As of ~~February 28, 2018, 9,718,711~~August 4, 2023, 9,419,785 shares of the registrant’s common stock were outstanding.

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Forward-looking statements may appear throughout this report, including, without limitation, the following sections: Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Important factors that in our view could cause material adverse effects on our financial condition and results of operations include, but are not limited to, the risks and uncertainties associated with (i) operating and managing an adult business, (ii) the business climates in cities where ~~it operates,~~we operate, (iii) the success or lack thereof in launching and building ~~the company’s~~our businesses, ~~risks and uncertainties related to~~(iv) cyber security, (v) conditions relevant to real estate transactions, (vi) the impact of the COVID-19 pandemic, and (vii) numerous other factors such as laws governing the operation of adult entertainment businesses, competition and dependence on key personnel. We undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

As used herein, the “Company,” “we,” “our,” and similar terms include RCI Hospitality Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.

Table of Contents

RCI HOSPITALITY HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS

	~~Page~~
			Page
PART I		FINANCIAL INFORMATION

Item 1.		Financial Statements	4

		Condensed Consolidated Balance Sheets as of ~~December 31, 2017~~June 30 , 2023 (unaudited) and September 30, ~~2017~~2022	4

		Condensed Consolidated Statements of Income (unaudited) for the three and nine months ended ~~December 31, 2017~~June 30 , 2023 and ~~2016~~2022	5

		Condensed Consolidated Statements of Changes in Equity (unaudited) for the three and nine months ended June 30 , 2023 and 2022	6

		Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~three~~nine months ended ~~December 31, 2017~~June 30 , 2023 and ~~2016~~2022	6 7

		Notes to Condensed Consolidated Financial Statements (unaudited)	8 9

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	17 26

Item 3.		Quantitative and Qualitative Disclosures about Market Risk	25 41

Item 4.		Controls and Procedures	25 41

PART II		OTHER INFORMATION

Item 1.		Legal Proceedings	28 42

Item1A.		Risk Factors	28 42

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	28 42

Item 6.		Exhibits	28 43

		Signatures	29

Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par ~~value)~~

December 31, 2017 September 30,2017
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 11,954 $ 9,922
Accounts receivable, net 4,113 3,187
Inventories 2,419 2,149
Prepaid insurance 2,808 3,826
Other current assets 746 1,399
Assets held for sale 5,565 5,759
Total current assets 27,605 26,242
Property and equipment, net 154,259 148,410
Notes receivable 4,965 4,993
Goodwill 43,866 43,866
Intangibles, net 74,420 74,424
Other assets 1,464 1,949
Total assets $ 306,579 $ 299,884

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 2,601 $ 2,147
Accrued liabilities 11,584 11,524
Current portion of long-term debt 14,048 17,440
Total current liabilities 28,233 31,111
Deferred tax liability, net 15,844 25,541
Long-term debt 111,944 106,912
Other long-term liabilities 1,324 1,095
Total liabilities 157,345 164,659

Commitments and contingencies (Note 8)

Stockholders’ equity
Preferred stock, $0.10 par value per share; 1,000 shares authorized; none issued and outstanding - -
Common stock, $0.01 par value per share; 20,000 shares authorized; 9,719 and 9,719 shares issued and outstanding as of December 31, 2017 and September 30, 2017, respectively 97 97
Additional paid-in capital 63,453 63,453
Retained earnings 83,214 69,195
Total RCIHH stockholders’ equity 146,764 132,745
Noncontrolling interests 2,470 2,480
Total stockholders’ equity 149,234 135,225
Total liabilities and stockholders’ equity $ 306,579 $ 299,884

value and number of shares)


	June 30, 2023		September 30, 2022
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	23,584	$	35,980
Accounts receivable, net	7,433		8,510
Current portion of notes receivable	244		230
Inventories	4,571		3,893
Prepaid expenses and other current assets	5,028		1,499
Assets held for sale	—		1,049
Total current assets	40,860		51,161
Property and equipment, net	277,530		224,615
Operating lease right-of-use assets, net	35,683		37,048
Notes receivable, net of current portion	4,507		4,691
Goodwill	78,684		67,767
Intangibles, net	181,262		144,049
Other assets	1,581		1,407
Total assets	$	620,107	$	530,738

LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	7,762	$	5,482
Accrued liabilities	17,732		11,328
Current portion of debt obligations, net	23,824		11,896
Current portion of operating lease liabilities	2,923		2,795
Total current liabilities	52,241		31,501
Deferred tax liability, net	30,146		30,562
Debt, net of current portion and debt discount and issuance costs	219,999		190,567
Operating lease liabilities, net of current portion	35,941		36,001
Other long-term liabilities	355		349
Total liabilities	338,682		288,980

Commitments and contingencies (Note 10)

Equity
Preferred stock, $0.10 par value per share; 1,000,000 shares authorized; none issued and outstanding	—		—
Common stock, $0.01 par value per share; 20,000,000 shares authorized; 9,430,225 and 9,231,725 shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively	94		92
Additional paid-in capital	82,091		67,227
Retained earnings	199,425		173,950
Total RCIHH stockholders’ equity	281,610		241,269
Noncontrolling interests	(185)		489
Total equity	281,425		241,758
Total liabilities and equity	$	620,107	$	530,738

See accompanying notes to unaudited condensed consolidated financial statements.

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RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)

For the Three Months
Ended December 31,
2017 2016
Revenues
Sales of alcoholic beverages $ 17,805 $ 14,375
Sales of food and merchandise 5,307 4,207
Service revenues 15,889 13,475
Other 2,211 1,682
Total revenues 41,212 33,739
Operating expenses
Cost of goods sold
Alcoholic beverages sold 3,755 3,168
Food and merchandise sold 2,094 1,653
Service and other 36 60
Cost of goods sold (exclusive of items shown separately below) 5,885 4,881
Salaries and wages 11,377 9,652
Selling, general and administrative 12,812 11,193
Depreciation and amortization 1,909 1,618
Other charges, net 89 62
Total operating expenses 32,072 27,406
Income from operations 9,140 6,333
Other income (expenses)
Interest expense (3,079 ) (2,015 )
Interest income 67 37
Income before income taxes 6,128 4,355
Income tax expense (benefit) (8,227 ) 1,450
Net income 14,355 2,905
Net income attributable to noncontrolling interests (44 ) (7 )
Net income attributable to RCIHH common shareholders $ 14,311 $ 2,898

Earnings per share attributable to RCIHH common shareholders
Basic $ 1.47 $ 0.30
Diluted $ 1.47 $ 0.30
Weighted average number of common shares outstanding
Basic 9,719 9,768
Diluted 9,719 9,814

Dividend per share $ 0.03 $ 0.03


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Revenues
Sales of alcoholic beverages	$	34,151	$	29,738	$	93,937	$	83,504
Sales of food and merchandise	11,405		11,574		32,757		33,628
Service revenues	26,663		25,444		77,916		67,821
Other	4,836		3,958		13,930		11,289
Total revenues	77,055		70,714		218,540		196,242
Operating expenses
Cost of goods sold
Alcoholic beverages sold	6,397		5,177		17,136		14,907
Food and merchandise sold	4,106		3,959		11,429		11,756
Service and other	26		46		91		170
Total cost of goods sold (exclusive of items shown separately below)	10,529		9,182		28,656		26,833
Salaries and wages	20,578		17,387		58,682		50,422
Selling, general and administrative	23,803		19,572		68,561		56,495
Depreciation and amortization	4,041		2,565		11,108		7,636
Other charges, net	2,589		1,501		5,693		1,357
Total operating expenses	61,540		50,207		172,700		142,743
Income from operations	15,515		20,507		45,840		53,499
Other income (expenses)
Interest expense	(4,316)		(3,028)		(11,680)		(8,496)
Interest income	87		103		268		321
Non-operating gains, net	—		127		—		211
Income before income taxes	11,286		17,709		34,428		45,535
Income tax expense	2,269		3,767		7,447		10,056
Net income	9,017		13,942		26,981		35,479
Net loss (income) attributable to noncontrolling interests	68		(40)		74		(50)
Net income attributable to RCIHH common stockholders	$	9,085	$	13,902	$	27,055	$	35,429

Earnings per share
Basic and diluted	$	0.96	$	1.48	$	2.91	$	3.76

Weighted average shares used in computing earnings per share
Basic and diluted	9,430,225		9,389,675		9,308,624		9,428,461

Dividends per share	$	0.06	$	0.05	$	0.17	$	0.14

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in thousands, except number of shares)

(unaudited)

Common Stock Additional
Paid-In
Capital Retained
Earnings Treasury Stock Noncontrolling
Interests Total
Equity
Number
of Shares Amount Number
of Shares Amount
Balance at September 30, 2022 9,231,725 $ 92 $ 67,227 $ 173,950 — $ — $ 489 $ 241,758
Purchase of treasury shares — — — — (1,500) (98) — (98)
Canceled treasury shares (1,500) — (98) — 1,500 98 — —
Payment of dividends — — — (462) — — — (462)
Stock-based compensation — — 941 — — — — 941
Share in return of investment by noncontrolling partner — — — — — — (600) (600)
Net income — — — 10,238 — — 33 10,271
Balance at December 31, 2022 9,230,225 92 68,070 183,726 — — (78) 251,810
Issuance of common shares for business combination 200,000 2 16,306 — — — — 16,308
Payment of dividends — — — (553) — — — (553)
Stock-based compensation — — 706 — — — — 706
Net income (loss) — — — 7,732 — — (39) 7,693
Balance at March 31, 2023 9,430,225 94 85,082 190,905 — — (117) 275,964
Adjustment in fair value of common shares issued for business combination — — (3,461) — — — — (3,461)
Payment of dividends — — — (565) — — — (565)
Stock-based compensation — — 470 — — — — 470
Net income (loss) — — — 9,085 — — (68) 9,017
Balance at June 30, 2023 9,430,225 $ 94 $ 82,091 $ 199,425 — $ — $ (185) $ 281,425
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 30,357 — — — — 30,362
Payment of dividends — — — (380) — — — (380)
Net income (loss) — — — 10,575 — — (11) 10,564
Balance at December 31, 2021 9,499,910 95 80,397 139,888 — — (611) 219,769
Purchase of treasury shares — — — — (45,643) (2,845) — (2,845)
Canceled treasury shares (45,643) (1) (2,844) — 45,643 2,845 — —
Payment of dividends — — — (474) — — — (474)
Net income — — — 10,952 — — 21 10,973
Balance at March 31, 2022 9,454,267 94 77,553 150,366 — — (590) 227,423
Purchase of treasury shares — — — — (168,069) (9,212) — (9,212)
Canceled treasury shares (168,069) (1) (9,211) — 168,069 9,212 — —
Payment of dividends — — — (468) — — — (468)
Net income — — — 13,902 — — 40 13,942
Balance at June 30, 2022 9,286,198 $ 93 $ 68,342 $ 163,800 — $ — $ (550) $ 231,685

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents
RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in ~~thousands)~~

thousands, except number of shares)

(unaudited)

For the Three Months
Ended December 31,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,355 $ 2,905
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,909 1,618
Deferred taxes (9,697 ) -
Amortization of debt discount and issuance costs 324 85
Deferred rent 75 40
Loss on sale of assets 140 -
Gain on insurance settlements (20 ) -
Debt prepayment penalty 543 -
Changes in operating assets and liabilities:
Accounts receivable (926 ) 644
Inventories (270 ) (87 )
Prepaid expenses and other assets 1,044 588
Accounts payable and accrued liabilities 668 (272 )
Net cash provided by operating activities 8,145 5,521
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 632 -
Proceeds from insurance 20 -
Proceeds from notes receivable 28 20
Additions to property and equipment (2,769 ) (3,008 )
Net cash used in investing activities (2,089 ) (2,988 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 58,920 1,900
Payments on long-term debt (61,256 ) (2,152 )
Debt prepayment penalty (543 ) -
Purchase of treasury stock - (1,101 )
Payment of dividends (292 ) (290 )
Payment of loan origination costs (799 ) (99 )
Distribution to noncontrolling interests (54 ) (54 )
Net cash used in financing activities (4,024 ) (1,796 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,032 737
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,922 11,327
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,954 $ 12,064

CASH PAID DURING PERIOD FOR:
Interest $ 2,890 $ 1,920
Income taxes $ 157 $ 385


	For the Nine Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	26,981	$	35,479
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,108		7,636
Impairment of assets	3,293		1,722
Deferred income tax benefit	(790)		(409)
Stock-based compensation	2,117		—
Gain on sale of businesses and assets	(872)		(1,282)
Unrealized loss on equity securities	—		1
Amortization of debt discount and issuance costs	453		199
Gain on debt extinguishment	—		(83)
Noncash lease expense	2,226		1,725
Gain on insurance	(91)		(408)
Doubtful accounts expense on notes receivable	—		753
Changes in operating assets and liabilities:
Accounts receivable	1,480		3,411
Inventories	79		(492)
Prepaid expenses, other current and other assets	(3,602)		(3,271)
Accounts payable, accrued and other liabilities	4,622		1,773
Net cash provided by operating activities	47,004		46,754
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of businesses and assets	2,811		4,611
Proceeds from insurance	91		515
Proceeds from notes receivable	170		127
Payments for property and equipment and intangible assets	(29,919)		(17,173)
Acquisition of businesses, net of cash acquired	(30,200)		(44,302)
Net cash used in investing activities	(57,047)		(56,222)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt obligations, including related party proceeds of $0 and $650, respectively	11,595		35,820
Payments on debt obligations	(11,431)		(10,714)
Purchase of treasury stock	(98)		(12,057)
Payment of dividends	(1,580)		(1,322)
Payment of loan origination costs	(239)		(445)
Share in return of investment by noncontrolling partner	(600)		—
Net cash provided by (used in) financing activities	(2,353)		11,282
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(12,396)		1,814
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	35,980		35,686
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	23,584	$	37,500

CASH PAID DURING PERIOD FOR:
Interest	$	11,070	$	7,915
Income taxes	$	8,931	$	8,990

Table of Contents



Noncash investing and financing transactions:
Debt incurred in connection with acquisition of businesses	$	32,405	$	33,200
Debt incurred in connection with purchase of property and equipment	$	8,476	$	4,820
Note receivable from sale of property	$	—	$	2,700
Issuance of shares of common stock for acquisition of businesses:
Number of shares	200,000		500,000
Fair value	$	12,847	$	30,362
Adjustment to operating lease right-of-use assets related to new and renewed leases	$	1,864	$	21,247
Adjustment to operating lease liabilities related to new and renewed leases	$	2,163	$	21,247
Unpaid liabilities on capital expenditures	$	2,758	$	1,325

See accompanying notes to unaudited condensed consolidated financial statements.

~~Non-cash and other transactions:~~

~~During the quarter ended December 31, 2017, the Company refinanced $81.2 million~~

Table of long-term debt comprised of 21 notes payable with the execution of three notes payable with a lender bank. The new notes and the repaid balance included $18.7 million worth of debt with the same lender bank. See Note 4 for a detailed discussion of the refinancing.

During the quarter ended December 31, 2017, the Company borrowed $7.1 million from a lender to purchase an aircraft by trading in an aircraft that the Company owned and the assumption of the old aircraft’s note payable liability. See Note 4 for a detailed discussion of the transaction.

~~During the quarter ended December 31, 2016, the Company refinanced $8.0 million of long-term debt by borrowing $9.9 million, resulting in net cash proceeds of $1.9 million.~~

~~During the quarter ended December 31, 2016, the Company purchased and retired 89,685 common shares at a cost of $1.1 million.~~

Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of RCI Hospitality Holdings, Inc. (the “Company,” “RCIHH,” “we,” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP” or ~~“US~~“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The September 30, ~~2017~~2022 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended September 30, ~~2017~~2022 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on ~~February~~December 14, ~~2018.~~2022. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair ~~presentation~~statement of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the ~~three~~nine months ended ~~December 31, 2017~~June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, ~~2018.~~

2023.

We made certain reclassification adjustments to segment disclosures related to prepaid insurance and goodwill. These assets were acquired by the registrant and presented in Corporate segment but mostly benefit subsidiaries belonging to other reportable segments. Prior year disclosures were also made to conform to current year presentation. There is no impact in consolidated total assets, results of operations, and cash flows in all periods presented. See Note 11.

2. Recent Accounting Standards and Pronouncements

In ~~May 2014,~~October 2021, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ~~(“ASU”~~("ASU") No. ~~2014-09,~~~~Revenue~~2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers(“. This ASU ~~2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is~~amends ASC 805 to require acquiring entities to apply ASC 606 to recognize ~~revenues when promised goods or services are transferred to customers~~and measure contract assets and contract liabilities in ~~an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.~~business combinations. The ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard’s effective date has been deferred by the issuance of ASU No. 2015-14, and is effective for annual periods beginning after December 15, 2017, and interim periods therein. The guidance permits using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early application is permitted but not before December 15, 2016, the ASU’s original effective date. The Company is still evaluating the impact of the standard and which transition method it is going to use upon adoption.

~~In July 2015, the FASB issued ASU No. 2015-11,~~~~Inventory (Topic 330): Simplifying the Measurement of Inventory~~. This ASU does not apply to inventory that is measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using FIFO or average cost. This ASU eliminates from U.S. GAAP the requirement to measure inventory at the lower of cost or market. Market under the previous requirement could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. Entities within scope of this update will now be required to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory using LIFO or the retail inventory method. The amendments in this update are effectivepublic entities for fiscal years beginning after December 15, ~~2016, with early adoption permitted, and should be applied prospectively. The Company adopted~~2022, including interim periods within those fiscal years. We are still evaluating the impact of this ASU ~~2015-11 as of October 1, 2017, which did not have an impact on its consolidated financial statements.~~

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

financial statements.

~~RCI HOSPITALITY HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In ~~January 2017,~~June 2022, the FASB issued ASU ~~No. 2017-01,~~~~Business Combination~~2022-03, Fair Value Measurement (Topic ~~805)~~820): ~~Clarifying the Definition~~Fair Value Measurement of ~~a Business~~Equity Securities Subject to Contractual Sale Restrictions. ~~According to the guidance, when substantially all~~The amendments of this ASU clarify that an entity should measure the fair value of ~~gross assets acquired~~an equity security subject to contractual sale restriction the same way it measures an identical equity security that is ~~concentrated in~~not subject to such a single asset (or a group of similar assets), the assets acquired would not represent a business. If met, this initial screen eliminates the need for further assessment. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017-01 provides a framework to evaluate when an input and a substantive process are present. To be a business without outputs, there will now need to be an organized workforce.restriction. The FASB ~~noted that outputs are a key element~~said the contractual restriction on the sale of ~~a business and included more stringent criteria for aggregated sets of assets and activities without outputs. Finally, the guidance narrows the definition~~an equity security is not considered part of the ~~term “outputs” to be consistent with how it~~unit of account of the equity security and, therefore, should not affect its fair value. The ASU is ~~described in Topic 606,~~~~Revenue from Contracts with Customers~~. Under the final definition, an output is the result of inputs and substantive processes that provide goods and services to customers, other revenue, or investment income, such as dividends and interest. The standard is effective for public entities for fiscal years beginning after December 15, ~~2017, with early~~2023, and interim periods within those fiscal years. Early adoption is permitted. ~~The amendments can be applied to transactions occurring before~~We are still evaluating the ~~guidance was issued as long as the applicable~~impact of this ASU on our consolidated financial ~~statements have not been issued. We have early adopted ASU 2017-01 as of October 1, 2017, and will apply its amendments to future transactions.~~

statements.

