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Table of Contents

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, 2025
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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer x 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 9, 2025, 8,798,250 shares of the registrant’s common stock were outstanding.

Table of Contents
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 we operate, (iii) the success or lack thereof in launching and building our businesses, (iv) cyber security, (v) conditions relevant to real estate transactions, and (vi) 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 Statements of Cash Flows (unaudited) for the six months ended March 31, 202 5, and 202 4 | 4
| Condensed Consolidated Statements of Income (unaudited) for the three and six months ended March 31, 202 5, and 202 4 | 5
| Condensed Consolidated Statements of Changes in Equity (unaudited) for the three and six months ended March 31, 202 5, and 202 4 | 6
| Condensed Consolidated Balance Sheets as of March 31, 202 5, (unaudited) and September 30, 2024 | 7
| Notes to Condensed Consolidated Financial Statements (unaudited) | 8
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 40
Item 4. | Controls and Procedures | 40
PART II | OTHER INFORMATION |
Item 1. | Legal Proceedings | 42
Item1A. | Risk Factors | 42
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42
Item 6. | Exhibits | 43
| Signatures | 44

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PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
RCI HOSPITALITY HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

| Six Months Ended March 31,
| 2025 |  | 2024
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |
Net income | $ | 12,259 |  |  | $ | 7,993 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization | 7,345 |  |  | 7,737 |
Impairment of assets | 1,780 |  |  | 8,033 |
Deferred income tax benefit | (1,242) |  |  | (1,911) |
Stock-based compensation | 588 |  |  | 941 |
Loss (gain) on sale of businesses and assets | (1,248) |  |  | 37 |
Amortization of debt discount and issuance costs | 290 |  |  | 312 |
Noncash lease expense | 1,326 |  |  | 1,535 |
Gain on insurance | (1,150) |  |  | — |
Doubtful accounts expense on notes receivable | — |  |  | 22 |
Changes in operating assets and liabilities, net of business acquisitions: |  |  |
Receivables | 1,714 |  |  | 1,067 |
Inventories | 64 |  |  | (142) |
Prepaid expenses, other current, and other assets | (530) |  |  | (6,420) |
Accounts payable, accrued, and other liabilities | 695 |  |  | 5,265 |
Net cash provided by operating activities | 21,891 |  |  | 24,469 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |
Proceeds from sale of businesses and assets | 1,085 |  |  | — |
Proceeds from insurance | 1,150 |  |  | — |
Proceeds from notes receivable | 147 |  |  | 116 |
Payments for property and equipment and intangible assets | (8,608) |  |  | (12,802) |
Acquisition of businesses, net of cash acquired | (6,000) |  |  | — |
Net cash used in investing activities | (12,226) |  |  | (12,686) |
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |
Proceeds from debt obligations | 8,396 |  |  | 2,657 |
Payments on debt obligations | (10,321) |  |  | (10,630) |
Purchase of treasury stock | (6,114) |  |  | (3,602) |
Payment of dividends | (1,242) |  |  | (1,122) |
Payment of loan origination costs | (71) |  |  | (136) |
Net cash used in financing activities | (9,352) |  |  | (12,833) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 313 |  |  | (1,050) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 32,350 |  |  | 21,023 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 32,663 |  |  | $ | 19,973 |

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)

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Revenues |  |  |  |  |  |  |
Sales of alcoholic beverages | $ | 28,866 |  |  | $ | 32,907 |  |  | $ | 61,054 |  |  | $ | 66,223 |
Sales of food and merchandise | 9,411 |  |  | 11,068 |  |  | 19,517 |  |  | 21,870 |
Service revenues | 22,912 |  |  | 23,564 |  |  | 47,093 |  |  | 48,683 |
Other | 4,687 |  |  | 4,744 |  |  | 9,695 |  |  | 9,414 |
Total revenues | 65,876 |  |  | 72,283 |  |  | 137,359 |  |  | 146,190 |
Operating expenses |  |  |  |  |  |  |
Cost of goods sold |  |  |  |  |  |  |
Alcoholic beverages sold | 5,204 |  |  | 5,891 |  |  | 11,050 |  |  | 12,172 |
Food and merchandise sold | 3,182 |  |  | 3,993 |  |  | 6,745 |  |  | 8,031 |
Service and other | 25 |  |  | 35 |  |  | 97 |  |  | 75 |
Total cost of goods sold (exclusive of items shown separately below) | 8,411 |  |  | 9,919 |  |  | 17,892 |  |  | 20,278 |
Salaries and wages | 20,491 |  |  | 20,975 |  |  | 41,055 |  |  | 42,307 |
Selling, general and administrative | 22,900 |  |  | 24,653 |  |  | 49,107 |  |  | 49,854 |
Depreciation and amortization | 3,776 |  |  | 3,884 |  |  | 7,345 |  |  | 7,737 |
Impairments and other charges (gains), net | 2,127 |  |  | 8,195 |  |  | (117) |  |  | 8,192 |
Total operating expenses | 57,705 |  |  | 67,626 |  |  | 115,282 |  |  | 128,368 |
Income from operations | 8,171 |  |  | 4,657 |  |  | 22,077 |  |  | 17,822 |
Other income (expenses) |  |  |  |  |  |  |
Interest expense | (4,048) |  |  | (3,999) |  |  | (8,200) |  |  | (8,215) |
Interest income | 139 |  |  | 96 |  |  | 318 |  |  | 190 |
Gain on lease termination | — |  |  | — |  |  | 979 |  |  | — |
Income before income taxes | 4,262 |  |  | 754 |  |  | 15,174 |  |  | 9,797 |
Income tax expense | 1,068 |  |  | 5 |  |  | 2,915 |  |  | 1,804 |
Net income | 3,194 |  |  | 749 |  |  | 12,259 |  |  | 7,993 |
Net loss (income) attributable to noncontrolling interests | 37 |  |  | 25 |  |  | (4) |  |  | 7 |
Net income attributable to RCIHH common stockholders | $ | 3,231 |  |  | $ | 774 |  |  | $ | 12,255 |  |  | $ | 8,000 |
Earnings per share |  |  |  |  |  |  |
Basic and diluted | $ | 0.36 |  |  | $ | 0.08 |  |  | $ | 1.38 |  |  | $ | 0.85 |
Weighted average shares used in computing earnings per share |  |  |  |  |  |  |
Basic and diluted | 8,861,854 |  |  | 9,350,292 |  |  | 8,891,638 |  |  | 9,358,768 |

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, 2024 | 8,955,000 |  |  | $ | 90 |  |  | $ | 61,511 |  |  | $ | 201,759 |  |  | — |  |  | $ | — |  |  | $ | (250) |  |  | $ | 263,110 |
Purchase of treasury shares | — |  |  | — |  |  | — |  |  | — |  |  | (66,000) |  |  | (3,218) |  |  | — |  |  | (3,218) |
Canceled treasury shares | (66,000) |  |  | (1) |  |  | (3,217) |  |  | — |  |  | 66,000 |  |  | 3,218 |  |  | — |  |  | — |
Excise tax on stock repurchases | — |  |  | — |  |  | (33) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (33) |
Payment of dividends ($0.07 per share) | — |  |  | — |  |  | — |  |  | (623) |  |  | — |  |  | — |  |  | — |  |  | (623) |
Stock-based compensation | — |  |  | — |  |  | 470 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 470 |
Net income | — |  |  | — |  |  | — |  |  | 9,024 |  |  | — |  |  | — |  |  | 41 |  |  | 9,065 |
Balance at December 31, 2024 | 8,889,000 |  |  | 89 |  |  | 58,731 |  |  | 210,160 |  |  | — |  |  | — |  |  | (209) |  |  | 268,771 |
Purchase of treasury shares | — |  |  | — |  |  | — |  |  | — |  |  | (56,875) |  |  | (2,896) |  |  | — |  |  | (2,896) |
Canceled treasury shares | (56,875) |  |  | (1) |  |  | (2,895) |  |  | — |  |  | 56,875 |  |  | 2,896 |  |  | — |  |  | — |
Excise tax on stock repurchases | — |  |  | — |  |  | (29) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (29) |
Payment of dividends ($0.07 per share) | — |  |  | — |  |  | — |  |  | (619) |  |  | — |  |  | — |  |  | — |  |  | (619) |
Stock-based compensation | — |  |  | — |  |  | 118 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 118 |
Net income (loss) | — |  |  | — |  |  | — |  |  | 3,231 |  |  | — |  |  | — |  |  | (37) |  |  | 3,194 |
Balance at March 31, 2025 | 8,832,125 |  |  | $ | 88 |  |  | $ | 55,925 |  |  | $ | 212,772 |  |  | — |  |  | $ | — |  |  | $ | (246) |  |  | $ | 268,539 |
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 |
Purchase of treasury shares | — |  |  | — |  |  | — |  |  | — |  |  | (27,265) |  |  | (1,530) |  |  | — |  |  | (1,530) |
Canceled treasury shares | (27,265) |  |  | (1) |  |  | (1,529) |  |  | — |  |  | 27,265 |  |  | 1,530 |  |  | — |  |  | — |
Excise tax on stock repurchases | — |  |  | — |  |  | (15) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (15) |
Payment of dividends ($0.06 per share) | — |  |  | — |  |  | — |  |  | (560) |  |  | — |  |  | — |  |  | — |  |  | (560) |
Stock-based compensation | — |  |  | — |  |  | 471 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 471 |
Net income (loss) | — |  |  | — |  |  | — |  |  | 774 |  |  | — |  |  | — |  |  | (25) |  |  | 749 |
Balance at March 31, 2024 | 9,332,420 |  |  | $ | 93 |  |  | $ | 77,742 |  |  | $ | 207,928 |  |  | — |  |  | $ | — |  |  | $ | (264) |  |  | $ | 285,499 |

See accompanying notes to unaudited condensed consolidated 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, 2025 |  | September 30, 2024
| (unaudited) |  |
ASSETS |  |  |
Current assets |  |  |
Cash and cash equivalents | $ | 32,663 |  |  | $ | 32,350 |
Receivables, net | 4,174 |  |  | 5,832 |
Inventories | 4,645 |  |  | 4,676 |
Prepaid expenses and other current assets | 4,071 |  |  | 4,427 |
Total current assets | 45,553 |  |  | 47,285 |
Property and equipment, net | 283,442 |  |  | 280,075 |
Operating lease right-of-use assets, net | 24,905 |  |  | 26,231 |
Notes receivable, net of current portion | 4,031 |  |  | 4,174 |
Goodwill | 62,524 |  |  | 61,911 |
Intangibles, net | 167,383 |  |  | 163,461 |
Other assets | 1,918 |  |  | 1,227 |
Total assets | $ | 589,756 |  |  | $ | 584,364 |
LIABILITIES AND EQUITY |  |  |
Current liabilities |  |  |
Accounts payable | $ | 5,652 |  |  | $ | 5,637 |
Accrued liabilities | 18,161 |  |  | 20,280 |
Current portion of debt obligations, net | 19,737 |  |  | 18,871 |
Current portion of operating lease liabilities | 3,073 |  |  | 3,290 |
Total current liabilities | 46,623 |  |  | 48,078 |
Deferred tax liability, net | 21,451 |  |  | 22,693 |
Debt, net of current portion and debt discount and issuance costs | 221,725 |  |  | 219,326 |
Operating lease liabilities, net of current portion | 26,677 |  |  | 30,759 |
Other long-term liabilities | 4,741 |  |  | 398 |
Total liabilities | 321,217 |  |  | 321,254 |
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; 8,832,125 and 8,955,000 shares issued and outstanding as of March 31, 2025, and September 30, 2024, respectively | 88 |  |  | 90 |
Additional paid-in capital | 55,925 |  |  | 61,511 |
Retained earnings | 212,772 |  |  | 201,759 |
Total RCIHH stockholders’ equity | 268,785 |  |  | 263,360 |
Noncontrolling interests | (246) |  |  | (250) |
Total equity | 268,539 |  |  | 263,110 |
Total liabilities and equity | $ | 589,756 |  |  | $ | 584,364 |

