As of February ~~28, 2018, 9,718,711~~5, 2024, 9,359,685 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
PART I			FINANCIAL INFORMATION

Item 1.			Financial Statements	4

			Condensed Consolidated Balance Sheets as of December 31 ~~2017~~, 2023 (unaudited) and September 30, ~~2017~~202 3	4

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

			Condensed Consolidated Statements of Changes in Equity (unaudited) for the three months ended December 3 1 , 2023 and 2022		6

			Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31 ~~2017~~, 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 20

Item 3.			Quantitative and Qualitative Disclosures about Market Risk	25 32

Item 4.			Controls and Procedures	25 32

PART II			OTHER INFORMATION

Item 1.			Legal Proceedings	28 34

Item1A.			Risk Factors	28 34

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	28 34

Item 6.			Exhibits	35
~~Item 6.~~			~~Exhibits~~	28

	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)


	December 31, 2023		September 30, 2023
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	21,155	$	21,023
Accounts receivable, net	8,617		9,846
Current portion of notes receivable	253		249
Inventories	4,630		4,412
Prepaid expenses and other current assets	10,985		1,943
Total current assets	45,640		37,473
Property and equipment, net	284,398		282,705
Operating lease right-of-use assets, net	34,169		34,931
Notes receivable, net of current portion	4,362		4,443
Goodwill	70,772		70,772
Intangibles, net	178,486		179,145
Other assets	1,388		1,415
Total assets	$	619,215	$	610,884

LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	5,254	$	6,111
Accrued liabilities	26,564		16,051
Current portion of debt obligations, net	19,789		22,843
Current portion of operating lease liabilities	3,037		2,977
Total current liabilities	54,644		47,982
Deferred tax liability, net	29,143		29,143
Debt, net of current portion and debt discount and issuance costs	214,324		216,908
Operating lease liabilities, net of current portion	34,392		35,175
Other long-term liabilities	328		352
Total liabilities	332,831		329,560

Commitments and contingencies (Note 9)

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; 9,359,685 and 9,397,639 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively	94		94
Additional paid-in capital	78,815		80,437
Retained earnings	207,714		201,050
Total RCIHH stockholders’ equity	286,623		281,581
Noncontrolling interests	(239)		(257)
Total equity	286,384		281,324
Total liabilities and equity	$	619,215	$	610,884

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

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 December 31,
	2023		2022
Revenues
Sales of alcoholic beverages	$	33,316	$	29,650
Sales of food and merchandise	10,802		10,347
Service revenues	25,119		25,563
Other	4,670		4,408
Total revenues	73,907		69,968
Operating expenses
Cost of goods sold
Alcoholic beverages sold	6,281		5,374
Food and merchandise sold	4,038		3,586
Service and other	40		49
Total cost of goods sold (exclusive of items shown separately below)	10,359		9,009
Salaries and wages	21,332		18,676
Selling, general and administrative	25,201		22,732
Depreciation and amortization	3,853		3,307
Other charges, net	(3)		(654)
Total operating expenses	60,742		53,070
Income from operations	13,165		16,898
Other income (expenses)
Interest expense	(4,216)		(3,687)
Interest income	94		91
Income before income taxes	9,043		13,302
Income tax expense	1,799		3,031
Net income	7,244		10,271
Net income attributable to noncontrolling interests	(18)		(33)
Net income attributable to RCIHH common stockholders	$	7,226	$	10,238

Earnings per share
Basic and diluted	$	0.77	$	1.11

Weighted average shares used in computing earnings per share
Basic and diluted	9,367,151		9,230,258

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, 2023 9,397,639 $ 94 $ 80,437 $ 201,050 — $ — $ (257) $ 281,324
Purchase of treasury shares — — — — (37,954) (2,072) — (2,072)
Canceled treasury shares (37,954) — (2,072) — 37,954 2,072 — —
Excise tax on stock repurchases — — (20) — — — — (20)
Payment of dividends ($0.06 per share) — — — (562) — — — (562)
Stock-based compensation — — 470 — — — — 470
Net income — — — 7,226 — — 18 7,244
Balance at December 31, 2023 9,359,685 $ 94 $ 78,815 $ 207,714 — $ — $ (239) $ 286,384
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 ($0.05 per share) — — — (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

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 Three Months Ended December 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,244	$	10,271
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,853		3,307
Stock-based compensation	470		941
Gain on sale of businesses and assets	(3)		(686)
Amortization of debt discount and issuance costs	163		144
Noncash lease expense	762		719
Gain on insurance	—		(64)
Doubtful accounts expense on notes receivable	22		—
Changes in operating assets and liabilities:
Accounts receivable	1,229		1,447
Inventories	(218)		(94)
Prepaid expenses, other current and other assets	(9,029)		(7,208)
Accounts payable, accrued and other liabilities	9,140		6,118
Net cash provided by operating activities	13,633		14,895
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of businesses and assets	—		2,784
Proceeds from insurance	—		64
Proceeds from notes receivable	55		55
Payments for property and equipment and intangible assets	(5,135)		(12,553)
Acquisition of businesses, net of cash acquired	—		(4,000)
Net cash used in investing activities	(5,080)		(13,650)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt obligations	701		1,500
Payments on debt obligations	(6,352)		(3,361)
Purchase of treasury stock	(2,072)		(98)
Payment of dividends	(562)		(462)
Payment of loan origination costs	(136)		(96)
Share in return of investment by noncontrolling partner	—		(600)
Net cash used in financing activities	(8,421)		(3,117)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	132		(1,872)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	21,023		35,980
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	21,155	$	34,108

Table of Contents


	For the Three Months Ended December 31,
	2023		2022
CASH PAID DURING PERIOD FOR:
Interest	$	4,017	$	3,490
Income taxes	$	—	$	—

Noncash investing and financing transactions:
Debt incurred in connection with acquisition of businesses	$	—	$	5,000
Debt incurred in connection with purchase of property and equipment	$	—	$	5,584
Unpaid excise tax on stock repurchases	$	20	$	—
Unpaid liabilities on capital expenditures	$	1,719	$	1,985

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~~2023 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~~2023 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on ~~February~~December 14, ~~2018.~~2023. 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 months ended December 31, ~~2017~~2023 are not necessarily indicative of the results that may be expected for the year ending September 30, ~~2018.~~

2024.

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”~~amends Accounting Standards Codification ("ASC")~~, which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is~~ Topic 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~~2022, including interim periods within those fiscal years. We adopted ASU ~~2015-11 as of~~2021-08 on October 1, ~~2017, which~~2023. Our adoption of this ASU did not have ana significant impact on ~~its~~our consolidated financial statements.

In ~~February 2016,~~June 2022, the FASB issued ASU ~~No. 2016-02,~~~~Leases~~2022-03, Fair Value Measurement (Topic ~~842)~~,820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that an entity should measure the fair value of an equity security subject to contractual sale restriction the same way it measures an identical equity security that is not subject to such a restriction. The FASB said the contractual restriction on ~~accounting for leases which requires lessees to recognize most leases on their balance sheets for~~ the ~~rights~~sale of an equity security is not considered part of the unit of account of the equity security and, ~~obligations created by those leases.~~therefore, should not affect its fair value. The ~~guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases, and will be~~ASU is effective for ~~interim and annual periods~~public entities for fiscal years beginning after December 15, ~~2018.~~2023, and interim periods within those fiscal years. Early adoption is permitted. ~~The guidance requires~~We have not yet evaluated the ~~use~~impact of a modified retrospective approach. We expect our consolidated balance sheets to be materially impacted upon adoption due to the recognition of right-of-use assets and lease liabilities related to currently classified operating leases. We do not expectthis ASU ~~2016-02 to have a material impact~~ on our consolidated financial statements.

