200,000 to tangible assets, and $1.2 million to goodwill, which is deductible for tax purposes. The note is payable $13,669 per month, including principal and 3)interest. See Note 8. The Company incurred approximately $21,000 of acquisition-related costs for this acquisition, of which $11,000 was incurred in fiscal 2021 and $10,000 was incurred in fiscal 2022, both of which were included in selling, general and administrative expenses in our consolidated statements of income.
On December 30, 2021, the carrying amountCompany acquired the real estate of one of its clubs in South Florida, which the Company previously leased, for $7.0 million in an all-cash purchase. At closing, the Company wrote off the balance of its operating lease right-of-use assets and corresponding operating lease liability related to the discontinued lease, both of which amounted to $5.9 million.
On March 1, 2022, the Company acquired real estate in Stafford, Texas for $3.5 million for a future Bombshells location. The Company secured a $2.6 million loan in relation to the purchase. See Note 8.
On March 1, 2022, the Company acquired real estate in Lubbock, Texas for $400,000 to move one of our existing clubs due to eminent domain on the current location. See 2023 Disposition below.
On May 2, 2022, the Company completed an acquisition of a club in Miami, Florida for a total acquisition price of $16.0 million. The acquisition price includes $3.0 million for the real estate property covered in a stock purchase agreement payable in cash at closing, and $13.0 million for the adult entertainment business covered in a separate stock purchase agreement payable as follows: (1) $2.0 million in cash at closing; (2) $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 (3) $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 noncontrolling interest. Attotal $5.0 million in principal plus accrued interest due at maturity. The Company acquired 100% of the capital stock of the acquired companies in each of the stock purchase agreements mentioned above. The $5.0 million promissory note may be earlier canceled if there are any regulatory changes that would prohibit the business from operating as an adult entertainment establishment within ten years of the closing date of deconsolidation, we no longer held a significant influencethe stock purchase
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Notes to Consolidated Financial Statements
14. Acquisitions and Dispositions – continued
agreement. Based on recent renewals of licenses of similar businesses in Robustthe region where the club operates, the Company believes that the probability of any changes to the regulatory environment is low as of the reporting date and have accounted for our 20% remaining interest as a cost method investment. Thewould not materially impact the fair value of the remaining investment was $0 and $1.2 million as of September 30, 2017 and 2016. See Note 16 for further discussion of the other-than-temporary impairmentdebt.
We recognized in 2017.

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RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

In September 2016, the Company sold two adult clubs and closed a Bombshells location. Following are the aggregate details of the sales:

●Sales price — $6.3 million
●Cash received — $3.5 million
●Notes receivable — $2.8 million
●Gain on sale — $1.1 million of adult club
●Loss on closure of Bombshells — $550,000
●Deferred gain on sale of adult club (gain recognized as note collected) — $399,000

The notes receivable are payable as follows:

●$1.8 million payable at 6% over 240 months.
●$1.0 million payable at 9% over 120 months.

The gain/loss on sale transactions above includes a tax benefit of the deferred tax liabilities amounting to $2.5 million, which were released upon the sale of the entities.

2017 Acquisitions

On April 26, 2017, subsidiaries of the Company acquired the assets and liabilities for this acquisition based on our estimates of the Hollywood Showclubtheir acquisition date fair values, all in the Greater St. Louis area, as well as the club’s building and land, adjacent land, and a nearby building and land that can be used for another gentlemen’s club. The total purchase price for all the acquired assets and real properties was $4.2 million, paid in cash at closing.

The following information summarizesour Nightclubs reportable segment. 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 was estimated to be $6.8 million. Goodwill represents the excess of the acquisition price fair value over the fair values assigned toof the tangible and identifiable intangible assets at acquisition date (in thousands):

Land and building $2,320 
Furniture and equipment  141 
Noncompete  200 
Other assets  74 
Goodwill  1,539 
Accrued liability  (75)
Net assets $4,199 

Management believes thatacquired and liabilities assumed, which is essentially the recorded goodwill representsforward earnings potential of the Company’s expansion into the Greater St. Louis area.acquired entities. Goodwill will not be amortized but will be tested at least annually for impairment. The recognized goodwill balance of $1.5 million, which was recognized in the Nightclubs segment, iswill not be deductible for tax purposes.

The following is our allocation of the fair value of the acquisition price (in thousands) as of May 2, 2022:
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Current assets$172 
Property and equipment5,336 
Licenses4,900 
Tradenames1,460 
Deferred tax liability(2,627)
Total net assets acquired9,241 
Goodwill6,759 
Acquisition price fair value$16,000 

Licenses and tradenames will not be amortized but will be tested at least annually for impairment.

In connection with the acquisition, we incurred acquisition-related expenses of approximately $28,000, which is included in selling, general and administrative expenses in our consolidated statement of income for the year ended September 30, 2022.
On May 23, 2022, the Company acquired real estate in Rowlett, Texas for $3.3 million for a future Bombshells location. The Company secured a $2.2 million loan in relation to the purchase. See Note 8.
On July 21, 2022, the Company acquired a club in Odessa, Texas for a total acquisition price of $1.8 million, of which $1.0 million was for the real estate and $800,000 for the adult entertainment business. The Company paid $1.0 million in cash at closing for the real estate and executed an $800,000 6% seller-financed promissory note for the business. The promissory note matures in seven years and is payable in 84 equal monthly installments of $11,687 of principal and interest. See Note 8. The $1.8 million acquisition price was allocated $11,000 to current assets, $1.1 million to property and equipment, and $684,000 to licenses.

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Notes to Consolidated Financial Statements

14. Acquisitions and Dispositions – continued
On May 8, 2017,July 27, 2022, the Company completed the acquisition of a subsidiaryclub in Hallandale Beach, Florida for a total acquisition price of $25.0 million. The acquisition includes (1) $20.0 million for the adult entertainment business covered in a stock purchase agreement paid $10.0 million in cash at closing and $10.0 million under a 6% ten-year promissory note payable in 120 equal monthly payments of $111,020 in principal and interest, and (2) $5.0 million for the real estate property covered in an asset purchase agreement payable under a 6% ten-year promissory note payable in 120 equal monthly payments of $55,510 in principal and interest. In the stock purchase agreement, the Company acquired 100% of the capital stock of the company that owns Scarlett’s Cabaret Miamiwhich owned the adult entertainment business. The total fair value of the consideration transferred is $23.4 million, which includes a discount on the $10.0 million promissory note to reflect market participant yield expectations.
We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values, all in Pembroke Park, Florida along with certain related intellectual property for a total consideration of $26.0 million, payable $5.4 million at closing, $5.0 million after six months through a short-term 5% note, and $15.6 million through a 12-year amortizing 8% note. See Note 8.

The following information summarizesour Nightclubs reportable segment. 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 was estimated to be $5.6 million. Goodwill represents the excess of the acquisition price fair value over the fair values assigned toof the tangible and identifiable intangible assets at acquisition date (in thousands):

Inventory $109 
Leasehold improvements  1,222 
Furniture and equipment  633 
Noncompete  400 
SOB license  20,196 
Tradename  2,215 
Goodwill  1,177 
Net assets $25,952 

Management believes that the recorded goodwill represents the Company’s strong market positioning in the South Florida areaacquired and with its different clientele from Tootsie’s Cabaret,liabilities assumed, which is five miles away,essentially the two are complementary to each other including management synergies.forward earnings potential of the acquired entities. Goodwill for this acquisition will not be amortized but will be tested at least annually for impairment. The recognized goodwill amount of $1.2 million, which was recognized in the Nightclubs segment, iswill not be deductible for tax purposes.

In conjunction with

The following is our allocation of the fair value of the acquisition price (in thousands) as of July 27, 2022:
Current assets$71 
Property and equipment4,921 
Licenses16,810 
Deferred tax liability(3,979)
Total net assets acquired17,823 
Goodwill5,577 
Acquisition price fair value$23,400 
On August 18, 2022, the Company made an election under IRS Code 338(h)10purchased real estate in Huntsville, Alabama amounting to treat the acquisition as an asset purchase$2.1 million for tax purposes. As a result, no deferred taxes were recorded upon acquisition.

The Company’s pro forma results of operations for the acquisitions have not been presented because the effect of the acquisitions was not material to our consolidated financial statements. Since the acquisition dates, the two acquisitions generated combined revenues of $5.6 million that are included in the Company’s consolidated statements of income for the year ended September 30, 2017.

2017 Dispositions

On January 13, 2017, we closed the sale on one of our non-income producing properties, included in assets held for sale on our condensed consolidated balance sheet as of September 30, 2016, for $2.2 million in cash, recognizing approximately $116,000 loss on the sale. Proceeds were used to pay off the remaining $1.5 million of a related 11% balloon note, which was due in 2018.future Bombshells location. The Company paid $525,000 in cash at closing and entered into a $75,000 prepayment penalty to pay offbank financing for the debt.

$1.6 million remainder (see Note 8).

On June 6, 2017,September 12, 2022, the Company closed onentered into a joint venture with a private investment company to acquire real estate in Austin, Texas amounting to $2.2 million for a future Bombshells location. The Company has a 51% interest in the salejoint venture and paid its $1.1 million share for the real estate purchase while the investment of another non-income producing property, includedthe private investment company was recorded as noncontrolling interest in assets held for sale on the Company’s condensedour consolidated balance sheet assheet.
2022 Dispositions
On October 8, 2021, the Company sold one of September 30, 2016,its clubs in South Houston for $1.5$300,000.
On July 12, 2022, the Company received $6.0 million recognizing approximately $0.9 million gain onfrom the sale. The buyer ownedPhiladelphia Regional Port Authority for one of the Company’s notes payable, hence,Company's rental properties, with a carrying value of $4.9 million, due to eminent domain. The Company paid the current lessee a termination fee of $250,000, which is included in other charges, net in our consolidated statement of income. The Company exchangedused $2.1 million of the property forproceeds to pay down a $1.5 million reduction in its note payable.

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loan related to the property.


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Notes to Consolidated Financial Statements

14. Acquisitions and Dispositions – continued
2023 Acquisitions
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 8). The site includes extra land that will be listed for sale once the Bombshells unit is completed.
On October 11, 2022, the Company purchased a hangar in Arcola, Texas amounting to $754,000 in cash.
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 8). 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 equipment4,884 
Licenses1,170 
Tradename340 
Accrued liability(95)
Deferred tax liability(363)
Total net assets acquired6,000 
Goodwill2,905 
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.
On November 8, 2022, the Company purchased real estate in Aurora, Colorado amounting to $850,000 in cash for a future Bombshells location.
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 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.

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Notes to Consolidated Financial Statements
14. Acquisitions and Dispositions – continued
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 8). 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.
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 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.
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 8). 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.
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 8).
The fair value of the consideration transferred is as follows:
Cash$25,000 
Notes payable25,500 
Common stock12,847 
Total consideration fair value$63,347 
We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values, all in our Nightclub reportable segment. 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.

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Notes to Consolidated Financial Statements
14. Acquisitions and Dispositions – continued
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 equipment16,570 
Licenses36,110 
Tradename6,328 
Accounts payable(632)
Total net assets acquired59,008 
Goodwill4,339 
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. From the date of acquisition until September 30, 2023, the clubs contributed revenues of $16.1 million and income from operations of $4.8 million, which are included in our consolidated statement of income.
The following table presents the unaudited pro forma combined results of operations of the Company and the five acquired clubs and related assets 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):
20232022
Pro forma revenues$306,729 $291,764 
Pro forma net income attributable to RCIHH common stockholders$28,329 $51,198 
Pro forma earnings per share - basic and diluted$3.01 $5.34 
Pro forma weighted average number of common shares outstanding - basic and diluted9,426,9429,583,445
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 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 8) 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.
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 8).
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.