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 consolidated balance sheet data as of September 30, 2024, 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, 2024, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on December 16, 2024. 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, 2025, are not necessarily indicative of the results that may be expected for the year ending September 30, 2025.
2. Recent Accounting Standards and Pronouncements
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that an entity should measure the fair value of an equity security subject to contractual sale restriction the same way it measures an identical equity security that is not subject to such a restriction. The FASB said the contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, should not affect its fair value. The ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2022-03 on October 1, 2024. Our adoption of this ASU did not have a significant 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 adopted ASU 2023-01 on October 1, 2024. Our adoption of this ASU did not have a significant impact on our consolidated financial statements.
In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, which addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture's separate financial statements. The objectives of the ASU are to (1) provide decision-useful information to investors and other allocators of capital in a joint venture's financial statements and (2) reduce diversity in practice. The FASB decided to require a joint venture to apply a new basis of accounting upon formation that will recognize 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 this ASU are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. Additionally, a joint venture that was formed before January 1, 2025 may elect to apply the amendments retrospectively if it has sufficient information. early adoptions is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. We adopted the provisions of ASU 2023-05 on October 1, 2024, and will apply them on future joint ventures.
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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Recent Accounting Standards and Pronouncements—continued
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 reportable segment, and contain other disclosure requirements. The purpose of the amendments is to 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 ASC 280, and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are evaluating the impact of this ASU on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): 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 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 the ASU are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early 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.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which expands disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated statements of income in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, as clarified by ASU 2025-01, with early adoption permitted. The amendments in this ASU should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of the ASU or (2) retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the impact of this guidance on our financial statement disclosures.
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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 March 31, 2025 |  | Three Months Ended March 31, 2024
| Nightclubs |  | Bombshells |  | Other |  | Total |  | Nightclubs |  | Bombshells |  | Other |  | Total
Sales of alcoholic beverages | $ | 24,575 |  |  | $ | 4,291 |  |  | $ | — |  |  | $ | 28,866 |  |  | $ | 25,946 |  |  | $ | 6,961 |  |  | $ | — |  |  | $ | 32,907 |
Sales of food and merchandise | 5,519 |  |  | 3,892 |  |  | — |  |  | 9,411 |  |  | 5,346 |  |  | 5,722 |  |  | — |  |  | 11,068 |
Service revenues | 22,870 |  |  | 42 |  |  | — |  |  | 22,912 |  |  | 23,562 |  |  | 2 |  |  | — |  |  | 23,564 |
Other revenues | 4,577 |  |  | 4 |  |  | 106 |  |  | 4,687 |  |  | 4,518 |  |  | 86 |  |  | 140 |  |  | 4,744 |
| $ | 57,541 |  |  | $ | 8,229 |  |  | $ | 106 |  |  | $ | 65,876 |  |  | $ | 59,372 |  |  | $ | 12,771 |  |  | $ | 140 |  |  | $ | 72,283 |
Recognized at a point in time | $ | 57,129 |  |  | $ | 8,228 |  |  | $ | 106 |  |  | $ | 65,463 |  |  | $ | 58,949 |  |  | $ | 12,770 |  |  | $ | 140 |  |  | $ | 71,859 |
Recognized over time | 412 |  | * | 1 |  |  | — |  |  | 413 |  |  | 423 |  | * | 1 |  |  | — |  |  | 424 |
| $ | 57,541 |  |  | $ | 8,229 |  |  | $ | 106 |  |  | $ | 65,876 |  |  | $ | 59,372 |  |  | $ | 12,771 |  |  | $ | 140 |  |  | $ | 72,283 |

| Six Months Ended March 31, 2025 |  | Six Months Ended March 31, 2024
| Nightclubs |  | Bombshells |  | Other |  | Total |  | Nightclubs |  | Bombshells |  | Other |  | Total
Sales of alcoholic beverages | $ | 51,610 |  |  | $ | 9,444 |  |  | $ | — |  |  | $ | 61,054 |  |  | $ | 52,182 |  |  | $ | 14,041 |  |  | $ | — |  |  | $ | 66,223 |
Sales of food and merchandise | 11,255 |  |  | 8,262 |  |  | — |  |  | 19,517 |  |  | 10,586 |  |  | 11,284 |  |  | — |  |  | 21,870 |
Service revenues | 47,048 |  |  | 45 |  |  | — |  |  | 47,093 |  |  | 48,681 |  |  | 2 |  |  | — |  |  | 48,683 |
Other revenues | 9,352 |  |  | 65 |  |  | 278 |  |  | 9,695 |  |  | 8,956 |  |  | 175 |  |  | 283 |  |  | 9,414 |
| $ | 119,265 |  |  | $ | 17,816 |  |  | $ | 278 |  |  | $ | 137,359 |  |  | $ | 120,405 |  |  | $ | 25,502 |  |  | $ | 283 |  |  | $ | 146,190 |
Recognized at a point in time | $ | 118,440 |  |  | $ | 17,814 |  |  | $ | 278 |  |  | $ | 136,532 |  |  | $ | 119,549 |  |  | $ | 25,500 |  |  | $ | 283 |  |  | $ | 145,332 |
Recognized over time | 825 |  | * | 2 |  |  | — |  |  | 827 |  |  | 856 |  | * | 2 |  |  | — |  |  | 858 |
| $ | 119,265 |  |  | $ | 17,816 |  |  | $ | 278 |  |  | $ | 137,359 |  |  | $ | 120,405 |  |  | $ | 25,502 |  |  | $ | 283 |  |  | $ | 146,190 |

* Lease revenue (included in Other Revenues) as covered by ASC 842. All other revenues are covered by ASC 606.
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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Revenues—continued
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, 2024 |  | Net Consideration Received |  | Recognized in Revenue |  | Balance at March 31, 2025
Ad revenue | $ | 31 |  |  | $ | 247 |  |  | $ | (185) |  |  | $ | 93 |
Expo revenue | 1 |  |  | 234 |  |  | — |  |  | 235 |
Franchise fees and other | 67 |  |  | 33 |  |  | (3) |  |  | 97 |
| $ | 99 |  |  | $ | 514 |  |  | $ | (188) |  |  | $ | 425 |

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.
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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):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Revenues (from external customers) |  |  |  |  |  |  |
Nightclubs | $ | 57,541 |  |  | $ | 59,372 |  |  | $ | 119,265 |  |  | $ | 120,405 |
Bombshells | 8,229 |  |  | 12,771 |  |  | 17,816 |  |  | 25,502 |
Other | 106 |  |  | 140 |  |  | 278 |  |  | 283 |
| $ | 65,876 |  |  | $ | 72,283 |  |  | $ | 137,359 |  |  | $ | 146,190 |
Income (loss) from operations |  |  |  |  |  |  |
Nightclubs | $ | 14,603 |  |  | $ | 11,021 |  |  | $ | 35,485 |  |  | $ | 31,390 |
Bombshells | (227) |  |  | 699 |  |  | 1,744 |  |  | 785 |
Other | (680) |  |  | (277) |  |  | (851) |  |  | (473) |
Corporate | (5,525) |  |  | (6,786) |  |  | (14,301) |  |  | (13,880) |
| $ | 8,171 |  |  | $ | 4,657 |  |  | $ | 22,077 |  |  | $ | 17,822 |
Depreciation and amortization |  |  |  |  |  |  |
Nightclubs | $ | 3,158 |  |  | $ | 2,927 |  |  | $ | 6,129 |  |  | $ | 5,832 |
Bombshells | 339 |  |  | 650 |  |  | 659 |  |  | 1,293 |
Other | 14 |  |  | 2 |  |  | 27 |  |  | 4 |
Corporate | 265 |  |  | 305 |  |  | 530 |  |  | 608 |
| $ | 3,776 |  |  | $ | 3,884 |  |  | $ | 7,345 |  |  | $ | 7,737 |
Capital expenditures |  |  |  |  |  |  |
Nightclubs | $ | 692 |  |  | $ | 2,699 |  |  | $ | 2,246 |  |  | $ | 4,231 |
Bombshells | 1,727 |  |  | 1,535 |  |  | 5,646 |  |  | 3,443 |
Other | 352 |  |  | 2,205 |  |  | 437 |  |  | 3,703 |
Corporate | 83 |  |  | 1,228 |  |  | 279 |  |  | 1,425 |
| $ | 2,854 |  |  | $ | 7,667 |  |  | $ | 8,608 |  |  | $ | 12,802 |

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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Segment Information—continued

| March 31, 2025 |  | September 30, 2024
Total assets |  |  |
Nightclubs | $ | 462,985 |  |  | $ | 454,892 |
Bombshells | 75,413 |  |  | 79,091 |
Other | 19,702 |  |  | 14,197 |
Corporate | 31,656 |  |  | 36,184 |
| $ | 589,756 |  |  | $ | 584,364 |

Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs, Other, and Corporate segments for the three months ended March 31, 2025, amounting to $4.9 million, $45,000, and $0, respectively, and for the six months ended March 31, 2025, amounting to $9.6 million, $45,000, and $385,000, respectively; and intercompany sales of Robust Energy Drink included in Other segment for the three and six months ended March 31, 2025, amounting to $65,000 and $137,000, respectively. Excluded from revenues in the table above are intercompany rental revenues of the Nightclubs, Other, and Corporate segments for the three months ended March 31, 2024, amounting to $4.6 million, $0, and $21,000, respectively, and for the six months ended March 31, 2024, amounting to $9.1 million, $0, and $248,000, respectively; and intercompany sales of Robust Energy Drink included in Other segment for the three and six months ended March 31, 2024, amounting to $89,000 and $128,000, 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 been subdivided and allocated to other future development or investment projects. Accordingly, those asset costs have been transferred out of the Bombshells segment.
5. Selected Account Information
The components of receivables, net are as follows (in thousands):

| March 31, 2025 |  | September 30, 2024
Credit card receivables | $ | 1,957 |  |  | $ | 2,056 |
Income tax refundable | — |  |  | 2,017 |
ATM in-transit | 888 |  |  | 877 |
Current portion of notes receivable | 325 |  |  | 269 |
Other (net of allowance for doubtful accounts of $70 and $42, respectively) | 1,004 |  |  | 613 |
Total receivables, net | $ | 4,174 |  |  | $ | 5,832 |

Notes receivable consist primarily of secured promissory notes executed between the Company and various buyers of our businesses and assets with interest rates ranging from 6% to 9% per annum and having original terms ranging from 1 to 20 years.
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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Selected Account Information—continued
The components of prepaid expenses and other current assets are as follows (in thousands):

| March 31, 2025 |  | September 30, 2024
Prepaid insurance | $ | 1,814 |  |  | $ | 2,792 |
Prepaid legal | 71 |  |  | 177 |
Prepaid taxes and licenses | 797 |  |  | 522 |
Prepaid rent | 516 |  |  | 322 |
Other | 873 |  |  | 614 |
Total prepaid expenses and other current assets | $ | 4,071 |  |  | $ | 4,427 |

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

| March 31, 2025 |  | September 30, 2024
Insurance | $ | 861 |  |  | $ | 2,390 |
Sales and liquor taxes | 2,455 |  |  | 2,440 |
Payroll and related costs | 4,772 |  |  | 4,676 |
Property taxes | 1,870 |  |  | 3,347 |
Interest | 588 |  |  | 568 |
Patron tax | 826 |  |  | 1,024 |
Unearned revenues | 425 |  |  | 99 |
Income taxes | 572 |  |  | — |
Lawsuit settlement | 2,050 |  |  | 1,985 |
Construction in progress | 740 |  |  | 1,012 |
Estimated self-insurance liability | 1,119 |  |  | — |
Other | 1,883 |  |  | 2,739 |
Total accrued liabilities | $ | 18,161 |  |  | $ | 20,280 |