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements, which amends certain provisions of ASC 842 that apply to arrangements between related parties under common control. The ASU requires all companies to amortize leasehold improvements associated with common control leases over the asset's useful life to the common control group regardless of the lease term. It also allows private and certain not-for-profit entities to use the written terms and conditions of an agreement to account for common control leases without further assessing the legal enforceability of those terms. The guidance is effective for all entities in fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. We are still evaluating the impact of ~~income though we expect a shift in the classification~~this ASU on our consolidated financial statements.

Table of ~~expenses, the materiality of which we are currently evaluating.~~

Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Recent Accounting Standards and Pronouncements - continued

In ~~January 2017,~~August 2023, the FASB issued ASU ~~No. 2017-01,~~2023-05, Business ~~Combination (Topic 805)~~Combinations—Joint Venture Formations (Subtopic 805-60): ~~Clarifying~~Recognition and Initial Measurement, which addresses the ~~Definition of~~accounting for contributions made to a ~~Business. According to the guidance, when substantially all~~joint venture, upon formation, in a joint venture's separate financial statements. The objectives of the ASU are to (1) provide decision-useful information to investors and other allocators of capital in a joint venture's financial statements and (2) reduce diversity in practice. The FASB decided to require a joint venture to apply a new basis of accounting upon formation that will recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). The amendments of ~~gross assets acquired~~this ASU are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. Additionally, a joint venture that was formed before January 1, 2025 may elect to apply the amendments retrospectively if it has sufficient information. early adoptions is ~~concentrated~~permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. We are still evaluating the impact of this ASU on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single 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 inputreportable segment, 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.contain other disclosure requirements. The ~~FASB noted that outputs are a key element of a business and included more stringent criteria for aggregated sets of assets and activities without outputs. Finally, the guidance narrows the definition~~purpose of the ~~term “outputs”~~amendments is to ~~be consistent~~enable investors to better understand an entity's overall performance and assess potential future cash flows. The ASU applies to all public entities that are required to report segment information in accordance with ~~how it is described in Topic 606,~~~~Revenue from Contracts with Customers~~~~. Under the final definition, an output is the result of inputs~~ASC 280, and ~~substantive processes that provide goods and services to customers, other revenue, or investment income, such as dividends and interest. The standard~~ is effective for fiscal years beginning after December 15, ~~2017, with early~~2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ~~The amendments can be applied to transactions occurring before~~We are 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,~~December 2023, the FASB issued ASU ~~No. 2017-09,~~~~Compensation—Stock Compensation~~2023-09, Income Taxes (Topic ~~718)~~740): ~~Scope~~Improvements to Income Tax Disclosures. Under the ASU, public business entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of ~~Modification Accounting~~.those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate. The amendments of ~~this ASU provide guidance about which changes to~~ the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all of the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the modification. The current disclosure requirements in Topic 718 are not changed. The amendments in this ASU are effective for ~~all~~public business entities for ~~annual periods, and interim periods within those~~ annual periods beginning after December 15, ~~2017, with~~2024. Entities are permitted to early ~~adoption permitted. Since March 31, 2017, we do~~adopt the standard for annual financial statements that have not been issued or made available for issuance. We are enhancing our income tax reporting system to be able to capture the required disclosures of this ASU.

Table of Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Revenues

Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 4), are shown below (in thousands):


	Three Months Ended December 31, 2023									Three Months Ended December 31, 2022
	Nightclubs			Bombshells		Other		Total		Nightclubs			Bombshells		Other		Total
Sales of alcoholic beverages	$	26,236		$	7,080	$	—	$	33,316	$	22,098		$	7,552	$	—	$	29,650
Sales of food and merchandise	5,240			5,562		—		10,802		4,594			5,753		—		10,347
Service revenues	25,119			—		—		25,119		25,533			30		—		25,563
Other revenues	4,438			89		143		4,670		4,100			96		212		4,408
	$	61,033		$	12,731	$	143	$	73,907	$	56,325		$	13,431	$	212	$	69,968

Recognized at a point in time	$	60,600		$	12,730	$	143	$	73,473	$	55,918		$	13,428	$	211	$	69,557
Recognized over time	433		*	1		—		434		407		*	3		1		411
	$	61,033		$	12,731	$	143	$	73,907	$	56,325		$	13,431	$	212	$	69,968

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

The Company does not have ~~any stock-based compensation awards outstanding. We~~contract assets with customers. The Company’s unconditional right to consideration for goods and 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, 2023		Net Consideration Received (Refunded)		Recognized in Revenue		Balance at December 31, 2023
Ad revenue	$	49	$	142	$	(114)	$	77
Expo revenue	1		181		—		182
Franchise fees and other	46		—		(2)		44
	$	96	$	323	$	(116)	$	303

Contract liabilities with customers are included in accrued liabilities as unearned revenues in our unaudited condensed consolidated balance sheets (see also Note 5), while the revenues associated with these contract liabilities are included in other revenues in our unaudited condensed consolidated statements of income.

Table of Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Segment Information

The Company owns and operates adult nightclubs and Bombshells Restaurants and Bars. The Company has identified such segments based on management responsibility and the nature of the Company’s products, services, and costs. There are no major distinctions in geographical areas served as all operations are in the United States. The Company measures segment profit (loss) as income (loss) from operations. Segment assets are those assets controlled by each reportable segment. The Other category below includes our media and energy drink divisions that are not significant to the 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,
	2023		2022
Revenues (from external customers)
Nightclubs	$	61,033	$	56,325
Bombshells	12,731		13,431
Other	143		212
	$	73,907	$	69,968

Income (loss) from operations
Nightclubs	$	20,369	$	22,740
Bombshells	86		1,847
Other	(196)		(185)
Corporate	(7,094)		(7,504)
	$	13,165	$	16,898

Depreciation and amortization
Nightclubs	$	2,905	$	2,485
Bombshells	643		458
Other	2		63
Corporate	303		301
	$	3,853	$	3,307

Capital expenditures
Nightclubs	$	1,532	$	4,144
Bombshells	1,908		8,319
Other	1,498		37
Corporate	197		53
	$	5,135	$	12,553

Table of Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Segment Information - continued


	December 31, 2023		September 30, 2023
Total assets
Nightclubs	$	491,046	$	483,563
Bombshells	86,730		85,215
Other	7,628		6,936
Corporate	33,811		35,170
	$	619,215	$	610,884

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs and Corporate segments for the three months ended December 31, 2023, amounting to $4.5 million and $227,000, respectively, and for the three months ended December 31, 2022, amounting to $3.7 million and $231,000, respectively; and intercompany sales of Robust Energy Drink included in Other segment for the three months ended December 31, 2023 and 2022 amounting to $39,000 and $37,000, 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.

Certain real estate assets previously wholly assigned to Bombshells have ~~early adopted ASU 2017-09 as~~been subdivided and allocated to other future development or investment projects. Accordingly, those asset costs have been transferred out of ~~October 1, 2017, and will apply its provisions to future stock compensation awards and transactions.~~

3.the Bombshells segment.

