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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-13992

RCI HOSPITALITY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Texas	76-0458229
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10737 Cutten Road

Houston, Texas 77066

(Address of principal executive offices) (Zip Code)

(281) 397-6730

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	RICK	The Nasdaq Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 5, 2023, 9,430,225 shares of the registrant’s common stock were outstanding.

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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, (iii) the success or lack thereof in launching and building the company’s businesses, (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.

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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 March 31, 2023 (unaudited) and September 30, 2022	5
	Condensed Consolidated Statements of Income (unaudited) for the three and six months ended March 31, 2023 and 2022	6
	Condensed Consolidated Statements of Changes in Equity (unaudited) for the three and six months ended March 31, 2023 and 2022	7
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended March 31, 2023 and 2022	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4.	Controls and Procedures	40
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	42
	Signatures	43

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

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RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and number of shares)

	March 31, 2023		September 30, 2022
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	22,784	$	35,980
Accounts receivable, net	6,755		8,510
Current portion of notes receivable	239		230
Inventories	4,571		3,893
Prepaid expenses and other current assets	6,870		1,499
Assets held for sale	—		1,049
Total current assets	41,219		51,161
Property and equipment, net	295,861		224,615
Operating lease right-of-use assets, net	37,244		37,048
Notes receivable, net of current portion	4,569		4,691
Goodwill	84,051		67,767
Intangibles, net	156,331		144,049
Other assets	1,856		1,407
Total assets	$	621,131	$	530,738
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	7,743	$	5,482
Accrued liabilities	20,958		11,328
Current portion of debt obligations, net	21,016		11,896
Current portion of operating lease liabilities	2,951		2,795
Total current liabilities	52,668		31,501
Deferred tax liability, net	30,936		30,562
Debt, net of current portion and debt discount and issuance costs	224,751		190,567
Operating lease liabilities, net of current portion	36,429		36,001
Other long-term liabilities	383		349
Total liabilities	345,167		288,980
Commitments and contingencies (Note 10)
Equity
Preferred stock, $0.10 par value per share; 1,000,000 shares authorized; none issued and outstanding	—		—
Common stock, $0.01 par value per share; 20,000,000 shares authorized; 9,430,225 and 9,231,725 shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively	94		92
Additional paid-in capital	85,082		67,227
Retained earnings	190,905		173,950
Total RCIHH stockholders’ equity	276,081		241,269
Noncontrolling interests	(117)		489
Total equity	275,964		241,758
Total liabilities and equity	$	621,131	$	530,738

See accompanying notes to unaudited condensed consolidated financial statements.

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RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)

	For the Three Months Ended March 31,				For the Six Months Ended March 31,
	2023		2022		2023		2022
Revenues
Sales of alcoholic beverages	$	30,136	$	27,335	$	59,786	$	53,766
Sales of food and merchandise	11,005		11,160		21,352		22,054
Service revenues	25,690		21,501		51,253		42,377
Other	4,686		3,696		9,094		7,331
Total revenues	71,517		63,692		141,485		125,528
Operating expenses
Cost of goods sold
Alcoholic beverages sold	5,365		4,896		10,739		9,730
Food and merchandise sold	3,737		3,840		7,323		7,797
Service and other	16		24		65		124
Total cost of goods sold (exclusive of items shown separately below)	9,118		8,760		18,127		17,651
Salaries and wages	19,428		16,530		38,104		33,035
Selling, general and administrative	22,026		18,437		44,758		36,923
Depreciation and amortization	3,760		2,877		7,067		5,071
Other charges (gains), net	3,758		7		3,104		(144)
Total operating expenses	58,090		46,611		111,160		92,536
Income from operations	13,427		17,081		30,325		32,992
Other income (expenses)
Interest expense	(3,677)		(2,864)		(7,364)		(5,468)
Interest income	90		112		181		218
Non-operating gains, net	—		—		—		84
Income before income taxes	9,840		14,329		23,142		27,826
Income tax expense	2,147		3,356		5,178		6,289
Net income	7,693		10,973		17,964		21,537
Net loss (income) attributable to noncontrolling interests	39		(21)		6		(10)
Net income attributable to RCIHH common shareholders	$	7,732	$	10,952	$	17,970	$	21,527
Earnings per share
Basic and diluted	$	0.83	$	1.15	$	1.94	$	2.28
Weighted average shares used in computing earnings per share
Basic and diluted	9,265,781		9,489,085		9,247,824		9,447,854
Dividends per share	$	0.06	$	0.05	$	0.11	$	0.09

See accompanying notes to unaudited condensed consolidated financial statements.

