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What changed in RCI HOSPITALITY HOLDINGS, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of RCI HOSPITALITY HOLDINGS, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+207 added−215 removedSource: 10-K (2024-12-16) vs 10-K (2023-12-14)

Top changes in RCI HOSPITALITY HOLDINGS, INC.'s 2024 10-K

207 paragraphs added · 215 removed · 180 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

18 edited+4 added−6 removed26 unchanged
Biggest changeOUR STRATEGY Our overall objective is to create value for our shareholders by developing and operating profitable businesses in the hospitality and related space. We strive to achieve that by providing an attractive price-value entertainment, dining experience, and top-notch service; by attracting and retaining quality personnel; and by focusing on unit-level operating performance.
Biggest changeWe strive to achieve that by providing an attractive price-value entertainment, dining experience, and top-notch service; by attracting and retaining quality personnel; and by focusing on unit-level operating performance. Aside from our operating strategy, we employ a capital allocation strategy.
The table below shows the number of Nightclubs and Bombshells open by state as of September 30, 2023: Nightclubs Bombshells (1) Total Arizona 1 — 1 Colorado 5 1 6 Florida 4 — 4 Illinois 5 — 5 Indiana 1 — 1 Kentucky 1 — 1 Louisiana 1 — 1 Maine 1 — 1 Minnesota 3 — 3 New York 4 — 4 North Carolina 2 — 2 Pennsylvania 1 — 1 Texas 27 12 39 56 13 69 (1) Includes one food hall location. 4 Table of Contents Nightclubs Segment We operate our adult entertainment nightclubs through several brands that target many different demographics of customers by providing a unique, quality entertainment environment.
The table below shows the number of Nightclubs and Bombshells open by state as of September 30, 2024: Nightclubs Bombshells (1) Total Arizona 1 — 1 Colorado 5 1 6 Florida 4 — 4 Illinois 5 — 5 Indiana 1 — 1 Kentucky 1 — 1 Louisiana 1 — 1 Maine 1 — 1 Minnesota 3 — 3 New York 4 — 4 North Carolina 2 — 2 Pennsylvania 1 — 1 Texas 27 12 39 56 13 69 (1) Includes one food hall location. 4 Table of Contents Nightclubs Segment Our Nightclubs subsidiaries operate our adult entertainment nightclubs through several brands that target many different demographics of customers by providing a unique, quality entertainment environment.
The names “Rick’s” and “Rick’s Cabaret,” “Tootsie’s Cabaret,” “XTC Cabaret,” “Scarlett’s,” “Silver City,” “Club Onyx,” “Downtown Cabaret,” “Temptations,” “The Seville,” “Jaguars,” “Hoops Cabaret,” “Foxy’s Cabaret,” "Studio 80," “Country Rock Cabaret,” “PT’s,” “Diamond Cabaret,” “Baby Dolls Saloon," "Baby Dolls," and "Chicas Locas" are proprietary. In the restaurant/sports bar business, “Bombshells” is also proprietary.
The names “Rick’s” and “Rick’s Cabaret,” “Tootsie’s Cabaret,” “XTC Cabaret,” “Scarlett’s,” “Silver City,” “Club Onyx,” “Downtown Cabaret,” “Temptations,” “The Seville,” “Jaguars,” “Hoops Cabaret,” “Foxy’s Cabaret,” "Studio 80," “Country Rock Cabaret,” “PT’s,” “Diamond Cabaret,” “Baby Dolls Saloon," "Baby Dolls," "Chicas Locas," "Rick's Rewards," and "Venice Cabaret" are proprietary. In the restaurant/sports bar business, “Bombshells” is also proprietary.
Item 1. Business. 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. Our subsidiaries operated 69 establishments in 13 states as of September 30, 2023.
Item 1. BUSINESS. OUR COMPANY 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. Our subsidiaries operated 69 establishments in 13 states as of September 30, 2024.
Businesses that are not included as Nightclubs or Bombshells are combined as “Other.” During fiscal 2023, 2022, and 2021, consolidated revenues were $293.8 million, $267.6 million, and $195.3 million, respectively, generating diluted earnings per share of $3.13, $4.91, and $3.37, respectively.
Businesses that are not included as Nightclubs or Bombshells are combined as “Other.” During fiscal 2024, 2023, and 2022, consolidated revenues were $295.6 million, $293.8 million, and $267.6 million, respectively, generating diluted earnings per share of $0.33, $3.13, and $4.91, respectively.
During fiscal 2023, our Nightclub segment sales mix was 43.6% service revenue; 40.7% alcoholic beverages; and 15.7% food, merchandise, and other. Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 88.9%. Our Nightclubs segment revenue increased by approximately 14.8% and income from operations decreased by 11.6% compared to the prior year.
During fiscal 2024, our Nightclub segment sales mix was 40.3% service revenue; 43.3% alcoholic beverages; and 16.4% food, merchandise, and other. Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 88.3%. Our Nightclubs segment revenue increased by approximately 3.0% and income from operations decreased by 20.6% compared to the prior year.
Bombshells segment revenue decreased by 7.0%, while income from operations decreased by 43.5% from prior year. Same-stores sales for Bombshells in 2023 was -14.6%. For a list of our Bombshells locations, refer to Item 2—“Properties.” 5 Table of Contents Other Segment We group together all businesses not belonging to either Nightclubs and Bombshells as Other reportable segment.
Bombshells segment revenue decreased by 9.2%, while income from operations decreased by 263.7% from prior year. Same-stores sales for Bombshells in 2024 was -18.4%. For a list of our Bombshells locations, refer to Item 2—“Properties.” Other Segment We group together all businesses not belonging to either Nightclubs and Bombshells as Other reportable segment.
The Media Group produces two nationally recognized industry award shows for the readers of both ED Club Bulletin and StorErotica magazines, and maintains a number of B-to-B and consumer websites for both industries. Drink Robust is licensed to sell Robust Energy Drink in the United States.
The Media Group produces two nationally recognized industry award shows for the readers of both ED Club Bulletin and StorErotica magazines, and maintains a number of B-to-B and consumer websites for both industries.
Aside from our operating strategy, we employ a capital allocation strategy. 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.
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.
See Note 14 to our consolidated financial statements for details of the transactions. For a list of our nightclub locations, refer to Item 2—“Properties.” Bombshells Segment Our Bombshells segment operates a restaurant and bar concept that sets itself apart with décor that pays homage to all branches of the U.S. military.
Same-stores sales for Nightclubs in 2024 was -2.1%. For a list of our nightclub locations, refer to Item 2—“Properties.” Bombshells Segment Our Bombshells segment operates a restaurant and bar concept that sets itself apart with décor that pays homage to all branches of the U.S. military.
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.
Using the after-tax yield of buying our own stock as baseline, management believes that we are able to make better investment decisions.
As of September 30, 2023, we had the following employees: Operations Managers Non-Managers Corporate Total Hourly 24 3,183 19 3,226 Salaried 408 59 85 552 432 3,242 104 3,778 Additionally, as of September 30, 2023, we had independent contractor entertainers who are self-employed and conduct business at our locations on a non-exclusive basis.
As of September 30, 2024, we had the following employees: Operations Managers Non-Managers Corporate Total Hourly 68 3,041 15 3,124 Salaried 367 44 78 489 435 3,085 93 3,613 Additionally, as of September 30, 2024, we had independent contractor entertainers who are self-employed and conduct business at our locations on a non-exclusive basis.
In December 2022, we acquired a food hall in Denver, Colorado. Subsequent to our fiscal 2023 year-end, we opened one Bombshells location in Stafford, Texas in November 2023. During fiscal 2023, Bombshells sales mix was 55.5% alcoholic beverages and 44.5% food, merchandise, and other. Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 78%.
During fiscal 2024, we opened one Bombshells location in Stafford, Texas and sold one location in San Antonio, Texas. During fiscal 2024, Bombshells sales mix was 54.3% alcoholic beverages and 45.7% food, merchandise, and other. Segment gross margin (revenues less cost of goods sold, divided by revenues) was approximately 75.9%.
Over a five-year period from fiscal 2018 through fiscal 2023, we improved diluted earnings per share at a compound annual growth rate (“CAGR”) of approximately 8%, which was mainly caused by increasing revenue at a CAGR of approximately 12%, and flowing through net income at a CAGR of approximately 7%.
Over a five-year period from fiscal 2019 through fiscal 2024, our diluted earnings per share declined at a compound annual growth rate (“CAGR”) of 30.9%, which was mainly caused by increasing revenue at a CAGR of 10.3%, with impairment of assets as the most significant offset at a CAGR of 44.9% increase.
References to years 2023, 2022, and 2021 are for fiscal years ended September 30, 2023, 2022, and 2021, respectively. Our fiscal quarters chronologically end on December 31, March 31, June 30 and September 30. Our corporate website address is www.rcihospitality.com.
References to years 2024, 2023, and 2022 are for fiscal years ended September 30, 2024, 2023, and 2022, respectively. Our fiscal quarters chronologically end on December 31, March 31, June 30 and September 30. OUR BUSINESS Through our subsidiaries, we operate several businesses, which we aggregate for financial reporting purposes into two reportable segments – Nightclubs and Bombshells.
All of our nightclubs compete with a number of locally owned adult clubs, some of whose brands may have name recognition that equals that of ours.
We terminated our franchising program, and are aggressively closing underperforming locations. 6 Table of Contents COMPETITION The adult entertainment and the restaurant/sports bar businesses are highly competitive with respect to price, service and location. All of our nightclubs compete with a number of locally owned adult clubs, some of whose brands may have name recognition that equals that of ours.
Information contained in the corporate website shall not be construed as part of this Form 10-K. OUR BUSINESS We operate several businesses, which we aggregate for financial reporting purposes into two reportable segments – Nightclubs and Bombshells.
Information contained in the corporate website shall not be construed as part of this Form 10-K. 8 Table of Contents
As a result, net cash provided by operating activities improved at approximately 18% and free cash flow at also approximately 18% CAGR for the same period.
Excluding noncash and certain nonrecurring items, our non-GAAP diluted earnings per share improved at a CAGR of 14.1%. Net cash provided by operating activities improved at 8.5% and free cash flow also improved at 7.8% CAGR for the same period. See discussions of our non-GAAP financial measures starting on page 44 .
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Same-stores sales for Nightclubs in 2023 was -3.5%. During fiscal 2023, we acquired six gentlemen’s clubs, certain related real estate properties, and associated intellectual property through two transactions with an aggregate acquisition price of $75.5 million (with a combined fair value of $72.3 million). These six clubs contributed $18.2 million in revenues during fiscal 2023.
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Drink Robust is licensed to sell Robust Energy Drink in the United States. 5 Table of Contents OUR STRATEGY Our overall objective is to create value for our shareholders by developing and operating profitable businesses in the hospitality and related space.
Removed
Bombshells is also franchising under our subsidiary, BMB Franchising Services, Inc., which has been approved to sell franchises in all 50 states.
Added
During 2022, we achieved our highest financial performance in terms of profitability and cash flow due to government stimulus due to the pandemic and the fact that our restaurants and clubs were among the first to open and resume business operations. Compared to our record net income in 2022, our 2024 net income decreased by 93%.
Removed
On December 22, 2020, the Company signed a franchise development agreement with a group of private investors to open three Bombshells locations in San Antonio, Texas, over a period of five years, and the right of first refusal for three more locations in Corpus Christi, New Braunfels, and San Marcos, all in Texas.
Added
But for the same time period, our net cash from operating activities only decreased by 13%. We are managing this by carefully evaluating our Bombshells program in view of recent performance trends. Currently, we have three locations that are under construction and do not plan to add anymore locations after those.
Removed
On May 2, 2022, the Company signed its second franchise development agreement with a private investor to open three Bombshells locations in the state of Alabama over a period of five years. We opened one company-owned location in Arlington, Texas (Dallas area), in December 2021 and our first franchised location opened in June 2022 in San Antonio, Texas.
Added
See related discussion in “Risk Factors” below. AVAILABLE INFORMATION Our corporate website address is www.rcihospitality.com.
Removed
In February 2023, we acquired the San Antonio franchise location and terminated our franchise and development agreement. As of September 30, 2023, we have twelve company-owned Bombshells locations, all in Texas with two in the Dallas area, one in Austin, one in San Antonio, and eight in the Greater Houston area.
Removed
See discussions of our non-GAAP financial measures starting on page 41 . 6 Table of Contents COMPETITION The adult entertainment and the restaurant/sports bar businesses are highly competitive with respect to price, service and location.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

57 edited+13 added−11 removed102 unchanged
Biggest changeAs a result of our periodic impairment reviews, we recorded impairment charges of $12.6 million in 2023 (representing $4.2 million of goodwill impairment on four clubs, $6.5 million of SOB license impairment on eight clubs, $1.0 million of operating lease right-of-use asset on one club, $814,000 of software impairment on two investment projects, and $58,000 of property and equipment impairment on one club); $1.9 million in 2022 (representing $566,000 of goodwill impairment on one club, $293,000 of SOB license impairment on one club, and $1.0 million of property and equipment impairment on one club and one Bombshells unit); and $13.6 million in 2021 (representing $6.3 million of goodwill impairment on seven clubs, $5.3 million of SOB license impairment on three clubs, and $2.0 million of property and equipment impairment on four clubs and one held-for-sale property).
Biggest changeAs a result of our periodic impairment reviews, we recorded impairment charges of $38.5 million in 2024 (representing $8.9 million of goodwill impairment on four clubs, $11.8 million of SOB license impairment on seven clubs, $10.6 million of property and equipment impairment on four clubs and nine Bombshells units, $6.5 million of operating lease right-of-use assets impairment on five Bombshells units, $693,000 of tradename impairment on one club, and $68,000 related to other assets); $12.6 million in 2023 (representing $4.2 million of goodwill impairment on four clubs, $6.5 million of SOB license impairment on eight clubs, $1.0 million of operating lease right-of-use asset on one club, $814,000 of software impairment on two investment projects, and $58,000 of property and equipment impairment on one club); and $1.9 million in 2022 (representing $566,000 of goodwill impairment on one club, $293,000 of SOB license impairment on one club, and $1.0 million of property and equipment impairment on one club and one Bombshells unit).
If federal or state law mandates that they be classified as employees, our business could be adversely impacted. The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees. If federal or state law mandates that they be classified as employees, our business could be adversely impacted. The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
Mr. Langan possesses a unique and comprehensive knowledge of our industry. While Mr. Langan has no present plans to leave or retire in the near future, his loss could have a negative effect on our operating, marketing and financial performance if we are unable to find an adequate replacement with similar knowledge and experience within our industry. Mr.
Langan possesses a unique and comprehensive knowledge of our industry. While Mr. Langan has no present plans to leave or retire in the near future, his loss could have a negative effect on our operating, marketing and financial performance if we are unable to find an adequate replacement with similar knowledge and experience within our industry. Mr.
Our current and future projects could also experience: • delays and significant cost increases; • delays in obtaining or inability to obtain necessary permits, licenses and approvals; • lack of sufficient, or delays in the availability of, financing; 18 Table of Contents • shortages of materials; • shortages of skilled labor, work stoppages or labor disputes; • poor performance or nonperformance by any third parties on whom we place reliance; • unforeseen construction scheduling, engineering, environmental, permitting, construction or geological problems, including defective plans and specifications; • weather interference, floods, fires or other casualty losses; and • COVID-19 related delays.
Our current and future projects could also experience: • delays and significant cost increases; • delays in obtaining or inability to obtain necessary permits, licenses and approvals; • lack of sufficient, or delays in the availability of, financing; • shortages of materials; • shortages of skilled labor, work stoppages or labor disputes; • poor performance or nonperformance by any third parties on whom we place reliance; • unforeseen construction scheduling, engineering, environmental, permitting, construction or geological problems, including defective plans and specifications; • weather interference, floods, fires or other casualty losses; and • COVID-19 related delays.
Risks related to our business ◦ We may deviate from our present capital allocation strategy. ◦ We may need additional financing, or our business expansion plans may be significantly limited. ◦ There is substantial competition in the nightclub entertainment industry, which may affect our ability to operate profitably or acquire additional clubs. ◦ The adult entertainment industry is extremely volatile. ◦ Private advocacy group actions targeted at the kind of adult entertainment we offer could result in limitations and our inability to operate in certain locations and negatively impact our business. ◦ We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business. ◦ We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation. ◦ Our acquisitions may result in disruptions in our business and diversion of management’s attention. ◦ We face a variety of risks associated with doing business with franchisees and licensees. ◦ The impact of new club or restaurant openings could result in fluctuations in our financial performance. ◦ Our ability to grow sales through delivery orders is uncertain. ◦ We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives. ◦ We have identified material weaknesses in our internal control over financial reporting. ◦ We may have uninsured risks in excess of our insurance coverage. ◦ We are subject to increasing legal complexity and could be party to litigation that could adversely affect us. ◦ Our previous liability insurer may be unable to provide coverage to us and our subsidiaries. ◦ The protection provided by our service marks is limited. ◦ We are dependent on key personnel. 9 Table of Contents ◦ If we are not able to hire, develop, and retain qualified club and restaurant employees and/or appropriately plan our workforce, our growth plan and profitability could be adversely affected. ◦ A failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business. ◦ Our venture, expansion, and renovation projects may face significant inherent risks. ◦ Other risk factors may adversely affect our financial performance.