5. Selected Account Information

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


	December 31, 2023		September 30, 2023
Credit card receivables	$	4,297	$	4,141
Income tax refundable	1,192		2,989
ATM in-transit	2,015		1,675
Other (net of allowance for doubtful accounts of $64 and $62, respectively)	1,113		1,041
Total accounts receivable, net	$	8,617	$	9,846

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):


	December 31, 2023		September 30, 2023
Prepaid insurance	$	9,297	$	375
Prepaid legal	156		184
Prepaid taxes and licenses	265		486
Prepaid rent	215		346
Other	1,052		552
Total prepaid expenses and other current assets	$	10,985	$	1,943

Table of Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Selected Account Information - continued

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


	December 31, 2023		September 30, 2023
Insurance	$	9,022	$	9
Sales and liquor taxes	2,499		2,468
Payroll and related costs	4,100		4,412
Property taxes	3,607		3,086
Interest	690		654
Patron tax	1,543		914
Unearned revenues	303		96
Lawsuit settlement	2,123		2,448
Other	2,677		1,964
Total accrued liabilities	$	26,564	$	16,051

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 December 31,
	2023		2022
Taxes and permits	$	4,042	$	2,684
Advertising and marketing	3,474		2,670
Supplies and services	2,695		2,424
Insurance	3,315		2,582
Legal	733		985
Lease	1,824		1,762
Charge card fees	1,732		1,897
Utilities	1,485		1,271
Security	1,411		1,164
Stock-based compensation	470		941
Accounting and professional fees	1,186		1,518
Repairs and maintenance	1,099		1,164
Other	1,735		1,670
Total selling, general and administrative expenses	$	25,201	$	22,732

Table of Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(Unaudited)~~

~~4. Long-Term Debt~~

~~Long-term debt consisted of 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

(Unaudited)

~~RCI HOSPITALITY HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

6. Debt

On ~~December 14, 2017,~~October 25, 2023, the Company entered into a ~~loan agreement (“New Loan”)~~debt modification transaction under which 26 investors holding a total principal amount of $15.7 million in unsecured promissory notes agreed to extend the maturity dates of such notes, with ~~a bank for $81.2 million. The New Loan fully refinances 20~~no other changes to the terms and conditions of the ~~Company’s~~original promissory notes, ~~payable~~which original promissory notes were issued in October 2021 and ~~partially pays down~~had original maturity dates in October 2024. The transaction was effected by the 26 investors returning for cancellation their original promissory notes, with us issuing new amended and restated promissory notes to such investors. The original promissory notes were deemed cancelled as of the end of the day on October 31, 2023, and the new amended promissory notes will have an original issue date, and be deemed effective, as of November 1, ~~note payable (collectively, “Repaid Notes”) with interest rates ranging from 5% to 12% covering 43 parcels~~2023.

Other than the extension 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~~maturity dates, there were no other changes to the ~~monthly~~terms and conditions of the original promissory notes (except for the reduction in principal, as described below, and ~~interest payments as provided above,~~ the ~~Company will pay~~corresponding reduction in monthly installments of principal ~~of $250,000, applied to the first note, until such time as the loan-to-value ratio of the Properties, based upon reduced principal balance of the New Loan~~ and ~~the then current value of the Properties, is not greater than 65%~~interest). The ~~New Loan has eliminated balloon payments~~new amended notes will continue to bear interest at the rate of 12% per annum. Of the ~~Repaid Notes worth $2.9~~new amended promissory notes, $9.1 million ~~originally scheduled~~are payable interest-only monthly (or quarterly) in ~~fiscal 2018, $19.4 million originally scheduled in fiscal 2020 and $5.3 million originally scheduled in fiscal 2021.~~

In connection with the Repaid Notes, we wrote off $279,000 of unamortized debt issuance costs to interest expense. Prior to September 30, 2017, the Company paid a portion of debt issuance costs amounting to $612,500, which was included in other assets until the closing of the transaction. At closing, the Company paid an additional $764,000 in debt issuance costs, which together with the $612,500 prepayment will be amortized for the term of the loan using the effective interest rate method. 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, for 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~~arrears, with a ~~carrying value~~final lump sum payment of ~~$3.4~~principal and accrued and unpaid interest due on October 1, 2026. The remaining $6.6 million ~~with an assumption of the old aircraft’s note~~in promissory notes are 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 in compliance with all its debt covenants.~~

~~RCI HOSPITALITY HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Future maturities of long-term debt consist of the following (in thousands) as 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% with a floor of 5.2% and matures on February 15, 2038. The bank note is payable interest-only during the first 18 months, after which monthly payments of principal and interest ~~will be made~~ based on a ~~20-year~~10-year amortization period, with the ~~remaining~~ balance ~~to be paid at maturity.~~

of the entire principal amount together with all accrued and unpaid interest due and payable in full on November 1, 2027. The original promissory notes that were returned and cancelled as consideration for the issuance of the $6.6 million in new amended promissory notes had an original principal amount of $7.5 million in October 2021.

On ~~February 20, 2018,~~November 17, 2023, 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~~closed on a construction loan agreement with ~~maximum availability~~a bank lender for a total amount of ~~$4.7 million. The construction loan agreement bears~~$7.2 million bearing an interest rate of ~~prime plus 0.5% with~~8.5% per annum for the construction of a ~~floor of 5.0% and matures on August 20, 2029. During~~Bombshells restaurant in Rowlett, Texas. The promissory note is payable in 120 monthly payments, the first 18 months of ~~the construction loan, the Company~~which will ~~make monthly interest-only payments, and after such,~~be interest-only. The succeeding 101 monthly payments will be payable in equal installments of $63,022 in principal and interest, ~~will be made based on a 20-year amortization with~~and the remaining balance in principal and accrued interest payable on the 120th month. The loan is secured by the real estate property under construction. There are certain financial covenants with which the Company is to be ~~paid~~in compliance related to this loan.

Future maturities of long-term debt as of December 31, 2023 are as follows: $20.4 million, $24.1 million, $22.6 million, $21.9 million, $19.9 million and $128.2 million for the twelve months ending December 31, 2024, 2025, 2026, 2027, 2028, and thereafter, respectively. Of the maturity schedule mentioned above, $5.7 million, $11.1 million, $9.1 million, $7.9 million, $5.7 million and $70.6 million, respectively, relate to scheduled balloon payments. Unamortized debt discount and issuance costs amounted to $2.9 million and $2.9 million as of December 31, 2023 and September 30, 2023, respectively.

7. Stock-based Compensation

On February 7, 2022, our board of directors approved the 2022 Stock Option Plan (the “2022 Plan”). The board’s adoption of the 2022 Plan was approved by the shareholders during the annual stockholders' meeting on August 23, 2022. The 2022 Plan provides that the maximum aggregate number of shares of common stock underlying options that may be granted under the 2022 Plan is 300,000. The options granted under the 2022 Plan may be either incentive stock options or non-qualified options. The 2022 Plan is administered by the compensation committee of the board of directors. The compensation committee has the exclusive power to select individuals to receive grants, to establish the terms of the options granted to each participant, provided that all options granted shall be granted at ~~maturity.~~

~~5. Stockholders’ Equity~~

~~During~~an exercise price not less than the ~~quarter~~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 months ended December 31, ~~2017, the Company did not purchase shares~~2023 and 2022, which is included in corporate segment selling, general and administrative expenses, amounted to $470,000 and $941,000, respectively. As of ~~its common stock. The Company also paid a $0.03 per share cash dividend totaling approximately $292,000.~~

~~During the quarter ended~~ December 31, ~~2016, the Company purchased and retired 89,685 common shares at~~2023, we had unrecognized compensation cost amounting to $4.0 million related to stock-based compensation awards granted, which is expected to be recognized over a ~~cost of $1.1 million. 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 is computed by dividing income available to common stockholders by the~~ weighted average ~~number~~period of ~~common shares outstanding for the period. Diluted earnings per share reflect the potential dilution~~2.1 years.