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RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in thousands, except number of shares)

(unaudited)

	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Noncontrolling Interests		Total Equity
	Number of Shares	Amount						Number of Shares	Amount
Balance at September 30, 2022	9,231,725	$	92	$	67,227	$	173,950	—	$	—	$	489	$	241,758
Purchase of treasury shares	—	—		—		—		(1,500)	(98)		—		(98)
Canceled treasury shares	(1,500)	—		(98)		—		1,500	98		—		—
Payment of dividends	—	—		—		(462)		—	—		—		(462)
Stock-based compensation	—	—		941		—		—	—		—		941
Share in return of investment by noncontrolling partner	—	—		—		—		—	—		(600)		(600)
Net income	—	—		—		10,238		—	—		33		10,271
Balance at December 31, 2022	9,230,225	92		68,070		183,726		—	—		(78)		251,810
Issuance of common shares for business combination	200,000	2		16,306		—		—	—		—		16,308
Payment of dividends	—	—		—		(553)		—	—		—		(553)
Stock-based compensation	—	—		706		—		—	—		—		706
Net income (loss)	—	—		—		7,732		—	—		(39)		7,693
Balance at March 31, 2023	9,430,225	$	94	$	85,082	$	190,905	—	$	—	$	(117)	$	275,964
Balance at September 30, 2021	8,999,910	$	90	$	50,040	$	129,693	—	$	—	$	(600)	$	179,223
Issuance of common shares for business combination	500,000	5		30,357		—		—	—		—		30,362
Payment of dividends	—	—		—		(380)		—	—		—		(380)
Net income (loss)	—	—		—		10,575		—	—		(11)		10,564
Balance at December 31, 2021	9,499,910	95		80,397		139,888		—	—		(611)		219,769
Purchase of treasury shares	—	—		—		—		(45,643)	(2,845)		—		(2,845)
Canceled treasury shares	(45,643)	(1)		(2,844)		—		45,643	2,845		—		—
Payment of dividends	—	—		—		(474)		—	—		—		(474)
Net income	—	—		—		10,952		—	—		21		10,973
Balance at March 31, 2022	9,454,267	$	94	$	77,553	$	150,366	—	$	—	$	(590)	$	227,423

See accompanying notes to unaudited condensed consolidated financial statements.

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RCI HOSPITALITY HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except number of shares)

(unaudited)

	For the Six Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	17,964	$	21,537
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,067		5,071
Impairment of assets	662		—
Stock-based compensation	1,647		—
Gain on sale of businesses and assets	(689)		(708)
Unrealized loss on equity securities	—		1
Amortization of debt discount and issuance costs	291		136
Gain on debt extinguishment	—		(83)
Noncash lease expense	1,463		1,238
Gain on insurance	(91)		(321)
Doubtful accounts expense on notes receivable	—		53
Changes in operating assets and liabilities:
Accounts receivable	708		1,065
Inventories	79		(276)
Prepaid expenses, other current and other assets	(5,705)		(5,360)
Accounts payable, accrued and other liabilities	8,288		5,508
Net cash provided by operating activities	31,684		27,861
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of businesses and assets	2,810		2,910
Proceeds from insurance	91		485
Proceeds from notes receivable	113		82
Payments for property and equipment and intangible assets	(20,890)		(13,990)
Acquisition of businesses, net of cash acquired	(30,200)		(39,302)
Net cash used in investing activities	(48,076)		(49,815)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt obligations, including related party proceeds of $0 and $650, respectively	11,595		35,742
Payments on debt obligations	(6,481)		(7,290)
Purchase of treasury stock	(98)		(2,845)
Payment of dividends	(1,015)		(854)
Payment of loan origination costs	(205)		(418)
Share in return of investment by noncontrolling partner	(600)		—
Net cash provided by financing activities	3,196		24,335
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(13,196)		2,381
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	35,980		35,686
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	22,784	$	38,067
CASH PAID DURING PERIOD FOR:
Interest	$	6,874	$	5,064
Income taxes	$	5,605	$	4,008

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Noncash investing and financing transactions:
Debt incurred in connection with acquisition of businesses	$	32,405	$	22,200
Debt incurred in connection with purchase of property and equipment	$	5,584	$	2,625
Note receivable from sale of property	$	—	$	2,700
Issuance of shares of common stock for acquisition of businesses:
Number of shares	200,000		500,000
Fair value	$	16,308	$	30,362
Adjustment to operating lease right-of-use assets related to new and renewed leases	$	1,659	$	19,187
Adjustment to operating lease liabilities related to new and renewed leases	$	1,958	$	19,187
Unpaid liabilities on capital expenditures	$	3,045	$	1,201

See accompanying notes to unaudited condensed consolidated financial statements.

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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 “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, 2022 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended September 30, 2022 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on December 14, 2022. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the six months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.