A summary of our risk factors is as follows: Risks related to our business ◦ We may deviate from our present capital allocation strategy. ◦ We may need additional financing, or our business expansion plans may be significantly limited. ◦ There is substantial competition in the nightclub entertainment industry, which may affect our ability to operate profitably or acquire additional clubs. ◦ The adult entertainment industry is extremely volatile. ◦ Private advocacy group actions targeted at the kind of adult entertainment we offer could result in limitations and our inability to operate in certain locations and negatively impact our business. ◦ We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business. ◦ We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation. ◦ Our acquisitions may result in disruptions in our business and diversion of management’s attention. ◦ The impact of new club or restaurant openings could result in fluctuations in our financial performance. ◦ Our ability to grow sales through delivery orders is uncertain. ◦ We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives. ◦ We have identified material weaknesses in our internal control over financial reporting. ◦ We may have uninsured risks in excess of our insurance coverage or self-insurance. ◦ We are subject to increasing legal complexity and could be party to litigation that could adversely affect us. ◦ Our previous liability insurer may be unable to provide coverage to us and our subsidiaries. ◦ The protection provided by our service marks is limited. ◦ We are dependent on key personnel. ◦ If we are not able to hire, develop, and retain qualified club and restaurant employees and/or appropriately plan our workforce, our growth plan and profitability could be adversely affected. 9 Table of Contents ◦ A failure to maintain food safety throughout the supply chain and food-borne illness concerns may have an adverse effect on our business. ◦ Our venture, expansion, and renovation projects may face significant inherent risks. ◦ Other risk factors may adversely affect our financial performance.
Our liquidity position is, in part, dependent upon our ability to borrow funds from financial institutions and/or private individuals. Certain of our debts have financial covenants that require us to maintain certain operating income to debt service ratios. As of September 30, 2023, we were in compliance with all covenants.
Our liquidity position is, in part, dependent upon our ability to borrow funds from financial institutions and/or private individuals. Certain of our debts have financial covenants that require us to maintain certain operating income to debt service ratios. As of September 30, 2024, we were in compliance with all covenants.
In performing this evaluation and testing, both our management and our independent registered public accounting firm concluded that our internal control over financial reporting is not effective as of September 30, 2023. We are, however, addressing this issue and remediating our material weaknesses.
In performing this evaluation and testing, both our management and our independent registered public accounting firm concluded that our internal control over financial reporting is not effective as of September 30, 2024. We are, however, addressing this issue and remediating our material weaknesses.
A failure to comply with the financial covenants under our credit facility or obtain waivers would give rise to an event of default under the terms of certain of our debts, allowing the lenders to accelerate repayment of any outstanding debt. We have recorded impairment charges in current and past periods and may record additional impairment charges in future periods.
A failure to comply with the financial covenants under our credit facility or obtain waivers would give rise to an event of default under the terms of certain of our debts, allowing the lenders to accelerate repayment of any outstanding debt. 18 Table of Contents We have recorded impairment charges in current and past periods and may record additional impairment charges in future periods.
Any government or 19 Table of Contents regulatory investigations initiated as a result of the above may cause a deflation in our stock price. Additionally, allegations, directly or indirectly against us, may be posted on the internet, including social media platforms by anyone, whether or not related to us, on an anonymous basis.
Any government or regulatory investigations initiated as a result of the above may cause a deflation in our stock price. Additionally, allegations, directly or indirectly against us, may be posted on the internet, including social media platforms by anyone, whether or not related to us, on an anonymous basis.
Moreover, if we are not able to correct an internal control issue and comply with the requirements of Section 404 in a timely manner, or if in the future we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
Moreover, if we are not able to correct an internal control issue and comply with the requirements of Section 404 in a timely manner, or if in the future we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. 13 Table of Contents We have identified material weaknesses in our internal control over financial reporting.
We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or 13 Table of Contents confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation.
We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and employees or confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs, and litigation.
The loss of the intellectual property rights owned or claimed by us could have a material adverse effect on our business. 17 Table of Contents We are dependent on key personnel. Our future success is dependent, in a large part, on retaining the services of Eric Langan, our President and Chief Executive Officer, and Bradley Chhay, our Chief Financial Officer.
The loss of the intellectual property rights owned or claimed by us could have a material adverse effect on our business. We are dependent on key personnel. Our future success is dependent, in a large part, on retaining the services of Eric Langan, our President and Chief Executive Officer, and Bradley Chhay, our Chief Financial Officer. Mr.
A summary of our risk factors is as follows: Risks related to general macroeconomic and safety conditions ◦ The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time. ◦ Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war. ◦ If we are unable to maintain compliance with certain of our debt covenants or unable to obtain waivers, we may be unable to make additional borrowings and be declared in default where our debt will be made immediately due and payable.
Risks related to general macroeconomic and safety conditions ◦ The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition, and results of operations for an extended period of time. ◦ Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war. ◦ If we are unable to maintain compliance with certain of our debt covenants or unable to obtain waivers, we may be unable to make additional borrowings and be declared in default where our debt will be made immediately due and payable.
Due to the foregoing factors, results for any one fiscal quarter are not necessarily indicative of results to be expected for any other fiscal quarter or for a full fiscal year. 14 Table of Contents Our ability to grow sales through delivery orders is uncertain.
Due to the foregoing factors, results for any one fiscal quarter are not necessarily indicative of results to be expected for any other fiscal quarter or for a full fiscal year. Our ability to grow sales through delivery orders is uncertain.
We have experienced and may continue to experience challenges in hiring and retaining restaurant and club employees and in maintaining full restaurant and or club staffing in various locations, which has resulted in longer wait times for guest orders and potentially decreased employee satisfaction.
We have experienced and may continue to experience challenges in hiring and retaining restaurant and club employees and in maintaining full restaurant 16 Table of Contents and or club staffing in various locations, which has resulted in longer wait times for guest orders and potentially decreased employee satisfaction.
However, there can be no assurance that uninsured liabilities in excess of the coverage provided by insurance, which liabilities may be imposed pursuant to the Texas “dram shop” statute or similar “dram shop” statutes or common law theories of liability in other states where we operate or expand.
There can be no assurance that we will not have uninsured liabilities or liabilities in excess of the coverage provided by insurance or self-insurance, which liabilities may be imposed pursuant to the Texas “dram shop” statute or similar “dram shop” statutes or common law theories of liability in other states where we operate or expand.
Our directors and officers have limited liability and have rights to indemnification. Our Articles of Incorporation and Bylaws provide, as permitted by governing Texas law, that our directors and officers shall not be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director or officer, with certain exceptions.
Our Articles of Incorporation and Bylaws provide, as permitted by governing Texas law, that our directors and officers shall not be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director or officer, with certain exceptions.
Risk related to our common stock ◦ We must continue to meet NASDAQ Global Market Continued Listing Requirements, or we risk delisting. ◦ We may be subject to allegations, defamations, or other detrimental conduct by third parties, which could harm our reputation and cause us to lose customers and/or contribute to a deflation of our stock price. ◦ Our quarterly operating results may fluctuate and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price. ◦ Anti-takeover effects of the issuance of our preferred stock could adversely affect our common stock. ◦ Future sales or the perception of future sales of a substantial amount of our common stock may depress our stock price. ◦ Our stock price has been volatile and may fluctuate in the future. ◦ Cumulative voting is not available to our stockholders. ◦ Our directors and officers have limited liability and have rights to indemnification.
Risk related to our common stock ◦ We must continue to meet NASDAQ Global Market Continued Listing Requirements, or we risk delisting. ◦ We may be subject to allegations, defamations, or other detrimental conduct by third parties, which could harm our reputation and cause us to lose customers and/or contribute to a deflation of our stock price. ◦ Our quarterly operating results may fluctuate and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price. ◦ Anti-takeover effects of the issuance of our preferred stock could adversely affect our common stock. ◦ Future sales or the perception of future sales of a substantial amount of our common stock may depress our stock price. ◦ Our stock price has been volatile and may fluctuate in the future. ◦ Cumulative voting is not available to our stockholders. ◦ Our directors and officers have limited liability and have rights to indemnification. 10 Table of Contents Details of our risk factors are as follows: Risks related to our business We may deviate from our present capital allocation strategy.
Historically, we have experienced reduced revenues from April through September with the strongest operating results occurring from October through March. As a result, our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly as a result of seasonality and the factors discussed above.
Our nightclub operations are affected by seasonal factors. Historically, we have experienced reduced revenues from April through September with the strongest operating results occurring from October through March. As a result, our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly as a result of seasonality and the factors discussed above.
While certain actions have been taken to implement a remediation plan to address these material weaknesses and to enhance our internal control over financial reporting, if these material weaknesses are not remediated, it could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which could negatively affect investor confidence in our Company, and, as a result, the value of our common stock could be adversely affected. 15 Table of Contents We may have uninsured risks in excess of our insurance coverage.
While certain actions have been taken to implement a remediation plan to address these material weaknesses and to enhance our internal control over financial reporting, if these material weaknesses are not remediated, it could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which could negatively affect investor confidence in our Company, and, as a result, the value of our common stock could be adversely affected.
If cash generated from our operations is insufficient to satisfy our working capital and capital expenditure requirements, we will need to raise additional funds through the public or private sale of our equity or debt securities.
We may need additional financing, or our business expansion plans may be significantly limited. If cash generated from our operations is insufficient to satisfy our working capital and capital expenditure requirements, we will need to raise additional funds through the public or private sale of our equity or debt securities.
From time to time, private advocacy groups have sought to target our nightclubs by petitioning for non-renewal of certain of our permits and licenses. Furthermore, private advocacy groups which have influences on certain financial institutions have managed to sway these financial institutions into not doing business with us.
From time to time, private advocacy groups have sought to target our nightclubs by petitioning for non-renewal of certain of our permits and licenses. Furthermore, private advocacy groups, which have influence on certain financial institutions, have swayed these institutions to not do business with us.
We have identified material weaknesses in our internal control over financial reporting. Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2023, and concluded that we did not maintain effective internal control over financial reporting.
Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2024, and concluded that we did not maintain effective internal control over financial reporting.
This price may be influenced by many factors, including: • our performance and prospects; • the depth and liquidity of the market for our securities; • investor perception of us and the industry in which we operate; • changes in earnings estimates or buy/sell recommendations by analysts; • general financial and other market conditions; and • domestic economic conditions. 20 Table of Contents Public stock markets have experienced, and may experience, extreme price and trading volume volatility.
This price may be influenced by many factors, including: • our performance and prospects; • the depth and liquidity of the market for our securities; • investor perception of us and the industry in which we operate; • changes in earnings estimates or buy/sell recommendations by analysts; • general financial and other market conditions; and • domestic economic conditions.
These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that served alcoholic beverages to the intoxicated person. Some litigation against restaurant chains has resulted in significant judgments, including punitive damages, under dram shop statutes.
As a Company, we take responsible alcohol service seriously. However, we are subject to "dram shop" statutes. These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that served alcoholic beverages to the intoxicated person. Some litigation against restaurant chains has resulted in significant judgments, including punitive damages, under dram shop statutes.
If these factors are not conducive to implementing our present capital allocation strategy, or we determine that adopting a different capital allocation strategy is in the best interest of shareholders, we reserve the right to deviate from this approach.
If these factors are not conducive to implementing our present capital allocation strategy, or we determine that adopting a different capital allocation strategy is in the best interest of shareholders, we reserve the right to deviate from this approach. There can be no assurance that we will not deviate from or adopt an alternative capital allocation strategy moving forward.
However, implementation of our capital allocation strategy depends on the interplay of several factors such as our stock price, our outstanding common shares, the interest rates on our debt, and the rate of return on available investments.
We believe that our present capital allocation strategy will provide us with optimized returns. However, implementation of our capital allocation strategy depends on the interplay of several factors such as our stock price, our outstanding common shares, the interest rates on our debt, and the rate of return on available investments.
Details of our risk factors are as follows: Risks related to general macroeconomic and safety conditions The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition and results of operations for an extended period of time.
Risks related to general macroeconomic and safety conditions The novel coronavirus (COVID-19) pandemic has disrupted and may continue to disrupt our business, which has and could continue to materially affect our operations, financial condition and results of operations for an extended period of time. The COVID-19 pandemic had an adverse effect that was material on our business.
These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities. We may be subject to allegations, defamations, or other detrimental conduct by third parties, which could harm our reputation and cause us to lose customers and/or contribute to a deflation of our stock price.
We may be subject to allegations, defamations, or other detrimental conduct by third parties, which could harm our reputation and cause us to lose customers and/or contribute to a deflation of our stock price.
New clubs and restaurants typically encounter higher customer traffic and sales in their initial months, which may decrease over time. Accordingly, sales achieved by new or reconcepted locations may not be indicative of future operating results. Additionally, we incur substantial pre-opening expenses each time we open a new establishment, which expenses may be higher than anticipated.
Accordingly, sales achieved by new or reconcepted locations may not be indicative of future operating results. Additionally, we incur substantial pre-opening expenses each time we open a new establishment, which expenses may be higher than anticipated.
In the United States, state and local governments imposed a variety of restrictions on people and businesses and public health authorities offered regular guidance on health and safety. Once COVID-19 vaccines were approved and moved into wider distribution in the United States in early 2021, public health conditions improved and almost all of the COVID-19 restrictions on businesses eased.
Once COVID-19 vaccines were approved and moved into wider distribution in the United States in early 2021, public health conditions improved and almost all of the COVID-19 restrictions on businesses eased.
In the last couple of years, along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold.
In the last couple of years, along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold. These events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain.
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.
Further, the order stayed or abated pending lawsuits involving IIC as the insurer until May 6, 2014. 15 Table of Contents 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.
We maintain insurance in amounts we consider adequate for personal injury and property damage to which the business of the Company may be subject.
We may have uninsured risks in excess of our insurance coverage or self-insurance. Historically, we have maintained insurance in amounts we consider adequate for personal injury and property damage to which the business of the Company may be subject.
In addition to possibly limiting our operations and financing options, negative publicity campaigns, lawsuits and boycotts could negatively affect our businesses and cause additional financial harm by discouraging investors from investing in our securities or requiring that we incur significant expenditures to defend our business.
In addition to possibly limiting our operations and financing options, negative publicity campaigns, lawsuits and boycotts could negatively affect our businesses and cause additional financial harm by discouraging investors from investing in our securities or requiring that we incur significant expenditures to defend our business. 11 Table of Contents We rely heavily on information technology in our operations and any material failure, weakness, interruption, or breach of security could prevent us from effectively operating our business.
While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will permit our nightclubs to remain in operation or profitable in the future. 11 Table of Contents The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
However, the protection is limited to the expression, and not the conduct of an entertainer. While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will permit our nightclubs to remain in operation or profitable in the future.
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.
The Rehabilitation Order empowered the Commissioner to rehabilitate IIC through a variety of means, including gathering assets and marshaling those assets, as necessary.
In addition, global economic conditions may make it more difficult to access new credit facilities. ◦ We have recorded impairment charges in current and past periods and may record additional impairment charges in future periods. 8 Table of Contents Risks related to regulations and/or regulatory agencies ◦ Our business operations are subject to regulatory uncertainties which may affect our ability to continue operations of existing nightclubs, acquire additional nightclubs, or be profitable. ◦ The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
Risks related to regulations and/or regulatory agencies ◦ Our business operations are subject to regulatory uncertainties which may affect our ability to continue operations of existing nightclubs, acquire additional nightclubs, or be profitable. ◦ The adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees.
Some of our nightclubs operate under licenses for sexually oriented businesses and are afforded some protection under the First Amendment to the U.S. Constitution.
We are subject to risks associated with activities or conduct at our nightclubs that are illegal or violate the terms of necessary business licenses. Some of our nightclubs operate under licenses for sexually oriented businesses and are afforded some protection under the First Amendment to the U.S. Constitution.
These events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain. 10 Table of Contents Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war.
Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing war between Russia and Ukraine and the Israel-Hamas war.
Our quarterly operating results may fluctuate and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price. Our nightclub operations are affected by seasonal factors.
Our reputation may be negatively affected as a result of the public dissemination of negative and potentially false information about our business and operations, which in turn may cause us to lose customers. 20 Table of Contents Our quarterly operating results may fluctuate and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time, attention and money away from our operations and hurt our performance. A judgment significantly in excess of any applicable insurance coverage could have significant adverse effect on our financial condition or results of operations.