Table of securities that could share in the earnings of the Company. Potential common stock shares consist of shares that may arise from outstanding dilutive common restricted stock, stock options and warrants (the number of which is computed using the “treasury stock method”) and from outstanding convertible debentures (the number of which is computed using the “if converted method”). Diluted 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 of the numerator and the denominator in the calculation 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.~~

7. Stock-based Compensation - continued

The February 9, 2022 stock options vest over four years with the first 20% having vested on the approval of the 2022 Plan at the 2022 annual stockholders' meeting on August 23, 2022, and 20% vesting on February 9 of each year thereafter, provided however that the options will be subject to earlier vesting under certain events set forth in the Plan, including without limitation a change in control. All of the options will expire, if not 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 months ended December 31, 2023. As of December 31, 2023, 120,000 stock options were vested and exercisable.

For the three months ended December 31, 2023 and 2022, we excluded 300,000 stock options from the calculation of diluted earnings per share because their effect was anti-dilutive. Aside from the outstanding stock options, there were no other potentially dilutive securities for inclusion in the calculation of diluted earnings per share.

8. Income Taxes

Income ~~taxes were a benefit of $8.2~~tax expense was $1.8 million ~~for~~and $3.0 million during the ~~first quarter of 2018 compared to an expense of $1.5 million for the same quarter of 2017.~~three months ended December 31, 2023 and 2022, respectively. The effective income tax expense rate was 19.9% and 22.8% for the ~~first quarter of 2018 was a benefit of 134.3% compared with an expense of 33.3% for the comparable period of 2017.~~three months ended December 31, 2023 and 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 December 31,
	2023		2022
Federal statutory income tax expense	21.0	%	21.0	%
State income taxes, net of federal benefit	3.4	%	4.0	%
Permanent differences	0.5	%	0.5	%
Tax credits	(5.0)	%	(2.8)	%
Other	—	%	0.1	%
Total income tax expense	19.9	%	22.8	%

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~~2020 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.

9. 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~~$5 per customer Patron Tax Fee assessed against Sexually Oriented Businesses. An administrative rule attempted to expand the fee to cover venues featuring dancers using latex cover as well as traditional nude entertainment. The administrative rule was challenged on both constitutional and statutory grounds. On November 19, 2018, the Court issued an order that a key aspect of the administrative rule is invalid based on it exceeding the scope of the Comptroller’s authority. On March 6, 2020, the U.S. District Court for the Western District of Texas, Austin Division, ruled that the Texas Patron Tax is unconstitutional as it has been applied and enforced by the ~~Act: existing timing differences, reversal~~Comptroller. The State of ~~existing timing differences, and accelerated depreciation. As such,~~Texas appealed to the ~~Company has left~~Fifth Circuit Court of Appeals, who affirmed that the ~~measurement period open~~Texas Patron Fee is unconstitutional as applied. The State of ~~December 31, 2017.~~

~~8. Commitments and Contingencies~~

~~Legal Matters~~

~~New York Settlement~~

~~Filed in 2009,~~Texas next sought review from the Supreme Court, but the high court declined to take the case ~~claimed Rick’s Cabaret New York misclassified entertainers~~and in doing so exhausted the State's rights to appeal the judgment. The lawsuit was sent back to the trial court for post-trial proceedings, which resulted in the award of attorneys' fees to the operating subsidiaries. Pursuant to the rulings, the Texas Patron Fee is unconstitutional as ~~independent contractors. Plaintiffs sought minimum wage for the hours they danced and return~~applied to clubs featuring dancers using latex cover.

Table 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)

~~On April 1, 2015, we~~

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

Contingencies - continued

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 December 31, 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~~in principle to resolve the action. On October 10, 2023, the parties submitted an ~~outdoor patio, which allegedly interfered with~~agreement to settle the ~~common areas of~~action to the ~~shopping center, and by failing to provide Plaintiff with proposed plans before beginning construction. Plaintiff also asserts RCI Hospitality Holdings, Inc. is liable as guarantor of~~Court for the ~~lease.~~Court's preliminary approval. The lease was for a Bombshells restaurant to be opened in the Willowbrook Shopping Center in Houston, Texas. Both RCI Hospitality Holdings, Inc. and BMB Dining Services (Willowbrook), Inc. have denied liability and assertCompany believes that ~~Plaintiff has failed to mitigate its claimed damages. Further, BMB Dining Services (Willowbrook), Inc. asserts that Plaintiff affirmatively represented that the patio could be 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 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.

Table of Contents

RCI ~~Hospitality Holdings, Inc.~~HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Commitments and Contingencies - continued

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. In September 2023, the NY DOL assessed another of our subsidiaries for approximately $280,000 on the same matter for the period January 2015 through June 2022. We recorded this latter assessment during the quarter ended September 30, 2023.

General

In the regular course of business affairs and operations, we are subject to possible loss contingencies arising from third-party litigation and federal, state, and local environmental, labor, health and safety laws and regulations. We assess the probability that we could incur liability in connection with certain of these lawsuits. Our assessments are made in accordance with generally accepted accounting principles, as codified in ASC 450-20, and is not ~~a party 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.~~

~~Settlements~~the event we incur any liability, we believe it is unlikely we would incur losses in connection with these claims in excess of ~~lawsuits for~~our insurance coverage.

There were no lawsuit settlements incurred during the ~~quarters~~three months ended December 31, ~~2017~~2023 and ~~2016 total $27,000 and $73,000, respectively.~~2022. As of December 31, ~~2017~~2023 and September 30, ~~2017,~~2023, the Company has accrued ~~$37,000~~$2.1 million and ~~$295,000~~$2.4 million in accrued liabilities, respectively, related to settlement of lawsuits.

~~9. 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 category below includes our media divisions and rental income that are not significant to the 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

~~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

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 real estate for the Company’s nightclub in Philadelphia.

~~11.~~ 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 December 31, 2023 and September 30, 2023, was $116.7 million and $119.2 million, respectively.

Included in the October 2023 debt transaction (see Note 6) are notes borrowed from related parties—one note for $500,000 (Ed Anakar, an employee of the Company and brother of our former director Nourdean Anakar) and another note for $150,000 (from a brother of Company CFO, Bradley Chhay) in which the terms of the notes are the same as the rest of the lender group.

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 $142,098 and $0 during the three months ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and September 30, 2023, we owed Nottingham Creations and Sherwood Forest $36,308 and $10,700, respectively, in unpaid billings.

Table of Contents

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. Related Party Transactions - continued

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 2024 and 2023. A son-in-law of Eric Langan owns a 50% interest in TW Mechanical. Amounts billed by TW Mechanical to the third-party general contractor were $0 and $0 for the three months ended December 31, 2023 and 2022, respectively. Amounts billed directly to the Company were $2,932 and $0 for the three months ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and September 30, 2023, the Company owed TW Mechanical $0 and $0, respectively, in unpaid direct billings.

11. Leases

Total lease expense included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income for the three months ended December 31, 2023 and 2022 is as follows (in thousands):


	Three Months Ended December 31,
	2023			2022
Operating lease expense – fixed payments	$	1,292		$	1,259
Variable lease expense	450			427
Short-term and other lease expense (includes $107 and $64 recorded in advertising and marketing for the three months ended December 31, 2023 and 2022, respectively; and $141 and $127 recorded in repairs and maintenance for the three months ended December 31, 2023 and 2022, respectively; see Note 5)	330			267
Sublease income	—			—
Total lease expense, net	$	2,072		$	1,953

Other information:
Operating cash outflows from operating leases	$	2,033		$	1,910
Weighted average remaining lease term – operating leases	10.3 years			11.2 years
Weighted average discount rate – operating leases	5.8		%	5.6		%

Future maturities of operating lease liabilities as of December 31, 2023 are as follows (in thousands):


	Principal Payments		Interest Payments		Total Payments
January - December 2024	$	3,037	$	2,014	$	5,051
January - December 2025	3,296		1,835		5,131
January - December 2026	3,594		1,640		5,234
January - December 2027	3,355		1,438		4,793
January - December 2028	2,996		1,256		4,252
Thereafter	21,151		4,333		25,484
	$	37,429	$	12,516	$	49,945

Table of Contents

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.~~

2023.