The components of other long-term liabilities are as follows (in thousands):

| March 31, 2025 |  | September 30, 2024
Estimated self-insurance liability | $ | 4,348 |  |  | $ | — |
Other | 393 |  |  | 398 |
Total other long-term liabilities | $ | 4,741 |  |  | $ | 398 |

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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Selected Account Information—continued
The components of selling, general and administrative expenses are as follows (in thousands):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Taxes and permits | $ | 3,418 |  |  | $ | 3,967 |  |  | $ | 7,246 |  |  | $ | 8,009 |
Advertising and marketing | 2,601 |  |  | 2,993 |  |  | 5,563 |  |  | 6,467 |
Supplies and services | 2,468 |  |  | 2,736 |  |  | 4,956 |  |  | 5,431 |
Insurance | 2,823 |  |  | 3,265 |  |  | 8,106 |  |  | 6,580 |
Legal | 1,369 |  |  | 1,116 |  |  | 2,755 |  |  | 1,849 |
Lease | 1,537 |  |  | 1,785 |  |  | 3,139 |  |  | 3,609 |
Charge card fees | 1,650 |  |  | 1,682 |  |  | 3,398 |  |  | 3,414 |
Utilities | 1,508 |  |  | 1,462 |  |  | 2,879 |  |  | 2,947 |
Security | 1,018 |  |  | 1,287 |  |  | 2,102 |  |  | 2,698 |
Stock-based compensation | 118 |  |  | 471 |  |  | 588 |  |  | 941 |
Accounting and professional fees | 1,177 |  |  | 1,136 |  |  | 2,311 |  |  | 2,322 |
Repairs and maintenance | 1,288 |  |  | 1,114 |  |  | 2,491 |  |  | 2,213 |
Other | 1,925 |  |  | 1,639 |  |  | 3,573 |  |  | 3,374 |
Total selling, general and administrative expenses | $ | 22,900 |  |  | $ | 24,653 |  |  | $ | 49,107 |  |  | $ | 49,854 |

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

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Impairment of assets | $ | 1,780 |  |  | $ | 8,033 |  |  | $ | 1,780 |  |  | $ | 8,033 |
Settlement of lawsuits | 127 |  |  | 167 |  |  | 306 |  |  | 167 |
Loss (gain) on sale of businesses and assets | 220 |  |  | (5) |  |  | (1,186) |  |  | (8) |
Gain on insurance | — |  |  | — |  |  | (1,017) |  |  | — |
Total impairments and other charges (gains), net | $ | 2,127 |  |  | $ | 8,195 |  |  | $ | (117) |  |  | $ | 8,192 |

During the quarter ended March 31, 2025, we recorded $1.8 million in SOB license impairment related to four clubs. During the quarter ended March 31, 2024, we recorded $4.4 million in SOB license impairment related to four clubs, $2.9 million in goodwill impairment related to two clubs, and $693,000 in tradename impairment related to one club.
During the quarter ended December 31, 2024, we sold Bombshells Austin for a gain of $1.3 million. See Note 13.
During the quarter ended December 31, 2024, we received insurance recovery amounting to $1.15 million for a club razed by fire in a prior period.
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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Debt
On November 26, 2024, the Company converted a bank loan secured on October 10, 2022 to purchase real property into a construction loan with the same bank lender. The old loan had a remaining principal balance of $2.4 million. The new construction loan has maximum principal limit of $6.3 million and has a term of 204 months. The loan bears an interest rate of 6.99% per annum for the first five years after which will adjust annually to a new rate equal to the then-current Wall Street Journal Prime Rate plus 0.25% per annum, with a floor of 6.99% per annum. The loan is payable interest-only during the first 24 months, then payable for the next 36 months in equal installments of $60,162 in principal and interest, after which will be payable based on the adjusted interest rate for the next 143 months, with the remaining principal and accrued interest payable at maturity. There are certain financial covenants with which the Company is to be in compliance related to this loan.
On January 21, 2025, in relation to a club acquisition (see Note 13), the Company executed a promissory note for $5.0 million with the seller. The 8% promissory note is payable 59 monthly installments of $67,718 in principal and interest, with the balance of principal and accrued interest payable at maturity.
On February 26, 2025, the Company extended its line-of-credit facility with a lender bank for a maximum availability of $5.0 million to mature on June 7, 2025. All other terms and conditions in the original line-of-credit remain unchanged.
Future maturities of debt obligations as of March 31, 2025, are as follows (in thousands):

| Regular Amortization |  | Balloon Payments |  | Total Payments
April 2025 - March 2026 | $ | 15,841 |  |  | $ | 4,400 |  |  | $ | 20,241 |
April 2026 - March 2027 | 15,049 |  |  | 11,376 |  |  | 26,425 |
April 2027 - March 2028 | 15,551 |  |  | 8,556 |  |  | 24,107 |
April 2028 - March 2029 | 15,938 |  |  | 2,651 |  |  | 18,589 |
April 2029 - March 2030 | 14,865 |  |  | 2,524 |  |  | 17,389 |
Thereafter | 52,013 |  |  | 85,365 |  |  | 137,378 |
| $ | 129,257 |  |  | $ | 114,872 |  |  | $ | 244,129 |

On April 7, 2025, in relation to a club acquisition (see Note 13), the Company executed a seller-financed promissory note for $2.5 million bearing an interest of 7% per annum. The promissory note matures in five years and is payable in equal monthly installments of $49,503 in principal and interest.
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 an exercise price not less than the fair market value of the common stock covered by the option on the grant date, and to make all determinations necessary or advisable under the 2022 Plan. On February 9, 2022, the board of directors approved a grant of 50,000 stock options each to six members of management subject to the approval of the 2022 Plan.
Stock-based compensation, which is included in corporate segment selling, general and administrative expenses amounted to $118,000 and $588,000 during the three and six months ended March 31, 2025, respectively, and $471,000 and $941,000 during the three and six months ended March 31, 2024, respectively. As of March 31, 2025, we had unrecognized compensation cost amounting to $1.4 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of 0.9 years.
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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 vested, at the end of five years. The weighted average grant-date fair value of the stock options was $31.37.
The following table summarizes information about stock option activity during the six months ended March 31, 2025, under the 2022 Plan:

| Number of Shares |  | Weighted-Average Exercise Price |  | Weighted-Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding at September 30, 2024 | 300,000 |  |  |  |  |  |  |
Granted | — |  |  |  |  |  |  |
Exercised | — |  |  |  |  |  |  |
Forfeited | (20,000) |  |  | $ | 100.00 |  |  |  |  |
Outstanding at March 31, 2025 | 280,000 |  |  | $ | 100.00 |  |  | 1.7 |  | $ | — |
Exercisable at March 31, 2025 | 230,000 |  |  | $ | 100.00 |  |  | 1.7 |  | $ | — |

For the three and six months ended March 31, 2025, and 2024, we excluded the impact of 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 tax expense was $1.1 million and $2.9 million during the three and six months ended March 31, 2025, respectively, and $5,000 and $1.8 million during the three and six months ended March 31, 2024, respectively. The effective income tax rate was 25.1% and 19.2% for the three and six months ended March 31, 2025, respectively, and 0.7% and 18.4% for the three and six months ended March 31, 2024, respectively. The disproportionate tax rates during the three months ended March 31, 2024, were caused by the small amount of pre-tax income during the quarter and the reduction of the then-expected annual effective tax rate. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, as presented below (dollars in thousands).

| Three Months Ended March 31, 2025 |  | Three Months Ended March 31, 2024
| Amount |  | % |  | Amount |  | %
Federal statutory income tax expense | $ | 895 |  |  | 21.0 | % |  | $ | 158 |  |  | 21.0 | %
State income taxes, net of federal benefit | 116 |  |  | 2.7 | % |  | 39 |  |  | 5.2 | %
Permanent differences | 20 |  |  | 0.5 | % |  | 36 |  |  | 4.8 | %
Tax credits | (209) |  |  | (4.9) | % |  | (228) |  |  | (30.2) | %
Other | 246 |  |  | 5.8 | % |  | — |  |  | — | %
Total income tax expense | $ | 1,068 |  |  | 25.1 | % |  | $ | 5 |  |  | 0.7 | %

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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Income Taxes—continued

| Six Months Ended March 31, 2025 |  | Six Months Ended March 31, 2024
| Amount |  | % |  | Amount |  | %
Federal statutory income tax expense | $ | 3,187 |  |  | 21.0 | % |  | $ | 2,057 |  |  | 21.0 | %
State income taxes, net of federal benefit | 416 |  |  | 2.7 | % |  | 349 |  |  | 3.6 | %
Permanent differences | 127 |  |  | 0.8 | % |  | 78 |  |  | 0.8 | %
Tax credits | (979) |  |  | (6.5) | % |  | (680) |  |  | (6.9) | %
Other | 164 |  |  | 1.1 | % |  | — |  |  | — | %
Total income tax expense | $ | 2,915 |  |  | 19.2 | % |  | $ | 1,804 |  |  | 18.4 | %