Further, adverse publicity resulting from these claims may hurt our business. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time, attention and money away from our operations and hurt our performance.
These broad market fluctuations may adversely affect the market price of our securities. Cumulative voting is not available to our stockholders. Cumulative voting in the election of Directors is expressly denied in our Articles of Incorporation. Accordingly, the holder or holders of a majority of the outstanding shares of our common stock may elect all of our Directors.
Public stock markets have experienced, and may experience, extreme price and trading volume volatility. These broad market fluctuations may adversely affect the market price of our securities. Cumulative voting is not available to our stockholders. Cumulative voting in the election of directors is expressly denied in our Articles of Incorporation.
Activities or conduct at our nightclubs may cause us to lose necessary business licenses, expose us to liability, or result in adverse publicity, which may increase our costs and divert management’s attention from our business. We are subject to risks associated with activities or conduct at our nightclubs that are illegal or violate the terms of necessary business licenses.
In all states where we operate, management believes we are in compliance with applicable city, county, state or other local laws governing the sale of alcohol. 19 Table of Contents Activities or conduct at our nightclubs may cause us to lose necessary business licenses, expose us to liability, or result in adverse publicity, which may increase our costs and divert management’s attention from our business.
If our securities are ever delisted from NASDAQ, they may trade on the over-the-counter market, which may be a less liquid market. In such case, our shareholders’ ability to trade or obtain quotations of the market value of shares of our common stock would be severely limited because of lower trading volumes and transaction delays.
In such case, our shareholders’ ability to trade or obtain quotations of the market value of shares of our common stock would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities.
Risk related to our common stock We must continue to meet NASDAQ Global Market Continued Listing Requirements, or we risk delisting. Our securities are currently listed for trading on the NASDAQ Global Market. We must continue to satisfy NASDAQ’s continued listing requirements or risk delisting which would have an adverse effect on our business.
Notwithstanding the foregoing limitations, management believes that our policies are reasonably effective in achieving their purposes. Risk related to our common stock We must continue to meet NASDAQ Global Market Continued Listing Requirements, or we risk delisting. Our securities are currently listed for trading on the NASDAQ Global Market.
Due to the impact of COVID-19 and other external factors such as supply chain disruption, the conflicts in Ukraine and in the Gaza Strip, and the potential economic slowdown, our financial performance in future periods could be negatively impacted.
Due to the impact of macroeconomic, geopolitical, and health and safety factors, and the potential economic slowdown, our financial performance in future periods could be negatively impacted.
The impact of new club or restaurant openings could result in fluctuations in our financial performance. Performance of any new club or restaurant location will usually differ from its originally targeted performance due to a variety of factors, and these differences may be material.
Performance of any new club or restaurant location will usually differ from its originally targeted performance due to a variety of factors, and these differences may be material. New clubs and restaurants typically encounter higher customer traffic and sales in their initial months, which may decrease over time.
In addition, our profitability may suffer because of acquisition-related costs or amortization, or impairment costs for acquired goodwill and other intangible assets. If management is unable to fully integrate acquired business, products or persons with existing operations, we may not receive the benefits of the acquisitions, and our revenues and stock trading price may decrease.
If management is unable to fully integrate acquired business, products, or persons with existing operations, we may not receive the benefits of the acquisitions, and our revenues and stock trading price may decrease. 12 Table of Contents The impact of new club or restaurant openings could result in fluctuations in our financial performance.
The temporary or permanent suspension or revocations of any such permits would have a material adverse effect on our revenues, financial condition and results of operations. In all states where we operate, management believes we are in compliance with applicable city, county, state or other local laws governing the sale of alcohol.
The temporary or permanent suspension or revocations of any such permits would have a material adverse effect on our revenues, financial condition and results of operations.
We can provide no assurance that any project will be completed on time, if at all, or within established budgets, or that any project will result in increased earnings to us. Significant delays, cost overruns, or failures of our projects to achieve market acceptance could have a material adverse effect on our business, financial condition and results of operations.
We can provide no assurance that any project will be completed on time, if at all, or within established budgets, or that any project will result in increased earnings to us.
Management identified material weaknesses related to (1) proper design and implementation of controls over management's review of the Company's accounting for business combinations, specifically related to the identification of and accounting for, intangibles assets acquired in a business combination and over the precision of management's review of certain valuation assumptions; (2) the impairment of goodwill, indefinite-lived intangibles, and long-lived assets, specifically over the precision of management's review of certain assumptions; and (3) ineffective information technology general controls in the areas of user access and program change-management over certain information technology systems that support the Company's financial reporting processes.
Management identified material weaknesses related to (1) ineffective design and operation of controls over certain information technology general controls, including 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.
Further, adverse publicity resulting from these claims may hurt our business. 16 Table of Contents Our previous liability insurer may be unable to provide coverage to us and our subsidiaries. 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.
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.
Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an illness or injury they suffered as a result of a visit to our restaurants, or that we have problems with food quality or operations. As a Company, we take responsible alcohol service seriously. However, we are subject to "dram shop" statutes.
Inconsistent standards imposed by governmental authorities can adversely affect our business and increase our exposure to litigation which could result in significant judgments, including punitive and liquidated damages, and injunctive relief. 14 Table of Contents Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an illness or injury they suffered as a result of a visit to our clubs or restaurants, or that we have problems with food quality or operations.
As previously stated, since October 25, 2013, the Company obtained general liability coverage from other insurers, which have covered and/or will cover any claims arising from actions after that date. As of September 30, 2023, we have 1 remaining unresolved claim out of the original 71 claims. The protection provided by our service marks is limited.
As of September 30, 2024, we have 1 remaining unresolved claim out of the original 71 claims. The protection provided by our service marks is limited.
The COVID-19 pandemic had an adverse effect that was material on our business. The COVID-19 pandemic, federal, state and local government responses to COVID-19, our customers’ responses to the pandemic, and our Company’s responses to the pandemic all disrupted our business.
The COVID-19 pandemic, federal, state and local government responses to COVID-19, our customers’ responses to the pandemic, and our Company’s responses to the pandemic all disrupted our business. In the United States, state and local governments imposed a variety of restrictions on people and businesses and public health authorities offered regular guidance on health and safety.
The harm may be immediate without affording us an opportunity for redress or correction. Our reputation may be negatively affected as a result of the public dissemination of negative and potentially false information about our business and operations, which in turn may cause us to lose customers.
The harm may be immediate without affording us an opportunity for redress or correction.
Removed
A huge portion, if not all, of the impairments in 2021 related to the then-projected decline in EBITDA caused by the COVID-19 pandemic.
Added
In addition, global economic conditions may make it more difficult to access new credit facilities. ◦ We have recorded impairment charges in current and past periods and may record additional impairment charges in future periods.
Removed
However, the protection is limited to the expression, and not the conduct of an entertainer.
Added
In addition, our profitability may suffer because of acquisition-related costs or amortization, or impairment costs for acquired goodwill and other intangible assets.
Removed
Notwithstanding the foregoing limitations, management believes that our policies are reasonably effective in achieving their purposes. Risks related to our business We may deviate from our present capital allocation strategy. We believe that our present capital allocation strategy will provide us with optimized returns.
Added
As of October 1, 2024, however, we discontinued general liability and liquor insurance coverage in a number of establishments due to increasingly prohibitive costs of such coverage, and we are currently in the process of establishing self-insurance for the claims for which third-party insurance coverage is financially prohibitive.
Removed
There can be no assurance that we will not deviate from or adopt an alternative capital allocation strategy moving forward. 12 Table of Contents We may need additional financing, or our business expansion plans may be significantly limited.
Added
However, we still carry at least the minimum insurance coverage where it is required by law for licensing requirements.
Removed
We rely heavily on information technology in our operations and any material failure, weakness, interruption, or breach of security could prevent us from effectively operating our business.
Added
Claims brought by government authorities have the potential to be especially disruptive to our business and operations.
Removed
We face a variety of risks associated with doing business with franchisees and licensees. We started franchising Bombshells in 2015. We believe that we have selected highly competent operating partners and franchisees with significant experience in restaurant operations, and we are providing them training and support on the Bombshells brand.
Added
As described further under “Legal Matters” in Note 10 to our consolidated financial statements, in 2024, the New York State Attorney General (“NY AG”) and the New York State Department of Taxation and Finance (“NY DTF”) has executed search warrants on the Company’s corporate headquarters in Houston, Texas, three separate clubs in New York, New York, and has sent the Company a subpoena requesting documents and other information with respect to certain clubs in New York and Florida.
Removed
However, the probability of opening, ultimate success and quality of any franchise or licensed restaurant rests principally with the franchisee.
Added
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.
Removed
If the franchisee does not successfully open and operate its restaurants in a manner consistent with our standards, or if guests have negative experiences due to issues with food quality or operational execution, our brand value could suffer, which could have an adverse impact on our business.
Added
It is not possible at this time to determine whether the Company will incur any fines, penalties, or liabilities in connection with the investigation.
Removed
Inconsistent standards imposed by governmental authorities can adversely affect our business and increase our exposure to litigation which could result in significant judgments, including punitive and liquidated damages, and injunctive relief.
Added
If, however, a government authority was to allege that illegal conduct was committed by the Company or any of its employees or executives, regardless of whether any such claims are valid, such claims have the potential to affect our business and defending such claims may be expensive and may divert time, attention and money away from our operations and hurt our performance.
Removed
The Company and its subsidiaries changed insurance companies on that date.
Added
A judgment significantly in excess of any applicable insurance coverage could have significant adverse effect on our financial condition or results of operations. Further, adverse publicity resulting from these claims may hurt our business. Our previous liability insurer may be unable to provide coverage to us and our subsidiaries.
Removed
Other risk factors may adversely affect our financial performance.
Added
Significant delays, cost overruns, or failures of our projects to achieve market acceptance could have a material adverse effect on our business, financial condition and results of operations. 17 Table of Contents Other risk factors may adversely affect our financial performance.
Added
We must continue to satisfy NASDAQ’s continued listing requirements or risk delisting which would have an adverse effect on our business. If our securities are ever delisted from NASDAQ, they may trade on the over-the-counter market, which may be a less liquid market.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that our existing facilities, both owned and leased, are in good condition and adequate and suitable for the conduct of our business. See related information in Notes 5 and 8 to our consolidated financial statements. 23 Table of Contents
Biggest changeAt September 30, 2024, certain of the properties we own were collateral for mortgage debt amounting to approximately $151.1 million. We believe that our existing facilities, both owned and leased, are in good condition and adequate and suitable for the conduct of our business.
Fourteen of our clubs and restaurants are in leased locations. Our principal corporate office is located at 10737 Cutten Road, Houston, Texas 77066, consisting of a 21,000-square foot corporate office and an 18,000-square foot warehouse facility.
Thirteen of our clubs and restaurants are in leased locations. Our principal corporate office is located at 10737 Cutten Road, Houston, Texas 77066, consisting of a 21,000-square foot corporate office and an 18,000-square foot warehouse facility.
Below is a list of locations we operated as of September 30, 2023: Name of Establishment Fiscal Year Acquired/Opened Club Onyx, Houston, TX 1995 Rick’s Cabaret, Minneapolis, MN 1998 XTC Cabaret, Austin, TX 1998 Scarlett's Cabaret, San Antonio, TX 1998 Rick’s Cabaret, New York City, NY 2005 Club Onyx, Charlotte, NC 2005 (1) Jaguars Club, San Antonio, TX 2006 Rick’s Cabaret, Fort Worth, TX 2007 Tootsie’s Cabaret, Miami Gardens, FL 2008 XTC Cabaret, Dallas, TX 2008 Rick’s Cabaret, Round Rock, TX 2009 Cabaret East, Fort Worth, TX 2010 Rick’s Cabaret DFW, Fort Worth, TX 2011 Downtown Cabaret, Minneapolis, MN 2011 Silver City Cabaret, Dallas, TX 2012 Jaguars Club, Odessa, TX 2012 Jaguars Club, Phoenix, AZ 2012 Jaguars Club, Longview, TX 2012 Jaguars Club, Tye, TX 2012 Jaguars Club, Edinburg, TX 2012 Jaguars Club, El Paso, TX 2012 Jaguars Club, Harlingen, TX 2012 Studio 80, Fort Worth, TX 2013 (1) Bombshells, Dallas, TX 2013 Scarlett's Cabaret, Sulphur, LA 2013 Temptations, Beaumont, TX 2013 Vivid Cabaret, New York, NY 2014 (1) Bombshells, Austin, TX 2014 (1) Rick’s Cabaret, Odessa, TX 2014 Bombshells, Spring, TX 2014 (1) Bombshells Fuqua, Houston, TX 2014 (1) Foxy’s Cabaret, Austin TX 2015 22 Table of Contents The Seville, Minneapolis, MN 2015 Hoops Cabaret and Sports Bar, New York, NY 2016 (1) Bombshells, Highway 290 Houston, TX 2017 (1) Scarlett’s Cabaret, Washington Park, IL 2017 Scarlett’s Cabaret, Miami, FL 2017 Bombshells, Pearland, TX 2018 Kappa Men’s Club, Kappa, IL 2018 Rick’s Cabaret, Chicago, IL 2019 Rick’s Cabaret, Pittsburgh, PA 2019 Bombshells I-10, Houston, TX 2019 Bombshells 249, Houston, TX 2019 Bombshells, Katy, TX 2020 Bombshells 59, Houston, TX 2020 Diamond Cabaret, Denver, CO 2022 (1) Scarlett's Cabaret, Denver, CO 2022 PT's Showclub, Denver, CO 2022 Rick's Cabaret, Denver, CO 2022 (1) Diamond Cabaret, St.
Below is a list of locations we operated as of September 30, 2024: Name of Establishment Fiscal Year Acquired/Opened Club Onyx, Houston, TX 1995 Rick’s Cabaret, Minneapolis, MN 1998 XTC Cabaret, Austin, TX 1998 Scarlett's Cabaret, San Antonio, TX 1998 Rick’s Cabaret, New York City, NY 2005 Club Onyx, Charlotte, NC 2005 (1) Jaguars Club, San Antonio, TX 2006 Rick’s Cabaret, Fort Worth, TX 2007 Tootsie’s Cabaret, Miami Gardens, FL 2008 Dallas Showclub, Dallas, TX 2008 Rick’s Cabaret, Round Rock, TX 2009 Cabaret East, Fort Worth, TX 2010 Rick’s Cabaret DFW, Fort Worth, TX 2011 Downtown Cabaret, Minneapolis, MN 2011 Silver City Cabaret, Dallas, TX 2012 Jaguars Club, Odessa, TX 2012 Jaguars Club, Phoenix, AZ 2012 Jaguars Club, Longview, TX 2012 Baby Dolls, Tye, TX 2012 Jaguars Club, Edinburg, TX 2012 Chicas Locas, El Paso, TX 2012 Chicas Locas, Harlingen, TX 2012 Studio 80, Fort Worth, TX 2013 (1) Bombshells, Dallas, TX 2013 Scarlett's Cabaret, Sulphur, LA 2013 Temptations, Beaumont, TX 2013 Vivid Cabaret, New York, NY 2014 (1) Bombshells, Austin, TX 2014 (1) Rick’s Cabaret, Odessa, TX 2014 Bombshells, Spring, TX 2014 (1) Bombshells Fuqua, Houston, TX 2014 (1) Foxy’s Cabaret, Austin TX 2015 The Seville, Minneapolis, MN 2015 24 Table of Contents Hoops Cabaret and Sports Bar, New York, NY 2016 (1) Bombshells, Highway 290 Houston, TX 2017 (1) Scarlett’s Cabaret, Washington Park, IL 2017 Scarlett’s Cabaret, Miami, FL 2017 Bombshells, Pearland, TX 2018 Kappa Men’s Club, Kappa, IL 2018 Rick’s Cabaret, Chicago, IL 2019 Rick’s Cabaret, Pittsburgh, PA 2019 Bombshells I-10, Houston, TX 2019 Bombshells 249, Houston, TX 2019 Bombshells, Katy, TX 2020 Bombshells 59, Houston, TX 2020 Diamond Cabaret, Denver, CO 2022 (1) Scarlett's Cabaret, Denver, CO 2022 PT's Showclub, Denver, CO 2022 Rick's Cabaret, Denver, CO 2022 (1) Diamond Cabaret, St.
Nine of our owned properties are in locations where we previously operated clubs or are adjacent to acquired clubs, but now lease the buildings to third parties. Twenty four are non-income-producing properties for corporate use (including our corporate office) or future club or restaurant locations, or may be offered for sale in the future.
Eight of our owned properties are in locations where we previously operated clubs or are adjacent to acquired clubs, but now lease the buildings to third parties. Twenty two are non-income-producing properties for corporate use (including our corporate office) or future club or restaurant locations, or may be offered for sale in the future.