Overview

RCI Hospitality Holdings, Inc. ~~(“RCIHH”)~~ is a holding company ~~engaged~~that, through its subsidiaries, engages in ~~a number of activities in the hospitality and related businesses.~~businesses that offer live adult entertainment and/or high-quality dining experiences to its guests. All services and management operations are conducted by subsidiaries of RCIHH, including RCI Management Services, Inc.

Through our subsidiaries, as of December 31, ~~2017,~~2023, we operated a total of 4569 establishments that offer live adult entertainment, ~~and/or restaurant and bar 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.

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~~2023 filed with the SEC on ~~February~~December 14, ~~2018.~~

2023.

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

Results of Operations

Highlights of the Company's operating results during the quarter ended December 31, 2023 are as follows:

•Total revenues were $73.9 million compared to $70.0 million during the comparable prior-year quarter, a 5.6% increase (Nightclubs revenue of $61.0 million compared to $56.3 million, an 8.4% increase; and Bombshells revenue of $12.7 million compared to $13.4 million, a 5.2% decrease)

•Consolidated same-store sales decreased by 9.8% (Nightclubs decreased by 7.2% while Bombshells decreased by 20.3%) (refer to the definition of same-store sales in the discussion of revenues below)

•Basic and diluted earnings per share (“EPS”) of $0.77 compared to $1.11 (non-GAAP diluted EPS* of $0.87 compared to $1.19) during the comparable prior-year quarter

•Net cash provided by operating activities of $13.6 million compared to $14.9 million during the comparable prior-year quarter, an 8.5% decrease (free cash flow* of $12.7 million compared to $13.0 million, a 2.9% decrease)

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

Table of Contents

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 December 31,
	2023		2022
Revenues
Sales of alcoholic beverages	45.1	%	42.4	%
Sales of food and merchandise	14.6	%	14.8	%
Service revenues	34.0	%	36.5	%
Other	6.3	%	6.3	%
Total revenues	100.0	%	100.0	%
Operating expenses
Cost of goods sold
Alcoholic beverages sold	18.9	%	18.1	%
Food and merchandise sold	37.4	%	34.7	%
Service and other	0.1	%	0.2	%
Total cost of goods sold (exclusive of items shown separately below)	14.0	%	12.9	%
Salaries and wages	28.9	%	26.7	%
Selling, general and administrative	34.1	%	32.5	%
Depreciation and amortization	5.2	%	4.7	%
Other charges, net	—	%	(0.9)	%
Total operating expenses	82.2	%	75.8	%
Income from operations	17.8	%	24.2	%
Other income (expenses)
Interest expense	(5.7)	%	(5.3)	%
Interest income	0.1	%	0.1	%
Income before income taxes	12.2	%	19.0	%
Income tax expense	2.4	%	4.3	%
Net income	9.8	%	14.7	%

*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 first quarter increased by ~~$7.5~~$3.9 million, or ~~22.1%~~5.6%, versus the comparable prior-year quarter due primarily to a ~~16% increase from new units, 6.9%~~15.0%, or $10.5 million, increase in sales from newly acquired clubs from last year and new Bombshells openings, partially offset by the $6.7 million impact of the decrease in consolidated same-stores sales.

We calculate same-store sales ~~(contributing~~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 December 31, 2023 Mix Three Months Ended December 31, 2022 Mix Inc (Dec) $ Inc (Dec) %
Nightclubs
Sales of alcoholic beverages $ 26,236 43.0 % $ 22,098 39.2 % $ 4,138 18.7 %
Sales of food and merchandise 5,240 8.6 % 4,594 8.2 % 646 14.1 %
Service revenues 25,119 41.2 % 25,533 45.3 % (414) (1.6) %
Other revenues 4,438 7.3 % 4,100 7.3 % 338 8.2 %
61,033 100.0 % 56,325 100.0 % 4,708 8.4 %
Bombshells
Sales of alcoholic beverages 7,080 55.6 % 7,552 56.2 % (472) (6.3) %
Sales of food and merchandise 5,562 43.7 % 5,753 42.8 % (191) (3.3) %
Service revenues — 0.0 % 30 0.2 % (30) (100.0) %
Other revenues 89 0.7 % 96 0.7 % (7) (7.3) %
12,731 100.0 % 13,431 100.0 % (700) (5.2) %
Other
Other revenues 143 100.0 % 212 100.0 % (69) (32.5) %
$ 73,907 $ 69,968 $ 3,939 5.6 %

Nightclubs revenues increased by 8.4% during the first quarter compared to the same quarter last year primarily due to the $8.9 million contribution of newly acquired clubs, partially offset by the $4.0 million impact of the decrease 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 7.2%. By type of revenue, alcoholic beverage sales increased by 18.7%, food, merchandise and other revenue increased by 11.3%, while service revenues decreased by 1.6%.

Bombshells revenues decreased by 5.2%, of which 20.3% 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 3.3% while alcoholic beverage sales decreased by 6.3%.

Operating Expenses

Total operating expenses, as a percent of revenues, ~~decreased~~increased to ~~77.8%~~82.2% from ~~81.2%~~75.8% from ~~year-ago although dollar value increased by $4.7~~last year’s first quarter, with a $7.7 million increase, or ~~17.0%~~14.5%, which was ~~predominantly~~mainly caused by costs and expenses directly related to higher sales in the ~~22.1% increase~~current-year first quarter, with the impact of fixed expenses on clubs and restaurants having decreases in ~~total revenues. Contributors~~their same-stores sales. Significant contributors to the changes in operating expenses are explained below.

Cost of goods sold. Cost of goods sold for the first quarter increased by ~~$1.0~~$1.4 million, or ~~20.6%~~15.0%, ~~primarily~~mainly due to ~~increase in~~higher sales. As a percent of total revenues, cost of goods sold ~~slightly decreased~~increased to ~~14.3%~~14.0% from ~~14.5%~~12.9% mainly due to the ~~increase~~sales mix decrease in service revenue. Nightclubs cost of goods sold increased to 12.0% from 10.5%, while Bombshells cost of goods sold increased to 23.7% from 22.9%. Both increases in percent to segment revenue were caused mainly by shift in sales mix ~~of higher margin service revenue from units in the same-store sales base, partially offset by slightly~~toward lower margin ~~new restaurant food sales.~~

sales type.

Salaries and wages. Salaries and wages increased by ~~$1.7~~$2.7 million, or ~~17.9% mainly~~14.2%, for the first 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 ~~decreased~~increased to ~~27.6%~~28.9% from ~~28.6% primarily~~26.7% due to ~~leverage~~wage inflation. Nightclubs increased to 22.0% from ~~higher sales.~~

20.8% and Bombshells increased to 31.1% from 26.5%, while corporate increased to 5.1% from 4.7%.

Table of Contents

Selling, general and administrative expenses. Selling, general and administrative expenses increased by ~~$1.6~~$2.5 million, or ~~14.5%~~10.9%, primarily due to ~~increases~~increased variable expenses related to higher sales during the current-year first quarter. Dollar amounts in ~~charge card fees, advertising~~the tables below are in thousands, except percentages.