In ~~May 2017,~~March 2023, the FASB issued ASU ~~No. 2017-09,~~~~Compensation—Stock Compensation~~2023-01, Leases (Topic ~~718)~~842): ~~Scope~~Common Control Arrangements, which amends certain provisions of ~~Modification Accounting~~.ASC 842 that apply to arrangements between related parties under common control. The ~~amendments~~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 ~~provide guidance about which~~on our consolidated financial statements.

3. Current Operating Environment

Our fiscal 2020 was the period hardest hit by the COVID-19 pandemic caused by 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. In fiscal 2021, our businesses started to recover from the initial effects of the pandemic when government restrictions eased. Stimulus money also flowed to the ~~terms or conditions~~economy at that time which prompted increased discretionary spending. In fiscal 2022, several coronavirus variants

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threatened to bring back tight restrictions. Along with the pandemic, geopolitical and macroeconomic events started to affect the U.S. economy in general, with global inflation and supply chain disruption impacting our businesses the most.

Toward the end of fiscal 2022 and continuing to the current fiscal year, geopolitical and macroeconomic events have impacted our operating results and cash flows by causing inflation on wages and other operating expenses. In the event global inflation leads to a major economic downturn, our business operations and cash flows could be significantly affected.

4. Acquisitions and Dispositions

Lubbock Property

On October 10, 2022, the Company purchased real estate in Lubbock, Texas amounting to $3.4 million for a future Bombshells location. The Company paid $1.2 million in cash at closing and obtained bank financing for the $2.3 million remainder (see Note 7). The site includes extra land that will be listed for sale once the Bombshells unit is completed.

Heartbreakers Gentlemen's Club

On October 26, 2022, the Company completed the acquisition of a ~~share-based payment award require an entity to apply modification accounting~~club in ~~Topic 718. An entity should account~~Dickinson, Texas for a total agreed acquisition price of $9.0 million (with a total consideration preliminary fair value of $8.9 million based on certain legal contingencies that existed pre-acquisition). The acquisition included (1) $2.5 million for the ~~effects of~~adult entertainment business covered in a ~~modification unless all~~stock purchase agreement paid fully in cash at closing and (2) $6.5 million for the real estate property covered in a real estate purchase agreement paid $1.5 million in cash at closing and $5.0 million under a 6% 15-year promissory note (see Note 7). In the stock purchase agreement, the Company acquired 100% of the capital stock of the company which owned the adult entertainment business. The acquisition gives the Company its first adult club in the Galveston, Texas area market.

The following ~~are met: (1)~~is our preliminary allocation of the fair value of the ~~modified award~~acquisition price (in thousands) as of October 26, 2022:


Current assets	$	64
Property and equipment	4,884
Licenses	1,170
Tradename	340
Accrued liability	(95)
Deferred tax liability	(374)
Total net assets acquired	5,989
Goodwill	2,916
Acquisition price fair value	$	8,905

We believe that in this acquisition goodwill represents the existing customer base of the club in the area and the added synergy profitability expansion when we implement the Company's processes into the club. Goodwill, licenses, and tradename will not be amortized but will be tested at least annually for impairment. Approximately $1.5 million of the recognized goodwill will be deductible for tax purposes.

In connection with this acquisition, we incurred approximately $0 and $23,000 in acquisition-related expenses during the three and nine months ended June 30, 2023, respectively, which is included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income. From the ~~same~~date of acquisition until June 30, 2023, the club contributed revenues of $580,000 and $1.5 million and income from operations of $93,000 and $253,000 during the three and nine months ended June 30, 2023, respectively, which are included in our unaudited condensed consolidated statements of income. The seller has not maintained historical U.S. GAAP financial data and it is impracticable to prepare them, therefore, we could not provide supplemental pro forma information of the combined entities.

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Aurora CO Property

On November 8, 2022, the Company purchased real estate in Aurora, Colorado amounting to $850,000 in cash for a future Bombshells location.

Central City CO Casino Properties

On December 5, 2022, the Company purchased real estate in Central City, Colorado amounting to $2.5 million in cash for the development of a Rick's Cabaret Steakhouse and Casino business.

On February 6, 2023, the Company purchased real estate in Central City, Colorado amounting to $2.2 million in cash for the development of another casino business.

Mark IV Property

On December 16, 2022, the Company purchased real estate in Fort Worth, Texas amounting to $2.4 million in cash. The property has two buildings, one of which the Company is leasing out to an existing tenant and the other building the Company is remodeling for future adult club operations.

Grange Food Hall

On December 20, 2022, the Company purchased a food hall property in Greenwood Village, Colorado for $5.3 million, including direct transaction costs and net of certain accrued taxes amounting to $102,000. The purchase price was paid $1.9 million in cash at closing and $3.3 million under a 6.67% five-year promissory note (see Note 7). The Company allocated $2.1 million to land, $2.6 million to building improvements, $98,000 to furniture, fixtures and equipment, and $565,000 to in-place leases based on their relative fair values.

Tomball Parkway Property Sale

On December 28, 2022, the Company sold a property classified as held-for-sale with a carrying value of $1.0 million for $1.7 million in cash. The Company used $1.2 million of the proceeds to pay off a loan related to the property.

Bombshells San Antonio

On February 7, 2023, the Company completed the acquisition of a previously franchised Bombshells location in San Antonio, Texas for a total acquisition price of $3.2 million. The transaction was effected through a membership interest purchase agreement under which a subsidiary of the Company purchased 100% of the issued and outstanding membership interests of the target limited liability company that owns and operates the Bombshells location from the six previous owners of the entity (the "Sellers"). At acquisition date, the Sellers were paid $1.2 million in cash and were issued six seller-financed promissory notes totaling $2.0 million (see Note 7). The Company allocated the acquisition price $61,000 to inventory, $2.7 million to property and equipment, and $480,000 to favorable lease intangible and right-of-use assets, net of lease liability.

Baby Dolls-Chicas Locas

On March 16, 2023, the Company and certain of its subsidiaries completed the acquisition of five gentlemen's clubs, five related real estate properties, associated intellectual properties, and certain automated teller machines for a total agreed acquisition price of $66.5 million, payable with a total of $25.0 million in cash, a total of $25.5 million in 10-year 7% seller financing promissory notes, and 200,000 restricted shares of common stock based on an $80 per share price, subject to lock-up, leak out restrictions. The five clubs, which are all located in Texas, were purchased through four different asset purchase agreements and one stock purchase agreement, under each of which a newly formed wholly-owned subsidiary of the Company acquired from each club-owning entity all of the tangible and intangible assets and personal property used in the business of that club, except for certain excluded assets. The fair value of the common stock consideration was

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discounted due to lack of marketability during the lock-up period. The cash consideration at closing was partially funded by the $10.0 million line of credit secured by the Company on March 9, 2023 (see Note 7).

The preliminary fair value of the consideration transferred is as follows:


Cash	$	25,000
Notes payable	25,500
Common stock	12,847
Total consideration fair value	$	63,347

We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values, all in our Nightclub reportable segment. We have not finalized our valuation of the tangible and identifiable intangible assets acquired in this transaction. As of the release of this report, the fair value of the ~~original award immediately before the modification; (2) the vesting conditions~~acquired tangible and identifiable intangible assets are provisional pending completion of the ~~modified award are~~final valuations for those assets. Based on the ~~same as the vesting conditions~~allocation of the ~~original award immediately before the modification; and (3) the classification~~preliminary fair value of the ~~modified award as an equity instrument or a liability instrument~~acquisition price, measurement period adjustments, and subject to any working capital adjustments, the amount of goodwill is estimated at $9.9 million. Goodwill represents the ~~same as the classification~~excess of the ~~original award immediately before~~acquisition price fair value over the ~~modification.~~ fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, which is essentially the forward earnings potential of the acquired entities. This acquisition also gives the Company a bigger market share in the Hispanic demographic in the Texas metropolitan areas. Goodwill will not be amortized but will be tested at least annually for impairment. Approximately $9.9 million of the recognized goodwill will be deductible for tax purposes.

The ~~current disclosure requirements~~following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of March 16, 2023:


Current assets	$	632
Property and equipment	16,570
Licenses	27,440
Tradename	9,484
Accounts payable	(632)
Total net assets acquired	53,494
Goodwill	9,853
Acquisition price fair value	$	63,347

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

In connection with this acquisition, we incurred approximately $0 and $292,000 in ~~Topic 718~~acquisition-related expenses during the three and nine months ended June 30, 2023, respectively, which is included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income. From the date of acquisition until June 30, 2023, the clubs contributed revenues of $7.0 million and $8.2 million and income from operations of $2.0 million and $2.4 million during the three and nine months ended June 30, 2023, respectively, which are included in our unaudited condensed consolidated statements of income.

The following table presents the unaudited pro forma combined results of operations of the Company and the five acquired clubs and related assets as though the acquisition occurred at the beginning of fiscal 2022 (in thousands, except per share amount and number of shares):

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	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Pro forma revenues	$	77,055	$	76,733	$	231,479	$	213,762
Pro forma net income attributable to RCIHH common stockholders	$	9,085	$	15,824	$	26,129	$	40,503
Pro forma earnings per share - basic and diluted	$	0.96	$	1.65	$	2.77	$	4.21

Pro forma weighted average shares used in computing earnings per share - basic and diluted	9,430,225		9,589,675		9,430,236		9,628,461

The above unaudited pro forma financial information is presented for informational purposes only and is not ~~changed.~~necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2022. The ~~amendments in this ASU~~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 the acquired clubs have been integrated with the Company for the entire three months ended June 30, 2023, the results presented for the said period are ~~effective for all entities for annual periods,~~historical and ~~interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted.~~not pro forma. Since ~~March 31, 2017,~~ we do not yet have ~~any stock-based compensation awards outstanding. We have early adopted ASU 2017-09~~a final valuation of the assets that we acquired and the liabilities that we assumed, the unaudited pro forma financial information only includes preliminary adjustments related to changes in recognized expenses caused by the fair value of assets acquired, such as depreciation and amortization and related tax effects. Pro forma net income and pro forma earnings per share include the impact of acquisition-related expenses and interest expense related to the $10.0 million line-of-credit facility (see Note 7) and the nine seller-financed notes in the acquisition as if they were incurred as of the first day of fiscal 2022. Pro forma weighted average number of common shares outstanding includes the impact of 200,000 shares of our common stock issued as partial consideration for the acquisition.

Arapahoe Street, Denver CO Property

On June 20, 2023, the Company purchased a restaurant parcel located in a condominium building in Denver, Colorado amounting to $4.6 million for a future Bombshells location. The purchase price was paid $1.7 million in cash and $2.9 million under a 7.12% five-year promissory note (see Note 7).

Pearland Property Sale

On June 29, 2023, the Company sold a property with a carrying value of $1.1 million for $1.5 million in cash. The Company used $904,000 of the proceeds to pay off a loan related to the property.

Non-Income-Producing Properties

•On October ~~1, 2017,~~11, 2022, the Company purchased a hangar in Arcola, Texas amounting to $754,000 in cash.

•On February 6, 2023, in view of the increasing business presence of the Company in the Denver, Colorado area, the Company acquired a non-income-producing corporate property for $458,000 in cash, to be used for office space and ~~will apply its provisions~~employee housing.

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5. Revenues

Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 11), are shown below (in thousands):


	Three Months Ended June 30, 2023									Three Months Ended June 30, 2022
	Nightclubs			Bombshells		Other		Total		Nightclubs			Bombshells		Other		Total
Sales of alcoholic beverages	$	26,144		$	8,007	$	—	$	34,151	$	21,061		$	8,677	$	—	$	29,738
Sales of food and merchandise	5,288			6,117		—		11,405		4,639			6,935		—		11,574
Service revenues	26,497			166		—		26,663		25,287			157		—		25,444
Other revenues	4,520			107		209		4,836		3,697			20		241		3,958
	$	62,449		$	14,397	$	209	$	77,055	$	54,684		$	15,789	$	241	$	70,714

Recognized at a point in time	$	61,986		$	14,396	$	209	$	76,591	$	54,320		$	15,777	$	241	$	70,338
Recognized over time	463		*	1		—		464		364		*	12		—		376
	$	62,449		$	14,397	$	209	$	77,055	$	54,684		$	15,789	$	241	$	70,714

	Nine Months Ended June 30, 2023									Nine Months Ended June 30, 2022
	Nightclubs			Bombshells		Other		Total		Nightclubs			Bombshells		Other		Total
Sales of alcoholic beverages	$	70,433		$	23,504	$	—	$	93,937	$	57,901		$	25,603	$	—	$	83,504
Sales of food and merchandise	14,705			18,052		—		32,757		13,726			19,902		—		33,628
Service revenues	77,716			200		—		77,916		67,472			349		—		67,821
Other revenues	12,951			387		592		13,930		10,540			39		710		11,289
	$	175,805		$	42,143	$	592	$	218,540	$	149,639		$	45,893	$	710	$	196,242

Recognized at a point in time	$	174,481		$	42,098	$	547	$	217,126	$	148,386		$	45,879	$	709	$	194,974
Recognized over time	1,324		*	45		45		1,414		1,253		*	14		1		1,268
	$	175,805		$	42,143	$	592	$	218,540	$	149,639		$	45,893	$	710	$	196,242

* Lease revenue (included in Other Revenues) as covered by ASC 842. All other revenues are covered by ASC 606.

The Company does not have contract assets with customers. The Company’s unconditional right to ~~future stock compensation awards~~consideration for goods and ~~transactions.~~

3.services transferred to the customer is included in accounts receivable, net in our unaudited condensed consolidated balance sheet. A reconciliation of contract liabilities with customers is presented below (in thousands):


	Balance at September 30, 2022		Net Consideration Received (Refunded)		Recognized in Revenue		Balance at June 30, 2023
Ad revenue	$	82	$	375	$	(370)	$	87
Expo revenue	8		456		—		464
Franchise fees and other	144		(25)		(46)		73
	$	234	$	806	$	(416)	$	624

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Contract liabilities with customers are included in accrued liabilities as unearned revenues in our unaudited condensed consolidated balance sheets (see also Note 6), while the revenues associated with these contract liabilities are included in other revenues in our unaudited condensed consolidated statements of income.

6. Selected Account Information

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


	June 30, 2023		September 30, 2022
Credit card receivables	$	2,342	$	2,687
Income tax refundable	2,040		2,979
ATM in-transit	891		819
Other (net of allowance for doubtful accounts of $55 and $30, respectively)	2,160		2,025
Total accounts receivable, net	$	7,433	$	8,510

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

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


	June 30, 2023		September 30, 2022
Prepaid insurance	$	2,746	$	191
Prepaid legal	231		61
Prepaid taxes and licenses	727		391
Prepaid rent	401		296
Other	923		560
Total prepaid expenses and other current assets	$	5,028	$	1,499

A reconciliation of goodwill as of June 30, 2023 and September 30, 2022, which is substantially all in Nightclubs segment, is as follows (in thousands):


	Gross		Accumulated Impairment		Net
Balance at September 30, 2022	$	88,921	$	21,154	$	67,767
Acquisitions (see Note 4)	12,769		—		12,769
Impairment	—		1,852		(1,852)
Balance at June 30, 2023	$	101,690	$	23,006	$	78,684

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


	June 30, 2023		September 30, 2022
Indefinite-lived:
Licenses	$	132,202	$	103,972
Trademarks	22,943		13,119
Domain names	23		23

Definite-lived:
Licenses	24,187		25,962
Leases acquired in-place	157		117
Noncompete agreements	13		55
Favorable leases	828		78
Software	909		723
Total intangible assets, net	$	181,262	$	144,049

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

December 31, 2017 September 30, 2017
Insurance $ 2,173 $ 3,160
Payroll and related costs 2,375 1,889
Income taxes 1,862 549
Property taxes 1,361 1,270
Sales and liquor taxes 1,000 990
Patron tax 834 801
Unearned revenues 454 196
Lawsuit settlement 37 295
Other 1,488 2,374
$ 11,584 $ 11,524


	June 30, 2023		September 30, 2022
Insurance	$	2,394	$	30
Sales and liquor taxes	2,305		2,227
Payroll and related costs	4,032		3,186
Property taxes	2,081		2,618
Interest	656		499
Patron tax	600		467
Unearned revenues	624		234
Lawsuit settlement	1,903		246
Other	3,137		1,821
Total accrued liabilities	$	17,732	$	11,328

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

For the Three Months
Ended December 31,
2017 2016
Taxes and permits $ 2,166 $ 2,289
Advertising and marketing 1,965 1,657
Supplies and services 1,368 1,146
Insurance 1,259 935
Rent 940 690
Charge card fees 887 570
Accounting and professional fees 886 497
Utilities 695 670
Security 638 541
Repairs and maintenance 570 466
Legal 377 703
Other 1,061 1,029
$ 12,812 $ 11,193


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Taxes and permits	$	2,969	$	2,418	$	8,392	$	7,015
Advertising and marketing	3,284		2,460		8,685		7,091
Supplies and services	2,865		2,068		7,946		6,223
Insurance	2,718		2,481		7,538		7,357
Legal	754		328		3,035		2,286
Lease	1,836		1,736		5,363		4,948
Charge card fees	1,792		1,829		5,372		4,626
Utilities	1,443		1,151		4,067		3,194
Security	1,523		1,081		3,995		3,218
Stock-based compensation	470		—		2,117		—
Accounting and professional fees	1,050		818		3,225		2,786
Repairs and maintenance	1,367		960		3,738		2,588
Other	1,732		2,242		5,088		5,163
Total selling, general and administrative expenses	$	23,803	$	19,572	$	68,561	$	56,495

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


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Impairment of assets	$	2,631	$	1,722	$	3,293	$	1,722
Settlement of lawsuits	63		132		3,183		709
Gain on disposal of businesses and assets	(105)		(266)		(692)		(666)
Gain on insurance	—		(87)		(91)		(408)
Other charges, net	$	2,589	$	1,501	$	5,693	$	1,357

During the second quarter ended March 31, 2023, the Company recorded $662,000 in goodwill impairment related to one club, and during the third quarter ended June 30, 2023, the Company recorded $1.2 million in goodwill impairment related to one club and $380,000 in SOB license impairment, $58,000 in property and equipment impairment and $1.0 million in operating lease right-of-use asset impairment related to one club that was closed. During the third quarter ended June 2022, the Company recorded $293,000 in SOB license impairment, $400,000 in goodwill impairment, and $1.0 million in property and equipment impairment related to two clubs and one Bombshells unit.