Louis, IL 2022 (1) PT's Showclub, Indianapolis, IN 2022 Rick's Cabaret, Raleigh, NC 2022 (1) Rick's Cabaret, Portland, ME 2022 PT's Showclub, Louisville, KY 2022 PT's Centerfold, Denver, CO 2022 Mansion Gentlemen's Club & Steakhouse, Newburgh, NY 2022 Bombshells, Arlington, TX 2022 Playmates Club, Miami, FL 2022 Cheetah Gentlemen's Club, Miami, FL 2022 PT's Showclub, Odessa, TX 2022 Heartbreakers Gentlemen's Club, Dickinson, TX 2023 Cherry Creek Food Hall, Denver, CO 2023 Bombshells, San Antonio, TX 2023 (1) Baby Dolls, Dallas, TX 2023 Chicas Locas, Dallas, TX 2023 Chicas Locas, Arlington, TX 2023 Chicas Locas, Houston, TX 2023 Baby Dolls, Fort Worth, TX 2023 (1) Leased location.
Louis, IL 2022 (1) PT's Showclub, Indianapolis, IN 2022 Rick's Cabaret, Raleigh, NC 2022 (1) Rick's Cabaret, Portland, ME 2022 PT's Showclub, Louisville, KY 2022 PT's Centerfold, Denver, CO 2022 Mansion Gentlemen's Club & Steakhouse, Newburgh, NY 2022 Bombshells, Arlington, TX 2022 Playmates Club, Miami, FL 2022 Cheetah Gentlemen's Club, Miami, FL 2022 PT's Showclub, Odessa, TX 2022 Heartbreakers Gentlemen's Club, Dickinson, TX 2023 Cherry Creek Food Hall, Denver, CO 2023 Baby Dolls, Dallas, TX 2023 Chicas Locas, Dallas, TX 2023 Chicas Locas, Arlington, TX 2023 Chicas Locas, Houston, TX 2023 Baby Dolls, Fort Worth, TX 2023 (2) PT's Centerfold, Lubbock, TX 2024 Bombshells, Stafford, TX 2024 (1) Leased location.
Item 2. Properties. As of September 30, 2023, we own 88 real estate properties. On 55 of these properties, we operate clubs or restaurants, including those temporarily closed. We lease multiple other properties to third-party tenants.
Item 2. PROPERTIES. As of September 30, 2024, we own 87 real estate properties. On 57 of these properties, we operate clubs or restaurants, including those temporarily closed. We lease multiple other properties to third-party tenants.
Our property leases are typically for a fixed rental rate with contingent rent for certain locations. The lease terms generally have initial terms of 10 to 20 years with renewal terms of 5 to 20 years. At September 30, 2023, certain of the properties we own were collateral for mortgage debt amounting to approximately $136.1 million.
(2) Temporarily closed due to fire. Our property leases are typically for a fixed rental rate with contingent rent for certain locations. The lease terms generally have initial terms of 10 to 20 years with renewal terms of 5 to 20 years.
Added
See related information in Notes 6 and 8 to our consolidated financial statements. 25 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 3. Legal Proceedings. See the “ Legal Matters ” section within Note 1 0 to our consolidated financial statements within this Annual Report on Form 10-K for the requirements of this Item, which section is incorporated herein by reference. Item 4. Mine Safety Disclosures. Not applicable. 24 Table of Contents PART II
Biggest changeItem 3. LEGAL PROCEEDINGS. See the “ Legal Matters ” section within Note 10 to our consolidated financial statements within this Annual Report on Form 10-K for the requirements of this Item, which section is incorporated herein by reference. Item 4. MINE SAFETY DISCLOSURES. Not applicable. 26 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+1 added−2 removed6 unchanged
Biggest changePurchases of Equity Securities by the Issuer Our share repurchase activity during the three months ended September 30, 2023 was as follows: Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) (1) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet be Purchased Under the Plans or Programs July 1-31, 2023 8,870 $ 69.47 8,870 $ 18,150,893 August 1-31, 2023 9,922 $ 66.16 9,922 $ 17,494,464 September 1-30, 2023 13,794 $ 61.85 13,794 $ 16,641,326 32,586 32,586 (1) Prices include any commissions and transaction costs.
Biggest changeBelow are our historical dividend payments: Quarterly Dividend per Share Second quarter 2016 through third quarter 2019 $0.03 Fourth quarter 2019 $0.04 First quarter 2020 $0.03 Second quarter 2020 $0.04 Third quarter 2020 $0.03 Fourth quarter 2020 through first quarter 2022 $0.04 Second quarter 2022 through first quarter 2023 $0.05 Second quarter 2023 though third quarter 2024 $0.06 Fourth quarter 2024 through current $0.07 During fiscal 2024, 2023, and 2022, we paid cash dividends totaling $2.3 million, $2.1 million, and $1.8 million, respectively. 27 Table of Contents Purchases of Equity Securities by the Issuer Our share repurchase activity during the three months ended September 30, 2024 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 July 1-31, 2024 130,244 $ 44.85 130,244 $ 23,025,567 August 1-31, 2024 21,895 $ 45.23 21,895 $ 22,035,349 September 1-30, 2024 22,651 $ 44.16 22,651 $ 21,035,109 174,790 174,790 (1) Prices include any commissions and transaction costs, excluding excise tax on stock buybacks.
See Note 1 1 to our consolidated financial statements for details. 26 Table of Contents Stock Performance Graph The following chart compares the five-year cumulative total stock performance of our common stock; the NASDAQ Composite Index (IXIC); the Russell 2000 Index (RUT); and the Dow Jones U.S. Restaurant & Bar Index (DJUSRU), our peer index.
See Note 1 1 to our consolidated financial statements for details. 28 Table of Contents Stock Performance Graph The following chart compares the five-year cumulative total stock performance of our common stock; the NASDAQ Composite Index (IXIC); the Russell 2000 Index (RUT); and the Dow Jones U.S. Restaurant & Bar Index (DJUSRU), our peer index.
The graph assumes a hypothetical investment of $100 on September 30, 2018 in each of our common stock and each of the indices, and that all dividends were reinvested. The measurement points utilized in the graph consist of the last trading day as of September 30 each year, representing the last day of our fiscal year.
The graph assumes a hypothetical investment of $100 on September 30, 2019 in each of our common stock and each of the indices, and that all dividends were reinvested. The measurement points utilized in the graph consist of the last trading day as of September 30 each year, representing the last day of our fiscal year.
Currently, we estimate that there are approximately 12,900 stockholders having beneficial ownership in street name. Transfer Agent and Registrar The transfer agent and registrar for our common stock is Colonial Stock Transfer Company, Inc., 66 Exchange Place, 1st Floor, Salt Lake City, Utah 84111. Dividend Policy Prior to 2016, we had not paid cash dividends on our common stock.
Currently, we estimate that there are approximately 11,700 stockholders having beneficial ownership in street name. Transfer Agent and Registrar The transfer agent and registrar for our common stock is Colonial Stock Transfer Company, Inc., 66 Exchange Place, 1st Floor, Salt Lake City, Utah 84111. Dividend Policy Prior to 2016, we had not paid cash dividends on our common stock.
Our common stock is quoted on the NASDAQ Global Market under the symbol “RICK.” Holders On December 8, 2023, the closing stock price for our common stock as reported by NASDAQ was $62.30, and there were 120 stockholders of record of our common stock (excluding broker held shares in “street name”).
Our common stock is quoted on the NASDAQ Global Market under the symbol “RICK.” Holders On December 13, 2024, the closing stock price for our common stock as reported by NASDAQ was $52.09, and there were 87 stockholders of record of our common stock (excluding broker held shares in “street name”).
(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. 25 Table of Contents Equity Compensation Plan Information On February 7, 2022, our board of directors approved the 2022 Stock Option Plan (the “2022 Plan”).
(2) All shares were purchased pursuant to the repurchase plans approved by the board of directors. On July 9, 2024, the board of directors approved a $25.0 million increase in the Company's share repurchase program. Equity Compensation Plan Information On February 7, 2022, our board of directors approved the 2022 Stock Option Plan (the “2022 Plan”).
The historical stock performance presented below is not intended to and may not be indicative of future stock performance. 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 RCI Hospitality Holdings, Inc. $ 100.00 $ 69.81 $ 69.03 $ 232.06 $ 220.21 $ 204.59 NASDAQ Composite Index $ 100.00 $ 99.42 $ 138.79 $ 179.57 $ 131.43 $ 164.29 Dow Jones U.S.
The historical stock performance presented below is not intended to and may not be indicative of future stock performance. 9/30/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 9/30/2024 RCI Hospitality Holdings, Inc. $ 100.00 $ 98.88 $ 332.43 $ 315.45 $ 293.07 $ 215.37 NASDAQ Composite Index $ 100.00 $ 139.61 $ 180.62 $ 132.21 $ 165.26 $ 227.38 Dow Jones U.S.
Starting in March 2016, in conjunction with our share buyback program (see discussion below), our board of directors declared regular quarterly cash dividends of $0.03 per share, except for the fourth quarter of fiscal 2019, the second and fourth quarters of fiscal 2020, all four quarters of fiscal 2021, and the first quarter of fiscal 2022 when we paid $0.04 per share.
Starting in March 2016, in conjunction with our share buyback program (see discussion below), our board of directors declared regular quarterly cash dividends.
Removed
In the second quarter of fiscal 2022, we increased our regular quarterly dividends to $0.05 per share. In the second quarter of 2023, we increased our regular quarterly dividends to $0.06 per share. During fiscal 2023, 2022, and 2021, we paid cash dividends totaling $2.1 million, $1.8 million, and $1.4 million, respectively.
Added
Restaurant & Bar Index $ 100.00 $ 101.30 $ 124.18 $ 106.75 $ 121.60 $ 148.63 Russell 2000 Index $ 100.00 $ 98.97 $ 144.70 $ 109.28 $ 117.18 $ 146.38 Item 6. [RESERVED] 29 Table of Contents
Removed
Restaurant & Bar Index $ 100.00 $ 130.41 $ 132.11 $ 161.94 $ 139.22 $ 158.58 Russell 2000 Index $ 100.00 $ 89.79 $ 88.87 $ 129.93 $ 98.12 $ 105.22 Item 6. [Reserved] 27 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following tables present our non-GAAP performance measures for the periods indicated (in thousands, except per share amounts and percentages): 2023 2022 2021 Reconciliation of GAAP net income to Adjusted EBITDA Net income attributable to RCIHH common stockholders $ 29,246 $ 46,041 $ 30,336 Income tax expense 6,846 14,071 3,989 Interest expense, net 15,538 11,539 9,739 Settlement of lawsuits 3,759 1,417 1,349 Impairment of assets 12,629 1,888 13,612 Gain on sale of businesses and assets (682) (2,375) (522) Depreciation and amortization 15,151 12,391 8,238 Unrealized loss on equity securities — — 84 Gain on debt extinguishment — (138) (5,329) Gain on insurance (77) (463) (1,253) Stock-based compensation 2,588 2,353 — Adjusted EBITDA $ 84,998 $ 86,724 $ 60,243 Reconciliation of GAAP net income to non-GAAP net income Net income attributable to RCIHH common stockholders $ 29,246 $ 46,041 $ 30,336 Amortization of intangibles 3,528 2,118 258 Settlement of lawsuits 3,759 1,417 1,349 Impairment of assets 12,629 1,888 13,612 Gain on sale of businesses and assets (682) (2,375) (522) Costs and charges related to debt refinancing* — — 694 Unrealized loss on equity securities — — 84 Gain on debt extinguishment — (138) (5,329) Gain on insurance (77) (463) (1,253) Stock-based compensation 2,588 2,353 — Change in deferred tax asset valuation allowance (176) 343 (632) Net income tax effect (5,068) (729) (1,845) Non-GAAP net income $ 45,747 $ 50,455 $ 36,752 42 Table of Contents 2023 2022 2021 Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share Diluted shares 9,335,983 9,383,445 9,004,744 GAAP diluted earnings per share $ 3.13 $ 4.91 $ 3.37 Amortization of intangibles 0.38 0.23 0.03 Settlement of lawsuits 0.40 0.15 0.15 Impairment of assets 1.35 0.20 1.51 Gain on sale of businesses and assets (0.07) (0.25) (0.06) Costs and charges related to debt refinancing* — — 0.08 Unrealized loss on equity securities — — 0.01 Gain on debt extinguishment — (0.01) (0.59) Gain on insurance (0.01) (0.05) (0.14) Stock-based compensation 0.28 0.25 — Change in deferred tax asset valuation allowance (0.02) 0.04 (0.07) Net income tax effect (0.54) (0.08) (0.20) Non-GAAP diluted earnings per share $ 4.90 $ 5.38 $ 4.08 Reconciliation of GAAP operating income to non-GAAP operating income Income from operations $ 51,484 $ 71,459 $ 38,548 Amortization of intangibles 3,528 2,118 258 Settlement of lawsuits 3,759 1,417 1,349 Impairment of assets 12,629 1,888 13,612 Costs and charges related to debt refinancing* — — 57 Gain on sale of businesses and assets (682) (2,375) (522) Gain on insurance (77) (463) (1,253) Stock-based compensation 2,588 2,353 — Non-GAAP operating income $ 73,229 $ 76,397 $ 52,049 2023 2022 2021 Reconciliation of GAAP operating margin to non-GAAP operating margin GAAP operating margin 17.5 % 26.7 % 19.7 % Amortization of intangibles 1.2 % 0.8 % 0.1 % Settlement of lawsuits 1.3 % 0.5 % 0.7 % Impairment of assets 4.3 % 0.7 % 7.0 % Costs and charges related to debt refinancing* — % 0.0 % — % Gain on sale of businesses and assets (0.2) % (0.9) % (0.3) % Gain on insurance — % (0.2) % (0.6) % Stock-based compensation 0.9 % 0.9 % — % Non-GAAP operating margin 24.9 % 28.5 % 26.7 % * Costs and charges related to debt refinancing in 2021 consist of $637,000 in interest expense and $57,000 in legal and professional fees.
Biggest changeThe following tables present our non-GAAP performance measures for the periods indicated (in thousands, except per share amounts and percentages): 2024 2023 2022 Reconciliation of GAAP net income to Adjusted EBITDA Net income attributable to RCIHH common stockholders $ 3,011 $ 29,246 $ 46,041 Income tax expense (benefit) (410) 6,846 14,071 Interest expense, net 16,197 15,538 11,539 Settlement of lawsuits 520 3,759 1,417 Impairment of assets 38,517 12,629 1,888 Gain on sale of businesses and assets (2,140) (682) (2,375) Depreciation and amortization 15,395 15,151 12,391 Gain on debt extinguishment — — (138) Gain on insurance (327) (77) (463) Stock-based compensation 1,882 2,588 2,353 Adjusted EBITDA $ 72,645 $ 84,998 $ 86,724 Reconciliation of GAAP net income to non-GAAP net income Net income attributable to RCIHH common stockholders $ 3,011 $ 29,246 $ 46,041 Amortization of intangibles 2,494 3,528 2,118 Settlement of lawsuits 520 3,759 1,417 Impairment of assets 38,517 12,629 1,888 Gain on sale of businesses and assets (2,140) (682) (2,375) Gain on debt extinguishment — — (138) Gain on insurance (327) (77) (463) Stock-based compensation 1,882 2,588 2,353 Change in deferred tax asset valuation allowance 143 (176) 343 Net income tax effect (410) (5,068) (729) Non-GAAP net income $ 43,690 $ 45,747 $ 50,455 45 Table of Contents 2024 2023 2022 Reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share Diluted shares 9,250,245 9,335,983 9,383,445 GAAP diluted earnings per share $ 0.33 $ 3.13 $ 4.91 Amortization of intangibles 0.27 0.38 0.23 Settlement of lawsuits 0.06 0.40 0.15 Impairment of assets 4.16 1.35 0.20 Gain on sale of businesses and assets (0.23) (0.07) (0.25) Gain on debt extinguishment — — (0.01) Gain on insurance (0.04) (0.01) (0.05) Stock-based compensation 0.20 0.28 0.25 Change in deferred tax asset valuation allowance 0.02 (0.02) 0.04 Net income tax effect (0.04) (0.54) (0.08) Non-GAAP diluted earnings per share $ 4.72 $ 4.90 $ 5.38 Reconciliation of GAAP operating income to non-GAAP operating income Income from operations $ 18,805 $ 51,484 $ 71,459 Amortization of intangibles 2,494 3,528 2,118 Settlement of lawsuits 520 3,759 1,417 Impairment of assets 38,517 12,629 1,888 Gain on sale of businesses and assets (2,140) (682) (2,375) Gain on insurance (327) (77) (463) Stock-based compensation 1,882 2,588 2,353 Non-GAAP operating income $ 59,751 $ 73,229 $ 76,397 Reconciliation of GAAP operating margin to non-GAAP operating margin GAAP operating margin 6.4 % 17.5 % 26.7 % Amortization of intangibles 0.8 % 1.2 % 0.8 % Settlement of lawsuits 0.2 % 1.3 % 0.5 % Impairment of assets 13.0 % 4.3 % 0.7 % Gain on sale of businesses and assets (0.7) % (0.2) % (0.9) % Gain on insurance (0.1) % — % (0.2) % Stock-based compensation 0.6 % 0.9 % 0.9 % Non-GAAP operating margin 20.2 % 24.9 % 28.5 % 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. 46 Table of Contents LIQUIDITY AND CAPITAL RESOURCES At September 30, 2024, our cash and cash equivalents were $32.4 million as compared to $21.0 million at September 30, 2023.
