TABLE OF CONTENTS
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COVID-19 PANDEMIC
Since the U.S. declaration of COVID-19 as a pandemic in March 2020, we have had a major disruption in our business operations that threatened to significantly impact our cash flow. The declaration resulted in a significant reduction in customer traffic in our clubs and restaurants due to changes in consumer behavior as social distancing practices, dining room closures, and other restrictions were mandated or encouraged by federal, state, and local governments. To adapt to the situation, we took significant steps to augment an anticipated decline in operating cash flows, including negotiating deferment of some of our debts, reducing the number of our employees and related payroll costs where necessary, and deferring or modifying certain fixed and variable monthly expenses, among others.
The temporary closure of our clubs and restaurants caused by the COVID-19 pandemic presented operational challenges. Our strategy has been to open locations and operate in accordance with local and state guidelines. As of the date of this report, all locations closed due to pandemic-related restrictions were open. We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms.
On May 8, 2020, the Company received approval and funding under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) for its restaurants, shared service entity, and lounge. See Notes 3, 9 and 10 to our consolidated financial statements.
As of the release of this report, we do not know the future extent and duration of the impact of COVID-19 on our businesses. Closures and operating restrictions, as caused by local, state, and national guidelines, could lead to adverse financial results. However, we will continually monitor and evaluate the situation and will determine any further measures to be instituted.
We continue to adhere to state and local government mandates regarding the pandemic and, since March 2020, have closed and reopened a number of our locations depending on changing government mandates, including operating hour and limited occupancy restrictions, where applicable.
OUR BUSINESS
| Nightclubs | Bombshells(1) | Total | |||||||||||||||
| Arizona | 1 | — | 1 | ||||||||||||||
| Colorado | 5 | 1 | 6 | ||||||||||||||
| Florida | 4 | — | 4 | ||||||||||||||
| Illinois | 5 | — | 5 | ||||||||||||||
| Indiana | 1 | — | 1 | ||||||||||||||
| Kentucky | 1 | — | 1 | ||||||||||||||
| Louisiana | 1 | — | 1 | ||||||||||||||
| Maine | 1 | — | 1 | ||||||||||||||
| Minnesota | 3 | — | 3 | ||||||||||||||
| New York | 4 | — | 4 | ||||||||||||||
| North Carolina | 2 | — | 2 | ||||||||||||||
| Pennsylvania | 1 | — | 1 | ||||||||||||||
| Texas | 27 | 12 | 39 | ||||||||||||||
| 56 | 13 | 69 | |||||||||||||||
Our Nightclubs segment continues to be affected by the COVID-19 pandemic as most statesDuring fiscal 2023, we operate in have reissued directives for strict safety restrictions due to the resurgence of cases.
On October 18, 2021, we and certain of our subsidiaries completed our acquisition of elevenacquired six gentlemen’s clubs, sixcertain related real estate properties, and associated intellectual property for a total agreedthrough two transactions with an aggregate acquisition price of $88.0$75.5 million (with a total consideration preliminarycombined fair value of $88.4$72.3 million). These six clubs contributed $18.2 million based on the Company’s stock price at acquisition date and discounted due to the lock-up period).in revenues during fiscal 2023. See Note 1514 to our consolidated financial statements for details of the transaction.
transactions.
A
In December 2022, we acquired a food hall in Denver, Colorado. Subsequent to our fiscal 2023 year-end, we opened one Bombshells location in Stafford, Texas in November 2023.
We opened the first Bombshells in March 2013 in Dallas, quickly becoming one of the most popular restaurant destinations in the area. Within six years, eight more opened in the Austin and Houston, Texas areas, including two that were opened in fiscal 2019. In September 2016, we closed one Bombshells location in Webster, Texas. We opened one Bombshells on Interstate 10 (BMB I-10), east of Houston in December 2018, and another one on State Highway 249 (BMB 249), northwest of Houston in March 2019. In fiscal 2020, we opened one Bombshells in Katy, Texas (BMB Katy) in October 2019, and another on U.S. Highway 59 (BMB 59) in Houston, Texas in January 2020. Of the ten active Bombshells as of September 30, 2021, eight are freestanding pad sites and two are inline locations. In December 2021, we opened a new Bombshells location in Arlington, Texas. Currently, we have one Bombshells franchised location that is under construction.
OUR STRATEGY
| We consider buying back our own stock if | ||
Since the first full yearafter-tax yield on free cash flow is above 10%;
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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.
In relation to acquisitions that closed in October and November 2021, we now have club locations in Denver, Colorado; Louisville, Kentucky; Raleigh, North Carolina; Portland, Maine; Indianapolis, Indiana; Sauget, Illinois; and Newburgh, New York.
As a result
| Operations | ||||||||||||||||
| Managers | Non-Managers | Corporate | Total | |||||||||||||
| Hourly | 15 | 2,135 | 20 | 2,170 | ||||||||||||
| Salaried | 273 | 28 | 58 | 359 | ||||||||||||
| 288 | 2,163 | 78 | 2,529 | |||||||||||||
| Operations | |||||||||||||||||||||||
| Managers | Non-Managers | Corporate | Total | ||||||||||||||||||||
| Hourly | 24 | 3,183 | 19 | 3,226 | |||||||||||||||||||
| Salaried | 408 | 59 | 85 | 552 | |||||||||||||||||||
| 432 | 3,242 | 104 | 3,778 | ||||||||||||||||||||
◦ The novel coronavirus (COVID-19) pandemic has disrupted and ◦ 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. data loss. The relative level of our defense costs and nature and procedural status of pending proceedings; We are dependent on key personnel. delays and significant cost increases; Our stock price has been volatile and may fluctuate in the future. our performance and prospects; the depth and liquidity of the market for our securities; Properties. Below is a list of locations we operated as of September 30, Leased location. 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. 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 change in the estimates or assumptions we used that could cause a material change in our calculated impairment charges. 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. 17.5 15.4 Percentages may not foot due to 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. 36,462 Segment contribution to total revenues was as follows Nightclubs segment revenues. Nightclubs revenues increased by 56.9 (1.8 years, below: 2023. Other segment revenues. Other revenues included revenues from Drink Robust in all three fiscal years presented. Drink Robust sales were . Cost of goods sold includes cost of alcoholic and non-alcoholic beverages, food, cigars and cigarettes, merchandise, media printing/binding, and Drink Robust. As a percentage of consolidated revenues, consolidated cost of goods sold was . Consolidated salaries and wages increased by . The components of consolidated selling, general and administrative expenses are in the tables below lower sales. . The components of other charges, net are in the table below (dollars in thousands): 7.0 which was paid by insurance. In 2021, we settled a case with one of our Bombshells 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 230 11 383 We consider Non-GAAP Financial Measures Non-GAAP Operating Income and Non-GAAP Operating Margin. We calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: (a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) settlement of lawsuits, Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share. We calculate 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, (b) impairment of assets, (c) The following tables present our non-GAAP performance measures for the periods indicated (in thousands, except per share amounts and percentages): stock with an acquisition date fair value of $29.9 million, discounted for lack of marketability due to the lock-up period). (5,298 statements for details of our acquisition and disposition activities. Cash Flows from Financing Activities See Note obligations, including the future maturities of our debt obligations in the next five years and thereafter. 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. Other than the We continue to monitor the macro environment and will adjust our overall approach to capital allocation as events and trends unfold. We have not established financing other than the notes payable discussed in Note 2023. 2021. Texas in December 2021 and our first franchised location in San Antonio, Texas opened in June 2022. may have a negative 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 results of operations and cash flows. Critical Audit they relate. discount rate. 2019 (such date takes into account the acquisition of Friedman LLP by Marcum LLP effective September 1, 2022). 7,570 52,950 185,396 129,693 179,823 par value and number of shares) INCOME 30,150 30,336 3.37 CHANGES IN EQUITY 30,150 30,336 thousands, except number of shares) CASH FLOWS 30,336 30,150 Notes to Consolidated Financial Statements years presented. income. Fair Value of Financial Instruments 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. For fiscal 2023 and 2022, we excluded 300,000 stock options from the calculation of diluted earnings per share because the effect was anti-dilutive. There were no other potentially dilutive securities outstanding during fiscal 2021. granted in fiscal 2022. No grants were awarded in fiscal 2023 and 2021. Measurement 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. RCI HOSPITALITY HOLDINGS, INC. 2021. 2,008 2,008 (5,296 See Note 16. In October 2021, the Leases (Topic 842): Common Control Arrangements, which amends certain provisions of ASC 842 that apply to arrangements between related parties under common control. The ASU requires all companies to amortize leasehold improvements associated with common control leases over the asset's useful life to the common control group regardless of the lease term. It also allows private and certain not-for-profit entities to use the written terms and conditions of an agreement to account for common control leases without further assessing the legal enforceability of those terms. The guidance is effective for all entities in fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. We are still evaluating the impact of this ASU on our consolidated financial statements. Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note RCI HOSPITALITY HOLDINGS, INC. 4,472 7,570 in cash. The Company (5,296 67,424 the following (in thousands): $12.5 million. RCI HOSPITALITY HOLDINGS, INC. RCI HOSPITALITY HOLDINGS, INC. operations and cash flows. 4,598 644 5,242 (161 3,989 Change in state tax rate 664 Indemnity Insurance Corporation Note 18 for lease commitments. 2021 Acquisitions Consolidated Financial Statements . land. 2022 Acquisitions transaction will be deductible for tax purposes. shares): RCI HOSPITALITY HOLDINGS, INC. Note 6 for dispositions of real estate properties that had been classified as held-for-sale. June 30, 2021 June 30, 2020 June 30, 2019 RCI HOSPITALITY HOLDINGS, INC. Note 8 for October 2023 extension of term of promissory notes. Total Payments Year Ended September 30, 2021 Year Ended September 30, 2020 We have identified 2023. Remediation Plan for Existing Material Weaknesses (vi) enhanced quarterly reporting on the remediation measures to the Audit Committee of the board of directors. Except for the 13, 2023: 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 (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. Luke Lirot became a director 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 30 years, he is aware of virtually every type of legal issue that can arise, making him an important member of the Board. Compensation Committees. NOMINATING COMMITTEE COMMITTEE 2023. officers” ("NEOs"). Setting Executive Compensation Retirement Savings Plan 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. 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. 2023. Item 5 of this report for our and our peer group's five-year TSR. 2023 DIRECTOR COMPENSATION 2023: These percentages exclude treasury shares in the calculation of percentage of class. 500,000 Common stock 5.26 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. 2022, respectively. group. Refer to Note 8 to our consolidated financial statements for the October 2023 extension of term of promissory notes. 2023.○The novel coronavirus (COVID-19) pandemic has disrupted and is expected to 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.○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.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.○Security breaches of confidential customer information or personal employee information may adversely affect our business.○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 a material weakness in our internal control over financial reporting.○We may have uninsured risks in excess of our insurance coverage.○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.○A failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business.○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.10Details of our risk factors are as follows:Risks related to general macroeconomic and safety conditionsis expected tomay 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 has had an adverse effect that is 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 have all disrupted and will continue to disrupt our business. In the United States, as well as globally, individuals are being encouraged to practice social distancing, restricted from gathering in groups and, in some areas, placed on complete restriction from non-essential movements outside of their homes. In response to the COVID-19 pandemic and these changing conditions, we temporarily closed all of our clubs and restaurants on March 18, 2020. We furloughed club and restaurant employees, except for a limited number of unit managers, and implemented cost savings measures throughout our operations. We have since reopened many of our club and Bombshells locations with certain operating hour restrictions and with limited occupancy. The COVID-19 pandemic’s impact on the economy in general could also adversely affect our customers’Our business, financial condition, resulting in reduced spending at our clubs and restaurants. The COVID-19 pandemic and these responses have affected and will continue to adversely affect our customer traffic, sales and operating costs and we cannot predict how long the pandemic will last or what other government responses may occur.If the business interruptions caused by COVID-19 last longer than we expect, we may need to seek other sourcesresults of liquidity. The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be readily available or available on favorable terms.Our club and restaurant operations could be further disrupted if any of our employees are diagnosed with COVID-19adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the circumstances require quarantine of some or all of a club or restaurant’s employees and disinfection of the facilities. If a significant percentage of our workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, our operations may be negatively impacted, potentially materially adversely affecting our liquidity, financial condition or results of operations. Those employees might seek and find other employment during our business interruption, which could materially adversely affect our ability to properly staff and reopen our clubs and restaurants with experienced team members when permitted to do so by governments.Israel-Hamas war.Our suppliers could be adversely impacted by the COVID-19 pandemic. If our suppliers’ employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, we could face shortages of food items or other supplies at our restaurants and our operations and sales could be adversely impacted by such supply interruptions.The equity markets in the United States have been extremely volatile due to the COVID-19 pandemic and the Company’s stock price has fluctuated significantly.112021,2023, we were in compliance with all covenants. However, as a result of the COVID-19 outbreak, our total revenues decreased significantly (although they have since recovered), and we have implemented certain operational changes in order to address the evolving challenges presented by the global pandemic on our operations. 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 fiscal quarters willperiods 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.; $10.6 million in 2020 (representing $7.9 million goodwill impairment on seven club reporting units, $2.3 million of license impairment on two clubs, $302,000 property and equipment impairment on one club and one Bombshells, and $104,000 of operating lease right-of-use asset impairment on one club); and $6.0 million in 2019 (representing $4.2 million property and equipment impairment on two clubs, $1.6 million goodwill impairment on four clubs, and $178,000 of license impairment on one club). A huge portion, if not all, of the impairments in 2021 and 2020 related to the projectedthen-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.1213cabarets.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 cabarets.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.14Security 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 oremployeefinancial, 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.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.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. have started franchising Bombshells.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.152021 because of a material weakness.2023. We are, however, addressing this issue and remediating our material weakness. Upon finalizing the remediation of thisweaknesses. When we were to identify a material weakness, we believe our internal control will be deemed effective. Correcting thiscorrecting 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.a material weaknessweaknesses in our internal control over financial reporting.20212023, 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 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 material weaknessbusiness 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’smanagement's review of certain assumptions—seeassumptions; and (3) ineffective information technology general controls in the areas of user access and program change-management over certain information technology systems that support the Company's financial reporting processes. See Item 9A, “Controls and Procedures,” below. While certain actions have been taken to implement a remediation plan to address thisthese material weaknessweaknesses and to enhance our internal control over financial reporting, if thisthese material weakness isweaknesses are not remediated, it could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which could negatively affect investor confidence in our company,Company, and, as a result, the value of our common stock could be adversely affected.162021,2023, we had 2have 1 remaining unresolved claimsclaim out of the original 71 claims.One of the two remaining claims was settled in November 2021.“CLUB DULCE,” “THE BLACK ORCHID,” “HOOPS CABARET,” “VEE LOUNGE,” “STUDIO 80,” “FOXY’S CABARET,” “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 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 names “TOOTSIES CABARET,” “IN THE BIZ,” “JAGUARS”"RICK'S REWARDS," "VENICE CABARET," “CHERRY CREEK FOOD HALL AND BREWERY”, and “THE MANSION,” and “LA BOHEME GENTLEMAN’S CLUB.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.As a resultBoardboard of Directorsdirectors 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 Boardboard of Directorsdirectors 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 Boardboard of Directorsdirectors has no present intention to issue preferred stock.18●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.None.Properties.2021,2023, we own 5188 real estate properties. On 3755 of these properties, we operate clubs or 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. TenTwenty four are non-income-producing properties for corporate use (including our corporate office) or future club or restaurant locations, or may be offered for sale in the future. ElevenFourteen of our clubs and restaurants are in leased locations. In March 2021, we acquired approximately 57,000-square foot of land across the street from our corporate office. We plan to build a warehouse on that land in the coming months. See Note 15 to our consolidated financial statements.192021:2023:Name of Establishment Fiscal Year Acquired/Opened Club Onyx, Houston, TX 1995 Rick’s Cabaret, Minneapolis, MN 1998 XTC Cabaret, Austin, TX 1998 Scarlett's Cabaret, San Antonio, TX 1998 Rick’s Cabaret, New York City, NY 2005 Club Onyx, Charlotte, NC 2005 (1) Jaguars Club, San Antonio, TX 2006 Rick’s Cabaret, Fort Worth, TX 2007 Tootsie’s Cabaret, Miami Gardens, FL 2008 XTC Cabaret, Dallas, TX 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 Silver City Cabaret, Dallas, TX 2012 Jaguars Club, Odessa, TX 2012 Jaguars Club, Phoenix, AZ 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 (1) Bombshells, Dallas, TX 2013 Scarlett's Cabaret, Sulphur, LA 2013 Temptations, Beaumont, TX 2013 Vivid Cabaret, New York, NY 2014 (1) Bombshells, Austin, TX 2014 (1) Rick’s Cabaret, Odessa, TX 2014 Bombshells, Spring, TX 2014 (1) Bombshells Fuqua, Houston, TX 2014 (1) Foxy’s Cabaret, Austin TX 2015 The Seville, Minneapolis, MN 2015 Hoops Cabaret and Sports Bar, New York, NY 2016 (1) Bombshells, Highway 290 Houston, TX 2017 (1) Scarlett’s Cabaret, Washington Park, IL 2017 Scarlett’s Cabaret, Miami, FL 2017 Bombshells, Pearland, TX 2018 Kappa Men’s Club, Kappa, IL 2018 Rick’s Cabaret, Chicago, IL 2019 Rick’s Cabaret, Pittsburgh, PA 2019 Bombshells I-10, Houston, TX 2019 Bombshells 249, Houston, TX 2019 Bombshells, Katy, TX 2020 Bombshells 59, Houston, TX 2020 Diamond Cabaret, Denver, CO 2022 (1) Scarlett's Cabaret, Denver, CO 2022 PT's Showclub, Denver, CO 2022 Rick's Cabaret, Denver, CO 2022 (1) Diamond Cabaret, St. Louis, IL 2022 (1) Country Rock Cabaret, St. Louis, IL 2022 (1) PT's Showclub, Indianapolis, IN 2022 Rick's Cabaret, Raleigh, NC 2022 (1) Rick's Cabaret, Portland, ME 2022 PT's Showclub, Louisville, KY 2022 PT's Centerfold, Denver, CO 2022 Mansion Gentlemen's Club & Steakhouse, Newburgh, NY 2022 Bombshells, Arlington, TX 2022 Playmates Club, Miami, FL 2022 Cheetah Gentlemen's Club, Miami, FL 2022 PT's Showclub, Odessa, TX 2022 Heartbreakers Gentlemen's Club, Dickinson, TX 2023 Cherry Creek Food Hall, Denver, CO 2023 Bombshells, San Antonio, TX 2023 (1) Baby Dolls, Dallas, TX 2023 Chicas Locas, Dallas, TX 2023 Chicas Locas, Arlington, TX 2023 Chicas Locas, Houston, TX 2023 Baby Dolls, Fort Worth, TX 2023 Name of EstablishmentFiscal Year Acquired/OpenedClub Onyx, Houston, TX1995Rick’s Cabaret, Minneapolis, MN1998XTC Cabaret, Austin, TX1998XTC Cabaret, San Antonio, TX1998(2)Rick’s Cabaret, New York City, NY2005Club Onyx, Charlotte, NC2005(1)Rick’s Cabaret, San Antonio, TX2006XTC Cabaret, South Houston2006(1)Rick’s Cabaret, Fort Worth, TX2007Tootsie’s Cabaret, Miami Gardens, FL2008XTC Cabaret, Dallas, TX2008Rick’s Cabaret, Round Rock, TX2009Cabaret East, Fort Worth, TX2010Rick’s Cabaret DFW, Fort Worth, TX2011Downtown Cabaret, Minneapolis, MN2011Temptations, Aledo, TX2011(1)Silver City Cabaret, Dallas, TX2012Jaguars Club, Odessa, TX2012Jaguars Club, Phoenix, AZ2012Jaguars Club, Lubbock, TX2012Jaguars Club, Longview, TX2012Jaguars Club, Tye, TX2012Jaguars Club, Edinburg, TX2012Jaguars Club, El Paso, TX2012Jaguars Club, Harlingen, TX2012Studio 80, Fort Worth, TX2013(1)Bombshells, Dallas, TX2013Temptations, Sulphur, LA2013(2)Temptations, Beaumont, TX2013Vivid Cabaret, New York, NY2014(1)Bombshells, Austin, TX2014(1)Rick’s Cabaret, Odessa, TX2014Bombshells, Spring, TX2014(1)Bombshells Fuqua, Houston, TX2014(1)Foxy’s Cabaret, Austin TX2015The Seville, Minneapolis, MN2015Hoops Cabaret and Sports Bar, New York, NY2016(1)Bombshells, Highway 290 Houston, TX2017(1)Scarlett’s Cabaret, Washington Park, IL2017Scarlett’s Cabaret, Miami, FL2017(1)Bombshells, Pearland, TX2018Kappa Men’s Club, Kappa, IL2018Rick’s Cabaret, Chicago, IL2019Rick’s Cabaret, Pittsburgh, PA2019Bombshells I-10, Houston, TX2019Bombshells 249, Houston, TX2019Bombshells, Katy, TX2020Bombshells 59, Houston, TX2020(1)Leased location.(2)Currently closed.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, 2021,2023, certain of our ownedthe properties we own were collateral for mortgage debt amounting to approximately $102.3$136.1 million. We believe that our existing facilities, both owned and leased, are in good condition and adequate and suitable for the conduct of our business.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.2010, 2021,8, 2023, the closing stock price for our common stock as reported by NASDAQ was $63.66,$62.30, and there were 147120 stockholders of record of our common stock (excluding broker held shares in “street name”). Currently, we estimate that there are approximately 9,30012,900 stockholders having beneficial ownership in street name.Boardboard of Directors hasdirectors declared regular quarterly cash dividends of $0.03 per share, except for the fourth quarter of fiscal 2019, the second and fourth quarters of fiscal 2020, and all four quarters of fiscal 2021, and the first quarter of fiscal 2022 when we paid $0.04 per 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.2021, 2020,2023, 2022, and 2019,2021, we paid cash dividends totaling $2.1 million, $1.8 million, and $1.4 million, $1.3 million, and $1.3 million, respectively.In connection with the September 2021 Refinancing Note (see Note 9 to our consolidated financial statements), we have agreed to not pay out any dividends or distributions; provided that, we are permitted to continue to pay our quarterly dividend in the amount of $0.04 per share per quarter ($0.16 per year) unless the debt service coverage in connection with the loan falls below 1.4x for three consecutive quarters, in which event such quarterly dividend must be suspended until such time as the 1.4x debt service coverage is achieved.During2021, we did not2023 was as follows:Period Total Number of Shares (or Units) Purchased Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs July 1-31, 2023 8,870 $ 69.47 8,870 $ 18,150,893 August 1-31, 2023 9,922 $ 66.16 9,922 $ 17,494,464 September 1-30, 2023 13,794 $ 61.85 13,794 $ 16,641,326 32,586 32,586 any sharesplans approved by the board of directors as disclosed in our common stock.
most recent Annual Report on Form 10-K.21None.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, 20162018 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 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.