	For the Three Months Ended December 31, 2023				For the Three Months Ended December 31, 2022				Better (Worse)
	Amount		% of Revenues		Amount		% of Revenues		Amount		%
Taxes and permits	$	4,042	5.5	%	$	2,684	3.8	%	$	(1,358)	(50.6)	%
Advertising and marketing	3,474		4.7	%	2,670		3.8	%	(804)		(30.1)	%
Supplies and services	2,695		3.6	%	2,424		3.5	%	(271)		(11.2)	%
Insurance	3,315		4.5	%	2,582		3.7	%	(733)		(28.4)	%
Legal	733		1.0	%	985		1.4	%	252		25.6	%
Lease	1,824		2.5	%	1,762		2.5	%	(62)		(3.5)	%
Charge card fees	1,732		2.3	%	1,897		2.7	%	165		8.7	%
Utilities	1,485		2.0	%	1,271		1.8	%	(214)		(16.8)	%
Security	1,411		1.9	%	1,164		1.7	%	(247)		(21.2)	%
Stock-based compensation	470		0.6	%	941		1.3	%	471		50.1	%
Accounting and professional fees	1,186		1.6	%	1,518		2.2	%	332		21.9	%
Repairs and maintenance	1,099		1.5	%	1,164		1.7	%	65		5.6	%
Other	1,735		2.3	%	1,670		2.4	%	(65)		(3.9)	%
Total selling, general and administrative expenses	$	25,201	34.1	%	$	22,732	32.5	%	$	(2,469)	(10.9)	%

Taxes 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 directly relatedpermits mainly increased due to the increase in ~~sales. Rent~~the Texas patron tax. Advertising and marketing increased mainly due to higher commissions and promotional expenses. Insurance expense increased due to ~~the opening of a new Bombshells. As a percent of total revenues, selling, general~~additional clubs and ~~administrative expenses decreased to 31.1% from 33.2% mainly due sales leverage partially offset by a higher mix of credit card usage.~~

restaurants.

Depreciation and amortization. Depreciation and amortization increased by ~~$291,000,~~$546,000, or ~~18.0%~~16.5%, during the quarter due to the higher ~~unit count and~~depreciable base.

Other charges, net. Other charges, net for the ~~addition~~quarter changed due to one sale of ~~our corporate office during~~real estate property in the ~~middle of the~~prior-year first ~~quarter of 2017.~~

quarter.

Income (Loss) from Operations

For the ~~three months~~quarter ended December 31, ~~2017~~2023 and ~~2016,~~2022, our consolidated operating margin was ~~22.2%~~17.8% and ~~18.8%~~24.2%, respectively. The main drivers for the increase in operating margin is the favorable leverage caused by fixed expenses on increasing sales and the contribution of newly acquired and opened units, aside from the details previously discussed above.

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 December 31,
	2023		2022
Nightclubs	$	20,369	$	22,740
Bombshells	86		1,847
Other	(196)		(185)
Corporate	(7,094)		(7,504)
	$	13,165	$	16,898

Table of Contents

Excluding certain items, the first quarter ended December 31, 2023 and 2022 non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands). Refer to the discussion of Non-GAAP Financial Measures on page 26.


	For the Three Months Ended December 31, 2023
	Nightclubs			Bombshells			Other			Corporate			Total
Income (loss) from operations	$	20,369		$	86		$	(196)		$	(7,094)		$	13,165
Amortization of intangibles	591			63			—			5			659
Gain on sale of businesses and assets	(1)			—			—			(2)			(3)
Stock-based compensation	—			—			—			470			470
Non-GAAP operating income (loss)	$	20,959		$	149		$	(196)		$	(6,621)		$	14,291

GAAP operating margin	33.4		%	0.7		%	(137.1)		%	(9.6)		%	17.8		%
Non-GAAP operating margin	34.3		%	1.2		%	(137.1)		%	(9.0)		%	19.3		%


	For the Three Months Ended December 31, 2022
	Nightclubs			Bombshells			Other			Corporate			Total
Income (loss) from operations	$	22,740		$	1,847		$	(185)		$	(7,504)		$	16,898
Amortization of intangibles	628			2			61			4			695
Gain on sale of businesses and assets	(569)			—			—			(21)			(590)
Gain on insurance	(48)			—			—			(16)			(64)
Stock-based compensation	—			—			—			941			941
Non-GAAP operating income (loss)	$	22,751		$	1,849		$	(124)		$	(6,596)		$	17,880

GAAP operating margin	40.4		%	13.8		%	(87.3)		%	(10.7)		%	24.2		%
Non-GAAP operating margin	40.4		%	13.8		%	(58.5)		%	(9.4)		%	25.6		%

Other Income/Expenses

Interest expense increased by $529,000, or 14.3%, primarily caused by a higher average debt balance mostly from seller-financed promissory notes from last years' acquisitions.

Our total occupancy costs, defined as the sum of operating lease expense and interest expense, were $6.0 million and $5.4 million for the ~~Nightclubs segment~~quarters ended December 31, 2023 and 2022, respectively. As a percentage of revenue, total occupancy costs were 8.2% and 7.8% during the quarters ended December 31, 2023 and 2022, respectively, primarily due to the interest from higher average debt balance.

Table of Contents

Income Taxes

Income tax expense was ~~38.0%~~$1.8 million and ~~31.5%~~$3.0 million during the three months ended December 31, 2023 and 2022, respectively. The effective income tax expense rate was 19.9% and 22.8% for the three months ended December 31, ~~2017~~2023 and ~~2016, respectively, while operating margin for Bombshells was 15.3% and 14.9%,~~2022, respectively. The increase in Nightclubs operating margin was mainly due to the favorable leverage 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 and higher average debt balance quarter over quarter.

Our total occupancy, defined as the sum of rent expense and interest expense, exclusive of refinancing-related costs above, was 7.7% 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 million for the first quarter of 2018 compared to an expense of $1.5 million for the same quarter of 2017. The~~ effective income ~~tax rate for the first quarter of 2018 was a benefit of 134.3% compared with an expense of 33.3% for the comparable period of 2017. Our effective~~ 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~~as presented below.


	For the Three Months Ended December 31,
	2023		2022
Federal statutory income tax expense	21.0	%	21.0	%
State income taxes, net of federal benefit	3.4	%	4.0	%
Permanent differences	0.5	%	0.5	%
Tax credit	(5.0)	%	(2.8)	%
Other	—	%	0.1	%
Total income tax expense	19.9	%	22.8	%

Income taxes decreased in dollar amount due to the ~~U.S. Internal Revenue Code of 1986, as amended, such as a reduction~~lower pretax income in the ~~statutory federal corporate~~current first quarter. Effective income tax rate ~~from 35%~~decreased due to ~~21% effective from January 1, 2018 forward and changes or limitations to certain tax deductions. The Company has a fiscal year~~the acquisition of Texas-based clubs at the end of ~~September 30, so~~last year's second quarter and the ~~change to the statutory corporate~~additional 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.

credits from those acquisitions.

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) gains or losses on sale of businesses and assets, ~~gain~~(c) gains or losses on insurance, and ~~settlement of lawsuits.~~(d) 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) gains or losses on sale of businesses and assets, ~~gain~~(c) gains or losses on insurance, (d) stock-based compensation, and ~~settlement~~(e) the income tax effect of ~~lawsuits, and include~~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%~~19.9% and ~~33%~~22.7% effective tax rate of the pre-tax non-GAAP income before taxes for the ~~quarter~~three months ended December 31, ~~2017~~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.

Table of Contents

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 ~~settlement of lawsuits because we~~(f) 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.