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. Fiscal year ended September 30, 2021, and subsequent years remain open to federal tax examination. The Company ordinarily goes through various federal and state reviews and examinations for various tax matters.
9. Commitments and Contingencies
Legal Matters
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 have been filed with the Receiver before the close of business on January 16, 2015 and that all pending lawsuits involving IIC as the insurer were further stayed or abated until October 7, 2014. As a result, the Company and its subsidiaries no longer had insurance coverage under the liability policy with IIC. 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. As of March 31, 2025, we have 1 remaining unresolved claim out of the original 71 claims.
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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Commitments and Contingencies—continued
Other
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 alleged that Mr. Panameno injured Mr. Dupray in a traffic accident after being served alcohol at an establishment operated by JAI Phoenix. The suit alleged that JAI Phoenix was 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 $4.0 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. In June 2018, the matter was heard by the Arizona Court of Appeals. On November 15, 2018 the Court of Appeals vacated the jury’s verdict and remanded the case to the trial court. A new trial has been set for June 2025. JAI Phoenix will continue to vigorously defend itself.
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 fiscal year ended September 30, 2023.
On or about May 29, 2024, search warrants were executed on the Company’s corporate headquarters in Houston, Texas, three separate clubs in New York, New York, and for the mobile phone of three individuals (including two executive officers and a non-executive corporate employee) by the New York State Attorney General (“NY AG”) and the New York State Department of Taxation and Finance (“NY DTF”). On June 7, 2024, the Company received a subpoena from the NY AG requesting documents and other information with respect to certain clubs in New York and Florida. The investigation appears to be related to the Company’s New York State tax filings and possible entertainment benefits provided to NY DTF personnel. The Company is cooperating with the NY AG and its investigation. As a result of this investigation, a non-executive corporate employee was placed on administrative leave during the pendency of an internal review process. It is not possible at this time to determine whether the Company will incur (or to reasonably estimate the amount of) any fines, penalties, or liabilities in connection with the investigation.
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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Commitments and Contingencies—continued
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 an admission of any liability on the part of the Company 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 reasonably possible liability. In matters where there is insurance coverage, in the event we incur any liability, we believe it is unlikely we would incur losses in connection with these claims in excess of our insurance coverage.
The Company recorded lawsuit settlements incurred amounting to $127,000 and $306,000 for the three and six months ended March 31, 2025, respectively, and $167,000 and $167,000 for the three and six months ended March 31, 2024, respectively. As of March 31, 2025, and September 30, 2024, the Company has accrued $2.1 million and $2.0 million, respectively, related to settlement of lawsuits, which is included in accrued liabilities in our unaudited condensed consolidated balance sheets.
Self-insurance Liability
In fiscal 2025, the Company started self-insuring a significant portion of expected losses under its general liability and liquor insurance programs due to increasingly prohibitive costs of such coverage from third-party insurers. The Company continues to purchase insurance for workers' compensation, property, auto, and business interruption, as well as the minimum insurance coverage where it is required by law for licensing requirements.
We record a liability for unresolved claims and for an estimate of incurred but not reported claims based on historical experience. The estimated liability is based on a number of assumptions and factors regarding economic conditions, the frequency and severity of claims development history, and settlement practices. Our assumptions are reviewed, monitored, and adjusted when warranted by changing circumstances. We recorded estimated self-insurance expense amounting to $4.1 million during the quarter ended December 31, 2024, and $1.4 million during the quarter ended March 31, 2025.
10. 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 March 31, 2025 and September 30, 2024, was $137.3 million and $135.3 million, respectively.
Included in the debt balance as of March 31, 2025, and September 30, 2024, are notes borrowed from related parties—one note for $500,000 (from 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 $3,974 and $6,754 during the three and six months ended March 31, 2025, respectively, and $202,700 and $344,798 during the three and six months ended March 31, 2024, respectively. As of March 31, 2025, and September 30, 2024, we owed Nottingham Creations and Sherwood Forest $3,312 and $18,700, respectively, in unpaid billings.
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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 2025 and 2024. 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 and six months ended March 31, 2025, respectively, and $0 and $0 for the three and six months ended March 31, 2024, respectively. Amounts billed directly to the Company were $681 and $1,401 for the three and six months ended March 31, 2025, respectively, and $228 and $3,160 for the three and six months ended March 31, 2024, respectively. As of March 31, 2025, and September 30, 2024, the Company owed TW Mechanical $227 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 and six months ended March 31, 2025, and 2024 is as follows (in thousands):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Operating lease expense – fixed payments | $ | 1,079 |  |  | $ | 1,292 |  |  | $ | 2,188 |  |  | $ | 2,584 |
Variable lease expense | 364 |  |  | 411 |  |  | 759 |  |  | 861 |
Short-term and other lease expense (includes $89 and $118 recorded in advertising and marketing for the three months ended March 31, 2025, and 2024, respectively, and $191 and $225 for the six months ended March 31, 2025, and 2024, respectively; and $133 and $147 recorded in repairs and maintenance for the three months ended March 31, 2025, and 2024, respectively, and $275 and $288 for the six months ended March 31, 2025, and 2024, respectively; see Note 5) | 316 |  |  | 347 |  |  | 658 |  |  | 677 |
Sublease income | — |  |  | — |  |  | — |  |  | — |
Total lease expense, net | $ | 1,759 |  |  | $ | 2,050 |  |  | $ | 3,605 |  |  | $ | 4,122 |
Other information: |  |  |  |  |  |  |
Operating cash outflows from operating leases | $ | 1,821 |  |  | $ | 2,016 |  |  | $ | 3,779 |  |  | $ | 4,049 |
Weighted average remaining lease term – operating leases |  |  |  |  | 9.3 years |  | 10.1 years
Weighted average discount rate – operating leases |  |  |  |  | 5.7 | % |  | 5.8 | %

Future maturities of operating lease liabilities as of March 31, 2025, are as follows (in thousands):

| Principal Payments |  | Interest Payments |  | Total Payments
April 2025 - March 2026 | $ | 3,073 |  |  | $ | 1,540 |  |  | $ | 4,613 |
April 2026 - March 2027 | 3,254 |  |  | 1,357 |  |  | 4,611 |
April 2027 - March 2028 | 2,860 |  |  | 1,175 |  |  | 4,035 |
April 2028 - March 2029 | 2,652 |  |  | 1,015 |  |  | 3,667 |
April 2029 - March 2030 | 2,476 |  |  | 858 |  |  | 3,334 |
Thereafter | 15,435 |  |  | 2,497 |  |  | 17,932 |
| $ | 29,750 |  |  | $ | 8,442 |  |  | $ | 38,192 |

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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. Supplemental Disclosure of Cash Flow Information
The following table sets forth certain cash and noncash activities (in thousands), as follows:

| Six Months Ended March 31,
| 2025 |  | 2024
Cash paid for interest, net of amounts capitalized | $ | 7,890 |  |  | $ | 7,877 |
Cash paid for income taxes | $ | 1,619 |  |  | $ | 2,510 |
Noncash investing and financing transactions: |  |  |
Debt incurred in connection with acquisition of businesses | $ | 5,000 |  |  | $ | — |
Note receivable from sale of businesses and assets | $ | 60 |  |  | $ | — |
Unpaid excise tax on stock repurchases | $ | 62 |  |  | $ | 35 |
Unpaid liabilities on capital expenditures | $ | 1,170 |  |  | $ | 1,244 |

Subsequent to the balance sheet date through May 9, 2025, we repurchased 33,875 shares of our common stock at an average price of $39.80 per share.
13. Acquisitions and Dispositions
Sale of Bombshells Austin
On November 14, 2024, the Company sold Bombshells Austin for $70,000 in cash and $60,000 in a 6% 12-month promissory note. The Company recognized a $1.3 million gain on the sale.
Flight Club
On January 21, 2025, the Company completed the acquisition of a club in the Detroit, Michigan, market for a total agreed acquisition price of $11.0 million, consisting of $3.0 million in cash and $5.0 million in a seller-financed 8.0% promissory note (see Note 6) for the club, and $3.0 million in cash for the associated real estate.
The preliminary fair value of the consideration is as follows (in thousands):

Cash | $ | 6,000 |
Note payable | 5,000 |
Total fair value of consideration | $ | 11,000 |

We recognized the assets and liabilities for this acquisition based on our estimates of their acquisition date fair values in our Nightclubs reportable segment. We have not finalized our valuation of the tangible and identifiable intangible assets acquired in this transaction. As of the release of this report, the fair value of the acquired tangible and identifiable intangible assets are provisional pending the completion of the final valuations for those assets. Based on the allocation of the preliminary fair value of the acquisition price and subject to any working capital adjustments, the amount of goodwill is estimated at $613,000. Goodwill represents the excess of the acquisition price fair value over the fair values of the tangible and identifiable intangible assets acquired, which is essentially the forward earnings potential of the acquired club and our entry into a new market. Goodwill will not be amortized but will be tested at least annually for impairment. Approximately $613,000 of the recognized goodwill will be deductible for income tax purposes.
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RCI HOSPITALITY HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. Acquisitions and Dispositions—continued
The following is our preliminary allocation of the fair value of the acquisition price (in thousands) as of January 21, 2025:

Current assets | $ | 73 |
Property and equipment | 3,305 |
Licenses | 5,928 |
Tradename | 1,081 |
Total net assets acquired | 10,387 |
Goodwill | 613 |
Total fair value of net assets acquired | $ | 11,000 |

Licenses and tradename will not be amortized but will be tested at least annually for impairment.
In connection with this acquisition, we incurred approximately $114,000 and $141,000 in acquisition-related expenses during the three and six months ended March 31, 2025, respectively, which are included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income.
From the date of acquisition until March 31, 2025, the acquired club contributed the following, which are included in our unaudited condensed consolidated statements of income (in thousands):

| Three Months Ended March 31, 2025 |  | Six Months Ended March 31, 2025
Revenues | $ | 681 |  |  | $ | 681 |
Income from operations | $ | 184 |  |  | $ | 184 |

We have not yet received the fiscal 2024 financial statements from the seller, therefore, we could not provide supplemental pro forma information for the combined entities.
Sale of Aurora CO Property
On March 31, 2025, the Company sold a real estate property in Aurora, Colorado, for $825,000. The Company recognized a loss of $88,000 on the sale, including closing costs.
Platinum West
On April 7, 2025, the Company completed the acquisition of a club in West Columbia, South Carolina, for a total purchase price of $8.0 million, consisting of $3.75 million cash and $2.5 million in a seller-financed 7% promissory note (see Note 6) for the club, and $1.75 million cash for the associated real estate. As of the filing of this report, we have not completed our valuation and do not have estimates of fair value for the acquired assets and any assumed liability, if any.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included in this quarterly report, and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, 2024.
Overview
RCI Hospitality Holdings, Inc. is a holding company that, through its subsidiaries, engages in 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.
Through our subsidiaries, as of March 31, 2025, we operated a total of 67 establishments that offer live adult entertainment. 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 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. 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, 2024, filed with the SEC on December 16, 2024.
In fiscal 2025, the Company started self-insuring a significant portion of expected losses under its general liability and liquor insurance programs due to increasingly prohibitive costs of such coverage from third-party insurers. The Company continues to purchase insurance for workers' compensation, property, auto, and business interruption, as well as the minimum insurance coverage where it is required by law for licensing requirements.
We record a liability for unresolved claims and for an estimate of incurred but not reported claims based on historical experience. The estimated liability is based on a number of assumptions and factors regarding economic conditions, the frequency and severity of claims development history, and settlement practices. Our assumptions are reviewed, monitored, and adjusted when warranted by changing circumstances.
During the three and six months ended March 31, 2025, except as mentioned above, there were no significant changes in our accounting policies and estimates.
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Results of Operations
Highlights of the Company's operating results and cash flows are as follows, with comparisons against the same period of the prior year:
Second Quarter Ended March 31, 2025
•Total revenues were $65.9 million compared to $72.3 million during the comparable prior-year quarter, a 8.9% decrease (Nightclubs revenue of $57.5 million compared to $59.4 million, a 3.1% decrease; and Bombshells revenue of $8.2 million compared to $12.8 million, an 35.6% decrease)
•Consolidated same-store sales decreased by 4.7% (Nightclubs decreased by 3.5%, while Bombshells decreased by 13.4%) (refer to the definition of same-store sales in the discussion of revenues below)
•Basic and diluted earnings per share (“EPS”) this quarter of $0.36 compared to $0.08 during the comparable prior-year quarter (non-GAAP diluted EPS* of $0.65 compared to $0.90)
•Net cash provided by operating activities was $8.5 million compared to $10.8 million during the comparable prior-year quarter, a 21.1% decrease (free cash flow* of $6.9 million compared to $8.8 million, a 21.4% decrease)
Year-to-Date Period Ended March 31, 2025
•Total revenues $137.4 million compared to $146.2 million during the comparable prior-year six-month period, a 6.0% decrease (Nightclubs revenue of $119.3 million compared to $120.4 million, a 0.9% decrease; and Bombshells revenue of $17.8 million compared to $25.5 million, a 30.1% decrease)
•Consolidated same-store sales decreased by 1.2% (Nightclubs same-store sales were flat, while Bombshells decreased by 10.4%)
•Basic and diluted EPS for the current six months was $1.38 compared to $0.85 during the comparable prior-year period (non-GAAP diluted EPS* of $1.46 compared to $1.76)
•Net cash provided by operating activities was $21.9 million compared to $24.5 million during the comparable prior-year period, a 10.5% decrease (free cash flow* of $19.0 million compared to $21.5 million, a 11.5% decrease)
* Reconciliation and discussion of non-GAAP financial measures are included in the “Non-GAAP Financial Measures” section below.
Revenues
Consolidated revenues for the second quarter decreased by $6.4 million, or 8.9%, versus the comparable prior-year quarter due primarily to the $4.5 million impact of closed locations and the $3.1 million impact of the 4.7% decline in consolidated same-store sales, partially offset by a $869,000 increase in sales from new locations and the $326,000 impact of reopened clubs that were rebranded.
Consolidated revenues for the six-month period decreased by $8.8 million, or 6.0%, versus the comparable prior-year six-month period primarily due to $8.5 million impact of closed locations and the $1.6 million impact of the 1.2% decline in consolidated same-store sales, partially offset by a $920,000 increase in sales from new locations and the $382,000 impact of reopened clubs that were rebranded.
We calculate same-store sales by comparing year-over-year revenues from nightclubs and restaurants/sports bars starting in the first full quarter of operations after at least 12 full months for Nightclubs and at least 18 full months for Bombshells. We consider the first six months of operations of a Bombshells unit to be the “honeymoon period” where sales are higher than normal. We exclude from a particular month’s calculation units previously included in 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 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 calculation.
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Segment contribution to total revenues was as follows (in thousands, except percentages):