9/30/2016 9/30/2017 9/30/2018 9/30/2019 9/30/2020 9/30/2021 RCI Hospitality Holdings, Inc. $ 100.00 $ 215.03 $ 255.84 $ 178.60 $ 176.60 $ 593.72 NASDAQ Composite Index $ 100.00 $ 122.29 $ 151.47 $ 150.59 $ 210.23 $ 272.00 Dow Jones U.S. Restaurant & Bar Index $ 100.00 $ 115.78 $ 130.42 $ 170.09 $ 172.30 $ 211.21 Russell 2000 Index $ 100.00 $ 119.11 $ 135.55 $ 121.71 $ 120.46 $ 176.12 22
9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 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 23●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.Ongoing Impact of COVID-19 PandemicSince the U.S. declaration of COVID-19 as a pandemic in March 2020, we have had a major disruption in our business operations that threatened to significantly impact our cash flow. The declaration resulted in a significant reduction in customer traffic in our clubsconsolidated financial statements.restaurants due to changes in consumer behavior as social distancing practices, dining room closures, and other restrictions that were mandated or encouraged by federal, state, and local governments. To adapt to the situation, we took significant steps to augmentCapital Resources — an anticipated decline in operatinganalysis of cash flows, including negotiating defermentaggregate contractual obligations, and an overview of some of our debts, reducing the number of our employees and related payroll costs where necessary, and deferring or modifying certain fixed and variable monthly expenses, among others.The temporary closure of our clubs and restaurants caused by the COVID-19 pandemic presented operational challenges. Our strategy is to open locations and operate in accordance with local and state guidelines. We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms, especially the longer the COVID-19 pandemic lasts.Compared to fiscal 2020, which showed a significant impact of the pandemic in terms of revenues and bottom line, in fiscal 2021 our operations exhibited tremendous recovery. Revenues were up by 47.6% from prior year and up by 7.8% from pre-pandemic fiscal 2019. Net income increased by 47.5% from fiscal 2019 (fiscal 2020 had a net loss) and free cash flow increased by 167.7% from fiscal 2020 and by 8.3% from fiscal 2019.As of the release of this report, we do not know the future extent and duration of the impact of COVID-19 on our businesses. Closures and operating restrictions, as caused by local, state, and national guidelines, could lead to adverse financial results. However, we will continually monitor and evaluate the situation and will determine any further measures to be instituted.position.Nightclubs Our 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, Aledo, 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; 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 club in Fort Worth, Texas. We also own and lease to third parties real properties that are adjacent to (or used to be locations of) our clubs.In relation to acquisitions that closed in October and November 2021, we now have club locations in Denver, Colorado; Louisville, Kentucky; Raleigh, North Carolina; Portland, Maine; Indianapolis, Indiana; Sauget, Illinois; and Newburgh, New York.Bombshells Our wholly-owned subsidiaries own and operate restaurants and sports bars in Houston, Dallas, Austin, Spring, Pearland, Tomball, Katy, Arlington, and Katy,San Antonio, Texas under the brand name Bombshells Restaurant & Bar. Bombshells also operates a food hall in Denver, Colorado.Other Our 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 are derived from the sale of liquor, beer, wine, food, and merchandise; service revenues such as cover charges, membership fees, and facility use 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 for the sale of advertising content and revenues from our annual Expo convention, and Drink Robust sales. Our fiscal year-end is September 30.24monthquarter 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 definitions stated above. Revenues outside of our Nightclubs and Bombshells reportable segments’ core business are excluded from same-store sales calculation.Adjusted Same-Store Sales. Due to the disruption created by the COVID-19 pandemic and in an effort to minimize the complexity in the calculation of same-store sales caused by closing and opening again our locations, we are presenting two alternative same-store sales results calculated with and without the impact of closures caused by state and local government mandates. In the alternative calculation, a comparable location will remain in the same-store sales base regardless of closing and reopening due to COVID-19 restrictions.second quarter of 2020, we impaired one club and one Bombshells unit for a total of $302,000, and during the third quarter of 2020, we impaired one club for its operating lease right-of-use asset for $104,000. During the fourth quarter of 2019,2023, we impairedalso recognized software impairments amounting to $814,000 related to two clubs for a totalventure projects.25the year ended September 30, 2020, we identified seven reporting units that were impairedindefinite- and recognized a goodwill impairment loss totaling $7.9 million. For the year ended September 30, 2019, we identified four reporting units that were impaired and recognized a goodwill impairment loss totaling $1.6 million.For indefinite-liveddefinite-lived intangibles, specifically SOB licenses, we determine fair value by estimating the multiperiod excess earnings of the asset with key assumptions being similar to those used in the goodwill impairment valuation model. For indefinite-lived tradename, we determine fair value by using the relief from royalty method. The fair value is then compared to the carrying value and an impairment charge is recognized by the amount by which the carrying amount exceeds the fair value of the asset. We recorded impairment charges for SOB licenses amounting to $6.5 million in 2023 related to eight clubs, $293,000 in 2022 related to one club, and $5.3 million in 2021 related to three clubs, $2.3 million in 2020clubs.two clubs,acquired entities are included prospectively beginning with the date of acquisition. Acquisition-related costs are expensed as incurred.$178,000administrative expenses in 2019 relatedour 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 one club.the model include the expected term of the stock options, stock price volatility, dividend yield, and risk-free interest rate.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. 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.262021, 2020,2023, 2022, and 20192021 are as follows (in thousands, except percentages and per share amounts):2023 Inc (Dec) 2022 Inc (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 2021 Inc (Dec) 2020 Inc (Dec) 2019 Revenues Consolidated $ 195,258 47.6 % $ 132,327 (26.9 )% $ 181,059 Nightclubs $ 137,348 55.4 % $ 88,373 (40.5 )% $ 148,606 Bombshells $ 56,621 31.0 % $ 43,215 40.2 % $ 30,828 Same-store sales Consolidated 1.5 % (4.4 )% Nightclubs (2.1 )% (9.0 )% Bombshells 7.7 % 18.3 % Income from operations Consolidated $ 38,548 1,303.8 % $ 2,746 (92.1 )% $ 34,701 Nightclubs $ 43,815 235.6 % $ 13,056 (74.3 )% $ 50,724 Bombshells $ 13,264 43.6 % $ 9,237 300.4 % $ 2,307 Diluted earnings (loss) per share $ 3.37 $ (0.66 ) $ 2.10 Net cash provided by operating activities $ 41,991 168.6 % $ 15,632 (57.9 )% $ 37,174 Free cash flow* $ 36,084 167.7 % $ 13,481 (59.5 )% $ 33,316 *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. 2021 2020 2019 Revenues Sales of alcoholic beverages 44.4 % 44.6 % 41.5 % Sales of food and merchandise 21.1 % 18.5 % 14.3 % Service revenues 28.4 % 31.1 % 37.6 % Other 6.1 % 5.8 % 6.6 % Total revenues 100.0 % 100.0 % 100.0 % Cost of goods sold Alcoholic beverages 18.3 % 18.8 % 20.4 % Food and merchandise 33.6 % 33.0 % 35.1 % Service and other 0.6 % 0.5 % 0.7 % Total cost of goods sold (exclusive of items shown separately below) 15.4 % 14.7 % 13.8 % Salaries and wages 25.9 % 29.5 % 27.5 % Selling, general and administrative 28.0 % 39.1 % 33.1 % Depreciation and amortization 4.2 % 6.7 % 5.0 % Other charges, net 6.8 % 8.0 % 1.4 % Total operating expenses 80.3 % 97.9 % 80.8 % Income from operations 19.7 % 2.1 % 19.2 % Other income (expenses) Interest expense (5.1 )% (7.4 )% (5.6 )% Interest income 0.1 % 0.2 % 0.2 % Non-operating gains (losses), net 2.7 % (0.0 )% (0.3 )% Income (loss) before income taxes % (5.1 )% 13.4 % Income tax expense (benefit) 2.0 % (0.4 )% 2.1 % Net income (loss) % (4.8 )% 11.3 % †Percentages may not foot due to rounding. Percentage of revenue for individual cost of goods sold items pertains to their respective revenue line.272023 2022 2021 Revenues Sales of alcoholic beverages 43.3 % 42.3 % 44.4 % Sales of food and merchandise 14.9 % 16.6 % 21.1 % Service revenues 35.3 % 35.1 % 28.4 % Other 6.5 % 6.0 % 6.1 % Total revenues 100.0 % 100.0 % 100.0 % Operating expenses Cost of goods sold Alcoholic beverages sold 18.3 % 17.8 % 18.3 % Food and merchandise sold 35.1 % 35.1 % 33.6 % Service and other 0.2 % 0.3 % 0.6 % Total cost of goods sold (exclusive of items shown separately below) 13.3 % 13.5 % 15.4 % Salaries and wages 27.1 % 25.6 % 25.9 % Selling, general and administrative 31.7 % 29.5 % 28.0 % Depreciation and amortization 5.2 % 4.6 % 4.2 % Other charges, net 5.3 % 0.2 % 6.8 % Total operating expenses 82.5 % 73.3 % 80.3 % Income from operations 17.5 % 26.7 % 19.7 % Other income (expenses) Interest expense (5.4) % (4.5) % (5.1) % Interest income 0.1 % 0.2 % 0.1 % Non-operating gains, net — % 0.1 % 2.7 % Income before income taxes 12.2 % 22.5 % 17.5 % Income tax expense 2.3 % 5.3 % 2.0 % Net income 9.9 % 17.2 % 15.4 % Better (Worse) 2021 vs. 2020 2020 vs. 2019 Amount % Amount % Sales of alcoholic beverages $ 27,605 46.7 % $ (16,060 ) (21.4 )% Sales of food and merchandise 16,651 68.1 % (1,370 ) (5.3 )% Service revenues 14,299 34.7 % (26,893 ) (39.5 )% Other 4,376 57.4 % (4,409 ) (36.6 )% Total revenues 62,931 47.6 % (48,732 ) (26.9 )% Cost of goods sold Alcoholic beverages (4,786 ) (43.1 )% 4,206 27.5 % Food and merchandise (5,653 ) (69.4 )% 915 10.1 % Service and other (177 ) (89.8 )% 381 65.9 % Total cost of goods sold (exclusive of items shown separately below) (10,616 ) (54.6 )% 5,502 22.1 % Salaries and wages (11,557 ) (29.6 )% 10,763 21.6 % Selling, general and administrative (2,916 ) (5.6 )% 8,204 13.7 % Depreciation and amortization 598 6.8 % 236 2.6 % Other charges, net (2,638 ) (25.0 )% (7,928 ) (302.6 )% Total operating expenses (27,129 ) (20.9 )% 16,777 11.5 % Income from operations 35,802 1,303.8 % (31,955 ) (92.1 )% Other income/expenses Interest expense (181 ) (1.8 )% 398 3.9 % Interest income (71 ) (21.9 )% (15 ) (4.9 )% Non-operating gains (losses), net 5,394 * 548 89.5 % Income/loss before income taxes 40,944 601.7 % (30,994 ) (128.1 )% Income tax expense/benefit (4,482 ) * 4,237 113.2 % Net income/loss $ * $ (26,757 ) (130.9 )% Better (Worse) 2023 vs. 2022 2022 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 revenues 9,689 10.3 % 38,427 69.3 % Other 2,923 18.1 % 4,121 34.3 % Total revenues 26,170 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 sold 108 0.7 % (1,743) (12.6) % Service and other 35 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/benefit 7,225 51.3 % (10,082) * Net income/loss $ (16,960) (36.8) % $ 15,910 * Overall, ourtrended significantly betterincreased by $72.4 million, or 37.1%, due to increases in fiscal 2021 compared to the more pandemic impacted fiscal 2020 with a 47.6% increase. But even though 2021 was still affected by the pandemic, revenues grew 7.8% compared to pre-pandemic fiscal 2019. Excluding COVID-19 impact, consolidated same-store sales, increasenewly acquired and constructed locations, and from locations closed in 2021 was 1.5%. Including the impactand reopened in 2022.(in(dollar amounts in thousands):2023 Inc (Dec) 2022 Inc (Dec) 2021 Nightclubs Sales of alcoholic beverages $ 96,325 20.4 % $ 80,001 47.3 % $ 54,305 Sales of food and merchandise 19,995 9.3 % 18,289 6.2 % 17,221 Service revenues 103,217 10.4 % 93,481 69.5 % 55,146 Other revenues 17,211 18.9 % 14,480 35.6 % 10,676 236,748 14.8 % 206,251 50.2 % 137,348 Bombshells Sales of alcoholic beverages 30,937 (7.1) % 33,315 2.9 % 32,380 Sales of food and merchandise 23,911 (8.1) % 26,005 8.9 % 23,890 Service revenues 360 (11.5) % 407 29.2 % 315 Other revenues 515 160.1 % 198 450.0 % 36 55,723 (7.0) % 59,925 5.8 % 56,621 Other Other revenues 1,319 (8.7) % 1,444 12.0 % 1,289 $ 293,790 9.8 % $ 267,620 37.1 % $ 195,258 2021 2020 2019 Nightclubs Sales of alcoholic beverages $ 54,305 $ 31,950 $ 57,277 Sales of food and merchandise 17,221 8,561 13,051 Service revenues 55,146 41,004 67,893 Other revenues 10,676 6,858 10,385 137,348 88,373 148,606 Bombshells Sales of alcoholic beverages 32,380 27,130 17,863 Sales of food and merchandise 23,890 15,899 12,779 Service revenues 315 158 162 Other revenues 36 28 24 56,621 43,215 30,828 Other Other revenues 1,289 739 1,625 $ 195,258 $ 132,327 $ 181,059 55.4%14.8% from 20202022 to 2023 and by 50.2% from 2021 and decreased by 40.5% from 2019 to 2020. A breakdown of the changes compared to total change in Nightclubs revenues is2022, as follows:explained below. 2021 vs. 2020 2020 vs. 2019 Impact of 2.1% and 9.0% decrease in same-store sales, respectively, to total revenues (excluding COVID-19 impact) (1.2 )% (4.9 )% Newly acquired and reconcepted units - 0.9 % Closed units (including COVID-19 impact) 56.4 % (36.3 )% Other 0.2 % (0.2 )% 55.4 % (40.5 )% Including the impact of COVID-19 on comparable Nightclubs locations (see Adjusted Same-Store Sales on page 25), the breakdown would have been: 2021 vs. 2020 2020 vs. 2019 Impact of 59.2% increase and 41.7% decrease in same-store sales, respectively, to total revenues (including COVID-19 impact) % (40.3 )% Newly acquired and reconcepted units - 0.9 % Closed units (excluding COVID-19 impact) )% (0.9 )% Other 0.2 % (0.2 )% 55.4 % (40.5 )% By type of revenue line item, changes in Nightclubs segment revenue dollars are broken down as: 2021 vs. 2020 2020 vs. 2019 Sales of alcoholic beverages 70.0 % (44.2 )% Sales of food and merchandise 101.2 % (34.4 )% Service revenues 34.5 % (39.6 )% Other 55.7 % (34.0 )% 2023 vs. 2022 2022 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 units 18.4 % 30.5 % Closed units (0.4) % 10.1 % Other — % 0.1 % 14.8 % 50.2 % did not change much throughfor the three fiscal years:2023 2022 2021 Sales of alcoholic beverages 40.7 % 38.8 % 39.5 % Sales of food and merchandise 8.4 % 8.9 % 12.5 % Service revenues 43.6 % 45.3 % 40.2 % Other 7.3 % 7.0 % 7.8 % 100.0 % 100.0 % 100.0 % 2021 2020 2019 Sales of alcoholic beverages 39.5 % 36.2 % 38.5 % Sales of food and merchandise 12.5 % 9.7 % 8.8 % Service revenues 40.2 % 46.4 % 45.7 % Other 7.8 % 7.7 % 7.0 % 100.0 % 100.0 % 100.0 % Included in the 2019The 2023 new units are Rick’s Cabaret Chicagoinclude six clubs, one of which was acquired in October 2022 and Rick’s Cabaret Pittsburgh,five acquired in March 2023. The 2022 new units include fifteen clubs, of which eleven were acquired in October 2021, one acquired in November 2018 (see 2021, one acquired in May 2022, and two acquired in July 2022. See Note 1514 to our consolidated financial statements)statements for more information on our club acquisitions. In total, these 2023 and 2022 newly acquired clubs contributed $5.0$18.2 million and $4.6$41.9 million in revenues, for 2019 since acquisition date.respectively, during their year of acquisition. No new clubs were acquired or constructed in 2020 and 2021.2021, $1.3 million in 2020, and $1.7 million in 2019.
2021.2931.0%5.8% from 20202021 to 2021 and by 40.2% from 2019 to 2020. A breakdown of the changes compared to total changes in Bombshells revenues is2022, as follows:explained below. 2021 vs. 2020 2020 vs. 2019 Impact of 7.7% and 18.3% increase in same-store sales, respectively, to total revenues (excluding COVID-19 impact) 5.2 % 9.7 % New units 9.6 % 35.0 % Closed units (including COVID-19 impact) 16.2 % (4.5 )% 31.0 % 40.2 % Including the impact of COVID-19 on comparable Bombshells locations (see Adjusted Same-Store Sales on page 25), the breakdown would have been: 2021 vs. 2020 2020 vs. 2019 Impact of 24.8% and 6.5% increase in same-store sales, respectively, to total revenues (including COVID-19 impact) 21.4 % 5.1 % New units 9.6 % 35.0 % Closed units (excluding COVID-19 impact) - 0.1 % 31.0 % 40.2 % By type of revenue line item, changes in Bombshells segment revenues are broken down as: 2021 vs. 2020 2020 vs. 2019 Sales of alcoholic beverages 19.4 % 51.9 % Sales of food and merchandise 50.3 % 24.4 % Service and other revenues 88.7 % 0.0 % 2023 vs. 2022 2022 vs. 2021 Impact of 14.6% and 4.6% decrease in same-store sales, respectively, to total revenues (13.5) % (4.6) % New units 6.5 % 10.1 % Closed units — % — % Other — % 0.3 % (7.0) % 5.8 % 2021 2020 2019 Sales of alcoholic beverages 57.2 % 62.8 % 57.9 % Sales of food and merchandise 42.2 % 36.8 % 41.5 % Service and other revenues 0.6 % 0.4 % 0.6 % 100.0 % 100.0 % 100.0 % 2023 2022 2021 Sales of alcoholic beverages 55.5 % 55.6 % 57.2 % Sales of food and merchandise 42.9 % 43.4 % 42.2 % Service and other revenues 1.6 % 1.0 % 0.6 % 100.0 % 100.0 % 100.0 % I-10location was opened in 2021. Bombshells Arlington was opened in the first quarter of 2019, while2022. Bombshells 249San Antonio was openedacquired from our franchisee in the second quarter of 2019. Bombshells Katy was opened2023. We also acquired a food hall in Greenwood Village, Colorado during the first quarter of 2020, while Bombshells 59 was opened in the second quarter of 2020. No new Bombshells location was opened in 2021.$249,000, $150,000,$145,000, $201,000, and $231,000$249,000 in fiscal 2021, 2020,2023, 2022, and 2019,2021, respectively, which excludesexclude intercompany sales to Nightclubs and Bombshells units amounting to $141,000, $70,000,$254,000, $261,000, and $140,000$141,000 in fiscal 2021, 2020,2023, 2022, and 2019,2021, respectively. Media business revenues were $1.0$1.1 million, $589,000,$1.2 million, and $1.4$1.0 million in fiscal 2023, 2022, and 2021, 2020, and 2019, respectively. Due to the COVID-19 pandemic, the 2020 ED EXPO that was supposed to be held in August 2020 (fiscal 2020) was canceled. All unearned sponsorship and advertising revenues related to the event were either further deferred or refunded and no revenue was recognized.80.3%82.5%, 97.9%73.3%, and 80.8%80.3% for the fiscal year 2021, 2020,2023, 2022, and 2019,2021, respectively. Significant contributors to the change in operating expenses as a percent of revenues are explained below.15.4%13.3%, 14.7%13.5%, and 13.8%15.4% for fiscal 2021, 2020,2023, 2022, and 2019,2021, 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. For the Nightclubs segment, cost of goods sold was 11.8%11.1%, 10.7%10.5%, and 11.2%11.8% for fiscal 2021, 2020,2023, 2022, and 2019,2021, respectively, which was primarily caused by shifts in sales mix.mix among the three fiscal years. Bombshells cost of goods sold was 23.8%22.4%, 22.6%23.5%, and 25.3%23.8% for fiscal 2022, 2021, 2020, and 2019,2020, 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, to higher-margin alcoholic beverage sales in 2020,2021.from food cost inflation in 2019.wages30$11.6$11.1 million, or 29.6%16.1%, from 20202022 to 20212023 and decreasedincreased by $10.8$17.8 million, or 21.6%35.2%, from 20192021 to 2020.2022. The dollar decreaseincreases are mostly from 2019 to 2020 was mainly from furloughed employees due to COVID-19, which increased back in 2021 due to hiring and rehiring after easing restrictions.newly acquired or constructed locations. As a percentage of revenues, consolidated salaries and wages were 25.9%27.1%, 29.5%25.6%, and 27.5%25.9% in 2021, 2020,2023, 2022, and 2019,2021, respectively, mainly due to sales trend and the impact of fixed salaries on lowerchange in sales. Corporate salary pay cuts made in 2020 during the height(in(dollar amounts in thousands): 2021 2020 2019 Nightclubs $ 26,986 $ 19,590 $ 32,267 Bombshells 13,041 10,427 8,887 Other 582 491 617 General corporate 10,018 8,562 8,062 $ 50,627 $ 39,070 $ 49,833 2023 Inc (Dec) 2022 Inc (Dec) 2021 Nightclubs $ 50,489 23.6 % $ 40,859 51.4 % $ 26,986 Bombshells 14,949 2.5 % 14,585 11.8 % 13,041 Other 604 0.5 % 601 3.3 % 582 Corporate 13,458 8.5 % 12,402 23.8 % 10,018 $ 79,500 16.1 % $ 68,447 35.2 % $ 50,627 2023 2022 2021 Nightclubs 21.3 % 19.8 % 19.6 % Bombshells 26.8 % 24.3 % 23.0 % Other 45.8 % 41.6 % 45.2 % Corporate 4.6 % 4.6 % 5.1 % 27.1 % 25.6 % 25.9 % corporate.and administrative expenses(dollars(dollar amounts in thousands):2023 2022 2021 Amount % Amount % Amount % Taxes and permits $ 11,966 4.1 % $ 9,468 3.5 % $ 8,701 4.5 % Advertising and marketing 11,928 4.1 % 9,860 3.7 % 6,676 3.4 % Supplies and services 10,724 3.7 % 8,614 3.2 % 6,190 3.2 % Insurance 10,268 3.5 % 10,152 3.8 % 5,676 2.9 % Lease 7,206 2.5 % 6,706 2.5 % 3,942 2.0 % Legal 3,742 1.3 % 1,995 0.7 % 3,997 2.0 % Utilities 5,760 2.0 % 4,585 1.7 % 3,366 1.7 % Charge card fees 7,090 2.4 % 6,292 2.4 % 3,376 1.7 % Security 5,618 1.9 % 4,404 1.6 % 3,892 2.0 % Accounting and professional fees 4,286 1.5 % 3,909 1.5 % 2,031 1.0 % Repairs and maintenance 4,924 1.7 % 3,754 1.4 % 2,767 1.4 % Stock-based compensation 2,588 0.9 % 2,353 0.9 % — — % Other 6,924 2.4 % 6,755 2.5 % 3,994 2.0 % $ 93,024 31.7 % $ 78,847 29.5 % $ 54,608 28.0 % Years Ended September 30, Percentage of Revenues 2021 2020 2019 2021 2020 2019 Taxes and permits $ 8,701 $ 8,071 $ 10,779 4.5 % 6.1 % 6.0 % Advertising and marketing 6,676 5,367 8,392 3.4 % 4.1 % 4.6 % Supplies and services 6,190 4,711 5,911 3.2 % 3.6 % 3.3 % Insurance 5,676 5,777 5,429 2.9 % 4.4 % 3.0 % Lease 3,942 4,060 3,896 2.0 % 3.1 % 2.2 % Legal 3,997 4,725 5,180 2.0 % 3.6 % 2.9 % Utilities 3,366 2,945 3,165 1.7 % 2.2 % 1.7 % Charge card fees 3,376 2,382 3,803 1.7 % 1.8 % 2.1 % Security 3,892 2,582 2,973 2.0 % 2.0 % 1.6 % Accounting and professional fees 2,031 3,463 2,815 1.0 % 2.6 % 1.6 % Repairs and maintenance 2,767 2,289 2,980 1.4 % 1.7 % 1.6 % Other 3,994 5,320 4,573 2.0 % 4.0 % 2.5 % $ 54,608 $ 51,692 $ 59,896 28.0 % 39.1 % 33.1 % (in(dollar amounts in thousands): 2021 2020 2019 Nightclubs $ 32,725 $ 30,105 $ 40,033 Bombshells 14,883 11,735 10,441 Other 237 268 356 General corporate 6,763 9,584 9,066 $ 54,608 $ 51,692 $ 59,896 312023 Inc (Dec) 2022 Inc (Dec) 2021 Nightclubs $ 61,350 19.6 % $ 51,285 56.7 % $ 32,725 Bombshells 18,928 9.4 % 17,295 16.2 % 14,883 Other 602 44.0 % 418 76.4 % 237 Corporate 12,144 23.3 % 9,849 45.6 % 6,763 $ 93,024 18.0 % $ 78,847 44.4 % $ 54,608 2023 2022 2021 Nightclubs 25.9 % 24.9 % 23.8 % Bombshells 34.0 % 28.9 % 26.3 % Other 45.6 % 28.9 % 18.4 % Corporate 4.1 % 3.7 % 3.5 % 31.7 % 29.5 % 28.0 % In light of decreased sales activity caused by the COVID-19 pandemic from 2019 to 2020, most of our selling, general and administrative expenses for 2020 decreased, except for relatively fixed expenses such as insurance, rent, and accounting and professional fees. increasedtend to be higher in rate due to lower sales, while more discretionary/controllablevariable expenses suchtend to keep their rates even if dollar amounts are increasing. Nightclubs expenses increased as advertising and marketing were kept to a minimum. Conversely,percentage of segment revenue due to the increase in revenues in 2021 from 2020, almost all selling, general and administrativenewly acquired clubs. Bombshells expenses consequently increased except accounting and professional fees, insurance, leases, and legal. Accounting and legal fees primarily decreased from prior year’s SEC matters; lease expense decreasedas a percentage of segment revenue due to lease credits we received from certain landlords; while insurance decreased due to credits given by insurers for unused coverage due to COVID-19 closures in 2020. decreased. Depreciation and amortization increased by $598,000,$2.8 million, or 6.8%22.3%, from 20202022 to 20212023 and increased by $236,000,$4.2 million, or 2.6%50.4%, from 20192021 to 2020.2022. The decreaseincrease from 20192021 to 20202022 was mainly due to properties sold or disposed duringcaused by the currentgrowth in our depreciable asset base and prior year,amortizable intangibles caused by acquired clubs and a new Bombshells unit, while the decreaseincrease from 20202022 to 20212023 was mainly from significantly low capital expenditure in 2020.newly acquired clubs. Years Ended September 30, Percentage of Revenues 2021 2020 2019 2021 2020 2019 Impairment of assets $ 13,612 $ 10,615 $ 6,040 % 8.0 % 3.3 % Settlement of lawsuits 1,349 174 225 0.7 % 0.1 % 0.1 % Gain on sale of businesses and assets (522 ) (661 ) (2,877 ) (0.3 )% (0.5 )% (1.6 )% Loss (gain) on insurance (1,253 ) 420 (768 ) (0.6 )% 0.3 % (0.4 )% Total other charges, net $ 13,186 $ 10,548 $ 2,620 6.8 % 8.0 % 1.4 % 2023 Inc (Dec) 2022 Inc (Dec) 2021 Impairment of assets $ 12,629 568.9 % $ 1,888 (86.1) % $ 13,612 Settlement of lawsuits 3,759 165.3 % 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 During 2020,recorded aggregate impairment chargesrecognized settlements with the New York Department of Labor amounting to $10.6$3.1 million related to goodwillthe assessment by the New York Department of seven clubs ($7.9 million), SOB licensesLabor for state unemployment insurance. In 2022, we settled several cases including the image infringement lawsuit and the securities class actions part of two clubs ($2.3 million), and $406,000 of long-lived assets of one club and one Bombshells restaurant (including impairment on operating lease right-of-use assets of $104,000). During 2019, we recorded aggregate impairment charges amounting to $6.0 million related to goodwill of four clubs ($1.6 million), SOB license of one club ($178,000), and property and equipment of two clubs ($4.2 million). See Notes 2 and 15 to our consolidated financial statements.landlordlandlords for $1.0 million. See Note 1110 to our consolidated financial statements. a $420,000 loss in 2020, and a $768,000 gain in 2019 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 wereare recognized when the contingencies related to the insurance claims have been resolved, which may be in a subsequent reporting period. See Note 1413 to our consolidated financial statements.2021, 2020,2023, 2022, and 2019,2021, our consolidated operating margin was 19.7%17.5%, 2.1%26.7%, and 19.2%19.7%, respectively. 2021 2020 2019 Nightclubs $ 43,815 $ 13,056 $ 50,724 Bombshells 13,264 9,237 2,307 Other 35 (614 ) (309 ) General corporate (18,566 ) (18,933 ) (18,021 ) $ 38,548 $ 2,746 $ 34,701 2023 2022 2021 Nightclubs $ 73,187 $ 82,798 $ 43,815 Bombshells 6,502 11,504 13,264 Other (1,446) 57 35 Corporate (26,759) (22,900) (18,566) $ 51,484 $ 71,459 $ 38,548 31.9%30.9%, 14.8%40.1%, and 34.1%31.9% in 2021, 2020,2023, 2022, and 2019, respectively, primarily due to the impact of the COVID-19 pandemic in 2020 and the closure of underperforming units, fixed expense leverage on increasing sales, and impairment of assets of $13.6 million, $10.4 million, and $5.9 million for 2021, 2020, and 2019, respectively.2021. Bombshells operating margin was 23.4%11.7%, 21.4%19.2%, and 7.5%23.4% in 2023, 2022, and 2021, 2020, and 2019, respectively, mainly due to two new units and same-store sales increase in 2021, partially offset by COVID-19 impact in 2020, and pre-opening expenses in 2019 (particularly in salaries and wages and selling, general and administrative expenses.