The following tables present our non-GAAP performance measures for the ~~quarters~~three months ended December 31, ~~2017~~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 December 31,
	2023		2022
Reconciliation of GAAP net income to Adjusted EBITDA
Net income attributable to RCIHH common stockholders	$	7,226	$	10,238
Income tax expense	1,799		3,031
Interest expense, net	4,122		3,596
Depreciation and amortization	3,853		3,307
Stock-based compensation	470		941
Gain on sale of businesses and assets	(3)		(590)
Gain on insurance	—		(64)
Adjusted EBITDA	$	17,467	$	20,459


	Three Months Ended December 31,
	2023		2022
Reconciliation of GAAP net income to non-GAAP net income
Net income attributable to RCIHH common stockholders	$	7,226	$	10,238
Amortization of intangibles	659		695
Stock-based compensation	470		941
Gain on sale of businesses and assets	(3)		(590)
Gain on insurance	—		(64)
Net income tax effect	(220)		(200)
Non-GAAP net income	$	8,132	$	11,020


	Three Months Ended December 31,
	2023		2022
Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share
Diluted shares	9,367,151		9,230,258
GAAP diluted earnings per share	$	0.77	$	1.11
Amortization of intangibles	0.07		0.08
Stock-based compensation	0.05		0.10
Gain on sale of businesses and assets	0.00		(0.06)
Gain on insurance	0.00		(0.01)
Net income tax effect	(0.02)		(0.02)
Non-GAAP net income	$	0.87	$	1.19

Table of Contents


	Three Months Ended December 31,
	2023		2022
Reconciliation of GAAP operating income to non-GAAP operating income
Income from operations	$	13,165	$	16,898
Amortization of intangibles	659		695
Stock-based compensation	470		941
Gain on sale of businesses and assets	(3)		(590)
Gain on insurance	—		(64)
Non-GAAP operating income	$	14,291	$	17,880


	Three Months Ended December 31,
	2023		2022
Reconciliation of GAAP operating margin to non-GAAP operating margin
Income from operations	17.8	%	24.2	%
Amortization of intangibles	0.9	%	1.0	%
Stock-based compensation	0.6	%	1.3	%
Gain on sale of businesses and assets	0.0	%	(0.8)	%
Gain on insurance	0.0	%	(0.1)	%
Non-GAAP operating income	19.3	%	25.6	%

* 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,~~2023, our cash and cash equivalents were ~~$12.0~~approximately $21.2 million compared to ~~$9.9~~$21.0 million at September 30, ~~2017.~~2023. Because of the large volume of cash we handle, we have very stringent cash controls. As of December 31, ~~2017,~~2023, we had negative working capital of ~~$6.2~~$9.0 million compared to negative working capital of ~~$10.6~~$10.5 million as of September 30, ~~2017, both figures excluding assets held for sale of $5.6 million as of December 31, 2017 and $5.8 million as of September 30, 2017.~~2023. 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. 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 of~~ our existing notes payable. ~~We continue to have the ability to borrow funds~~There can be no assurance though that any of these financing options would be presently available on favorable terms, if at ~~reasonable interest rates in that manner.~~all. We also have historically utilized these cash flows to invest in property and equipment, adult nightclubs, and restaurants/sports bars.

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 Three Months Ended December 31,
	2023		2022
Operating activities	$	13,633	$	14,895
Investing activities	(5,080)		(13,650)
Financing activities	(8,421)		(3,117)
Net increase (decrease) in cash and cash equivalents	$	132	$	(1,872)

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 Three Months Ended December 31,
	2023		2022
Net income	$	7,244	$	10,271
Depreciation and amortization	3,853		3,307
Stock-based compensation	470		941
Net change in operating assets and liabilities	1,122		263
Other	944		113
Net cash provided by operating activities	$	13,633	$	14,895

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

paid.

Table of Contents

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 Three Months Ended December 31,
	2023		2022
Payments for property and equipment and intangible assets	$	(5,135)	$	(12,553)
Acquisition of businesses	—		(4,000)
Proceeds from sale of businesses and assets	—		2,784
Proceeds from insurance	—		64
Proceeds from notes receivable	55		55
Net cash used in investing activities	$	(5,080)	$	(13,650)

Following is a breakdown of our ~~additions to~~payments for property and equipment and intangible assets for the ~~quarters~~quarter ended December 31, ~~2017~~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 Three Months Ended December 31,
	2023		2022
New facilities, equipment, and intangible assets	$	4,152	$	10,689
Maintenance capital expenditures	983		1,864
Total capital expenditures	$	5,135	$	12,553

The capital expenditures during the quarter ended December 31, ~~2017 is~~2023 were composed ~~primarily~~mostly of construction ~~and development costs for one new location,~~projects in-progress, while ~~the capital expenditures~~those during the quarter ended December 31, ~~2016 is~~2022 were composed primarily of ~~construction~~real estate and ~~development costs~~new equipment and furniture purchases for ~~three new locations and our new corporate office.~~the newly acquired clubs. Maintenance capital expenditures refer mainly to capitalized replacement of 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 Three Months Ended December 31,
	2023		2022
Proceeds from debt obligations	$	701	$	1,500
Payments on debt obligations	(6,352)		(3,361)
Purchase of treasury stock	(2,072)		(98)
Payment of dividends	(562)		(462)
Payment of loan origination costs	(136)		(96)
Share in return of investment by noncontrolling partner	—		(600)
Net cash used in financing activities	$	(8,421)	$	(3,117)

We ~~did not purchase~~purchased 37,954 shares of our ~~Company’s~~ common stock at an average price of $54.59 during the quarter ended December 31, ~~2017,~~2023, while we purchased ~~89,685 treasury~~1,500 shares of our common stock at an average price of ~~$12.25 per share~~$65.02 during the quarter ended December 31, ~~2016.~~ 2022. As of December 31, 2023, we have approximately $14.6 million authorization remaining to purchase additional shares.

We paid ~~quarterly~~$0.06 per share for dividends ~~of $0.03~~during the first quarter ended December 31, 2023, while we paid $0.05 per share during ~~both current and prior year quarters.~~

Onthe first quarter ended December ~~14, 2017, we refinanced several~~31, 2022.

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

See Note 4 6 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 three months ended December 31, 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 Three Months Ended December 31,
	2023		2022
Net cash provided by operating activities	$	13,633	$	14,895
Less: Maintenance capital expenditures	983		1,864
Free cash flow	$	12,650	$	13,031

Our free cash flow for the quarter decreased by 2.9% compared to the comparable prior-year quarter primarily due to lower income from operations and higher interest expense paid, partially offset lower maintenance capital expenditures paid.

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 impact of uncertainties caused by near-term macro environment, including commodity and labor inflation and the lingering effect of the COVID-19 pandemic, and our contractual debt ~~refinancing described above,~~and lease obligations, 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.

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

The following table presents a summary of such indicators for the ~~quarters~~three 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

31 (in thousands, except percentages):


	2023		Increase (Decrease)		2022		Increase (Decrease)		2021
Sales of alcoholic beverages	$	33,316	12.4	%	$	29,650	12.2	%	$	26,431
Sales of food and merchandise	10,802		4.4	%	10,347		(5.0)	%	10,894
Service revenues	25,119		(1.7)	%	25,563		22.5	%	20,876
Other	4,670		5.9	%	4,408		21.3	%	3,635
Total revenues	$	73,907	5.6	%	$	69,968	13.2	%	$	61,836
Net income attributable to RCIHH common stockholders	$	7,226	(29.4)	%	$	10,238	(3.2)	%	$	10,575
Net cash provided by operating activities	$	13,633	(8.5)	%	$	14,895	(8.4)	%	$	16,264
Adjusted EBITDA*	$	17,467	(14.6)	%	$	20,459	13.9	%	$	17,965
Free cash flow*	$	12,650	(2.9)	%	$	13,031	(14.6)	%	$	15,266
Debt (end of period)	$	234,113	10.8	%	$	211,234	30.5	%	$	161,850

*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~~thirteen of the ~~currently~~ existing Bombshells ~~are~~as of December 31, 2023 were located in Texas. 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,~~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.~~

2023.