| Three Months Ended March 31, 2025 |  | Mix |  | Three Months Ended March 31, 2024 |  | Mix |  | Inc (Dec) $ |  | Inc (Dec) %
Nightclubs |  |  |  |  |  |  |  |  |  |  |
Sales of alcoholic beverages | $ | 24,575 |  |  | 42.7 | % |  | $ | 25,946 |  |  | 43.7 | % |  | $ | (1,371) |  |  | (5.3) | %
Sales of food and merchandise | 5,519 |  |  | 9.6 | % |  | 5,346 |  |  | 9.0 | % |  | 173 |  |  | 3.2 | %
Service revenues | 22,870 |  |  | 39.7 | % |  | 23,562 |  |  | 39.7 | % |  | (692) |  |  | (2.9) | %
Other revenues | 4,577 |  |  | 8.0 | % |  | 4,518 |  |  | 7.6 | % |  | 59 |  |  | 1.3 | %
| 57,541 |  |  | 100.0 | % |  | 59,372 |  |  | 100.0 | % |  | (1,831) |  |  | (3.1) | %
Bombshells |  |  |  |  |  |  |  |  |  |  |
Sales of alcoholic beverages | 4,291 |  |  | 52.1 | % |  | 6,961 |  |  | 54.5 | % |  | (2,670) |  |  | (38.4) | %
Sales of food and merchandise | 3,892 |  |  | 47.3 | % |  | 5,722 |  |  | 44.8 | % |  | (1,830) |  |  | (32.0) | %
Service revenues | 42 |  |  | 0.5 | % |  | 2 |  |  | 0.0 | % |  | 40 |  |  | 2000.0 | %
Other revenues | 4 |  |  | — | % |  | 86 |  |  | 0.7 | % |  | (82) |  |  | (95.3) | %
| 8,229 |  |  | 100.0 | % |  | 12,771 |  |  | 100.0 | % |  | (4,542) |  |  | (35.6) | %
Other |  |  |  |  |  |  |  |  |  |  |
Other revenues | 106 |  |  | 100.0 | % |  | 140 |  |  | 100.0 | % |  | (34) |  |  | (24.3) | %
| $ | 65,876 |  |  |  |  | $ | 72,283 |  |  |  |  | $ | (6,407) |  |  | (8.9) | %

| Six Months Ended March 31, 2025 |  | Mix |  | Six Months Ended March 31, 2024 |  | Mix |  | Inc (Dec) $ |  | Inc (Dec) %
Nightclubs |  |  |  |  |  |  |  |  |  |  |
Sales of alcoholic beverages | $ | 51,610 |  |  | 43.3 | % |  | $ | 52,182 |  |  | 43.3 | % |  | $ | (572) |  |  | (1.1) | %
Sales of food and merchandise | 11,255 |  |  | 9.4 | % |  | 10,586 |  |  | 8.8 | % |  | 669 |  |  | 6.3 | %
Service revenues | 47,048 |  |  | 39.4 | % |  | 48,681 |  |  | 40.4 | % |  | (1,633) |  |  | (3.4) | %
Other revenues | 9,352 |  |  | 7.8 | % |  | 8,956 |  |  | 7.4 | % |  | 396 |  |  | 4.4 | %
| 119,265 |  |  | 100.0 | % |  | 120,405 |  |  | 100.0 | % |  | (1,140) |  |  | (0.9) | %
Bombshells |  |  |  |  |  |  |  |  |  |  |
Sales of alcoholic beverages | 9,444 |  |  | 53.0 | % |  | 14,041 |  |  | 55.1 | % |  | (4,597) |  |  | (32.7) | %
Sales of food and merchandise | 8,262 |  |  | 46.4 | % |  | 11,284 |  |  | 44.2 | % |  | (3,022) |  |  | (26.8) | %
Service revenues | 45 |  |  | 0.3 | % |  | 2 |  |  | 0.0 | % |  | 43 |  |  | 2150.0 | %
Other revenues | 65 |  |  | 0.4 | % |  | 175 |  |  | 0.7 | % |  | (110) |  |  | (62.9) | %
| 17,816 |  |  | 100.0 | % |  | 25,502 |  |  | 100.0 | % |  | (7,686) |  |  | (30.1) | %
Other |  |  |  |  |  |  |  |  |  |  |
Other revenues | 278 |  |  | 100.0 | % |  | 283 |  |  | 100.0 | % |  | (5) |  |  | (1.8) | %
| $ | 137,359 |  |  |  |  | $ | 146,190 |  |  |  |  | $ | (8,831) |  |  | (6.0) | %

Nightclubs revenues decreased by 3.1% during the second quarter compared to the same quarter last year primarily due to the $2.0 million impact of the decrease in same-store sales and the $792,000 impact of closed clubs, partially offset by the $681,000 contribution of a newly acquired club and a $326,000 impact from newly rebranded clubs. 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 3.5%. By type of revenue, alcoholic beverage sales decreased by 5.3%; food, merchandise and other revenue increased by 2.4%; while service revenues decreased by 2.9%.
For the six-month period, Nightclubs revenues decreased by 0.9% primarily due to the $2.2 million impact of closed clubs, partially offset by the $681,000 contribution of a newly acquired club and a $382,000 impact from newly rebranded clubs. Same-store sales for the six-month period was flat. By type of revenue, alcoholic beverage sales decreased by 1.1%; food, merchandise and other revenue increased by 5.4%; while service revenues decreased by 3.4%.
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Bombshells second quarter revenues decreased by 35.6%, which was primarily due to the $3.7 million impact of closed or sold locations and the $1.1 million impact of the decrease in same-store sales, partially offset by the increase caused by sales from a new location. By type of revenue, food and merchandise sales decreased by 32.0% while alcoholic beverage sales decreased by 38.4%.
For the six-month period, Bombshells revenues decreased by 30.1%, which was primarily caused by the $6.3 million impact of closed or sold locations and the $1.7 million impact from same-store sales decline. By type of revenue, food and merchandise sales decreased by 26.8% while alcoholic beverage sales decreased by 32.7%.
Operating Expenses
Total operating expenses, as a percent of revenues, decreased to 87.6% from 93.6% from last year’s second quarter, and decreased to 83.9% from 87.8% for the six-month period. Year-over-year change was a $9.9 million decrease, or 14.7%, for the second quarter and a $13.1 million decrease, or 10.2%, for the six-month period. Significant contributors to the changes in operating expenses are explained below.
Cost of goods sold. Cost of goods sold for the second quarter decreased by $1.5 million, or 15.2%, and for the six-month period decreased by $2.4 million, or 11.8%, mainly due to lower sales. As a percent of total revenues, cost of goods sold decreased to 12.8% from 13.7% for the second quarter and decreased to 13.0% from 13.9% for the six-month period. Nightclubs cost of goods sold during the quarter decreased to 11.3% from 11.6%, while Bombshells cost of goods sold decreased to 22.9% from 23.5%. For the six-month period, Nightclubs cost of goods sold decreased to 11.4% from 11.8%, while Bombshells cost of goods sold slightly decreased to 23.4% from 23.6%.
Cost of goods sold by segment is as follows (in thousands):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Nightclubs | $ | 6,512 |  |  | $ | 6,887 |  |  | $ | 13,636 |  |  | $ | 14,197 |
Bombshells | 1,882 |  |  | 3,007 |  |  | 4,174 |  |  | 6,023 |
Other | 17 |  |  | 25 |  |  | 82 |  |  | 58 |
| $ | 8,411 |  |  | $ | 9,919 |  |  | $ | 17,892 |  |  | $ | 20,278 |

Salaries and wages. Salaries and wages decreased by $484,000, or 2.3%, for the quarter and decreased by $1.3 million, or 3.0%, for the six-month period mainly due to closed locations. As a percent of total revenues, salaries and wages increased to 31.1% from 29.0% for the quarter and increased to 29.9% from 28.9% for the six-month period mainly due to lower sales. Nightclubs increased to 24.5% from 22.5% for the quarter and increased to 23.5% from 22.3% for the six-month period. Bombshells increased to 33.9% from 29.0% for the quarter and increased to 31.4% from 30.1% for the six-month period. Corporate slightly decreased to 4.8% from 5.2% for the quarter and decreased to 5.0% from 5.1% for the six-month period.
Salaries and wages by segment are as follows (in thousands):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Nightclubs | $ | 14,091 |  |  | $ | 13,377 |  |  | $ | 28,021 |  |  | $ | 26,833 |
Bombshells | 2,791 |  |  | 3,708 |  |  | 5,598 |  |  | 7,667 |
Other | 450 |  |  | 160 |  |  | 555 |  |  | 328 |
Corporate | 3,159 |  |  | 3,730 |  |  | 6,881 |  |  | 7,479 |
| $ | 20,491 |  |  | $ | 20,975 |  |  | $ | 41,055 |  |  | $ | 42,307 |

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Selling, general and administrative expenses. Total selling, general and administrative expenses decreased by $1.8 million, or 7.1%, for the quarter and decreased by $747,000, or 1.5%, for the six-month period. Dollar amounts in the tables below are in thousands, except percentages.

| Three Months Ended March 31, 2025 |  | Three Months Ended March 31, 2024 |  | Better (Worse)
| Amount |  | % of Revenues |  | Amount |  | % of Revenues |  | Amount |  | %
Taxes and permits | $ | 3,418 |  |  | 5.2 | % |  | $ | 3,967 |  |  | 5.5 | % |  | $ | 549 |  |  | 13.8 | %
Advertising and marketing | 2,601 |  |  | 3.9 | % |  | 2,993 |  |  | 4.1 | % |  | 392 |  |  | 13.1 | %
Supplies and services | 2,468 |  |  | 3.7 | % |  | 2,736 |  |  | 3.8 | % |  | 268 |  |  | 9.8 | %
Insurance | 2,823 |  |  | 4.3 | % |  | 3,265 |  |  | 4.5 | % |  | 442 |  |  | 13.5 | %
Legal | 1,369 |  |  | 2.1 | % |  | 1,116 |  |  | 1.5 | % |  | (253) |  |  | (22.7) | %
Lease | 1,537 |  |  | 2.3 | % |  | 1,785 |  |  | 2.5 | % |  | 248 |  |  | 13.9 | %
Charge card fees | 1,650 |  |  | 2.5 | % |  | 1,682 |  |  | 2.3 | % |  | 32 |  |  | 1.9 | %
Utilities | 1,508 |  |  | 2.3 | % |  | 1,462 |  |  | 2.0 | % |  | (46) |  |  | (3.1) | %
Security | 1,018 |  |  | 1.5 | % |  | 1,287 |  |  | 1.8 | % |  | 269 |  |  | 20.9 | %
Stock-based compensation | 118 |  |  | 0.2 | % |  | 471 |  |  | 0.7 | % |  | 353 |  |  | 74.9 | %
Accounting and professional fees | 1,177 |  |  | 1.8 | % |  | 1,136 |  |  | 1.6 | % |  | (41) |  |  | (3.6) | %
Repairs and maintenance | 1,288 |  |  | 2.0 | % |  | 1,114 |  |  | 1.5 | % |  | (174) |  |  | (15.6) | %
Other | 1,925 |  |  | 2.9 | % |  | 1,639 |  |  | 2.3 | % |  | (286) |  |  | (17.4) | %
Total selling, general and administrative expenses | $ | 22,900 |  |  | 34.8 | % |  | $ | 24,653 |  |  | 34.1 | % |  | $ | 1,753 |  |  | 7.1 | %