respectively.3235.41.2023 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 73,187 $ 6,502 $ (1,446) $ (26,759) $ 51,484 Amortization of intangibles 2,497 530 484 17 3,528 Settlement of lawsuits 3,552 207 — — 3,759 Impairment of assets 11,815 — 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 margin 30.9 % 11.7 % (109.6) % (9.1) % 17.5 % Non-GAAP operating margin 38.1 % 13.1 % (11.2) % (8.2) % 24.9 % For the Year Ended September 30, 2021 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 43,815 $ 13,264 $ 35 $ (18,566 ) $ 38,548 Amortization of intangibles 187 14 57 - 258 Settlement of lawsuits 275 59 5 1,010 1,349 Impairment of assets 13,612 - - - 13,612 Costs and charges related to debt refinancing 17 - - 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 margin 31.9 % 23.4 % 2.7 % (9.5 )% 19.7 % Non-GAAP operating margin 40.9 % 23.7 % 7.5 % (9.0 )% 26.7 % For the Year Ended September 30, 2020 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 13,056 $ 9,237 $ (614 ) $ (18,933 ) $ 2,746 Amortization of intangibles 211 15 383 - 609 Settlement of lawsuits 174 - - - 174 Impairment of assets 10,370 245 - - 10,615 Loss (gain) on sale of businesses and assets (639 ) 16 - (38 ) (661 ) Loss (gain) on insurance 433 - - (13 ) 420 Non-GAAP operating income (loss) $ 23,605 $ 9,513 $ (231 ) $ (18,984 ) $ 13,903 GAAP operating margin 14.8 % 21.4 % (83.1 )% (14.3 )% 2.1 % Non-GAAP operating margin 26.7 % 22.0 % (31.3 )% (14.3 )% 10.5 % For the Year Ended September 30, 2019 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 50,724 $ 2,307 $ (309 ) $ (18,021 ) $ 34,701 Amortization of intangibles - 624 Settlement of lawsuits 169 3 - 53 225 Impairment of assets 5,920 - - 120 6,040 Loss (gain) on sale of businesses and assets (2,858 ) 27 - (46 ) (2,877 ) Gain on insurance (654 ) - - (114 ) (768 ) Non-GAAP operating income (loss) $ 53,531 $ 2,348 $ 74 $ (18,008 ) $ 37,945 GAAP operating margin 34.1 % 7.5 % (19.0 )% (10.0 )% 19.2 % Non-GAAP operating margin 36.0 % 7.6 % 4.6 % (9.9 )% 21.0 % 2022 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 82,798 $ 11,504 $ 57 $ (22,900) $ 71,459 Amortization of intangibles 2,042 6 61 9 2,118 Settlement of lawsuits 1,287 18 — 112 1,417 Impairment of assets 1,238 650 — — 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 margin 40.1 % 19.2 % 3.9 % (8.6) % 26.7 % Non-GAAP operating margin 41.2 % 20.4 % 8.2 % (7.8) % 28.5 % 2021 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 43,815 $ 13,264 $ 35 $ (18,566) $ 38,548 Amortization of intangibles 187 14 57 — 258 Settlement of lawsuits 275 59 5 1,010 1,349 Impairment of assets 13,612 — — — 13,612 Costs and charges related to debt refinancing 17 — — 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 margin 31.9 % 23.4 % 2.7 % (9.5) % 19.7 % Non-GAAP operating margin 40.9 % 23.7 % 7.5 % (9.0) % 26.7 % $181,000approximately $4.0 million from 20202022 to 2023 and by approximately $2.0 million from 2021 and decreased by $398,000 from 2019 to 2020.2022. The net increase in interest expense in 2021 was primarily caused by the expensed loan costs and written off unamortized debt issuance costs related to the September 2021 Refinancing Note (see Note 9 to our consolidated financial statements), partially offset by the impact of a lowersignificantly higher average debt balance. The decrease in interest expense in 2020 was primarily duebalance from borrowings to the lower average debt balance. During 2019,finance our debt repayments were significantly higher than our borrowing, excluding borrowings from acquisitions, thereby reducing interest expense as a percentage of revenue. During 2020, with the onset of the COVID-19 pandemic, certain debt principal and interest payments were deferred, but we continue to accrue interest on these debts. At the end of 2021, we refinanced several of our existing bank and seller-financed real estate debt with the issuance of a $99.1 million 5.25% note with a term of 10 years.
acquisitions.33rentlease plus interest expense as our occupancy costs since most of our debts are for real properties where our clubs and restaurants are located. For occupancy cost purposes, we exclude non-real-estate-related interest expense. Total occupancy cost rate (total occupancy cost as a percentage of revenues) increasedis shown in 2020 due to lower sales activity caused by the pandemic as showntable below. 2021 2020 2019 Rent 2.0 % 3.1 % 2.2 % Interest 4.8 % 7.4 % 5.6 % Total occupancy cost 6.8 % 10.5 % 7.8 % 2023 2022 2021 Lease 2.5 % 2.5 % 2.0 % Interest 5.4 % 4.5 % 4.8 % Total occupancy cost 7.9 % 7.0 % 6.8 % 98 to our consolidated financial statements.taxes were antax expense ofwas approximately $6.8 million in 2023, $14.1 million in 2022, and $4.0 million in 2021, a benefit of $493,000 in 2020, and an expense of $3.7 million in 2019.2021. Our effective income tax rate was a19.0% in 2023, 23.4% expense in 2022, and 11.7% expense in 2021, 7.2% benefit in 2020, and a 15.5% expense in 2019.2021. The components of our annual effective income tax rate are the following: 2021 2020 2019 Federal statutory income tax expense/benefit 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 2.1 % (3.7 )% 2.8 % Permanent differences (1.3 )% (5.8 )% 0.2 % Change in state tax rate (2.4 )% - - Change in valuation allowance (1.9 )% (18.7 )% - Tax credits (3.5 )% 13.9 % (3.7 )% Other (2.4 )% 0.6 % (4.8 )% Total effective income tax rate 11.7 % 7.2 % 15.5 % * Positive or negative percentages are in relation to income or loss before income taxes of the respective fiscal year. Percentages may not foot due to rounding.2023 2022 2021 Federal statutory income tax expense/benefit 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 4.5 % 3.0 % 2.1 % Permanent differences 1.7 % 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 rate 19.0 % 23.4 % 11.7 % The effective income tax rate for fiscal 2020 was also affected by the pre-tax loss mostly caused by the pandemic and the changes in the deferred tax asset valuation allowance in fiscal 2021 and 2020.34and (f) costs and charges related to debt refinancing.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.costs and charges related to debt refinancing, (d) gains or losses on sale of businesses and assets, (e)(d) gains or losses on insurance, (f)(e) unrealized loss on equity securities, (g)(f) settlement of lawsuits, (h)(g) gain on debt extinguishment, (i)(h) costs and charges related to debt refinancing, (i) stock-based compensation, (j) the income tax effect of the above-described adjustments, and (k) change in deferred tax asset valuation allowance. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 13.5%20.6%, 26.0%22.8%, and 15.5%13.5% effective tax rate of the pre-tax non-GAAP income before taxes for the 2021, 2020,2023, 2022, and 2019,2021, respectively, and the GAAP income tax expense (benefit).expense. We believe that excluding and including such items help management and investors better understand our operating activities.and (i) gain on debt extinguishment.extinguishment, and (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 used as a target benchmark for our acquisitions of nightclubs.352023 2022 2021 Reconciliation of GAAP net income to Adjusted EBITDA Net income attributable to RCIHH common stockholders $ 29,246 $ 46,041 $ 30,336 Income tax expense 6,846 14,071 3,989 Interest expense, net 15,538 11,539 9,739 Settlement of lawsuits 3,759 1,417 1,349 Impairment of assets 12,629 1,888 13,612 Gain on sale of businesses and assets (682) (2,375) (522) Depreciation and amortization 15,151 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 compensation 2,588 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 intangibles 3,528 2,118 258 Settlement of lawsuits 3,759 1,417 1,349 Impairment of assets 12,629 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 compensation 2,588 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 For the Year Ended September 30, 2021 2020 2019 Reconciliation of GAAP net income (loss) to Adjusted EBITDA Net income (loss) attributable to RCIHH common stockholders $ 30,336 $ (6,085 ) $ 20,294 Income tax expense (benefit) 3,989 (493 ) 3,744 Interest expense, net 9,739 9,487 9,900 Settlement of lawsuits 1,349 174 225 Impairment of assets 13,612 10,615 6,040 Gain on sale of businesses and assets (522 ) (661 ) (2,877 ) Depreciation and amortization 8,238 8,836 9,072 Unrealized loss on equity securities 84 64 612 Gain on debt extinguishment (5,329 ) - - Loss (gain) on insurance (1,253 ) 420 (768 ) Adjusted EBITDA $ 60,243 $ 22,357 $ 46,242 Reconciliation of GAAP net income (loss) to non-GAAP net income Net income (loss) attributable to RCIHH common stockholders $ 30,336 $ (6,085 ) $ 20,294 Amortization of intangibles 258 609 624 Settlement of lawsuits 1,349 174 225 Impairment of assets 13,612 10,615 6,040 Gain on sale of businesses and assets (522 ) (661 ) (2,877 ) Costs and charges related to debt refinancing** 694 - - Unrealized loss on equity securities 84 64 612 Gain on debt extinguishment (5,329 ) - - Loss (gain) on insurance (1,253 ) 420 (768 ) Change in deferred tax asset valuation allowance (632 ) 1,273 - Net income tax effect (1,845 ) (1,700 ) (580 ) Non-GAAP net income $ 36,752 $ 4,709 $ 23,570 For the Year Ended September 30, 2021 2020 2019 Reconciliation of GAAP diluted earnings (loss) per share to non-GAAP diluted earnings per share Diluted shares 9,005 9,199 9,657 GAAP diluted earnings (loss) per share $ 3.37 $ (0.66 ) $ 2.10 Amortization of intangibles 0.03 0.07 0.06 Settlement of lawsuits 0.15 0.02 0.02 Impairment of assets 1.51 1.15 0.63 Gain on sale of businesses and assets (0.06 ) (0.07 ) (0.30 ) Costs and charges related to debt refinancing** 0.08 - - Unrealized loss on equity securities 0.01 0.01 0.06 Gain on debt extinguishment (0.59 ) - - Loss (gain) on insurance (0.14 ) 0.05 (0.08 ) Change in deferred tax asset valuation allowance (0.07 ) 0.14 - Net income tax effect (0.20 ) (0.18 ) (0.05 ) Non-GAAP diluted earnings per share $ 4.08 $ 0.51 $ 2.44 Reconciliation of GAAP operating income to non-GAAP operating income Income from operations $ 38,548 $ 2,746 $ 34,701 Amortization of intangibles 258 609 624 Settlement of lawsuits 1,349 174 225 Impairment of assets 13,612 10,615 6,040 Gain on sale of businesses and assets (522 ) (661 ) (2,877 ) Costs and charges related to debt refinancing** 57 - - Loss (gain) on insurance (1,253 ) 420 (768 ) Non-GAAP operating income $ 52,049 $ 13,903 $ 37,945 Reconciliation of GAAP operating margin to non-GAAP operating margin GAAP operating margin 19.7 % 2.1 % 19.2 % Amortization of intangibles 0.1 % 0.5 % 0.3 % Settlement of lawsuits 0.7 % 0.1 % 0.1 % Impairment of assets 7.0 % 8.0 % 3.3 % Gain on sale of businesses and assets (0.3 )% (0.5 )% (1.6 )% Costs and charges related to debt refinancing** 0.0 % - - Loss (gain) on insurance (0.6 )% 0.3 % (0.4 )% Non-GAAP operating margin 26.7 % 10.5 % 21.0 % * Per share amounts and percentages may not foot due to rounding.** Costs and charges related to debt refinancing consistTable 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.Contents2023 2022 2021 Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share Diluted shares 9,335,983 9,383,445 9,004,744 GAAP diluted earnings per share $ 3.13 $ 4.91 $ 3.37 Amortization of intangibles 0.38 0.23 0.03 Settlement of lawsuits 0.40 0.15 0.15 Impairment of assets 1.35 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 compensation 0.28 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 intangibles 3,528 2,118 258 Settlement of lawsuits 3,759 1,417 1,349 Impairment of assets 12,629 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 compensation 2,588 2,353 — Non-GAAP operating income $ 73,229 $ 76,397 $ 52,049 2023 2022 2021 Reconciliation of GAAP operating margin to non-GAAP operating margin GAAP operating margin 17.5 % 26.7 % 19.7 % Amortization of intangibles 1.2 % 0.8 % 0.1 % Settlement of lawsuits 1.3 % 0.5 % 0.7 % Impairment of assets 4.3 % 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 compensation 0.9 % 0.9 % — % Non-GAAP operating margin 24.9 % 28.5 % 26.7 % * 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. 362021,2023, our cash and cash equivalents were approximately $35.7$21.0 million as compared to $15.6$36.0 million at September 30, 2020.2022. Because of the large volume of cash we handle, we have very stringent cash controls. As of September 30, 2021,2023, we had negative working capital of $26.1$10.5 million compared to a negative working capital of $5.9$18.6 million as of September 30, 2020,2022, excluding net assets held for sale (net of associated liabilities of $1.1 million and $0, respectively) amounting to $3.8$0 and $1.0 million and $0 as of September 30, 20212023 and 2020,2022, respectively. Although we believe that our ability to generate cash from operating activities is one of our fundamental financial strengths, the temporary closure of our clubs and restaurants caused by the COVID-19 pandemic presented operational challenges. Our strategy was to open locations and operate in accordance with local and state guidelines. Revenues seem favorable now that all our locations are not under pandemic-related closure mandates. We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms.In fiscal 2020, to adapt to the situation, we took significant steps to augment an anticipated decline in operating cash flows, including negotiating deferment of some of our debts, reducing the number of our employees and related payroll costs where necessary, and deferring or modifying certain fixed and variable monthly expenses, among others.On May 8, 2020, the Company received approval and funding under the Paycheck Protection Program of the CARES Act for its restaurants, shared service entity and lounge. Ten of our restaurant subsidiaries received amounts ranging from $271,000 to $579,000 for an aggregate amount of $4.2 million; our shared-services subsidiary received $1.1 million; and one of our lounges received $124,000. None of our adult nightclub and other non-core business subsidiaries received funding under the PPP. The Company believes it used the entire loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company utilized all of the PPP funds and submitted its forgiveness applications. During the year ended September 30, 2021, 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 in principal and interest during the period and were included in non-operating gains (losses), net in our consolidated statement of operations. 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 will be repaid as debt plus accrued interest.As of the release of this report, we do not know the future extent and duration of the impact of COVID-19 on our businesses. Closures and operating restrictions, as caused by local, state and national guidelines, could lead to adverse financial results. However, we will continually monitor and evaluate our cash flow situation and will determine any further measures to be instituted.We continue to adhere to state and local government mandates regarding the pandemic and, since March 2020, have closed and reopened a number of our locations depending on changing government mandates, including operating hour and limited occupancy restrictions, where applicable. Currently, all of our locations are open except two clubs that are being renovated and/or remodeled.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 have secured traditional bank financing on our new development projects and refinancing of our existing notes payable, but with the significant global impact of the COVID-19 pandemic, therepayable. There can be no assurance though that any of these financing options would be presently available on favorable terms, if at all. We also have historically utilized these cash flows to invest in property and equipment, adult nightclubs, and restaurants/sports bars.On October 18, 2021,and certain of our subsidiaries completed ouracquired six clubs at an aggregate acquisition of eleven gentlemen’s clubs, six related real estate properties, and associated intellectual property for a total agreed acquisition price of $88.0 million (with a total consideration preliminarydate fair value of $88.4$72.3 million, based on the Company’s stock price atof which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and $16.0 million in equity (200,000 shares of our common stock with an acquisition date fair value of $12.8 million, discounted for lack of marketability due to the lock-up period). Thegives the Company presencedate fair value of $132.6 million, of which $55.3 million was in six additional states. We paid for the acquisition with $36.8cash, $49.0 million in cash, $21.2debt (with an acquisition date fair value of $47.4 million) and $30.0 million in four seller-financed notes, and 500,000equity (500,000 shares of our common stock. Year Ended September 30, 2021 2020 2019 Operating activities $ 41,991 $ 15,632 $ 37,174 Investing activities (6,814 ) (994 ) (27,147 ) Financing activities (15,096 ) (13,130 ) (13,656 ) Net increase (decrease) in cash and cash equivalents $ 20,081 $ 1,508 $ (3,629 ) 2023 2022 2021 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 37 Year Ended September 30, 2021 2020 2019 Net income (loss) $ 30,150 $ (6,312 ) $ 20,445 Depreciation and amortization 8,238 8,836 9,072 Deferred tax expense (benefit) (1,253 ) (1,268 ) 821 Impairment of assets 13,612 10,615 6,040 Gain on debt extinguishment ) - - Net change in operating assets and liabilities (3,451 ) 1,380 2,822 Other (7 ) 2,381 (2,026 ) Net cash provided by operating activities $ 41,991 $ 15,632 $ 37,174 2023 2022 2021 Net income $ 29,100 $ 46,060 $ 30,150 Depreciation and amortization 15,151 12,391 8,238 Deferred tax expense (benefit) (1,781) 3,080 (1,253) Stock-based compensation expense 2,588 2,353 — Impairment of assets 12,629 1,888 13,612 Gain on debt extinguishment — (83) (5,298) Net change in operating assets and liabilities (1,203) (1,421) (3,451) Other 2,646 241 (7) Net cash provided by operating activities $ 59,130 $ 64,509 $ 41,991 increaseddecreased from 20202022 to 20212023 mainly due to significantlythe lower same-store sales and the higher income from operationsinterest expense paid, partially offset by higher interest payments, which included deferred debt interest payments from 2020, and higherthe lower income taxes paid. Net cash flows from operating activities significantly decreased in 2020increased from 2021 to 2022 mainly due to the impactoperating results of the COVID-19 pandemicfifteen acquired clubs and one Bombshells opened.operationsdebts 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.partially offset by lower interest and income taxes paid.thereafter. Year Ended September 30, 2021 2020 2019 Proceeds from sale of businesses and assets $ 5,415 $ 2,221 $ 7,223 Proceeds from insurance and notes receivable 1,282 2,521 258 Issuance of notes receivable - - (420 ) Payments for property and equipment and intangible assets (13,511 ) (5,736 ) (20,708 ) Acquisition of businesses, net of cash acquired - - (13,500 ) Net cash used in investing activities $ (6,814 ) $ (994 ) $ (27,147 ) 2023 2022 2021 Proceeds from sale of businesses and assets $ 4,245 $ 10,669 $ 5,415 Proceeds from notes receivable 229 182 130 Proceeds from insurance 86 648 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 2019, we opened four new units (acquired two clubs in Chicago, Illinois and Pittsburgh, Pennsylvania, and built two new Bombshells in Houston, Texas) and seven real estate properties sold. 2021, 2020,2023, 2022, and 2019,2021, we had $3.4$7.7 million, $20,000,$1.5 million, and $8.9$3.4 million in construction-in-progress related mostly to Bombshells opening in the subsequent fiscal year. In 2019, we acquired two clubs (one in Pittsburgh and another in Chicago) where we paid a total of $13.5 million at closing. years.1514 to our consolidated financial statements.2021, 2020,2023, 2022, and 20192021 (in thousands): Year Ended September 30, 2021 2020 2019 New capital expenditures in new clubs and Bombshells units and equipment* $ 7,604 $ 3,585 $ 16,850 Maintenance capital expenditures 5,907 2,151 3,858 Total capital expenditures, excluding business acquisitions $ 13,511 $ 5,736 $ 20,708 2023 2022 2021 New capital expenditures in new clubs and Bombshells units and equipment* $ 34,430 $ 18,405 $ 7,604 Maintenance capital expenditures 5,954 5,598 5,907 Total capital expenditures, excluding business acquisitions $ 40,384 $ 24,003 $ 13,511 See discussionacquisitions subsequent$35.0 million to September 30, 2021$40.0 million in Note 152024, $6.0 million to our consolidated financial statements, the most significant$8.0 million of which isrelate to maintenance capital expenditures to support our acquisition of elevenexisting clubs on October 18, 2021 for which part of the total acquisition price was paid with $36.8 million in cash at closing.
and restaurants and our corporate office.382023 2022 2021 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) Year Ended September 30, 2021 2020 2019 Proceeds from long-term debt $ 38,490 $ 6,503 $ 13,511 Payments on long-term debt (49,178 ) (8,832 ) (22,924 ) Payment of dividends (1,440 ) (1,286 ) (1,252 ) Purchase of treasury stock (1,794 ) (9,484 ) (2,901 ) Payment of loan origination costs (1,174 ) - (20 ) Distribution to noncontrolling interests - (31 ) (70 ) Net cash used in financing activities $ (15,096 ) $ (13,130 ) $ (13,656 ) 98 to our consolidated financial statements for a detailed discussion of our debt obligations.516,102 shares,in 2023, 2022, and 128,040 shares in 2021, 2020, and 2019, respectively. We paid quarterly dividends of $0.03 per share in fiscal 2020 and 2019, except for the fourth quarter of 2019 and the second and fourth quarter of 2020 where we paid $0.04 per share. We paid quarterly dividends of $0.04 per share in fiscal 2021.Managementusesuse certain non-GAAP cash flow measures, such as free cash flow. We define free cash flow as net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy. See table below (in thousands):2023 2022 2021 Net cash provided by operating activities $ 59,130 $ 64,509 $ 41,991 Less: Maintenance capital expenditures 5,954 5,598 5,907 Free cash flow $ 53,176 $ 58,911 $ 36,084 As a % of revenue 18.1 % 22.0 % 18.5 % 2021 2020 2019 Net cash provided by operating activities $ 41,991 $ 15,632 $ 37,174 Less: Maintenance capital expenditures 5,907 2,151 3,858 Free cash flow $ 36,084 $ 13,481 $ 33,316 Debt FinancingSignificant financing activities were as follows:●$99.1 million bank refinancing loan on September 30, 2021●$17.0 million borrowings from private investors on October 12, 2021 (subsequent to year-end)●$21.2 million seller-financed notes related to the October 18, 2021 acquisition (subsequent to year-end)See Note 9 to our consolidated financial statements for more details regarding our debt activity.39Contractual Obligations and CommitmentsWe have long-term 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 debt were estimated using the interest rate in effect as of September 30, 2021. Payments Due by Period Total 2022 2023 2024 2025 2026 Thereafter Long-term debt – regular(a) $ 60,843 $ 6,625 $ 4,825 $ 5,094 $ 5,409 $ 5,745 $ 33,145 Long-term debt – balloon(a) 65,953 - 3,676 - - - 62,277 Interest payments on debt 52,213 6,933 6,324 5,996 5,681 5,345 21,934 Operating leases(b) 36,766 3,296 3,173 3,177 3,245 3,304 20,571 (a)See Note 9 to our consolidated financial statements.(b)See Note 19 to our consolidated financial statements.potentially prolongedimpact of uncertainties caused by near-term macro environment, including commodity and labor inflation and the lingering effect of the COVID-19 pandemic, and the notes payable financingcontractual obligations described above, we are not aware of any event or trend that would adversely impact our liquidity. In our opinion, working capital is not a true indicator of our financial status. 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 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. Increase Increase 2021 (Decrease) 2020 (Decrease) 2019 Sales of alcoholic beverages $ 86,685 46.7 % $ 59,080 (21.4 )% $ 75,140 Sales of food and merchandise 41,111 68.1 % 24,460 (5.3 )% 25,830 Service revenues 55,461 34.7 % 41,162 (39.5 )% 68,055 Other 12,001 57.4 % 7,625 (36.6 )% 12,034 Total revenues $ 195,258 47.6 % $ 132,327 (26.9 )% $ 181,059 Net cash provided by operating activities $ 41,991 168.6 % $ 15,632 (57.9 )% $ 37,174 Adjusted EBITDA* $ 60,243 169.5 % $ 22,357 (51.7 )% $ 46,242 Free cash flow* $ 36,084 167.7 % $ 13,481 (59.5 )% $ 33,316 Debt (end of period) $ 125,168 (11.5 )% $ 141,435 (1.5 )% $ 143,528 2023 Inc (Dec) 2022 Inc (Dec) 2021 Sales of alcoholic beverages $ 127,262 12.3 % $ 113,316 30.7 % $ 86,685 Sales of food and merchandise 43,906 (0.9) % 44,294 7.7 % 41,111 Service revenues 103,577 10.3 % 93,888 69.3 % 55,461 Other revenues 19,045 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 4098 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.Boardboard of Directors.directors. During fiscal years 2021, 2020,2023, 2022, and 2019,2021, we paid for treasury stock amounting to $2.2 million, $15.1 million, and $1.8 million, $9.5 million, and $2.9 million representing 74,65934,086 shares, 516,102268,185 shares, and 128,04074,659 shares, respectively. On February 6, 2020,May 24, 2022, the Boardboard of Directors increaseddirectors approved a $25.0 million increase in the Company's share repurchase authorization by an additional $10.0 million.program. We have approximately $9.0$16.6 million remaining to purchase additional shares as of September 30, 2021., but in fiscal 2020, due to the COVID-19 pandemic, revenues during the second through the fourth quarter were significantly reduced.. Our revenues in certain markets are also affected by sporting events that cause unusual changes in sales from year to year.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.tentwelve of the existing Bombshells as of September 30, 20212023 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.41During fiscal 2019,Recovering from the COVID-19 pandemic, we acquired twodid not acquire any clubs one in Illinois (rebranded as Rick’s Cabaret Chicago) and another in Pennsylvania (rebranded as Rick’s Cabaret Pittsburgh) for an aggregate purchase price of $25.5 million. See Note 15 to the consolidated financial statements for details of the transactions.We opened twonor open any new Bombshells units in fiscal 2019.October 2018, the Company sold its nightclub in Philadelphia for a total sales price of $1.0 million, payable $375,000 in cash at closing and a 9% note payable over a 10-year period. See Note 15 to the consolidated financial statements for details of the disposition.We opened two new Bombshells units in fiscal 2020.On October 18, 2021,2022, we and certain of our subsidiaries completed ouracquired fifteen clubs with an aggregate acquisition of eleven gentlemen’s clubs, six related real estate properties, and associated intellectual property for a total agreed acquisition price of $88.0 million (with a total consideration preliminarydate fair value of $88.4$132.6 million, based on the Company’s stock price atof which $55.3 million in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million), and discounted due to the lock-up period). See Note 15 to500,000 shares of our consolidated financial statements for details of the transaction.On November 8, 2021, the Company acquired a club and related real estatecommon stock in Newburgh, New York for a total purchase price of $3.5 million, by 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 rate of 4.0% per annum. The note is payable $13,669 per month, including principal and interest. See Note 15 to our consolidated financial statements.In December 2021, weequity. We also opened a new Bombshells location in Arlington, Texas.do not carry any debt with ahave certain debts that have variable interest raterates in effect as of September 30, 2021. Certain of our debt have variable2023. An increase in interest rates but will only be effective in the future years.43.