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Notes to Consolidated Financial Statements
14. Acquisitions and Dispositions – continued
2023 Disposition
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.
See also Note 6 for dispositions of real estate properties that had been classified as held-for-sale.
15. Quarterly Results of Operations (Unaudited)

The following tables summarize unaudited quarterly data for fiscal 2017, 20162023, 2022, and 20152021 (in thousands, except share and per share data):

  For the Three Months Ended 
  December 31, 2016  March 31, 2017  June 30, 2017  September 30, 2017(4) 
Revenues $33,739  $34,518  $37,429  $39,210 
Income from operations(1) $6,333  $7,487  $7,883  $1,436 
Net income (loss) attributable to RCIHH shareholders(1) $2,898  $3,759  $3,841  $(2,239)
Earnings (loss) per share attributable to RCIHH shareholders                
Basic $0.30  $0.39  $0.40  $(0.23)
Diluted $0.30  $0.39  $0.40  $(0.23)
Weighted average number of common shares outstanding                
Basic  9,768   9,719   9,719   9,719 
Diluted  9,814   9,721   9,719   9,719 

  For the Three Months Ended 
  December 31, 2015  March 31, 2016  June 30, 2016  September 30, 2016 
Revenues $33,475  $34,396  $33,952  $33,037 
Income from operations(2) $5,717  $7,550  $6,657  $769 
Net income attributable to RCIHH shareholders(2) $2,552  $5,505  $2,653  $508 
Earnings per share attributable to RCIHH shareholders                
Basic $0.25  $0.55  $0.27  $0.05 
Diluted $0.25  $0.54  $0.27  $0.05 
Weighted average number of common shares outstanding                
Basic  10,296   10,013   9,906   9,839 
Diluted  10,635   10,215   10,047   9,840 

  For the Three Months Ended 
  December 31, 2014  March 31, 2015  June 30, 2015  September 30, 2015 
Revenues $34,204  $34,989  $33,466  $32,790 
Income (loss) from operations(3) $6,140  $(2,616) $14,152  $3,051 
Net income (loss) attributable to RCIHH shareholders(3) $3,360  $(2,841) $8,267  $428 
Earnings (loss) per share attributable to RCIHH shareholders                
Basic $0.33  $(0.28) $0.81  $0.04 
Diluted $0.32  $(0.28) $0.78  $0.04 
Weighted average number of common shares outstanding                
Basic  10,264   10,275   10,245   10,363 
Diluted  10,929   10,275   10,707   10,363 

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For the Three Months Ended
December 31, 2022March 31,
2023		June 30,
2023		September 30, 2023
Revenues(1)
$69,968 $71,517 $77,055 $75,250 
Income from operations(1)
$16,898 $13,427 $15,515 $5,644 
Net income attributable to RCIHH stockholders(1)
$10,238 $7,732 $9,085 $2,191 
Earnings per share(1)
    
Basic and diluted$1.11 $0.83 $0.96 $0.23 
Weighted average number of common shares outstanding
Basic and diluted9,230,2589,265,7819,430,2259,417,166
Dividends per share declared and paid$0.05 $0.06 $0.06 $0.06 

For the Three Months Ended
December 31, 2021March 31,
2022		June 30,
2022		September 30, 2022
Revenues(2)
$61,836 $63,692 $70,714 $71,378 
Income from operations(2)
$15,911 $17,081 $20,507 $17,960 
Net income attributable to RCIHH stockholders(2)
$10,575 $10,952 $13,902 $10,612 
Earnings per share(2)
Basic and diluted$1.12 $1.15 $1.48 $1.15 
Weighted average number of common shares outstanding
Basic and diluted9,407,5199,489,0859,389,6759,249,864
Dividends per share declared and paid$0.04 $0.05 $0.05 $0.05 
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Notes to Consolidated Financial Statements

15. Quarterly Results of Operations (Unaudited) – continued
For the Three Months Ended
December 31, 2020March 31,
2021		June 30,
2021		September 30, 2021
Revenues$38,398 $44,059 $57,860 $54,941 
Income from operations(3)
$6,583 $9,841 $18,507 $3,617 
Net income attributable to RCIHH stockholders(3)
$9,643 $6,091 $12,302 $2,300 
Earnings per share(3)
Basic and diluted$1.07 $0.68 $1.37 $0.26 
Weighted average number of common shares outstanding
Basic and diluted9,019,0888,999,9108,999,9108,999,910
Dividends per share declared and paid$0.04 $0.04 $0.04 $0.04 
(1)

(1)Fiscal year 2017 income from2023 results of operations mainly impacted by the six newly acquired clubs and netthe lower same-store sales. Net income attributable to RCIHH shareholders included $7.6stockholders and earnings per share were impacted by $12.6 million in asset impairmentimpairments ($1.4662,000 in the second quarter, $2.6 million in the third quarter, and $6.2$9.3 million in the fourth quarter) and $1.3$3.8 million additionalin 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 due(benefit) rate was 22.8%, 21.8%, 20.1%, and (39.6)% from first to change infourth quarter, respectively, including the impact of the release of a $176,000 deferred tax liability rateasset valuation allowance and the pretax loss in the fourth quarter.
(2)Fiscal year 2022 results of operations were significantly higher than prior year due to the fifteen acquired clubs and one new Bombshells. Net income attributable to RCIHH stockholders and earnings per share were impacted by $1.9 million in asset impairments ($1.7 million in the third quarter and $166,000 in the fourth quarter) and $2.4 million gain on sale or disposition of businesses and assets ($342,000 in the first quarter, $58,000 in the second quarter, $266,000 in the third quarter, and $1.7 million in the fourth quarter). Quarterly effective income tax expense rate was 33.3%21.7%, 33.7%23.4%, 32.9%21.3%, and 99.6%27.1% from first to fourth quarter, respectively.

respectively, including the impact of the $343,000 deferred tax asset valuation allowance in the fourth quarter.
(3)(2)

Fiscal year 2016 income from operations2021 revenues were significantly higher compared to prior year, except for the first quarter, which was still affected by the lockdowns and netsocial restrictions of the COVID-19 pandemic. Net income attributable to RCIHH shareholders included $3.5stockholders and earnings per share were heavily impacted by the gain on debt extinguishment ($4.9 million in asset impairment in the fourth quarter; and $1.9 million in settlement of lawsuits (significant of which were $540,000 in the first quarter and $1.1$380,000 in the second quarter), asset impairments totaling $13.6 million ($1.4 million in the second quarter, $271,000 in the third quarter, and $11.9 million in the fourth quarter), and gain on insurance totaling $1.3 million ($197,000 in the first quarter, $12,000 in the second quarter, and $1.0 million in the fourth quarter). Quarterly effective income tax expense (benefit) rate was 35.9%(4.2)%, 5.2%24.3%, 43.0%24.4%, and (109.0%)(210.4)% from first to fourth quarter, respectively.

(3)Fiscal year 2015 income (loss) from operations and net income (loss) attributable to RCIHH shareholders included $1.7 million in asset impairments ($1.4 million in the first quarter and $347,000 in the fourth quarter; $11.7 million in settlement of lawsuits (significant of which were $10.3 million in the second quarter and $1.1 million in the fourth quarter; and $8.2 million in gain on settlement of patron tax in the third quarter. Quarterly effective income tax expense (benefit) rate was 36.1%, (28.9%), 35.5% and 11.9% from first to fourth quarter, respectively.
(4)

The fourth quarter of 2016 and 2015 presented above includesrespectively, including the impact of the revisions discussedrelease of a $462,000 deferred tax asset valuation allowance in Note 3.

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Notes to Consolidated Financial Statements

16. Impairment of Assets

During the year ended September 30, 2015, we recorded an impairment of $1.7 million for the indefinite-lived intangible assets at two clubs that were closed.

During the year ended September 30, 2016, we recorded an impairment of $3.5 million, of which $2.1 million was for indefinite-lived intangible assets of one club, while $1.4 million was for one property held for sale.

During the year ended September 30, 2017, we recorded aggregate impairment charges of $7.6 million comprised of $4.7 million for the goodwill of four club locations, including one thatOur nightclub operations are normally affected by seasonal factors. Historically, we have put up for saleexperienced reduced revenues from April through September (our fiscal third and fourth quarters) with the strongest operating results occurring during theOctober 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 $385,000 for property and equipment of one club, $1.4 million for SOB license of two club locations, and $1.2 million of investment impairment.

17.to year.

16. Segment Information

The Company is engaged in the operations ofowns and operates adult nightclubs and Bombshells Restaurants and Bars. The Company has identified such segments based on management responsibility and the nature of the Company’s products, services and costs. There are no major distinctions in geographical areas served as all operations are in the United States. The Company measures segment profit (loss) as income (loss) from operations. TotalSegment assets are those assets controlled by each reportable segment. The otherOther category below includes our media and energy drink divisions that are not significant to the consolidated financial statements.

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Notes to Consolidated Financial Statements

17.

16. Segment Information -– continued

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

  2017  2016  2015 
Business segment revenues:            
Nightclubs $124,687  $113,941  $115,493 
Bombshells  18,830   18,690   17,639 
Other  1,379   2,229   2,317 
  $144,896  $134,860  $135,449 
             
Business segment operating income (loss):            
Nightclubs $35,138  $33,211  $30,428 
Bombshells  3,084   1,152   1,638 
Other  (522)  (2,650)  (1,921)
General corporate  (14,561)  (11,020)  (9,418)
  $23,139  $20,693  $20,727 
             
Business segment capital expenditures:            
Nightclubs $5,142  $22,136  $16,578 
Bombshells  4,489   609   1,448 
Other  14   10   973 
General corporate  1,604   5,393   260 
  $11,249  $28,148  $19,259 
             
Business segment depreciation and amortization:            
Nightclubs $5,186  $5,008  $4,646 
Bombshells  1,025   1,072   862 
Other  50   684   627 
General corporate  659   564   910 
  $6,920  $7,328  $7,045 

  September 30, 2017  September 30, 2016  September 30, 2015 
Business segment assets:            
Nightclubs $254,432  $244,332  $229,935 
Bombshells  18,870   8,378   9,719 
Other  780   896   9,721 
General corporate  25,802   22,455   17,152 
  $299,884  $276,061  $266,527 

202320222021
Revenues (from external customers)
Nightclubs$236,748 $206,251 $137,348 
Bombshells55,723 59,925 56,621 
Other1,319 1,444 1,289 
$293,790 $267,620 $195,258 
Income (loss) from operations
Nightclubs$73,187 $82,798 $43,815 
Bombshells6,502 11,504 13,264 
Other(1,446)57 35 
General corporate(26,759)(22,900)(18,566)
$51,484 $71,459 $38,548 
Capital expenditures
Nightclubs$11,840 $17,477 $6,890 
Bombshells16,578 3,586 5,895 
Other8,400 841 157 
General corporate3,566 2,099 569 
$40,384 $24,003 $13,511 
Depreciation and amortization
Nightclubs$10,871 $9,604 $5,494 
Bombshells2,574 1,783 1,824 
Other495 85 87 
General corporate1,211 919 833 
$15,151 $12,391 $8,238 
September 30, 2023September 30, 2022
Total assets
Nightclubs$483,563 $437,096 
Bombshells85,215 62,021 
Other6,936 2,635 
General corporate35,170 28,986 
$610,884 $530,738 
Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs segment amounting to $16.6 million, $14.0 million, and $11.5 million for 2023, 2022, and 2021, respectively, and intercompany sales of Robust Energy Drink of Other segment amounting to $254,000, $261,000, and $141,000 for the same respective years. These intercompany revenue amounts are eliminated upon consolidation.

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Notes to Consolidated Financial Statements
16. Segment Information – continued
General corporate expenses include corporate salaries, health insurance and social security taxes for officers, legal, accounting and information technology employees, corporate taxes and insurance, legal and accounting fees, depreciation and other corporate costs such as automobile and travel costs. Management considers these to be non-allocable costs for segment purposes.

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RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

17. Segment Information - continued

A further disaggregation of segment revenues, as follows:

  Nightclubs  Bombshells  Other 
Fiscal 2017:            
Sales of alcoholic beverages $48,655  $11,784  $- 
Sales of food and merchandise  11,346   6,910   - 
Service revenues  58,013   119   - 
Other revenues  6,673   17   1,379 
  $124,687  $18,830  $1,379 
             
Fiscal 2016:            
Sales of alcoholic beverages $45,677  $11,539  $- 
Sales of food and merchandise  10,767   7,133   - 
Service revenues  51,276   -   - 
Other revenues  6,221   18   2,229 
  $113,941  $18,690  $2,229 
             
Fiscal 2015:            
Sales of alcoholic beverages $45,859  $9,970  $- 
Sales of food and merchandise  11,083   7,630   - 
Service revenues  52,987   27   - 
Other revenues  5,564   12   2,317 
  $115,493  $17,639  $2,317 

18. Noncontrolling Interests

Noncontrolling interests represent the portion of equity in a consolidated entity held by owners other than the consolidating parent. Noncontrolling interests are reported in the consolidated balance sheets within equity, separately from stockholders’ equity, Revenue, expenses and net income attributable to both the Company and the noncontrolling interests are reported in the consolidated statements of income.