7. Debt

On October 10, 2022, in relation to a real estate purchase (see Note 4), the Company borrowed $2.3 million from a bank lender. The 18-month promissory note bears an initial interest rate of 6% per annum adjusted daily to a rate equal to the Wall Street Journal prime rate plus 0.5% with a floor of 6%. The promissory note is payable in 17 monthly interest-only installments with the full principal and accrued interest payable at maturity. The Company paid approximately $26,000 in debt issuance cost at closing. This promissory note is secured by the purchased real estate property.

On October 26, 2022, in relation to a club acquisition (see Note 4), the Company executed a promissory note for $5.0 million with the seller. The 6% 15-year promissory note is payable in 180 equal monthly payments of $42,193 in principal and interest. This promissory note is secured by the purchased real estate property.

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~~4. Long-Term Debt~~

~~Long-term debt consisted~~

On November 18, 2022, in relation to a real estate purchase on September 12, 2022, the Company borrowed $1.5 million from a bank lender. The 18-month promissory note bears an initial interest rate of 6% per annum to be adjusted daily to a rate equal to the ~~following (in thousands):~~

December 31, 2017 September 30, 2017

Notes payable at 10-11%, mature August 2022 and December 2024 $ - $ 2,358
Note payable at 7%, matures December 2019 - 95
Notes payable at 5.5%, matures January 2023 1,136 1,157
Notes payable at 5.5%, matures January 2023 and January 2022 - 4,510
Note payable refinanced at 6.25%, matures July 2018 - 1,120
Note payable at 9.5%, matures August 2024 - 6,941
Notes payable at 9.5%, mature September 2024 - 6,423
Notes payable at 5-7%, mature from 2018 to 2028 - 1,679
7.45% note payable, matures January 2019 - 2,740
Non-interest-bearing debt to State of Texas, matures May 2022, interest imputed at 9.6% 5,365 5,613
Note payable at 6.5%, matures January 2020 - 4,484
Note payable at 6%, matures January 2019 - 504
Notes payable at 5.5%, matures May 2020 - 5,320
Note payable at 6%, matures May 2020 - 1,037
Note payable at 5.25%, matures December 2024 - 1,777
Note payable initially at 5.45%, matures July 2020 (amended to December 2027 with refinancing) 10,536 10,620
Note payable at the greater of 2% above prime or 5% (6.25% at September 30, 2017), matures October 2025 - 4,303
Note payable at 5%, matures January 2026 - 9,672
Note payable at 5.25%, matures March 2037 - 4,651
Note payable at 6.25%, matures February 2018 1,894 1,894
Note payable initially at 5.95%, matures August 2021 (amended to December 2027 with refinancing) 8,095 8,267
Note payable at 12%, matures October 2021 6,704 9,671
Note payable at 4.99%, matures April 2037 934 941
Notes payable at 12%, mature May 2020 5,440 5,440
Note payable at 5%, matures November 2017 3,025 5,000
Note payable at 8%, matures May 2029 15,090 15,291
Note payable at 5%, matures May 2038 4,456 3,441
Note payable initially at 5.75%, matures December 2027 57,904 -
Note payable at 5.95%, matures December 2032 7,098 -
Total debt 127,677 129,949
Less unamortized debt issuance costs (1,685 ) (597 )
Less current portion (14,048 ) (17,440 )

Total long-term debt $ 111,944 $ 106,912

Wall Street Journal prime rate plus 0.5% with a floor of 6%. The promissory note is payable in 17 monthly interest-only installments with the full principal and accrued interest payable at maturity. This promissory note is secured by the purchased real estate property.

~~RCI HOSPITALITY HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

On December ~~14, 2017,~~20, 2022, the Company executed a promissory note for $3.3 million with a bank lender in relation to a purchase of a food hall property (see Note 4). The 6.67% five-year promissory note is payable in 59 equal monthly installments of $22,805 in principal and interest, with the balance of principal and accrued interest payable at maturity. There are certain financial covenants with which the Company is to be in compliance related to this loan.

On February 7, 2023, in relation to the acquisition of a franchised Bombshells location in San Antonio, Texas (see Note 4), the Company entered into ~~a loan agreement (“New Loan”) with a bank for $81.2~~six separate seller-financing promissory notes totaling $2.0 million. ~~The New Loan fully refinances 20~~Each of the ~~Company’s~~promissory notes has an interest rate of 7% per annum, has a term of 24 months, and is payable ~~and partially pays down 1 note payable (collectively, “Repaid Notes”) with interest rates ranging from 5% to 12% covering 43 parcels~~in monthly installments totaling $39,602 of ~~real properties the Company previously acquired (“Properties”). The New Loan consists of three promissory notes:~~

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

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

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

~~In addition to the monthly~~ principal and interest ~~payments as provided above,~~for the first 23 months based on a 60-month amortization schedule with the remaining unpaid principal and interest paid at maturity.

On March 9, 2023, the Company ~~will pay monthly installments~~closed a $10.0 million line-of-credit facility with a lender bank evidenced by a revolving promissory note, with an initial draw of ~~principal~~$10.0 million at closing. The facility has an initial term of ~~$250,000, applied~~24 months with a variable interest rate equal to the ~~first note, until~~Wall Street Journal prime rate plus 1%. On such ~~time as~~date that the ~~loan-to-value ratio of the Properties, based upon reduced~~ principal balance ofis repaid to an amount less than $5.0 million, the ~~New Loan and the then current value of the Properties,~~facility's revolver feature is not greater than 65%. The New Loan has eliminated balloon payments of the Repaid Notes worth $2.9 million originally scheduled in fiscal 2018, $19.4 million originally scheduled in fiscal 2020 and $5.3 million originally scheduled in fiscal 2021.

~~In connection with the Repaid Notes, we wrote off $279,000 of unamortized debt issuance costs to interest expense. Prior to September 30, 2017,~~activated where the Company ~~paid~~may draw from the remaining availability up to a ~~portion~~maximum of ~~debt issuance costs amounting to $612,500,~~$5.0 million. The Company shall also pay a non-usage fee of 0.5% based on the amount by which the average outstanding balance for the prior twelve months was ~~included in other assets until~~less than $3.0 million or the ~~closing of~~amount by which the ~~transaction. At closing,~~total aggregate advances during the prior twelve months totaled less than $3.0 million. The Company paid ~~an additional $764,000~~$115,000 in debt issuance costs, which ~~together with the $612,500 prepayment will~~is recorded as deferred charges to 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.~~

Included in the $62.5 million note detailed in (i) above, was $4.6 million that was escrowed and due to the bank lender of one of the Repaid Notes. The amount will be released from escrow when the construction, fora straight-line basis over 24 months. There are certain financial covenants with which ~~the original note was borrowed, is completed.~~

In December 2017, the Company borrowed $7.1 million from a lender to purchase an aircraft at 5.95% interest. The transaction was partly funded by trading in an aircraft that the Company owned with a carrying value of $3.4 million with an assumption of the old aircraft’s note payable liability of $2.0 million. The note is payable in 15 years with monthly payments of $59,869, which includes interest.

~~As of December 31, 2017,~~ the Company is to be in compliance related to this loan, including a compensating balance requirement of $3.0 million and a minimum tangible net worth requirement of $20.0 million. The compensating balance requirement does not contractually or legally restrict the withdrawal or use of cash.

On March 16, 2023, in relation to the acquisition of five clubs with ~~all its debt covenants.~~

~~RCI HOSPITALITY HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Future maturities~~associated real estate, automated teller machines, and intellectual property (see Note 4), the Company executed nine secured promissory notes with a total principal amount of ~~long-term debt consist~~$25.5 million. Each of the ~~following (in thousands) as~~nine promissory notes have an interest rate of ~~December 31, 2017:~~

Regular Balloon Total
12-Month Period Ending Amortization Payments Payments
December 31, 2018 $ 9,129 $ 4,919 $ 14,048
December 31, 2019 9,289 - 9,289
December 31, 2020 7,381 5,440 12,821
December 31, 2021 7,707 - 7,707
December 31, 2022 6,587 3,779 10,366
Thereafter 16,928 56,518 73,446
$ 57,021 $ 70,656 $ 127,677

On February 15, 2018, the Company borrowed $3.0 million from a bank for the purchase of land at a cost of $4.0 million with the difference paid by the Company in cash. The bank note bears interest at 5.25% adjusted after 36 months to prime plus 1%7% per annum with a ~~floor~~term of ~~5.2% and matures on February 15, 2038. The bank note is~~10 years, payable ~~interest-only during the first 18 months, after which~~in arrears in 120 equal monthly payments of principal and interest ~~will be made based on~~amounting to $296,077 per month in the aggregate. The holder of the $5.0 million promissory note related to the real estate properties may call due from the Company a ~~20-year amortization~~principal payment of $1.0 million once in every calendar year.

On June 18, 2023, in relation to a purchase of a retail parcel in a condominium property (see Note 4), the Company executed a promissory note for $2.9 million with a bank lender. The 7.12% five-year promissory note is payable in monthly installments of $20,654 in principal and interest, with the ~~remaining~~ balance ~~to be paid at maturity.~~

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 bears an interest rate of prime plus 0.5% with a floor of 5.0% and matures on August 20, 2029. During the first 18 months of the construction loan, the Company will make monthly interest-only payments, and after such, monthly payments of principal and accrued interest ~~will be made based on a 20-year amortization with the remaining balance to be paid~~payable at maturity.

~~5. Stockholders’ Equity~~

~~During~~

Future maturities of long-term debt as of June 30, 2023 are as follows: $24.4 million, $39.1 million, $12.3 million, $13.1 million, $22.6 million and $135.5 million for the ~~quarter ended December 31, 2017,~~twelve months ending June 30, 2023, 2024, 2025, 2026, 2027, and thereafter, respectively. Of the ~~Company did not purchase~~maturity schedule mentioned above, $7.5 million, $26.8 million, $0.0 million, $0, $8.7 million and $70.6 million, respectively, relate to scheduled balloon payments. Unamortized debt discount and issuance costs amounted to $3.1 million and $3.4 million as of June 30, 2023 and September 30, 2022, respectively.

8. Stock-based Compensation

On February 7, 2022, our board of directors approved the 2022 Stock Option Plan (the “2022 Plan”). The board’s adoption of the 2022 Plan was approved by the shareholders during the annual stockholders' meeting on August 23, 2022. The 2022 Plan provides that the maximum aggregate number of shares of ~~its~~ common ~~stock.~~stock underlying options that may be granted under the 2022 Plan is 300,000. The ~~Company also paid a $0.03 per share cash dividend totaling approximately $292,000.~~

~~During~~options granted under the ~~quarter ended December 31, 2016, the Company purchased and retired 89,685 common shares at a cost of $1.1 million.~~2022 Plan may be either incentive stock options or non-qualified options. The ~~Company also paid a $0.03 per share cash dividend totaling approximately $290,000.~~

~~6. Earnings Per Share~~

~~Basic earnings per share (“EPS”) includes no dilution and~~2022 Plan is ~~computed by dividing income available to common stockholders~~administered by the ~~weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings~~compensation committee of the ~~Company. Potential common stock shares consist~~board of ~~shares that may arise from outstanding dilutive common restricted stock, stock options and warrants (the number of which is computed using~~directors. The compensation committee has the ~~“treasury stock method”) and from outstanding convertible debentures (the number of which is computed using~~exclusive power to select individuals to receive grants, to establish the “if converted method”). Diluted EPS considers the potential dilution that could occur if the Company’s outstanding common restricted stock, stock options, warrants and convertible debentures were converted into common stock that then shared in the Company’s earnings (as adjusted for interest expense that would no longer occur if the debentures were converted).

~~The table below presents the reconciliation~~terms of the ~~numerator and~~options granted to each participant, provided that all options granted shall be granted at an exercise price not less than the ~~denominator in the calculation~~

Table of ~~basic and diluted EPS (in thousands, except per share amounts):~~

For the Three Months
Ended December 31,
2017 2016
Numerator -
Net income attributable to RCIHH common shareholders – basic $ 14,311 $ 2,898
Adjustment to net income from assumed conversion of debentures(2) - 5
Adjusted net income attributable to RCIHH common shareholders – diluted $ 14,311 $ 2,903
Denominator(1)(3)-
Weighted average number of common shares outstanding – basic 9,719 9,768
Effect of potentially dilutive convertible debentures(2) - 46
Adjusted weighted average number of common shares outstanding – diluted 9,719 9,814

Basic earnings per share $ 1.47 $ 0.30
Diluted earnings per share $ 1.47 $ 0.30

Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(1)~~	~~There were no outstanding restricted stock, warrants and options during the three months ended December 31, 2017 and 2016.~~

~~(2)~~	Convertible debentures (principal and accrued interest) outstanding at the beginning of the quarters ended December 31, 2017 and 2016 totaling $0 and $859,000, respectively, were convertible into common stock at a price of $10.25 and $12.50 per share until January 4, 2017, when the last conversion option expired in relation to the payment of the last convertible note.

~~(3)~~	~~Since January 4, 2017 to date, the Company has no outstanding convertible debt.~~

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 to each of six members of management subject to the approval of the 2022 Plan.

Stock-based compensation for the three and nine months ended June 30, 2023, which is included in corporate segment selling, general and administrative expenses, amounted to $470,000 and $2.1 million, respectively. No stock-based compensation expense was recognized during the three and nine months ended June 30, 2022. As of June 30, 2023, we had unrecognized compensation cost amounting to $4.9 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of 2.6 years.

The February 9, 2022 stock options vest over four years with the first 20% having vested on the approval of the 2022 Plan at the 2022 annual stockholders' meeting on August 23, 2022, and 20% vesting on February 9 of each year thereafter, provided however that the options will be subject to earlier vesting under certain events set forth in the Plan, including without limitation a change in control. All of the options will expire, if not exercised, at the end of five years. The weighted average grant-date fair value of the stock options was $31.37 per share. No stock options were exercised during the three and nine months ended June 30, 2023. As of June 30, 2023, 120,000 stock options were vested and exercisable.

For the three and nine months ended June 30, 2023, we excluded 300,000 stock options from the calculation of diluted earnings per share because their effect was anti-dilutive. There were no stock options outstanding during the three and nine months ended June 30, 2022. Aside from the outstanding stock options, there were no other potentially dilutive securities for inclusion in the calculation of diluted earnings per share.

9. Income Taxes

Income ~~taxes were a benefit of $8.2~~tax expense was $2.3 million ~~for~~and $7.4 million during the ~~first quarter of 2018~~three and nine months ended June 30, 2023, respectively, compared to ~~an expense of $1.5~~$3.8 million ~~for~~and $10.1 million during the ~~same quarter of 2017.~~three and nine months ended June 30, 2022, respectively. The effective income tax expense rate was 20.1% and 21.6% for the ~~first quarter of 2018 was a benefit of 134.3%~~three and nine months ended June 30, 2023, respectively, compared ~~with an expense of 33.3%~~to 21.3% and 22.1% for the ~~comparable period of 2017.~~three and nine months ended June 30, 2022, respectively. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, ~~while the first quarter of 2018 was significantly impacted by a $9.7 million reduction of our deferred tax liability caused by newly enacted tax laws.~~

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted into law. The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate federal tax rate from a maximum of 35% to a flat 21% rate. The corporate tax rate reduction was effective January 1, 2018. Because the Company has a fiscal year end of September 30, the reduced corporate tax rate will result in the application of a blended federal statutory tax rate for its fiscal year 2018 and then a flat 21% thereafter.

Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. At September 30, 2017, the Company’s deferred tax assets and liabilities were determined based on the then-current enacted federal tax rate of 35%. As a result of the reduction in the corporate income tax rate under the Act, the Company revalued its deferred tax assets and liabilities at December 31, 2017. Deferred tax assets and liabilities expected to be realized in fiscal year 2018 were re-measured using the aforementioned blended rate. All remaining deferred tax assets and liabilities were re-measured using the new statutory federal rate of 21%. These re-measurements collectively resulted in a discrete tax benefit of $9.7 million that was recognized during the three months ended December 31, 2017. The Company’s revaluation of its deferred tax assets and liabilities is subject to further clarification of the Act and refinements of its estimates. As a result, the actual impact on the deferred tax assets and liabilities and income tax expense due to the Act may vary from the amounts estimated.

as presented below.


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Federal statutory income tax expense	21.0	%	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	2.1	%	2.9	%	3.4	%	2.9	%
Permanent differences	0.5	%	0.4	%	0.5	%	0.4	%
Tax credits	(3.7)	%	(3.2)	%	(3.4)	%	(2.8)	%
Other	0.1	%	0.1	%	0.1	%	0.5	%
Total income tax expense	20.1	%	21.3	%	21.6	%	22.1	%

The Company or one of its subsidiaries files income tax returns ~~for~~in the U.S. federal jurisdiction, and various states. ~~The Company is no longer subject to federal, state and local income tax examinations by tax authorities for years before 2013. The Company’s federal income tax returns for the fiscal years~~Fiscal year ended September 30, ~~2015, 2014~~2019 and ~~2013 are currently under examination by the Internal Revenue Service.~~

subsequent years remain open to federal tax examination. The Company ~~accounts~~ordinarily goes through various federal and state reviews and examinations for ~~uncertain~~various tax ~~positions pursuant to ASC Topic 740,~~~~Income Taxes~~~~. As of December 31, 2017~~matters.