| Six Months Ended March 31, 2025 |  | Six Months Ended March 31, 2024 |  | Better (Worse)
| Amount |  | % of Revenues |  | Amount |  | % of Revenues |  | Amount |  | %
Taxes and permits | $ | 7,246 |  |  | 5.3 | % |  | $ | 8,009 |  |  | 5.5 | % |  | $ | 763 |  |  | 9.5 | %
Advertising and marketing | 5,563 |  |  | 4.0 | % |  | 6,467 |  |  | 4.4 | % |  | 904 |  |  | 14.0 | %
Supplies and services | 4,956 |  |  | 3.6 | % |  | 5,431 |  |  | 3.7 | % |  | 475 |  |  | 8.7 | %
Insurance | 8,106 |  |  | 5.9 | % |  | 6,580 |  |  | 4.5 | % |  | (1,526) |  |  | (23.2) | %
Legal | 2,755 |  |  | 2.0 | % |  | 1,849 |  |  | 1.3 | % |  | (906) |  |  | (49.0) | %
Lease | 3,139 |  |  | 2.3 | % |  | 3,609 |  |  | 2.5 | % |  | 470 |  |  | 13.0 | %
Charge card fees | 3,398 |  |  | 2.5 | % |  | 3,414 |  |  | 2.3 | % |  | 16 |  |  | 0.5 | %
Utilities | 2,879 |  |  | 2.1 | % |  | 2,947 |  |  | 2.0 | % |  | 68 |  |  | 2.3 | %
Security | 2,102 |  |  | 1.5 | % |  | 2,698 |  |  | 1.8 | % |  | 596 |  |  | 22.1 | %
Stock-based compensation | 588 |  |  | 0.4 | % |  | 941 |  |  | 0.6 | % |  | 353 |  |  | 37.5 | %
Accounting and professional fees | 2,311 |  |  | 1.7 | % |  | 2,322 |  |  | 1.6 | % |  | 11 |  |  | 0.5 | %
Repairs and maintenance | 2,491 |  |  | 1.8 | % |  | 2,213 |  |  | 1.5 | % |  | (278) |  |  | (12.6) | %
Other | 3,573 |  |  | 2.6 | % |  | 3,374 |  |  | 2.3 | % |  | (199) |  |  | (5.9) | %
Total selling, general and administrative expenses | $ | 49,107 |  |  | 35.8 | % |  | $ | 49,854 |  |  | 34.1 | % |  | $ | 747 |  |  | 1.5 | %

Most of the decreases in selling, general and administrative expenses come from closed or sold Bombshells locations and from lower variable expenses caused by lower sales. Insurance expense increased due to the estimated self-insurance for general liability and liquor liability. Legal expenses increased due mainly to the increase in ongoing cases.
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Selling, general and administrative expenses by segment are as follows (in thousands):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Nightclubs | $ | 17,207 |  |  | $ | 16,953 |  |  | $ | 34,846 |  |  | $ | 33,947 |
Bombshells | 3,285 |  |  | 4,703 |  |  | 6,812 |  |  | 9,730 |
Other | 305 |  |  | 230 |  |  | 465 |  |  | 366 |
Corporate | 2,103 |  |  | 2,767 |  |  | 6,984 |  |  | 5,811 |
| $ | 22,900 |  |  | $ | 24,653 |  |  | $ | 49,107 |  |  | $ | 49,854 |

Depreciation and amortization. Depreciation and amortization decreased by $108,000, or 2.8%, during the quarter and decreased by $392,000, or 5.1%, during the six-month period primarily due to closed locations.
Depreciation and amortization expenses by segment are as follows (in thousands):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Nightclubs | $ | 3,158 |  |  | $ | 2,927 |  |  | $ | 6,129 |  |  | $ | 5,832 |
Bombshells | 339 |  |  | 650 |  |  | 659 |  |  | 1,293 |
Other | 14 |  |  | 2 |  |  | 27 |  |  | 4 |
Corporate | 265 |  |  | 305 |  |  | 530 |  |  | 608 |
| $ | 3,776 |  |  | $ | 3,884 |  |  | $ | 7,345 |  |  | $ | 7,737 |

Impairment and other charges (gains), net. Impairment and other charges (gains), net changed mainly due to the sale during the first quarter of our Bombshells location in Austin, Texas, which was significantly impaired in a prior period; the insurance recovery during the first quarter for a club razed by fire in a prior period; and the decrease in impairment of assets during the current quarter and the six-month period compared to last year. See Note 5 to our unaudited condensed consolidated financial statements.
Impairment and other charges (gains), net by segment are as follows (in thousands):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Nightclubs | $ | 1,970 |  |  | $ | 8,207 |  |  | $ | 1,148 |  |  | $ | 8,206 |
Bombshells | 159 |  |  | 4 |  |  | (1,171) |  |  | 4 |
Other | — |  |  | — |  |  | — |  |  | — |
Corporate | (2) |  |  | (16) |  |  | (94) |  |  | (18) |
| $ | 2,127 |  |  | $ | 8,195 |  |  | $ | (117) |  |  | $ | 8,192 |

Income (Loss) from Operations
For the three months ended March 31, 2025, and 2024, our consolidated operating margin was 12.4% and 6.4%, respectively, while for the six months ended March 31, 2025, and 2024, our consolidated operating margin was 16.1% and 12.2%, respectively. Segment contribution to income (loss) from operations is presented in the table below (in thousands):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Nightclubs | $ | 14,603 |  |  | $ | 11,021 |  |  | $ | 35,485 |  |  | $ | 31,390 |
Bombshells | (227) |  |  | 699 |  |  | 1,744 |  |  | 785 |
Other | (680) |  |  | (277) |  |  | (851) |  |  | (473) |
Corporate | (5,525) |  |  | (6,786) |  |  | (14,301) |  |  | (13,880) |
| $ | 8,171 |  |  | $ | 4,657 |  |  | $ | 22,077 |  |  | $ | 17,822 |

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Excluding certain items, the three months ended March 31, 2025, and 2024 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 32.

| Three Months Ended March 31, 2025
| Nightclubs |  | Bombshells |  | Other |  | Corporate |  | Total
Income (loss) from operations | $ | 14,603 |  |  | $ | (227) |  |  | $ | (680) |  |  | $ | (5,525) |  |  | $ | 8,171 |
Amortization of intangibles | 572 |  |  | 1 |  |  | — |  |  | 4 |  |  | 577 |
Impairment of assets | 1,780 |  |  | — |  |  | — |  |  | — |  |  | 1,780 |
Settlement of lawsuits | 97 |  |  | 30 |  |  | — |  |  | — |  |  | 127 |
Stock-based compensation | — |  |  | — |  |  | — |  |  | 118 |  |  | 118 |
Loss (gain) on sale of businesses and assets | 93 |  |  | 129 |  |  | — |  |  | (2) |  |  | 220 |
Non-GAAP operating income (loss) | $ | 17,145 |  |  | $ | (67) |  |  | $ | (680) |  |  | $ | (5,405) |  |  | $ | 10,993 |
GAAP operating margin | 25.4 | % |  | (2.8) | % |  | (641.5) | % |  | (8.4) | % |  | 12.4 | %
Non-GAAP operating margin | 29.8 | % |  | (0.8) | % |  | (641.5) | % |  | (8.2) | % |  | 16.7 | %

| Three Months Ended March 31, 2024
| Nightclubs |  | Bombshells |  | Other |  | Corporate |  | Total
Income (loss) from operations | $ | 11,021 |  |  | $ | 699 |  |  | $ | (277) |  |  | $ | (6,786) |  |  | $ | 4,657 |
Amortization of intangibles | 589 |  |  | 47 |  |  | — |  |  | 4 |  |  | 640 |
Impairment of assets | 8,033 |  |  | — |  |  | — |  |  | — |  |  | 8,033 |
Settlement of lawsuits | 167 |  |  | — |  |  | — |  |  | — |  |  | 167 |
Stock-based compensation | — |  |  | — |  |  | — |  |  | 471 |  |  | 471 |
Loss (gain) on sale of businesses and assets | 7 |  |  | 4 |  |  | — |  |  | (16) |  |  | (5) |
Non-GAAP operating income (loss) | $ | 19,817 |  |  | $ | 750 |  |  | $ | (277) |  |  | $ | (6,327) |  |  | $ | 13,963 |
GAAP operating margin | 18.6 | % |  | 5.5 | % |  | (197.9) | % |  | (9.4) | % |  | 6.4 | %
Non-GAAP operating margin | 33.4 | % |  | 5.9 | % |  | (197.9) | % |  | (8.8) | % |  | 19.3 | %

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Excluding certain items, the six months ended March 31, 2025, and 2024 non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).

| Six Months Ended March 31, 2025
| Nightclubs |  | Bombshells |  | Other |  | Corporate |  | Total
Income (loss) from operations | $ | 35,485 |  |  | $ | 1,744 |  |  | $ | (851) |  |  | $ | (14,301) |  |  | $ | 22,077 |
Amortization of intangibles | 1,146 |  |  | 2 |  |  | — |  |  | 9 |  |  | 1,157 |
Impairment of assets | 1,780 |  |  | — |  |  | — |  |  | — |  |  | 1,780 |
Settlement of lawsuits | 276 |  |  | 30 |  |  | — |  |  | — |  |  | 306 |
Stock-based compensation | — |  |  | — |  |  | — |  |  | 588 |  |  | 588 |
Loss (gain) on sale of businesses and assets | 109 |  |  | (1,201) |  |  | — |  |  | (94) |  |  | (1,186) |
Gain on insurance | (1,017) |  |  | — |  |  | — |  |  | — |  |  | (1,017) |
Non-GAAP operating income (loss) | $ | 37,779 |  |  | $ | 575 |  |  | $ | (851) |  |  | $ | (13,798) |  |  | $ | 23,705 |
GAAP operating margin | 29.8 | % |  | 9.8 | % |  | (306.1) | % |  | (10.4) | % |  | 16.1 | %
Non-GAAP operating margin | 31.7 | % |  | 3.2 | % |  | (306.1) | % |  | (10.0) | % |  | 17.3 | %

| Six Months Ended March 31, 2024
| Nightclubs |  | Bombshells |  | Other |  | Corporate |  | Total
Income (loss) from operations | $ | 31,390 |  |  | $ | 785 |  |  | $ | (473) |  |  | $ | (13,880) |  |  | $ | 17,822 |
Amortization of intangibles | 1,180 |  |  | 110 |  |  | — |  |  | 9 |  |  | 1,299 |
Impairment of assets | 8,033 |  |  | — |  |  | — |  |  | — |  |  | 8,033 |
Settlement of lawsuits | 167 |  |  | — |  |  | — |  |  | — |  |  | 167 |
Stock-based compensation | — |  |  | — |  |  | — |  |  | 941 |  |  | 941 |
Loss (gain) on sale of businesses and assets | 6 |  |  | 4 |  |  | — |  |  | (18) |  |  | (8) |
Non-GAAP operating income (loss) | $ | 40,776 |  |  | $ | 899 |  |  | $ | (473) |  |  | $ | (12,948) |  |  | $ | 28,254 |
GAAP operating margin | 26.1 | % |  | 3.1 | % |  | (167.1) | % |  | (9.5) | % |  | 12.2 | %
Non-GAAP operating margin | 33.9 | % |  | 3.5 | % |  | (167.1) | % |  | (8.9) | % |  | 19.3 | %

