# RCI HOSPITALITY HOLDINGS, INC. (RICK) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from RCI HOSPITALITY HOLDINGS, INC.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/935419/000149315221031404/form10k.htm
Accession: 0001493152-21-031404
Filing date: 2021-12-14
Report date: 2021-09-30
Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization.
Confidence: high

Company profile: /company/RICK/
All MD&A years: /company/RICK/mda/
Next year: /company/RICK/mda/fy2022/ (FY 2022)

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

OVERVIEW

The
following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended
to help the reader understand RCI Hospitality Holdings, Inc., our operations and our present business environment. MD&A is provided
as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto
contained in Item 8 – “Financial Statements and Supplementary Data” of this report. This overview summarizes the MD&A,
which includes the following sections:

[[GREPCENT_TABLE]]
[["","\u25cf","Our Business \u2014 a general description of our business and the adult nightclub industry, our objective, our strategic priorities, our core capabilities, and challenges and risks of our business."],["","\u25cf","Critical Accounting Policies and Estimates \u2014 a discussion of accounting policies that require critical judgments and estimates."],["","\u25cf","Operations Review \u2014 an analysis of our Company\u2019s consolidated results of operations for the three years presented in our consolidated financial statements."],["","\u25cf","Liquidity and Capital Resources \u2014 an analysis of cash flows, aggregate contractual obligations, and an overview of financial position."]]
[[/GREPCENT_TABLE]]

Ongoing
Impact of COVID-19 Pandemic

Since
the U.S. declaration of COVID-19 as a pandemic in March 2020, we have had a major disruption in our business operations that threatened
to significantly impact our cash flow. The declaration resulted in a significant reduction in customer traffic in our clubs and restaurants
due to changes in consumer behavior as social distancing practices, dining room closures, and other restrictions that were mandated
or encouraged by federal, state, and local governments. To adapt to the situation, we took significant steps to augment an anticipated
decline in operating cash flows, including negotiating deferment of some of our debts, reducing the number of our employees and related
payroll costs where necessary, and deferring or modifying certain fixed and variable monthly expenses, among others.

The
temporary closure of our clubs and restaurants caused by the COVID-19 pandemic presented operational challenges. Our strategy is to open
locations and operate in accordance with local and state guidelines. We believe that we can borrow capital if needed but currently
we do not have unused credit facilities so there can be no guarantee that additional liquidity will be readily available or available
on favorable terms, especially the longer the COVID-19 pandemic lasts.

Compared
to fiscal 2020, which showed a significant impact of the pandemic in terms of revenues and bottom line, in fiscal 2021 our operations
exhibited tremendous recovery. Revenues were up by 47.6% from prior year and up by 7.8% from pre-pandemic fiscal 2019. Net income increased
by 47.5% from fiscal 2019 (fiscal 2020 had a net loss) and free cash flow increased by 167.7% from fiscal 2020 and by 8.3% from
fiscal 2019.

As
of the release of this report, we do not know the future extent and duration of the impact of COVID-19 on our businesses. Closures and
operating restrictions, as caused by local, state, and national guidelines, could lead to adverse financial results. However, we will
continually monitor and evaluate the situation and will determine any further measures to be instituted.

OUR
BUSINESS

The
following are our operating segments:

[[GREPCENT_TABLE]]
[["Nightclubs","Our wholly-owned subsidiaries own and/or operate upscale adult nightclubs serving primarily businessmen and professionals. These nightclubs are in Houston, Austin, San Antonio, Dallas, Fort Worth, Beaumont, Longview, Harlingen, Edinburg, Tye, Lubbock, Aledo, Round Rock, El Paso and Odessa, Texas; Charlotte, North Carolina; Minneapolis, Minnesota; New York, New York; Miami Gardens and Pembroke Park, Florida; Pittsburgh, Pennsylvania; Phoenix, Arizona; and Washington Park, Kappa and Chicago, Illinois. No sexual contact is permitted at any of our locations. We also own and operate a Studio 80 dance club in Fort Worth, Texas. We also own and lease to third parties real properties that are adjacent to (or used to be locations of) our clubs. In relation to acquisitions that closed in October and November 2021, we now have club locations in Denver, Colorado; Louisville, Kentucky; Raleigh, North Carolina; Portland, Maine; Indianapolis, Indiana; Sauget, Illinois; and Newburgh, New York."],["Bombshells","Our wholly-owned subsidiaries own and operate restaurants and sports bars in Houston, Dallas, Austin, Spring, Pearland, Tomball and Katy, Texas under the brand name Bombshells Restaurant & Bar."],["Other","Our wholly-owned subsidiaries own a media division (\u201cMedia Group\u201d), including the leading trade magazine serving the multibillion-dollar adult nightclubs industry and the adult retail products industry. We also own an industry trade show, an industry trade publication and more than a dozen industry and social media websites. Included here is Drink Robust, which is licensed to sell Robust Energy Drink in the United States."]]
[[/GREPCENT_TABLE]]