10. Commitments and September 30, 2017, the liability for uncertain tax positions totaled approximately $865,000 in each period, which is included in current liabilities on our condensed consolidated balance sheets. The Company recognizes interest accrued related to uncertain tax positions in interest expense and penalties inContingencies

Legal Matters

Texas Patron Tax

A declaratory judgment action was brought by five operating ~~expenses.~~

~~On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 18 (“SAB 118”), which provides guidance on accounting for the tax effects~~subsidiaries of the ~~Tax Cuts and Jobs Act. In accordance with SAB 118, the~~ Company ~~has made reasonable estimates~~to challenge a Texas Comptroller administrative rule related to the ~~following areas impacted by~~$5 per customer Patron Tax Fee assessed against Sexually Oriented Businesses. An administrative rule attempted to expand the ~~Act: existing timing differences, reversal~~fee to cover venues featuring dancers using latex cover as well

Table of ~~existing timing differences, and accelerated depreciation. As such, the Company has left the measurement period open as of December 31, 2017.~~

~~8. Commitments and Contingencies~~

~~Legal Matters~~

~~New York Settlement~~

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

Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

as traditional nude entertainment. The administrative rule was challenged on both constitutional and statutory grounds. On ~~April 1, 2015, we and our subsidiaries, RCI Entertainment (New York), Inc. and Peregrine Enterprises, Inc., entered into~~November 19, 2018, the Court issued an ~~agreement to settle in full~~order that a ~~New York~~key aspect of the administrative rule is invalid based ~~federal wage and hour class and collective action filed in~~on it exceeding the ~~United States~~scope of the Comptroller’s authority. On March 6, 2020, the U.S. District Court for the ~~Southern~~Western District of ~~New York. On September 22, 2015,~~Texas, Austin Division, ruled that the ~~Court granted final approval of the settlement. Under the terms of the agreement, Peregrine Enterprises, Inc. was to make up to $15.0 million available to class members~~Texas Patron Tax is unconstitutional as it has been applied and ~~their attorneys. The actual amount paid was determined based on the number of class members responding~~enforced by the ~~end~~Comptroller. The State of ~~a two-month notice period which ended on December 4, 2015. Unclaimed checks or payments reverted~~Texas appealed to the Fifth Circuit Court of Appeals, who affirmed that the Texas Patron Fee is unconstitutional as applied. The State of Texas next sought review from the Supreme Court, but the high court declined to take the case and in doing so exhausted the State's rights to appeal the judgment. The lawsuit was sent back to ~~Peregrine at that time. Based on~~ the ~~current schedule, an initial payment~~trial court for ~~attorneys’~~post-trial proceedings, which resulted in the award of attorneys' fees ~~of $1,833,333 was made in October 2015, with two subsequent payments of $1,833,333 each being made in equal annual installments. As part of~~to the ~~settlement, RCIHH was required~~operating subsidiaries. Pursuant to ~~guarantee~~ the ~~obligations of RCI Entertainment (New York), Inc. and Peregrine Enterprises, Inc. under~~rulings, the ~~settlement.~~

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

Indemnity Insurance Corporation

As previously reported, the Company and its subsidiaries were insured under a liability policy issued by Indemnity Insurance Corporation, RRG (“IIC”) through October 25, 2013. The Company and its subsidiaries changed insurance companies on that date.

On November 7, 2013, the Court of Chancery of the State of Delaware entered a Rehabilitation and Injunction Order (“Rehabilitation Order”), which declared IIC impaired, insolvent and in an unsafe condition and placed IIC under the supervision of the Insurance Commissioner of the State of Delaware (“Commissioner”) in her capacity as receiver (“Receiver”). The Rehabilitation Order empowered the Commissioner to rehabilitate IIC through a variety of means, including gathering assets and marshaling those assets as necessary. Further, the order stayed or abated pending lawsuits involving IIC as the insurer until May 6, 2014.

On April 10, 2014, the Court of Chancery of the State of Delaware entered a Liquidation and Injunction Order With Bar Date (“Liquidation Order”), which ordered the liquidation of IIC and terminated all insurance policies or contracts of insurance issued by IIC. The Liquidation Order further ordered that all claims against IIC must behave been filed with the Receiver before the close of business on January 16, 2015 and that all pending lawsuits involving IIC as the insurer ~~are~~were further stayed or abated until October 7, 2014. As a result, the Company and its subsidiaries no longer ~~have~~had insurance coverage under the liability policy with IIC. ~~Currently, there are several civil lawsuits pending against the Company and its subsidiaries.~~ The Company has retained counsel to defend against and evaluate these claims and lawsuits. We are funding 100% of the costs of litigation and will seek reimbursement from the bankruptcy receiver. The Company filed the appropriate claims against IIC with the Receiver before the January 16, 2015 deadline and has provided updates as requested; however, there are no assurances of any recovery from these claims. It is unknown at this time what effect this uncertainty will have on the Company. As previously stated, since October 25, 2013, the Company has obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date. WeAs of June 30, 2023, we have 81 remaining unresolved ~~cases left~~claim out of the original 71 ~~cases.~~

~~General~~

~~The Company has been sued by~~claims.

Shareholder Derivative Action

On January 21, 2022, Shiva Stein and Kevin McCarty filed a ~~landlord~~shareholder derivative action in the ~~33rd Judicial~~Southern District ~~Court~~ of ~~Harris County,~~ Texas, ~~for a~~ Houston ~~Bombshells which was under renovation in 2015. The plaintiff alleges~~Division against former director Nourdean Anakar, Yura Barabash, former director Steven L. Jenkins, Eric Langan, Luke Lirot, former CFO Phillip K. Marshall, Elaine J. Martin, Allan Priaulx, and Travis Reese as defendants, as well as against RCI Hospitality Holdings, Inc.~~’s subsidiary, BMB Dining Services (Willowbrook)~~ as nominal defendant. The action, styled Stein v. Anakar, et al., ~~Inc.~~No. 4:22-mc-00149 (S.D. Tex.), ~~breached~~alleges claims for breach of fiduciary duty based on alleged dissemination of inaccurate information and failure to maintain internal controls. These allegations are substantively similar to claims asserted in a ~~lease~~prior securities class action that was settled in August of 2022 and a prior derivative action that was dismissed in June of 2021. On July 24, 2023, the parties reached an agreement ~~by constructing an outdoor patio, which allegedly interfered with~~in principle to resolve the ~~common areas~~action. The parties are preparing a settlement agreement and anticipate seeking Court approval of the ~~shopping center, and by failing to provide Plaintiff with~~ proposed ~~plans before beginning construction. Plaintiff also asserts RCI Hospitality Holdings, Inc. is liable as guarantor of the lease. The lease was for a Bombshells restaurant to be opened~~settlement in the ~~Willowbrook Shopping Center in Houston, Texas. Both RCI Hospitality Holdings, Inc. and BMB Dining Services (Willowbrook), Inc. have denied liability and assert~~next 30 days. The Company believes that ~~Plaintiff has failed to mitigate its claimed damages. Further, BMB Dining Services (Willowbrook), Inc. asserts that Plaintiff affirmatively represented that the patio could be constructed~~payments under the lease and has filed counter claims and third-party claims against Plaintiff, Plaintiff’s manager, and Plaintiff’s broker asserting that they committed fraud and that the landlord breached the applicable agreements. It is unknown at this time whether the resolution of this uncertaintysettlement agreement will ~~have a material effect on the Company’s financial condition.~~

be covered by insurance.

Other

~~RCI HOSPITALITY HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

On June 23, 2014, Mark H. Dupray and Ashlee Dupray filed a lawsuit against Pedro Antonio Panameno and our subsidiary JAI Dining Services (Phoenix) Inc. (“JAI Phoenix”) in the Superior Court of Arizona for Maricopa County. The suit ~~alleges~~alleged that Mr. Panameno injured Mr. Dupray in a traffic accident after being served alcohol at an establishment operated by JAI Phoenix. The suit ~~alleges~~alleged that JAI Phoenix iswas liable under theories of common law dram shop negligence and dram shop negligence per se. After a jury trial proceeded to a verdict in favor of the plaintiffs against both defendants, in April 2017 the Court entered a judgment under which JAI Phoenix’s share of compensatory damages is approximately ~~$1.4~~

Table of Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$1.4 million and its share of punitive damages is $4$4.0 million. In May 2017, JAI Phoenix filed a motion for judgment as a matter of law or, in the alternative, motion for new trial. The Court denied this motion in August 2017. In September 2017, JAI Phoenix filed a notice of appeal. ~~A hearing date for~~In June 2018, the ~~appeal has not yet been scheduled. JAI Phoenix believes the Court’s assessments of liability and damages are unsupportable~~matter was heard by the ~~facts~~Arizona Court of Appeals. On November 15, 2018 the Court of Appeals vacated the jury’s verdict and remanded the case ~~and~~to the ~~law, and~~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. ~~RCI Hospitality Holdings, Inc.~~

As set forth in the risk factors as disclosed in this report, the adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees. While we take steps to ensure that our adult entertainers are deemed independent contractors, from time to time, we are named in lawsuits related to the alleged misclassification of entertainers. Claims are brought under both federal and where applicable, state law. Based on the industry standard, the manner in which the independent contractor entertainers are treated at the clubs, and the entertainer license agreements governing the entertainer’s work at the clubs, the Company believes that these lawsuits are without merit. Lawsuits are handled by attorneys with an expertise in the relevant law and are defended vigorously.

In March 2023, the New York State Department of Labor assessed a final judgment against one of our subsidiaries in a state unemployment tax matter for the years 2009-2022. The assessment of $2.8 million, which was recorded by the Company during the quarter ended March 31, 2023, was issued in final notice by the NY DOL after several appeals were denied by the Supreme Court of the State of New York, Appellate Division, Third Department.

General

In the regular course of business affairs and operations, we are subject to possible loss contingencies arising from third-party litigation and federal, state, and local environmental, labor, health and safety laws and regulations. We assess the probability that we could incur liability in connection with certain of these lawsuits. Our assessments are made in accordance with generally accepted accounting principles, as codified in ASC 450-20, and is not ~~a party to~~an admission of any liability on the ~~lawsuit. The~~part of the Company ~~estimates a possible loss~~or any of its subsidiaries. In certain cases that are in the early stages and in light of the uncertainties surrounding them, we do not currently possess sufficient information to determine a range of ~~$0 to $5.0 million~~reasonably possible liability. In matters where there is insurance coverage, in ~~this matter.~~

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.

Settlements of lawsuits for the ~~quarters~~three and nine months ended ~~December 31, 2017~~June 30, 2023 amount to $0.1 million and ~~2016 total $27,000~~$3.2 million, respectively, and ~~$73,000,~~for the three and nine months ended June 30, 2022 amount to approximately $132,000 and $709,000, respectively. As of ~~December 31, 2017~~June 30, 2023 and September 30, ~~2017,~~2022, the Company has accrued ~~$37,000~~$1.9 million and ~~$295,000~~$246,000 in accrued liabilities, respectively, related to settlement of lawsuits.

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RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11. Segment Information

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

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

For the Three Months
Ended December 31,
2017 2016
Revenues
Nightclubs $ 35,218 $ 29,282
Bombshells 5,828 4,295
Other 166 162
$ 41,212 $ 33,739

Income (loss) from operations
Nightclubs $ 13,371 $ 9,216
Bombshells 891 638
Other (137 ) (341 )
General corporate (4,985 ) (3,180 )
$ 9,140 $ 6,333

Depreciation and amortization
Nightclubs $ 1,335 $ 1,242
Bombshells 336 218
Other 2 5
General corporate 236 153
$ 1,909 $ 1,618

Capital expenditures
Nightclubs $ 450 $ 795
Bombshells 2,228 1,104
Other - 1
General corporate 91 1,108
$ 2,769 $ 3,008


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Revenues (from external customers)
Nightclubs	$	62,449	$	54,684	$	175,805	$	149,639
Bombshells	14,397		15,789		42,143		45,893
Other	209		241		592		710
	$	77,055	$	70,714	$	218,540	$	196,242

Income (loss) from operations
Nightclubs	$	20,392	$	22,459	$	61,127	$	60,321
Bombshells	1,701		3,065		5,323		9,335
Other	(300)		(82)		(653)		(159)
Corporate	(6,278)		(4,935)		(19,957)		(15,998)
	$	15,515	$	20,507	$	45,840	$	53,499

Depreciation and amortization
Nightclubs	$	2,915	$	1,880	$	7,864	$	5,633
Bombshells	611		449		2,000		1,332
Other	212		6		338		19
Corporate	303		230		906		652
	$	4,041	$	2,565	$	11,108	$	7,636

Capital expenditures
Nightclubs	$	5,915	$	1,678	$	14,598	$	12,568
Bombshells	1,438		1,188		11,940		3,393
Other	165		145		243		693
Corporate	1,511		172		3,138		519
	$	9,029	$	3,183	$	29,919	$	17,173

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RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, 2017 September 30,2017
Total assets
Nightclubs $ 248,187 $ 254,432
Bombshells 28,206 18,870
Other 969 780
General corporate 29,217 25,802
$ 306,579 $ 299,884


	June 30, 2023		September 30, 2022
Total assets
Nightclubs	$	495,412	$	437,096
Bombshells	84,207		62,021
Other	2,635		2,635
Corporate	37,853		28,986
	$	620,107	$	530,738

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended June 30, 2023 amounting to $4.3 million and $32,000, respectively, and for the nine months ended June 30, 2023 amounting to $11.9 million and $294,000, respectively; and intercompany sales of Robust Energy Drink included in Other segment for the three and nine months ended June 30, 2023 amounting to $73,000 and $188,000, respectively. Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended June 30, 2022 amounting to $3.4 million and $32,000, and for the nine months ended June 30, 2022 amounting to $9.9 million and $231,000, respectively; and intercompany sales of Robust Energy Drink included in Other segment for the three and nine months ended June 30, 2022 amounting to $42,000 and $164,000, respectively. These intercompany revenue amounts are eliminated upon consolidation.

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

~~10. Noncontrolling Interests~~

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

~~Our consolidated financial statements include noncontrolling interests related principally to the Company’s ownership of 51% of an entity which owns the~~

Certain real estate ~~for~~assets previously wholly assigned to Bombshells have been subdivided and allocated to other future development or investment projects. Accordingly, those asset costs have been transferred out of the ~~Company’s nightclub in Philadelphia.~~

~~11.~~Bombshells segment.

As of September 30, 2022, we reclassified $9.0 million of goodwill from Corporate to Nightclubs to conform to current year presentation. See Note 1.

12. Related Party Transactions

Presently, our Chairman and President, Eric Langan, personally guarantees all of the commercial bank indebtedness of the Company. Mr. Langan receives no compensation or other direct financial benefit for any of the guarantees.

The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of June 30, 2023 and September 30, 2022, was $120.2 million and $115.1 million, respectively.

Included in the $17.0 million borrowing on October 12, 2021 are notes borrowed from related parties—one note for $500,000 (Ed Anakar, an employee of the Company and brother of our former director Nourdean Anakar) and another note for $150,000 (from a brother of Company CFO, Bradley Chhay) in which the terms of the notes are the same as the rest of the lender group.

We used the services of Nottingham Creations, and previously Sherwood Forest Creations, LLC, both furniture fabrication companies that manufacture tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance. Nottingham Creations is owned by a brother of Eric Langan (as was Sherwood Forest). Amounts billed to us for goods and services provided by Nottingham Creations and Sherwood Forest were $0 and $188,285 during the three and nine months ended June 30, 2023, respectively, and $42,093 and $69,242 during the three and nine months ended June 30, 2022, respectively. As of June 30, 2023 and September 30, 2022, we owed Nottingham Creations and Sherwood Forest $17,386 and $92,808, respectively, in unpaid billings.

TW Mechanical LLC provided plumbing and HVAC services to both a third-party general contractor providing construction services to the Company, as well as directly to the Company during fiscal 2023 and 2022. 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 $171,435 and $235,738 for the three and nine months ended June 30, 2023, respectively, and $0 and

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RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$3,809 for the three and nine months ended June 30, 2022, respectively. Amounts billed directly to the Company were $8,823 and $9,202 for the three and nine months ended June 30, 2023, respectively, and $16,500 and $101,200 for the three and nine months ended June 30, 2022, respectively. As of June 30, 2023 and September 30, 2022, the Company owed TW Mechanical $0 and $9,338, respectively, in unpaid direct billings.

13. Leases

Total lease expense included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income for the three and nine months ended June 30, 2023 and 2022 is as follows (in thousands):


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023			2022
Operating lease expense – fixed payments	$	1,327	$	1,215	$	3,874		$	3,482
Variable lease expense	406		404		1,192			971
Short-term and other lease expense (includes $116 and $53 recorded in advertising and marketing for the three months ended June 30, 2023 and 2022, respectively, and $243 and $183 for the nine months ended June 30, 2023 and 2022, respectively; and $145 and $120 recorded in repairs and maintenance for the three months ended June 30, 2023 and 2022, respectively, and $410 and $310 for the nine months ended June 30, 2023 and 2022, respectively; see Note 6)	364		290		950			988
Sublease income	—		(1)		—			(4)
Total lease expense, net	$	2,097	$	1,908	$	6,016		$	5,437

Other information:
Operating cash outflows from operating leases	$	2,055	$	1,855	$	5,885		$	5,294
Weighted average remaining lease term – operating leases					10.7 years			11.0 years
Weighted average discount rate – operating leases					5.8		%	5.6		%

Future maturities of operating lease liabilities as of June 30, 2023 are as follows (in thousands):


	Principal Payments		Interest Payments		Total Payments
July 2023 - June 2024	$	2,923	$	2,098	$	5,021
July 2024 - June 2025	3,161		1,926		5,087
July 2025 - June 2026	3,445		1,740		5,185
July 2026 - June 2027	3,580		1,538		5,118
July 2027 - June 2028	3,081		1,344		4,425
Thereafter	22,674		4,939		27,613
	$	38,864	$	13,585	$	52,449

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RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14. Subsequent Events

On August 3, 2023, the Company purchased real estate in Central City, Colorado amounting to $2.9 million in cash for future business development.

Subsequent to the balance sheet date through August 4, 2023, we repurchased 10,440 shares of our common stock at an average price of $69.48.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included in this quarterly report, and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, ~~2017.~~

2022.

Overview

RCI Hospitality Holdings, Inc. (“RCIHH”) is a holding ~~company engaged~~company. Through our subsidiaries, we engage in a number of activities in the hospitality and related businesses. All services and management operations are conducted by subsidiaries of RCIHH, including RCI Management Services, Inc.

Through our subsidiaries, as of ~~December 31, 2017,~~June 30, 2023, we operated a total of 4570 establishments that offer live adult entertainment, including two that are under renovation/remodeling, and/or restaurant and bar ~~operations.~~operations, including one food hall. We also operated a leading business communications company serving the multi-billion-dollar adult nightclubs industry. We have two principal reportable segments: Nightclubs and Bombshells. We combine ~~other~~ operating segments not included in Nightclubs and Bombshells into “Other.” In the context of club and restaurant/sports bar operations, the terms the “Company,” “we,” “our,” “us” and similar terms used in this report refer to subsidiaries of RCIHH. RCIHH was incorporated in the State of Texas in 1994. Our corporate offices are located in Houston, Texas.

Current Operating Environment

Our fiscal 2020 was the period hardest hit by the COVID-19 pandemic causing 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. In fiscal 2021, our businesses started to recover from the initial effects of the pandemic when government restrictions eased. Stimulus money also flowed to the economy at that time which prompted increased discretionary spending. In fiscal 2022, several coronavirus variants threatened to bring back tight restrictions. Along with the pandemic, geopolitical and macroeconomic events started to affect the U.S. economy in general, with global inflation and supply chain disruptions impacting our businesses.