Other Income/Expenses
During the second quarter, interest expense increased by $49,000, or 1.2%, while interest income increased by $43,000, or 44.8%. During the six-month period, interest expense decreased by $15,000, or 0.2%, while interest income increased by $128,000, or 67.4%. Gain on lease termination was from a settlement of lease obligation related to a closed Bombshells unit during the first quarter.
Our total occupancy costs, which we define as the sum of operating lease expense and interest expense, were $5.6 million and $5.8 million for the quarters ended March 31, 2025, and 2024, respectively, and $11.3 million and $11.8 million for the six months ended March 31, 2025, and 2024, respectively. As a percentage of revenue, total occupancy costs were 8.5% and 8.0% during the quarters ended March 31, 2025, and 2024, respectively, and 8.3% and 8.1% during the six months ended March 31, 2025, and 2024, respectively. Although total occupancy costs decreased in dollars, percentages based on revenue increased due to lower sales.
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Income Taxes
Income tax expense was $1.1 million and $2.9 million during the three and six months ended March 31, 2025, respectively, and $5,000 and $1.8 million during the three and six months ended March 31, 2024, respectively. The effective income tax rate was 25.1% and 19.2% for the three and six months ended March 31, 2025, respectively, and 0.7% and 18.4% for the three and six months ended March 31, 2024, respectively. The disproportionate tax rates during the three months ended March 31, 2024, were caused by the small amount of pre-tax income during the quarter and the reduction of the then-expected annual effective tax rate. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, as presented below (dollars in thousands).

| Three Months Ended March 31, 2025 |  | Three Months Ended March 31, 2024
| Amount |  | % |  | Amount |  | %
Federal statutory income tax expense | $ | 895 |  |  | 21.0 | % |  | $ | 158 |  |  | 21.0 | %
State income taxes, net of federal benefit | 116 |  |  | 2.7 | % |  | 39 |  |  | 5.2 | %
Permanent differences | 20 |  |  | 0.5 | % |  | 36 |  |  | 4.8 | %
Tax credit | (209) |  |  | (4.9) | % |  | (228) |  |  | (30.2) | %
Other | 246 |  |  | 5.8 | % |  | — |  |  | — | %
Total income tax expense | $ | 1,068 |  |  | 25.1 | % |  | $ | 5 |  |  | 0.7 | %

| Six Months Ended March 31, 2025 |  | Six Months Ended March 31, 2024
| Amount |  | % |  | Amount |  | %
Federal statutory income tax expense | $ | 3,187 |  |  | 21.0 | % |  | $ | 2,057 |  |  | 21.0 | %
State income taxes, net of federal benefit | 416 |  |  | 2.7 | % |  | 349 |  |  | 3.6 | %
Permanent differences | 127 |  |  | 0.8 | % |  | 78 |  |  | 0.8 | %
Tax credit | (979) |  |  | (6.5) | % |  | (680) |  |  | (6.9) | %
Other | 164 |  |  | 1.1 | % |  | — |  |  | — | %
Total income tax expense | $ | 2,915 |  |  | 19.2 | % |  | $ | 1,804 |  |  | 18.4 | %

Income taxes increased due to a higher pretax income in the current quarter and the six-month period.
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 calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: (a) amortization of intangibles, (b) impairment of assets, (c) settlement of lawsuits, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, and (f) stock-based compensation. We believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.
Non-GAAP Net Income and Non-GAAP Net Income per Diluted Share. We calculate non-GAAP net income and non-GAAP net income per diluted share by excluding or including certain items to net income or loss attributable to RCIHH common stockholders and diluted earnings per share. Adjustment items are: (a) amortization of intangibles, (b) impairment of assets, (c) settlement of lawsuits, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f)
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stock-based compensation, (g) gains or losses on lease termination, and (h) the income tax effect of the above-described adjustments. Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 18.1% and 18.4% effective tax rate of the pre-tax non-GAAP income before taxes for the six months ended March 31, 2025, and 2024, respectively, and the GAAP income tax expense (benefit). We believe that excluding and including such items help management and investors better understand our operating activities.
Adjusted EBITDA. We calculate adjusted EBITDA by excluding the following items from net income or loss attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) impairment of assets, (c) income tax expense, (d) net interest expense, (e) settlement of lawsuits, (f) gains or losses on sale of businesses and assets, (g) gains or losses on insurance, (h) stock-based compensation, and (i) gains or losses on lease termination. 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 three and six months ended March 31, 2025, and 2024 (in thousands, except per share, number of shares, and percentages):

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Reconciliation of GAAP net income to Adjusted EBITDA |  |  |  |  |  |  |
Net income attributable to RCIHH common stockholders | $ | 3,231 |  |  | $ | 774 |  |  | $ | 12,255 |  |  | $ | 8,000 |
Income tax expense | 1,068 |  |  | 5 |  |  | 2,915 |  |  | 1,804 |
Interest expense, net | 3,909 |  |  | 3,903 |  |  | 7,882 |  |  | 8,025 |
Depreciation and amortization | 3,776 |  |  | 3,884 |  |  | 7,345 |  |  | 7,737 |
Impairment of assets | 1,780 |  |  | 8,033 |  |  | 1,780 |  |  | 8,033 |
Settlement of lawsuits | 127 |  |  | 167 |  |  | 306 |  |  | 167 |
Stock-based compensation | 118 |  |  | 471 |  |  | 588 |  |  | 941 |
Loss (gain) on sale of businesses and assets | 220 |  |  | (5) |  |  | (1,186) |  |  | (8) |
Gain on insurance | — |  |  | — |  |  | (1,017) |  |  | — |
Gain on lease termination | — |  |  | — |  |  | (979) |  |  | — |
Adjusted EBITDA | $ | 14,229 |  |  | $ | 17,232 |  |  | $ | 29,889 |  |  | $ | 34,699 |

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Reconciliation of GAAP net income to non-GAAP net income |  |  |  |  |  |  |
Net income attributable to RCIHH common stockholders | $ | 3,231 |  |  | $ | 774 |  |  | $ | 12,255 |  |  | $ | 8,000 |
Amortization of intangibles | 577 |  |  | 640 |  |  | 1,157 |  |  | 1,299 |
Impairment of assets | 1,780 |  |  | 8,033 |  |  | 1,780 |  |  | 8,033 |
Settlement of lawsuits | 127 |  |  | 167 |  |  | 306 |  |  | 167 |
Stock-based compensation | 118 |  |  | 471 |  |  | 588 |  |  | 941 |
Loss (gain) on sale of businesses and assets | 220 |  |  | (5) |  |  | (1,186) |  |  | (8) |
Gain on insurance | — |  |  | — |  |  | (1,017) |  |  | — |
Gain on lease termination | — |  |  | — |  |  | (979) |  |  | — |
Net income tax effect | (263) |  |  | (1,701) |  |  | 47 |  |  | (1,921) |
Non-GAAP net income | $ | 5,790 |  |  | $ | 8,379 |  |  | $ | 12,951 |  |  | $ | 16,511 |

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| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share |  |  |  |  |  |  |
Diluted shares | 8,861,854 |  |  | 9,350,292 |  |  | 8,891,638 |  |  | 9,358,768 |
GAAP diluted earnings per share | $ | 0.36 |  |  | $ | 0.08 |  |  | $ | 1.38 |  |  | $ | 0.85 |
Amortization of intangibles | 0.07 |  |  | 0.07 |  |  | 0.13 |  |  | 0.14 |
Impairment of assets | 0.20 |  |  | 0.86 |  |  | 0.20 |  |  | 0.86 |
Settlement of lawsuits | 0.01 |  |  | 0.02 |  |  | 0.03 |  |  | 0.02 |
Stock-based compensation | 0.01 |  |  | 0.05 |  |  | 0.07 |  |  | 0.10 |
Loss (gain) on sale of businesses and assets | 0.02 |  |  | 0.00 |  |  | (0.13) |  |  | 0.00 |
Gain on insurance | 0.00 |  |  | 0.00 |  |  | (0.11) |  |  | 0.00 |
Gain on lease termination | 0.00 |  |  | 0.00 |  |  | (0.11) |  |  | 0.00 |
Net income tax effect | (0.03) |  |  | (0.18) |  |  | 0.01 |  |  | (0.21) |
Non-GAAP diluted earnings per share | $ | 0.65 |  |  | $ | 0.90 |  |  | $ | 1.46 |  |  | $ | 1.76 |

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Reconciliation of GAAP operating income to non-GAAP operating income |  |  |  |  |  |  |
Income from operations | $ | 8,171 |  |  | $ | 4,657 |  |  | $ | 22,077 |  |  | $ | 17,822 |
Amortization of intangibles | 577 |  |  | 640 |  |  | 1,157 |  |  | 1,299 |
Impairment of assets | 1,780 |  |  | 8,033 |  |  | 1,780 |  |  | 8,033 |
Settlement of lawsuits | 127 |  |  | 167 |  |  | 306 |  |  | 167 |
Stock-based compensation | 118 |  |  | 471 |  |  | 588 |  |  | 941 |
Loss (gain) on sale of businesses and assets | 220 |  |  | (5) |  |  | (1,186) |  |  | (8) |
Gain on insurance | — |  |  | — |  |  | (1,017) |  |  | — |
Non-GAAP operating income | $ | 10,993 |  |  | $ | 13,963 |  |  | $ | 23,705 |  |  | $ | 28,254 |

| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Reconciliation of GAAP operating margin to non-GAAP operating margin |  |  |  |  |  |  |
Income from operations | 12.4 | % |  | 6.4 | % |  | 16.1 | % |  | 12.2 | %
Amortization of intangibles | 0.9 | % |  | 0.9 | % |  | 0.8 | % |  | 0.9 | %
Impairment of assets | 2.7 | % |  | 11.1 | % |  | 1.3 | % |  | 5.5 | %
Settlement of lawsuits | 0.2 | % |  | 0.2 | % |  | 0.2 | % |  | 0.1 | %
Stock-based compensation | 0.2 | % |  | 0.7 | % |  | 0.4 | % |  | 0.6 | %
Loss (gain) on sale of businesses and assets | 0.3 | % |  | 0.0 | % |  | (0.9) | % |  | 0.0 | %
Gain on insurance | 0.0 | % |  | 0.0 | % |  | (0.7) | % |  | 0.0 | %
Non-GAAP operating income | 16.7 | % |  | 19.3 | % |  | 17.3 | % |  | 19.3 | %

* Per share amounts and percentages may not foot due to rounding.
** The adjustments to reconcile net income attributable to RCIHH common stockholders to non-GAAP net income exclude the impact of adjustments related to noncontrolling interests, which is immaterial.
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Liquidity and Capital Resources
At March 31, 2025, our cash and cash equivalents were approximately $32.7 million compared to $32.4 million at September 30, 2024. Because of the large volume of cash we handle, we have very stringent cash controls. As of March 31, 2025, we had negative working capital of $1.1 million compared to negative working capital of $793,000 as of September 30, 2024. We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available on favorable terms.
We have not recently raised capital through the issuance of equity securities although we have used equity recently in our acquisitions. Instead, we use debt financing to lower our overall cost of capital and increase our return on stockholders’ equity. We have a history of borrowing funds in private transactions and from sellers in acquisition transactions and have secured traditional bank financing on our new development projects and refinancing of our existing notes payable. There can be no assurance though that any of these financing options would be presently available on favorable terms, if at all. We also have historically utilized these cash flows to invest in property and equipment, adult nightclubs, and restaurants/sports bars.
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):

| Six Months Ended March 31,
| 2025 |  | 2024
Operating activities | $ | 21,891 |  |  | $ | 24,469 |
Investing activities | (12,226) |  |  | (12,686) |
Financing activities | (9,352) |  |  | (12,833) |
Net increase (decrease) in cash and cash equivalents | $ | 313 |  |  | $ | (1,050) |