In 2022, we acquired fifteen clubs with an aggregate acquisition date fair value of $132.6 million, of which $55.3 million in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million), and 500,000 shares of our common stock in equity.
In fiscal 2022, we acquired fifteen clubs with an aggregate acquisition date fair value of $132.6 million, of which $55.3 million in cash, $49.0 million in debt (with an acquisition date fair value of $47.4 million), and 500,000 shares of our common stock in equity.
Other revenues include Media Group revenues for the sale of advertising content and revenues from our annual Expo convention, and Drink Robust sales. Our fiscal year-end is September 30. 28 Table of Contents Same-Store Sales.
Other revenues include Media Group revenues for the sale of advertising content and revenues from our annual Expo convention, and Drink Robust sales. Our fiscal year-end is September 30. 30 Table of Contents Same-Store Sales.
We recognize forfeitures when they occur. 30 Table of Contents Income Taxes We estimate certain components of our provision for income taxes including the recoverability of deferred tax assets that arise from temporary differences between the tax and book carrying amounts of existing assets and liabilities and their respective tax bases.
We recognize forfeitures when they occur. Income Taxes We estimate certain components of our provision for income taxes including the recoverability of deferred tax assets that arise from temporary differences between the tax and book carrying amounts of existing assets and liabilities and their respective tax bases.
Bombshells Our wholly-owned subsidiaries own and operate restaurants and sports bars in Houston, Dallas, Austin, Spring, Pearland, Tomball, Katy, Arlington, and San Antonio, Texas under the brand name Bombshells Restaurant & Bar. Bombshells also operates a food hall in Denver, Colorado.
Bombshells Our wholly-owned subsidiaries own and operate restaurants and sports bars in Houston, Dallas, Austin, Spring, Pearland, Tomball, Katy, Arlington, and Stafford, Texas under the brand name Bombshells Restaurant & Bar. Bombshells also operates a food hall in Denver, Colorado.
See page 31 above for the breakdown of percentages for each line item of consolidated cost of goods sold as it relates to the respective consolidated revenue line.
See page 34 above for the breakdown of percentages for each line item of consolidated cost of goods sold as it relates to the respective consolidated revenue line.
We believe that excluding and including such items help management and investors better understand our operating activities. 41 Table of Contents Adjusted EBITDA .
We believe that excluding and including such items help management and investors better understand our operating activities. 44 Table of Contents Adjusted EBITDA .
We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) income tax expense (benefit), (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) unrealized gains or losses on equity securities, (g) impairment of assets, (h) settlement of lawsuits, (i) gain on debt extinguishment, and (j) stock-based compensation.
We calculate adjusted EBITDA by excluding the following items from net income attributable to RCIHH common stockholders: (a) depreciation and amortization, (b) income tax expense, (c) net interest expense, (d) gains or losses on sale of businesses and assets, (e) gains or losses on insurance, (f) impairment of assets, (g) settlement of lawsuits, (h) gain on debt extinguishment, and (i) stock-based compensation.
In relation to insurance claims and recoveries, we recognized a $77,000 gain in 2023, $463,000 gain in 2022, and $1.3 million gain in 2021 mainly related to a fire in one of our clubs in Washington Park, Illinois toward the end of fiscal 2018 and a hurricane that damaged one of our clubs in Sulphur, Louisiana in August 2020.
In relation to insurance claims and recoveries, we recognized a $77,000 gain in 2023 and $463,000 gain in 2022 mainly related to a fire in one of our clubs in Washington Park, Illinois, toward the end of fiscal 2018 and a hurricane that damaged one of our clubs in Sulphur, Louisiana, in August 2020.
The excess of the acquisition price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to acquired entities are included prospectively beginning with the date of acquisition. Acquisition-related costs are expensed as incurred.
The excess of the acquisition price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Results of operations related to acquired entities are included prospectively beginning with the date of acquisition.
GAAP measures. 32 Table of Contents The following common size tables present a comparison of our results of operations as a percentage of total revenues for the three most recently completed fiscal years: 2023 2022 2021 Revenues Sales of alcoholic beverages 43.3 % 42.3 % 44.4 % Sales of food and merchandise 14.9 % 16.6 % 21.1 % Service revenues 35.3 % 35.1 % 28.4 % Other 6.5 % 6.0 % 6.1 % Total revenues 100.0 % 100.0 % 100.0 % Operating expenses Cost of goods sold Alcoholic beverages sold 18.3 % 17.8 % 18.3 % Food and merchandise sold 35.1 % 35.1 % 33.6 % Service and other 0.2 % 0.3 % 0.6 % Total cost of goods sold (exclusive of items shown separately below) 13.3 % 13.5 % 15.4 % Salaries and wages 27.1 % 25.6 % 25.9 % Selling, general and administrative 31.7 % 29.5 % 28.0 % Depreciation and amortization 5.2 % 4.6 % 4.2 % Other charges, net 5.3 % 0.2 % 6.8 % Total operating expenses 82.5 % 73.3 % 80.3 % Income from operations 17.5 % 26.7 % 19.7 % Other income (expenses) Interest expense (5.4) % (4.5) % (5.1) % Interest income 0.1 % 0.2 % 0.1 % Non-operating gains, net — % 0.1 % 2.7 % Income before income taxes 12.2 % 22.5 % 17.5 % Income tax expense 2.3 % 5.3 % 2.0 % Net income 9.9 % 17.2 % 15.4 % † Percentages may not foot due to rounding in this and in all of the succeeding tables presenting percentages in this report.
GAAP measures. 34 Table of Contents The following common size tables present a comparison of our results of operations as a percentage of total revenues for the three most recently completed fiscal years: 2024 2023 2022 Revenues Sales of alcoholic beverages 45.0 % 43.3 % 42.3 % Sales of food and merchandise 15.1 % 14.9 % 16.6 % Service revenues 33.3 % 35.3 % 35.1 % Other 6.6 % 6.5 % 6.0 % Total revenues 100.0 % 100.0 % 100.0 % Operating expenses Cost of goods sold Alcoholic beverages sold 18.2 % 18.3 % 17.8 % Food and merchandise sold 36.7 % 35.1 % 35.1 % Service and other 0.3 % 0.2 % 0.3 % Total cost of goods sold (exclusive of items shown separately below) 13.9 % 13.3 % 13.5 % Salaries and wages 28.5 % 27.1 % 25.6 % Selling, general and administrative 33.7 % 31.7 % 29.5 % Depreciation and amortization 5.2 % 5.2 % 4.6 % Impairments and other charges, net 12.4 % 5.3 % 0.2 % Total operating expenses 93.6 % 82.5 % 73.3 % Income from operations 6.4 % 17.5 % 26.7 % Other income (expenses) Interest expense (5.6) % (5.4) % (4.5) % Interest income 0.2 % 0.1 % 0.2 % Non-operating gains, net — % — % 0.1 % Income before income taxes 0.9 % 12.2 % 22.5 % Income tax expense (benefit) (0.1) % 2.3 % 5.3 % Net income 1.0 % 9.9 % 17.2 % † Percentages may not foot due to rounding in this and in all of the succeeding tables presenting percentages in this report.
Nightclubs revenues increased by 14.8% from 2022 to 2023 and by 50.2% from 2021 to 2022, as explained below. 2023 vs. 2022 2022 vs. 2021 Impact of 3.5% decrease and 10.1% increase in same-store sales, respectively, to total revenues (3.2) % 9.5 % Newly acquired units 18.4 % 30.5 % Closed units (0.4) % 10.1 % Other — % 0.1 % 14.8 % 50.2 % Nightclubs segment sales mix for the three fiscal years, below: 2023 2022 2021 Sales of alcoholic beverages 40.7 % 38.8 % 39.5 % Sales of food and merchandise 8.4 % 8.9 % 12.5 % Service revenues 43.6 % 45.3 % 40.2 % Other 7.3 % 7.0 % 7.8 % 100.0 % 100.0 % 100.0 % The 2023 new units include six clubs, one of which was acquired in October 2022 and five acquired in March 2023.
Nightclubs revenues increased by 3.0% from 2023 to 2024 and by 14.8% from 2022 to 2023, as explained below. 2024 vs. 2023 2023 vs. 2022 Impact of 2.1% and 3.5% decrease in same-store sales, respectively, to total revenues (2.0) % (3.2) % Newly acquired units 7.6 % 18.4 % Closed units (1.4) % (0.4) % Other (1.3) % — % Net Nightclubs revenue increase 3.0 % 14.8 % Nightclubs segment sales mix for the three fiscal years, below: 2024 2023 2022 Sales of alcoholic beverages 43.3 % 40.7 % 38.8 % Sales of food and merchandise 9.1 % 8.4 % 8.9 % Service revenues 40.3 % 43.6 % 45.3 % Other 7.3 % 7.3 % 7.0 % 100.0 % 100.0 % 100.0 % The 2023 new units include six clubs, one of which was acquired in October 2022 and five acquired in March 2023.
The components of our annual effective income tax rate are the following: 2023 2022 2021 Federal statutory income tax expense/benefit 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 4.5 % 3.0 % 2.1 % Permanent differences 1.7 % 0.2 % (1.3) % Change in tax rates (0.7) % 1.5 % (2.4) % Change in valuation allowance (0.5) % 0.6 % (1.9) % Tax credits (5.9) % (3.0) % (3.5) % Other (1.0) % 0.2 % (2.4) % Total effective income tax rate 19.0 % 23.4 % 11.7 % The effective income tax rate difference from the statutory federal corporate tax rate of 21% comes from offsetting impact of state income tax, net of federal benefit, changes in the deferred tax asset valuation allowance, and tax credits that are mostly FICA tip credits.
The components of our annual effective income tax rate are the following: 2024 2023 2022 Federal statutory income tax expense/benefit 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefit 8.6 % 4.5 % 3.0 % Permanent differences 18.7 % 1.7 % 0.2 % Change in tax rates (4.2) % (0.7) % 1.5 % Change in valuation allowance 5.5 % (0.5) % 0.6 % Tax credits (87.8) % (5.9) % (3.0) % Other 22.6 % (1.0) % 0.2 % Total effective income tax rate (15.7) % 19.0 % 23.4 % The effective income tax rate difference from the statutory federal corporate tax rate of 21% comes from offsetting impact of state income tax, net of federal benefit, changes in the deferred tax asset valuation allowance, and tax credits that are mostly FICA tip credits.
The 2022 new units include fifteen clubs, of which eleven were acquired in October 2021, one acquired in November 2021, one acquired in May 2022, and two acquired in July 2022. See Note 1 4 to our consolidated financial statements for more information on our club acquisitions.
The 2022 new units include fifteen clubs, of which eleven were acquired in October 2021, one acquired in November 2021, one acquired in May 2022, and two acquired in July 2022. See Note 14 to our consolidated financial statements for more information on our club acquisitions. No new clubs were acquired in 2024.
Cost of goods sold includes cost of alcoholic and non-alcoholic beverages, food, cigars and cigarettes, merchandise, media printing/binding, and Drink Robust. As a percentage of consolidated revenues, consolidated cost of goods sold was 13.3%, 13.5%, and 15.4% for fiscal 2023, 2022, and 2021, respectively.
Cost of goods sold . Cost of goods sold includes cost of alcoholic and non-alcoholic beverages, food, cigars and cigarettes, merchandise, media printing/binding, and Drink Robust. As a percentage of consolidated revenues, consolidated cost of goods sold was 13.9%, 13.3%, and 13.5% for fiscal 2024, 2023, and 2022, respectively.
Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 20.6%, 22.8%, and 13.5% effective tax rate of the pre-tax non-GAAP income before taxes for the 2023, 2022, and 2021, respectively, and the GAAP income tax expense.
Included in the income tax effect of the above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 0.0%, 20.6%, and 22.8% effective tax rate of the pre-tax non-GAAP income before taxes for 2024, 2023, and 2022, respectively, and the GAAP income tax expense.
We determine the fair value of each stock option grant using the Black-Scholes option-pricing model with assumptions based primarily on historical data. Specific inputs to the model include the expected term of the stock options, stock price volatility, dividend yield, and risk-free interest rate.
Calculating the grant date fair value of stock-based compensation awards requires the input of subjective assumptions. We determine the fair value of each stock option grant using the Black-Scholes option-pricing model with assumptions based primarily on historical data. Specific inputs to the model include the expected term of the stock options, stock price volatility, dividend yield, and risk-free interest rate.
We calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: (a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) settlement of lawsuits, (f) costs and charges related to debt refinancing, and (g) stock-based compensation.
We calculate non-GAAP operating income and non-GAAP operating margin by excluding the following items from income from operations and operating margin: (a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) settlement of lawsuits, and (f) stock-based compensation.
Cash Flows from Investing Activities Following are our summarized cash flows from investing activities (in thousands): 2023 2022 2021 Proceeds from sale of businesses and assets $ 4,245 $ 10,669 $ 5,415 Proceeds from notes receivable 229 182 130 Proceeds from insurance 86 648 1,152 Payments for property and equipment and intangible assets (40,384) (24,003) (13,511) Acquisition of businesses, net of cash acquired (29,000) (55,293) — Net cash used in investing activities $ (64,824) $ (67,797) $ (6,814) In 2023, we acquired six clubs for a combined sum of $75.5 million (with an aggregate acquisition date fair value of $72.3 million), of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and 200,000 shares of our common stock in equity (with an acquisition date fair value of $12.8 million).
Cash Flows from Investing Activities Following are our summarized cash flows from investing activities (in thousands): 2024 2023 2022 Proceeds from sale of businesses and assets $ 1,969 $ 4,245 $ 10,669 Proceeds from notes receivable 249 229 182 Proceeds from insurance 1,367 86 648 Payments for property and equipment and intangible assets (24,600) (40,384) (24,003) Acquisition of businesses, net of cash acquired — (29,000) (55,293) Net cash used in investing activities $ (21,015) $ (64,824) $ (67,797) In 2023, we acquired six clubs for a combined sum of $75.5 million (with an aggregate acquisition date fair value of $72.3 million), of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and 200,000 shares of our common stock in equity (with an acquisition date fair value of $12.8 million).
We purchased shares of our common stock representing 34,086 shares, 268,185 shares, and 74,659 shares in 2023, 2022, and 2021, respectively. We paid quarterly dividends of $0.04 per share in fiscal 2021 through the first quarter of 2022. In the second quarter of 2022 through the first quarter of 2023, we increased our quarterly dividends to $0.05 per share.
We purchased shares of our common stock representing 442,639 shares, 34,086 shares, and 268,185 shares in 2024, 2023, and 2022, respectively. We paid quarterly dividends of $0.04 per share in the first quarter of 2022. In the second quarter of 2022 through the first quarter of 2023, we increased our quarterly dividends to $0.05 per share.
OUR BUSINESS The following are our operating segments: Nightclubs Our wholly-owned subsidiaries own and/or operate upscale adult nightclubs serving primarily businessmen and professionals.
OUR BUSINESS The following are our operating segments: Nightclubs Our wholly-owned subsidiaries own and/or operate upscale adult nightclubs.
In 2023, we acquired six clubs with an aggregate acquisition date fair value of $72.3 million, of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and 200,000 shares of our common stock in equity. See Note 14 to our consolidated financial statements.
In fiscal 2023, we acquired six clubs with an aggregate acquisition date fair value of $72.3 million, of which $29.0 million was in cash, $30.5 million in debt (with an acquisition date fair value of $30.4 million), and 200,000 shares of our common stock in equity.
Adjustment items are: (a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) unrealized loss on equity securities, (f) settlement of lawsuits, (g) gain on debt extinguishment, (h) costs and charges related to debt refinancing, (i) stock-based compensation, (j) the income tax effect of the above-described adjustments, and (k) change in deferred tax asset valuation allowance.
Adjustment items are: (a) amortization of intangibles, (b) impairment of assets, (c) gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) settlement of lawsuits, (f) gain on debt extinguishment, (g) stock-based compensation, (h) the income tax effect of the above-described adjustments, and (i) change in deferred tax asset valuation allowance.