49.42FirmFirms (Marcum LLP, Firm ID: 688; Friedman LLP, Firm ID: 711)445045544655Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, 2021, 2020, and 20194748564957505943and Stockholders ofsheetssheet of RCI Hospitality Holdings, Inc. (the “Company”) as of September 30, 2021 and 2020, and2023, the related consolidated statements of operations, comprehensive income, (loss), changes in equity, and cash flows for each of the years in the three-year periodyear ended September 30, 2021,2023, and the related notes and schedule (collectively(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, 2021 and 2020,2023, and the results of its operations and its cash flows for each of the years in the three-year periodyear ended September 30, 2021,2023, in conformity with accounting principles generally accepted in the United States of America.(“PCAOB”("PCAOB"), the Company’sCompany's internal control over financial reporting as of September 30, 2021,2023, based onthe criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (COSO) in 2013and our report dated December 14, 2021 2023,expressed an adverse opinion.opinion on the effectiveness of the Company’s internal control over financial reporting because of the existence of material weaknesses.Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany'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.auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our auditsaudit 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 auditsaudit 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 provideaudit provides a reasonable basis for our opinion.MatterMattersmattermatters communicated below is a matterare matters arising from the current period audit of the consolidated financial statements that waswere communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit mattermatters 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 mattermatters below, providing a separate opinionopinions on the critical audit mattermatters or on the accounts or disclosures to which it relates.assetsasset groups to the future undiscounted cash flows expected to be generated by the assets.asset groups. If these assets are2021,2023, the Company had goodwill of approximately $39.4$70.8 million, and indefinite-lived intangible assets of approximately $67.4$155.5 million. Long-lived assets consisted of property and equipment, net,right of use assets, and intangible assets subject to amortization and right of use assets, net, totaling approximately $200.7$341.2 million. During the year ended September 30, 20212023 the Company recorded an impairment of these assets of approximately $13.6$12.6 million.and operating cash flows including consideration ofand the impact of COVID-19. and tested the operating effectiveness 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. Additionally, we:These procedures also included, among others, (1) comparedtesting management’s process for developing the Company’s historical projected operating location-levelfair 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.actual operating location-levelconsolidated 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.flowsflows. Management applied significant judgment in 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 assess management’s ability to accurately estimate, (2) compared the Company’s estimatedrate of future revenue growth, ratesprofitability of the acquired business and the discount rate, among other factors. In addition, the discount for lack of marketability applied to the historical trendscommon stock consideration was estimated based on an analysis of restricted stock studies, empirical data for discounts, and quantitative models.locationseffectiveness 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 bycomparedDeveloping an independent point estimate for the Company’s projected operating locationconsideration.; and (4) Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the discounted cash flows as a percentageflow models, the reasonableness of revenue to historical actual percentages.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.FriedmanMarcum LLP2019.2021
202344per share data) September 30, 2021 2020 ASSETS Current assets Cash and cash equivalents $ 35,686 $ 15,605 Accounts receivable, net 6,767 Current portion of notes receivable 220 201 Inventories 2,659 2,372 Prepaid expenses and other current assets 1,928 6,488 Assets held for sale 4,887 - Total current assets 31,433 Property and equipment, net 175,952 181,383 Operating lease right-of-use assets, net 24,308 25,546 Notes receivable, net of current portion 2,839 2,908 Goodwill 39,379 45,686 Intangibles, net 67,824 73,077 Other assets 1,367 900 Total assets $ 364,619 $ 360,933 LIABILITIES AND EQUITY Current liabilities Accounts payable $ 4,408 $ 4,799 Accrued liabilities 10,403 14,573 Current portion of long-term debt 6,434 16,304 Current portion of operating lease liabilities 1,780 1,628 Total current liabilities 23,025 37,304 Deferred tax liability, net 19,137 20,390 Debt, net of current portion and debt discount and issuance costs 118,734 125,131 Operating lease liabilities, net of current portion 24,150 25,439 Other long-term liabilities 350 362 Total liabilities 208,626 Commitments and contingencies (Note 11) - - Equity Preferred stock, $ par value per share; shares authorized; issued and outstanding - - Common stock, $ par value per share; shares authorized; shares and shares issued and outstanding as of September 30, 2021 and 2020, respectively 90 91 Additional paid-in capital 50,040 51,833 Retained earnings 100,797 Total RCIHH stockholders’ equity 152,721 Noncontrolling interests (600 ) (414 ) Total equity 179,223 152,307 Total liabilities and equity $ 364,619 $ 360,933 September 30, 2023 2022 ASSETS Current assets Cash and cash equivalents $ 21,023 $ 35,980 Accounts receivable, net 9,846 8,510 Current portion of notes receivable 249 230 Inventories 4,412 3,893 Prepaid expenses and other current assets 1,943 1,499 Assets held for sale — 1,049 Total current assets 37,473 51,161 Property and equipment, net 282,705 224,615 Operating lease right-of-use assets, net 34,931 37,048 Notes receivable, net of current portion 4,443 4,691 Goodwill 70,772 67,767 Intangibles, net 179,145 144,049 Other assets 1,415 1,407 Total assets $ 610,884 $ 530,738 LIABILITIES AND EQUITY Current liabilities Accounts payable $ 6,111 $ 5,482 Accrued liabilities 16,051 11,328 Current portion of debt obligations, net 22,843 11,896 Current portion of operating lease liabilities 2,977 2,795 Total current liabilities 47,982 31,501 Deferred tax liability, net 29,143 30,562 Debt, net of current portion and debt discount and issuance costs 216,908 190,567 Operating lease liabilities, net of current portion 35,175 36,001 Other long-term liabilities 352 349 Total liabilities 329,560 288,980 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, respectively 94 92 Additional paid-in capital 80,437 67,227 Retained earnings 201,050 173,950 Total RCIHH stockholders’ equity 281,581 241,269 Noncontrolling interests (257) 489 Total equity 281,324 241,758 Total liabilities and equity $ 610,884 $ 530,738 45OPERATIONS Years Ended September 30, 2021 2020 2019 Revenues Sales of alcoholic beverages $ 86,685 $ 59,080 $ 75,140 Sales of food and merchandise 41,111 24,460 25,830 Service revenues 55,461 41,162 68,055 Other 12,001 7,625 12,034 Total revenues 195,258 132,327 181,059 Operating expenses Cost of goods sold Alcoholic beverages sold 15,883 11,097 15,303 Food and merchandise sold 13,794 8,071 9,056 Service and other 374 267 578 Total cost of goods sold (exclusive of items shown separately below) 30,051 19,435 24,937 Salaries and wages 50,627 39,070 49,833 Selling, general and administrative 54,608 51,692 59,896 Depreciation and amortization 8,238 8,836 9,072 Other charges, net 13,186 10,548 2,620 Total operating expenses 156,710 129,581 146,358 Income from operations 38,548 2,746 34,701 Other income (expenses) Interest expense (9,992 ) (9,811 ) (10,209 ) Interest income 253 324 309 Non-operating gains (losses), net 5,330 (64 ) (612 ) Income (loss) before income taxes 34,139 (6,805 ) 24,189 Income tax expense (benefit) 3,989 (493 ) 3,744 Net income (loss) (6,312 ) 20,445 Net loss (income) attributable to noncontrolling interests 186 227 (151 ) Net income (loss) attributable to RCIHH common stockholders $ $ (6,085 ) $ 20,294 Earnings (loss) per share Basic and diluted $ $ (0.66 ) $ 2.10 Weighted average number of common shares outstanding Basic and diluted 9,005 9,199 9,657 Dividends per share $ 0.16 $ 0.14 $ 0.13 Years Ended September 30, 2023 2022 2021 Revenues Sales of alcoholic beverages $ 127,262 $ 113,316 $ 86,685 Sales of food and merchandise 43,906 44,294 41,111 Service revenues 103,577 93,888 55,461 Other 19,045 16,122 12,001 Total revenues 293,790 267,620 195,258 Operating expenses Cost of goods sold Alcoholic beverages sold 23,291 20,155 15,883 Food and merchandise sold 15,429 15,537 13,794 Service and other 282 317 374 Total cost of goods sold (exclusive of items shown separately below) 39,002 36,009 30,051 Salaries and wages 79,500 68,447 50,627 Selling, general and administrative 93,024 78,847 54,608 Depreciation and amortization 15,151 12,391 8,238 Other charges, net 15,629 467 13,186 Total operating expenses 242,306 196,161 156,710 Income from operations 51,484 71,459 38,548 Other income (expenses) Interest expense (15,926) (11,950) (9,992) Interest income 388 411 253 Non-operating gains, net — 211 5,330 Income before income taxes 35,946 60,131 34,139 Income tax expense 6,846 14,071 3,989 Net income 29,100 46,060 30,150 Net loss (income) attributable to noncontrolling interests 146 (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 diluted 9,335,983 9,383,445 9,004,744 Dividends per share $ 0.23 $ 0.19 $ 0.16 46COMPREHENSIVE INCOME (LOSS)thousands) 2021 2020 2019 Years Ended September 30, 2021 2020 2019 Net income (loss) $ 30,150 $ (6,312 ) $ 20,445 Amount reclassified from accumulated other comprehensive income - - (220 ) Comprehensive income (loss) (6,312 ) 20,225 Comprehensive loss (income) attributable to noncontrolling interests 186 227 (151 ) Comprehensive income (loss) attributable to RCI Hospitality Holdings, Inc. $ $ (6,085 ) $ 20,074 Common Stock Additional
Paid-In
CapitalRetained
EarningsTreasury Stock Noncontrolling
InterestsTotal
EquityNumber
of SharesAmount Number
of SharesAmount Balance at September 30, 2020 9,074,569 $ 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) — 74,569 1,794 — — Payment of dividends — — — (1,440) — — — (1,440) Net income (loss) — — — 30,336 — — (186) 30,150 Balance at September 30, 2021 8,999,910 90 50,040 129,693 — — (600) 179,223 Issuance of common shares for business combination 500,000 5 29,928 — — — — 29,933 Purchase of treasury shares — — — — (268,185) (15,097) — (15,097) Canceled treasury shares (268,185) (3) (15,094) — 268,185 15,097 — — 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, 2022 9,231,725 92 67,227 173,950 — — 489 241,758 Issuance of common shares for business combination 200,000 2 12,845 — — — — 12,847 Purchase of treasury shares — — — — (34,086) (2,223) — (2,223) Canceled treasury shares (34,086) — (2,223) — 34,086 2,223 — — Payment of dividends — — — (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, 2023 9,397,639 $ 94 $ 80,437 $ 201,050 — $ — $ (257) $ 281,324 47CHANGES IN EQUITYYears Ended September 30, 2021, 2020, and 2019Years Ended September 30, 2023 2022 2021 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 amortization 15,151 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 assets 12,629 1,888 13,612 Amortization and writeoff of debt discount and issuance costs 615 314 311 Doubtful accounts expense (reversal) on notes receivable — 753 (80) Unrealized loss on equity securities — — 84 Gain on insurance (77) (463) (1,337) Noncash lease expense 2,978 2,607 1,729 Stock-based compensation expense 2,588 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) Inventories 177 (554) (287) Prepaid expenses, other current, and other assets (366) 387 4,120 Accounts payable, accrued, and other liabilities 1,369 (1,079) (6,515) Net cash provided by operating activities 59,130 64,509 41,991 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of businesses and assets 4,245 10,669 5,415 Proceeds from notes receivable 229 182 130 Proceeds from insurance 86 648 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, respectively 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) 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 Common Stock Additional Accumulated
Other Treasury Stock Number Paid-In Retained Comprehensive Number Noncontrolling Total of Shares Amount Capital Earnings Income of Shares Amount Interests Equity Balance at September 30, 2018 9,719 $ 97 $ 64,212 $ 88,906 $ 220 - $ - $ (103 ) $ 153,332 Reclassification upon adoption of ASU 2016-01 - - - 220 (220 ) - - - - Purchase of treasury shares - - - - - (128 ) (2,901 ) - (2,901 ) Canceled treasury shares (128 ) (1 ) (2,900 ) - - 128 2,901 - - Payment of dividends - - - (1,252 ) - - - - (1,252 ) Payments to noncontrolling interests - - - - - - - (70 ) (70 ) Divestiture in other entities - - - - - - - (134 ) (134 ) Net income - - - 20,294 - - - 151 20,445 Balance at September 30, 2019 9,591 96 61,312 108,168 - - - (156 ) 169,420 Purchase of treasury shares - - - - - (516 ) (9,484 ) - (9,484 ) Canceled treasury shares (516 ) (5 ) (9,479 ) - - 516 9,484 - - Payment of dividends - - - (1,286 ) - - - - (1,286 ) Payments to noncontrolling interests - - - - - - - (31 ) (31 ) Net loss - - - (6,085 ) - - - (227 ) (6,312 ) Balance at September 30, 2020 9,075 91 51,833 100,797 - - - (414 ) 152,307 Purchase of treasury shares - - - - - (75 ) (1,794 ) - (1,794 ) Canceled treasury shares (75 ) (1 ) (1,793 ) - - 75 1,794 - - Payment of dividends - - - (1,440 ) - - - - (1,440 ) Net income (loss) - - - - - - (186 ) Balance at September 30, 2021 9,000 $ 90 $ 50,040 $ 129,693 $ - - $ - $ (600 ) $ 179,223 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 35,980 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, 2023 2022 2021 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 shares 200,000 500,000 — 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 $ — 48CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) 2021 2020 2019 Years Ended September 30, 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 30,150 $ (6,312 ) $ 20,445 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 8,238 8,836 9,072 Deferred tax expense (benefit) (1,253 ) (1,268 ) 821 Gain on sale of businesses and assets (714 ) (777 ) (2,966 ) Impairment of assets 13,612 10,615 6,040 Amortization and writeoff of debt discount and issuance costs 311 236 334 Doubtful accounts expense (reversal) on notes receivable (80 ) 602 - Unrealized loss on equity securities 84 64 612 Loss (gain) on insurance (1,337 ) 596 (288 ) Noncash lease expense 1,729 1,660 - Deferred rent expense - - 282 Gain on debt extinguishment (5,298 ) - - Changes in operating assets and liabilities: Accounts receivable (769 ) (294 ) 457 Inventories (287 ) 226 (216 ) Prepaid expenses, other current assets and other assets 4,120 1,633 (681 ) Accounts payable and accrued liabilities (6,515 ) (185 ) 3,262 Net cash provided by operating activities 41,991 15,632 37,174 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of businesses and assets 5,415 2,221 7,223 Proceeds from notes receivable 130 1,576 158 Proceeds from insurance 1,152 945 100 Issuance of notes receivable - - (420 ) Payments for property and equipment and intangible assets (13,511 ) (5,736 ) (20,708 ) Acquisition of businesses, net of cash acquired - - (13,500 ) Net cash used in investing activities (6,814 ) (994 ) (27,147 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 38,490 6,503 13,511 Payments on long-term debt (49,178 ) (8,832 ) (22,924 ) Purchase of treasury stock (1,794 ) (9,484 ) (2,901 ) Payment of dividends (1,440 ) (1,286 ) (1,252 ) Payment of loan origination costs (1,174 ) - (20 ) Distribution to noncontrolling interests - (31 ) (70 ) Net cash used in financing activities (15,096 ) (13,130 ) (13,656 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20,081 1,508 (3,629 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,605 14,097 17,726 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 35,686 $ 15,605 $ 14,097 CASH PAID DURING YEAR FOR: Interest paid, net of amounts capitalized $ 10,362 $ 8,695 $ 9,797 Income taxes paid (net of refunds of $2,201, $153, and $42, in 2021, 2020, and 2019, respectively) $ 5,389 $ 2,200 $ 3,686 Non-cash investing and financing transactions: Years Ended September 30, 2021 2020 2019 Debt incurred with seller in connection with acquisition of businesses $ - $ - $ 12,000 Notes receivable received as proceeds from sale of assets $ - $ - $ 1,775 Accounts receivable converted to notes receivable $ - $ 122 $ - Refinanced long-term debt $ 62,832 $ 11,292 $ 400 Operating lease right-of-use assets established upon adoption of ASC 842 $ - $ 27,310 $ - Deferred rent liabilities reclassified upon adoption of ASC 842 $ - $ 1,241 $ - Operating lease liabilities established upon adoption of ASC 842 $ - $ 28,551 $ - Adjustment to operating lease right-of-use assets and operating lease liabilities related to renewed leases $ 491 $ - $ - Unpaid liabilities on capital expenditures $ 830 $ 29 $ 476 See accompanying notes to consolidated financial statements.49RCI HOSPITALITY HOLDINGS, INC. Aledo, Round Rock, Edinburg, El Paso, Harlingen, Arlington, and Beaumont, Texas, as well as Denver, Colorado; Minneapolis, Minnesota; 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. In relation to acquisitions that closed in October and November 2021, we now have club locations in Denver, Colorado; Louisville, Kentucky; Raleigh, North Carolina; Portland, Maine; Indianapolis, Indiana; Sauget, Illinois; and Newburgh, New York.2021, 2020,2023, 2022, and 20192021 are for fiscal years ended September 30, 2021, 2020,2023, 2022, and 2019,2021, respectively. Our fiscal quarters chronologically end on December 31, March 31, June 30 and September 30.50$382,000$62,000 and $261,000$30,000 as of September 30, 20212023 and 2020,2022, respectively (see Note 5) 4). Allowance for doubtful accounts balance related to notes receivable was $102,000$0 and $182,000$0 as of September 30, 20212023 and 2020,2022, respectively.operationsincome of the respective period. Interest expense from related debt incurred during site construction is capitalized, which amounted to $0$0 in all three fiscal 2021, $156,000 in fiscal 2020, and $597,000 in fiscal 2019.51$6.3$6.3 million. For the year ended September 30, 2020, we identified seven reporting units that were impaired and recognized a goodwill impairment loss totaling $7.9 million. See related discussion in Note 3. For the year ended September 30, 2019, we identified four reporting units that were impaired and recognized a goodwill impairment loss totaling $1.6million.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 $5.3$6.5 million in 2023 related to eight clubs, $293,000 in 2022 related to one club, $5.3 million in 2021 related to three clubs, $2.3 million in 2020 related to two clubs (see Note 3), and $178,000 in 2019 related to one club, which are included in other charges, net in the consolidated statements of operations.$2.0 million; during fiscal 2020, the Company impaired one club and one Bombshells unit for a total of $302,000; and during fiscal 2019, the Company impaired two clubs for a total of $4.2 $2.0 million. The Company also impaired one club in fiscal of 20202023 for operating lease right-of-use assets amounting to $$1.0 million and software amounting to $814,000 related to two venture projects. See 104,000Notes 5 and 18. See Notes 6 and 19.52RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements2. Summary of Significant Accounting Policies - continuedComprehensive Income (Loss)Comprehensive income (loss) is the totalTable of net income or loss and all other changes in net assets arising from non-owner sources, which are referredContentsas itemsConsolidated Financial Statementsother comprehensive income (loss). An analysis of changes in components of accumulated other comprehensive income is presented in the consolidated statements of comprehensive income (loss).operations.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. (ASC 840 in fiscal 2019). 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.operations.income. See Note 5.453RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements2. Summary of Significant Accounting Policies - continued20%20% to 50%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.9)8). The Company will continue to record the loans as debt until either (1) the loans are partially or entirely forgiven and the Company has been legally released from the obligation, at which point the amount forgiven will be recorded as income, or (2) the Company pays off the loans. (Loss) Per Share (loss) 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 (loss) per share reflect the potential dilution of securities that could share in the earnings or losses of the Company. Potential common stock shares consist of shares that may arise from outstanding dilutive common restricted stock, stock options and warrants (the number of which is computed using the treasury stock method) and from outstanding convertible debentures (the number of which is computed using the if-converted method). Diluted earnings (loss) per share considers the potential dilution that could occur if the Company’s outstanding common restricted stock, stock options, warrants and convertible debentures were converted into common stock that then shared in the Company’s earnings or losses (as adjusted for interest expense, that would no longer be incurred if the debentures were converted).2021, 2020,2023, 2022, and 2019,2021, the Company did not have any adjustment items to reconcile the numerator and the denominator in the calculation of basic and diluted earnings (loss) per share.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.critical estimates are volatility, expected life and risk-free rate.At September 30, 2021 and 2020,following table provides the Company has significant assumptions used in determining the estimated grant date fair value of the stock options outstanding, since as of September 30, 2020, the Company’s 2010 Stock Option Plan contractually expired.54Expected term (in years) 4.45 Expected volatility 64.42 % Expected dividend yield 0.20 % Risk-free rate 3.23 % Accounting●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.Unrealized holding gains and losses, net of the related income tax effect, if any, on available-for-sale securities were excluded from income and were reported as accumulated other comprehensive income in equity until our adoption of ASU 2016-01 as of October 1, 2018. Realized gains and losses (and(including unrealized holding gains and losses upon the adoption of ASU 2016-01)losses) from securities classified as available-for-sale are included in comprehensive income (loss).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, which are included in other assets in the consolidated balance sheets, had a balanceless than $1,000Contentsand approximately $84,000 respectively as of September 30, 2021 and 2020.552021, 2020,2023, 2022, and 2019.Fair Value at Reporting Date Using Description September 30,
2023Quoted 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 Description September 30,
2022Quoted 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 Schedule of AssetsCertain assets and Liabilitiesliabilities measured at the acquisition dates.Fair Value on Nonrecurring Basis Fair Value at Reporting Date Using September 30, Quoted Prices in Active Markets for Identical Asset Significant Other Observable Inputs Significant Unobservable Inputs Description 2021 (Level 1) (Level 2) (Level 3) Property and equipment $ 2,044 $ - $ - $ 2,044 Indefinite-lived intangibles - - Goodwill 2,096 - - 2,096 Operating lease right-of-use assets* 491 - - 491 Operating lease liabilities* (491 ) - - (491 ) Asset held for sale 3,007 - 3,007 - *Measured at the lease modification dates. Fair Value at Reporting Date Using September 30, Quoted Prices in Active Markets for Identical Asset Significant Other Observable Inputs Significant Unobservable Inputs Description 2020 (Level 1) (Level 2) (Level 3) Property and equipment $ 6,042 $ - $ - $ 6,042 Indefinite-lived intangibles 656 - - 656 Goodwill 5,883 - - 5,883 Operating lease right-of-use assets** 27,310 - - 27,310 Operating lease liabilities** (28,551 ) - - (28,551 ) Other assets (equity securities) 84 84 - - **Measured at October 1, 2019, upon the adoption of ASC 842.