Our consolidated financial statements include noncontrolling interests related principally to the Company’s ownership of 51% of an entity which owns theCertain real estate forassets 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 Company’s nightclub in Philadelphia.

19.Bombshells segment.

As of September 30, 2022, we reclassified $9.0 million of goodwill from Corporate to Nightclubs to conform to current year presentation. See Note 2.
17. Related Party Transactions

Presently, our Chairman and President, 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.

In August 2011, The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of September 30, 2023 and 2022 was $119.2 million and $115.1 million, respectively.

Included in the $17.0 million borrowing on October 12, 2021 (see Note 8) 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 Company 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 8 for October 2023 extension of term of promissory notes.
We used the services of Nottingham Creations, and previously Sherwood Forest Creations, LLC, both furniture fabrication companies that manufacture tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance. Nottingham Creations is owned by a brother of Eric Langan (as was Sherwood Forest). Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were approximately $195,000 in fiscal 2023, $207,000 in fiscal 2022, and $118,000 in fiscal 2021. As of September 30, 2023 and 2022, we owed Nottingham Creations and Sherwood Forest $10,700 and $92,808, 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, borrowed $750,000as well as directly to the Company during fiscal 2023, 2022, and 2021. 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 $443,295, $3,809, and $0 for the fiscal years 2023, 2022, and 2021, respectively. Amounts billed directly to the Company were approximately $9,430, $133,000, and $425,000 for the fiscal years 2023, 2022, and 2021, respectively. As of September 30, 2023 and 2022, the Company owed TW Mechanical approximately $0 and $9,338, respectively, in unpaid direct billings.
18. 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.

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RCI HOSPITALITY HOLDINGS, INC.
Notes to Consolidated Financial Statements
18. Leases – continued
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, 2023 are as follows (in thousands):
Principal
Portion		Interest
Portion		Total
Payments
October 2023 - September 2024$2,977 $2,056 $5,033 
October 2024 - September 20253,227 1,881 5,108 
October 2025 - September 20263,516 1,691 5,207 
October 2026 - September 20273,532 1,487 5,019 
October 2027 - September 20282,982 1,300 4,282 
Thereafter21,918 4,630 26,548 
$38,152 $13,045 $51,197 
Total lease expense under ASC 842 was included in selling, general and administrative expenses in our consolidated statement of income, except for sublease income which was included in other revenue, for the years ended September 30, 2023, 2022, and 2021 as follows (in thousands):
202320222021
Operating lease expense – fixed payments$5,166 $4,738 $3,325 
Variable lease expense1,629 1,397 349 
Short-term equipment and other lease expense (includes $357, $258 and $298 recorded in advertising and marketing for fiscal 2023, 2022, and 2021, respectively, and $557, $435 and $397 recorded in repairs and maintenance, respectively; see Note 4)
1,325 1,264 955 
Sublease income— (4)(6)
Total lease expense, net$8,120 $7,395 $4,623 
Other information:
Operating cash outflows from operating leases$7,949 $7,200 $4,522 
Weighted average remaining lease term10.5 years11 years12 years
Weighted average discount rate5.8 %5.6 %6.0 %
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 related party.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 $1.0 million, $0, and $0 during fiscal years 2023, 2022, and 2021, respectively.
We recorded third-party operating lease revenue under ASC 842 amounting to $1.8 million, $1.6 million, and $1.5 million for fiscal 2023, 2022, and 2021, respectively. Minimum future base rentals are as follows: $1.7 million for 2024, $1.4 million for 2025, $380,000 for 2026, $320,000 for 2027, $292,000 for 2028, and $802,000 thereafter.

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RCI HOSPITALITY HOLDINGS, INC.
Notes to Consolidated Financial Statements

19. Subsequent Events
Debt
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 note boretransaction 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 10%12% per annum and matured on August 1, 2014. The note wasannum. Of the new amended promissory notes, $9.1 million are payable interest-only monthly (or quarterly) in arrears, with one initiala final lump sum payment of principal and accrued and unpaid interest only due Januaryon October 1, 2012,2026. The remaining $6.6 million in promissory notes are payable in monthly payments of principal and thereafter in ten interest-only quarterly payments. The principal was payableinterest based on August 1, 2014. The note was extended in 2014 undera 10-year amortization period, with the same terms until maturity in October 2017. At the optionbalance of the holder,entire principal amount together with all accrued and unpaid interest due and payable in full on November 1, 2027. The original promissory notes that were returned and cancelled as consideration for the issuance of the $6.6 million in new amended promissory notes had an original principal amount of $7.5 million in October 2021.
On November 17, 2023, the Company closed on a construction loan agreement with a bank lender for a total amount of $7.2 million bearing an interest rate of 8.5% per annum for the construction of a Bombshells restaurant in Rowlett, Texas. The promissory note is payable in 120 monthly payments, the first 18 months of which will be interest-only. The succeeding 101 monthly payments will be payable in equal installments of $63,022 in principal and interest, and the remaining balance in principal and accrued but unpaid interest thereon could have been converted intopayable on the 120th month.
Share Repurchase
Subsequent to September 30, 2023 through the filing date of this report, we purchased 37,954 shares of the Company’sCompany's common stock at $10.00 per share. The note was redeemable by the Company after six months at any time if the closing pricea cost of its common stock for 20 consecutive trading days is at least $13.00 per share. The note was converted into$2.1 million. These shares during 2016.

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were subsequently retired.

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Table of Contents
RCI HOSPITALITY HOLDINGS, INC.

Notes to Consolidated Financial Statements

20. Subsequent Event

On December 14, 2017, the Company entered into a loan agreement (“New Loan”) with a bank for $81.2 million. The New Loan fully refinances 20

Schedule of the Company’s notes payableValuation and partially pays down 1 note payable (collectively, “Repaid Notes”) with interest rates ranging from 5% to 12% covering 43 parcels of real properties the Company previously acquired (“Properties”). The New Loan consists of three promissory notes:

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 accounts receivable
Fiscal 2021$261 $215 $(94)$382 
Fiscal 2022$382 $191 $(543)$30 
Fiscal 2023$30 $47 $(15)$62 
Allowance for doubtful notes receivable
Fiscal 2021$182 $(80)$— $102 
Fiscal 2022$102 $753 $(855)$— 
Fiscal 2023$— $— $— $— 
Deferred tax asset valuation allowance(3)
Fiscal 2021$1,273 $— $(632)$641 
Fiscal 2022$641 $343 $— $984 
Fiscal 2023$984 $— $(176)$808 
i)

The first note amounts to $62.5 million with a term of 10 years at a 5.75% fixed interest rate for the first five years, then repriced one time at the then current U.S. Treasury rate plus 3.5%, with a floor rate of 5.75%, and payable in monthly installments of $442,058, based upon a 20-year amortization period, with the balance payable at maturity;

(1)Charged to bad debts expense (under other selling, general and administrative expenses) in the consolidated statements of income.
ii)

The second note amounts to $10.6 million with a term of 10 years at a 5.45% fixed interest rate until July 2020, after which to be repriced at a fixed interest rate of 5.75% until the fifth anniversary of this note, and then to be repriced again at the then interest rate of the first note. This note is payable $78,098 monthly for principal and interest until July 2020, based upon a 20-year amortization period, after which the monthly payment for principal and interest is adjusted accordingly based on the repricing, with the balance payable at maturity; and

(2)Written off against gross receivable and allowance.
iii)
(3)

The third note amounts to $8.1 million with a term of 10 years at a 5.95% fixed interest rate until August 2021, after which to be repriced at 5.75% untilIncluded in deferred tax liability, net in the fifth anniversary of this note, and then to be repriced again at the then interest of the first note. This note is payable $100,062 monthly for principal and interest until August 2021, based upon a 20-year amortization period, after which the monthly payment for principal and interest is adjusted accordingly based on the repricing, with theconsolidated balance payable at maturity.

In addition to the monthly principal and interest payments as provided above, the Company will pay monthly installments of principal of $250,000, applied to the first note, until such time as the loan-to-value ratio of the Properties, based upon reduced principal balance of the New Loan and the then current value of the Properties, is not greater than 65%. The New Loan has eliminated balloon payments of the Repaid Notes worth $2.9 million originally scheduled in fiscal 2018, $19.4 million originally scheduled in fiscal 2020 and $5.3 million originally scheduled in fiscal 2021.

In connection with the Repaid Notes, we wrote off $279,000 of unamortized debt issuance costs to interest expense. Prior to September 30, 2017, the Company paid a portion of debt issuance costs amounting to $612,500, which was included in other assets until the closing of the transaction. At closing, the Company paid an additional $764,000 in debt issuance costs, which together with the $612,500 prepayment will be amortized for the term of the loan using the effective interest rate method.

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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.

Item 9A. Controls and Procedures.

Effectiveness

Evaluation of Disclosure Controls and Procedures

In accordanceconnection with Rule 13a-15(b)the preparation of the Exchange Act, asthis report, an evaluation was carried out by certain members of the end of the period covered by this Annual Report on Form 10-K,Company management, evaluated, with the participation of our principal executive officerthe Chief Executive Officer (“CEO”) and principal financial officer,the Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of ourCompany’s disclosure controls and procedures (as defined in RuleSecurities and Exchange Commission’s (“SEC”) Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of September 30, 2023. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act). Based on their evaluation of these disclosure controlsAct is recorded, processed, summarized, and procedures, they havereported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the CEO and the CFO, to allow timely decisions regarding required disclosures.
Due to material weaknesses in internal control over financial reporting described below, management concluded that ourthe Company’s disclosure controls and procedures were not effective as of September 30, 2017. This determination is based on2023. Notwithstanding the existence of these material weaknesses, management identifiedbelieves that the consolidated financial statements in our internal control overthis annual report filed on Form 10-K present, in all material respects, the Company’s financial reporting,condition as described below. We arereported, in the process of remediating the material weaknesses, as described below, which should remedy our disclosure controls and procedures, but we will continue to monitor this issue.

conformity with United States Generally Accepted Accounting Principles (“U.S. GAAP”).

Management’s Annual Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’sOur internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.

Internal control over financial reporting, as defined in Rules 13a-15(f)U.S. GAAP and 15d-15(f) under the Exchange Act, is a process designed by, or under the supervision of, the CEO and CFO and is effected by the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with US GAAP. Internal control over financial reporting includes those policies and procedures that:

●pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
●provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that the receipts and expenditures of the Company are being made only in accordance with appropriate authorization of management and the Board of Directors; and
●provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation

Under the supervision of and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting based onas of September 30, 2023, using the framework inInternal Control — Integrated Framework (2013) issuedcriteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission.

Commission (“COSO”) in Internal Control—Integrated Framework (2013). A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We have identified material weaknesses in internal control related to (1) proper design and implementation of controls over management’s review of the Company’s accounting for business combinations, specifically related to the identification of and accounting for, intangible assets acquired in a business combination, and over the precision of management's review of certain valuation assumptions; (2) the impairment of goodwill, indefinite-lived intangibles, and long-lived assets, specifically over the precision of management's review of certain assumptions; and (3) ineffective information technology general controls (ITGCs") in the areas of user access and program change-management over certain information technology ("IT") systems that support the Company's financial reporting processes. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of inadequate IT controls over the review of user access and imprecise documentation of procedures related to program change management. Additionally, we rely upon a variety of outsourced IT service providers for key elements of the technology infrastructure impacting our financial reporting process. Certain outsourced IT service providers could not provide System and Organization Controls ("SOC") reports for periods that closely align with our fiscal year end. Given

98
that management did not effectively assess the design and operation of these outsourced IT service providers’ internal controls, some of our controls over IT systems and business processes were also deemed ineffective, but only to the extent that we rely upon information that was subject to the outsourced IT service providers’ control environment. These deficiencies may have an impact on our financial statements, account balances, and disclosures. Based on our evaluation, under the criteria set forth inInternal Control — Integrated Framework (2013), our management, with the participation of our chief executive officer and chief financial officer, concluded that as of September 30, 2017, our internal control over financial reporting was not effective becauseas of theSeptember 30, 2023.
Following identification of these material weaknesses, as discussed below.