Included in other revenues of the Nightclubs segment is real estate rental revenue amounting to $1.8 million in 2023, $1.6 million in 2022, and $1.5 million in 2021. 35 Table of Contents Bombshells segment revenues.
Included in other revenues of the Nightclubs segment is real estate rental revenue amounting to $1.7 million in 2024, $1.8 million in 2023, and $1.6 million in 2022. 37 Table of Contents Bombshells segment revenues.
Cash Flows from Financing Activities Following are our summarized cash flows from financing activities (in thousands): 2023 2022 2021 Proceeds from debt obligations $ 11,595 $ 35,820 $ 38,490 Payments on debt obligations (15,650) (14,894) (49,178) Purchase of treasury stock (2,223) (15,097) (1,794) Payment of dividends (2,146) (1,784) (1,440) Payment of loan origination costs (239) (463) (1,174) Distribution to noncontrolling interests (600) — — Net cash provided by (used in) financing activities $ (9,263) $ 3,582 $ (15,096) See Note 8 to our consolidated financial statements for a detailed discussion of our debt obligations, including the future maturities of our debt obligations in the next five years and thereafter.
Cash Flows from Financing Activities Following are our summarized cash flows from financing activities (in thousands): 2024 2023 2022 Proceeds from debt obligations $ 22,657 $ 11,595 $ 35,820 Payments on debt obligations (23,001) (15,650) (14,894) Purchase of treasury stock (20,606) (2,223) (15,097) Payment of dividends (2,302) (2,146) (1,784) Payment of loan origination costs (290) (239) (463) Distribution to noncontrolling interests — (600) — Net cash provided by (used in) financing activities $ (23,542) $ (9,263) $ 3,582 See Note 8 to our consolidated financial statements for a detailed discussion of our debt obligations, including the future maturities of our debt obligations in the next five years and thereafter.
Key estimates in the undiscounted cash flow model include management’s estimate of the projected revenues and operating margins. If fair value is used to determine an impairment loss, an additional key assumption is the selection of a weighted-average cost of capital to discount cash flows.
Key estimates in the undiscounted cash flow model include management’s estimate of the projected revenues and operating margins. Fair value is determined using the market, income, or cost approaches. If fair value is used to determine using the income approach, an additional key assumption is the selection of a weighted-average cost of capital to discount cash flows.
In the next five years, we expect interest payments on our debts to range from $15.0 million in the early years to $8.0 million annually in the latter years for debts we owe as of September 30, 2023. See Note 18 for our operating lease payment schedule for the next five years and thereafter.
In the next five years, we expect interest payments on our debts to range from $16.0 million in the early years to $9.0 million annually in the latter years for debts we owe as of September 30, 2024. See Note 1 7 for our operating lease payment schedule for the next five years and thereafter.
The rest of the claims for the Sulphur club were received in 2022. Gains related to insurance recoveries are recognized when the contingencies related to the insurance claims have been resolved, which may be in a subsequent reporting period. See Note 1 3 to our consolidated financial statements.
The rest of the claims for the Sulphur club were received in 2022. Gains related to insurance recoveries are recognized when the contingencies related to the insurance claims have been resolved, which may be in a subsequent reporting period.
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. 31 Table of Contents OPERATIONS REVIEW Highlights of operations from fiscal 2023, 2022, and 2021 are as follows (in thousands, except percentages and per share amounts): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Revenues Consolidated $ 293,790 9.8 % $ 267,620 37.1 % $ 195,258 Nightclubs $ 236,748 14.8 % $ 206,251 50.2 % $ 137,348 Bombshells $ 55,723 (7.0) % $ 59,925 5.8 % $ 56,621 Same-store sales Consolidated -6.0 % +5.6 % Nightclubs -3.5 % +10.1 % Bombshells -14.6 % -4.6 % Income from operations Consolidated $ 51,484 (28.0) % $ 71,459 85.4 % $ 38,548 Nightclubs $ 73,187 (11.6) % $ 82,798 89.0 % $ 43,815 Bombshells $ 6,502 (43.5) % $ 11,504 (13.3) % $ 13,264 Diluted earnings per share $ 3.13 $ 4.91 $ 3.37 Net cash provided by operating activities $ 59,130 (8.3) % $ 64,509 53.6 % $ 41,991 Free cash flow* $ 53,176 (9.7) % $ 58,911 63.3 % $ 36,084 * Reconciliation and discussion of non-GAAP financial measures are included under the “Non-GAAP Financial Measures” section of this Item.
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. 33 Table of Contents OPERATIONS REVIEW Highlights of operations from fiscal 2024, 2023, and 2022 are as follows (in thousands, except percentages and per share amounts): 2024 Inc (Dec) 2023 Inc (Dec) 2022 Revenues Consolidated $ 295,604 0.6 % $ 293,790 9.8 % $ 267,620 Nightclubs $ 243,864 3.0 % $ 236,748 14.8 % $ 206,251 Bombshells $ 50,578 (9.2) % $ 55,723 (7.0) % $ 59,925 Same-store sales Consolidated -5.1 % -6.0 % Nightclubs -2.1 % -3.5 % Bombshells -18.4 % -14.6 % Income (loss) from operations Consolidated $ 18,805 (63.5) % $ 51,484 (28.0) % $ 71,459 Nightclubs $ 58,094 (20.6) % $ 73,187 (11.6) % $ 82,798 Bombshells $ (10,646) (263.7) % $ 6,502 (43.5) % $ 11,504 Diluted earnings per share $ 0.33 (89.5) % $ 3.13 (36.3) % $ 4.91 Non-GAAP diluted earnings per share* $ 4.72 (3.6) % $ 4.90 (8.9) % $ 5.38 Net cash provided by operating activities $ 55,884 (5.5) % $ 59,130 (8.3) % $ 64,509 Free cash flow* $ 48,421 (8.9) % $ 53,176 (9.7) % $ 58,911 * Reconciliation and discussion of non-GAAP financial measures are included under the “Non-GAAP Financial Measures” section of this Item.
As a percentage of revenues, consolidated salaries and wages were 27.1%, 25.6%, and 25.9% in 2023, 2022, and 2021, respectively, mainly due to sales trend and the impact of fixed salaries on change in sales. 36 Table of Contents By reportable segment, salaries and wages are broken down as follows (dollar amounts in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Nightclubs $ 50,489 23.6 % $ 40,859 51.4 % $ 26,986 Bombshells 14,949 2.5 % 14,585 11.8 % 13,041 Other 604 0.5 % 601 3.3 % 582 Corporate 13,458 8.5 % 12,402 23.8 % 10,018 $ 79,500 16.1 % $ 68,447 35.2 % $ 50,627 Unit-level manager payroll is included in salaries and wages of each location, while payroll for regional manager and above are included in Corporate.
As a percentage of revenues, consolidated salaries and wages were 28.5%, 27.1%, and 25.6% in 2024, 2023, and 2022, respectively, mainly due to sales trend and the impact of fixed salaries on change in sales. 38 Table of Contents By reportable segment, salaries and wages are broken down as follows (dollar amounts in thousands): 2024 Inc (Dec) 2023 Inc (Dec) 2022 Nightclubs $ 54,217 7.4 % $ 50,489 23.6 % $ 40,859 Bombshells 14,643 (2.0) % 14,949 2.5 % 14,585 Other 571 (5.5) % 604 0.5 % 601 Corporate 14,746 9.6 % 13,458 8.5 % 12,402 $ 84,177 5.9 % $ 79,500 16.1 % $ 68,447 Unit-level manager payroll is included in salaries and wages of each location, while payroll for regional manager and above are included in Corporate.
We also utilize capital to repurchase our common stock as part of our share repurchase program, based on our capital allocation strategy guidelines, and to pay our quarterly dividends. 44 Table of Contents Cash Flows from Operating Activities Following are our summarized cash flows from operating activities (in thousands): 2023 2022 2021 Net income $ 29,100 $ 46,060 $ 30,150 Depreciation and amortization 15,151 12,391 8,238 Deferred tax expense (benefit) (1,781) 3,080 (1,253) Stock-based compensation expense 2,588 2,353 — Impairment of assets 12,629 1,888 13,612 Gain on debt extinguishment — (83) (5,298) Net change in operating assets and liabilities (1,203) (1,421) (3,451) Other 2,646 241 (7) Net cash provided by operating activities $ 59,130 $ 64,509 $ 41,991 Net cash flows from operating activities decreased from 2022 to 2023 mainly due to the lower same-store sales and the higher interest expense paid, partially offset by the lower income taxes paid.
We also utilize capital to repurchase our common stock as part of our share repurchase program, based on our capital allocation strategy guidelines, and to pay our quarterly dividends. 47 Table of Contents Cash Flows from Operating Activities Following are our summarized cash flows from operating activities (in thousands): 2024 2023 2022 Net income $ 3,018 $ 29,100 $ 46,060 Depreciation and amortization 15,395 15,151 12,391 Deferred tax expense (benefit) (6,450) (1,781) 3,080 Stock-based compensation expense 1,882 2,588 2,353 Impairment of assets 38,517 12,629 1,888 Gain on debt extinguishment — — (83) Net change in operating assets and liabilities 2,671 (1,203) (1,421) Other 851 2,646 241 Net cash provided by operating activities $ 55,884 $ 59,130 $ 64,509 Net cash flows from operating activities decreased from 2022 to 2023 and from 2023 to 2024 mainly due to the lower same-store sales and the higher interest expense paid, partially offset by the lower income taxes paid.
We define free cash flow as net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy.
Non-GAAP Cash Flow Measure We also use certain non-GAAP cash flow measures, such as free cash flow. We define free cash flow as net cash provided by operating activities less maintenance capital expenditures. We use free cash flow as the baseline for the implementation of our capital allocation strategy.
Bombshells revenues decreased by 7.0% from 2022 to 2023 and increased by 5.8% from 2021 to 2022, as explained below. 2023 vs. 2022 2022 vs. 2021 Impact of 14.6% and 4.6% decrease in same-store sales, respectively, to total revenues (13.5) % (4.6) % New units 6.5 % 10.1 % Closed units — % — % Other — % 0.3 % (7.0) % 5.8 % Bombshells segment sales mix for the three fiscal years is as follows: 2023 2022 2021 Sales of alcoholic beverages 55.5 % 55.6 % 57.2 % Sales of food and merchandise 42.9 % 43.4 % 42.2 % Service and other revenues 1.6 % 1.0 % 0.6 % 100.0 % 100.0 % 100.0 % No new Bombshells location was opened in 2021.
Bombshells revenues decreased by 9.2% from 2023 to 2024 and decreased by 7.0% from 2022 to 2023, as explained below. 2024 vs. 2023 2023 vs. 2022 Impact of 18.4% and 14.6% decrease in same-store sales, respectively, to total revenues (16.9) % (13.5) % New units 9.0 % 6.5 % Closed units (1.1) % — % Other (0.2) % — % Net Bombshells revenue decrease (9.2) % (7.0) % Bombshells segment sales mix for the three fiscal years is as follows: 2024 2023 2022 Sales of alcoholic beverages 54.3 % 55.5 % 55.6 % Sales of food and merchandise 44.4 % 42.9 % 43.4 % Service and other revenues 1.3 % 1.6 % 1.0 % 100.0 % 100.0 % 100.0 % Bombshells Arlington was opened in the first quarter of 2022.
For the year ended September 30, 2021, we identified seven reporting units that were impaired and recognized a goodwill impairment loss totaling $6.3 million. For indefinite- and definite-lived intangibles, specifically SOB licenses, we determine fair value by estimating the multiperiod excess earnings of the asset with key assumptions being similar to those used in the goodwill impairment valuation model.
For the year ended September 30, 2022, we identified one reporting unit that was impaired and recognized a goodwill impairment loss of $566,000. For indefinite- and definite-lived intangibles, specifically SOB licenses, we determine fair value by estimating the multiperiod excess earnings of the asset with key assumptions being similar to those used in the goodwill impairment valuation model.
The components of consolidated selling, general and administrative expenses are in the tables below (dollar amounts in thousands): 2023 2022 2021 Amount % Amount % Amount % Taxes and permits $ 11,966 4.1 % $ 9,468 3.5 % $ 8,701 4.5 % Advertising and marketing 11,928 4.1 % 9,860 3.7 % 6,676 3.4 % Supplies and services 10,724 3.7 % 8,614 3.2 % 6,190 3.2 % Insurance 10,268 3.5 % 10,152 3.8 % 5,676 2.9 % Lease 7,206 2.5 % 6,706 2.5 % 3,942 2.0 % Legal 3,742 1.3 % 1,995 0.7 % 3,997 2.0 % Utilities 5,760 2.0 % 4,585 1.7 % 3,366 1.7 % Charge card fees 7,090 2.4 % 6,292 2.4 % 3,376 1.7 % Security 5,618 1.9 % 4,404 1.6 % 3,892 2.0 % Accounting and professional fees 4,286 1.5 % 3,909 1.5 % 2,031 1.0 % Repairs and maintenance 4,924 1.7 % 3,754 1.4 % 2,767 1.4 % Stock-based compensation 2,588 0.9 % 2,353 0.9 % — — % Other 6,924 2.4 % 6,755 2.5 % 3,994 2.0 % $ 93,024 31.7 % $ 78,847 29.5 % $ 54,608 28.0 % 37 Table of Contents By reportable segment, selling, general and administrative expenses are broken down as follows (dollar amounts in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Nightclubs $ 61,350 19.6 % $ 51,285 56.7 % $ 32,725 Bombshells 18,928 9.4 % 17,295 16.2 % 14,883 Other 602 44.0 % 418 76.4 % 237 Corporate 12,144 23.3 % 9,849 45.6 % 6,763 $ 93,024 18.0 % $ 78,847 44.4 % $ 54,608 Selling, general and administrative expenses as a percentage of segment revenue (except Corporate, which is based on consolidated revenues): 2023 2022 2021 Nightclubs 25.9 % 24.9 % 23.8 % Bombshells 34.0 % 28.9 % 26.3 % Other 45.6 % 28.9 % 18.4 % Corporate 4.1 % 3.7 % 3.5 % 31.7 % 29.5 % 28.0 % The significant variances in selling, general and administrative expenses are as follows: As a percentage of revenues, relatively fixed expenses tend to be higher in rate due to lower sales, while more variable expenses tend to keep their rates even if dollar amounts are increasing.
The components of consolidated selling, general and administrative expenses are in the tables below (dollar amounts in thousands): 2024 2023 2022 Amount % Amount % Amount % Taxes and permits $ 16,177 5.5 % $ 11,966 4.1 % $ 9,468 3.5 % Advertising and marketing 12,461 4.2 % 11,928 4.1 % 9,860 3.7 % Supplies and services 10,896 3.7 % 10,724 3.7 % 8,614 3.2 % Insurance 13,059 4.4 % 10,268 3.5 % 10,152 3.8 % Lease 7,099 2.4 % 7,206 2.5 % 6,706 2.5 % Legal 4,155 1.4 % 3,742 1.3 % 1,995 0.7 % Utilities 6,075 2.1 % 5,760 2.0 % 4,585 1.7 % Charge card fees 6,968 2.4 % 7,090 2.4 % 6,292 2.4 % Security 5,080 1.7 % 5,618 1.9 % 4,404 1.6 % Accounting and professional fees 4,260 1.4 % 4,286 1.5 % 3,909 1.5 % Repairs and maintenance 4,690 1.6 % 4,924 1.7 % 3,754 1.4 % Stock-based compensation 1,882 0.6 % 2,588 0.9 % 2,353 0.9 % Other 6,870 2.3 % 6,924 2.4 % 6,755 2.5 % $ 99,672 33.7 % $ 93,024 31.7 % $ 78,847 29.5 % 39 Table of Contents By reportable segment, selling, general and administrative expenses are broken down as follows (dollar amounts in thousands): 2024 Inc (Dec) 2023 Inc (Dec) 2022 Nightclubs $ 68,546 11.7 % $ 61,350 19.6 % $ 51,285 Bombshells 18,475 (2.4) % 18,928 9.4 % 17,295 Other 709 17.8 % 602 44.0 % 418 Corporate 11,942 (1.7) % 12,144 23.3 % 9,849 $ 99,672 7.1 % $ 93,024 18.0 % $ 78,847 Selling, general and administrative expenses as a percentage of segment revenue (except Corporate, which is based on consolidated revenues): 2024 2023 2022 Nightclubs 28.1 % 25.9 % 24.9 % Bombshells 36.5 % 34.0 % 28.9 % Other 61.0 % 45.6 % 28.9 % Corporate 4.0 % 4.1 % 3.7 % 33.7 % 31.7 % 29.5 % The significant variances in selling, general and administrative expenses are as follows: As a percentage of revenues, relatively fixed expenses tend to be higher in rate due to lower sales, while more variable expenses tend to keep their rates even if dollar amounts are increasing.