year-end impairment testing.56 Unrealized Gain (Loss/Impairments) Recognized Years Ended September 30, Description 2021 2020 2019 Goodwill $ (6,307 ) $ (7,944 ) $ (1,638 ) Property and equipment, net (including held for sale) (2,202 ) (302 ) (4,224 ) Indefinite-lived intangibles ) (2,265 ) (178 ) Operating lease right-of-use assets - (104 ) - Other assets (equity securities) (84 ) (64 ) (612 ) Unrealized Gain (Loss/Impairments) Recognized Years Ended September 30, Description 2023 2022 2021 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) ScheduleRange (Weighted Average) Areas Valuation Techniques Unobservable Input 2023 2022 2021 Property and equipment Discounted cash flow EBITDA multiple 1x - 12x (11x) 9x - 10x (10x) 8x (8x) Revenue/EBITDA growth rate 0% - 2.5% (1.25%) 0% - 2.5% (1.5%) 0% - 2.5% (1%) Weighted average cost of capital 11% (11.0%) 12.5% (12.5%) 13% - 17% (15%) Goodwill Discounted cash flow EBITDA multiple 9x - 12x (12x) 8x - 10x (9x) 8x (8x) Revenue/EBITDA growth rate 0% - 2.5% (2.5%) 0% - 2.5% (1.5%) 0% - 2.5% (1%) Weighted average cost of capital 11% (11%) 12.5% (12.5%) 13% - 17% (15%) SOB licenses Multiperiod excess earnings EBITDA multiple 12x (12x) 9x - 10x (10x) 8x (8x) Revenue/EBITDA growth rate 0% - 2.5% (2.5%) 0% - 2.5% (1.5%) 0% - 2.5% (1%) Weighted average cost of capital 11% (11%) 12.5% (12.5%) 13% - 17% (15%) Contributory asset charges rate 10% - 21.5% (15%) 0.5% - 7.4% (2.3%) 1.4% - 8.0% (4%) Tradename Relief-from-royalty method Revenue growth rate 0% - 2.5% (2.5%) 0% - 2.5% (1.5%) 0% - 2.5% (2.5%) Terminal multiple 12x (12x) 9x - 10x (9x) 8x (8x) Royalty rate 3% - 6% (4.7%) 3.5% - 4.5% (4%) None Weighted average cost of capital 11% (11%) 12.5% (12.5%) 15% (15%) Operating lease right-of-use assets Discounted cash flow EBITDA growth rate 1.5% - 2.5% (2.3%) 0% - 2.5% (1.5%) 0% - 2.5% (1%) Weighted average cost of capital 11% (11%) 12.5% (12.5%) 13% - 17% (15%) Business combinations Various* Growth rate 0% - 11.2% (5.5%) 2.5% - 10% (4.8%) None Weighted average cost of capital 16.5% - 18.0% (17.8%) 15% - 19.5% (18.1%) None Internal rate of return 16.5% - 30.0% (22.4%) 15% - 21.5% (19.4%) None Contributory asset charges rate 15.6% - 21.5% (16.3%) 8.5% - 10.2% (9.3%) None Significant Unobservable Inputs Usedthe valuation techniques for each of the fair valued assets above as of each acquisition date.Level 3 Fair Value MeasurementAssetsValuation TechniquesUnobservable InputRange (Weighted Average)Property and equipmentDiscounted cash flowEBITDA multiple8x (8x)Revenue/EBITDA growth rate0% - 2.5% (1%)Weighted average cost of capital13% - 17% (15%)GoodwillDiscounted cash flowEBITDA multiple8x (8x)Revenue/EBITDA growth rate0% - 2.5% (1%)Weighted average cost of capital13% - 17% (15%)SOB licensesMultiperiod excess earningsEBITDA multiple8x (8x)Revenue/EBITDA growth rate0% - 2.5% (1%)Weighted average cost of capital13% - 17% (15%)Contributory asset charges rate1.4% - 8.0% (4%)TradenameRelief-from-royalty methodRevenue growth rate0% - 2.5% (2.5%)Terminal multiple8x (8x)Weighted average cost of capital15% (15%)Operating lease right-of-use assetsDiscounted cash flowEBITDA growth rate0% - 2.5% (1%)Weighted average cost of capital13% - 17% (15%)ReclassificationCertain reclassifications of cost of goods sold components with immaterial amounts have beenCorporate segment but mostly benefit subsidiaries belonging to other reportable segments. Prior year disclosures were also made to prior year’s financial statements to conform to the current year financial statement presentation. There is no impact in consolidated total cost of goods sold,assets, results of operations, and cash flows in all periods presented.In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires, among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We adopted ASU 2016-13 as of October 1, 2020. Our adoption of this guidance did not have a significant impact on our consolidated financial statements.In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements of Accounting Standards Codification (“ASC”) Topic 820 with certain removals, modifications, and additions. Eliminated disclosures that may affect the Company include (1) transfers between level 1 and level 2 of the fair value hierarchy, and (2) policies related to valuation processes and the timing of transfers between levels of the fair value hierarchy. Modified disclosures that may affect the Company include (1) a requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse if the entity has communicated the timing publicly for investments in certain entities that calculate net asset value, and (2) clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additional disclosures that may affect the Company include (1) disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting period, and (2) disclosure of the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until the effective date. We adopted ASU 2018-03 as of October 1, 2020. Our adoption did not have a significant impact on our consolidated financial statements.In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements. ASU 2019-01 aligns the guidance for fair value of the underlying asset by lessors with existing guidance in Topic 842. The ASU requires that the fair value of the underlying asset at lease commencement is its cost reflecting in volume or trade discounts that may apply. However, if there has been a significant lapse of time between the date the asset was acquired and the lease commencement date, the definition of fair value as outlined in Topic 820 should be applied. In addition, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We adopted ASU 2019-01 as of October 1, 2020. Our adoption did not have an impact on our consolidated financial statements.In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax related guidance for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. The ASU is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted for public business entities for periods for which financial statements have not been issued. An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption should adopt all the amendments in the same period. We are still evaluating the impact of this ASU on the Company’s consolidated financial statements.FASBFinancial Accounting Standards Board ("FASB") issued ASUAccounting Standards Update ("ASU") No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends ASCAccounting Standards Codification ("ASC") Topic 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We have not yet determinedare still evaluating the timingimpact of adoptionthis ASU but we do not expect the ASUit to have a material impact on our consolidated financial statements.57
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that an entity should measure the fair value of an equity security subject to contractual sale restriction the same way it measures an identical equity security that is not subject to such a restriction. The FASB said the contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, should not affect its fair value. The ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. We have not yet evaluated the impact of this ASU on our consolidated financial statements.Ongoing Impact of COVID-19 PandemicSince the U.S. declaration of COVID-19 as a pandemic in March 2020, we have had a major disruption in our business operations that threatened to significantly impact our cash flow. The declaration resulted in a significant reduction in customer traffic in our clubs and restaurants due to changes in consumer behavior as social distancing practices, dining room closures and other restrictions were mandated or encouraged by federal, state and local governments. To adapt to the situation, we took significant steps to augment an anticipated decline in operating cash flows, including negotiating deferment of some of our debts, reducing the number of our employees and related payroll costs where necessary, and deferring or modifying certain fixed and variable monthly expenses, among others.The temporary closure of our clubs and restaurants caused by the COVID-19 pandemic has presented operational challenges. Our strategy is to open locations and operate in accordance with local and state guidelines. We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms, especially the longer the COVID-19 pandemic lasts.On May 8, 2020, the Company received approval and funding under the PPP of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) for its restaurants, shared service entity and lounge. See Notes 9 and 10.As of the release of this report, we do not know the future extent and duration of the impact of COVID-19 on our businesses. Closures and operating restrictions, as caused by local, state and national guidelines, could lead to adverse financial results. However, we will continually monitor and evaluate the situation and will determine any further measures to be instituted.We continue to adhere to state and local government mandates regarding the pandemic and, since March 2020, have closed and reopened a number of our locations depending on changing government mandates, including operating hour and limited occupancy restrictions, where applicable.Valuation of Goodwill, Indefinite-Lived Intangibles and Long-Lived AssetsWe consider the COVID-19 pandemic as a triggering event in the assessment of recoverability of the goodwill, indefinite-lived intangibles, and long-lived assets in our clubs and restaurants that are affected. We evaluated forecasted cash flows considering future assumed impact of COVID-19 pandemic on sales. Based on our evaluation we conducted during the interim and annual periods since the pandemic emerged, we determined that during the year ended September 30, 2020 our assets are impaired in a total amount of approximately $10.6 million comprised of $7.9 million in goodwill, $2.3 million in SOB licenses, $302,000 in property and equipment, and $104,000 in operating lease right-of-use assets, with an additional $13.6 million of impairment recognized during the year ended September 30, 2021 comprised of $ 6.3 million in goodwill, $5.3 million in SOB licenses, and $ 2.0 million in property and equipment, which included one property later reclassified as held for sale.
Revenues58RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements4. Revenues17)16), are shown below (in thousands).Fiscal 2023 Nightclubs Bombshells Other Total Sales of alcoholic beverages $ 96,325 $ 30,937 $ — $ 127,262 Sales of food and merchandise 19,995 23,911 — 43,906 Service revenues 103,217 360 — 103,577 Other revenues 17,211 515 1,319 19,045 $ 236,748 $ 55,723 $ 1,319 $ 293,790 Recognized at a point in time $ 234,981 $ 55,677 $ 1,274 $ 291,932 Recognized over time 1,767 46 45 1,858 $ 236,748 $ 55,723 $ 1,319 $ 293,790 Fiscal 2022 Nightclubs Bombshells Other Total Sales of alcoholic beverages $ 80,001 $ 33,315 $ — $ 113,316 Sales of food and merchandise 18,289 26,005 — 44,294 Service revenues 93,481 407 — 93,888 Other revenues 14,480 198 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 time 1,607 7 1 1,615 $ 206,251 $ 59,925 $ 1,444 $ 267,620 Fiscal 2021 Nightclubs Bombshells Other Total Sales of alcoholic beverages $ 54,305 $ 32,380 $ — $ 86,685 Sales of food and merchandise 17,221 23,890 — 41,111 Service revenues 55,146 315 — 55,461 Other revenues 10,676 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 time 1,549 4 5 1,558 $ 137,348 $ 56,621 $ 1,289 $ 195,258 ScheduleTable of Disaggregation of Segment RevenuesContents Fiscal 2021 Nightclubs Bombshells Other Total Sales of alcoholic beverages $ 54,305 $ 32,380 $ - $ 86,685 Sales of food and merchandise 17,221 23,890 - 41,111 Service revenues 55,146 315 - 55,461 Other revenues 10,676 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 time 1,549 4 5 1,558 $ 137,348 $ 56,621 $ 1,289 $ 195,258 Fiscal 2020 Nightclubs Bombshells Other Total Sales of alcoholic beverages $ 31,950 $ 27,130 $ - $ 59,080 Sales of food and merchandise 8,561 15,899 - 24,460 Service revenues 41,004 158 - 41,162 Other revenues 6,858 28 739 7,625 $ 88,373 $ 43,215 $ 739 $ 132,327 Recognized at a point in time $ 87,049 $ 43,215 $ 725 $ 130,989 Recognized over time 1,324 - 14 1,338 $ 88,373 $ 43,215 $ 739 $ 132,327 Fiscal 2019 Nightclubs Bombshells Other Total Sales of alcoholic beverages $ 57,277 $ 17,863 $ - $ 75,140 Sales of food and merchandise 13,051 12,779 - 25,830 Service revenues 67,893 162 - 68,055 Other revenues 10,385 24 1,625 12,034 $ 148,606 $ 30,828 $ 1,625 $ 181,059 Recognized at a point in time $ 146,938 $ 30,828 $ 1,572 $ 179,338 Recognized over time 1,668 - 53 1,721 $ 148,606 $ 30,828 $ 1,625 $ 181,059 *Lease revenue (included in Other Revenues) is covered by ASC 842 in fiscal 2021 and 2020, and ASC 840 in fiscal 2019. All other revenues are covered by ASC Topic 606.594.Schedule of Reconciliation of Contract Liabilities with Customers Balance at September 30, 2019 Consideration Received Recognized in Revenue Balance at September 30, 2020 Consideration Received Recognized in Revenue Balance at September 30, 2021 Ad revenue $ 76 $ 538 $ (522 ) $ 92 $ 593 $ (601 ) $ 84 Expo revenue - 211 - 211 393 (453 ) 151 Other (including franchise fees, see below) 7 40 (14 ) 33 94 (8 ) 119 $ 83 $ 789 $ (536 ) $ 336 $ 1,080 $ (1,062 ) $ 354 Balance at September 30, 2021 Consideration Received Recognized in Revenue Balance at September 30, 2022 Consideration Received (Refunded) Recognized in Revenue Balance at September 30, 2023 Ad revenue $ 84 $ 611 $ (613) $ 82 $ 451 $ (484) $ 49 Expo revenue 151 426 (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 5)4), while the revenues associated with these contract liabilities are included in other revenues in our consolidated statements of operations.income.$75,000 $75,000 in development fees representing 100%100% of the initial franchise fee of the first restaurant and 50%50% of the initial franchise fee of the second restaurant.5. The first Bombshells franchised location opened in June 2022. On May 2, 2022, the Company signed a franchise development agreement with a private investor to open three Bombshells locations in the state of Alabama over a period of five years. Upon execution of the agreement, the Company received $50,000 in development fees representing 100% of the initial franchise fee of the first restaurant. In February 2023, the Company purchased the franchised Bombshells unit in San Antonio, Texas.Schedule of Accounts Receivable 2021 2020 September 30, 2021 2020 Credit card receivables $ 1,447 $ 880 Income tax refundable 4,325 Insurance receivable 185 191 ATM-in-transit 277 160 Other (net of allowance for doubtful accounts of $382 and $261, respectively) 1,189 1,211 Total accounts receivable, net $ $ 6,767 September 30, 2023 2022 Credit card receivables $ 4,141 $ 2,687 Income tax refundable 2,989 2,979 ATM-in-transit 1,675 819 Other (net of allowance for doubtful accounts of $62 and $30, respectively) 1,041 2,025 Total accounts receivable, net $ 9,846 $ 8,510 6%6% to 9%9% per annum and having original terms ranging from 1 to 20 years.Schedule of Components of Prepaid Expenses and Other Current Assets 2021 2020 September 30, 2021 2020 Prepaid insurance $ 277 $ 4,884 Prepaid legal 112 735 Prepaid taxes and licenses 380 428 Prepaid rent 309 37 Other 850 404 Total prepaid expenses and other current assets $ 1,928 $ 6,488 September 30, 2023 2022 Prepaid insurance $ 375 $ 191 Prepaid legal 184 61 Prepaid taxes and licenses 486 391 Prepaid rent 346 296 Other 552 560 Total prepaid expenses and other current assets $ 1,943 $ 1,499 Schedule of Accrued Liabilities 2021 2020 September 30, 2021 2020 Insurance $ 54 $ 4,405 Payroll and related costs 3,220 2,419 Property taxes 2,178 2,003 Sales and liquor taxes 2,261 2,613 Interest 145 1,390 Patron tax 452 309 Lawsuit settlement 378 100 Unearned revenues 354 336 Other 1,361 998 Accrued liabilities $ 10,403 $ 14,573 60September 30, 2023 2022 Payroll and related costs $ 4,412 $ 3,186 Property taxes 3,086 2,618 Sales and liquor taxes 2,468 2,227 Insurance 9 30 Interest 654 499 Patron tax 914 467 Lawsuit settlement 2,448 246 Unearned revenues 96 234 Other 1,964 1,821 Total accrued liabilities $ 16,051 $ 11,328 RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements5. Selected Account Information - continued2023 2022 2021 Taxes and permits $ 11,966 $ 9,468 $ 8,701 Advertising and marketing 11,928 9,860 6,676 Supplies and services 10,724 8,614 6,190 Insurance 10,268 10,152 5,676 Lease 7,206 6,706 3,942 Legal 3,742 1,995 3,997 Utilities 5,760 4,585 3,366 Charge cards fees 7,090 6,292 3,376 Security 5,618 4,404 3,892 Accounting and professional fees 4,286 3,909 2,031 Repairs and maintenance 4,924 3,754 2,767 Stock-based compensation 2,588 2,353 — Other 6,924 6,755 3,994 Total selling, general and administrative expenses $ 93,024 $ 78,847 $ 54,608 ScheduleTable of Selling, General and Administrative ExpensesContents 2021 2020 2019 Years Ended September 30, 2021 2020 2019 Taxes and permits $ 8,701 $ 8,071 $ 10,779 Advertising and marketing 6,676 5,367 8,392 Supplies and services 6,190 4,711 5,911 Insurance 5,676 5,777 5,429 Lease 3,942 4,060 3,896 Legal 3,997 4,725 5,180 Utilities 3,366 2,945 3,165 Charge cards fees 3,376 2,382 3,803 Security 3,892 2,582 2,973 Accounting and professional fees 2,031 3,463 2,815 Repairs and maintenance 2,767 2,289 2,980 Other 3,994 5,320 4,573 Selling, general and administrative expenses $ 54,608 $ 51,692 $ 59,896 Schedule of Components of Other Charges, Net 2021 2020 2019 Years Ended September 30, 2021 2020 2019 Impairment of assets $ 13,612 $ 10,615 $ 6,040 Settlement of lawsuits 1,349 174 225 Gain on sale of businesses and assets (522 ) (661 ) (2,877 ) Loss (gain) on insurance (1,253 ) 420 (768 ) Other charges $ 13,186 $ 10,548 $ 2,620 6. 2023 2022 2021 Impairment of assets $ 12,629 $ 1,888 $ 13,612 Settlement of lawsuits 3,759 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 Schedule of Property, Plant and Equipment September 30, 2021 2020 Buildings and land $ 162,217 $ 163,938 Equipment 38,046 37,000 Leasehold improvements 28,681 29,776 Furniture 10,207 9,614 Total property and equipment 239,151 240,328 Less accumulated depreciation (63,199 ) (58,945 ) Property and equipment, net $ 175,952 $ 181,383 September 30, 2023 2022 Land $ 95,018 $ 78,116 Buildings and improvements 204,947 159,037 Equipment 49,632 45,648 Furniture 13,959 12,391 Total property and equipment 363,556 295,192 Less accumulated depreciation (80,851) (70,577) Property and equipment, net $ 282,705 $ 224,615 $3.4 $7.7 million and $20,000 $1.5 million as of September 30, 20212023 and 2020,2022, respectively, which are mostly related to Bombshells development projects.$8.0$11.6 million, $8.2$10.3 million, and $8.4$8.0 million for fiscal years 2021, 2020,2023, 2022, and 2019,2021, respectively. Impairment loss for property and equipment, including those later reclassified to assets held for sale, was $2.0 $58,000, $1.0 million, $302,000, and $4.2$2.0 million for fiscal 2023, 2022, and 2021, 2020, and 2019, respectively.61RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements7. 2020,2022, the Company had no propertiesone property classified as held for sale.During fiscal 2021, the Company classified as held-for-sale three real estate propertiessale with an aggregate carrying value of $8.6 million, which was later remeasured at lower of carrying value and net realizable value less cost to sell of $$1.0 million, and with no associated liabilities.7.2 million. In May 2021,On December 28, 2022, the Company sold onethe property classified as held-for-sale with a carrying value of $2.3 $1.049 million for $3.1 $1.7 million (see Note 15).expectsused $1.2 million of the properties held for sale, which are primarily comprised of land and buildings,proceeds to be sold within 12 months through property listings by our real estate brokers.As of September 30, 2021, liabilities associated with held-for-sale assets amountedpay off a loan related to $1.1 million.the property. Gains or losses on the sale of properties held for sale are included in other charges, (gains), net within the consolidated statements of operationsincome (see Note 5)4).September 30, 2023 2022 Indefinite useful lives: Goodwill $ 70,772 $ 67,767 Licenses 135,735 103,972 Tradename and domain name 19,811 13,142 226,318 184,881 Amortization Period Definite useful lives: Discounted leases Lease term 811 78 Non-compete agreements 5 years 3 55 Software 5 years 55 723 Licenses Lease term 22,597 25,962 Leases acquired in-place Lease term 133 117 23,599 26,935 Total goodwill and other intangible assets $ 249,917 $ 211,816 2023 2022 Definite- Lived Intangibles Indefinite- Lived Intangibles Goodwill Definite- Lived Intangibles Indefinite- Lived Intangibles Goodwill Beginning balance $ 26,935 $ 117,114 $ 67,767 $ 400 $ 67,424 $ 39,379 Acquisitions 2,005 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 ScheduleTable of Contents 2021 2020 September 30, 2021 2020 Indefinite useful lives: Goodwill $ 39,379 $ 45,686 Licenses 65,186 70,332 Tradename and domain name 2,238 2,215 Indefinite Intangible Assets, Net, Total 106,803 118,233 Amortization Period Definite useful lives: Discounted leases 18 & 6 years 86 93 Non-compete agreements 5 years 182 362 Software 5 years 132 23 Distribution agreement 3 years - 52 400 530 Total goodwill and other intangible assets $ 107,203 $ 118,763 Schedule - continuedIndefinite-lived, Definite-lived Intangible Assets and Goodwill 2021 2020 Definite- Lived Intangibles Indefinite- Lived Intangibles Goodwill Definite- Lived Intangibles Indefinite- Lived Intangibles Goodwill Beginning balance $ 530 $ 72,547 $ 45,686 $ 1,139 $ 74,812 $ 53,630 Acquisitions 128 173 - - - - Impairment - ) (6,307 ) - (2,265 ) (7,944 ) Amortization (258 ) - - (609 ) - - Ending balance $ 400 $ $ 39,379 $ 530 $ 72,547 $ 45,686 September 30, 2023 2022 Licenses $ 27,725 $ 27,725 Software 2,332 1,671 Leases acquired in-place 826 261 Discounted leases 1,076 297 Non-compete agreements 1,100 1,100 Distribution agreements 317 317 Total definite-lived intangibles 33,376 31,371 Less accumulated amortization and impairment (9,777) (4,436) Definite-lived intangibles, net $ 23,599 $ 26,935 20212023 and 2020,2022, the accumulated impairment balance of indefinite-lived intangibles was $13.7 $16.9 million and $8.4 $11.4 million, respectively, while the accumulated impairment balance of goodwill was $20.6$25.4 million and $14.3 $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, 20212023 is: 2022 - $138,000; 2023 - $60,000; 2024 - $11,000;$2.5 million; 2025 - $8,000;$2.4 million; 2026 - $7,000;$2.4 million; 2027 - $2.3 million; 2028 - $1.5 million; and thereafter - $176,000.sexually oriented businessSOB licenses, liquor licenses, and tradenames, which were obtained as part of acquisitions. These licenses are the result of zoning ordinances, thus are valid indefinitely, subject to filing annual renewal applications, which are done at minimal costs to the Company. We considered certain licenses that are associated with leased locations as definite-lived. The discounted cash flow of the income approach method was used in calculating the value of these licenses in a business combination, while the relief-from-royalty method was used in calculating the value of tradenames. During the fiscal year ended September 30, 2021,2023, the Company recognized a $5.3$6.5 million impairment related to the SOB licenses of threeeight clubs and a $6.3$4.2 million impairment related to goodwill of seven clubs.four reporting units. During the fiscal year ended September 30, 2020,2022, the Company recognized a $2.3 $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 twothree clubs’ SOB licenses and a $7.9 $6.3 million impairment related to the goodwill of seven reporting units (see Note 3). During the fiscal year ended September 30, 2019, the Company recognized a $units.178,000 impairment related to one club’s SOB license and a $1.6 million impairment related to the goodwillTable of four reporting units.Contents629. September 30, 2023 2022 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 debt 242,667 205,840 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 Long-term DebtContents September 30, 2021 2020 $ 785 $ 886 Notes payable at 5.5%, matures January 2023 (d)(1) $ 785 $ 886 Non-interest-bearing debts to State of Texas, mature March 2022 and May 2022, interest imputed at 9.6% (d)(2) 813 2,177 Note payable at 5.75%, matures December 2027, as amended *(a)(6ii)(7) - 9,715 Note payable at 5.95%, matures December 2027, as amended *(a)(6iii)(7) - 5,787 Note payable at 12%, matures February 2030, as amended (d)(3)(25) - 5,031 Notes payable at 12%, mature November 2021, as amended (d)(4)(26) - 1,940 Note payable at 8%, matures October 2027, as amended (b)(5)(23) 3,025 3,025 Note payable at 8%, matures May 2029 (b)(5) 11,549 12,599 Note payable at 5.75%, matures December 2027, as amended *(a)(6i)(7)(8)(9) - 49,830 Note payable at 5.99%, matures September 2033, as amended (c) (10) 6,089 6,395 Note payable at 5%, matures August 2029 *(a)(12) - 2,165 Note payable at prime plus 0.5% with a 5.5% floor, matures September 2035, as amended *(a)(13) - 2,099 Note payable initially at prime plus 0.5% with a 5.5% floor, matures September 2030 *(a)(13) - 2,861 Note payable at 8%, matures May 2021 (a)(14) - 582 Note payable at 5.95%, matures August 2039, as amended *(a)(11) - 6,979 Note payable at 12%, matures February 2030, as amended (d)(15)(24) - 3,875 Note payable at 9%, matures September 2028 (a)(17) 1,063 1,167 Note payable at 5.95%, matures September 2028, as amended *(a)(16) - 1,489 Note payable at 6%, matures February 2040, as amended *(a)(22) - 4,066 Note payable at 5.49%, matures March 2039, as amended (c)(21) 2,075 2,125 Note payable at 7%, matures November 2024 (b)(19) - 3,319 Note payable at 7%, matures February 2021, as amended (b)(20) - 2,000 Notes payable at 12%, mature November 2021 (d)(18) - 2,350 Note payable at 8%, matures November 2028 (b)(20) - 4,790 Note payable at 3.99%, matures January 2041 *(a)(28) 2,127 - Note payable at 5.25%, matures September 2031 *(a)(29) 99,146 - Paycheck Protection Program loans at 1%, matures May 2022 (d)(27) 124 5,422 Total debt 126,796 142,674 Less unamortized debt discount and issuance costs (1,628 ) (1,239 ) Less current portion (6,434 ) (16,304 ) Total long-term portion of debt, net $ 118,734 $ 125,131 *These commercial bank debts are guaranteed by the Company’s CEO. See Note 18.639.Schedule of Long-term Debt Instruments 2021 2020 (a) Secured by real estate $ 102,336 $ 86,740 (b) Secured by stock in subsidiary 14,574 25,733 (c) Secured by other assets 8,164 8,520 (d) Unsecured 1,722 21,681 $ 126,796 $ 142,674 2023 2022 (a) Secured by real estate $ 136,107 $ 122,990 (b) Secured by stock in subsidiary 72,879 55,005 (c) Secured by other assets 10,019 10,545 (d) Unsecured 23,662 17,300 $ 242,667 $ 205,840 $1.5$1.5 million. The notes are payable over eleven years at $12,256$12,256 per month including interest and have an adjustable interest rate of 5.5%5.5%. The rate adjusts to prime plus 2.5%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$6.5 million, which have been paid off in relation to the December 2017 Refinancing Loan, as discussed below.2017. The notes arewere also payable over eleven years at $53,110$53,110 per month including interest and have the same adjustable interest rate of 5.5%5.5%.(2) 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. 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. In March 2017, the Company settled with the State of Texas for one of the two remaining unsettled Patron Tax locations. 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. In March 2017, the present value of the second note was approximately $390,000 after discounting using an imputed interest rate of 9.6%. Going forward, the Company agreed to remit the Patron Tax on a regular basis, based on the current rate of $5 per customer.(3) 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 yearswith a balloon payment for the remaining balance at maturity. This note was partially paid in relation to the first note of the December 2017 Refinancing Loan, as discussed below. Also refer to the February 20, 2020 loan restructuring below. This note was paid off entirely on September 30, 2021.(4) 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 August 15, 2018 and September 26, 2018, the Company refinanced $2.0 million and $500,000 of the notes, respectively. The $2.0 million note was exchanged for a $4.0 million 12% note maturing in three years with interest-only payments until maturity, where the full principal is to be paid. The $500,000 note was exchanged for a $1.35 million 9% note maturing in 10 years with monthly payments of $17,101, including interest. On November 1, 2018, the Company refinanced two notes with a total principal of $400,000 with certain investors. See succeeding paragraph related to November 1, 2018 financing below. Included in the balance of long-term debt as of September 30, 2020 is a $200,000 note, that is a part of the May 1, 2017 financing, borrowed from a non-officer employee in which the terms of the note are the same as the rest of the lender group. Refer to May 1, 2020 extension below. These notes were fully paid off on September 30, 2021.in January 2023.(5) On May 8, 2017, in relation to the Scarlett’s acquisition, (see Note 15), the Company executed two promissory notes with the sellers: (i) a 5%5% short-term note for $5.0 $5.0 million payable in lump sum after six months from closing date and (ii) a 12-year amortizing 8%8% note for $15.6 $15.6 million. The 12-year12-year note is payable $168,343 $168,343 per month, including interest. The Company has amended the $5.0 $5.0 million short-term note payable several times, which has a remaining balance of $3.0 $3.0 million, extending the maturity date and increasing the interest rate. Presently, the maturity date is October 1, 2027and the interest rate is 8%8% for its remaining term. Refer to December 2019 amendment below.64RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements9. Debt - continued(6) On December 14, 2017, the Company entered into a loan agreement (“December 2017 Refinancing Loan”) with a bank for $81.2 (3)million. The December 2017 Refinancing Loan fully refinanced 20 of the Company’s notes payable and partially paid 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 December 2017 Refinancing Loan consisted of three promissory notes:i)The first note amounted 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 amounted 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 was 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 was adjusted accordingly based on the repricing, with the balance payable at maturity; andiii)The third note amounted 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 was 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.