Control Environment

The control environment, which isand prior to filing this Annual Report on Form 10-K, we completed substantive procedures for the responsibility of senior management, helps set the tone of the organization, influences the control consciousness of its officers and employees, and is an important component affecting how the organization performs financial analysis, accounting and financial reporting. A proper organizational tone can be promoted through a variety of means, such as well documented and communicated policies, a commitment to hiring competent employees, the manner and content of oral and written communications, strong internal controls and effective governance.

Atyear ended September 30, 2017, we did not design or maintain an effective control environment which was primarily attributable to not having a sufficient complement of accounting and financial reporting personnel with an appropriate level of knowledge to address our financial reporting requirements which contributed to2023. Based on these procedures, management believes that the following material weaknesses:

Control Activities

●Complex Accounting and Management Estimates – We did not appropriately design or maintain effective controls over complex accounting and management estimates related to assets held for sale, business combinations, cost method investments, income taxes, and the impairment analyses for indefinite lived intangible assets, goodwill, and property and equipment which resulted in certain instances of incorrect accounting and improper valuation decisions.
●Financial Statement Preparation and Review – We did not design or maintain effective controls to support accurate accounting, reporting, and disclosures within our Form 10-K.

●Information Technology and Segregation of Duties - We did not design or maintain effective controls to prevent unauthorized access to certain systems, programs and data, and provide for periodic review and monitoring of access including review of security logs and analysis of segregation of duties conflicts. Furthermore, a number of individuals had access to record journal entries but there is no procedure in place to ensure that all journal entries recorded are reviewed.

Despite the existence of the material weaknesses described above, the Company’s consolidated financial statements are presentedincluded in this Form 10-K have been prepared in accordance with U.S. GAAP. Our CEO and CFO have certified that, based on their knowledge, the financial statements, and other financial information included in this Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in conformity with accounting principles generally accepted in the United States of America.

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this Form 10-K.

The Company’s independent registered public accounting firm, Marcum LLP, has expressed an unqualified opinion on our financial statements and an adverse opinion on our internal controlscontrol over financial reporting as of September 30, 2017 were audited by BDO USA, LLP, our independent registered public accounting firm, as stated2023, in itsthe audit report included in Item 8that appears at the end of Part II of this Annual Report on Form 10-K.

Remediation Plan for Existing Material Weaknesses
Review of Accounting for Business Combinations
Management is committed to the remediation of the material weakness described above. As such, controls will be added to both increase precision of management’s review of each component of business combinations, and if necessary, retain the services of a third-party consultant to assist in Internal Control over Financial Reportingthe valuation and Status

Weaccounting for intangible assets acquired in a business combination.

Review of Accounting for Impairment of Goodwill and Intangible Assets
As most of the assumptions used in the valuation models employed in impairment analyses are subjective in nature, Management will employ additional controls to validate these assumptions, including the engagement of a third-party consultant to assist developing valuation models and establishing sound and reasonable assumptions.
Information Technology General Controls
As a result of the material weakness, we have initiated and will continue to identifyimplement remediation measures to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and implementoperating effectively. The remediation actions to improveinclude: (i) strengthening and enhancing the review and documentation procedures in our internal controlcontrols over financialuser access review; (ii) define and communicate clear and concise program change management policy and procedures; (iii) enhancing the reporting and disclosure controls and procedures including actions to enhance our resources and training with respect to financial reporting and disclosure responsibilities, and increase utilizationrequirements of accounting system functionality, with continued oversight from the Audit Committee.

We have taken,audit logs; (vi) continuous improvement over our ITGC controls related to third party applications; and continue to take, the actions described below to remediate the identified material weaknesses.  As we continue to evaluate and work to improve our internal controls over financial(vi) enhanced quarterly reporting our senior management may determine to take additional measures to address control deficiencies or determine to modifyon the remediation efforts described in this section.  Whilemeasures to the Audit Committee and senior management are closely monitoringof the implementation,board of directors.

It is our belief that these added controls will effectively remediate the existing material weaknesses.
We believe that these actions will remediate the material weaknesses. The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation efforts discussed in this section, including any additional remediation efforts that our senior management identifies as necessary, are completed, tested and determined effective, theof these material weaknesses described above will continue to exist.

Control Environment

Our Board of Directors has directed senior management to ensure that a proper, consistent tone is communicated throughout the organization, which emphasizes the expectation that previously existing deficiencies will be rectified through implementation of processes and controls to ensure strict compliance with US GAAP and regulatory requirements.  We also have taken steps to effect a proper tone through our policies and personnel.

Control Activities

Strengthening internal controls over complex accounting and management estimates –Subsequent to September 30, 2017, we have committed to resolve the controls over complex accounting and estimates and prevent instances of incorrect accounting and improper valuation decisions, by hiring valuation experts to assist us with our goodwill, indefinite-lived intangible assets, and property and equipment impairment analyses whenever necessary and with the analysis and accounting for business combinations, income taxes, and other complex accounting matters.

Strengthening internal controls over financial reporting and disclosures -We believe the new Enterprise Resource Planning (“ERP”) system described below will assist us in strengthening the controls over financial reporting, and we are committed to also add an overlay of review of our financial statements during our financial reporting process. We have also upgraded our accounting staff with certain newly hired accountants.

We have also committed to hiring an outsourced internal audit group to assist with the controls over these processes and other internal control functions.

With the oversight of our Board of Directors and Audit Committee, the Company has also begun taking steps and plans to take additional measures to remediate the underlying causes of the material weaknesses.

Strengthening the information technology application and related segregation of duties issues –We were previously aware of the limitations of our accounting software and had been in the planning/implementation process of replacing the software for many monthscompleted prior to September 30, 2017. In October 2017, we completed the conversion to a new ERP system which, along with changes to our manual internal controls, we believe will resolve the issues detailed above relating to the information systems and segregationend of duties. The new ERP system has features that prevent unauthorized access to certain programs and data, and provides for periodic review and monitoringfiscal 2024.


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Changes in Internal Control Over Financial Reporting

Other than

During fiscal year 2023, the Company completed several business combinations as described in Note 14 - Acquisitions and Dispositions to our audited Consolidated Financial Statements.
•On October 26, 2022, the Company completed the acquisition of a club in Dickinson, Texas.
•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.
The scope of management’s assessment of the effectiveness of the Company’s disclosure controls and procedures for fiscal year end 2023 did not include the internal control over the financial reporting of these acquisitions, in accordance with the SEC’s staff guidance that permits exclusion of acquisitions from their final assessment of internal control over financial reporting for the fiscal year in which the acquisition occurred. Due to the size, breadth and complexity of the acquisition of these businesses, management’s evaluation of internal control over financial reporting for the fiscal year ended September 30, 2023, did exclude those internal control activities. The businesses are wholly owned subsidiaries whose total assets and total revenues are excluded from management’s assessment and represent approximately 7% and 6%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2023.
Except for the remediation efforts as discussed above, in “Management’s Annual Report on Internal Control over Financial Reporting,” there werehave been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

None

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None

Report

100
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Stockholders and Board of Directors and Stockholders

of

RCI Hospitality Holdings, Inc.

Houston, Texas

Adverse Opinion on Internal Control over Financial Reporting
We have audited RCI Hospitality Holdings, Inc.’s (the "Company’s") internal control over financial reporting as of September 30, 2017,2023, based on criteria established inInternal Control – IntegratedControl-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). RCI Hospitality, Inc.’sCommission. In our opinion, because of the effect of the material weaknesses described in the following paragraph on the achievement of the objectives of the control criteria, the Companyhas not maintained effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in Management's Annual Report on Internal Control Over Financial Reporting:
•The Company had ineffective design, implementation and, operation of controls over program change management, user access and vendor management controls to ensure:
1)    IT program and data changes affecting the Company’s financial IT applications and underlying accounting records, are identified, tested, authorized, and implemented appropriately to validate that data produced by its relevant IT system(s) were complete and accurate. Automated process-level and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency;
2)    appropriate restrictions that would adequately prevent users from gaining inappropriate access to the financially relevant systems;
3)    key third party service provider SOC reports were obtained and reviewed.
•Ineffective design, implementation, and operation of controls, which include management review controls, over the accounting for business combinations.
•Ineffective design, implementation, and operation of controls, which include management review controls, over the Company's assessments of potential impairment.
These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the fiscal 2023 consolidated financial statements and financial statement schedule, and this report does not affect our report dated December 14, 2023 on those consolidated financial statements.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet as of September 30, 2023and the related consolidated statement of operations, changes in equity, and cash flows and the related financial statement schedule for the year endedSeptember 30, 2023 of the Company and our report dated December 14, 2023 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.
Explanatory Paragraph – Excluded Subsidiaries
As described in “Management’s Annual Report on Internal Control Over Financial Reporting”, management has excluded the Company’s acquisition of two businesses that occurred during the year ended September 30, 2023, from its assessment of internal control over financial reporting as of September 30, 2023 because these entities were acquired by the Company in purchase business combinations during the year ended September 30, 2023.We have also excluded these two businesses from our audit of internal control over financial reporting. These businesses are wholly owned subsidiaries whose
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combined total assets and total revenues represent approximately 7% and 6%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2023.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s“Management Annual Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the company’sCompany's internal control over financial reporting 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 Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.

Because of itsthe inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination


/s/ Marcum LLP

Marcum LLP
Marlton, New Jersey
December 14, 2023


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Control Environment

The Company did not design or maintain an effective control environment which was primarily attributable to not having a sufficient complement of accounting and financial reporting personnel with an appropriate level of knowledge to address the Company’s financial reporting requirements which contributed to the following material weaknesses:

 Control Activities

●Complex Accounting and Management Estimates - The Company did not appropriately design or maintain effective controls over complex accounting and management estimates related to assets held for sale, business combinations, cost method investments, income taxes, and the impairment analyses for indefinite lived intangible assets, goodwill, and property and equipment which resulted in certain instances of incorrect accounting and improper valuation decisions.
●Financial Statement Preparation and Review – The Company did not design or maintain effective controls to support accurate accounting, reporting, and disclosures within its Form 10-K.

●Information Technology and Segregation of Duties - The Company did not design or maintain effective controls to prevent unauthorized access to certain systems, programs and data, and provide for periodic review and monitoring of access including review of security logs and analysis of segregation of duties conflicts. Furthermore, a number of individuals have access to record journal entries but there is no procedure in place to ensure that all journal entries recorded are reviewed.

These material weakness were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2017 financial statements, and this report does not affect our report dated February 14, 2018 on those financial statements.

In our opinion, RCI Hospitality Holdings, Inc. did not maintain, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of RCI Hospitality Holdings, Inc. as of September 30, 2017, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year ended September 30, 2017 and our report dated February 14, 2018 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

Cleveland, Ohio

February 14, 2018

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

DIRECTORS AND EXECUTIVE OFFICERS

Our Directors are elected annually and hold office until the next annual meeting of our stockholders or until their successors are elected and qualified. Officers are appointed by the Boardboard of Directorsdirectors annually and serve at the discretion of the Boardboard of Directorsdirectors (subject to any existing employment agreements). There is no family relationship between or among any of our directors and executive officers. Our Boardboard of Directorsdirectors consists of six persons. The following table sets forth our Directors and executive officers:

officers as of December 13, 2023:
NameAgePosition
NameAgePosition
Eric S. Langan4955Director, Chairman, Chief Executive Officer, President
Phillip MarshallBradley Chhay6840Chief Financial Officer
Travis Reese4854Director and Executive Vice President
Steven JenkinsLuke Lirot6067Director
Luke LirotYura Barabash6149Director
Nour-Dean AnakarElain J. Martin6067Director
Yura BarabashArthur Allan Priaulx4383Director

Eric S. Langan has been a Directordirector since 1998, and our President, CEO and Chairman since 1999. He began his career in the hospitality industry in 1989 and has developed significant expertise in sports bar/restaurants and adult entertainment nightclubs, including related areas of real estate development and finance. Mr. Langan built the XTC Cabaret nightclub brand and merged it into RCI in 1998, expanding the scope of the company. He has been instrumental in bringing professional marketing, management, finance, and technology practices and systems to the gentlemen’s club industry. As one of the original founders of the National Association of Club Executives (ACE), Mr. Langan has been an active member of its Boardboard of Directorsdirectors since 1999. Through these activities, Mr. Langan has acquired the knowledge and skills necessary to successfully operate adult entertainment businesses.