The following table presents a summary of our net cash flows from operating, investing, and financing activities (in thousands): 2023 2022 2021 Operating $ 59,130 $ 64,509 $ 41,991 Investing (64,824) (67,797) (6,814) Financing (9,263) 3,582 (15,096) Net increase (decrease) in cash and cash equivalents $ (14,957) $ 294 $ 20,081 We require capital principally for the acquisition of new clubs, construction of new Bombshells, renovation of older units, and investments in technology.
The following table presents a summary of our net cash flows from operating, investing, and financing activities (in thousands): 2024 2023 2022 Operating $ 55,884 $ 59,130 $ 64,509 Investing (21,015) (64,824) (67,797) Financing (23,542) (9,263) 3,582 Net increase (decrease) in cash and cash equivalents $ 11,327 $ (14,957) $ 294 We require capital principally for the acquisition of new clubs, construction of new Bombshells, renovation of older units, and investments in technology.
See table below (in thousands): 2023 2022 2021 Net cash provided by operating activities $ 59,130 $ 64,509 $ 41,991 Less: Maintenance capital expenditures 5,954 5,598 5,907 Free cash flow $ 53,176 $ 58,911 $ 36,084 As a % of revenue 18.1 % 22.0 % 18.5 % 46 Table of Contents We do not include total capital expenditures as a reduction from net cash flow from operating activities to arrive at free cash flow.
See table below (in thousands): 2024 2023 2022 Net cash provided by operating activities $ 55,884 $ 59,130 $ 64,509 Less: Maintenance capital expenditures 7,463 5,954 5,598 Free cash flow $ 48,421 $ 53,176 $ 58,911 As a % of revenue 16.4 % 18.1 % 22.0 % We do not include total capital expenditures as a reduction from net cash flow from operating activities to arrive at free cash flow.
The following table presents a summary of such indicators (dollars in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Sales of alcoholic beverages $ 127,262 12.3 % $ 113,316 30.7 % $ 86,685 Sales of food and merchandise 43,906 (0.9) % 44,294 7.7 % 41,111 Service revenues 103,577 10.3 % 93,888 69.3 % 55,461 Other revenues 19,045 18.1 % 16,122 34.3 % 12,001 Total revenues $ 293,790 9.8 % $ 267,620 37.1 % $ 195,258 Net income attributable to RCIHH common stockholders $ 29,246 (36.5) % $ 46,041 51.8 % $ 30,336 Net cash provided by operating activities $ 59,130 (8.3) % $ 64,509 53.6 % $ 41,991 Adjusted EBITDA* $ 84,998 (2.0) % $ 86,724 44.0 % $ 60,243 Free cash flow* $ 53,176 (9.7) % $ 58,911 63.3 % $ 36,084 Debt (end of period) $ 239,751 18.4 % $ 202,463 61.8 % $ 125,168 * See definition and calculation of Adjusted EBITDA and Free Cash Flow under Non-GAAP Financial Measures and Liquidity and Capital Resources above.
The following table presents a summary of such indicators (dollars in thousands): 2024 Inc (Dec) 2023 Inc (Dec) 2022 Sales of alcoholic beverages $ 133,124 4.6 % $ 127,262 12.3 % $ 113,316 Sales of food and merchandise 44,606 1.6 % 43,906 (0.9) % 44,294 Service revenues 98,455 (4.9) % 103,577 10.3 % 93,888 Other revenues 19,419 2.0 % 19,045 18.1 % 16,122 Total revenues $ 295,604 0.6 % $ 293,790 9.8 % $ 267,620 Net income attributable to RCIHH common stockholders $ 3,011 (89.7) % $ 29,246 (36.5) % $ 46,041 Net cash provided by operating activities $ 55,884 (5.5) % $ 59,130 (8.3) % $ 64,509 Adjusted EBITDA* $ 72,645 (14.5) % $ 84,998 (2.0) % $ 86,724 Free cash flow* $ 48,421 (8.9) % $ 53,176 (9.7) % $ 58,911 Debt (end of period) $ 238,197 (0.6) % $ 239,751 18.4 % $ 202,463 * See definition and calculation of Adjusted EBITDA and Free Cash Flow under Non-GAAP Financial Measures and Liquidity and Capital Resources above.
Bombshells operating margin was 11.7%, 19.2%, and 23.4% in 2023, 2022, and 2021, respectively. Excluding certain items, non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).
Bombshells operating margin was (21.0)%, 11.7%, and 19.2% in 2024, 2023, and 2022, respectively. 41 Table of Contents Excluding certain items, non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).
For the year ended September 30, 2023, we identified four reporting units that were impaired and recognized a total goodwill impairment of $4.2 million. For the year ended September 30, 2022, we identified one reporting unit that was impaired and recognized a goodwill impairment loss of $566,000.
For the year ended September 30, 2024, we identified four reporting units that were impaired and recognized a total goodwill impairment of $8.9 million. For the year ended September 30, 2023, we identified four reporting units that were impaired and recognized a total goodwill impairment of $4.2 million.
Consolidated salaries and wages increased by $11.1 million, or 16.1%, from 2022 to 2023 and increased by $17.8 million, or 35.2%, from 2021 to 2022. The dollar increases are mostly from newly acquired or constructed locations.
Salaries and wages . Consolidated salaries and wages increased by $4.7 million, or 5.9%, from 2023 to 2024 and increased by $11.1 million, or 16.1%, from 2022 to 2023. The dollar increases are mostly from newly acquired or constructed locations.
We expect capital expenditure payments in the range of $35.0 million to $40.0 million in 2024, $6.0 million to $8.0 million of which relate to maintenance capital expenditures to support our existing clubs and restaurants and our corporate office.
We expect capital expenditure payments in the range of $15.0 million to $20.0 million in 2025, $5.0 million to $7.0 million of which relate to maintenance capital expenditures to support our existing clubs and restaurants and our corporate office.
Stock-based Compensation We recognize expense for stock-based compensation awards, which is equal to the fair value of the awards at grant date, ratably in selling, general and administrative expenses in our consolidated statements of income over their requisite service period. Calculating the grant date fair value of stock-based compensation awards requires the input of subjective assumptions.
Acquisition-related costs are expensed as incurred. 32 Table of Contents Stock-based Compensation We recognize expense for stock-based compensation awards, which is equal to the fair value of the awards at grant date, ratably in selling, general and administrative expenses in our consolidated statements of income over their requisite service period.
We expect to generate adequate cash flows from operations for the next 12 months from the issuance of this report.
We did not have any business acquisition in 2024. We expect to generate adequate cash flows from operations for the next 12 months from the issuance of this report.
Below is a table which reflects segment contribution to income from operations (in thousands): 2023 2022 2021 Nightclubs $ 73,187 $ 82,798 $ 43,815 Bombshells 6,502 11,504 13,264 Other (1,446) 57 35 Corporate (26,759) (22,900) (18,566) $ 51,484 $ 71,459 $ 38,548 Nightclubs operating margin was 30.9%, 40.1%, and 31.9% in 2023, 2022, and 2021.
Below is a table which reflects segment contribution to income from operations (in thousands): 2024 2023 2022 Nightclubs $ 58,094 $ 73,187 $ 82,798 Bombshells (10,646) 6,502 11,504 Other (523) (1,446) 57 Corporate (28,120) (26,759) (22,900) $ 18,805 $ 51,484 $ 71,459 Nightclubs operating margin was 23.8%, 30.9%, and 40.1% in 2024, 2023, and 2022.
For the Nightclubs segment, cost of goods sold was 11.1%, 10.5%, and 11.8% for fiscal 2023, 2022, and 2021, respectively, which was primarily caused by shifts in sales mix among the three fiscal years.
For the Nightclubs segment, cost of goods sold was 11.7%, 11.1%, and 10.5% for fiscal 2024, 2023, and 2022, respectively, which was primarily caused by shifts in sales mix among the three fiscal years. Bombshells cost of goods sold was 24.1%, 22.4%, and 23.5% for fiscal 2024, 2023, and 2022, respectively, which was mainly driven by food cost inflation.
Following is a reconciliation of our additions to property and equipment for the years ended September 30, 2023, 2022, and 2021 (in thousands): 2023 2022 2021 New capital expenditures in new clubs and Bombshells units and equipment* $ 34,430 $ 18,405 $ 7,604 Maintenance capital expenditures 5,954 5,598 5,907 Total capital expenditures, excluding business acquisitions $ 40,384 $ 24,003 $ 13,511 * Includes real estate except those acquired through business acquisitions.
See Note 14 to our consolidated financial statements for details of our acquisition and disposition activities. 48 Table of Contents Following is a reconciliation of our additions to property and equipment for the years ended September 30, 2024, 2023, and 2022 (in thousands): 2024 2023 2022 New capital expenditures in new clubs and Bombshells units and equipment* $ 17,137 $ 34,430 $ 18,405 Maintenance capital expenditures 7,463 5,954 5,598 Total capital expenditures, excluding business acquisitions $ 24,600 $ 40,384 $ 24,003 * Includes real estate, except those acquired through business acquisitions.
Percentage of revenue for individual cost of goods sold items pertains to their respective revenue line. 33 Table of Contents Below is a table presenting the changes in each line item of the income statement for the last three fiscal years (dollar amounts in thousands) Better (Worse) 2023 vs. 2022 2022 vs. 2021 Amount % Amount % Revenues Sales of alcoholic beverages $ 13,946 12.3 % $ 26,631 30.7 % Sales of food and merchandise (388) (0.9) % 3,183 7.7 % Service revenues 9,689 10.3 % 38,427 69.3 % Other 2,923 18.1 % 4,121 34.3 % Total revenues 26,170 9.8 % 72,362 37.1 % Operating expenses Cost of goods sold Alcoholic beverages sold (3,136) (15.6) % (4,272) (26.9) % Food and merchandise sold 108 0.7 % (1,743) (12.6) % Service and other 35 11.0 % 57 15.2 % Total cost of goods sold (exclusive of items shown separately below) (2,993) (8.3) % (5,958) (19.8) % Salaries and wages (11,053) (16.1) % (17,820) (35.2) % Selling, general and administrative (14,177) (18.0) % (24,239) (44.4) % Depreciation and amortization (2,760) (22.3) % (4,153) (50.4) % Other charges, net (15,162) (3,246.7) % 12,719 96.5 % Total operating expenses (46,145) (23.5) % (39,451) (25.2) % Income from operations (19,975) (28.0) % 32,911 85.4 % Other income/expenses Interest expense (3,976) (33.3) % (1,958) (19.6) % Interest income (23) (5.6) % 158 62.5 % Non-operating gains/losses, net (211) (100.0) % (5,119) * Income/loss before income taxes (24,185) (40.2) % 25,992 76.1 % Income tax expense/benefit 7,225 51.3 % (10,082) * Net income/loss $ (16,960) (36.8) % $ 15,910 * * Not meaningful.
Percentage of revenue for individual cost of goods sold items pertains to their respective revenue line. 35 Table of Contents Below is a table presenting the changes in each line item of the income statement for the last three fiscal years (dollar amounts in thousands) Better (Worse) 2024 vs. 2023 2023 vs. 2022 Amount % Amount % Revenues Sales of alcoholic beverages $ 5,862 4.6 % $ 13,946 12.3 % Sales of food and merchandise 700 1.6 % (388) (0.9) % Service revenues (5,122) (4.9) % 9,689 10.3 % Other 374 2.0 % 2,923 18.1 % Total revenues 1,814 0.6 % 26,170 9.8 % Operating expenses Cost of goods sold Alcoholic beverages sold (937) (4.0) % (3,136) (15.6) % Food and merchandise sold (931) (6.0) % 108 0.7 % Service and other (115) (40.8) % 35 11.0 % Total cost of goods sold (exclusive of items shown separately below) (1,983) (5.1) % (2,993) (8.3) % Salaries and wages (4,677) (5.9) % (11,053) (16.1) % Selling, general and administrative (6,648) (7.1) % (14,177) (18.0) % Depreciation and amortization (244) (1.6) % (2,760) (22.3) % Impairments and other charges, net (20,941) (134.0) % (15,162) (3,246.7) % Total operating expenses (34,493) (14.2) % (46,145) (23.5) % Income from operations (32,679) (63.5) % (19,975) (28.0) % Other income/expenses Interest expense (753) (4.7) % (3,976) (33.3) % Interest income 94 24.2 % (23) (5.6) % Non-operating gains/losses, net — — % (211) (100.0) % Income/loss before income taxes (33,338) (92.7) % (24,185) (40.2) % Income tax expense/benefit 7,256 106.0 % 7,225 51.3 % Net income $ (26,082) (89.6) % $ (16,960) (36.8) % * Not meaningful.
Operating Expenses Total operating expenses, as a percent of consolidated revenues, were 82.5%, 73.3%, and 80.3% for the fiscal year 2023, 2022, and 2021, respectively. Significant contributors to the change in operating expenses as a percent of revenues are explained below. Cost of goods sold .
Media business revenues were $1.0 million, $1.1 million, and $1.2 million in fiscal 2024, 2023, and 2022, respectively. Operating Expenses Total operating expenses, as a percent of consolidated revenues, were 93.6%, 82.5%, and 73.3% for the fiscal year 2024, 2023, and 2022, respectively. Significant contributors to the change in operating expenses as a percent of revenues are explained below.
Refer to discussion of Non-GAAP Financial Measures on page 41. 2023 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 73,187 $ 6,502 $ (1,446) $ (26,759) $ 51,484 Amortization of intangibles 2,497 530 484 17 3,528 Settlement of lawsuits 3,552 207 — — 3,759 Impairment of assets 11,815 — 814 — 12,629 Loss (gain) on sale of businesses and assets (734) 77 — (25) (682) Gain on insurance (48) — — (29) (77) Stock-based compensation — — — 2,588 2,588 Non-GAAP operating income (loss) $ 90,269 $ 7,316 $ (148) $ (24,208) $ 73,229 GAAP operating margin 30.9 % 11.7 % (109.6) % (9.1) % 17.5 % Non-GAAP operating margin 38.1 % 13.1 % (11.2) % (8.2) % 24.9 % 39 Table of Contents 2022 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 82,798 $ 11,504 $ 57 $ (22,900) $ 71,459 Amortization of intangibles 2,042 6 61 9 2,118 Settlement of lawsuits 1,287 18 — 112 1,417 Impairment of assets 1,238 650 — — 1,888 Loss (gain) on sale of businesses and assets (2,010) 17 — (382) (2,375) Gain on insurance (463) — — — (463) Stock-based compensation — — — 2,353 2,353 Non-GAAP operating income (loss) $ 84,892 $ 12,195 $ 118 $ (20,808) $ 76,397 GAAP operating margin 40.1 % 19.2 % 3.9 % (8.6) % 26.7 % Non-GAAP operating margin 41.2 % 20.4 % 8.2 % (7.8) % 28.5 % 2021 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 43,815 $ 13,264 $ 35 $ (18,566) $ 38,548 Amortization of intangibles 187 14 57 — 258 Settlement of lawsuits 275 59 5 1,010 1,349 Impairment of assets 13,612 — — — 13,612 Costs and charges related to debt refinancing 17 — — 40 57 Loss (gain) on sale of businesses and assets (580) 72 — (14) (522) Gain on insurance (1,209) — — (44) (1,253) Non-GAAP operating income (loss) $ 56,117 $ 13,409 $ 97 $ (17,574) $ 52,049 GAAP operating margin 31.9 % 23.4 % 2.7 % (9.5) % 19.7 % Non-GAAP operating margin 40.9 % 23.7 % 7.5 % (9.0) % 26.7 % Other Income/Expenses Interest expense increased by approximately $4.0 million from 2022 to 2023 and by approximately $2.0 million from 2021 to 2022.