(7) In addition to the monthly principal and interest payments as provided above, the Company paid monthly installments of principal of $250,000, applied to the first note, until the loan-to-value ratio of the Properties, based upon reduced principal balance of the December 2017 Refinancing Loan and the then current value of the Properties, is not greater than 65%. The loan-to-value ratio of the Properties fell below 65% in October 2019, hence, we stopped paying the additional $250,000 monthly.The December 2017 Refinancing Loan 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. There were certain financial covenants with which the Company must be in compliance related to this financing. All three notes in the preceding paragraph were refinanced as part of the September 2021 Refinancing Note (see below).65RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements9. Debt - continued(8) 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. We also paid prepayment penalties amounting to $543,000 on the Repaid Notes, which was included in interest expense in our consolidated statement of operations for the year ended September 30, 2018.(9) Included in the $62.5 million first note of the December 2017 Refinancing Loan was $4.6 million that was escrowed at closing due to the bank lender of one of the Repaid Notes. The amount was released from escrow in June 2018 when the construction, for which the original note was borrowed, was completed. In March and August 2020, certain principal and interest payments for the three notes of the December 2017 Refinancing Loan were deferred to their maturity dates.(10) On December 7, 2017, the Company borrowed $7.1$7.1 million from a lender to purchase an aircraft at 5.99%5.99% interest. The transaction was partly funded by trading in an aircraft that the Company owned with a carrying value of $3.4$3.4 million, with an assumption of the old aircraft’s note payable liability of $2.0$2.0 million. The aircraft note is payable in 15 years with monthly payments of $59,869,$59,869, which includes interest. In March 2020, this loan was extended to September 20332033..(11) On February 15, 2018, the Company borrowed $3.0 (4)million from a bank for the purchase of land at a cost of $4.0million with the difference paid by the Company in cash. The bank note bore interest at 5.25% adjusted after 36 monthsto prime plus 1% with a floor of 5.2% and matures on February 15, 2038. The bank note was payable interest-only during the first 18 months, after which monthly payments of principal and interest were to be made based on a 20-year amortization with the remaining balance to be paid at maturity. On August 28, 2018, this note was refinanced for an additional construction loan having a maximum availability of $7.4 million. The new note had an initial interest rate of 5.95%, subject to a repricing after 72 months to prime plus 1% with a 5.9% floor. The note was payable $53,084 per month, including interest, for 72 months, then adjusted based on repriced interest rate until its August 2039maturity. In May 2020, certain principal and interest payments for this note were deferred to its maturity date. This note was paid off in relation to the September 2021 Refinancing Note.(12) On February 20, 2018, the Company refinanced a bank note with a balance of $1.9 million, bearing interest of 2% over prime with a 5.5% floor, with the same bank for a construction loan with maximum availability of $4.7 million. The construction loan agreement bore an interest rate of prime plus 0.5% with a floor of 5.0% and was to mature on August 20, 2029. During the first 18 months of the construction loan, the Company made monthly interest-only payments, and after such, monthly payments of principal and interest will be made based on a 20-year amortization with the remaining balance to be paid at maturity. There are certain financial covenants with which the Company was to be in compliance related to this financing. This note was paid off in relation to the September 2021 Refinancing Note.(13) On April 24, 2018, the Company acquired certain land for future development of a Bombshells in Houston, Texas for $5.5 million, financed with a bank note for $4.0 million, payable interest only at prime plus 0.5% with a floor of 5% per annum. The note was to mature in 24 months, by which date the principal was to be payable in full. In March and July 2020, in view of the pandemic, the bank lender and the Company agreed to defer the maturity of this note to October 2020. In September 2020, they further negotiated to refinance the note with a deferral of maturity to September 2035 with monthly amortization payments of $16,396, including interest. On September 17, 2018, the Company and the bank lender agreed to carve out a portion of the loan that relates to the land where the Bombshells location is to be built amounting to $960,000, and added a construction loan with a maximum availability of $2.9 million. The new $2.9 million construction loan had an interest rate of prime plus 0.5%, with a 5.5% floor, and payable in 12 years. The first 24 months were to be interest-only payments, after which monthly payments of principal and interest were to be made based on a 20-year amortization. There were certain financial covenants with which the Company was to be in compliance related to this financing. These notes were paid off in relation to the September 2021 Refinancing Note.(14) On May 25, 2018, the Company acquired a club in Kappa, Illinois for $1.5 million, financed by a $1.0 million seller note with interest at 8%. The note was to mature in three yearsand was payable in monthly installments of $20,276, including interest, based on a five-year amortization with the remaining balance to be paid at maturity. This note was fully paid in May 2021.66RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements9. Debt - continued(15) On August 15, 2018, the Company refinanced a $2.0 million note payable for $4.0 million from a private lender by executing a 12% 3-year note payable $40,000 monthly starting September 15, 2018, with the remaining principal and interest balance payable at maturity. See February 20, 2020 extension below. This note was paid off on September 30, 2021.(16) On September 6, 2018, the Company borrowed $1.55 million from a bank lender to finance the acquisition of the remaining not-owned interest in a joint venture. The 10-year note payable had an initial interest rate of 5.95% until after five years when the interest rate is adjusted to the U.S. Treasury rate plus 3.5%, with a 5.95% floor.Monthly payments of $11,138, including interest, were due for five years until an adjustment in monthly payments based on the interest rate repricing. The Company paid approximately $40,000 in debt issuance costs at closing. In March and August 2020, certain principal and interest payments for this note were deferred to its maturity date. There were certain financial covenants with which the Company was to be in compliance related to this note. This note was paid off in relation to the September 2021 Refinancing Note.(17) On September 26, 2018, the Company refinanced a $500,00012% note payable for $1.35 million from a private lender by executing a 9% 10-year note payable $17,101 monthly, including interest, until maturity.(18) On November 1, 2018, the Company raised $2.35 million through the issuance of 12% unsecured promissory notes to certain investors, which notes were to mature on November 1, 2021. The notes paid interest-only in equal monthly installments, with a lump sum principal payment at maturity. Among the promissory notes were two notes with a principal of $450,000 and $200,000. The $450,000 note was in exchange for a $300,000 12% note and the $200,000 note was in exchange for a $100,000 note, both of which were included in the May 1, 2017 financing to acquire Scarlett’s Cabaret in Miami. Also included in the $2.35 million borrowing are two notes for $500,000 and $100,000 borrowed from related parties (see Note 18) and one note for $300,000 borrowed from a non-officer employee in which the terms of the notes are the same as the rest of the lender group. These notes were paid off in relation to the September 2021 Refinancing Note.(19) On November 1, 2018, we acquired a club in Chicago that was partially financed by a $4.5 million 6-year 7% seller note. See additional details related to the acquisition in Note 15. This note was paid off in relation to the September 2021 Refinancing Note.(20) On November 5, 2018, we acquired a club in Pittsburgh that was partially financed by two seller notes payable. The first note is a 2-year 7% note for $2.0 million and the second is a 10-year 8% note for $5.5 million. See additional details related to the acquisition in Note 15. On September 30, 2020, the maturity date for the first note was extended to and fully paid off in February 2021. The second note was paid off in relation to the September 2021 Refinancing Note.(21) On December 11, 2018, the Company purchased an aircraft for $2.8 $2.8 million with a $554,000 $554,000 down payment and financed for the remaining $2.2$2.2 million with a 5.49% 5.49% promissory note payable in 20 years with monthly paymentsof $15,118,$15,118, including interest. Certain principal and interest payments during the quarter ended June 30, 2020 were deferred until maturity date.(22) On February 8, 2019, the Company refinanced a one-year bank note with a balance of $1.5 million, bearing an interest rate of 6.1%, with a construction loan with another bank, which had an interest rate of 6.0% adjusted after five years to prime plus 0.5% with a 6.0% floor per annum. The new construction loan, which had a maximum availability of $4.1 million, was to mature in 252 months from closing date and was payable interest-only for the first 12 months, then principal and interest of $29,571 monthly for the next 48 months, and the remaining term monthly payments of principal and interest based on the adjusted interest rate.The Company paid approximately $69,000 in loan costs of which approximately $19,600 was capitalized as debt issuance costs on the new construction loan with the remaining charged to interest expense. The Company also wrote off the remaining unamortized debt issuance costs of the old bank note to interest expense. There were certain financial covenants with which the Company was to be in compliance related to this financing. In March 2020, certain principal and interest payments for this note were deferred to its maturity date. This note was paid off in relation to the September 2021 Refinancing Note.(23) In December 2019, 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, 2022. The amendment did not have an impact in the Company’s results of operations and cash flows.(24) On February 20, 2020, in relation to a $4.0 million 12% note payable earlier refinanced on August 15, 2018, the Company restructured the note with a private lender by executing a 12% 10-year note payable$57,388 monthly, including interest, starting March 2020. The restructured note eliminated a scheduled balloon principal payment of $4.0 million in August 2021. The refinancing did not have an impact on the Company’s results of operations and cash flows. This note was paid off in relation to the September 2021 Refinancing Note.(25) On February 20, 2020, in relation to a $9.9 million 12% note payable that was partially paid during the December 2017 Refinancing Loan, the Company restructured the note, which had a balance of $5.2 million as of the amendment date, by executing a 12% 10-year note payable$74,515 monthly, including interest, starting March 2020. The restructured note eliminated a scheduled balloon principal payment of $3.8 million in October 2021. As a result of the refinancing, the Company wrote off approximately $25,400 in unamortized debt issuance cost as interest expense in our consolidated statement of operations for the year ended September 30, 2020. This note was paid off in relation to the September 2021 Refinancing Note.(26) On May 1, 2020, the Company negotiated extensions to November 1, 2020 on $1,740,000 of $2,040,000 of notes to individuals that were due on May 1, 2020. The Company paid $300,000 to certain lenders and received $200,000 in new debt from existing lenders and their affiliates. The aggregate amount of debt due on these notes was then $1,940,000. On October 31, 2020, the Company negotiated extensions to November 1, 2021on $1,690,000 of the $1,940,000 that were due on November 1, 2020. The Company paid $250,000 to a certain lender who only extended a portion of his original note. The remaining balance of these notes were paid off in relation to the September 2021 Refinancing Note.(27) On May 8, 2020, the Company received approval and funding under the PPP of the CARES Act for its restaurants, shared service entity and lounge amounting to $5.4 million. If not forgiven, under the terms of the loans as provided by the CARES Act, the twelve PPP loans bear an interest rate of 1% per annum. As of September 30, 2021, we have received eleven Notices of PPP Forgiveness Payment from the Small Business Administration out of the twelve of our PPP loans granted. All of those notices received forgave 100% of each of the eleven PPP loans totaling the amount of $5.3 million in principal and interest. 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 will be repaid as debt plus accrued interest. See Notes 3 and 10.67RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements9. Debt – continued(28) On January 25, 2021, the Company borrowed $2.175 million from a bank lender by executing a 20-year promissory note with an initial interest rate of 3.99% per annum. The note is payable $13,232 per month for the first five years after which the interest rate will be repriced at the then-current prime rate plus 1.0% per annum, with a floor rate of 3.99%. The Company paid approximately $25,000 in debt issuance costs at closing. See Note 15.(29)(5) On September 30, 2021, we entered into a $99.1 $99.1 million term loan refinancing $85.7 $85.7 million of existing bank and seller-financed real estate debt and to provide $12.3 $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 15)14). The $99.1 $99.1 million note has a term of 10 years with an initial interest rate of 5.25%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%5.25%. The note is payable in monthly payments of principal and interest of $668,051,$668,051, based on a 20-year20-year amortization period, with the balance paid at maturity. In connection with the transaction, we wrote off to interest expense approximately $103,000 $103,000 of unamortized debt issuance costs related to the paid-off debts. We also paid approximately $1.0 $1.0 million in loan costs, approximately $567,000 $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.Future maturitiesdebt obligations$3.0 million as of September 30, 2021 consistthe amendment date, extending the maturity date to October 1, 2027. The amendment did not have an impact in the Company’s results of the following (in thousands):Schedule of Maturities of Long-term Debt Regular Amortization Balloon Payments Total Payments 2022 $ 6,625 $ - $ 6,625 2023 4,825 3,676 8,501 2024 5,094 - 5,094 2025 5,409 - 5,409 2026 5,745 - 5,745 Thereafter 33,145 62,277 95,422 Total maturities of long-term debt, net of debt discount $ 60,843 $ 65,953 $ 126,796 (30) (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 $17.0 million, all of which bear interest at a rate of 12%12% per annum. Of this amount, $$9.52024.2024. The remaining amount of the financing is $7.5 $7.5 million in promissory notes, payable in monthly payments of principal and interest based on a 10-year10-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, 2024.2024. Included in the $17.0 $17.0 million borrowing are two notes for $500,000 $500,000 and $150,000 $150,000 borrowed from related parties (see Note 18)17) and two notes for $500,000 $500,000 and $300,000 $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.(31) (8)On October 18, 2021, in relation to an acquisition (see Note 15)14), the Company executed four seller-financed promissory notes. The first promissory note was a 10-year $11.010-year $11.0 million 6% note payable in 120 equal monthly payments of $122,123$122,123 in principal and interest. The second promissory note was a 20-year $8.020-year $8.0 million 6% note payable in 240 equal monthly payments of $57,314$57,314 in principal and interest. The third promissory note was a 10-year $1.210-year $1.2 million 5.25%5.25% note payable in monthly payments of $8,086$8,086 in principal and interest based on a 20-year20-year amortization period, with the balance payable at maturity date. The fourth note was a 20-year $1.0 20-year $1.0 million 6%6% note payable in 240 equal monthly payments of $7,215$7,215 in principal and interest.(32) On November 8, 2021, in relation to an acquisition (see Note 15)14), the Company executed a $1.0 $1.0 million 7-year7-year promissory note with an interest rate of 4.0%4.0% per annum. The note is payable $13,669$13,669 per month, including principal and interest.10. 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.Regular Amortization Balloon Payments Total Payments 2024 $ 15,837 $ 7,529 $ 23,366 2025 12,149 26,772 38,921 2026 12,498 — 12,498 2027 13,287 — 13,287 2028 14,050 8,731 22,781 Thereafter 61,273 70,541 131,814 $ 129,094 $ 113,573 $ 242,667 (benefit) consisted of the following (in thousands):Schedule of Income Tax Expense (Benefit) 2021 2020 2019 Years Ended September 30, 2021 2020 2019 Current Federal $ $ 215 $ 1,886 State and local 560 1,037 Total current income tax expense 775 2,923 Deferred Federal ) (1,248 ) 913 State and local (1,092 ) (20 ) (92 ) Total deferred income tax expense (benefit) (1,253 ) (1,268 ) 821 Total income tax expense (benefit) $ $ (493 ) $ 3,744 2023 2022 2021 Current Federal $ 6,506 $ 8,335 $ 4,598 State and local 2,121 2,656 644 Total current income tax expense 8,627 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 6810. (benefit) differs from the “expected” income tax expense computed by applying the U.S. federal statutory rate to earnings before income taxes for the years ended September 30 as a result of the following (in thousands):Schedule of Components of Income Tax Expense (Benefit) 2021 2020 2019 Years Ended September 30, 2021 2020 2019 Federal statutory income tax expense (benefit) $ 7,169 $ (1,429 ) $ 5,080 State income taxes, net of federal benefit 716 253 672 Permanent differences (434 ) 395 45 (804 ) - - Change in valuation allowance (632 ) 1,273 - Tax credits (1,207 ) (945 ) (900 ) Other (819 ) (40 ) (1,153 ) Total income tax expense (benefit) $ 3,989 $ (493 ) $ 3,744 2023 2022 2021 Federal statutory income tax expense $ 7,549 $ 12,628 $ 7,169 State income taxes, net of federal benefit 1,620 1,801 716 Permanent differences 605 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 Schedule of Deferred Tax Assets and Liabilities 2021 2020 September 30, 2021 2020 Deferred tax assets: Patron tax $ - $ 349 Capital loss carryforwards 899 1,263 Net operating loss carryforwards - Other 247 2,046 Valuation allowance (641 ) (1,273 ) Net deferred tax assets 1,169 2,385 Deferred tax liabilities: Intangibles (12,174 ) (14,106 ) Property and equipment (8,132 ) (8,669 ) Deferred tax liabilities (20,306 ) (22,775 ) Net deferred tax liability $ (19,137 ) $ (20,390 ) Included in the Company’s deferred tax liabilities at September 30, 2021 and 2020 is the tax effect of indefinite-lived intangible assets from club acquisitions amounting to approximately $17.1 million and $14.9 million, respectively, 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 or impaired.September 30, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 827 $ 1,022 Capital loss carryforwards 651 234 Right-of-use assets 946 626 Accrued expenses 748 240 Stock-based compensation 1,185 569 Other 123 — 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) In fiscal 2019, the Company released the remaining amount accrued when the examination was closed.6910.The following table shows the changes in the Company’s uncertain tax positions (in thousands):Schedule of Uncertain Tax Positions Years Ended September 30, 2021 2020 2019 Balance at beginning of year $ - $ - $ 165 Additions for tax positions of prior years - - - Decrease related to settlements with taxing authorities - - - Reduction due to lapse from closed examination - - (165 ) Balance at end of year $ - $ - $ - The Company’s federal income tax returns for the years ended September 30, 2013 through 2017 have been examined by the Internal Revenue Service (“IRS”) with no changes. The Company ordinarily goes through various federal and state reviews and examinations for various tax matters. Fiscal year ended September 30, 20182020 and subsequent years remain open to federal tax examination. The Company is also being examined for state income taxes, the outcome of which may occur within the next twelve months.may bewere available to workers and families through enhanced unemployment insurance provisions and to small businesses through programs administered by the Small Business Administration. The CARES Act includes,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 has submitted its application for a PPP loan and on May 8, 2020 has received approval and funding for its restaurants, shared service entity and lounge. Ten of our restaurant subsidiaries received amounts ranging from $271,000 $271,000 to $579,000 $579,000 for an aggregate amount of $4.2 $4.2 million; our shared-services subsidiary received $$1.1 million; and one of our lounges received $124,000. None of our adult nightclub and other non-core business subsidiaries received funding under the PPP. The Company believes it has used the entire loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company has currently utilized all of the PPP funds and has submitted its forgiveness applications. During fiscal 2021,2022, 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 in principal and interest and were included in non-operating gains (losses), net in our consolidated statement of operationsincome for the fiscal year ended September 30, 2021.2022. In November 2021, we received a partial forgiveness of the remaining $124,000 $124,000 PPP loan for $85,000 $85,000 in principal and interest. The remaining unforgiven portion of approximately $41,000$41,000 in principal will be repaidwas fully paid as debt plus accrued interest. See Note 3.11. interest in fiscal 2022.LeasesSee Note 19.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 non-settled 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 recorded an $8.2 million pre-tax gain for the third quarter ended 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, which is included in long-term debt in the consolidated balance sheets, amounted to approximately $813,000 and $2.2 million as of September 30, 2021 and 2020, respectively.$5$5 per customer Patron Tax Fee assessed against Sexually Oriented Businesses. An administrative rule attempted to expand the fee to cover venues featuring dancers using latex cover as well as traditional nude entertainment. The administrative rule was challenged on both constitutional and statutory grounds. On November 19, 2018, the Court issued an order that a key aspect of the administrative rule is invalid based on it exceeding the scope of the Comptroller’s authority. On March 6, 2020, the U.S. District Court for the Western District of Texas, Austin Division, ruled that the Texas Patron Tax is unconstitutional as it has been applied and enforced by the Comptroller. The State of Texas has filed an appeal. We will continueappealed to vigorously defend the matter throughFifth Circuit Court of Appeals, who affirmed that the appeals process.
Texas Patron Fee is unconstitutional as applied. The State of Texas next sought review from the Supreme Court, but the high court declined to take the case and in doing so exhausted the State's rights to appeal the judgment. The lawsuit was sent back to the trial court for post-trial proceedings, which resulted in the award of attorneys' fees to the operating subsidiaries. Pursuant to the rulings, the Texas Patron Fee is unconstitutional as applied to clubs featuring dancers using latex cover.70RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial StatementsLegal Matters – continued100%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. As of September 30, 2021,2023, we had 21 remaining unresolved claimsclaim out of the original 71 claims. One of the two remaining claims was settled in November 2021.Class and Derivative ActionsIn May and June 2019, three putative securities class action complaints were filed against RCI Hospitality Holdings, Inc. and certain of its officers in the Southern District of Texas, Houston Division. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and 10b-5 promulgated thereunder based on alleged materially false and misleading statements made in the Company’s SEC filings and disclosures as they relate to various alleged transactions by the Company and management. The complaints seek unspecified damages, costs, and attorneys’ fees. These lawsuits are Hoffman v. RCI Hospitality Holdings, Inc., et al. (filed May 21, 2019, naming the Company and Eric Langan); Gu v. RCI Hospitality Holdings, Inc., et al. (filed May 28, 2019, naming the Company, Eric Langan, and Phil Marshall (who is no longer an officer of the Company)); and Grossman v. RCI Hospitality Holdings, Inc., et al. (filed June 28, 2019, naming the Company, Eric Langan, and Phil Marshall). The plaintiffs in all three cases moved to consolidate the purported class actions. Action10, 2020 an order consolidating the Hoffman, Grossman,21, 2022, Shiva Stein and Gu cases was entered by the Court. The consolidated case is styled In re RCI Hospitality Holdings, Inc., No. 4:19-cv-01841. On February 24, 2020, the plaintiffs in the consolidated caseKevin McCarty filed an Amended Class Action Complaint, continuing to allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and 10b-5 promulgated thereunder. In addition to naming the Company, Eric Langan, and Phil Marshall, the amended complaint also adds former directors Nourdean Anakar and Steven Jenkins as defendants. On April 24, 2020, the Company and the individual defendants moved to dismiss the amended complaint for failure to state a claim upon which relief can be granted. On March 31, 2021, the court denied defendants’ motion to dismiss the lawsuit. On April 14, 2021, defendants filed their answer and affirmative defenses, denying liability as to all claims. On June 14, 2021, a scheduling order was entered in the case, setting January 9, 2023 as the trial date. The Company intends to continue to vigorously defend against this action. This action is in its preliminary phase, and a potential loss cannot yet be estimated.On August 16, 2019, a shareholder derivative action was filed in the Southern District of Texas, Houston Division against officers and directors Eric S. Langan, Phillip Marshall,former director Nourdean Anakar, (who is no longer a director), Yura Barabash, Luke Lirot, Travis Reese, former director Steven L. Jenkins, Eric Langan, Luke Lirot, former CFO Phillip K. Marshall, Elaine J. Martin, Allan Priaulx, and Travis Reese as defendants, as well as against RCI Hospitality Holdings, Inc., as nominal defendant. The action, styled CecereStein v. Langan,Anakar, et al., No. 4:19-cv-03080,22-mc-00149 (S.D. Tex.), alleges claims for breach of fiduciary duty based on alleged that the individual officers and directors made or caused the Company to make a seriesdissemination of materially false and/or misleading statements and omissions regarding the Company’s business, operations, prospects, and legal compliance and engaged in or caused the Company to engage in, inter alia, related party transactions, questionable uses of corporate assets,inaccurate information and failure to maintain internal controls. TheThese allegations are substantively similar to claims asserted in a prior securities class action asserted claims for breachthat was settled in August of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets,2022 and violations of Sections 14(a), 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint sought injunctive relief, damages, restitution, costs, and attorneys’ fees. On June 1, 2021, the Company and the individual defendants moved to dismiss the lawsuit based on the plaintiff’s failure to make a pre-suit demand prior to filing of the derivative action as is required under Texas law. In response,that was dismissed in June of 2021. On July 24, 2023, the plaintiff filed a motionparties reached an agreement in principle to voluntarily dismiss his claims.resolve the action. On June 21, 2021,October 10, 2023, the court granted that motion and enteredparties submitted an order dismissing this lawsuit in its entirety, without prejudice.71RCI HOSPITALITY HOLDINGS, INC.Notesagreement to Consolidated Financial StatementsLegal Matters – continuedOtherOn March 26, 2016, an image infringement lawsuit was filed in federal court insettle the Southern District of New York against the Company and several of its subsidiaries. Plaintiffs allege that their images were misappropriated, intentionally altered and published without their consent by clubs affiliated with the Company. The causes of action asserted in Plaintiffs’ Complaint include alleged violations of the Federal Lanham Act, the New York Civil Rights Act, and other statutory and common law theories. The Company contends that there is insurance coverage under an applicable insurance policy. The insurer has raised several issues regarding coverage under the policy. At this time, this disagreement remains unresolved. The Company has denied all allegations, continues to vigorously defend against the lawsuit and continues to believe the matter is covered by insurance.The Company was sued by a commercial landlord in the 333rd Judicial District Court of Harris County, Texas for a Houston Bombshells which was under renovation in 2015. The Plaintiff alleged RCI Hospitality Holdings, Inc.’s subsidiary, BMB Dining Services (Willowbrook), Inc., breached a lease agreement by constructing an outdoor patio, which allegedly interfered with the common areas of the shopping center, and failed to provide Plaintiff with proposed plans before beginning construction. Plaintiff asserted RCI Hospitality Holdings, Inc. was also liable as the guarantor of the lease. 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. denied liability and asserted that Plaintiff failed to mitigate its claimed damages. Further, BMB Dining Services (Willowbrook), Inc. asserted that Plaintiff affirmatively represented that construction of the patio was permitted under the lease and accordingly, pursued counter claims against Plaintiff and Plaintiff’s manager for breach of the parties’ agreement. The case was tried to a jury in late September 2018 and an adverse judgment was entered in January 2019 in an amount totaling more than $1.15 million, including damages, costs, attorney fees, and interest. The matter was appealed to the Court of Appeals for the First District of Texas.Court's preliminary approval. The appeal process requiredCompany believes that fundspayments under the settlement agreement will be deposited in the registry of the court in the amount of $690,000, which was deposited in April 2019 and is included in other current assets in the consolidated balance sheet as of September 30, 2020. On June 3, 2021, the Court of Appeals affirmed the lower court’s judgment in the case. A motion to reconsider this decision was denied. This matter was subsequently settled for $1.0 million in exchange for a full and complete release of all claims. The settlement funds are comprised of the funds on deposit in the court registry, which total $705,876 with interest, and a wire transfer of the remaining $294,124. This settlement will fully resolve this matter.