Phillip

Involvement in certain legal proceedings: On September 21, 2020, as part of the settlement of a civil administrative proceeding with the SEC, the Company, Mr. Langan, and Phil Marshall has(our former chief financial officer) agreed, without admitting or denying the findings, to a cease-and-desist order regarding certain sections of the Securities Exchange Act of 1934 and certain rules promulgated thereunder.
The SEC’s order as to the Company, Mr. Langan, and Mr. Marshall found that, from fiscal 2014 through 2019, the Company failed to disclose a total of $615,000 in executive compensation in the form of perquisites. According to the order, these undisclosed perquisites included the cost of the personal use of the Company’s aircraft and Company-provided vehicles, reimbursements for personal airline flights, charitable corporate contributions to the school two of Mr. Langan’s children attended, and housing costs and meal allowance for Mr. Marshall. In addition, the order found that the Company failed to disclose related party transactions involving Mr. Langan’s father and brother and a director’s brother. The order further found that the Company failed to keep books and records that allowed it to report, and lacked sufficient internal controls concerning, these executive perquisites and related party transactions.
The SEC’s order as to the Company, Mr. Langan, and Mr. Marshall found that the Company and Mr. Langan violated, and Mr. Langan and Mr. Marshall caused the Company to violate, the proxy solicitation provisions of Section 14(a) of the Securities Exchange Act of 1934 and Rules 14a-3 and 14a-9 thereunder. The order further found that the Company violated, and Mr. Langan and Mr. Marshall caused the Company to violate, the reporting provisions of Section 13(a) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder, the books and records provisions of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and the disclosure controls provision of Rule 13a-15(a) under the Exchange Act. The Company, Mr. Langan, and Mr. Marshall agreed, without admitting or denying the SEC’s findings, to a cease-and-desist order and to pay civil penalties in the amounts of $400,000, $200,000, and $35,000, respectively.
Bradley Chhay was appointed as our CFO on September 14, 2020. He is a Certified Public Accountant (CPA), Certified Fraud Examiner (CFE), and Certified Information Systems Auditor (CISA). He joined us in November 2015 as Controller in charge of migrating the company to an upgraded ERP system and enhancing internal and external audit and SEC
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reporting functions. From 2007 through 2009, he was an auditor for Deloitte & Touche LLP. From 2009 through 2013, he served as our Chief Financial Officer since May 2007. HeInternal Audit Senior, IT Auditor, and Senior Fraud Auditor for Live Nation Entertainment, Inc. of Beverly Hills, a publicly-traded company that markets tickets for live entertainment worldwide, owns and operates entertainment venues, and manages music artists. From 2013 through 2015, Mr. Chhay was previously controlleran Audit Supervisor and Global ERP Project Lead for RigNet, Inc. of Dorado Exploration, Inc., anHouston, a publicly-traded digital technology company serving the oil and gas, explorationmaritime and production company, from February 2007 to May 2007. He previouslygovernment markets. After RigNet, he briefly served as Chief Financial Officer of CDT Systems, Inc.,CFO for a publicly held water technology company, from July 2003 to September 2006. In 1972, Mr. Marshall began his public accounting career with the international accounting firm, KMG Main Hurdman. After its merger with Peat Marwick, Mr. Marshall served as an audit partner at KPMG for several years. After leaving KPMG, Mr. Marshall was partner in charge of the audit practice at Jackson & Rhodes in Dallas from 1992 to 2003, where he specialized in small publicly held companies. Mr. Marshall is also a trustee of United Mortgage Trust, United Development Funding IV and United Development Funding V, publicly held real estate investment trusts.

smaller, privately-held, multi-unit restaurant chain.

Travis Reese became a director and our Director and Executive Vice President in 1999. From 1997 through 1999, Mr. Reese had been a senior network administrator at St. Vincent’s Hospital in Santa Fe, New Mexico. During 1997, Mr. Reese was a computer systems engineerThroughout his time with Deloitte & Touche. From 1995 until 1997, Mr. Reese was Vice President with Digital Publishing Resources, Inc., an Internet service provider. From 1994 until 1995, Mr. Reese was a pilot with Continental Airlines. From 1992 until 1994, Mr. Reese was a pilot with Hang On, Inc., an airline company.the Company, Mr. Reese has an Associate’s Degreeserved many different roles, including without limitation overseeing information technology, working to create the company’s intranet, permit tracking, and incident reporting systems as well as other technology platforms the Company uses. Additionally, with his family history in Aeronautical Science from Texas State Technical College. In addition to beingmilitary and aviation, he created the Company’s Bombshells Restaurant and Sports Bar concept in 2013. Mr. Reese has been involved in the adult entertainment industry since 1992, Mr. Reese’s in-depth information technology1992. His experience and knowledge in this industry is essential to the Board’s oversight of our internet businesses.

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Steven L. Jenkins has been a Director since June 2001. Since 1988, Mr. Jenkins has been a certified public accountant with Pringle Jenkins & Associates, P.C., located in Houston, Texas. Mr. Jenkins is the President and owner of Pringle Jenkins & Associates, P.C. Mr. Jenkins has a BBA Degree (1979) from Texas A&M University. Mr. Jenkins is a member of the AICPA and the TSCPA. Mr. Jenkins’ impressive accounting background makes him a valuable asset to the Board and the Audit Committee.

Luke Lirot became a Directordirector on July 31, 2007. Mr. Lirot received his law degree from the University of San Francisco in 1986. After serving as an intern in the San Francisco Public Defender’s Office in 1986, Mr. Lirot returned to Florida and established a private law practice where he continues to practice and specializes in adult entertainment issues. He is a past President of the First Amendment Lawyers’ Association and has actively participated in numerous state and federal legal matters. Mr. Lirot represents as counsel scores of individuals and entities within our industry. Having practiced in this area for over 2530 years, he is aware of virtually every type of legal issue that can arise, making him an important member of the Board.

Nour-Dean Anakar became a Director on September 14, 2010. Mr. Anakar has over 20 years of experience in senior positions in the development and management of betting and gaming, sports and entertainment, and hospitality and leisure operations in the United States, Europe, and Latin America. From 1988 until 2000 he held executive management and business development positions with Ladbrokes USA and Ladbrokes South America. In 2001, Mr. Anakar became the managing partner of LCIN LLC and LCIN S.A., San Diego and Buenos Aires based gaming companies, which were contracted by GrupoCodere of Spain to oversee the development of all new technology gaming projects and operations in Latin America. He received his BA in Management Science from Duke University and CHA in Hospitality Management from the Conrad Hilton College at the University of Houston. Mr. Anakar’s experience managing and developing businesses in industries with similar characteristics to ours make him an excellent fit to the Board.

Yura Barabash became a director on September 19, 2017. Since October 2021, he has served as the Vice President of Business Development at AVI-SPL, the world's largest AV/UCC integrator, and digital solutions provider based in Florida. Mr. Barabash brings with him extensive corporate finance experience across various industries both domestically and internationally. He has beenplayed a key role in numerous equity and debt financings, as well as mergers and acquisitions transactions involving public and private companies in the United States, Mexico, China, Brazil and the European Union. From August 2019 to January 2021, Mr. Barabash was a Chief Operating Officer of Gingko Online Learning LLC, private online learning company in Florida and a consultant to Chengdu Gingko Education Management, educational management company in Chengdu, China. From 2016 to June 2019, he was a Senior Vice President of Finance at Motorsport Network LLC (www.motorsportnetwork.com) in Miami, the largest motorsport and auto-related digital media company in the world, a position he has held since 2016. Mr. Barabash has extensive corporate finance experience across multiple industries domestically and internationally, and has been involved in multiple equity and debt financings and M&A transactions for public and private companies in the US, China, Brazil, EU and Russia.world. Prior to joining Motorsport Network, he was an investment banker at Primary Capital from 2011 until 2016. Previously, Mr. Barabash was an investment banker at Rodman & Renshaw and Merrill Lynch. He holds a B.A. from Sevastopol City University in Ukraine and a Master in International Affairs from Columbia University in New York City, and is fluent in Russian.

Robert L. Watters Mr. Barabash has recently attended the Harvard Business School Executive Education programs focusing on Audit and Compensation Committees.

Elaine J. Martin became a director on August 8, 2019. She is co-founder and general partner of two privately-held Houston area businesses for which she provides a broad array of management and accounting functions on a day-to-day basis. In 1993, she co-founded Medco Manufacturing LLC, which develops, manufactures and sells, under Food and Drug Administration (FDA) guidelines, equipment and disposable products used by plastic surgeons in domestic and international markets. In 1989, Ms. Martin co-founded Aero Tech Aviation LLC, which trains foreign nationals for the Federal Aviation Administration (FAA) Air Frame and Power Plant examination, for their license to repair US-origin aircraft. Earlier in her career, she was a Registered Nurse specializing in cosmetic surgery. Ms. Martin received her BS in Biology and Chemistry from Houston Baptist University. Her volunteer activities have included serving as a member of the board of directors of Texas A&M University Mothers’ Club (Aggie Moms). Ms. Martin’s business acumen and experience running companies make her an important member of the Board.
Arthur Allan Priaulx became a director on August 8, 2019. He has more than 45 years of experience in the communications industry. Earlier in his career, he was Vice President and General Manager of King Features Division of Hearst Corporation, in charge of worldwide newspaper activities and product licensing. He was also publisher of American Banker, a leading trade publication in the financial services industry, when it was owned by Thomson Financial. In 1993, he founded Resource Media Group, a New York-based financial media and investor relations firm. His clients included a wide range of companies, including RCI Hospitality Holdings, Inc., for which he provided public and investor relations services from 1994 to 2013. Mr. Priaulx has been retired fromsince 2014. He attended Dartmouth College and University of Southampton in the BoardU.K. He has also completed graduate-level courses at INSEAD Business School in France and the Wharton School of Directors effective September 19, 2017.

the University of Pennsylvania. His volunteer activities have included serving as national vice president of United Cerebral Palsy.

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COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE

The Company has

We have an Audit Committee whose members are Steven Jenkins, Nour-Dean AnakarYura Barabash, Elaine Martin and Yura Barabash.Arthur Allan Priaulx. All members of the Audit Committee are independent Directors.directors. The primary purpose of the Audit Committee is to (i) oversee our accounting and financial reporting processes, our disclosure controls and procedures and system of internal controls and audits of our consolidated financial statements, (ii) oversee the Company’srelationship with our independent auditors, including appointing or changing our auditors and ensuring their independence, and (iii) provide oversight regarding significant financial reporting process on behalf of the Board of Directors.matters. The Audit Committee meets privately with our Chief Financial Officer and with our independent registered public accounting firm and evaluates the responses by the Chief Financial Officer both to the facts presented and to the judgments made by our outside independent registered public accounting firm. Our Audit Committee has reviewed and discussed our audited financial statements for the year ended September 30, 2017 with our management. Steven L. JenkinsYura Barabash serves as the Audit Committee’s Financial Expert.

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financial expert.

OurIn August 2015, our Board has adopted a new Charter for the Audit Committee. A copy of the Audit Committee Charter can be found on our website at www.rcihospitality.com.com.www.rcihospitality.com/investor. The Charter establishes the independence of our Audit Committee and sets forth the scope of the Audit Committee’s duties. The purpose of the Audit Committee is to conduct continuing oversight of our financial affairs. The Audit Committee conducts an ongoing review of our financial reports and other financial information prior to their being filed with the Securities and Exchange Commission,SEC, or otherwise provided to the public. The Audit Committee also reviews our systems, methods and procedures of internal controls in the areas of: financial reporting, audits, treasury operations, corporate finance, managerial, financial and SEC accounting, compliance with law, and ethical conduct. A majority of theNASDAQ Stock Market Rules require all members of the Audit Committee willto be independent. The Audit Committee is objective, and reviews and assesses the work of our independent registered public accounting firm and our internal auditaccounting department.

The Audit Committee reviewed and discussed the matters required by PCAOB Standard No. 16, Communications with Audit Committees, and our audited financial statements for the fiscal year ended September 30, 2017 with management and our independent registered public accounting firm. The Audit Committee has received the written disclosures and the letter from our independent registered public accounting firm required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence, and the Audit Committee has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. The Audit Committee recommended to the Board of Directors that the Company’s audited financial statements for the fiscal year September 30, 2017 be included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.