Our
revenues are derived from the sale of liquor, beer, wine, food, merchandise; service revenues such as cover charges, membership fees,
and facility use fees; and other revenues such as commissions from vending and ATM machines, real estate rental, valet parking, and other
products and services for both nightclub and restaurant/sports bar operations. 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.

24

Same-Store
Sales. We calculate same-store sales by comparing year-over-year revenues from nightclubs and restaurants/sports bars starting in
the first full quarter of operations after at least 12 full months for Nightclubs and at least 18 full months for Bombshells. We consider
the first six months of operations of a Bombshells unit to be the “honeymoon period” where sales are significantly higher
than normal. We exclude from a particular month’s calculation units previously included in the same-store sales base that have
closed temporarily for more than 15 days until its next full month of operations. We also exclude from the same-store sales base units
that are being reconcepted or are closed due to renovations or remodels. Acquired units are included in the same-store sales calculation
as long as they qualify based on the definitions stated above. Revenues outside of our Nightclubs and Bombshells reportable segments’
core business are excluded from same-store sales calculation.

Adjusted
Same-Store Sales. Due to the disruption created by the COVID-19 pandemic and in an effort to minimize the complexity in the calculation
of same-store sales caused by closing and opening again our locations, we are presenting two alternative same-store sales results calculated
with and without the impact of closures caused by state and local government mandates. In the alternative calculation, a comparable location
will remain in the same-store sales base regardless of closing and reopening due to COVID-19 restrictions.

Our
goal is to use our Company’s assets—our brands, financial strength, and the talent and strong commitment of our management
and employees—to become more competitive and to accelerate growth.

CRITICAL
ACCOUNTING POLICIES AND ESTIMATES

Management’s
discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated
financial statements requires our management to make assumptions and estimates about future events and apply judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates
are based on management’s historical and industry experience and on various other assumptions that are believed to be reasonable
under the circumstances. On a regular basis, we evaluate these accounting policies, assumptions, estimates and judgments to ensure that
our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be
determined with certainty, actual results may differ from our estimates, and such differences could be material.

A
full discussion of our significant accounting policies is contained in Note 2 to our consolidated financial statements, which is included
in Item 8 – “Financial Statements and Supplementary Data” of this report. We believe that the following accounting
estimates are the most critical to aid in fully understanding and evaluating our financial results. These estimates require our most
difficult, subjective or complex judgments because they relate to matters that are inherently uncertain. We have reviewed these critical
accounting policies and estimates and related disclosures with our Audit Committee.

Long-Lived
Assets

We
review long-lived assets, such as property and equipment, and intangible assets subject to amortization, for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. These events or changes
in circumstances include, but are not limited to, significant underperformance relative to historical or projected future operating results,
significant changes in the manner of use of the acquired assets or the strategy for the overall business, and significant negative industry
or economic trends. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset group
to the estimated undiscounted cash flows over the estimated remaining useful life of the primary asset included in the asset group. If
the asset group is not recoverable, the impairment loss is calculated as the excess of the carrying value over the fair value. We define
our asset group as an operating club or restaurant location, which is also our reporting unit or the lowest level for which cash flows
can be identified. 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. 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 second quarter of 2021, we impaired
one property that was reclassified to assets held for sale for $1.4 million, and during the fourth quarter of 2021, we impaired four
clubs for $584,000. During the second quarter of 2020, we impaired one club and one Bombshells unit for a total
of $302,000, and during the third quarter of 2020, we impaired one club for its operating lease right-of-use asset for $104,000. During
the fourth quarter of 2019, we impaired two clubs for a total of $4.2 million.

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.

25

Our
impairment calculations require management to make assumptions and to apply judgment in order to estimate fair values. If our actual
results are not consistent with our estimates and assumptions, we may be exposed to impairments that could be material. We do not believe
that there is a reasonable likelihood that there will be a change in the estimates or assumptions we used that could cause a material
change in our calculated impairment charges.