covered by insurance.72
OtherRCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial StatementsLegal Matters – continued$1.4$1.4 million and its share of punitive damages is $4$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. In June 2018, the matter was heard by the Arizona Court of Appeals. On November 15, 2018 the Court of Appeals vacated the jury’s verdict and remanded the case to the trial court. It is anticipated that a new trial will occur at some point in the future. JAI Phoenix will continue to vigorously defend itself.2020,total $3.8 million, $1.4 million, and 2019 total $1.3$1.3 million, $174,000, and $225,000, respectively. As of September 30, 20212023 and 2020,2022, the Company has accrued $378,000$2.4 million and $100,000$246,000 in accrued liabilities, respectively, related to settlement of lawsuits.73Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at September 30, 2022 300,000 $ 100.00 Granted — Outstanding at September 30, 2023 300,000 $ 100.00 3.4 $ — Exercisable at September 30, 2023 60,000 $ 100.00 3.4 $ — Common StockDuring the year ended September 30, 2019, the following common stock transactions occurred:●The Company acquired shares of its own common stock at a cost of $2.9 million. These shares were subsequently retired.●The Company paid quarterly dividends of $ per share, except for the fourth quarter when $ per share was paid, for an aggregate amount of $1.3 million.During the year ended September 30, 2020, the following common stock transactions occurred:●The Company acquired shares of its own common stock at a cost of $9.5 million. These shares were subsequently retired.●The Company paid quarterly dividends of $ per share, except for the second and fourth quarters when $ per share was paid, for an aggregate amount of $1.3 million.During the year ended September 30, 2021, the following common stock transactions occurred:●The Company acquired shares of its own common stock at a cost of $1.8 million. These shares were subsequently retired.●The Company paid quarterly dividends of $ per share for an aggregate amount of $1.4 million.On October 18, 2021, we partially paid for an acquisition using shares of our common stock. See Note 15.13. Employee Retirement Plan3%3% of the employee’s salary. Expenses related to matching contributions to the Plan approximated $209,000, $171,000,$287,000, $258,000, and $164,000$209,000 for the years ended September 30, 2023, 2022, and 2021, 2020, and 2019, respectively.14. 2018.2019. Both of these casualties received insurance recoveries in subsequent fiscal years. During the fourth quarter of 2020,2021, 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.Schedule of Business Insurance Recoveries For the Year Ended September 30, Included in 2021 2020 2019 Consolidated balance sheets (period end) Insurance receivable Account receivable, net $ 186 $ 191 $ 1,197 Consolidated statements of operations – loss (gain) Business interruption Other charges, net $ - $ (176 ) $ (484 ) Property Other charges, net $ (1,337 ) $ 596 $ (284 ) Consolidated statements of cash flows Proceeds from business interruption insurance claims Operating activity $ 106 $ 384 $ 100 Proceeds from property insurance claims Investing activity $ 1,152 $ 945 $ 100 Included in 2023 2022 2021 Consolidated balance sheets (period end) Insurance receivable Account receivable, net $ — $ — $ 186 Consolidated statements of income – gain Property Other charges, net $ (77) $ (463) $ (1,337) Consolidated statements of cash flows Proceeds from business interruption insurance claims Operating activity $ — $ — $ 106 Proceeds from property insurance claims Investing activity $ 86 $ 648 $ 1,152 2021, 2020,2023, 2022, and 20192021 was net of assets written off and expenses amounting to $88,000, $728,000,$9,000, $0, and $629,000,$88,000, respectively.74RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements15. 14. Acquisitions and Dispositions2019 AcquisitionsOn November 1, 2018, the Company acquired the stock of a club in Chicago for $10.5 million with $6.0 million cash paid at closing and the $4.5 million in a 6-year seller-financed note with interest at 7%. The Company paid approximately $37,000 in acquisition-related costs for this transaction, which is included in selling, general and administrative expenses in our consolidated statement of operations. In fiscal 2019, the club generated revenue of approximately $5.0 million since acquisition date. In relation to this acquisition, on September 25, 2018, the Company borrowed $5.0 million through a credit facility with a bank lender. The loan has a 7% fixed interest rate with a maturity date in May 2019. The loan was fully paid as of June 30, 2019. Goodwill and SOB license for the Chicago acquisition are not amortized but are tested at least annually for impairment. Goodwill recognized for this transaction is not deductible for tax purposes. Noncompete is amortized on a straight-line basis over five years from acquisition date.The following information summarizes the allocation of fair values assigned to the assets at acquisition date (in thousands):Schedule of Allocation of Fair Values Assigned to Assets at Acquisition Land and building $ 4,325 Inventory 57 Furniture and equipment 50 Noncompete 100 SOB license 5,252 Goodwill 2,003 Deferred tax liability (1,287 ) Net assets $ 10,500 On November 5, 2018, the Company acquired the assets of a club in Pittsburgh for $15.0 million, with $7.5 million cash paid at closing and two seller notes payable. The first note is a 2-year 7% note for $2.0 million, and the second is a 10-year 8% note for $5.5 million. The Company paid acquisition-related costs for this transaction of approximately $134,000, which is included in selling, general and administrative expenses in our consolidated statement of operations. The club generated revenue of approximately $4.6 million since acquisition date. Goodwill for the Pittsburgh acquisition is not amortized but is tested at least annually for impairment. Goodwill recognized for this transaction is deductible for tax purposes. Noncompete is amortized on a straight-line basis over five years from acquisition date.The following information summarizes the allocation of fair values assigned to the assets at acquisition date (in thousands):Schedule of Allocation of Fair Values Assigned to Assets at Acquisition Land and building $ 5,000 Inventory 23 Furniture and equipment 200 Noncompete 100 Goodwill 9,677 Net assets $ 15,000 2019 DispositionsIn October 2018, the Company sold its nightclub in Philadelphia for a total sales price of $1.0 million, payable $375,000 in cash at closing and a $625,0009% note payable to us over a 10-year period. The note is payable interest-only for twelve months at the conclusion of which time a balloon payment of $250,000 is due, and then the remainder of the principal and interest is payable in 108 equal installments of $5,078 per month until October 2028. The buyer will lease the property from the Company’s real estate subsidiary under the following terms: $36,000 per month lease payments for ten years; renewal option for a succeeding ten years at a minimum of $48,000 per month; lessee has option to purchase the property for $6.0 million during a term beginning November 2023 and expiring in October 2028. The Company recorded a gain on the sale transaction of approximately $879,000, which is included in other charges (gains), net in our consolidated statement of operations during the quarter ended December 31, 2018. In July 2019, the Company and the buyer agreed to modify the promissory note to include in principal (i) rental payments from April to September 2019, (ii) accrued property taxes, (iii) accrued occupancy taxes, and (iv) two months of outstanding interest payments for a total principal balance of $879,085. The note, as modified, still bears interest at 9% and is payable in 108 equal monthly installments of $11,905, including principal and interest, until July 2028.75RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements15. Acquisitions and Dispositions - continuedIn November 2018, the Company sold two assets held for sale in Houston and San Antonio, Texas for a combined sales price of $868,000. Net gain on the two transactions amounted to $273,000 after closing costs. The Company used the proceeds to pay down $945,000 in loans related to the properties.On January 24, 2019, the Company sold a held-for-sale property in Dallas, Texas for a total sales price of $1.4 million, payable $163,000 in cash at closing, net of closing costs and property taxes of $87,000, and a $1.15 million 8% note payable over a three-year period. The note is payable $9,619 per month, principal and interest, for the first 35 months with the remaining balance payable at maturity. The buyer has the option to extend the maturity date by one year at least 60 days prior to maturity, as long as the buyer is not in default. The Company recorded a gain on the sale transaction of approximately $383,000.On March 21, 2019, the Company sold a held-for-sale property adjacent to our Bombshells 249 location for a total sales price of $1.4 million in cash. Net gain on the transaction amounted to approximately $628,000 after closing costs. The Company used $980,000 of the proceeds to pay off a loan related to the property.In April 2019, the Company sold another held-for-sale property adjacent to our Bombshells I-10 location for a total sales price of $1.1 million in cash. Net gain on the transaction amounted to approximately $331,000 after closing costs. The Company used $942,000 of the proceeds to pay off a loan related to the property.In June 2019, the Company sold a property located in Lubbock, Texas for $350,000 in cash. Net loss on the transaction amounted to $376,000 after closing costs. The Company used $331,000 of the proceeds from the sale to pay down debt.In June 2019, the Company sold an aircraft for $690,000 in cash. Net loss on the transaction amounted to $9,000 after closing costs. The Company used $666,000 of the proceeds from the sale to pay down related debt.On July 23, 2019, the Company sold an aircraft for a total sales price of $382,000 for net gain of $16,000. Proceeds were used to pay off the remaining note payable balance of approximately $217,000.On September 30, 2019, the Company sold its Bombshells Webster location for a total sales price of $85,000 in cash. Net loss on the transaction amounted to approximately $156,000.2020 DispositionsOn April 1, 2020, the Company sold a corporate housing property to an employee for $375,000 in cash with an approximate gain of $20,000.On May 22, 2020, the Company sold land adjacent to one of our Bombshells locations in Houston for $1.5 million in cash. Net gain on the transaction was $583,000 after closing costs. The net proceeds of $1.4 million were used to pay down related debt.On August 6, 2020, the Company sold another corporate housing property for $176,000 in cash with an approximate gain of $26,000. The net proceeds of $160,500 were used to pay down related debt.Centerville,Centreville, Illinois for $500,000$500,000 in cash. The Company is leasing out this propertya club operator for $48,000 annually.$2.9$2.9 million. The Company paid approximately $754,000$754,000 in cash including closing costs and financed $2.175$2.175 million with a bank lender for a 20-year20-year promissory note with an initial interest rate of 3.99% per annum. See Note 9.857,000-square57,000-square foot of land across the street from our corporate office for $475,000 $475,000 in cash. The Company plans to build a warehouse on that land in the coming months.$1.04$1.04 million in cash.$1.275$1.275 million in cash.$3.1$3.1 million. The property had a carrying value of $2.3$2.3 million. We recorded a net gain of approximately $657,000$657,000 after closing costs and we paid related debt amounting to $2.0$2.0 million from the proceeds of the sale. See Note 7.$2.25$2.25 million with a net gain of approximately $54,000$54,000 after closing costs. We paid $1.2 $1.2 million of related debt with the proceeds of the sale.76RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements15. Acquisitions and Dispositions - continued$88.0 $88.0 million (with a total consideration preliminary fair value of $88.4$87.9 million based on the Company’s stock price at acquisition date and discounted due to the lock-up period)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 stock purchase agreements, where a newly formed subsidiary purchased 100% of the capital stock of two club-owning entities. Along with the asset and stock purchase agreements, the Company also entered into a real 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 sixfour additional states. We paid for the acquisition with $36.8 $36.8 million in cash, $21.2 $21.2 million in four seller-financed notes (see Note 9)8), and shares of our common stock.We have not completed our valuationCash $ 36,800 Notes payable 21,200 Common stock 29,933 Total consideration fair value $ 87,933 acquired, therefore, we do not have anand liabilities for this acquisition based on our estimates of their acquisition date fair values, all in our 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 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 of the recognized goodwill for this time.Current assets $ 386 Property and equipment 19,273 Licenses 47,390 Tradenames 6,934 Leases acquired in-place 261 Deferred tax liability (1,741) Total net assets acquired 72,503 Goodwill 15,430 Acquisition price fair value $ 87,933 thethis acquisition, we incurred acquisition-related expenses of approximately $347,000,$414,000, of which $174,000$173,000 was expensedrecognized in fiscal 2021 and $173,000 will be expensed$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.Current assets $ 172 Property and equipment 5,336 Licenses 4,900 Tradenames 1,460 Deferred tax liability (2,627) Total net assets acquired 9,241 Goodwill 6,759 Acquisition price fair value $ 16,000 Current assets $ 71 Property and equipment 4,921 Licenses 16,810 Deferred tax liability (3,979) Total net assets acquired 17,823 Goodwill 5,577 Acquisition price fair value $ 23,400 Current assets $ 64 Property and equipment 4,884 Licenses 1,170 Tradename 340 Accrued liability (95) Deferred tax liability (363) Total net assets acquired 6,000 Goodwill 2,905 Acquisition price fair value $ 8,905 Cash $ 25,000 Notes payable 25,500 Common stock 12,847 Total consideration fair value $ 63,347 Current assets $ 632 Property and equipment 16,570 Licenses 36,110 Tradename 6,328 Accounts payable (632) Total net assets acquired 59,008 Goodwill 4,339 Acquisition price fair value $ 63,347 elevenfive acquired clubs and related assets in the March 16, 2023 acquisition transaction above as though the acquisition occurred at the beginning of fiscal 20212022 (in thousands, except per share amount):Scheduleamount and number of Unaudited Pro Forma Combined Results of Operations For the Fiscal Year
Ended
September 30, 2021 Pro forma revenues $ 217,996 Pro forma net income attributable to RCIHH common stockholders $ 25,290 Pro forma earnings per share - basic and diluted $ 2.66 Pro forma weighted average number of common shares outstanding - basic and diluted 9,500 2023 2022 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 diluted 9,426,942 9,583,445 2021.2022. 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. Since we do not have a valuation of the assets that we acquired yet, theThe unaudited pro forma financial information does not haveincludes 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 that will be recorded in fiscal 2022 amounting to $173,000 and interest expense of $3.3 million related to the 28 private lender group notes$10.0 million line-of-credit facility (see Note 8) and 4the nine seller-financed notes in the acquisition.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.November 8, 2021,June 20, 2023, the Company acquiredpurchased a clubrestaurant 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 related$2.9 million under a 7.12% five-year promissory note (see Note 8).Newburgh, New York for a total purchase price of $3.5 Central City, Colorado amounting to $2.9 million by which $2.5 million was paid in cash at closing and $to house administrative operations in the region.1.0 million through a seller-financed 7-year promissory note with an interest rateTable of 4.0% Contentsper annum. The note is payable $13,669 per month, including principal and interest. See Note 9. Since this acquisition is not material, we are not providing supplemental pro forma disclosures.7716. 2021, 2020,2023, 2022, and 20192021 (in thousands, except share and per share data):For the Three Months Ended December 31, 2022 March 31,
2023June 30,
2023September 30, 2023 $ 69,968 $ 71,517 $ 77,055 $ 75,250 $ 16,898 $ 13,427 $ 15,515 $ 5,644 $ 10,238 $ 7,732 $ 9,085 $ 2,191 Basic and diluted $ 1.11 $ 0.83 $ 0.96 $ 0.23 Weighted average number of common shares outstanding Basic and diluted 9,230,258 9,265,781 9,430,225 9,417,166 Dividends per share declared and paid $ 0.05 $ 0.06 $ 0.06 $ 0.06 For the Three Months Ended December 31, 2021 March 31,
2022June 30,
2022September 30, 2022 $ 61,836 $ 63,692 $ 70,714 $ 71,378 $ 15,911 $ 17,081 $ 20,507 $ 17,960 $ 10,575 $ 10,952 $ 13,902 $ 10,612 Basic and diluted $ 1.12 $ 1.15 $ 1.48 $ 1.15 Weighted average number of common shares outstanding Basic and diluted 9,407,519 9,489,085 9,389,675 9,249,864 Dividends per share declared and paid $ 0.04 $ 0.05 $ 0.05 $ 0.05 ScheduleTable of Quarterly Financial InformationContents For the Three Months Ended December 31, 2020 March 31,
2021 September 30, 2021 Revenues(1) $ 38,398 $ 44,059 $ 57,860 $ 54,941 Income from operations(1) $ 6,583 $ 9,841 $ 18,507 $ 3,617 Net income attributable to RCIHH stockholders(1) $ 9,643 $ 6,091 $ 12,302 $ 2,300 Earnings per share(1) Basic and diluted $ 1.07 $ 0.68 $ 1.37 $ 0.26 Weighted average number of common shares outstanding Basic and diluted 9,019 9,000 9,000 9,000 For the Three Months Ended December 31, 2019 March 31,
2020 September 30, 2020 Revenues(2) $ 48,394 $ 40,426 $ 14,721 $ 28,786 Income (loss) from operations(2) $ 9,686 $ (2,475 ) $ (4,657 ) $ 192 Net income (loss) attributable to RCIHH stockholders(2) $ 5,634 $ (3,452 ) $ (5,474 ) $ (2,793 ) Earnings (loss) per share(2) Basic and diluted $ 0.60 $ (0.37 ) $ (0.60 ) $ (0.31 ) Weighted average number of common shares outstanding Basic and diluted 9,322 9,225 9,125 9,124 For the Three Months Ended December 31, 2018 March 31,
2019 September 30, 2019 Revenues $ 44,023 $ 44,826 $ 47,027 $ 45,183 Income from operations(3) $ 11,132 $ 11,166 $ 9,974 $ 2,429 Net income attributable to RCIHH stockholders(3) $ 7,463 $ 6,735 $ 5,638 $ 458 Earnings per share(3) Basic and diluted $ 0.77 $ 0.70 $ 0.59 $ 0.05 Weighted average number of common shares outstanding Basic and diluted 9,713 9,679 9,620 9,616 78For the Three Months Ended December 31, 2020 March 31,
2021June 30,
2021September 30, 2021 Revenues $ 38,398 $ 44,059 $ 57,860 $ 54,941 $ 6,583 $ 9,841 $ 18,507 $ 3,617 $ 9,643 $ 6,091 $ 12,302 $ 2,300 Basic and diluted $ 1.07 $ 0.68 $ 1.37 $ 0.26 Weighted average number of common shares outstanding Basic and diluted 9,019,088 8,999,910 8,999,910 8,999,910 Dividends per share declared and paid $ 0.04 $ 0.04 $ 0.04 $ 0.04 (1) Fiscal year 2023 results of operations mainly impacted by the six newly acquired clubs and the lower same-store sales. Net income attributable to RCIHH stockholders and earnings per share were impacted by $12.6 million in asset impairments ($662,000 in the second quarter, $2.6 million in the third quarter, and $9.3 million in the fourth quarter) and $3.8 million in lawsuit settlements ($3.1 million in the second quarter, $63,000 in the third quarter, and $576,000 in the fourth quarter). Quarterly effective income tax expense (benefit) rate was 22.8%, 21.8%, 20.1%, and (39.6)% from first to fourth quarter, respectively, including the impact of the release of a $176,000 deferred tax asset valuation allowance and the pretax loss in the fourth quarter. (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 21.7%, 23.4%, 21.3%, and 27.1% from first to fourth quarter, respectively, including the impact of the $343,000 deferred tax asset valuation allowance in the fourth quarter. (3) Fiscal year 2021 revenues were significantly higher compared to prior year, except for the first quarter, which was still affected by the lockdowns and social restrictions of the COVID-19 pandemic. Net income attributable to RCIHH stockholders and earnings per share were heavily impacted by the gain on debt extinguishment ($4.9 million in the first quarter and $380,000 $380,000 in the second quarter), asset impairments totaling $13.6 $13.6 million ($1.4million in the second quarter, $271,000 $271,000 in the third quarter, and $11.9 $11.9 million in the fourth quarter), and gain on insurance totaling $1.3 $1.3 million ($197,000 in the first quarter, $12,000$12,000 in the second quarter, and $1.0 $1.0 million in the fourth quarter).Quarterly effective income tax expense (benefit) rate was (4.2)%, 24.3%, 24.4%, and (210.4)% from first to fourth quarter, respectively, including the impact of the release of a $462,000$462,000 deferred tax asset valuation allowance in the fourth quarter.(2)Fiscal year 2020 revenues during the second through the fourth quarter were significantly affected by the COVID-19 pandemic. Income (loss) from operations, net income (loss) attributable to RCIHH stockholders, and earnings (loss) per share included the impact of a $10.6 million in asset impairments ($8.2 million in the second quarter, $982,000 in the third quarter, and $1.4 million in the fourth quarter). Net loss attributable to RCIHH stockholders and loss per share during the fourth quarter was also affected by the $1.3 million valuation allowance on our deferred tax assets. Quarterly effective income tax expense (benefit) rate was 22.0%, (28.9)%, (20.5)%, and 36.3% from first to fourth quarter, respectively.(3)Fiscal year 2019 income from operations, net income attributable to RCIHH stockholders, and earnings per share included the impact of a $6.0 million in asset impairments in the fourth quarter, a $2.9 million net gain on sale of businesses and assets ($1.2 million in the first quarter, $1.1 million in the second quarter, $0.3 million in the third quarter, and $0.4 million in the fourth quarter), and a $0.8 million net gain on insurance ($0.1 million net loss in the third quarter and $0.9 million net gain in the fourth quarter). Quarterly effective income tax expense (benefit) rate was 8.4%, 22.3%, 24.1%, and (371.7)% from first to fourth quarter, respectively., but in fiscal 2020, due to the COVID-19 pandemic, revenues during the second through the fourth quarter were significantly reduced.. Our revenues in certain markets are also affected by sporting events that cause unusual changes in sales from year to year.79RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial Statements17. Schedule of Segment Reporting Information 2021 2020 2019 Revenues (from external customers) Nightclubs $ 137,348 $ 88,373 $ 148,606 Bombshells 56,621 43,215 30,828 Other 1,289 739 1,625 $ 195,258 $ 132,327 $ 181,059 Income (loss) from operations Nightclubs $ 43,815 $ 13,056 $ 50,724 Bombshells 13,264 9,237 2,307 Other 35 (614 ) (309 ) General corporate (18,566 ) (18,933 ) (18,021 ) $ 38,548 $ 2,746 $ 34,701 Capital expenditures Nightclubs $ 6,890 $ 3,477 $ 6,645 Bombshells 5,895 2,114 10,457 Other 157 - 27 General corporate 569 145 3,579 $ 13,511 $ 5,736 $ 20,708 Depreciation and amortization Nightclubs $ 5,494 $ 5,799 $ 6,401 Bombshells 1,824 1,785 1,374 Other 87 415 416 General corporate 833 837 881 $ 8,238 $ 8,836 $ 9,072 September 30, 2021 September 30, 2020 September 30, 2019 Total assets Nightclubs $ 280,561 $ 277,960 $ 274,071 Bombshells 52,073 48,991 44,144 Other 1,573 1,269 1,773 General corporate 30,412 32,713 34,768 $ 364,619 $ 360,933 $ 354,756 2023 2022 2021 Revenues (from external customers) Nightclubs $ 236,748 $ 206,251 $ 137,348 Bombshells 55,723 59,925 56,621 Other 1,319 1,444 1,289 $ 293,790 $ 267,620 $ 195,258 Income (loss) from operations Nightclubs $ 73,187 $ 82,798 $ 43,815 Bombshells 6,502 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 Bombshells 16,578 3,586 5,895 Other 8,400 841 157 General corporate 3,566 2,099 569 $ 40,384 $ 24,003 $ 13,511 Depreciation and amortization Nightclubs $ 10,871 $ 9,604 $ 5,494 Bombshells 2,574 1,783 1,824 Other 495 85 87 General corporate 1,211 919 833 $ 15,151 $ 12,391 $ 8,238 September 30, 2023 September 30, 2022 Total assets Nightclubs $ 483,563 $ 437,096 Bombshells 85,215 62,021 Other 6,936 2,635 General corporate 35,170 28,986 $ 610,884 $ 530,738 $11.5$16.6 million, $11.1$14.0 million, and $10.0$11.5 million for 2021, 2020,2023, 2022, and 2019,2021, respectively, and intercompany sales of Robust Energy Drink of Other segment amounting to $141,000, $70,000,$254,000, $261,000, and $140,000$141,000 for the same respective years. These intercompany revenue amounts are eliminated upon consolidation.80RCI HOSPITALITY HOLDINGS, INC.NotesAs of September 30, 2022, we reclassified $9.0 million of goodwill from Corporate to Consolidated Financial StatementsNightclubs to conform to current year presentation. See 18. .20212023 and 20202022 was $99.7$119.2 million and $83.8$115.1 million, respectively.$2.35million borrowing on November 1, 2018 (see Note 9) were notes borrowed from related parties—one note for $500,000 (Ed Anakar, an employee of the Company and brother of our former director Nourdean Anakar) and another note for $100,000 (from a brother of Company CFO, Bradley Chhay) as part of a larger group of private lenders. The terms of this related party note are the same as the rest of the lender group in the November 1, 2018 transaction. These notes were paid off in relation to the September 2021 Refinancing Note (see Note 9). Included in the $17.0$17.0 million borrowing on October 12, 2021 (see Note 9)8) are notes borrowed from related parties—one note for $500,000$500,000 (Ed Anakar, see above)President of RCI Management Services, Inc. and our Director of Operations) and another note for $150,000$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 $118,000$195,000 in fiscal 2021, $59,0002023, $207,000 in fiscal 2020,2022, and $134,000$118,000 in fiscal 2019.2021. As of September 30, 20212023 and 2020,2022, we owed Nottingham Creations and Sherwood Forest $12,205$10,700 and $0,$92,808, respectively, in unpaid billings.2021, 2020,2023, 2022, and 2019.2021. 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 $0, $19,000,$443,295, $3,809, and $452,000 $0 for the fiscal years 2021, 2020,2023, 2022, and 2019,2021, respectively. Amounts billed directly to the Company were approximately $425,000, $62,000,$9,430, $133,000, and $47,000 $425,000 for the fiscal years 2021, 2020,2023, 2022, and 2019,2021, respectively. As of September 30, 20212023 and 2020,2022, the Company owed TW Mechanical approximately $7,500 $0 and $5,700,$9,338, respectively, in unpaid direct billings.19. ASC 840 (Related to Fiscal 2019)leases. Underleases per ASC 840, lease 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 lease expense is attributed to each period during the term of the lease, regardless of when actual payments are made. Generally, this results in lease expense in excess of cash payments during the early years of a lease and lease expense less than cash payments in the later years. The difference between lease expense recognized and actual lease payments is accumulated and included in other long-term liabilities in the consolidated balance sheets.81RCI HOSPITALITY HOLDINGS, INC.Notes to Consolidated Financial StatementsIncluded in lease expense in our consolidated statements of operations (see Note 5) were lease payments for a house that the Company’s CEO rented to the Company for corporate housing for its out-of-town Bombshells management and trainers, of which lease expense totaled $19,500 and $78,000 for the years ended September 30, 2020 and 2019, respectively. This lease terminated on December 31, 2019 and was scoped out upon adoption of ASC 842 on October 1, 2019.Included in the future minimum lease obligations are billboard and outdoor sign leases.842. These leases were recorded as advertising and marketing expenses, and included in selling, general and administrative expenses in our consolidated statements of operations. Under ASC 840, we recorded lease expense amounting to $3.9 million for the year ended September 30, 2019.ASC 842 (Related to Fiscal 2021 and 2020)The Company adopted ASC 842 as of October 1, 2019. The Company’s adoption of ASC 842 includedinclude 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.payments.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 operations.income.ASC 842operating lease liabilities as of September 30, 20212023 are as follows (in thousands):Schedule of Future Maturities of Lease Liabilities Principal Payments Interest
Payments October 2021 - September 2022 $ 1,780 $ 1,516 $ 3,296 October 2022 - September 2023 1,764 1,409 3,173 October 2023 - September 2024 1,877 1,300 3,177 October 2024 - September 2025 2,062 1,183 3,245 October 2025 - September 2026 2,251 1,053 3,304 Thereafter 16,196 4,375 20,571 $ 25,930 $ 10,836 $ 36,766 Principal
PortionInterest
PortionTotal
PaymentsOctober 2023 - September 2024 $ 2,977 $ 2,056 $ 5,033 October 2024 - September 2025 3,227 1,881 5,108 October 2025 - September 2026 3,516 1,691 5,207 October 2026 - September 2027 3,532 1,487 5,019 October 2027 - September 2028 2,982 1,300 4,282 Thereafter 21,918 4,630 26,548 $ 38,152 $ 13,045 $ 51,197 operations,income, except for sublease income which was included in other revenue, for the yearyears ended September 30, 20212023, 2022, and 20202021 as follows (in thousands):Schedule of Lease Expense Operating lease expense – fixed payments $ 3,325 $ 3,244 Variable lease expense 349 381 Short-term equipment and other lease expense (includes $298 and $315 recorded in advertising and marketing for fiscal 2021 and 2020, respectively, and $397 and $372 recorded in repairs and maintenance, respectively; see Note 5) 955 1,122 Sublease income (6 ) (9 ) Total lease expense, net $ 4,623 $ 4,738 Other information: Operating cash outflows from operating leases $ 4,522 $ 4,562 Weighted average remaining lease term 12 years 13 years Weighted average discount rate 6.0 % 6.1 % 2023 2022 2021 Operating lease expense – fixed payments $ 5,166 $ 4,738 $ 3,325 Variable lease expense 1,629 1,397 349 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 term 10.5 years 11 years 12 years Weighted average discount rate 5.8 % 5.6 % 6.0 % $0, $104,000,$1.0 million, $0, and $0$0 during fiscal years 2023, 2022, and 2021, 2020,respectively.2019,$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.82Schedule of Valuation and Qualifying Accounts Balance at beginning of year Charged to costs and expenses(1) Deductions(2) Balance at end of year Allowance for doubtful accounts receivable Fiscal 2019 $ - $ 241 $ (140 ) $ 101 Fiscal 2020 $ 101 $ 347 $ (187 ) $ 261 Fiscal 2021 $ 261 $ 215 $ (94 ) $ 382 Allowance for doubtful notes receivable Fiscal 2019 $ - $ - $ - $ - Fiscal 2020 $ - $ 602 $ (420 ) $ 182 Fiscal 2021 $ 182 $ (80 ) $ - $ 102 Deferred tax asset valuation allowance(3) Fiscal 2019 $ - $ - $ - $ - Fiscal 2020 $ - $ 1,273 $ - $ 1,273 Fiscal 2021 $ 1,273 $ - $ (632 ) $ 641 Balance at beginning of year 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 $ — $ — $ — $ — Fiscal 2021 $ 1,273 $ — $ (632) $ 641 Fiscal 2022 $ 641 $ 343 $ — $ 984 Fiscal 2023 $ 984 $ — $ (176) $ 808 (1) Charged to bad debts expense (under other selling, general and administrative expenses) in the consolidated statements of operations.income.(2) Written off against gross receivable and allowance. (3) Included in deferred tax liability, net in the consolidated balance sheets. 832021.2023. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported 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.a material weaknessweaknesses in internal control over financial reporting described below, management concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2021.2023. Notwithstanding the existence of thisthese material weakness,weaknesses, management believes that the consolidated financial statements in this annual report filed on Form 10-K present, in all material respects, the Company’s financial condition as reported, in conformity with United States Generally Accepted Accounting Principles (“U.S. GAAP”).2021,2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway 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.a material weaknessweaknesses in internal control related to the(1) proper design and implementation of controls over our estimates relatingmanagement’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’smanagement's review of certain assumptions.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 and as a result of the material weakness identified, our management, with the participation of our chief executive officer and chief financial officer, concluded that our internal control over financial reporting was not effective as of September 30, 2021.Friedman,Marcum LLP, has expressed an unqualified opinion on our financial statements and an adverse opinion on our internal control over financial reporting as of September 30, 20212023, in the audit report that appears at the end of Part II of this Annual Report on Form 10-K.84Weaknessthe precision of themanagement’s review of alleach component of business combinations, and if necessary, retain the services of a third-party consultant to assist in the valuation and accounting for intangible assets acquired in a business combination.model, as well asmodels and establishing sound and reasonable assumptions.conduct seniorimplement remediation measures to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) strengthening and enhancing the review and documentation procedures in our controls over user access review; (ii) define and communicate clear and concise program change management reviewspolicy and procedures; (iii) enhancing the reporting requirements of anyaccounting system audit logs; (vi) continuous improvement over our ITGC controls related to third party applications; and all material estimates that are applied in these instances.weakness.weaknesses.Previously Reported Material WeaknessAs disclosedDuring fiscal year 2023, the Company completed several business combinations as described in Item 9A ControlsNote 14 - Acquisitions and ProceduresDispositions to our audited Consolidated Financial Statements.our Annual Report on Form 10-KDickinson, Texas.2020, we identified a material weakness in2023, did exclude those internal control related toactivities. The businesses are wholly owned subsidiaries whose total assets and total revenues are excluded from management’s reviewassessment and represent approximately 7% and 6%, respectively, of the income tax provision.Remediation Efforts to Address Material WeaknessIn response to the previously reported material weakness, management has made the following changes:●developed enhanced review procedures that are performed by senior management over the income tax provision; and●retained the services of a new third-party income tax consultant to assist in the preparation and review of the income tax provision.During the fourth quarter of 2021, we completed our testing of the operating effectiveness of the implemented controls. The Company has completed the documentation and testing of the corrective actions described above and has concluded that the remediation activities implemented are sufficient to conclude that the previously disclosed material weakness on management’s review of the income tax provision has been remediatedrelated consolidated financial statement amounts as of and for the year ended September 30, 2021.