NOMINATING COMMITTEE

The Company has

We have a Nominating Committee whose current members are Steven Jenkins, Nour-Dean Anakar,Elaine Martin, Luke Lirot, Yura Barabash and Yura Barabash. TheArthur Allan Priaulx. In July 2004, the Board hasunanimously adopted a Charter with regard to the process to be used for identifying and evaluating nominees for director. The Charter establishes the independence of our Nominating Committee and sets forth the scope of the Nominating Committee’s duties. A majority of theNASDAQ Stock Market Rules require all members of the Nominating Committee willto be independent. Pursuant to its Charter, the Committee has the power and authority to consider Board nominees and proposals submitted by our stockholders and to establish any procedures, including procedures to facilitate stockholder communication with the board of directors, and to make any such disclosures required by applicable law in the course of exercising such authority. A copy of the Nominating Committee’s Charter can be found on the Company’sour website at www.rcihospitality.com.

www.rcihospitality.com/investor.

COMPENSATION COMMITEE

The Company hasCOMMITTEE

We have a Compensation Committee whose current members are Steven Jenkins, Nour-Dean Anakar,Elaine Martin, Luke Lirot, Yura Barabash and Yura Barabash. TheArthur Allan Priaulx. In June 2014, the Compensation Committee has adopted a Charter with regard to the Compensation Committee’s responsibilities, including evaluating, reviewing and determining the compensation of our Chief Executive Officer and other executive officers. A copy of the Compensation Committee’s Charter can be found on the Company’sour website at www.rcihospitality.com. The primary purpose of the Compensation Committee is to evaluate and review the compensation of executive officers.

COMPLIANCE WITHwww.rcihospitality.com/investor.

DELINQUENT SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

16(A) REPORTS

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own beneficially more than ten percent of our common stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Based solely upon a review of Forms 3, 4 and 5 furnished to us during the fiscal year ended September 30, 2017,2023, we believe that the directors, executive officers, and greater than ten percent beneficial owners have complied with all applicable filing requirements during the fiscal year ended September 30, 2017.

2023.

CODE OF ETHICS

We have adopted a code of ethics for our Principal Executiveprincipal executive and Senior Financial Officers,senior financial officers, a copy of which can be found on our website at www.rcihospitality.com.

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Item 11. Executive Compensation.

COMPENSATION DISCUSSION AND ANALYSIS

This compensation discussion and analysis describes the material elements of the Company’s compensation programs as they relate to our executive officers who are listed in the compensation tables appearing below. This compensation discussion and analysis focuses on the information contained in the following tables and related footnotes. The individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during fiscal 2017,2023, as well as any other individuals included in the Summary Compensation Table, are referred to as “named executive officers.”

officers” ("NEOs").

Overview of Compensation Committee Role and Responsibilities

The Compensation Committee of the Boardboard of Directorsdirectors oversees our compensation plans and policies, reviews and approves all decisions concerning the named executive officers’ compensation, which may further be approved by the Board, and administers our stock option and equity plans, including reviewing and approving stock option grants and equity awards under the plans. The Compensation Committee’s membership is determined by the Board and is composed entirely of independent directors.

Management plays a role in the compensation-setting process. The most significant aspects of management’s role are to evaluate employee performance and recommend salary levels and equity compensation awards. Our Chief Executive Officer often makes recommendations to the Compensation Committee and the Board concerning compensation for other executive officers. Our Chief Executive Officer is a member of the Board but does not participate in Board decisions regarding any aspect of his own compensation. The Compensation Committee can retain independent advisors or consultants.

Compensation Committee Process

The Compensation Committee reviews executive compensation in connection with the evaluation and approval of an employment agreement, an increase in responsibilities or other factors. With respect to equity compensation awarded to other employees, the Compensation Committee or the Board grantsmay grant stock options, often after receiving a recommendation from our Chief Executive Officer. The Compensation Committee also evaluates proposals for incentive and performance equity awards, and other compensation.

Compensation Philosophy

The Compensation Committee emphasizes the important link between the Company’s performance, which ultimately affects stockholder value, and the compensation of its executives. Therefore, the primary goal of the Company’s executive compensation policy is to try to align the interests of the executive officers with the interests of the stockholders. In order to achieve this goal, the Company attempts to (i) offer compensation opportunities that attract and retain executives whose abilities and skills are critical to the long-term success of the Company and reward them for their efforts in ensuring the success of the Company, (ii) align the Company’s compensation programs with the Company’s long-term business strategies and objectives, and (iii) provide variable compensation opportunities that are directly linked to the Company’s performance and stockholder value, including an equity stake in the Company. Our named executive officers’ compensation utilizes two primary components — base salary and long-term equity compensation — to achieve these goals. Additionally, the Compensation Committee may award discretionary bonuses to certain executives based on the individual’s contribution to the achievement of the Company’s strategic objectives.

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Setting Executive Compensation

We fix executive base compensation at a level we believe enables us to hire and retain individuals in a competitive environment and to reward satisfactory individual performance and a satisfactory level of contribution to our overall business goals. We also take into account the compensation that is paid by companies that we believe to be our competitors and by other companies with which we believe we generally compete for executives.

In establishing compensation packages for executive officers, numerous factors are considered, including the particular executive’s experience, expertise and performance, our company’s overall performance and
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compensation packages available in the marketplace for similar positions. In arriving at amounts for each component of compensation, our Compensation Committee strives to strike an appropriate balance between base compensation and incentive compensation. The Compensation Committee also endeavors to properly allocate between cash and non-cash compensation and between annual and long-term compensation.

The Role of Shareholder Say-on-Pay Votes

At our annual meeting of shareholders held on September 19, 2017,August 28, 2023, approximately 96% of the shareholders who voted (including abstentions) on the “say-on-pay” proposal approved the compensation of our named executive officers, as disclosed in the proxy statement. Although this advisory shareholder vote on executive compensation is non-binding, the Compensation Committee will consider the outcome of the vote when making future compensation decisions for named executive officers.

Base Salary

The Company provides executive officers and other employees with base salary to compensate them for services rendered during the fiscal year. Subject to the provisions contained in employment agreements with executive officers concerning base salary amounts, base salaries of the executive officers are established based upon compensation data of comparable companies in our market, the executive’s job responsibilities, level of experience, individual performance and contribution to the business. We believe it is important for the Company to provide adequate fixed compensation to highly qualified executives in our competitive industry. In making base salary decisions, the Compensation Committee uses its discretion and judgment based upon personal knowledge of industry practice but does not apply any specific formula to determine the base salaries for the executive officers.

Equity-Based Awards—Equity Compensation Plans

The Compensation Committee uses equity awards, usually in the form of stock options, primarily to motivate our named executive officers to realize benefits from longer-term strategies that increase stockholder value, and to promote commitment and retention. Equity awards vest upon the achievement of performance criteria that the Company believes are critical to its long-term success.

The Compensation Committee believes that stock options are an important form of long-term incentive compensation because they align the executive officer’s interests with the interests of stockholders, since the options have value only if our stock price increases over time. From time to time, the Compensation Committee may consider circumstances that warrant the grant of full value awards such as restricted stock units. Examples of these circumstances include, among others, attracting a new executive to the team; recognizing a promotion to the executive team; retention; and rewarding outstanding long-term contributions.

Our equity grant practices require that stock options and other equity compensation have prices not less than the fair market value on the date of grant. The fair market value of our stock option awards has historically been the NASDAQ closing price on the date of grant.

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Retirement Savings Plan

The Company maintains a retirement savings plan for the benefit of our executives and employees. Our Simple IRA Plan is intended to qualify as a defined contribution arrangement under the Internal Revenue Code (the “Code”). Participants may elect to defer a percentage of their eligible pretax earnings each year or contribute a fixed amount per pay period up to the maximum contribution permitted by the Code. All participants’ plan accounts are 100% vested at all times. All assets of our Simple IRA Plan are currently invested subject tobased on participant-directed elections, in a variety of mutual funds chosen from time to time by the Plan Administrator. Distribution of a participant’s vested interest generally occurs upon termination of employment, including by reason of retirement, death or disability.elections. We make certain matching contributions to the Simple IRA Plan.

Plan, which are also 100% vested.

Perquisites and Other Personal Benefits

The Company’s executive officers participate in the Company’s other benefit plans on the same terms as other employees.employees on a non-discriminatory basis. These plans include medical, dental, life and disability insurance. Relocation benefits also are reimbursed and are individually negotiated when they occur. The Company reimburses each executive officer for all reasonable business and other expenses incurred by them in connection with the performance of their duties and obligations under their employment agreements.obligations. The Company does not provide named executive officers with any significant perquisites or other personal benefits except for an automobilepersonal travel using Company-owned automobiles and aircrafts. On August 28, 2023, the board of directors, after a recommendation from the Audit Committee, amended the corporate aircraft policy changing the allowed use to a maximum personal use each fiscal year, as follows: (i) 100 hours flown for the CEO and (ii) 48 hours flown each executive’s business use.

for other executive officers. Refer to footnote on All Other Compensation in the Summary Compensation Table below.

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SUMMARY COMPENSATION TABLE
The following table reflects all forms of compensation for services to us for the fiscal years ended September 30, 2017, 20162023, 2022, and 20152021 of our named executive officers.

Name and
Principal Position		YearSalary
($)		Bonus
($)
Option
Awards(1)
($)
All Other
Compensation(2)
($)
Total
($)
Eric S. Langan20231,700,000 — — 167,388 1,867,388 
President and Chief Executive20221,700,000 — 1,568,500 151,353 3,419,853 
Officer20211,436,539 — — 108,679 1,545,218 
Bradley Chhay2023472,789 — — 61,676 534,465 
Chief Financial Officer2022428,077 — 1,568,500 77,374 2,073,951 
2021431,442 7,500 — 66,055 504,997 
Travis Reese2023460,000 25,000 — 51,534 536,534 
Executive Vice President2022423,077 — 1,568,500 66,862 2,058,439 
2021437,827 — — 65,537 503,364 
(1)Amounts represent the aggregate grant date fair value of the stock options granted during the fiscal year, computed in accordance with FASB ASC Topic 718. Information about the assumptions used to value these stock option awards can be found in Note 2 to the consolidated financial statements in this Annual Report on Form 10-K.
(2)All Other Compensation consists of SIMPLE IRA matching contributions, automobile expenses, and personal use of aircraft. We account for personal use of aircraft to be the aggregate incremental cost of personal use of the company aircraft as calculated based on a cost-per-flight-hour charge developed by a nationally recognized and independent service. The charge reflects the direct cost of operating the aircraft, including fuel, additives, lubricants, maintenance labor, airframe parts, engine restoration, and major periodic maintenance. We added actual airport/hangar fees charged to the company on a per-flight basis. The charge does not include fixed costs that do not change based on usage, such as aircraft depreciation, home hangar expenses, and general taxes and insurance. We value automobile expenses based on the annual depreciation rate of automobiles assigned for use by the particular officer, plus cost of insurance, registration, repairs, maintenance, tolls, and fuel. Tax reimbursement benefit is based on automobile fringe benefits.
A table of All Other Compensation for fiscal 2023 for our named executive officers is presented below:
NameSIMPLE
IRA
Matching
Contribution
($)		Automobile
Expenses
($)		Personal
Use of
Aircraft
($)		Tax
Reimbursement
($)		Total All
Other
Compensation
($)
Eric S. Langan18,539 23,740 114,401 10,708 167,388 
Bradley Chhay14,069 39,225 — 8,382 61,676 
Travis Reese13,800 22,095 10,420 5,219 51,534 

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CEO Pay Ratio
We reviewed a comparison of annual total compensation of our CEO to the annual compensation of our median employee who was selected from all employees who were employed (other than the CEO) during our fiscal year ended September 30, 2023.
The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported below, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
The compensation for our CEO in fiscal 2023 of $1,862,465 was approximately 57 times the $32,496 compensation of our fiscal 2023 median employee.
Pay vs. Performance
We are providing the following information about the relationship between executive compensation actually paid and certain financial performance measures of the Company as required by Section 953(a) of the Dodd-Frank and Consumer Protection Act, and Item 402(v) of Regulation S-K for fiscal 2023, 2022, and 2021, as it relates to our principal executive officer ("PEO") and certain non-PEO NEOs.
Value of Initial Fixed $100 Investment Based On:
YearSummary Compensation Table Total for PEOCompensation Actually Paid to PEOAverage Summary Compensation Table Total for Non-PEO NEOsAverage Compensation Actually Paid to Non-PEO NEOsRICK Total Shareholder ReturnDJUSRU Total Shareholder ReturnNet IncomeFree Cash Flow
2023$1,862,465$1,900,987 $536,608 $575,130 $296.39 $98.12 $29,100,000 $53,176,000 
2022$3,419,853$3,329,003 $2,066,195 $1,975,345 $319.02 $129.93 $46,060,000 $58,911,000 
2021$1,545,218$1,545,218 $504,181 $504,181 $336.19 $88.89 $30,150,000 $36,084,000 
(1)    Non-PEO NEOs represent Bradley Chhay and Travis Reese for each of the fiscal years presented.
(2)    We selected the Dow Jones U.S. Restaurants & Bars Index as our peer group for the purpose of calculating comparable total shareholder return ("TSR"). Also refer to Item 5 of this report for our and our peer group's five-year TSR.
(3)    We selected free cash flow as our Company-selected measure for this purpose.