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,~~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.~~2023. This determination is based on the previously reported material weaknesses management previously identified in our internal control over financial reporting, as described below. We are in the process of remediating the material weaknesses 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.~~

these issues.

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

In our Annual Report for the year ended September 30, ~~2017,~~2023, filed with the SEC on ~~February~~December 14, ~~2018,~~2023, management concluded that our internal control over financial reporting was not effective as of September 30, ~~2017.~~2023. In ~~management’s~~the evaluation, management identified material weaknesses in internal control related (1) proper design and implementation of controls over management's review of the ~~following~~Company's accounting for business combinations, specifically related to the identification of and accounting for intangible assets acquired in a business combination, and over the precision of management's review of certain valuation assumptions; (2) the impairment of goodwill, indefinite-lived intangibles, and long-lived assets, specifically over the precision of management's review of certain assumptions; and (3) ineffective information technology general controls ("ITGCs") in the areas of user access and program change-management over certain information technology ("IT") systems that support the Company's financial reporting processes. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. We believe that these control deficiencies were ~~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~~a result of inadequate IT controls over the review of user access and imprecise documentation of procedures 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.

~~Remediation Efforts~~ to ~~Address Material Weaknesses~~

~~As disclosed in~~program change management. Additionally, we rely upon a variety of outsourced IT service providers for key elements of the technology infrastructure impacting our ~~most recent Annual Report~~financial reporting process. Certain outsourced IT service providers could not provide System and Organization Controls ("SOC") reports for periods that closely align with our fiscal year end. Given that management did not effectively assess the design and operation of these outsourced IT service providers’ internal controls, some of our controls over IT systems and business processes were also deemed ineffective, but only to the extent that we rely upon information that was subject to the outsourced IT service providers’ control environment. These deficiencies may have an impact on ~~Form 10-K, we have,~~our financial statements, account balances, and ~~continue to, identify~~disclosures. Based on our evaluation, our management, with the participation of our chief executive officer and ~~implement actions to improve~~chief financial officer, concluded that our internal control over financial reporting was not effective as of September 30, 2023.

Remediation Efforts to Address Material Weakness

Review of Accounting for Business Combinations

Management is committed to the remediation of the material weakness described above. As such, controls will be added to both increase precision of management’s review of each component of business combinations, and ~~disclosure~~if necessary, retain the services of a third-party consultant to assist in the valuation and accounting for intangible assets acquired in a business combination.

Table of Contents

Review of Accounting for Impairment of Goodwill and Intangible Assets

As most of the assumptions used in the valuation models employed in impairment analyses are subjective in nature, Management will employ additional controls to validate these assumptions, including the engagement of a third-party consultant to assist developing valuation models and establishing sound and reasonable assumptions.

Information Technology General Controls

As a result of the material weakness, we have initiated and will continue to implement remediation measures to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) strengthening and enhancing the review and documentation procedures ~~including actions to enhance~~in our ~~resources~~controls over user access review; (ii) define and ~~training with respect to financial~~communicate clear and concise program change management policy and procedures; (iii) enhancing the reporting ~~and disclosure responsibilities, and increase utilization~~requirements of accounting system ~~functionality, with continued oversight from the Audit Committee.~~

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

It is our belief that these added controls will effectively remediate the existing material weaknesses.

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

~~Control Environment~~

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

~~Control Activities~~

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

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

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

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

~~Strengthening the information technology application and related segregation of duties issues –~~~~We were previously aware of the limitations of our accounting software and had been in the planning/implementation process of replacing the software for many months~~completed 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~~end 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.

fiscal 2024.

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~~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 8 9 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.~~2023, except for such risks and uncertainties that may result from the additional disclosure in the “Legal Matters” section within Note 9 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, our Board of Directors authorized us to~~

Our share repurchase ~~up to $5.0 million worth of our common stock in~~activity during the open market or in privately negotiated transactions. 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 quarterthree months ended December 31, ~~2017, we did not~~2023 was as follows:


Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)(1)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs
October 1-31, 2023	32,704	$	54.55	32,704	$	14,857,259
November 1-30, 2023	5,250	$	54.84	5,250	$	14,569,372
December 1-31, 2023	—			—	$	14,569,372
	37,954	$	54.59	37,954

(1) Prices include any commissions and transaction costs, but exclude a 1% excise tax.

(2) All shares were purchased pursuant to the repurchase ~~shares~~plans approved by the board of ~~the Company’s common stock. As~~directors as disclosed in our most recent Annual Report on Form 10-K.

Table of ~~December 31, 2017, we have $3.1 million remaining to purchase additional shares.~~

Contents

Item 6. Exhibits.


Exhibit No.		Description
~~3.1~~		Articles of Incorporation dated December 9, 1994. (Incorporated by reference from Form SB-2 filed with the SEC on January 11, 1995.) *
31.1
~~3.2~~	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		The following financial information from RCI Hospitality Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 formatted in Inline XBRL (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.INS~~		~~XBRL Instance Document.~~
~~101.SCH~~ 104		Cover Page Interactive Data File (formatted as Inline XBRL ~~Taxonomy Extension Schema Document.~~
~~101.CAL~~	~~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~~February 8, 2024	By:	/s/ Eric S. Langan
		Eric S. Langan
		Chief Executive Officer and President


Date: ~~March 7, 2018~~February 8, 2024	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, 2023	9,397,639	$	94	$	80,437	$	201,050	—	$	—	$	(257)	$	281,324
Purchase of treasury shares	—	—		—		—		(37,954)	(2,072)		—		(2,072)
Canceled treasury shares	(37,954)	—		(2,072)		—		37,954	2,072		—		—
Excise tax on stock repurchases	—	—		(20)		—		—	—		—		(20)
Payment of dividends ($0.06 per share)	—	—		—		(562)		—	—		—		(562)
Stock-based compensation	—	—		470		—		—	—		—		470
Net income	—	—		—		7,226		—	—		18		7,244
Balance at December 31, 2023	9,359,685	$	94	$	78,815	$	207,714	—	$	—	$	(239)	$	286,384

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 ($0.05 per share)	—	—		—		(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

	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 December 31, 2023		Mix		Three Months Ended December 31, 2022		Mix		Inc (Dec) $		Inc (Dec) %
Nightclubs
Sales of alcoholic beverages	$	26,236	43.0	%	$	22,098	39.2	%	$	4,138	18.7	%
Sales of food and merchandise	5,240		8.6	%	4,594		8.2	%	646		14.1	%
Service revenues	25,119		41.2	%	25,533		45.3	%	(414)		(1.6)	%
Other revenues	4,438		7.3	%	4,100		7.3	%	338		8.2	%
	61,033		100.0	%	56,325		100.0	%	4,708		8.4	%
Bombshells
Sales of alcoholic beverages	7,080		55.6	%	7,552		56.2	%	(472)		(6.3)	%
Sales of food and merchandise	5,562		43.7	%	5,753		42.8	%	(191)		(3.3)	%
Service revenues	—		0.0	%	30		0.2	%	(30)		(100.0)	%
Other revenues	89		0.7	%	96		0.7	%	(7)		(7.3)	%
	12,731		100.0	%	13,431		100.0	%	(700)		(5.2)	%
Other
Other revenues	143		100.0	%	212		100.0	%	(69)		(32.5)	%
	$	73,907			$	69,968			$	3,939	5.6	%

	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