Critical Accounting Policies and Estimates

The preparation of the unaudited condensed consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these ~~estimates, including investment impairment.~~estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017~~2022 filed with the SEC on ~~February~~December 14, ~~2018.~~

2022.

During the three and nine months ended ~~December 31, 2017,~~June 30, 2023, there were no significant changes in our accounting policies and estimates.

Results of Operations

Highlights of the Company's operating results are as follows:

Third Quarter 2023

•Total revenues were $77.1 million compared to $70.7 million during the comparable prior-year quarter, a 9.0% increase (Nightclubs revenue of $62.4 million compared to $54.7 million, a 14.2% increase; and Bombshells revenue of $14.4 million compared to $15.8 million, an 8.8% decrease)

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•Consolidated same-store sales decreased by 9.6% (Nightclubs decreased by 7.3% while Bombshells decreased by 18.2%) (refer to the definition of same-store sales in the discussion of revenues below)

•Basic and diluted earnings per share (“EPS”) of $0.96 compared to $1.48 (non-GAAP diluted EPS* of $1.30 compared to $1.60) during the comparable prior-year quarter

•Net cash provided by operating activities of $15.3 million compared to $18.9 million during the comparable prior-year quarter, a 18.9% decrease (free cash flow* of $14.3 million compared to $18.0 million, a 20.9% decrease)

Year-to-Date 2023

•Total revenues were approximately $218.5 million compared to $196.2 million during the comparable prior-year year-to-date period, a 11.4% increase (Nightclubs revenue of $175.8 million compared to $149.6 million, a 17.5% increase; and Bombshells revenue of $42.1 million compared to $45.9 million, an 8.2% decrease)

•Consolidated same-store sales decreased by 4.3% (Nightclubs decreased by 1.1% while Bombshells decreased by 14.8%) (refer to the definition of same-store sales in the discussion of revenues below)

•Basic and diluted EPS of $2.91 compared to $3.76 (non-GAAP diluted EPS of $3.80 compared to $3.89) during the comparable prior-year year-to-date period

•Net cash provided by operating activities of $47.0 million compared to $46.8 million during the comparable prior-year year-to-date period, a 0.5% increase (free cash flow* of $42.1 million compared to $44.4 million, a 5.2% decrease)

*Reconciliation and discussion of non-GAAP financial measures are included in the “Non-GAAP Financial Measures” section below.

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The following table summarizes our results of operations ~~for the three months ended December 31, 2017 and 2016 (dollars in thousands):~~

For the Three Months Ended
December 31, 2017 December 31, 2016
Change

Amount % of Revenues Amount % of Revenues Amount %
Revenues
Sales of alcoholic beverages $ 17,805 43.2 % $ 14,375 42.6 % $ 3,430 23.9 %
Sales of food and merchandise 5,307 12.9 % 4,207 12.5 % 1,100 26.1 %
Service revenues 15,889 38.6 % 13,475 39.9 % 2,414 17.9 %
Other 2,211 5.4 % 1,682 5.0 % 529 31.5 %
Total revenues 41,212 100.0 % 33,739 100.0 % 7,473 22.1 %
Operating expenses
Cost of goods sold
Alcoholic beverages sold 3,755 21.1 % 3,168 22.0 % 587 18.5 %
Food and merchandise sold 2,094 39.5 % 1,653 39.3 % 441 26.7 %
Service and other 36 0.2 % 60 0.4 % (24 ) -40.0 %
Cost of goods sold (exclusive of items shown separately below) 5,885 14.3 % 4,881 14.5 % 1,004 20.6 %
Salaries and wages 11,377 27.6 % 9,652 28.6 % 1,725 17.9 %
Selling, general and administrative 12,812 31.1 % 11,193 33.2 % 1,619 14.5 %
Depreciation and amortization 1,909 4.6 % 1,618 4.8 % 291 18.0 %
Other charges, net 89 0.2 % 62 0.2 % 27 43.5 %
Total operating expenses 32,072 77.8 % 27,406 81.2 % 4,666 17.0 %
Income from operations 9,140 22.2 % 6,333 18.8 % 2,807 44.3 %
Other income (expenses)
Interest expense (3,079 ) -7.5 % (2,015 ) -6.0 % (1,064 ) 52.8 %
Interest income 67 0.2 % 37 0.1 % 30 81.1 %
Income before income taxes 6,128 14.9 % 4,355 12.9 % 1,773 40.7 %
Income tax expense (benefit) (8,227 ) -20.0 % 1,450 4.3 % (9,677 ) -667.4 %
Net income $ 14,355 34.8 % $ 2,905 8.6 % $ 11,450 394.1 %

as a percentage of revenue:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Revenues
Sales of alcoholic beverages	44.3	%	42.1	%	43.0	%	42.6	%
Sales of food and merchandise	14.8	%	16.4	%	15.0	%	17.1	%
Service revenues	34.6	%	36.0	%	35.7	%	34.6	%
Other	6.3	%	5.6	%	6.4	%	5.8	%
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%
Operating expenses
Cost of goods sold
Alcoholic beverages sold	18.7	%	17.4	%	18.2	%	17.9	%
Food and merchandise sold	36.0	%	34.2	%	34.9	%	35.0	%
Service and other	0.1	%	0.2	%	0.1	%	0.2	%
Total cost of goods sold (exclusive of items shown separately below)	13.7	%	13.0	%	13.1	%	13.7	%
Salaries and wages	26.7	%	24.6	%	26.9	%	25.7	%
Selling, general and administrative	30.9	%	27.7	%	31.4	%	28.8	%
Depreciation and amortization	5.2	%	3.6	%	5.1	%	3.9	%
Other charges, net	3.4	%	2.1	%	2.6	%	0.7	%
Total operating expenses	79.9	%	71.0	%	79.0	%	72.7	%
Income from operations	20.1	%	29.0	%	21.0	%	27.3	%
Other income (expenses)
Interest expense	(5.6)	%	(4.3)	%	(5.3)	%	(4.3)	%
Interest income	0.1	%	0.1	%	0.1	%	0.2	%
Non-operating gains, net	—	%	0.2	%	—	%	0.1	%
Income before income taxes	14.6	%	25.0	%	15.8	%	23.2	%
Income tax expense	2.9	%	5.3	%	3.4	%	5.1	%
Net income	11.7	%	19.7	%	12.3	%	18.1	%

*Percentages may not foot due to rounding. Percentage of revenue for individual cost of goods sold items pertains to their respective revenue line.

Revenues

Consolidated revenues for the third quarter increased by ~~$7.5~~$6.3 million, or ~~22.1%~~9.0%, versus the comparable prior-year quarter due primarily to ~~a 16% increase from new units, 6.9%~~an 18.5% increase in sales from newly acquired clubs and new Bombshells openings. Consolidated revenues for the year-to-date period increased by $22.3 million, or 11.4%, compared to the prior-year year-to-date period mainly due to an increase in sales from newly acquired clubs and new Bombshells openings partially offset by the impact of consolidated same-store sales ~~(contributing~~decline. Consolidated same-store sales decreased by 9.6% for the quarter and decreased by 4.3% for the year-to-date period.

We calculate same-store sales by comparing year-over-year revenues from nightclubs and restaurants/sports bars starting in the first full quarter of operations after at least 12 full months for Nightclubs and at least 18 full months for Bombshells. We consider the first six months of operations of a ~~6.7% increase~~Bombshells unit to be the “honeymoon period” where sales are significantly higher than normal. We exclude from a particular month’s calculation units previously included in ~~total revenues), and a 0.7% decrease~~the same-store sales base that have closed temporarily until its next full quarter of operations. We also exclude from the same-store sales base units that are being reconcepted or are closed ~~units. Nightclub~~due to renovations or remodels. Acquired units are included in the same-store sales calculation as long as they qualify based on the definition stated above. Revenues outside of our Nightclubs and Bombshells reportable segments are excluded from same-store sales ~~increased by 7.1% and 5.6%, respectively, due to strong lineup~~calculation.

Table of ~~sporting events pulling in increased customer count, and a continued recovery in consumer spending.~~

Contents

Segment contribution to total revenues was as follows (in ~~thousands)~~thousands, except percentages):

For the Three Months
Ended December 31,
2017 2016
Nightclubs $ 35,218 $ 29,282
Bombshells 5,828 4,295
Other 166 162
$ 41,212 $ 33,739

Three Months Ended June 30, 2023 Mix Three Months Ended June 30, 2022 Mix Inc (Dec) $ Inc (Dec) %
Nightclubs
Sales of alcoholic beverages $ 26,144 41.9 % $ 21,061 38.5 % $ 5,083 24.1 %
Sales of food and merchandise 5,288 8.5 % 4,639 8.5 % 649 14.0 %
Service revenues 26,497 42.4 % 25,287 46.2 % 1,210 4.8 %
Other revenues 4,520 7.2 % 3,697 6.8 % 823 22.3 %
62,449 100.0 % 54,684 100.0 % 7,765 14.2 %
Bombshells
Sales of alcoholic beverages 8,007 55.6 % 8,677 55.0 % (670) (7.7) %
Sales of food and merchandise 6,117 42.5 % 6,935 43.9 % (818) (11.8) %
Service revenues 166 1.2 % 157 1.0 % 9 5.7 %
Other revenues 107 0.7 % 20 0.1 % 87 435.0 %
14,397 100.0 % 15,789 100.0 % (1,392) (8.8) %
Other
Other revenues 209 100.0 % 241 100.0 % (32) (13.3) %
$ 77,055 $ 70,714 $ 6,341 9.0 %

Nine Months Ended June 30, 2023 Mix Nine Months Ended June 30, 2022 Mix Inc (Dec) $ Inc (Dec) %
Nightclubs
Sales of alcoholic beverages $ 70,433 40.1 % $ 57,901 38.7 % $ 12,532 21.6 %
Sales of food and merchandise 14,705 8.4 % 13,726 9.2 % 979 7.1 %
Service revenues 77,716 44.2 % 67,472 45.1 % 10,244 15.2 %
Other revenues 12,951 7.4 % 10,540 7.0 % 2,411 22.9 %
175,805 100.0 % 149,639 100.0 % 26,166 17.5 %
Bombshells
Sales of alcoholic beverages 23,504 55.8 % 25,603 55.8 % (2,099) (8.2) %
Sales of food and merchandise 18,052 42.8 % 19,902 43.4 % (1,850) (9.3) %
Service revenues 200 0.5 % 349 0.8 % (149) (42.7) %
Other revenues 387 0.9 % 39 0.1 % 348 892.3 %
42,143 100.0 % 45,893 100.0 % (3,750) (8.2) %
Other
Other revenues 592 100.0 % 710 100.0 % (118) (16.6) %
$ 218,540 $ 196,242 $ 22,298 11.4 %

Nightclubs revenues increased by 14.2% for the quarter ended June 30, 2023 compared to the prior-year quarter primarily due to the contribution of newly acquired clubs and the impact of the increase in same-store sales. For Nightclubs that were open enough days to qualify for same-store sales (refer to the definition of same-store sales in the preceding paragraph), sales decreased by 7.3%. Newly acquired and remodeled clubs contributed a sales increase of $11.9 million to the total Nightclubs revenue increase of $7.8 million. By type of revenue, service revenue increased by 4.8%, alcoholic beverage sales increased by 24.1%, and food, merchandise and other revenue increased by 17.7%.

Bombshells revenues decreased by 8.8%, of which 18.2% was for same-store sales decrease with the offsetting increase caused by two new locations and a food hall. By type of revenue, food and merchandise sales decreased by 11.8% while alcoholic beverage sales decreased by 7.7%. Management believes that the decrease in total Bombshells revenue was mainly from higher customer spending in the prior year caused by government stimulus money.

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Operating Expenses

Total operating expenses, as a percent of revenues, ~~decreased~~increased to ~~77.8%~~79.9% from ~~81.2%~~71.0% from ~~year-ago although dollar value increased by $4.7~~last year’s third quarter, with a $11.3 million increase, or ~~17.0%~~22.6%, which was ~~predominantly~~mainly caused by costs and expenses directly related to higher sales in the ~~22.1%~~current-year quarter, and stock-based compensation, amortization of SOB licenses, settlement of lawsuits and impairment of goodwill in the current quarter. Compared to last year's nine-month period, the current nine-month period total operating expenses as a percent of revenues increased to 79.0% from 72.7%, with a $30.0 million increase, ~~in total revenues. Contributors~~or 21.0%, due to the same reasons cited above. Significant contributors to the changes in operating expenses are explained below.

Cost of goods sold. Cost of goods sold for the third quarter increased by ~~$1.0~~$1.3 million, or ~~20.6%~~14.7%, ~~primarily~~mainly due to ~~increase in~~higher sales. As a percent of total revenues, cost of goods sold ~~slightly decreased~~increased to ~~14.3%~~13.7% from ~~14.5%~~13.0% mainly due to the sales mix increase in service revenue. Service revenue has the highest margin while food and merchandise have the lowest. Nightclubs cost of goods sold increased to 11.7% from 10.0%, while Bombshells cost of goods sold decreased to 22.3% from 23.3%.

Cost of goods sold for the nine months increased by $1.8, or 6.8%, mainly due to higher sales. As a percent of total revenues, cost of goods sold decreased to 13.1% from 13.7% mainly due to the sales mix increase in service revenue. Service revenue has the highest margin while food and merchandise have the lowest. Nightclubs cost of ~~higher margin service revenue~~goods sold increased to 10.9% from ~~units in the same-store sales base, partially offset by slightly lower margin new restaurant food sales.~~

10.6%, while Bombshells cost of goods sold decreased to 22.5% from 23.5%.

Salaries and wages. Salaries and wages increased by ~~$1.7~~$3.2 million, or ~~17.9% mainly~~18.4%, for the third quarter due to ~~a shift to additional corporate headcount and labor~~increase in personnel from newly acquired clubs and ~~opened units.~~new Bombshells openings, work shifts to accommodate the increase in sales, and the impact of minimum wage increases in certain states and cities. As a percent of total revenues, salaries and wages increased to 26.7% from 24.6% due to wage inflation. Nightclubs increased to 21.4% from 19.0% and Bombshells increased to 27.0% from 23.6%, while corporate was flat at 4.1%.

For the nine-month period, salaries and wages increased by $8.3 million, or 16.4%. As a percent of total revenues, consolidated salaries and wages increased to 26.9% from 25.7%. Nightclubs increased to 21.2% from 19.9%, Bombshells increased to 26.5% from 23.9%, and corporate decreased to ~~27.6%~~4.5% from ~~28.6% primarily due to leverage from higher sales.~~

4.7%.

Selling, general and administrative expenses. Selling, general and administrative expenses increased by ~~$1.6~~$4.2 million, or ~~14.5%~~21.6%, primarily due to increases in charge card fees, advertising and marketing, audit fee, insurance, rent, supplies, and repairs and maintenance. This is partially offset by decreases in legal costs and taxes and permits. Charge card fees and supplies are directlyincreased variable expenses related to higher sales during the ~~increase in sales. Rent increased due to the opening of~~current-year quarter and stock-based compensation. On a ~~new Bombshells. As a percent of total revenues,~~year-to-date period, selling, general and administrative expenses ~~decreased~~increased by $12.1 million, or 21.4%, due to ~~31.1% from 33.2% mainly due sales leverage partially offset by a higher mix~~the same reasons cited above. Dollar amounts in the tables below are in thousands, except percentages.


	For the Three Months Ended June 30, 2023				For the Three Months Ended June 30, 2022				Better (Worse)
	Amount		% of Revenues		Amount		% of Revenues		Amount		%
Taxes and permits	$	2,969	3.9	%	$	2,418	3.4	%	$	(551)	(22.8)	%
Advertising and marketing	3,284		4.3	%	2,460		3.5	%	(824)		(33.5)	%
Supplies and services	2,865		3.7	%	2,068		2.9	%	(797)		(38.5)	%
Insurance	2,718		3.5	%	2,481		3.5	%	(237)		(9.6)	%
Legal	754		1.0	%	328		0.5	%	(426)		(129.9)	%
Lease	1,836		2.4	%	1,736		2.5	%	(100)		(5.8)	%
Charge card fees	1,792		2.3	%	1,829		2.6	%	37		2.0	%
Utilities	1,443		1.9	%	1,151		1.6	%	(292)		(25.4)	%
Security	1,523		2.0	%	1,081		1.5	%	(442)		(40.9)	%
Stock-based compensation	470		0.6	%	—		—	%	(470)		(100.0)	%
Accounting and professional fees	1,050		1.4	%	818		1.2	%	(232)		(28.4)	%
Repairs and maintenance	1,367		1.8	%	960		1.4	%	(407)		(42.4)	%
Other	1,732		2.2	%	2,242		3.2	%	510		22.7	%
Total selling, general and administrative expenses	$	23,803	30.9	%	$	19,572	27.7	%	$	(4,231)	(21.6)	%

Table of ~~credit card usage.~~

Contents


	For the Nine Months Ended June 30, 2023				For the Nine Months Ended June 30, 2022				Better (Worse)
	Amount		% of Revenues		Amount		% of Revenues		Amount		%
Taxes and permits	$	8,392	3.8	%	$	7,015	3.6	%	$	(1,377)	(19.6)	%
Advertising and marketing	8,685		4.0	%	7,091		3.6	%	(1,594)		(22.5)	%
Supplies and services	7,946		3.6	%	6,223		3.2	%	(1,723)		(27.7)	%
Insurance	7,538		3.4	%	7,357		3.7	%	(181)		(2.5)	%
Legal	3,035		1.4	%	2,286		1.2	%	(749)		(32.8)	%
Lease	5,363		2.5	%	4,948		2.5	%	(415)		(8.4)	%
Charge card fees	5,372		2.5	%	4,626		2.4	%	(746)		(16.1)	%
Utilities	4,067		1.9	%	3,194		1.6	%	(873)		(27.3)	%
Security	3,995		1.8	%	3,218		1.6	%	(777)		(24.1)	%
Stock-based compensation	2,117		1.0	%	—		—	%	(2,117)		(100.0)	%
Accounting and professional fees	3,225		1.5	%	2,786		1.4	%	(439)		(15.8)	%
Repairs and maintenance	3,738		1.7	%	2,588		1.3	%	(1,150)		(44.4)	%
Other	5,088		2.3	%	5,163		2.6	%	75		1.5	%
Total selling, general and administrative expenses	$	68,561	31.4	%	$	56,495	28.8	%	$	(12,066)	(21.4)	%

Depreciation and amortization. Depreciation and amortization increased by ~~$291,000,~~$1.5 million, or ~~18.0%~~57.5%, during the third quarter and increased by $3.5 million, or 45.5%, during the year-to-date period due to ~~higher unit count~~the amortization of SOB licenses from leased clubs.