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(4)    "Compensation Actually Paid" is computed in the table below, in accordance with Item 402(v) of Regulation S-K.
202320222021
PEOAverage for Non-PEO NEOsPEOAverage for Non-PEO NEOsPEOAverage for Non-PEO NEOs
Summary Compensation Table total$1,862,465 $536,608 $3,419,853 $2,066,195 $1,545,218 $504,181 
Adjustments:
Deduct option awards granted during the year— — (1,568,500)(1,568,500)— — 
Add fair value of options granted and vested at the same year— — 313,700 313,700 — — 
Add fair value of options granted during the year and remain unvested at year-end— — 1,163,950 1,163,950 — — 
Increase (decrease) for change in fair value from prior year-end to current year-end of options granted in prior year(62,527)(62,527)— — — — 
Increase (decrease) for change in fair value from prior year-end to current year vesting date of options granted in prior year101,049 101,049 — — — — 
Compensation Actually Paid$1,900,987 $575,130 $3,329,003 $1,975,345 $1,545,218 $504,181 
The mix of compensation paid to our PEO and non-PEO NEOs is mostly cash salary that is fixed, as shown in the Summary Compensation Table

        Stock  Option  All Other    
Name and    Salary  Awards(1)  Awards  Compensation  Total 
Principal Position Year  ($)  ($)  ($)  ($)  ($) 
Eric S. Langan  2017   900,000   -   -   58,450   958,450 
President and Chief Executive Officer  2016   878,434   -   -   67,640   946,074 
   2015   832,143   -   -   67,505   899,648 
                                                 
Phillip K. Marshall  2017   263,942   -   -   19,519   283,461 
Chief Financial Officer  2016   255,866   -   -   26,038   281,904 
   2015   251,442   -   -   25,734   277,176 
                         
Travis Reese  2017   320,000   -   -   38,704   358,704 
Executive Vice President  2016   299,945   -   -   36,119   336,064 
   2015   280,000   -   -   36,562   316,562 

(1)Amount represents the aggregate grant date fair value of restricted stock awarded during the fiscal year computed in accordance with FASB ASC Topic 718. Information about the assumptions used to value these awards can be found in Note 10 to the consolidated financial statements included in this Form 10-K.
(2)All Other Compensation for fiscal 2017 consists of:

Name and
Principal Position		 Automobile
Expenses
($)		  Simple IRA
Contribution
($)		  Total
($)		 
Eric S. Langan  45,950   12,500   58,450 
Phillip K. Marshall  11,601   7,918   19,519 
Travis Reese  29,104   9,600   38,704 

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above. Except for the stock options granted in fiscal 2022, there had been no stock-based compensation awarded since fiscal 2014. We also currently do not have long-term incentive plans that are based on the Company's stock price or any of our financial measures. As shown in the charts below, the compensation actually paid to our PEO and non-PEO NEOs is not directly aligned with our Company and peer group total shareholder return or with our Company's net income and free cash flow in the fiscal years presented.

CAP-TSR.jpg


110

CAP-NI-FCF.jpg
GRANTS OF PLAN-BASED AWARDS

There were no grants of plan-based awards for the year ended September 30, 2017.

Outstanding Equity Awards at Fiscal Year-End

There were nofiscal 2023.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information with respect to outstanding equitystock options awards for each of our named executive officers as of September 30, 2017.

2023.

Option Awards
NameGrant
Date		Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable		Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable		Option
Exercise
Price
($/Sh)		Option
Expiration
Date
Eric S. Langan2/9/202220,000 30,000 100.00 2/9/2027
Bradley Chhay2/9/202220,000 30,000 100.00 2/9/2027
Travis Reese2/9/202220,000 30,000 100.00 2/9/2027

OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2017

2023

There were no stock options exercised nor stock that vested during the fiscal year ended September 30, 2017.

2023.


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DIRECTOR COMPENSATION

We pay the expenses of our directors in attending board meetings. We paid no equity-based compensation during the fiscal year ended September 30, 2017,2023, and we paid our independent directors $20,000$40,000 in cash for the fiscal year. The Audit Committee chair received additional compensation of $10,000 in cash. Following is a schedule of all compensation paid to our directors in the year ended September 30, 2017:

2023:
NameFees earned

or paid in

cash
($)
Name($)
Robert L. Watters(1)20,000
Nour-Dean Anakar20,000
Steve L. Jenkins20,000
Luke C. Lirot40,000 20,000
Yura Barabash(2)Barabash50,000 -
Elaine Martin40,000 
Arthur Allan Priaulx40,000 
Eric S. Langan— -
Travis Reese— -

(1)Mr. Watters retired from the Board of Directors effective September 19, 2017.
(2)Mr. Barabash was elected to the Board of Directors effective September 19, 2017.

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EMPLOYMENT AGREEMENTS

On July 24, 2015,August 25, 2022, we entered into a new Employment Agreementtwo-year employment agreements with each of our executive officers, including Eric Langan, our Chief Executive Officer and President, Eric Langan. His previous employment agreement expired on July 23, 2015. The new agreement has a term of three yearsPresident; Bradley Chhay, our Chief Financial Officer; and provides for an annual base salary of $875,000 for the first year of the term and an annual base salary of $900,000 for the second and third year of the term.

On September 15, 2014, we entered into a new Employment Agreement with Travis Reese, our Executive Vice President Director of Technology and Corporate Secretary. His previous employment agreement expired on July 23, 2014.Under their respective new agreements, Mr. Chhay’s annual salary increased to $465,000; Mr. Reese’s annual salary increased to $460,000; and Mr. Langan’s annual salary remained the same at $1,700,000. The new agreement had a term of three yearseach of the agreements commenced on September 1, 2022, and provides for an annual base salary of $280,000 for the first year, $300,000 for the second year and $320,000 for the third year. This employment agreement has since expired.

will end on August 31, 2024.

On August 3, 2016,28, 2023, we entered into a new Employment Agreement with our Chief Financial Officer, Phillip K. Marshall. His previoustwo-year employment agreement expired in June 2016.with Bradley Chhay, which terminated his employment agreement mentioned above. Under the agreement, Mr. Chhay's annual salary increased to $600,000. The new agreement has a term of two years, commencingthe agreement commenced on August 1, 2016. The new agreement provides for an annual base salary of $262,500 for the first year28, 2023, and $275,000 for the second year.

will end on August 31, 2025.

Each of the new employment agreements of Messrs. Langan, Reese and Marshall also provides for bonus eligibility, expense reimbursement, health benefits, participation in allour benefit plans, maintained by us for salaried employees,use of a company-owned automobile, access to company-owned aircraft (subject to the terms and conditions of our corporate aircraft policy), and two weeks paid vacation. Also undervacation annually. Under the terms of the new agreements, each agreement, the employeeexecutive is bound to a confidentiality provision and cannot compete with us for a period upon termination of the agreement. Further, in the event we terminate such employee without cause or such employee terminates his employment because we reduce or fail to pay his compensation or materially change his responsibilities, such employee is entitled to receive in one lump sum payment the full remaining amount under the term of his employment agreement to which he would
Currently, our executive officers do not have been entitled had his agreement not been terminated.

We have not established long-term incentive plans or defined benefit or actuarial plans.

plans outstanding.

EMPLOYEE STOCK OPTION PLANS

As

On February 7, 2022, our board of September 30, 2017, there are no stock options outstanding under our 2010directors approved the 2022 Stock Option Plan as amended.

(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.

112
COMPENSATION POLICIES AND PRACTICES AS THEY RELATE TO RISK MANAGEMENT

We attempt to make our compensation programs discretionary, balanced and focused on the long term. We believe goals and objectives of our compensation programs reflect a balanced mix of quantitative and qualitative performance measures to avoid excessive weight on a single performance measure. Our approach to compensation practices and policies applicable to employees and consultants is consistent with that followed for itsour executives. Based on these factors, we believe that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on us.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis to be included in this Form 10-K. Based on the reviews and discussions referred to above, the Compensation Committee recommends to the Boardboard of Directorsdirectors that the Compensation Discussion and Analysis referred to above be included in this report.

The foregoing has been This report is furnished by the Compensation Committee.

Steven L. Jenkins

Committee of our board of directors, whose members are:

Elaine Martin
Luke Lirot

Nour-Dean Anakar

Yura Barabash

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Arthur Allan Priaulx

Compensation Committee Interlocks and Insider Participation

The Compensation Committee is comprised of Ms. Martin and Messrs. Jenkins, Lirot, Anakar,Barabash, and Barabash.Priaulx. No interlocking relationship exists between any member of the Compensation Committee and any member of any other company’s Boardboard of Directorsdirectors or compensation committee.

113

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information at January 31, 2018,December 8, 2023, with respect to the beneficial ownership of shares of common stock by (i) each person known to us who owns beneficially more than 5% of the outstanding shares of common stock, (ii) each of our directors, (iii) each of our executive officers and (iv) all of our executive officers and directors as a group. Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o RCI Hospitality Holdings, Inc., 10737 Cutten Road, Houston, Texas 77066. We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. Applicable percentage ownership is based on 9,718,7119,359,685 shares of common stock outstanding at January 31, 2018. InDecember 8, 2023. Generally, in computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemeddeem outstanding shares of common stock subject to stock options or warrants held by that person that are currently exercisable or exercisable within 60 days of January 31, 2018December 8, 2023 and shares of common stock issuable upon conversion of other securities held by that person that are currently convertible or convertible within 60 days of January 31, 2018. We didDecember 8, 2023; we do not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*).

  Number of    Percent of 
Name/Address shares  Title of class Class (1) 
Executive Officers and Directors          
           
Eric S. Langan  711,000  Common stock  7.32%
           
Phillip K. Marshall  13,810  Common stock  * 
           
Yura Barabash  -0-  Common stock  * 
           
Steven L. Jenkins  -0-  Common stock  * 
           
Travis Reese  11,805  Common stock  * 
           
Nour-Dean Anakar  -0-  Common stock  * 
           
Luke Lirot  518  Common stock  * 
           
All of our Directors and Officers as a Group of seven persons  737,133  Common stock  7.58%
           
Other > 5% Security Holders          
           
Dimensional Fund Advisors LP (2)  853,590  Common stock  8.78%
           
Renaissance Technologies LLC (3)  584,800  Common stock  6.02%

(1)These percentages exclude treasury shares in the calculation of percentage of class.
(2)Based on the most recently available Schedule 13G/A filed with the SEC on February 9, 2017 by Dimensional Fund Advisors LP. Dimensional Fund Advisors LP, an investment adviser, beneficially owned 853,590 shares of common stock, with sole voting power over 842,068 shares, and sole dispositive power over 853,590 shares. The address for Dimensional Fund Advisors LP is Building One, 6300 Bee Cave Road, Austin, Texas 78746.
(3)Based on the most recently available Schedule 13G filed with the SEC on February 14, 2017 by Renaissance Technologies LLC (“RTC”) and Renaissance Technologies Holdings Corporation (“RTHC”). RTHC is the majority owner of RTC. RTC beneficially owned 584,800 shares of common stock, with sole voting power over 396,834 shares, sole dispositive power over 509,362 shares and shared dispositive power over 75,438 shares. The address for both entities is 800 Third Avenue, New York, New York 10022.