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

2. Recent Accounting Standards and Pronouncements

In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU amends ASC 805 to require acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in business combinations. The ASU is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are still evaluating the impact of this ASU but we do not expect it to have a material impact on our consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments of this ASU clarify that an entity should measure the fair value of an equity security subject to contractual sale restriction the same way it measures an identical equity security that is not subject to such a restriction. The FASB said the contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, should not affect its fair value. The ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. We are still evaluating the impact of this ASU on our consolidated financial statements.

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

3. Current Operating Environment

Our fiscal 2020 was the period hardest hit by the COVID-19 pandemic caused by significant reduction in customer traffic in our clubs and restaurants due to changes in consumer behavior as social distancing practices, dining room closures and other restrictions were mandated or encouraged by federal, state and local governments. In fiscal 2021, our businesses started to recover from the initial effects of the pandemic when government restrictions eased. Stimulus money also flowed to the economy at that time which prompted increased discretionary spending. In fiscal 2022, several coronavirus variants

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RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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

4. Acquisitions and Dispositions

Lubbock Property

On October 10, 2022, the Company purchased real estate in Lubbock, Texas amounting to $3.4 million for a future Bombshells location. The Company paid $1.1 million in cash at closing and obtained bank financing for the $2.3 million remainder (see Note 7). The site includes extra land that will be listed for sale once the Bombshells unit is completed.

Non-Income-Producing Properties

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

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

Heartbreakers Gentlemen's Club

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

The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of October 26, 2022:

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

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

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RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In connection with this acquisition, we incurred approximately $0 and $23,000 in acquisition-related expenses during the three and six months ended March 31, 2023, respectively, which is included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income. From the date of acquisition until March 31, 2023, the club contributed revenues of $554,000 and $901,000 and income from operations of $103,000 and $160,000 during the three and six months ended March 31, 2023, respectively, which are included in our unaudited condensed consolidated statements of income. The seller has not maintained historical U.S. GAAP financial data and it is impracticable to prepare them, therefore, we could not provide supplemental pro forma information of the combined entities.

Aurora CO Property

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

Central City CO Casino Property 1

On December 5, 2022, the Company purchased real estate in Central City, Colorado amounting to $2.4 million in cash for the development of a Rick's Cabaret Steakhouse and Casino business.

Mark IV Property

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

Grange Food Hall

On December 20, 2022, the Company purchased a food hall property in Greenwood Village, Colorado for $5.3 million, including direct transaction costs and net of certain accrued taxes amounting to $102,000. The purchase price was paid $1.9 million in cash at closing and $3.325 million under a 6.67% five-year promissory note (see Note 7). The Company allocated $2.1 million to land, $2.6 million to building improvements, $98,000 to furniture, fixtures and equipment, and $565,000 to in-place leases based on their relative fair values.

Tomball Parkway Property Sale

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

Central City CO Casino Property 2

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

Bombshells San Antonio

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

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RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Baby Dolls-Chicas Locas

On March 16, 2023, the Company and certain of its subsidiaries completed the acquisition of five gentlemen's clubs, five related real estate properties, associated intellectual properties, and certain automated teller machines for a total purchase price of $66.5 million, payable with a total of $25.0 million in cash, a total of $25.5 million in 10-year 7% seller financing promissory notes, and 200,000 restricted shares of common stock based on an $80 per share price, subject to lock-up, leak out restrictions. The cash consideration at closing was partially funded by the $10.0 million line of credit secured by the Company on March 9, 2023 (see Note 7). The five clubs, which are all located in Texas, were purchased through four different asset purchase agreements and one stock purchase agreement, under each of which a newly formed wholly-owned subsidiary of the Company acquired from each club-owning entity all of the tangible and intangible assets and personal property used in the business of that club, except for certain excluded assets. As of the filing of this report, we have not completed our valuation analysis and related calculations in sufficient detail necessary to arrive at the fair values of the net assets acquired and the debt and stock consideration, but we have preliminarily allocated the acquisition price as follows based on negotiated purchase price: $632,000 to current assets, $41.6 million to property and equipment, $11.2 million to identifiable intangibles, $632,000 to accounts payable, and $14.0 million to goodwill.