Other charges, net. Other charges, net for both the third quarter and the ~~addition~~year-to-date period increased by $1.1 million and $4.3 million, respectively, due mainly to settlement of ~~our corporate office during~~lawsuits and impairment charges. We recorded a $2.8 million assessment by the ~~middle~~New York State Department of Labor in the ~~first~~second quarter of ~~2017.~~

2023 and we recorded impairment charges of $662,000 in the second quarter of 2023 and $2.1 million in the third quarter of 2023 versus impairment charges of $1.7 million in the third quarter of 2022. The current year third quarter impairment charge included $2.6 million related to two clubs, one of which has been permanently closed.

Income (Loss) from Operations

For the three months ended ~~December 31, 2017~~June 30, 2023 and ~~2016,~~2022, our consolidated operating margin was ~~22.2%~~20.1% and ~~18.8%~~29.0%, respectively, while for the nine months ended June 30, 2023 and 2022, our consolidated operating margin was 21.0% and 27.3%, respectively. The main drivers for the ~~increase~~decreases in operating margin isare stock-based compensation, amortization of SOB licenses, settlement of lawsuits, and impairment of goodwill, which are only present in the ~~favorable leverage caused~~current year partially offset by fixed expenses ~~on increasing sales and the contribution of newly acquired and opened units, aside~~leveraged from ~~the details previously discussed above.~~

higher sales.

Segment contribution to income (loss) from operations is presented in the table below (in thousands):

For the Three Months
Ended December 31,
2017 2016
Nightclubs $ 13,371 $ 9,508
Bombshells 891 638
Other (137 ) (341 )
General corporate (4,985 ) (3,180 )
$ 9,140 $ 6,333

~~Operating~~


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Nightclubs	$	20,392	$	22,459	$	61,127	$	60,321
Bombshells	1,701		3,065		5,323		9,335
Other	(300)		(82)		(653)		(159)
Corporate	(6,278)		(4,935)		(19,957)		(15,998)
	$	15,515	$	20,507	$	45,840	$	53,499

Nightclubs operating margin ~~for the Nightclubs segment~~ was ~~38.0%~~32.7% and ~~31.5%~~41.1% for the three months ended ~~December 31, 2017~~June 30, 2023 and ~~2016,~~2022, respectively, while operating margin for Bombshells was ~~15.3%~~11.8% and ~~14.9%~~19.4%, respectively. Nightclubs operating margin was 34.8% and 40.3% for the nine months ended June 30, 2023 and 2022, respectively, while operating margin for Bombshells was 12.6% and 20.3%, respectively. Nightclubs operating margin decreased due to settlement of lawsuits, amortization of SOB licenses,

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and impairment of goodwill partially offset by fixed expenses leveraged from higher sales. The ~~increase~~decrease in ~~Nightclubs~~Bombshells operating margin was mainly due to fixed expenses deleveraged from lower sales.

Excluding certain items, third quarter non-GAAP operating income (loss) and non-GAAP operating margin are computed in the ~~favorable leverage~~tables below (dollars in thousands). Refer to the discussion of Non-GAAP Financial Measures on page 3 2.


	For the Three Months Ended June 30, 2023
	Nightclubs			Bombshells			Other			Corporate			Total
Income (loss) from operations	$	20,392		$	1,701		$	(300)		$	(6,278)		$	15,515
Amortization of intangibles	624			81			208			5			918
Settlement of lawsuits	57			6			—			—			63
Impairment of assets	2,631			—			—			—			2,631
Loss (gain) on sale of businesses and assets	(153)			50			—			(2)			(105)
Gain on insurance	—			—			—			—			—
Stock-based compensation	—			—			—			470			470
Non-GAAP operating income (loss)	$	23,551		$	1,838		$	(92)		$	(5,805)		$	19,492

GAAP operating margin	32.7		%	11.8		%	(143.5)		%	(8.1)		%	20.1		%
Non-GAAP operating margin	37.7		%	12.8		%	(44.0)		%	(7.5)		%	25.3		%


	For the Three Months Ended June 30, 2022
	Nightclubs			Bombshells			Other			Corporate			Total
Income (loss) from operations	$	22,459		$	3,065		$	(82)		$	(4,935)		$	20,507
Amortization of intangibles	23			1			—			1			25
Settlement of lawsuits	124			8			—			—			132
Impairment of assets	1,072			650			—			—			1,722
Gain on sale of businesses and assets	(264)			—			—			(2)			(266)
Gain on insurance	(87)			—			—			—			(87)
Non-GAAP operating income (loss)	$	23,327		$	3,724		$	(82)		$	(4,936)		$	22,033

GAAP operating margin	41.1		%	19.4		%	(34.0)		%	(7.0)		%	29.0		%
Non-GAAP operating margin	42.7		%	23.6		%	(34.0)		%	(7.0)		%	31.2		%

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Excluding certain items, year-to-date period non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).


	For the Nine Months Ended June 30, 2023
	Nightclubs			Bombshells			Other			Corporate			Total
Income (loss) from operations	$	61,127		$	5,323		$	(653)		$	(19,957)		$	45,840
Amortization of intangibles	1,880			500			329			13			2,722
Settlement of lawsuits	3,174			9			—			—			3,183
Impairment of assets	3,293			—			—			—			3,293
Loss (gain) on sale of businesses and assets	(734)			66			—			(24)			(692)
Gain on insurance	(48)			—			—			(43)			(91)
Stock-based compensation	—			—			—			2,117			2,117
Non-GAAP operating income (loss)	$	68,692		$	5,898		$	(324)		$	(17,894)		$	56,372

GAAP operating margin	34.8		%	12.6		%	(110.3)		%	(9.1)		%	21.0		%
Non-GAAP operating margin	39.1		%	14.0		%	(54.7)		%	(8.2)		%	25.8		%


	For the Nine Months Ended June 30, 2022
	Nightclubs			Bombshells			Other			Corporate			Total
Income (loss) from operations	$	60,321		$	9,335		$	(159)		$	(15,998)		$	53,499
Amortization of intangibles	117			5			—			2			124
Settlement of lawsuits	578			18			—			113			709
Impairment of assets	1,072			650			—			—			1,722
Loss (gain) on sale of businesses and assets	(344)			17			—			(339)			(666)
Gain on insurance	(408)			—			—			—			(408)
Non-GAAP operating income (loss)	$	61,336		$	10,025		$	(159)		$	(16,222)		$	54,980

GAAP operating margin	40.3		%	20.3		%	(22.4)		%	(8.2)		%	27.3		%
Non-GAAP operating margin	41.0		%	21.8		%	(22.4)		%	(8.3)		%	28.0		%

Other Income/Expenses

Interest expense for the third quarter increased by $1.3 million, or 42.5%, primarily caused by fixed expenses on increasing sales and the contribution of newly acquired and opened units. The increase in Bombshells operating margin was primarily due to positive same-stores sales, partially offset by the underperformance of our Austin, Texas location.

~~Non-Operating Items~~

Interest expense increased to $3.1 million from $2.0 million due to the writeoff of debt issuance costs and prepayment penalties related to our debt refinancing (see Note 4 to our condensed consolidated financial statements) amounting to $827,000 anda higher average debt balance ~~quarter over quarter.~~

mostly from seller-financed promissory notes from this and last years' acquisitions. For the nine-month period, interest expense increased by $3.2 million, or 37.5%.

Our total occupancy costs for the third quarter, defined as the sum of ~~rent~~operating lease expense and interest expense, ~~exclusive of refinancing-related costs above, was 7.7%~~were $6.2 million and ~~8.0% of revenue during the quarter ended December 31, 2017 and 2016, respectively.~~

~~Income Taxes~~

~~Income taxes were a benefit of $8.1~~$4.8 million for the ~~first quarter~~quarters ended June 30, 2023 and 2022, respectively. As a percentage of ~~2018 compared~~revenue, total occupancy costs were 8.0% and 6.7% during the quarters ended June 30, 2023 and 2022, respectively, primarily due to anthe interest from higher average debt balance. For the year-to-date period, total occupancy costs amounted to $17.0 million and $13.4 million, respectively, with a percent of revenue of 7.8% and 6.9%, respectively, primarily due to interest from higher average debt balance. These additional debt are mainly related to acquisitions.

Income Taxes

Income tax expense ~~of $1.5~~was $2.3 million ~~for~~and $3.8 million during the ~~same quarter of 2017.~~three months ended June 30, 2023 and 2022, respectively, and $7.4 million and $10.1 million during the nine months ended June 30, 2023 and 2022, respectively. The effective income tax expense rate was 20.1% and 21.3% for the ~~first quarter~~three months ended June 30, 2023 and 2022, respectively, while for

Table of ~~2018 was a benefit of 134.3% compared with an expense of 33.3% for~~ Contents

the ~~comparable period of 2017.~~nine months ended June 30, 2023 and 2022, 21.6% and 22.1%, respectively. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, ~~while the first quarter of 2018 was significantly impacted by a $9.7 million reduction of our deferred tax liability caused by newly enacted tax laws.~~

~~On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law, which provides for significant changes to the U.S. Internal Revenue Code of 1986,~~ as amended, such as a reduction in the statutory federal corporate tax rate from 35% to 21% effective from January 1, 2018 forward and changes or limitations to certain tax deductions. The Company has a fiscal year end of September 30, so the change to the statutory corporate tax rate results in a blended federal statutory tax rate of 24.5% for its fiscal year 2018. The financial statements for the first fiscal quarter 2018 were also impacted by a one-time revaluation of the Company’s deferred tax assets and liabilities and this was recognized as a discrete income tax benefit in the period. The Company estimates that its annual effective tax rate for fiscal 2018 (blended rate year) will be approximately 26.5%. The effective tax rate for the current quarter was lower than the new 2018 statutory rate due to discrete tax benefits of $9.7 million recognized related to the revaluation of deferred tax assets and liabilities expected to be utilized in 2018.

presented below.


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Federal statutory income tax expense	21.0	%	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	2.1	%	2.9	%	3.4	%	2.9	%
Permanent differences	0.5	%	0.4	%	0.5	%	0.4	%
Tax credit	(3.7)	%	(3.2)	%	(3.4)	%	(2.8)	%
Other	0.1	%	0.1	%	0.1	%	0.5	%
Total income tax expense	20.1	%	21.3	%	21.6	%	22.1	%

Non-GAAP Financial Measures

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

Non-GAAP Operating Income and Non-GAAP Operating Margin. We ~~exclude from~~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, ~~gain~~(d) gains or losses on insurance, ~~and~~(e) settlement of ~~lawsuits.~~lawsuits, and (f) stock-based compensation. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.

Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share. We ~~exclude from~~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, ~~costs and charges related to debt refinancing, income tax expense (benefit),~~(b) impairment of assets, (c) gains or losses on sale of businesses and assets, ~~gain~~(d) gains or losses on insurance, ~~and~~(e) unrealized gains or losses on equity securities, (f) settlement of lawsuits, (g) gain on debt extinguishment, (h) stock-based compensation, and ~~include~~(i) the income tax effect of the above-described adjustments. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for ~~current and deferred~~ income taxes, calculated at ~~26.5%~~21.6% and ~~33%~~21.6% effective tax rate of the pre-tax non-GAAP income before taxes for the ~~quarter~~nine months ended ~~December 31, 2017~~June 30, 2023 and ~~2016,~~2022, respectively, ~~because we~~and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.

Adjusted EBITDA. We ~~exclude from~~calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders: (a) depreciation ~~expense,~~and amortization, ~~of intangibles,~~(b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, ~~gain~~(e) gains or losses on insurance, ~~and~~(f) unrealized gains or losses on equity securities, (g) impairment of assets, (h) settlement of lawsuits, ~~because we~~(i) gain on debt 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 our unleveraged performance return on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.

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

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The following tables present our non-GAAP performance measures for the ~~quarters~~three and nine months ended ~~December 31, 2017~~June 30, 2023 and ~~2016~~2022 (in thousands, except per share, ~~amounts~~number of shares and percentages):

For the Three Months
Ended December 31,
2017 2016
Reconciliation of GAAP net income to Adjusted EBITDA
Net income attributable to RCIHH common shareholders $ 14,311 $ 2,898
Income tax expense (benefit) (8,227 ) 1,450
Interest expense, net 3,012 1,978
Settlement of lawsuits 27 73
Loss (gain) on sale of assets 82 (11 )
Gain on insurance (20 ) -
Depreciation and amortization 1,909 1,618
Adjusted EBITDA $ 11,094 $ 8,006

Reconciliation of GAAP net income to non-GAAP net income
Net income attributable to RCIHH common shareholders $ 14,311 $ 2,898
Amortization of intangibles
48
46
Costs and charges related to debt refinancing 827 -
Settlement of lawsuits 27 73
Income tax expense (benefit) (8,227 ) 1,450
Loss (gain) on sale of assets 82 (11 )
Gain on insurance (20 ) -
Non-GAAP benefit (expense) for income taxes
Current 45 (1,455 )
Deferred (1,913 ) (15 )
Non-GAAP net income $ 5,180 $ 2,986

Reconciliation of GAAP diluted net income per share to non-GAAP diluted net income per share
Fully diluted shares 9,719 9,814
GAAP diluted net income per share $ 1.47 $ 0.30
Amortization of intangibles 0.00 0.00
Costs and charges related to debt refinancing 0.09 -
Settlement of lawsuits 0.00 0.01
Income tax expense (benefit) (0.85 ) 0.15
Loss (gain) on sale of assets 0.01 (0.00 )
Gain on insurance (0.00 ) -
Non-GAAP benefit (expense) for income taxes
Current 0.00 (0.15 )
Deferred (0.19 ) (0.00 )
Non-GAAP diluted net income per share $ 0.53 $ 0.31

Reconciliation of GAAP operating income to non-GAAP operating income
Income from operations $ 9,140 $ 6,333
Amortization of intangibles
48
46
Settlement of lawsuits 27 73
Loss (gain) on sale of assets 82 (11 )
Gain on insurance (20 ) -
Non-GAAP operating income $ 9,277 $ 6,441

Reconciliation of GAAP operating margin to non-GAAP operating margin
GAAP operating margin 22.2 % 18.8 %
Amortization of intangibles 0.1 % 0.1 %
Settlement of lawsuits 0.0 % 0.2 %
Loss (gain) on sale of assets 0.2 % -0.0 %
Gain on insurance -0.0 % -
Non-GAAP operating margin 22.5 % 19.1 %


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Reconciliation of GAAP net income to Adjusted EBITDA
Net income attributable to RCIHH common stockholders	$	9,085	$	13,902	$	27,055	$	35,429
Income tax expense	2,269		3,767		7,447		10,056
Interest expense, net	4,229		2,925		11,412		8,175
Settlement of lawsuits	63		132		3,183		709
Impairment of assets	2,631		1,722		3,293		1,722
Gain on sale of businesses and assets	(105)		(266)		(692)		(666)
Gain on debt extinguishment	—		(53)		—		(138)
Unrealized loss on equity securities	—		—		—		1
Gain on insurance	—		(87)		(91)		(408)
Stock-based compensation	470		—		2,117		—
Depreciation and amortization	4,041		2,565		11,108		7,636
Adjusted EBITDA	$	22,683	$	24,607	$	64,832	$	62,516

Reconciliation of GAAP net income to non-GAAP net income
Net income attributable to RCIHH common stockholders	$	9,085	$	13,902	$	27,055	$	35,429
Amortization of intangibles	918		25		2,722		124
Settlement of lawsuits	63		132		3,183		709
Impairment of assets	2,631		1,722		3,293		1,722
Gain on sale of businesses and assets	(105)		(266)		(692)		(666)
Gain on debt extinguishment	—		(53)		—		(138)
Unrealized loss on equity securities	—		—		—		1
Gain on insurance	—		(87)		(91)		(408)
Stock-based compensation	470		—		2,117		—
Net income tax effect	(812)		(312)		(2,258)		(59)
Non-GAAP net income	$	12,250	$	15,063	$	35,329	$	36,714

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Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share
Diluted shares	9,430,225			9,389,675			9,308,624			9,428,461
GAAP diluted earnings per share	$	0.96		$	1.48		$	2.91		$	3.76
Amortization of intangibles	0.10			0.00			0.29			0.01
Settlement of lawsuits	0.01			0.01			0.34			0.08
Impairment of assets	0.28			0.18			0.35			0.18
Gain on sale of businesses and assets	(0.01)			(0.03)			(0.07)			(0.07)
Gain on debt extinguishment	—			(0.01)			—			(0.01)
Unrealized loss on equity securities	—			—			—			0.00
Gain on insurance	0.00			(0.01)			(0.01)			(0.04)
Stock-based compensation	0.05			—			0.23			—
Net income tax effect	(0.09)			(0.03)			(0.24)			(0.01)
Non-GAAP diluted earnings per share	$	1.30		$	1.60		$	3.80		$	3.89

Reconciliation of GAAP operating income to non-GAAP operating income
Income from operations	$	15,515		$	20,507		$	45,840		$	53,499
Amortization of intangibles	918			25			2,722			124
Settlement of lawsuits	63			132			3,183			709
Impairment of assets	2,631			1,722			3,293			1,722
Gain on sale of businesses and assets	(105)			(266)			(692)			(666)
Gain on insurance	—			(87)			(91)			(408)
Stock-based compensation	470			—			2,117			—
Non-GAAP operating income	$	19,492		$	22,033		$	56,372		$	54,980

Reconciliation of GAAP operating margin to non-GAAP operating margin
Income from operations	20.1		%	29.0		%	21.0		%	27.3		%
Amortization of intangibles	1.2		%	0.0		%	1.2		%	0.1		%
Settlement of lawsuits	0.1		%	0.2		%	1.5		%	0.4		%
Impairment of assets	3.4		%	2.4		%	1.5		%	0.9		%
Gain on sale of businesses and assets	(0.1)		%	(0.4)		%	(0.3)		%	(0.3)		%
Gain on insurance	0.0		%	(0.1)		%	0.0		%	(0.2)		%
Stock-based compensation	0.6		%	—		%	1.0		%	—		%
Non-GAAP operating margin	25.3		%	31.2		%	25.8		%	28.0		%

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

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

Table of non-GAAP diluted net income per share, we take into consideration the adjustment to net income from the assumed conversion of debentures (see Note 6 to the condensed consolidated financial statements).