Cash Flows from Operating Activities
Following are our summarized cash flows from operating activities (in thousands):

| Six Months Ended March 31,
| 2025 |  | 2024
Net income | $ | 12,259 |  |  | $ | 7,993 |
Depreciation and amortization | 7,345 |  |  | 7,737 |
Deferred income tax benefit | (1,242) |  |  | (1,911) |
Impairment of assets | 1,780 |  |  | 8,033 |
Stock-based compensation | 588 |  |  | 941 |
Net change in operating assets and liabilities | 1,943 |  |  | (230) |
Other | (782) |  |  | 1,906 |
Net cash provided by operating activities | $ | 21,891 |  |  | $ | 24,469 |

Although income from operations in the current six-month period was higher than the comparable last year, net cash provided by operating activities during the six-month period decreased due to lower conversion of revenues earned to cash partially offset by lower payments of operating liabilities as compared to last year.
In view of self-insuring most of our general liability and liquor insurance programs, we expect our payments for expected losses for those programs to be volatile in the near future until we have fully established a trust to fund our estimated self-insurance liability.
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Cash Flows from Investing Activities
Following are our cash flows from investing activities (in thousands):

| Six Months Ended March 31,
| 2025 |  | 2024
Payments for property and equipment and intangible assets | $ | (8,608) |  |  | $ | (12,802) |
Acquisition of businesses | (6,000) |  |  | — |
Proceeds from sale of businesses and assets | 1,085 |  |  | — |
Proceeds from insurance | 1,150 |  |  | — |
Proceeds from notes receivable | 147 |  |  | 116 |
Net cash used in investing activities | $ | (12,226) |  |  | $ | (12,686) |

On January 21, 2025, the Company completed the acquisition of a club in the Detroit, Michigan, market for a total agreed acquisition price of $11.0 million, consisting of $3.0 million in cash and $5.0 million in a seller-financed 8.0% promissory note for the club, and $3.0 million in cash for the associated real estate. See Note 13.
On April 7, 2025, subsequent to the reporting date of this quarterly report, the Company completed the acquisition of a club in West Columbia, South Carolina, for a total purchase price of $8.0 million, consisting of $3.75 million cash and $2.5 million in a seller-financed 7% promissory note for the club, and $1.75 million cash for the associated real estate. See Note 13.
Following is a breakdown of our payments for property and equipment and intangible assets for the six months ended March 31, 2025, and 2024 (in thousands):

| Six Months Ended March 31,
| 2025 |  | 2024
New facilities, equipment, and intangible assets | $ | 5,721 |  |  | $ | 9,808 |
Maintenance capital expenditures | 2,887 |  |  | 2,994 |
Total capital expenditures | $ | 8,608 |  |  | $ | 12,802 |

The capital expenditures during the six months ended March 31, 2025, and 2024 were composed mostly of construction projects in-progress. 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):

| Six Months Ended March 31,
| 2025 |  | 2024
Proceeds from debt obligations | $ | 8,396 |  |  | $ | 2,657 |
Payments on debt obligations | (10,321) |  |  | (10,630) |
Purchase of treasury stock | (6,114) |  |  | (3,602) |
Payment of dividends | (1,242) |  |  | (1,122) |
Payment of loan origination costs | (71) |  |  | (136) |
Net cash used in financing activities | $ | (9,352) |  |  | $ | (12,833) |

We purchased 122,875 shares of our common stock at an average price of $49.76 during the six months ended March 31, 2025, while we purchased 65,219 shares of our common stock at an average price of $55.23 during the six months ended March 31, 2024. As of March 31, 2025, we have approximately $14.9 million authorization remaining to purchase additional shares.
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We paid $0.07 per share in quarterly dividends during the two quarters ended March 31, 2025, while we paid $0.06 per share during the two quarters ended March 31, 2024.
See Note 6 to our unaudited condensed consolidated financial statements for future maturities of our debt obligations as of March 31, 2025.
We have paid all our debts on time and have not defaulted nor requested forbearance on any of our debts during the six months ended March 31, 2025, and 2024.
Management also uses certain non-GAAP cash flow measures such as free cash flow. We calculate free cash flow as net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy.
Below is a table reconciling free cash flow to its most directly comparable GAAP measure (in thousands):

| Six Months Ended March 31,
| 2025 |  | 2024
Net cash provided by operating activities | $ | 21,891 |  |  | $ | 24,469 |
Less: Maintenance capital expenditures | 2,887 |  |  | 2,994 |
Free cash flow | $ | 19,004 |  |  | $ | 21,475 |

Our free cash flow for the six-month period decreased by 11.5% compared to the comparable prior-year period primarily due to lower conversion of revenues earned to cash, partially offset by lower payments of operating liabilities in the current six-month period as compared to last year.
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 our contractual debt and lease obligations, we are not aware of any event or trend that would adversely impact our liquidity. In our opinion, working capital is not a true indicator of our financial status. Typically, businesses in our industry carry current liabilities in excess of current assets because businesses in our industry receive substantially immediate payment for sales, with nominal receivables, while inventories and other current liabilities normally carry longer payment terms. Vendors and purveyors often remain flexible with payment terms, providing businesses in our industry with opportunities to adjust to short-term business downturns. We consider the primary indicators of financial status to be the long-term trend of revenue growth, the mix of sales revenues, overall cash flow, profitability from operations and the level of long-term debt. We continue to monitor the macro environment and will adjust our overall approach to capital allocation as events and trends unfold.
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The following table presents a summary of such indicators for the six months ended March 31 (in thousands, except percentages):

| 2025 |  | Increase (Decrease) |  | 2024 |  | Increase (Decrease) |  | 2023
Sales of alcoholic beverages | $ | 61,054 |  |  | (7.8) | % |  | $ | 66,223 |  |  | 10.8 | % |  | $ | 59,786 |
Sales of food and merchandise | 19,517 |  |  | (10.8) | % |  | 21,870 |  |  | 2.4 | % |  | 21,352 |
Service revenues | 47,093 |  |  | (3.3) | % |  | 48,683 |  |  | (5.0) | % |  | 51,253 |
Other | 9,695 |  |  | 3.0 | % |  | 9,414 |  |  | 3.5 | % |  | 9,094 |
Total revenues | $ | 137,359 |  |  | (6.0) | % |  | $ | 146,190 |  |  | 3.3 | % |  | $ | 141,485 |
Net income attributable to RCIHH common stockholders | $ | 12,255 |  |  | 53.2 | % |  | $ | 8,000 |  |  | (55.5) | % |  | $ | 17,970 |
Net cash provided by operating activities | $ | 21,891 |  |  | (10.5) | % |  | $ | 24,469 |  |  | (22.8) | % |  | $ | 31,684 |
Adjusted EBITDA* | $ | 29,889 |  |  | (13.9) | % |  | $ | 34,699 |  |  | (17.7) | % |  | $ | 42,149 |
Free cash flow* | $ | 19,004 |  |  | (11.5) | % |  | $ | 21,475 |  |  | (22.7) | % |  | $ | 27,799 |
Debt (end of period) | $ | 241,462 |  |  | 4.1 | % |  | $ | 231,925 |  |  | (5.6) | % |  | $ | 245,767 |

*See definition and calculation of Adjusted EBITDA and Free Cash Flow above in the Non-GAAP Financial Measures subsection of Results of Operations.
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Impact of Inflation
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 we can continue to grow organically and through careful entry into markets with high growth potential. Our growth strategy includes acquiring existing units, opening new units after market analysis, and developing new club concepts that are consistent with our management and marketing skills as our capital and manpower allow.
As of March 31, 2025, nine of the ten existing Bombshells restaurants were located in Texas, and one new location in Denver, Colorado. Our growth strategy is to diversify our operations with these units which do not require SOB licenses, which are sometimes difficult to obtain. While we are searching for adult nightclubs to acquire, we are able to also search for restaurant/sports bar locations that are consistent with our income targets.
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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of March 31, 2025, 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, 2024.
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 disclosure.
In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, 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 March 31, 2025. This determination is based on the previously reported material weaknesses management 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. We believe the completion of these processes should remedy our disclosure controls and procedures. We will continue to monitor these issues.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
In our Annual Report for the year ended September 30, 2024, filed with the SEC on December 16, 2024, management concluded that our internal control over financial reporting was not effective as of September 30, 2024. In the evaluation, management identified material weaknesses in internal control related (1) ineffective design and operation of controls over certain information technology general controls ("ITGCs"), including program change management, user access, and vendor management controls; (2) ineffective design and operation of controls, which include management review controls, over the accounting for business combinations; and (3) ineffective design and operation of controls, which include management review controls, over the Company's assessments of potential impairment. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective as those controls could have been adversely impacted. We believe that these control deficiencies were a result of inadequate IT controls over the review of user access and imprecise documentation of procedures related to program change management. Additionally, we rely upon a variety of outsourced IT service providers for key elements of the technology infrastructure impacting our financial reporting process. Certain outsourced IT service providers could not provide System and Organization Controls ("SOC") reports for periods that closely align with our fiscal year end. Given that management did not effectively assess the design and operation of these outsourced IT service providers’ internal controls, some of our controls over IT systems and business processes were also deemed ineffective, but only to the extent that we rely upon information that was subject to the outsourced IT service providers’ control environment. These deficiencies may have an impact on our financial statements, account balances, and disclosures. Based on our evaluation, our management, with the participation of our chief executive officer and chief financial officer, concluded that our internal control over financial reporting was not effective as of September 30, 2024.
Remediation Efforts to Address Material Weakness
Review of Accounting for Business Combinations
Additional controls are being evaluated to both increase precision of management’s review of each component of business combinations, and if necessary, retain the services of a third-party consultant to assist in the valuation and accounting for intangible assets acquired in a business combination.
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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 in our controls over user access review; (ii) defining and communicating clear and concise program change management policy and procedures; (iii) enhancing the reporting requirements of accounting system audit logs; (iv) continue to evaluate options to mitigate risks associated with the lack of available SOC reports from third-party service providers; and (v) enhanced quarterly reporting on the remediation measures to the Audit Committee of the board of directors.
It is our belief that these added controls will effectively remediate the existing 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. The intention of management is to remediate these material weaknesses prior to the end of fiscal 2025, but there are certain initiatives that are currently unfeasible, such as the lack of available SOC reports from third-party service providers, as mentioned above.
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 March 31, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
See 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.
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, 2024, except for such risks and uncertainties that may result from the additional disclosures in the “Legal Matters” and “Self-insurance Liability” sections 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.
Our share repurchase activity during the three months ended March 31, 2025, 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
January 1-31, 2025 |  | 17,750 |  |  | $ | 55.26 |  |  | 17,750 |  |  | $ | 16,835,748 |
February 1-28, 2025 |  | 18,125 |  |  | $ | 52.32 |  |  | 18,125 |  |  | $ | 15,887,458 |
March 1-31, 2025 |  | 21,000 |  |  | $ | 46.03 |  |  | 21,000 |  |  | $ | 14,920,779 |
|  | 56,875 |  |  | $ | 50.92 |  |  | 56,875 |  |  |

(1) Prices include any commissions and transaction costs, but exclude a 1% excise tax.
(2) All shares were purchased pursuant to the repurchase plans approved by the board of directors as disclosed in our most recent Annual Report on Form 10-K.
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Item 6. Exhibits.

Exhibit No. |  | Description
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 March 31, 2025, formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Statements of Cash Flows, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Changes in Equity, (iv) the Condensed Consolidated Balance Sheets, and (v) Notes to the Condensed Consolidated Financial Statements.
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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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: May 12, 2025 | By: | /s/ Eric S. Langan
|  | Eric S. Langan
|  | Chief Executive Officer and President
Date: May 12, 2025 | By: | /s/ Bradley Chhay
|  | Bradley Chhay
|  | Chief Financial Officer and Principal Accounting Officer

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