2023.85Changes in Internal Control Over Financial Reportingchangesremediation efforts as discussed above, there have 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) that occurred during the fourth quarter of 2021ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.None86
Noneand Stockholders of“Company’s”"Company’s") internal control over financial reporting as of September 30, 2021,2023, based on criteria established in Internal Control—IntegratedControl-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).Commission. In our opinion, because of the effect of the material weaknessweaknesses 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, 2021,2023, based on criteria established in Internal Control—IntegratedControl-Integrated Framework (2013) issued by COSO.the Committee of Sponsoring Organizations of the Treadway Commission. a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’sCompany's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness hasweaknesses have been identified and included in management’s assessment:Management's Annual Report on Internal Control Over Financial Reporting:IneffectiveThe Company had ineffective design, implementation and, operation of controls relatedover program change management, user access and vendor management controls to management’s review ofensure:estimates relatingfinancial 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;impairmentfinancially relevant systems;goodwillcontrols, which include management review controls, over the accounting for business combinations.indefinite-lived intangible assets and long-lived assets, specifically related tooperation of controls, which include management review controls, over the precisionCompany's assessments of management’s review of the assumptions used in the impairment analysis.potential impairment.Thisweakness wasweaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2021fiscal 2023 consolidated financial statements and financial statement schedule, and this report does not affect our report dated December 14, 2021,2023 on those consolidated financial statements.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.Wehave also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets sheet as of September 30, 2023and the related consolidated statementsstatement of operations, comprehensive income (loss), 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, 2021,2023 expressed an unqualified opinion.opinion on those consolidated financial statements and financial statement schedule.Company’sCompany'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 overOver 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.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.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./s/ Friedman LLPMarlton, New JerseyDecember 14, 202187Boardboard 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 sevensix persons. The following table sets forth our Directors and executive officers as of December 14, 2021:Name Age AgePosition Eric S. Langan 55 53Director, Chairman, Chief Executive Officer, President Bradley Chhay 40 38Chief Financial Officer Travis Reese 54 52Director and Executive Vice President Luke Lirot 67 65Director Yura Barabash 49 47Director Elain J. Martin 67 65Director Arthur Allan Priaulx 83 81Director Boardboard of Directorsdirectors since 1999. Through these activities, Mr. Langan has acquired the knowledge and skills necessary to successfully operate adult entertainment businesses.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.military 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. His experience and knowledge in this industry is essential to the Board’s oversight of our businesses.88Mr. BarabashSince October 2021, he has been aserved as the Vice President of Business Development at AVI-SPL, a global market leader in audio visualthe world's largest AV/UCC integrator, and unified communicationsdigital solutions provider based in Florida since October 2021.Florida. Mr. Barabash hasbrings with him extensive corporate finance experience across multiplevarious industries both domestically and internationally, andinternationally. He has been involvedplayed a key role in multiplenumerous equity and debt financings, as well as mergers and M&Aacquisitions transactions forinvolving public and private companies in the US,United States, Mexico, China, Brazil EU and Russia.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 data enabled digital media company in the 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. Mr. Barabash is a valuable member ofhas recently attended the Board of Directors basedHarvard Business School Executive Education programs focusing on his extensive corporate financeAudit and investment banking experience across multiple industries domestically and internationally with a wide range of transactions (debt and equity). He also possesses extensive financial modeling and investor relationship experience, and experience in diligence, governance and accounting.Boardboard of Directorsdirectors 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.8990Boardboard of Directors,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 our website at www.rcihospitality.com/investor.COMMITEEDelinquent Section 16(a) Reports2021,2023, 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, 2021.912021,2023, as well as any other individuals included in the Summary Compensation Table, are referred to as “named executive officers.”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.We have not, however, granted any equity awards to our executive officers since 2014. 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.92September 14, 2021,August 28, 2023, approximately 94.7%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.93and/or aircrafts, and housing and living expenses for our former CFO. In September 2019,aircrafts. On August 28, 2023, the board of directors, approved anafter a recommendation from the Audit Committee, amended the corporate aircraft policy allowingchanging the allowed use to a maximum personal use of Company aircraftseach fiscal year, as follows: (1) 25(i) 100 hours per fiscal quarterflown for ourthe CEO and (2) 12(ii) 48 hours flown each per fiscal quarter for other executive officers. Refer to footnote on All Other Compensation in the Summary Compensation Table below.2021, 2020,2023, 2022, and 20192021 of our named executive officers.Name and
Principal PositionYear Salary
($)Bonus
($)Total
($)Eric S. Langan 2023 1,700,000 — — 167,388 1,867,388 President and Chief Executive 2022 1,700,000 — 1,568,500 151,353 3,419,853 Officer 2021 1,436,539 — — 108,679 1,545,218 Bradley Chhay 2023 472,789 — — 61,676 534,465 Chief Financial Officer 2022 428,077 — 1,568,500 77,374 2,073,951 2021 431,442 7,500 — 66,055 504,997 Travis Reese 2023 460,000 25,000 — 51,534 536,534 Executive Vice President 2022 423,077 — 1,568,500 66,862 2,058,439 2021 437,827 — — 65,537 503,364 All Other Name and Salary Bonus Compensation(1) Total Principal Position Year ($) ($) ($) ($) Eric S. Langan 2021 1,436,539 - 108,679 1,545,218 President and Chief Executive Officer 2020 1,073,077 - 95,975 1,169,052 2019 1,200,000 - 81,355 1,281,355 Bradley Chhay 2021 431,442 7,500 66,055 504,997 Chief Financial Officer 2020 269,231 25,000 50,333 344,564 Travis Reese 2021 437,827 - 65,537 503,364 Executive Vice President 2020 348,750 - 66,418 415,168 2019 390,000 - 76,622 466,622 (1)All Other Compensation consists of SIMPLE IRA matching contributions, automobile expenses, personal use of aircraft, and housing and living expenses. We account for personal use of aircraft to be the aggregate incremental cost of personal use of the company aircraft as calculated based on a cost-per-flight-hour charge developed by a nationally recognized and independent service. The charge reflects the direct cost of operating the aircraft, including fuel, additives, lubricants, maintenance labor, airframe parts, engine restoration, and major periodic maintenance. We added actual airport/hangar fees charged to the company on a per-flight basis. The charge does not include fixed costs that do not change based on usage, such as aircraft depreciation, home hangar expenses, and general taxes and insurance. We value automobile expenses based on the annual depreciation rate of automobiles assigned for use by the particular officer (until fiscal 2019), plus cost of insurance, registration, repairs, maintenance, tolls, fuel, and starting fiscal 2020, tax reimbursement on automobile fringe benefits.20212023 for our named executive officers is presented below: SIMPLE IRA Matching Contribution Automobile Expenses Personal Use of Aircraft Tax Reimbursement Total All Other Compensation Name ($) ($) ($) ($) ($) Eric S. Langan 18,403 21,477 58,744 10,055 108,679 Bradley Chhay 13,402 33,876 10,974 7,803 66,055 Travis Reese 17,550 21,337 18,238 8,412 65,537 94Name SIMPLE
IRA
Matching
Contribution
($)Automobile
Expenses
($)Personal
Use of
Aircraft
($)Tax
Reimbursement
($)Total All
Other
Compensation
($)Eric S. Langan 18,539 23,740 114,401 10,708 167,388 Bradley Chhay 14,069 39,225 — 8,382 61,676 Travis Reese 13,800 22,095 10,420 5,219 51,534 2021.During the fiscal year ended September 30, 2021, a sizable number of employees have been rehired due to the recovery from the pandemic. We recalculated and identified a new median employee using the same methodology as mentioned above.20212023 of $1,545,218$1,862,465 was approximately 5057 times the $32,496 compensation of our fiscal 2023 median employee.median employeeas it relates to our principal executive officer ("PEO") and certain non-PEO NEOs.Value of Initial Fixed $100 Investment Based On: Year Summary Compensation Table Total for PEO Compensation Actually Paid to PEO Average Summary Compensation Table Total for Non-PEO NEOs Average Compensation Actually Paid to Non-PEO NEOs RICK Total Shareholder Return DJUSRU Total Shareholder Return Net Income Free 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 $31,039.the fiscal years presented.2023 2022 2021 PEO Average for Non-PEO NEOs PEO Average for Non-PEO NEOs PEO Average 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 year 101,049 101,049 — — — — Compensation Actually Paid $ 1,900,987 $ 575,130 $ 3,329,003 $ 1,975,345 $ 1,545,218 $ 504,181 
2021.Outstanding Equity Awards at Fiscal Year-EndThere were no2023.equitystock options awards for each of our named executive officers as of September 30, 2021.2023.Option Awards Name Grant
DateNumber of
Securities
Underlying
Unexercised
Options (#)
ExercisableNumber of
Securities
Underlying
Unexercised
Options (#)
UnexercisableOption
Exercise
Price
($/Sh)Option
Expiration
DateEric S. Langan 2/9/2022 20,000 30,000 100.00 2/9/2027 Bradley Chhay 2/9/2022 20,000 30,000 100.00 2/9/2027 Travis Reese 2/9/2022 20,000 30,000 100.00 2/9/2027 20212021. As2023.2021,2023, and we paid our independent directors $30,000$40,000 in cash for the fiscal year. The Audit Committee chair received additional compensation of $10,000 in cash. Following is a schedule of all compensation paid to our directors in the year ended September 30, 2021:Fees earnedor paid incashName Fees earned
or paid in
cash
($)Nourdean Anakar*30,000Luke C. Lirot 40,000 30,000Yura Barabash 50,000 30,000Elaine Martin 40,000 30,000Arthur Allan Priaulx 40,000 30,000Eric S. Langan — -Travis Reese — -* Mr. Anakar did not stand for reelection during the September 2021 annual meeting of stockholders.July 1, 2021,August 25, 2022, we entered into new two-year employment agreements with each of our executive officers, including Eric Langan, our Chief Executive Officer and President; Bradley Chhay, our Chief Financial Officer; and Travis Reese, our Executive Vice President and Secretary. Under their respective new agreements, Mr. Langan’s annual salary is $1,700,000; Mr. Chhay’s annual salary is $425,000; andincreased to $465,000; Mr. Reese’s annual salary is $420,000. increased to $460,000; and Mr. Langan’s annual salary remained the same at $1,700,000. The term of each of the agreements commenced on September 1, 2022, and will end on August 31, 2024.agreements has a term that commenced on July 1, 2021 and ends on June 30, 2023. Each of thenew employment agreements also provides for bonus eligibility, expense reimbursement, health benefits, participation in our benefit plans, 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 annually. Under the terms of the new agreements, each executive is bound to a confidentiality provision and cannot compete with us for a period upon termination of the agreement.The Company’s 2010as amended, contractually expired(the “2022 Plan”). The board’s adoption of the 2022 Plan was approved by the shareholders during the annual stockholders' meeting on September 30, 2020. There are presently no outstanding employeeAugust 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.96Boardboard of Directorsdirectors that the Compensation Discussion and Analysis referred to above be included in this report. This report is furnished by the Compensation Committee of our Boardboard of Directors,directors, whose members are:Boardboard of Directorsdirectors or compensation committee.9710, 2021,8, 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 9,499,9109,359,685 shares of common stock outstanding at December 10, 2021.8, 2023. Generally, in computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deem 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 December 10, 20218, 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 December 10, 2021;8, 2023; we do not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Presently, there are no outstanding securities that are exercisable or convertible into shares of common stock. Beneficial ownership representing less than 1% is denoted with an asterisk (*).Name/Address Common Stock Executive Officers and Directors Eric S. Langan 723,870 (2) 7.72 % Bradley Chhay 25,474 (3)(4) * Yura Barabash 961 * Travis Reese 34,541 (5) * Luke Lirot 518 * Elaine Martin 9,085 * Arthur Allan Priaulx 2,000 * All of our Directors and Officers as a Group of seven persons 792,709 8.42 % Other > 5% Security Holders 575,106 6.14 % 941,000 10.00 % Name/Address Number of shares Title of class Percent of Class (1) Executive Officers and Directors Eric S. Langan 701,870 (2) Common stock 7.39 % Bradley Chhay 4,020 (3)(4) Common stock * Yura Barabash 504 Common stock * �� Travis Reese 14,141 (5) Common stock * Luke Lirot 518 Common stock * Elaine Martin 7,221 Common stock * Arthur Allan Priaulx 2,000 Common stock * All of our Directors and Officers as a Group of seven persons 726,534 Common stock 7.65 % Other > 5% Security Holders BlackRock, Inc. (6) 578,760 Common stock 6.09 % ADW Capital Partners, L.P.(7) 899,900 Common stock 9.47 % Greenhaven Road Investment Management, L.P. (8) 580,531 Common stock 6.11 % Troy Lowrie (9) % (1)These percentages exclude treasury shares in the calculation of percentage of class.(2)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 4,020.317 shares.(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 4.1% of the investment club.(5)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, 2021 by BlackRock Inc. BlackRock beneficially owned 578,760 shares, with sole voting power over 571,090 shares and sole dispositive power over 578,760 shares. The address of BlackRock is 55 East 52nd Street, New York, New York 10055.(7)Based on the most recently available Schedule 13G filed with the SEC on January 8, 2021 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 899,900 shares, with sole voting power and sole dispositive power over all such shares. The address of each of these reporting persons is 1133 Broadway, Suite 719, New York, New York 10010.(8)Based on the most recently available Schedule 13G filed with the SEC on February 16, 2021 by Scott Stewart Miller, Greenhaven Road Investment Management, LP (the “Investment Manager”), MVM Funds, LLC (the “General Partner”), Greenhaven Road Capital Fund 1, L.P. (“Fund 1”), and Greenhaven Road Capital Fund 2, L.P. (“Fund 2”, and together with Fund 1, the “Funds”). Each Fund is a private investment vehicle. The Funds directly beneficially own the common stock. The Investment Manager is the investment manager of the Funds. The General Partner is the general partner of the Funds and the Investment Manager. Mr. Miller is the controlling person of the General Partner. Mr. Miller, the Investment Manager and the General Partner may be deemed to beneficially own the common stock directly beneficially owned by the Funds, with sole voting power and sole dispositive power over all such shares. The address of each of these reporting persons is c/o Royce & Associates LLC, 8 Sound Shore Drive, Suite 190, Greenwich, CT 06830.(9)Based on the most recently available Schedule 13G filed with the SEC on November 17, 2021 by Troy Lowrie. Mr. Lowrie is the controlling person of Family Dog, LLC and Club Licensing, LLC, which are the record and direct beneficial owners of 300,000 shares and 200,000 shares, respectively, with each such entity having sole voting power and sole dispositive power over all its respective shares. The address of Mr. Lowrie is 735 S Xenon Ct, Ste 101, Lakewood, CO 80228.98TwoThree adult children of Mr. Langan are also employed by the Company in corporate shared services.In November 2018, we borrowed $500,000 from Ed Anakar 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 $100,000 from Allen Chhay as part of a larger group of private lenders. Ed Anakar isreceived $184,068 and $138,762 in employment compensation during the brother of Nourdean Anakar, a former director of the Company. Allen Chhay is the brother of Bradley Chhay, our CFO,fiscal year ended September 30, 2023 and is not employed by the Company or any of its subsidiaries. Their promissory notes bore interest at the rate of 12% per annum and were to mature in November 2021. The notes were payable in monthly installments of interest only with a balloon payment of all unpaid principal and interest due at maturity. Both notes were paid off in relation to the September 2021 Refinancing Note. See Note 9 to our consolidated financial statements.98 to our consolidated financial statements). Their promissory notes bear interest at the rate of 12% per annum and mature in October 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 groupour director of operations – club division, employment compensation of $655,289, $502,404,$718,539, $720,492, and $550,000$655,289 during the fiscal years ended September 30, 2023, 2022, and 2021, 2020, and 2019, respectively.2021, $59,000 in fiscal 2020, and $134,000 in fiscal 2019.2021. As of September 30, 20212023 and 2020,2022, we owed Nottingham Creations and Sherwood Forest $12,205$10,700 and $0,$92,808, respectively, in unpaid billings.2021, 2020,2023, 2022, and 2019.2021. 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 $0, $19,000,$443,295, $3,809, and $452,000$0 for the fiscal years 2021, 2020,2023, 2022, and 2019,2021, respectively. Amounts billed directly to the Company were approximately $425,000, $62,000,$9,430, $133,000, and $47,000$425,000 for the fiscal years 2021, 2020,2023, 2022, and 2019,2021, respectively. As of September 30, 20212023 and 2020,2022, the Company owed TW Mechanical approximately $7,500$0 and $5,700,$9,338, respectively, in unpaid direct billings.Boardboard of Directors,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 prior 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 reported 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 related 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 be 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 the related party transaction be rescinded or unwound. The Audit Committee will not approve or ratify any related party transaction unless it deems that the transaction is on terms no less favorable than terms 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.99year 20212023 and 2020 (in thousands).2022.Marcum 2023 Friedman 2023 Friedman 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 2021 2020 Audit fees $ 695 $ 1,945 Audit-related fees 7 - Tax fees - - All other fees - - Total $ 702 $ 1,945 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.100Exhibit No. Description 3.1 Articles 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 4.312% Unsecured Promissory Note (form of amortizing payment schedule version of the note) (Incorporated by reference from Form 8-K filed with the SEC on October 18, 2021) *4.410-Year Secured Promissory Note for $11,000,000 by Big Sky Hospitality Holdings, Inc. to Family Dog, LLC (Incorporated by reference from Form 8-K filed with the SEC on October 21, 2021) * 4.54.34.64.44.74.54.6 4.7 4.8 4.9 4.10 4.11 4.1 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 10.36 10.37 10.38 10.39 10.40 10.41 10.42 10.43 10.44 10.45 10.46 10.47 10.48 10.49 21.1 23.1 23.2 10131.1 31.2 32.1 97.1 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) None.102
None.2021.RCI Hospitality Holdings, Inc. By: /s/ Eric S. Langan Eric S. Langan Chief Executive Officer and President Signature Title Date /s/ Eric S. Langan Eric S. Langan Director, Chief Executive Officer, and President December 14, 20212023/s/ Bradley Chhay Bradley Chhay Chief Financial Officer and Principal Accounting Officer December 14, 20212023/s/ Travis Reese Travis Reese Director and Executive Vice President December 14, 20212023/s/ Yura Barabash Yura Barabash Director December 14, 20212023/s/ Luke Lirot Luke Lirot Director December 14, 20212023/s/ Elaine Martin Elaine Martin Director December 14, 20212023/s/ Arthur Allan Priaulx Arthur Allan Priaulx Director December 14, 20212023103