Contents

Liquidity and Capital Resources

At ~~December 31, 2017,~~June 30, 2023, our cash and cash equivalents were ~~$12.0~~approximately $23.6 million compared to ~~$9.9~~$36.0 million at September 30, ~~2017.~~2022. Because of the large volume of cash we handle, we have very stringent cash controls. As of ~~December 31, 2017,~~June 30, 2023, we had negative working capital of ~~$6.2~~$11.4 million compared to ~~negative~~ working capital of ~~$10.6~~$18.6 million as of September 30, ~~2017, both figures~~2022, excluding net assets held for sale ~~of $5.6~~amounting to $0 and $1.0 million as of ~~December 31, 2017~~June 30, 2023 and ~~$5.8 million as of~~ September 30, ~~2017.~~2022, respectively. The negative working capital at June 30, 2023 was caused by borrowings, of which a large portion have current maturities, and which were used to fund business acquisitions.

Since the pandemic hard hit fiscal 2020, we have since recovered and have seen a more normal stream of operations in 2021 and 2022. Toward the end of fiscal 2022 and continuing to the current fiscal year, geopolitical and macroeconomic events have impacted our operating results and cash flows by causing inflation on wages and other operating expenses. In the event global inflation leads to a major economic downturn, our business operations and cash flow could be significantly affected. We believe our ability to generate cash from operating activities is one of our fundamental financial strengths. Our net cash provided by operating activities increased to $8.1 million during the quarter ended December 31, 2017 from $5.5 million during the quarter ended December 31, 2016. The near-term outlook for our business remains strong, andthat we ~~expect to generate substantial cash flows from operations for the entire fiscal 2018. As a result of our expected cash flows from operations,~~can borrow capital if needed but currently we do not have ~~significant flexibility to meet our financial commitments.~~

unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms.

We have not recently raised capital through the issuance of equity ~~securities.~~securities although we have used equity recently in our acquisitions. Instead, we use debt financing to lower our overall cost of capital and increase our return on stockholders’ ~~equity.~~equity, but we are monitoring our total debt service cost as interest rates continue to increase. We have a history of borrowing funds in private transactions and from sellers in acquisition transactions and ~~recently~~ have secured ~~a significant~~traditional bank financing on our new development projects and refinancing of ~~several~~our existing notes payable, but there can be no assurance that any of ~~our notes payable. We continue to have the ability to borrow funds~~these financing options would be presently available on favorable terms, if at ~~reasonable interest rates in that manner.~~all. We also have historically utilized these cash flows to invest in property and equipment, adult nightclubs, and restaurants/sports bars.

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

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

For the Three Months
Ended December 31,

2017 2016
Operating activities $ 8,145 $ 5,521
Investing activities (2,089 ) (2,988 )
Financing activities (4,024 ) (1,796 )
Net increase in cash and cash equivalents $ 2,032 $ 737


	For the Nine Months Ended June 30,
	2023		2022
Operating activities	$	47,004	$	46,754
Investing activities	(57,047)		(56,222)
Financing activities	(2,353)		11,282
Net increase (decrease) in cash and cash equivalents	$	(12,396)	$	1,814

Cash Flows from Operating Activities

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

For the Three Months
Ended December 31,

2017 2016
Net income $ 14,355 $ 2,905
Depreciation and amortization 1,909 1,618
Deferred tax benefit (9,697 ) -
Debt prepayment penalty 543 -
Net change in operating assets and liabilities 516 873
Other 519 125
Net cash provided by operating activities $ 8,145 $ 5,521


	For the Nine Months Ended June 30,
	2023		2022
Net income	$	26,981	$	35,479
Depreciation and amortization	11,108		7,636
Deferred income tax benefit	(790)		(409)
Impairment of assets	3,293		1,722
Stock-based compensation	2,117		—
Gain on debt extinguishment	—		(83)
Net change in operating assets and liabilities	2,579		1,421
Other	1,716		988
Net cash provided by operating activities	$	47,004	$	46,754

Table of Contents

Net cash provided by operating activities increased from ~~year-to-year~~year to year primarily due ~~primarily~~ to ~~the increase in income from operations and lower income taxes paid,~~higher sales, partially offset by higher interest expense ~~paid, which included debt prepayment penalty,~~ and ~~an unfavorable net change in operating assets and liabilities.~~

lower income tax refund.

Cash Flows from Investing Activities

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

For the Three Months
Ended December 31,

2017 2016
Additions to property and equipment $ (2,769 ) $ (3,008 )
Proceeds from sale of assets 632 -
Proceeds from insurance 20 -
Proceeds from notes receivable 28 20
Net cash used in investing activities $ (2,089 ) $ (2,988 )


	For the Nine Months Ended June 30,
	2023		2022
Payments for property and equipment and intangible assets	$	(29,919)	$	(17,173)
Acquisition of businesses	(30,200)		(44,302)
Proceeds from sale of businesses and assets	2,811		4,611
Proceeds from insurance	91		515
Proceeds from notes receivable	170		127
Net cash used in investing activities	$	(57,047)	$	(56,222)

Following is a breakdown of our ~~additions to~~payments for property and equipment and intangible assets for the ~~quarters~~nine months ended ~~December 31, 2017~~June 30, 2023 and ~~2016~~2022 (in thousands):

For the Three Months
Ended December 31,

2017 2016
New facilities capital expenditures $ 2,161 $ 2,614
Maintenance capital expenditures 608 394
Total capital expenditures $ 2,769 $ 3,008


	For the Nine Months Ended June 30,
	2023		2022
New facilities, equipment, and intangible assets	$	24,970	$	14,788
Maintenance capital expenditures	4,949		2,385
Total capital expenditures	$	29,919	$	17,173

The capital expenditures during the ~~quarter~~nine months ended ~~December 31, 2017 is~~June 30, 2023 and 2022 were composed primarily of ~~construction~~real estate and ~~development costs~~new equipment and furniture purchases for ~~one new location, while~~ the newly acquired clubs. Maintenance capital expenditures ~~during the quarter ended December 31, 2016 is composed primarily~~refer mainly to capitalized replacement of ~~construction and development costs for three new locations and our new corporate office.~~productive assets in already existing locations. Variances in capital expenditures are primarily due to the number and timing of new, remodeled, or reconcepted locations under construction.

Cash Flows from Financing Activities

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

For the Three Months
Ended December 31,

2017 2016
Proceeds from long-term debt $ 58,920 $ 1,900
Payments on long-term debt (61,256 ) (2,152 )
Debt prepayment penalty (543 ) -
Purchase of treasury stock - (1,101 )
Payment of loan origination costs (799 ) (99 )
Payment of dividends (292 ) (290 )
Distribution to noncontrolling interests (54 ) (54 )
Net cash used in financing activities $ (4,024 ) $ (1,796 )


	For the Nine Months Ended June 30,
	2023		2022
Proceeds from debt obligations	$	11,595	$	35,820
Payments on debt obligations	(11,431)		(10,714)
Purchase of treasury stock	(98)		(12,057)
Payment of dividends	(1,580)		(1,322)
Payment of loan origination costs	(239)		(445)
Share in return of investment by noncontrolling partner	(600)		—
Net cash provided by financing activities	$	(2,353)	$	11,282

We ~~did not purchase~~purchased 1,500 shares of our ~~Company’s~~ common stock ~~during the quarter ended December 31, 2017, while, we purchased 89,685 treasury shares~~ at an average price of ~~$12.25~~$65.02 during the nine months ended June 30, 2023, while we purchased 213,712 shares of our common stock at an average price of $56.42 during the nine months ended June 30, 2022. As of June 30, 2023, we have approximately $18.8 million authorization remaining to purchase additional shares. Subsequent to the balance sheet date through August 4, 2023, we repurchased 10,440 shares of our common stock at an average price of $69.48.

Prior to the second quarter of fiscal 2022, we have been paying $0.04 per share ~~during~~in quarterly dividends. From the second quarter ~~ended December 31, 2016. We~~of fiscal 2022 until the first quarter of fiscal 2023, we have paid ~~quarterly dividends of $0.03~~$0.05 per share, ~~during both current~~ and ~~prior year quarters.~~

~~On December 14, 2017,~~starting in the second quarter of fiscal 2023, we ~~refinanced several~~have paid $0.06 per share in quarterly dividends.

Table of ~~our notes payable with a local bank. Refer to~~ Contents

See Note 47 to our unaudited condensed consolidated financial statements for ~~details of the refinancing.~~

~~Subsequent to quarter-end, we borrowed $3.0 million from a bank for the purchase of land worth $4.0 million, and refinanced one~~future maturities of our ~~bank notes with a construction loan amounting to $4.7 million. See Note 4 to~~debt obligations. We have paid all our ~~condensed consolidated financial statements for details~~debts on time and have not defaulted nor requested forbearance on any of ~~these transactions.~~

our debts during the nine months ended June 30, 2023 and 2022.

Management also uses certain non-GAAP cash flow measures such as free cash flow. ~~Free~~We calculate free cash flow ~~is derived from~~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.

For the Three Months
Ended December 31,
2017 2016
Net cash provided by operating activities $ 8,145 $ 5,521
Less: Maintenance capital expenditures 608 394
Free cash flow $ 7,537 $ 5,127

Below is a table reconciling free cash flow to its most directly comparable GAAP measure (in thousands):


	For the Nine Months Ended June 30,
	2023		2022
Net cash provided by operating activities	$	47,004	$	46,754
Less: Maintenance capital expenditures	4,949		2,385
Free cash flow	$	42,055	$	44,369

Our free cash flow for the nine-month period decreased by 5.2% compared to the comparable prior-year period primarily due to higher interest expense, lower income tax refund, and higher maintenance capital expenditures from renovations and remodeling of several of our clubs, partially offset by higher sales.

We do not include capital expenditures related to new facilities construction, equipment and intangible assets as a reduction from net cash flow from operating activities to arrive at free cash flow. This is because, based on our capital allocation strategy, acquisitions and development of our own clubs and restaurants are our primary uses of free cash flow.

Other than the ~~debt refinancing~~ongoing impact of the COVID-19 pandemic, the current geopolitical and macroeconomic events happening globally, and the notes payable financing described above, we are not aware of any event or trend that would ~~potentially significantly affect~~adversely impact our liquidity. ~~In the event such a trend develops, we believe our working capital and capital expenditure requirements will be adequately met by cash flows from operations.~~ In our opinion, working capital is not a true indicator of our financial status. Typically, businesses in our industry carry current liabilities in excess of current assets because businesses in our industry receive substantially immediate payment for sales, with nominal receivables, while inventories and other current liabilities normally carry longer payment terms. Vendors and purveyors often remain flexible with payment terms, providing businesses in our industry with opportunities to adjust to short-term business ~~down turns.~~downturns. We consider the primary indicators of financial status to be the long-term trend of revenue growth, the mix of sales revenues, overall cash flow, profitability from operations and the level of long-term debt.

The following table presents a summary of such indicators for the ~~quarters~~nine months ended ~~December 31:~~

Increase Increase
2017 (Decrease) 2016 (Decrease) 2015
Sales of alcoholic beverages $ 17,805 23.9 % $ 14,375 -1.5 % $ 14,597
Sales of food and merchandise 5,307 26.1 % 4,207 -2.9 % 4,334
Service revenues 15,889 17.9 % 13,475 6.6 % 12,641
Other 2,211 31.5 % 1,682 -11.6 % 1,903
Total revenues 41,212 22.1 % 33,739 0.8 % 33,475
Net cash provided by operating activities $ 8,145 47.5 % $ 5,521 31.4 % $ 4,202
Adjusted EBITDA $ 11,094 38.6 % $ 8,006 -2.2 % $ 8,187
Long-term debt $ 125,992 19.3 % $ 105,620 11.9 % $ 94,356

June 30 (in thousands, except percentages):


	2023		Increase (Decrease)		2022		Increase (Decrease)		2021
Sales of alcoholic beverages	$	93,937	12.5	%	$	83,504	33.1	%	$	62,725
Sales of food and merchandise	32,757		(2.6)	%	33,628		11.3	%	30,205
Service revenues	77,916		14.9	%	67,821		76.4	%	38,442
Other	13,930		23.4	%	11,289		26.2	%	8,945
Total revenues	$	218,540	11.4	%	$	196,242	39.9	%	$	140,317
Net income attributable to RCIHH common stockholders	$	27,055	(23.6)	%	$	35,429	26.4	%	$	28,036
Net cash provided by operating activities	$	47,004	0.5	%	$	46,754	45.1	%	$	32,217
Adjusted EBITDA*	$	64,832	3.7	%	$	62,516	46.5	%	$	42,675
Free cash flow*	$	42,055	(5.2)	%	$	44,369	60.7	%	$	27,609
Debt (end of period)	$	243,823	29.7	%	$	187,965	47.3	%	$	127,603

*See definition and calculation of Adjusted EBITDA and Free Cash Flow above ~~under~~in the Non-GAAP Financial Measures subsection of Results of Operations.

~~Share Repurchase~~

~~We did not purchase shares~~

Table of our common stock during the quarter ended December 31, 2017, while we purchased 89,685 shares of our stock at an average price of $12.25 per share during the quarter ended December 31, 2016. As of December 31, 2017, we have $3.1 million remaining to purchase additional shares under our share repurchase program.

~~Other Liquidity and Capital Resources~~

We have not established financing other than the notes payable, including the New Loan discussed in Note 4 to the consolidated financial statements and our existing $1.0 million line of credit facility. 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.

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

The sexually-oriented business industry is highly competitive with respect to price, service and location, as well as the professionalism of the entertainment. Although management believes that we are well-positioned to compete successfully in the future, there can be no assurance that we will be able to maintain our high level of name recognition and prestige within the marketplace.

Contents

Impact of Inflation

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

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

Seasonality

Our nightclub operations are affected by seasonal factors. Historically, we have experienced reduced revenues from April through September (our fiscal third and fourth quarters) with the strongest operating results occurring during October through March (our fiscal first and second quarters).

Our revenues in certain markets are also affected by sporting events that cause unusual changes in sales from year to year.

Capital Allocation Strategy

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

Based on our current capital allocation strategy:

•We consider acquiring or developing our own clubs or restaurants that we believe have the potential to provide a minimum cash on cash return of 25%-33%, absent an otherwise strategic rationale;

•We consider disposing of underperforming units to free up capital for more productive use;

•We consider buying back our own stock if the after-tax yield on free cash flow is above 10%;

•We consider paying down our most expensive debt if it makes sense on a tax adjusted basis, or there is an otherwise strategic rationale.

Growth Strategy

We believe that ~~our nightclub operations~~we 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 acquire~~includes 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 open~~opening new units 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 develop~~skills, franchising our Bombshells brand, and ~~open~~developing and opening our ~~restaurant concepts~~Bombshells concept as our capital and manpower ~~allow; and (vii) to control the real estate in connection with club operations, although some units may be in leased premises.~~

~~We believe that Bombshells can grow organically and through careful entry into markets and demographic segments with high growth potential.~~ allow.

All ~~five~~twelve of the ~~currently~~ existing Bombshells ~~are~~as of June 30, 2023 were located in ~~Texas.~~Texas, including the former franchisee location that we acquired in February 2023 (see Note 4 to our unaudited condensed consolidated financial statements). 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.

~~We plan to open two Bombshells in fiscal 2018.~~

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

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of ~~December 31, 2017,~~June 30, 2023, there were no material changes to the information provided in Item 7A of the Company’s Annual Report on Form 10-K for fiscal year ended September 30, ~~2017.~~

2022.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures, defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that the information required to be filed or submitted with the SEC 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 of the company with the participation of its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding ~~required.~~

required disclosure.

In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2017,~~June 30, 2023, an evaluation was performed under the supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on their evaluation, they have concluded that our disclosure controls and procedures were not effective as of ~~December 31, 2017.~~June 30, 2023. This determination is based on the previously reported material ~~weaknesses~~weakness management previously identified in our internal control over financial reporting, as described below. We are in the process of remediating the material ~~weaknesses,~~weakness in our internal control, as described ~~below, which~~below. We believe the completion of these processes should remedy our disclosure controls and ~~procedures, but we~~procedures. We will continue to monitor this issue.

Previously Reported Material ~~Weaknesses~~Weakness in Internal Control Over Financial Reporting

In our Annual Report for the year ended September 30, ~~2017,~~2022, filed with the SEC on ~~February~~December 14, ~~2018,~~2022, management concluded that our internal control over financial reporting was not effective as of September 30, ~~2017.~~2022. In ~~management’s~~the evaluation, management identified a material weakness in internal control related to the ~~following deficiencies were identified as material weaknesses:~~

●

~~Control Environment~~

●

Lack of effective control environment, which was primarily attributable to not having a sufficient complement of accounting and financial reporting personnel with an appropriate level of knowledge to address our financial reporting requirements which contributed to the following material weaknesses:

●

~~Control Activities~~

●

Lack of sufficient complement to design and maintain effective controls over complex accounting and management estimates related to assets held for sale, business combinations, cost method investments, income taxes, and the impairment analyses for indefinite lived intangible assets, goodwill, and property and equipment;

●

~~Lack of effective controls to support accurate accounting, reporting, and disclosures within our Form 10-K; and~~

●

Lack of effective controls to prevent unauthorized access to certain systems, programs and data, and provide for periodic review and monitoring of access including review of security logs and analysis of segregation of duties conflicts.

proper design and implementation of controls over management's review of the Company's accounting for business combinations, specifically related to the identification of and accounting for intangible assets acquired in a business combination.

Remediation Efforts to Address Material ~~Weaknesses~~

~~As disclosed in our most recent Annual Report on Form 10-K, we have, and continue~~Weakness

Management is committed to ~~identify and implement actions to improve our~~the remediation of the material weakness described above, as well as the continued improvement of the Company’s internal control over financial ~~reporting and disclosure~~reporting. As such, we have added controls ~~and procedures including actions~~ to enhance ~~our resources and training with respect~~management's review of purchase documents to ~~financial reporting and disclosure responsibilities, and increase utilization of accounting system functionality, with continued oversight from the Audit Committee.~~

We have taken, and continue to take, the actions described below to remediate the identified material weaknesses. As we continue to evaluate and work to improve our internal controls over financial reporting, our senior management may determine to take additional measures to address control deficiencies or determine to modify the remediation efforts described in this section. While the Audit Committee and senior management are closely monitoring the implementation, until the remediation efforts discussed in this section, including any additional remediation efforts that our senior management identifies as necessary, are completed, tested and determined effective, the material weaknesses described above will continue to exist.

~~Control Environment~~

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

~~Control Activities~~

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

~~Strengthening internal controls over financial reporting and disclosures -~~~~We believe the new Enterprise Resource Planning (“ERP”) system described below will assist us in strengthening the controls over financial reporting, and we are committed to also add an overlay of~~ review of all assumptions used in the intangible asset valuation models. We will also conduct senior management reviews of any and all material estimates that are applied in these instances.