In connection with this acquisition, we incurred approximately $280,000 and $292,000 in acquisition-related expenses during the three and six months ended March 31, 2023, respectively, which is included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income. From the date of acquisition until March 31, 2023, the clubs contributed revenues of $1.2 million and $1.2 million and loss from operations of $154,000 and $154,000 during the three and six months ended March 31, 2023, respectively, which are included in our unaudited condensed consolidated statements of income. The following table presents the unaudited pro forma combined results of operations of the Company and the five acquired clubs and related assets as though the acquisition occurred at the beginning of fiscal 2022 (in thousands, except per share amount and number of shares):

	For the Three Months Ended March 31,				For the Six Months Ended March 31,
	2023		2022		2023		2022
Pro forma revenues	$	77,292	$	69,256	$	154,424	$	137,029
Pro forma net income attributable to RCIHH common stockholders	$	8,303	$	12,444	$	17,213	$	24,849
Pro forma earnings per share - basic and diluted	$	0.88	$	1.28	$	1.83	$	2.58
Pro forma weighted average shares used in computing earnings per share - basic and diluted	9,430,225		9,689,085		9,430,241		9,647,854

The above unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2022. The unaudited pro forma financial information reflects material, nonrecurring adjustments directly attributable to the acquisition including acquisition-related expenses, interest expense, and any related tax effects. Since we do not yet have a final valuation of the assets that we acquired and the liabilities that we assumed, the unaudited pro forma financial information does not include adjustments related to changes in recognized expenses caused by the fair value of assets acquired, such as depreciation and amortization and related tax effects. Pro forma net income and pro forma earnings per share include the impact of acquisition-related expenses and interest expense related to the $10.0 million line-of-credit facility (see Note 7) and the nine seller-financed notes in the acquisition as if they were incurred as of the first day of fiscal 2022. Pro forma weighted average number of common shares outstanding includes the impact of 200,000 shares of our common stock issued as partial consideration for the acquisition.

13

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Revenues

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

	Three Months Ended March 31, 2023									Three Months Ended March 31, 2022
	Nightclubs			Bombshells		Other		Total		Nightclubs			Bombshells		Other		Total
Sales of alcoholic beverages	$	22,191		$	7,945	$	—	$	30,136	$	18,673		$	8,662	$	—	$	27,335
Sales of food and merchandise	4,823			6,182		—		11,005		4,498			6,662		—		11,160
Service revenues	25,686			4		—		25,690		21,501			—		—		21,501
Other revenues	4,331			184		171		4,686		3,502			9		185		3,696
	$	57,031		$	14,315	$	171	$	71,517	$	48,174		$	15,333	$	185	$	63,692
Recognized at a point in time	$	56,577		$	14,274	$	127	$	70,978	$	47,722		$	15,332	$	185	$	63,239
Recognized over time	454		*	41		44		539		452		*	1		—		453
	$	57,031		$	14,315	$	171	$	71,517	$	48,174		$	15,333	$	185	$	63,692
	Six Months Ended March 31, 2023									Six Months Ended March 31, 2022
	Nightclubs			Bombshells		Other		Total		Nightclubs			Bombshells		Other		Total
Sales of alcoholic beverages	$	44,289		$	15,497	$	—	$	59,786	$	36,840		$	16,926	$	—	$	53,766
Sales of food and merchandise	9,417			11,935		—		21,352		9,087			12,967		—		22,054
Service revenues	51,219			34		—		51,253		42,185			192		—		42,377
Other revenues	8,431			280		383		9,094		6,843			19		469		7,331
	$	113,356		$	27,746	$	383	$	141,485	$	94,955		$	30,104	$	469	$	125,528
Recognized at a point in time	$	112,495		$	27,702	$	338	$	140,535	$	94,066		$	30,102	$	468	$	124,636
Recognized over time	861		*	44		45		950		889		*	2		1		892
	$	113,356		$	27,746	$	383	$	141,485	$	94,955		$	30,104	$	469	$	125,528

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

The Company does not have contract assets with customers. The Company’s unconditional right to 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, 2022		Net Consideration Received (Refunded)		Recognized in Revenue		Balance at March 31, 2023
Ad revenue	$	82	$	284	$	(239)	$	127
Expo revenue	8		405		—		413
Franchise fees and other	144		(12)		(44)		88
	$	234	$	677	$	(283)	$	628

14

RCI HOSPITALITY HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

6. Selected Account Information

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

	March 31, 2023		September 30, 2022
Credit card receivables	$	2,768	$	2,687
Income tax refundable	1,773		2,979
ATM in-transit	1,006		819
Other (net of allowance for doubtful accounts of $85 and $30, respectively)	1,208		2,025
Total accounts receivable, net	$	6,755	$	8,510

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

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

	March 31, 2023		September 30, 2022
Prepaid insurance	$	4,960	$	191
Prepaid legal	32		61
Prepaid taxes and licenses	689		391
Prepaid rent	150		296
Other	1,039		560
Total prepaid expenses and other current assets	$	6,870	$	1,499

A reconciliation of goodwill as of March 31, 2023 and September 30, 2022, which is substantially all in Nightclubs segment, is as follows (in thousands):