Refer to discussion of Non-GAAP Financial Measures on page 41. 2024 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 58,094 $ (10,646) $ (523) $ (28,120) $ 18,805 Amortization of intangibles 2,334 137 — 23 2,494 Settlement of lawsuits 465 25 — 30 520 Impairment of assets 22,691 15,826 — — 38,517 Loss (gain) on sale of businesses and assets (56) (2,322) — 238 (2,140) Gain on insurance (327) — — — (327) Stock-based compensation — — — 1,882 1,882 Non-GAAP operating income (loss) $ 83,201 $ 3,020 $ (523) $ (25,947) $ 59,751 GAAP operating margin 23.8 % (21.0) % (45.0) % (9.5) % 6.4 % Non-GAAP operating margin 34.1 % 6.0 % (45.0) % (8.8) % 20.2 % 2023 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 73,187 $ 6,502 $ (1,446) $ (26,759) $ 51,484 Amortization of intangibles 2,497 530 484 17 3,528 Settlement of lawsuits 3,552 207 — — 3,759 Impairment of assets 11,815 — 814 — 12,629 Loss (gain) on sale of businesses and assets (734) 77 — (25) (682) Gain on insurance (48) — — (29) (77) Stock-based compensation — — — 2,588 2,588 Non-GAAP operating income (loss) $ 90,269 $ 7,316 $ (148) $ (24,208) $ 73,229 GAAP operating margin 30.9 % 11.7 % (109.6) % (9.1) % 17.5 % Non-GAAP operating margin 38.1 % 13.1 % (11.2) % (8.2) % 24.9 % 2022 Nightclubs Bombshells Other Corporate Total Income (loss) from operations $ 82,798 $ 11,504 $ 57 $ (22,900) $ 71,459 Amortization of intangibles 2,042 6 61 9 2,118 Settlement of lawsuits 1,287 18 — 112 1,417 Impairment of assets 1,238 650 — — 1,888 Loss (gain) on sale of businesses and assets (2,010) 17 — (382) (2,375) Gain on insurance (463) — — — (463) Stock-based compensation — — — 2,353 2,353 Non-GAAP operating income (loss) $ 84,892 $ 12,195 $ 118 $ (20,808) $ 76,397 GAAP operating margin 40.1 % 19.2 % 3.9 % (8.6) % 26.7 % Non-GAAP operating margin 41.2 % 20.4 % 8.2 % (7.8) % 28.5 % 42 Table of Contents Other Income/Expenses Interest expense increased by approximately $753,000 from 2023 to 2024 and by approximately $4.0 million from 2022 to 2023.
From 2021 to 2022, consolidated revenues increased by $72.4 million, or 37.1%, due to increases in same-store sales, newly acquired and constructed locations, and from locations closed in 2021 and reopened in 2022. 34 Table of Contents Segment contribution to total revenues was as follows (dollar amounts in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Nightclubs Sales of alcoholic beverages $ 96,325 20.4 % $ 80,001 47.3 % $ 54,305 Sales of food and merchandise 19,995 9.3 % 18,289 6.2 % 17,221 Service revenues 103,217 10.4 % 93,481 69.5 % 55,146 Other revenues 17,211 18.9 % 14,480 35.6 % 10,676 236,748 14.8 % 206,251 50.2 % 137,348 Bombshells Sales of alcoholic beverages 30,937 (7.1) % 33,315 2.9 % 32,380 Sales of food and merchandise 23,911 (8.1) % 26,005 8.9 % 23,890 Service revenues 360 (11.5) % 407 29.2 % 315 Other revenues 515 160.1 % 198 450.0 % 36 55,723 (7.0) % 59,925 5.8 % 56,621 Other Other revenues 1,319 (8.7) % 1,444 12.0 % 1,289 $ 293,790 9.8 % $ 267,620 37.1 % $ 195,258 Nightclubs segment revenues.
From 2022 to 2023, consolidated revenues increased by $26.2 million, or 9.8%, due mainly to newly acquired locations, partially offset by a decrease in same-store sales and a sales decrease from locations closed in 2023. 36 Table of Contents Segment contribution to total revenues was as follows (dollar amounts in thousands): 2024 Inc (Dec) 2023 Inc (Dec) 2022 Nightclubs Sales of alcoholic beverages $ 105,669 9.7 % $ 96,325 20.4 % $ 80,001 Sales of food and merchandise 22,129 10.7 % 19,995 9.3 % 18,289 Service revenues 98,233 (4.8) % 103,217 10.4 % 93,481 Other revenues 17,833 3.6 % 17,211 18.9 % 14,480 243,864 3.0 % 236,748 14.8 % 206,251 Bombshells Sales of alcoholic beverages 27,455 (11.3) % 30,937 (7.1) % 33,315 Sales of food and merchandise 22,477 (6.0) % 23,911 (8.1) % 26,005 Service revenues 222 (38.3) % 360 (11.5) % 407 Other revenues 424 (17.7) % 515 160.1 % 198 50,578 (9.2) % 55,723 (7.0) % 59,925 Other Other revenues 1,162 (11.9) % 1,319 (8.7) % 1,444 $ 295,604 0.6 % $ 293,790 9.8 % $ 267,620 Nightclubs segment revenues.
Legal and Other Contingencies As mentioned in Item 3 – “Legal Proceedings” and in a more detailed discussion in Note 1 0 to our consolidated financial statements, we are involved in various suits and claims in the normal course of business.
Legal and Other Contingencies As mentioned in Item 3 – “Legal Proceedings” and in a more detailed discussion in Note 10 to our consolidated financial statements, we are involved in various suits and claims in the normal course of business. We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable.
Bombshells Arlington was opened in the first quarter of 2022. Bombshells San Antonio was acquired from our franchisee in the second quarter of 2023. We also acquired a food hall in Greenwood Village, Colorado during the first quarter of 2023. Other segment revenues. Other revenues included revenues from Drink Robust in all three fiscal years presented.
Bombshells San Antonio was acquired from our franchisee in the second quarter of 2023. We also acquired a food hall in Greenwood Village, Colorado during the first quarter of 2023. We opened Bombshells Stafford in the first quarter of 2024 and sold Bombshells San Antonio in the fourth quarter of 2024. Other segment revenues.
Salaries and wages as a percentage of segment revenue (except Corporate, which is based on consolidated revenues): 2023 2022 2021 Nightclubs 21.3 % 19.8 % 19.6 % Bombshells 26.8 % 24.3 % 23.0 % Other 45.8 % 41.6 % 45.2 % Corporate 4.6 % 4.6 % 5.1 % 27.1 % 25.6 % 25.9 % Selling, general and administrative expenses .
Salaries and wages as a percentage of segment revenue (except Corporate, which is based on consolidated revenues): 2024 2023 2022 Nightclubs 22.2 % 21.3 % 19.8 % Bombshells 29.0 % 26.8 % 24.3 % Other 49.1 % 45.8 % 41.6 % Corporate 5.0 % 4.6 % 4.6 % 28.5 % 27.1 % 25.6 % Bombshells and Other segment salaries and wages decreased in 2024 but as a percentage of revenue they increased due to their decrease in revenue.
During the third quarter of 2022, we impaired two properties for a total of $1.0 million one due to eminent domain by the state of Texas and the other due to underperformance.
During the fourth quarter of 2023, we also recognized software impairments amounting to $814,000 related to two venture projects. 31 Table of Contents During the third quarter of 2022, we impaired two properties for a total of $1.0 million one due to eminent domain by the state of Texas and the other due to underperformance.
During the fourth quarter of 2023, we also recognized software impairments amounting to $814,000 related to two venture projects. 29 Table of Contents Goodwill and Other Intangible Assets Goodwill and other intangible assets that have indefinite useful lives are tested annually for impairment during our fourth fiscal quarter and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.
Goodwill and Other Intangible Assets Goodwill and other intangible assets that have indefinite useful lives are tested annually for impairment during our fourth fiscal quarter and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.
The increase in interest expense was primarily caused by the significantly higher average debt balance from borrowings to finance our acquisitions. We consider lease plus interest expense as our occupancy costs since most of our debts are for real properties where our clubs and restaurants are located. For occupancy cost purposes, we exclude non-real-estate-related interest expense.
We consider lease plus interest expense as our occupancy costs since most of our debts are for real properties where our clubs and restaurants are located. For occupancy cost purposes, we exclude non-real-estate-related interest expense.
The components of other charges, net are in the table below (dollars in thousands): 2023 Inc (Dec) 2022 Inc (Dec) 2021 Impairment of assets $ 12,629 568.9 % $ 1,888 (86.1) % $ 13,612 Settlement of lawsuits 3,759 165.3 % 1,417 5.0 % 1,349 Gain on sale of businesses and assets (682) (71.3) % (2,375) 355.0 % (522) Gain on insurance (77) (83.4) % (463) (63.0) % (1,253) $ 15,629 3,246.7 % $ 467 (96.5) % $ 13,186 The significant variances in other charges, net are discussed below: During 2023, we recorded aggregate impairment charges amounting to $12.6 million related to goodwill of four clubs ($4.2 million), SOB licenses of eight clubs ($6.5 million), operating lease right-of-use asset and property and equipment of a closed club ($1.1 million), and software of two investment projects ($814,000).
The components of impairments and other charges, net are in the table below (dollars in thousands): 2024 Inc (Dec) 2023 Inc (Dec) 2022 Impairment of assets $ 38,517 205.0 % $ 12,629 568.9 % $ 1,888 Settlement of lawsuits 520 (86.2) % 3,759 165.3 % 1,417 Gain on sale of businesses and assets (2,140) 213.8 % (682) (71.3) % (2,375) Gain on insurance (327) 324.7 % (77) (83.4) % (463) $ 36,570 134.0 % $ 15,629 3,246.7 % $ 467 40 Table of Contents The significant variances in impairments and other charges, net are discussed below: During 2024, we recorded aggregate impairment charges amounting to $38.5 million related to goodwill of four clubs ($8.9 million), SOB licenses of seven clubs ($11.8 million), operating lease right-of-use assets of five Bombshells locations ($6.5 million), tradename of one club ($693,000), property and equipment of four clubs and nine Bombshells locations ($10.6 million).
Revenues Consolidated revenues increased by $26.2 million, or 9.8%, from 2022 to 2023 due mainly from newly acquired locations partially offset by a decrease in same-store sales and a sales decrease from locations closed in 2023.
Revenues Consolidated revenues increased by $1.8 million, or 0.6%, from 2023 to 2024 due mainly from recently acquired clubs and a newly opened Bombshells, partially offset by a decrease in same-store sales and a sales decrease from locations that were closed or rebranded in 2024.
Then starting in the second quarter of 2023, we increased our quarterly dividends to $0.06 per share. We expect annual dividend payments of $2.2 million in 2024 based on our current quarterly dividend rate. Non-GAAP Cash Flow Measure We also use certain non-GAAP cash flow measures, such as free cash flow.
Then starting in the second quarter of 2023 through the third quarter of 2024, we increased our quarterly dividends to $0.06 per share. We paid $0.07 per share in the fourth quarter of 2024. We expect annual dividend payments of $2.5 million in 2025 based on our current quarterly dividend rate.
Our growth strategy includes acquiring existing clubs, opening new clubs after market analysis, developing new club concepts that are consistent with our management and marketing skills, franchising our Bombshells brand, and developing and opening our Bombshells concept as our capital and manpower allow.
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 clubs, opening new clubs after market analysis and developing new club concepts that are consistent with our management and marketing skills as our capital and manpower allow.
We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated.
There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated.
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.
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.
However, there can be no assurance that we will be able to do so in the future. 47 Table of Contents SEASONALITY Our nightclub operations are affected by seasonal factors.
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.
Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated.
Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell and are no longer depreciated. During the third quarter of 2024, we impaired six properties for $4.8 million in property and equipment and $5.7 million in operating lease right-of-use assets.
Drink Robust sales were $145,000, $201,000, and $249,000 in fiscal 2023, 2022, and 2021, respectively, which exclude intercompany sales to Nightclubs and Bombshells units amounting to $254,000, $261,000, and $141,000 in fiscal 2023, 2022, and 2021, respectively. Media business revenues were $1.1 million, $1.2 million, and $1.0 million in fiscal 2023, 2022, and 2021, respectively.
Other revenues included revenues from Drink Robust in all three fiscal years presented. Drink Robust sales were $131,000, $145,000, and $201,000 in fiscal 2024, 2023, and 2022, respectively, which exclude intercompany sales to Nightclubs and Bombshells units amounting to $270,000, $254,000, and $261,000 in fiscal 2024, 2023, and 2022, respectively.
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.
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.
Total occupancy cost rate (total occupancy cost as a percentage of revenues) is shown in the table below. 2023 2022 2021 Lease 2.5 % 2.5 % 2.0 % Interest 5.4 % 4.5 % 4.8 % Total occupancy cost 7.9 % 7.0 % 6.8 % The 2021 interest expense rate above excludes certain costs and charges related to the September 2021 Refinancing Note amounting to approximately $637,000, or 0.3% of consolidated revenues.
Total occupancy cost rate (total occupancy cost as a percentage of revenues) is shown in the table below. 2024 2023 2022 Lease 2.4 % 2.5 % 2.5 % Interest 5.6 % 5.4 % 4.5 % Total occupancy cost 8.0 % 7.9 % 7.0 % Income Taxes Income tax was approximately a $410,000 benefit in 2024, a $6.8 million expense in 2023, and a $14.1 million expense in 2022.
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.
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.
We recorded impairment charges for SOB licenses amounting to $6.5 million in 2023 related to eight clubs, $293,000 in 2022 related to one club, and $5.3 million in 2021 related to three clubs.
We recorded impairment charges for SOB licenses amounting to $11.8 million in 2024 related to seven clubs, $6.5 million in 2023 related to eight clubs, and $293,000 in 2022 related to one club. For indefinite-lived tradename, we determine fair value by using the relief from royalty method.
Refer to dispositions in Note 1 4 to our consolidated financial statement for details on gains or losses on sale of businesses and assets.
See Note 10 to our consolidated financial statements. Going forward, settlements might be more volatile and higher in value due to self-insurance. Refer to dispositions in Note 14 to our consolidated financial statement for details on gains or losses on sale of businesses and assets.
The increase from 2021 to 2022 was mainly caused by the growth in our depreciable asset base and amortizable intangibles caused by acquired clubs and a new Bombshells unit, while the increase from 2022 to 2023 was mainly from newly acquired clubs. Other charges, net .
The increase from 2022 to 2023 was mainly from newly acquired clubs, while the smaller increase from 2023 to 2024 was mainly caused by a decrease in the amortization of intangibles due to previous impairment. Impairments and other charges, net .
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.
The effective income tax rate for fiscal 2024 was also affected by the low pretax income that caused a high offsetting rate for tax credits, whose dollar value does not change based on pretax income. 43 Table of Contents 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.
In 2022, we settled several cases including the image infringement lawsuit and the securities class actions part of which was paid by insurance. In 2021, we settled a case with one of our Bombshells landlords for $1.0 million. See Note 1 0 to our consolidated financial statements.
In 2023, we recognized settlements with the New York Department of Labor amounting to $3.1 million related to the assessment by the New York Department of Labor for state unemployment insurance. In 2022, we settled several cases including the image infringement lawsuit and the securities class actions part of which was paid by insurance.
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.
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.
Other than the impact of uncertainties caused by near-term macro environment, including commodity and labor inflation and the lingering effect of the COVID-19 pandemic, and the contractual obligations described above, we are not aware of any event or trend that would adversely impact our liquidity. In our opinion, working capital is not a true indicator of our financial status.
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. 49 Table of Contents Other than the impact of uncertainties caused by near-term macro environment, including supply chain challenges, and commodity and labor inflation, and the contractual obligations described above, we are not aware of any event or trend that would adversely impact our liquidity.
LIQUIDITY AND CAPITAL RESOURCES At September 30, 2023, our cash and cash equivalents were $21.0 million as compared to $36.0 million at September 30, 2022. Because of the large volume of cash we handle, we have very stringent cash controls.
Because of the large volume of cash we handle, we have very stringent cash controls. As of September 30, 2024, we had negative working capital of $793,000 compared to a negative working capital of $10.5 million as of September 30, 2023.
For additional details regarding our Board approved share repurchase plans, please refer to Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 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.
We have approximately $21.0 million remaining to purchase additional shares as of September 30, 2024. For additional details regarding our board approved share repurchase plans, please refer to Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
For indefinite-lived tradename, we determine fair value by using the relief from royalty method. The fair value is then compared to the carrying value and an impairment charge is recognized by the amount by which the carrying amount exceeds the fair value of the asset.
The fair value is then compared to the carrying value and an impairment charge is recognized by the amount by which the carrying amount exceeds the fair value of the asset. We recorded impairment charges for tradenames amounting to $693,000 in 2024 related to one club, $0 in 2023, and $0 in 2022.
We have not established financing other than the notes payable discussed in Note 8 to the consolidated financial statements. There can be no assurance that we will be able to obtain additional financing on reasonable terms in the future, if at all, should the need arise.
We have not established financing other than the notes payable discussed in Note 8 to the consolidated financial statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk The items in our financial statements subject to market risk are potential debt instruments with variable interest rates. We have certain debts that have variable interest rates in effect as of September 30, 2023.
Biggest changeItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The items in our financial statements subject to market risk are potential debt instruments with variable interest rates. We have certain debts that have variable interest rates in effect as of September 30, 2024.
An increase in interest rates in the future may have a negative impact on our results of operations and cash flows. A hypothetical 10% change in interest rates would have had a $680,000 impact on the Company's annual results of operations and cash flows.
An increase in interest rates in the future may have a negative impact on our results of operations and cash flows. A hypothetical 10% change in interest rates would have had a $45,000 impact on the Company's annual results of operations and cash flows.

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