It is our ~~financial statements during our financial reporting process. We have also upgraded our accounting staff with certain newly hired accountants.~~

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

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

~~Strengthening the information technology application and related segregation of duties issues –~~We were previously aware of the limitations of our accounting software and had been in the planning/implementation process of replacing the software for many months prior to September 30, 2017. In October 2017, we completed the conversion to a new ERP system which, along with changes to our manual internal controls, we believe will resolve the issues detailed above relating to the information systems and segregation of duties. The new ERP system has features that prevent unauthorized access to certain programs and data, and provides for periodic review and monitoring of access including review of security logs and analysis of segregation of duties conflicts. These features include proper segregation of duties within our journal entry process. We have also hired a Director of ERP & Business Intelligence.

weakness.

Changes in Internal Control Over Financial Reporting

Other than as described above, there were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended ~~December 31, 2017~~June 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

See the “Legal Matters” section within Note 810 of the unaudited condensed consolidated financial statements within this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

Item 1A. Risk Factors.

There were no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2022, except for such risks and uncertainties that may result from the additional disclosure in the “Legal Matters” section within Note 10 of the unaudited condensed consolidated financial statements within this Quarterly Report on Form 10-Q, which information is incorporated herein by reference. The risks described in the Annual Report on Form 10-K and in this Form 10-Q are not the only risks the Company faces. Additional risks and uncertainties not currently known to the Company, or that the Company deems to be immaterial, also may have a material adverse impact on the Company’s business, financial condition or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~In September 2008,~~

During the three months ended June 30, 2023, we did not repurchase any shares of our ~~Board of Directors authorized us~~common stock. Subsequent to ~~repurchase up to $5.0 million worth~~the balance sheet date through August 4, 2023, we repurchased 10,440 shares of our common stock ~~in the open market or in privately negotiated transactions.~~at an average price of $69.48. As of April 2013, we completed the repurchase of all $5.0 million in stock authorized under this plan. In April 2013, our Board of Directors authorized us to repurchase up to an additional $3.0 million worth of our common stock, and in May 2014, our Board of Directors increased the repurchase authorization by another $7.0 million. In May 2016, the Board of Directors increased the repurchase authorization by an additional $5.0 million. During the quarter ended December 31, 2017, we did not repurchase shares of the Company’s common stock. As of December 31, 2017,August 4, 2023, we have ~~$3.1~~approximately $18.0 million remaining to purchase additional ~~shares.~~

shares under our share repurchase program.

Table of Contents

Item 6. Exhibits.

~~Exhibit No.~~	~~Description~~
~~3.1~~ Exhibit No.		Articles of Incorporation dated December 9, 1994. (Incorporated by reference from Form SB-2 filed with the SEC on January 11, 1995.) *Description

~~3.2~~ 31.1		Certificate of Amendment to Articles of Incorporation dated September 9, 2008. (Incorporated by reference from Definitive Schedule 14A filed with the SEC on July 21, 2008.) *

~~3.3~~	Certificate of Amendment to Articles of Incorporation dated August 6, 2014. (Incorporated by reference from Definitive Schedule 14A filed with the SEC on June 24, 2014.) *

~~3.4~~	Amended and Restated Bylaws. (Incorporated by reference from Form 8-K filed with the SEC on March 16, 2016.) *

~~4.1~~	Consolidated, Amended and Restated Promissory Note for $62,539,366.08 with Centennial Bank (Incorporated by reference from Form 8-K filed with the SEC on December 19, 2017) *

~~4.2~~	Amended and Restated Promissory Note for $10,558,311.35 with Centennial Bank (Incorporated by reference from Form 8-K filed with the SEC on December 19, 2017) *

~~4.3~~	Amended and Restated Promissory Note for $8,147,572.57 with Centennial Bank (Incorporated by reference from Form 8-K filed with the SEC on December 19, 2017) *

~~10.1~~	Employment Agreement with Eric S. Langan. (Incorporated by reference from Form 8-K filed with the SEC on July 27, 2015.) *

~~10.2~~	Employment Agreement with Travis Reese. (Incorporated by reference from Form 8-K filed with the SEC on September 19, 2014.) *

~~10.3~~	Employment Agreement with Phillip K. Marshall. (Incorporated by reference from Form 8-K filed with the SEC on August 5, 2016.) *

~~10.4~~	Loan Agreement between RCI Holdings, Inc. and Centennial Bank (Incorporated by reference from Form 8-K filed with the SEC on December 19, 2017) *

~~10.5~~	Absolute Unconditional and Continuing Guaranty of RCI Hospitality Holdings, Inc. to Centennial Bank (Incorporated by reference from Form 8-K filed with the SEC on December 19, 2017) *

~~10.6~~	Absolute Unconditional and Continuing Guaranty of Eric S. Langan to Centennial Bank (Incorporated by reference from Form 8-K filed with the SEC on December 19, 2017) *

~~31.1~~	Certification of Chief Executive Officer of RCI Hospitality Holdings, Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer of RCI Hospitality Holdings, Inc. required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Chief Executive Officer and Chief Financial Officer of RCI Hospitality Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.

~~101.INS~~ 101		The following financial information from RCI Hospitality Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 formatted in Inline XBRL ~~Instance Document.~~(Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Changes in Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.
~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~ 104		Cover Page Interactive Data File (formatted as Inline XBRL ~~Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document.~~

* Incorporated by reference from our previous filings with the SEC.

and contained in Exhibit 101)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	RCI HOSPITALITY HOLDINGS, INC.

Date: ~~March 7, 2018~~August 9, 2023	By:	/s/ Eric S. Langan
		Eric S. Langan
		Chief Executive Officer and President


Date: ~~March 7, 2018~~August 9, 2023	By:	/s/ ~~Phillip K. Marshall~~Bradley Chhay
		~~Phillip K. Marshall~~Bradley Chhay
		Chief Financial Officer and Principal Accounting Officer

	December 31, 2017		September 30,2017
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	11,954	$	9,922
Accounts receivable, net		4,113		3,187
Inventories		2,419		2,149
Prepaid insurance		2,808		3,826
Other current assets		746		1,399
Assets held for sale		5,565		5,759
Total current assets		27,605		26,242
Property and equipment, net		154,259		148,410
Notes receivable		4,965		4,993
Goodwill		43,866		43,866
Intangibles, net		74,420		74,424
Other assets		1,464		1,949
Total assets	$	306,579	$	299,884

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	2,601	$	2,147
Accrued liabilities		11,584		11,524
Current portion of long-term debt		14,048		17,440
Total current liabilities		28,233		31,111
Deferred tax liability, net		15,844		25,541
Long-term debt		111,944		106,912
Other long-term liabilities		1,324		1,095
Total liabilities		157,345		164,659

Commitments and contingencies (Note 8)

Stockholders’ equity
Preferred stock, $0.10 par value per share; 1,000 shares authorized; none issued and outstanding		-		-
Common stock, $0.01 par value per share; 20,000 shares authorized; 9,719 and 9,719 shares issued and outstanding as of December 31, 2017 and September 30, 2017, respectively		97		97
Additional paid-in capital		63,453		63,453
Retained earnings		83,214		69,195
Total RCIHH stockholders’ equity		146,764		132,745
Noncontrolling interests		2,470		2,480
Total stockholders’ equity		149,234		135,225
Total liabilities and stockholders’ equity	$	306,579	$	299,884

	For the Three Months
	Ended December 31,
	2017			2016
Revenues
Sales of alcoholic beverages	$	17,805		$	14,375
Sales of food and merchandise		5,307			4,207
Service revenues		15,889			13,475
Other		2,211			1,682
Total revenues		41,212			33,739
Operating expenses
Cost of goods sold
Alcoholic beverages sold		3,755			3,168
Food and merchandise sold		2,094			1,653
Service and other		36			60
Cost of goods sold (exclusive of items shown separately below)		5,885			4,881
Salaries and wages		11,377			9,652
Selling, general and administrative		12,812			11,193
Depreciation and amortization		1,909			1,618
Other charges, net		89			62
Total operating expenses		32,072			27,406
Income from operations		9,140			6,333
Other income (expenses)
Interest expense		(3,079	)		(2,015	)
Interest income		67			37
Income before income taxes		6,128			4,355
Income tax expense (benefit)		(8,227	)		1,450
Net income		14,355			2,905
Net income attributable to noncontrolling interests		(44	)		(7	)
Net income attributable to RCIHH common shareholders	$	14,311		$	2,898

Earnings per share attributable to RCIHH common shareholders
Basic	$	1.47		$	0.30
Diluted	$	1.47		$	0.30
Weighted average number of common shares outstanding
Basic		9,719			9,768
Diluted		9,719			9,814

Dividend per share	$	0.03		$	0.03


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Noncontrolling Interests		Total Equity
	Number of Shares	Amount						Number of Shares	Amount
Balance at September 30, 2022	9,231,725	$	92	$	67,227	$	173,950	—	$	—	$	489	$	241,758
Purchase of treasury shares	—	—		—		—		(1,500)	(98)		—		(98)
Canceled treasury shares	(1,500)	—		(98)		—		1,500	98		—		—
Payment of dividends	—	—		—		(462)		—	—		—		(462)
Stock-based compensation	—	—		941		—		—	—		—		941
Share in return of investment by noncontrolling partner	—	—		—		—		—	—		(600)		(600)
Net income	—	—		—		10,238		—	—		33		10,271
Balance at December 31, 2022	9,230,225	92		68,070		183,726		—	—		(78)		251,810
Issuance of common shares for business combination	200,000	2		16,306		—		—	—		—		16,308
Payment of dividends	—	—		—		(553)		—	—		—		(553)
Stock-based compensation	—	—		706		—		—	—		—		706
Net income (loss)	—	—		—		7,732		—	—		(39)		7,693
Balance at March 31, 2023	9,430,225	94		85,082		190,905		—	—		(117)		275,964
Adjustment in fair value of common shares issued for business combination	—	—		(3,461)		—		—	—		—		(3,461)
Payment of dividends	—	—		—		(565)		—	—		—		(565)
Stock-based compensation	—	—		470		—		—	—		—		470
Net income (loss)	—	—		—		9,085		—	—		(68)		9,017
Balance at June 30, 2023	9,430,225	$	94	$	82,091	$	199,425	—	$	—	$	(185)	$	281,425

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		30,357		—		—	—		—		30,362
Payment of dividends	—	—		—		(380)		—	—		—		(380)
Net income (loss)	—	—		—		10,575		—	—		(11)		10,564
Balance at December 31, 2021	9,499,910	95		80,397		139,888		—	—		(611)		219,769
Purchase of treasury shares	—	—		—		—		(45,643)	(2,845)		—		(2,845)
Canceled treasury shares	(45,643)	(1)		(2,844)		—		45,643	2,845		—		—
Payment of dividends	—	—		—		(474)		—	—		—		(474)
Net income	—	—		—		10,952		—	—		21		10,973
Balance at March 31, 2022	9,454,267	94		77,553		150,366		—	—		(590)		227,423
Purchase of treasury shares	—	—		—		—		(168,069)	(9,212)		—		(9,212)
Canceled treasury shares	(168,069)	(1)		(9,211)		—		168,069	9,212		—		—
Payment of dividends	—	—		—		(468)		—	—		—		(468)
Net income	—	—		—		13,902		—	—		40		13,942
Balance at June 30, 2022	9,286,198	$	93	$	68,342	$	163,800	—	$	—	$	(550)	$	231,685

	December 31, 2017		September 30, 2017
Insurance	$	2,173	$	3,160
Payroll and related costs		2,375		1,889
Income taxes		1,862		549
Property taxes		1,361		1,270
Sales and liquor taxes		1,000		990
Patron tax		834		801
Unearned revenues		454		196
Lawsuit settlement		37		295
Other		1,488		2,374
	$	11,584	$	11,524

	December 31, 2017			September 30, 2017

Notes payable at 10-11%, mature August 2022 and December 2024	$	-		$	2,358
Note payable at 7%, matures December 2019		-			95
Notes payable at 5.5%, matures January 2023		1,136			1,157
Notes payable at 5.5%, matures January 2023 and January 2022		-			4,510
Note payable refinanced at 6.25%, matures July 2018		-			1,120
Note payable at 9.5%, matures August 2024		-			6,941
Notes payable at 9.5%, mature September 2024		-			6,423
Notes payable at 5-7%, mature from 2018 to 2028		-			1,679
7.45% note payable, matures January 2019		-			2,740
Non-interest-bearing debt to State of Texas, matures May 2022, interest imputed at 9.6%		5,365			5,613
Note payable at 6.5%, matures January 2020		-			4,484
Note payable at 6%, matures January 2019		-			504
Notes payable at 5.5%, matures May 2020		-			5,320
Note payable at 6%, matures May 2020		-			1,037
Note payable at 5.25%, matures December 2024		-			1,777
Note payable initially at 5.45%, matures July 2020 (amended to December 2027 with refinancing)		10,536			10,620
Note payable at the greater of 2% above prime or 5% (6.25% at September 30, 2017), matures October 2025		-			4,303
Note payable at 5%, matures January 2026		-			9,672
Note payable at 5.25%, matures March 2037		-			4,651
Note payable at 6.25%, matures February 2018		1,894			1,894
Note payable initially at 5.95%, matures August 2021 (amended to December 2027 with refinancing)		8,095			8,267
Note payable at 12%, matures October 2021		6,704			9,671
Note payable at 4.99%, matures April 2037		934			941
Notes payable at 12%, mature May 2020		5,440			5,440
Note payable at 5%, matures November 2017		3,025			5,000
Note payable at 8%, matures May 2029		15,090			15,291
Note payable at 5%, matures May 2038		4,456			3,441
Note payable initially at 5.75%, matures December 2027		57,904			-
Note payable at 5.95%, matures December 2032		7,098			-
Total debt		127,677			129,949
Less unamortized debt issuance costs		(1,685	)		(597	)
Less current portion		(14,048	)		(17,440	)

Total long-term debt	$	111,944		$	106,912

	Regular		Balloon		Total
12-Month Period Ending	Amortization		Payments		Payments
December 31, 2018	$	9,129	$	4,919	$	14,048
December 31, 2019		9,289		-		9,289
December 31, 2020		7,381		5,440		12,821
December 31, 2021		7,707		-		7,707
December 31, 2022		6,587		3,779		10,366
Thereafter		16,928		56,518		73,446
	$	57,021	$	70,656	$	127,677

	December 31, 2017		September 30,2017
Total assets
Nightclubs	$	248,187	$	254,432
Bombshells		28,206		18,870
Other		969		780
General corporate		29,217		25,802
	$	306,579	$	299,884

	For the Three Months Ended
	December 31, 2017						December 31, 2016						Change
	Amount			% of Revenues			Amount			% of Revenues			Amount			%
Revenues
Sales of alcoholic beverages	$	17,805			43.2	%	$	14,375			42.6	%	$	3,430			23.9	%
Sales of food and merchandise		5,307			12.9	%		4,207			12.5	%		1,100			26.1	%
Service revenues		15,889			38.6	%		13,475			39.9	%		2,414			17.9	%
Other		2,211			5.4	%		1,682			5.0	%		529			31.5	%
Total revenues		41,212			100.0	%		33,739			100.0	%		7,473			22.1	%
Operating expenses
Cost of goods sold
Alcoholic beverages sold		3,755			21.1	%		3,168			22.0	%		587			18.5	%
Food and merchandise sold		2,094			39.5	%		1,653			39.3	%		441			26.7	%
Service and other		36			0.2	%		60			0.4	%		(24	)		-40.0	%
Cost of goods sold (exclusive of items shown separately below)		5,885			14.3	%		4,881			14.5	%		1,004			20.6	%
Salaries and wages		11,377			27.6	%		9,652			28.6	%		1,725			17.9	%
Selling, general and administrative		12,812			31.1	%		11,193			33.2	%		1,619			14.5	%
Depreciation and amortization		1,909			4.6	%		1,618			4.8	%		291			18.0	%
Other charges, net		89			0.2	%		62			0.2	%		27			43.5	%
Total operating expenses		32,072			77.8	%		27,406			81.2	%		4,666			17.0	%
Income from operations		9,140			22.2	%		6,333			18.8	%		2,807			44.3	%
Other income (expenses)
Interest expense		(3,079	)		-7.5	%		(2,015	)		-6.0	%		(1,064	)		52.8	%
Interest income		67			0.2	%		37			0.1	%		30			81.1	%
Income before income taxes		6,128			14.9	%		4,355			12.9	%		1,773			40.7	%
Income tax expense (benefit)		(8,227	)		-20.0	%		1,450			4.3	%		(9,677	)		-667.4	%
Net income	$	14,355			34.8	%	$	2,905			8.6	%	$	11,450			394.1	%


	Three Months Ended June 30, 2023		Mix		Three Months Ended June 30, 2022		Mix		Inc (Dec) $		Inc (Dec) %
Nightclubs
Sales of alcoholic beverages	$	26,144	41.9	%	$	21,061	38.5	%	$	5,083	24.1	%
Sales of food and merchandise	5,288		8.5	%	4,639		8.5	%	649		14.0	%
Service revenues	26,497		42.4	%	25,287		46.2	%	1,210		4.8	%
Other revenues	4,520		7.2	%	3,697		6.8	%	823		22.3	%
	62,449		100.0	%	54,684		100.0	%	7,765		14.2	%
Bombshells
Sales of alcoholic beverages	8,007		55.6	%	8,677		55.0	%	(670)		(7.7)	%
Sales of food and merchandise	6,117		42.5	%	6,935		43.9	%	(818)		(11.8)	%
Service revenues	166		1.2	%	157		1.0	%	9		5.7	%
Other revenues	107		0.7	%	20		0.1	%	87		435.0	%
	14,397		100.0	%	15,789		100.0	%	(1,392)		(8.8)	%
Other
Other revenues	209		100.0	%	241		100.0	%	(32)		(13.3)	%
	$	77,055			$	70,714			$	6,341	9.0	%

	For the Three Months Ended December 31,
	2017			2016
Operating activities	$	8,145		$	5,521
Investing activities		(2,089	)		(2,988	)
Financing activities		(4,024	)		(1,796	)
Net increase in cash and cash equivalents	$	2,032		$	737

			Increase					Increase
	2017		(Decrease)			2016		(Decrease)			2015
Sales of alcoholic beverages	$	17,805		23.9	%	$	14,375		-1.5	%	$	14,597
Sales of food and merchandise		5,307		26.1	%		4,207		-2.9	%		4,334
Service revenues		15,889		17.9	%		13,475		6.6	%		12,641
Other		2,211		31.5	%		1,682		-11.6	%		1,903
Total revenues		41,212		22.1	%		33,739		0.8	%		33,475
Net cash provided by operating activities	$	8,145		47.5	%	$	5,521		31.4	%	$	4,202
Adjusted EBITDA	$	11,094		38.6	%	$	8,006		-2.2	%	$	8,187
Long-term debt	$	125,992		19.3	%	$	105,620		11.9	%	$	94,356