Name/AddressCommon Stock
Percent of Class (1)
Executive Officers and Directors
Eric S. Langan723,870(2)7.72 %
Bradley Chhay25,474(3)(4)*
Yura Barabash961*
Travis Reese34,541(5)*
Luke Lirot518*
Elaine Martin9,085*
Arthur Allan Priaulx2,000*
All of our Directors and Officers as a Group of seven persons792,7098.42 %
Other > 5% Security Holders 
BlackRock, Inc. (6)
575,1066.14 %
ADW Capital Partners, L.P.(7)
941,00010.00 %
(1)These percentages exclude treasury shares in the calculation of percentage of class.
(2)Includes stock options that are currently exercisable into 20,000 shares of common stock. Also includes 1,870 shares held in an investment club over which Mr. Langan has shared voting and investment power. As of the date of this report, Mr. Langan owns less than 0.1% of the investment club.
(3)Number of shares is rounded to the nearest whole number. The actual amount is 5,474.317 shares. Includes stock options that are currently exercisable into 20,000 shares of common stock.
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(4)Includes 1,870 shares held in an investment club over which Mr. Chhay has shared voting and investment power. As of the date of this report, Mr. Chhay owns approximately 4.7% of the investment club.
(5)Includes stock options that are currently exercisable into 20,000 shares of common stock. Also includes 1,870 shares held in an investment club over which Mr. Reese has shared voting and investment power. As of the date of this report, Mr. Reese owns approximately 1.8% of the investment club.
(6)Based on the most recently available Schedule 13G filed with the SEC on February 1, 2023 by BlackRock Inc. BlackRock beneficially owned 575,106 shares, with sole voting power over 565,882 shares and sole dispositive power over 575,106 shares. The address of BlackRock is 55 East 52nd Street, New York, New York 10055.
(7)Based on the most recently available Form 4 filed with the SEC on September 28, 2023 by ADW Capital Partners, L.P., ADW Capital Management, LLC and Adam D. Wyden. ADW Capital Management, LLC is the general partner and investment manager of ADW Capital Partners, L.P. Mr. Wyden is the sole manager of ADW Capital Management, LLC. ADW Capital Partners, L.P is the record and direct beneficial owner of 941,000 shares, with sole voting power and sole dispositive power over all such shares. The address of each of these reporting persons is 6431 Allison Road, Miami Beach, Florida 33141.
The Company is not aware of any arrangements that could result in a change in control of the Company.

The disclosure required by Item 201(d) of Regulation S-K is set forth in Item 5 herein and is incorporated herein by reference.

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Item 13. Certain Relationships and Related Transactions, and Director Independence.

Presently, our Chairman and President, 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. Except for these guarantees, we knowThree adult children of no related transactions that have occurred sinceMr. Langan are also employed by the beginningCompany in corporate shared services. Colby Langan, one of Eric Langan's adult children mentioned above, is currently the President of RCI Development Services, Inc., which manages strategy on the Company's new business ventures, and received $184,068 and $138,762 in employment compensation during the fiscal year ended September 30, 2017 or any currently proposed transactions2023 and 2022, respectively.
In October 2021, we borrowed $500,000 from Ed Anakar, President of RCI Management Services, Inc. and our Director of Operations and brother of former director Nourdean Anakar, and $150,000 from Allen Chhay, brother of Company CFO, Bradley Chhay, as part of a larger group of private lenders (see Note 8 to our consolidated financial statements). Their promissory notes bear interest at the rate of 12% per annum and mature in whichOctober 2024. The notes are payable in monthly installments of interest only with a balloon payment of all unpaid principal and interest due at maturity. The terms of the notes are the same as the rest of the lender group. Refer to Note 8 to our consolidated financial statements for the October 2023 extension of term of promissory notes.
We paid Ed Anakar employment compensation of $718,539, $720,492, and $655,289 during the fiscal years ended September 30, 2023, 2022, and 2021, respectively.
We used the services of Nottingham Creations, and previously Sherwood Forest Creations, LLC, both furniture fabrication companies that manufacture tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance. Nottingham Creations is owned by a brother of Eric Langan (as was Sherwood Forest). Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were approximately $195,000 in fiscal 2023, $207,000 in fiscal 2022, and $118,000 in fiscal 2021. As of September 30, 2023 and 2022, we owed Nottingham Creations and Sherwood Forest $10,700 and $92,808, 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 2023, 2022, and 2021. 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 or areapproximately $443,295, $3,809, and $0 for the fiscal years 2023, 2022, and 2021, respectively. Amounts billed directly to be a participantthe Company were approximately $9,430, $133,000, and $425,000 for the amount involved exceeds $120,000.

fiscal years 2023, 2022, and 2021, respectively. As of September 30, 2023 and 2022, the Company owed TW Mechanical approximately $0 and $9,338, respectively, in unpaid direct billings.

115
Review, Approval, or Ratification of Related Transactions

We have

On September 23, 2019, the board of directors, acting upon the recommendation of its Audit Committee, adopted a written related party transaction policy, under which related party transactions are subject to review, approval, rejection, modification and/or ratification by the Audit Committee. The policy provides that our business affairsprior to the entry into any transaction between the Company and one of its officers, directors, 5% shareholders or an immediate family member of any of the foregoing (a “related party”), such transaction will be conducted inreported to the Company’s chief compliance officer. The Company’s chief compliance officer will undertake an evaluation of the transaction. If that evaluation indicates that the transaction would require the Audit Committee’s approval, the Company’s chief compliance officer will report this transaction to the Audit Committee. The Audit Committee will review the material facts of all respects by standards applicablerelated party transactions that require the Audit Committee’s approval and either approve or disapprove of the entry into the related party transaction. If advance Audit Committee approval of a related party transaction is not feasible, then the related party transaction will be considered and, if the Audit Committee determines it to publicly held corporationsbe appropriate, ratified at the Audit Committee’s next regularly scheduled meeting. In determining whether to approve or ratify a related party transaction, the Audit Committee will take into account factors it deems appropriate. In the event that the Audit Committee determines not to ratify and approve the related party transaction, then the Audit Committee will instruct that wethe related party transaction be rescinded or unwound. The Audit Committee will not enter intoapprove or ratify any future transactions between us and our officers, directors and 5% shareholdersrelated party transaction unless it deems that the transaction is on terms are no less favorable than could be obtained from independent, third parties. Currently, we rely on ourterms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction. No director will participate in any discussion or approval of a related party transaction for which he or she is a related party, except that the director shall provide all material information concerning the transaction to the Audit Committee to reviewCommittee.
In reviewing related party transactions on an ongoing basis to prevent conflicts of interest. Ourunder the policy, the Audit Committee reviews awill review and consider one or more of the following as it seems appropriate for the circumstances: (1) the related party’s interest in the related party transaction; (2) the approximate dollar value of the amount involved in the related party transaction; (3) the approximate dollar value of the amount of the related party’s interest in the transaction without regard to the amount of any profit or loss; (4) whether the transaction was undertaken in the ordinary course of business of the Company; (5) whether the transaction with the related party is proposed to be, or was, entered into on terms no less favorable to the Company than terms that could have been reached with an unrelated third party; (6) the purpose of, and the potential benefits to the Company of, the related party transaction; (7) whether the related party transaction would impair the independence of an outside director; (8) required public disclosure, if any; and (9) any other information regarding the related party transaction or the related party in the context of the proposed transaction that would be material to investors in light of the affiliationscircumstances of the director, officer, or shareholder and the affiliations of such person’s immediate family. Ourparticular transaction. The Audit Committee will review all relevant information available to it about the related party transaction. The Audit Committee may approve or ratify athe related party transaction only if itthe Audit Committee determines in good faith that, under all of the circumstances, the transaction is consistentfair as to the Company. The Audit Committee, in its sole discretion, may impose such condition as it deems appropriate on the Company or the related party in connection with our best interests andapproval of the best interests of our shareholders.

related party transaction.

Our Audit Committee is composed of all independent directors, including Steven Jenkins, Nour-Dean AnakarYura Barabash, Elaine Martin and Yura Barabash.Arthur Allan Priaulx. We additionally have one other independent director, Luke Lirot, who is not on the Audit Committee. The definition of “independent” used herein is based on the independence standards of The NASDAQ Stock Market LLC.

Item 14. Principal Accounting Fees and Services.

The following table sets forth the aggregate fees paid or accrued for professional services and the aggregate fees paid or accrued for audit-related services and all other services rendered by Whitley PennMarcum LLP and Friedman LLP for the auditfiscal 2023 and 2022.
Marcum 2023Friedman 2023Friedman 2022
Audit fees$659,789 $523,017 $1,256,537 
Audit-related fees— — — 
Tax fees— — — 
All other fees— — — 
Total$659,789 $523,017 $1,256,537 
Effective September 1, 2022, Friedman LLP, our independent registered public accounting firm of our annual financial statementsrecord in fiscal 2022, combined with Marcum LLP and continued to operate as an independent registered public accounting firm.
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“Audit fees” include fees billed for fiscal years 2016 and partial 2017 and by BDO USA, LLP for partial fiscal 2017 (in thousands).

  BDO 2017  WP 2017  WP 2016 
          
Audit fees $299  $43  $322 
Audit-related fees  -   5   11 
Tax fees  353   23   43 
All other fees  -   -   - 
             
Total $652  $71  $376 

The category of “Audit fees” includes fees for our annual audit, quarterly reviews andprofessional services rendered in connection with regulatorythe annual audit and quarterly reviews of the Company’s consolidated financial statements, the audit of internal control over financial reporting as required by the Sarbanes-Oxley Act of 2002, and assistance with securities filings other than periodic reports.

“Audit-related fees” include professional services in relation to a Form S-3 filing.
“Tax fees” include consultation related to tax compliance and tax structuring.
“All other fees” include fees billed for professional services rendered in connection with the SEC such as the issuance of comfort letters and consents.

The category of “Audit-related fees” includes acquisition audits, internal control reviews and accounting consultation.

The category of “Tax fees” includes consultation related to corporate development activities.

investigation.

All above audit services, audit-related services and tax services were pre-approved by the Audit Committee, which concluded that the provision of such services by BDO USA,Marcum LLP or Whitley Pennand Friedman, LLP was compatible with the maintenance of that firm’sthose firms’ independence in the conduct of itstheir auditing functions. The Audit Committee’s outside auditor independence policy provides for pre-approval of all services performed by the outside auditors.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

Exhibit No.Description
Exhibit No.Description
3.1
3.1Articles of Incorporation dated December 9, 1994. (Incorporated by reference from Form SB-2 filed with the SEC on January 11, 1995.) *
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.34.7
10.14.8
4.9
4.10
4.11
4.1
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Table of Contents
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
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Table of Contents
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
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Table of Contents
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.610.44
16.110.45
21.110.46
23.110.47
10.48
10.49
21.1
23.1
23.2
23.2Consent of Whitley Penn LLP

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121

Table of Contents
31.1
31.1
31.2
32.1
101.INS97.1
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema
101.CALInline XBRL Taxonomy Extension Calculation Linkbase
101.DEFInline XBRL Taxonomy Extension Definitions Linkbase
101.LABInline XBRL Taxonomy Extension Label Linkbase
101.PREInline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

*Incorporated by reference from our previous filings with the SEC

SEC.

Item 16. Form 10-K Summary.

None.

 105

None.

122
SIGNATURES

In accordance with the requirements of Section 13 of 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on FebruaryDecember 14, 2018.

2023.
RCI Hospitality Holdings, Inc.
By:/s/ Eric S. Langan
Eric S. Langan
Chief Executive Officer and President

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons in the capacities and on the dates indicated:

SignatureTitleDate
SignatureTitleDate
/s/ Eric S. Langan
Eric S. LanganDirector, Chief Executive Officer, and President

FebruaryDecember 14, 2018

2023
/s/ Phillip K. MarshallBradley Chhay
By: Phillip K. MarshallBradley ChhayChief Financial Officer and Principal Accounting OfficerFebruaryDecember 14, 20182023
/s/ Travis Reese
Travis ReeseDirector and Executive Vice PresidentFebruaryDecember 14, 20182023
/s/ Nour-Dean Anakar
Nour-Dean AnakarDirectorFebruary 14, 2018
/s/ Yura Barabash
Yura BarabashDirectorFebruaryDecember 14, 20182023
/s/ Steven Jenkins
Steven JenkinsDirectorFebruary 14, 2018
/s/ Luke Lirot
Luke LirotDirectorFebruaryDecember 14, 20182023

 106
/s/ Elaine Martin
Elaine MartinDirectorDecember 14, 2023
/s/ Arthur Allan Priaulx
Arthur Allan PriaulxDirectorDecember 14, 2023

123