For
our goodwill impairment review, we have the option to first perform a qualitative assessment to determine if it is more likely than not
that the fair value of the reporting unit is less than its carrying value. This assessment is based on several factors, including industry
and market conditions, overall financial performance, including an assessment of cash flows in comparison to actual and projected results
of prior periods. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying
value based on our qualitative analysis, or if we elect to skip this step, we perform a Step 1 quantitative analysis to determine the
fair value of the reporting unit. The fair value is determined using market-related valuation models, including discounted
cash flows and comparable asset market values. Key estimates in the discounted cash flow model include management’s estimate of
the projected revenues and operating margins, along with the selection of a weighted-average cost of capital to discount cash flows.
We recognize goodwill impairment in the amount that the carrying value of the reporting unit exceeds the fair value of the reporting
unit, not to exceed the amount of goodwill allocated to the reporting unit, based on the results of our Step 1 analysis. 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 the year ended September 30, 2020, we identified seven reporting units that were impaired and recognized a goodwill
impairment loss totaling $7.9 million. For the year ended September 30, 2019, we identified four reporting units that were impaired and
recognized a goodwill impairment loss totaling $1.6 million.

For
indefinite-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 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. We recorded impairment charges for
SOB licenses amounting to $5.3 million in 2021 related to three clubs, $2.3 million in 2020 related to two clubs, and $178,000
in 2019 related to one club.

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. These estimates
include depreciation and amortization expense allowable for tax purposes, allowable tax credits for items such as taxes paid on employee
tip income, effective rates for state and local income taxes, and the deductibility of certain other items, among others. We adjust our
annual effective income tax rate as additional information on outcomes or events becomes available. When necessary, we record a valuation
allowance to reduce deferred tax assets to a balance that is more likely than not to be realized.

Legal
and Other Contingencies

As
mentioned in Item 3 – “Legal Proceedings” and in a more detailed discussion in Note 11 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. There is significant judgment required in both the probability determination
and as to whether an exposure can be reasonably estimated. In the opinion of management, there was not at least a reasonable possibility
that we may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for
asserted legal and other claims. However, the outcome of legal proceedings and claims brought against the Company is subject to significant
uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters
were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s
consolidated financial statements for that reporting period could be materially adversely affected. 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.

26

OPERATIONS
REVIEW

Highlights
of operations from fiscal 2021, 2020, and 2019 are as follows (in thousands, except percentages and per share amounts):

[[GREPCENT_TABLE]]
[["","","2021","","","Inc (Dec)","","","2020","","","Inc (Dec)","","","2019"],["Revenues"],["Consolidated","","$","195,258","","","","47.6","%","","$","132,327","","","","(26.9",")%","","$","181,059"],["Nightclubs","","$","137,348","","","","55.4","%","","$","88,373","","","","(40.5",")%","","$","148,606"],["Bombshells","","$","56,621","","","","31.0","%","","$","43,215","","","","40.2","%","","$","30,828"],["Same-store sales"],["Consolidated","","","","","","","1.5","%","","","","","","","(4.4",")%"],["Nightclubs","","","","","","","(2.1",")%","","","","","","","(9.0",")%"],["Bombshells","","","","","","","7.7","%","","","","","","","18.3","%"],["Income from operations"],["Consolidated","","$","38,548","","","","1,303.8","%","","$","2,746","","","","(92.1",")%","","$","34,701"],["Nightclubs","","$","43,815","","","","235.6","%","","$","13,056","","","","(74.3",")%","","$","50,724"],["Bombshells","","$","13,264","","","","43.6","%","","$","9,237","","","","300.4","%","","$","2,307"],["Diluted earnings (loss) per share","","$","3.37","","","","","","","$","(0.66",")","","","","","","$","2.10"],["Net cash provided by operating activities","","$","41,991","","","","168.6","%","","$","15,632","","","","(57.9",")%","","$","37,174"],["Free cash flow*","","$","36,084","","","","167.7","%","","$","13,481","","","","(59.5",")%","","$","33,316"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["*","Reconciliation and discussion of non-GAAP financial measures are included under the \u201cNon-GAAP Financial Measures\u201d section of this Item. These measures should be considered in addition to, rather than as a substitute for, U.S. GAAP measures."]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Revenues"],["Sales of alcoholic beverages","","","44.4","%","","","44.6","%","","","41.5","%"],["Sales of food and merchandise","","","21.1","%","","","18.5","%","","","14.3","%"],["Service revenues","","","28.4","%","","","31.1","%","","","37.6","%"],["Other","","","6.1","%","","","5.8","%","","","6.6","%"],["Total revenues","","","100.0","%","","","100.0","%","","","100.0","%"],["Cost of goods sold"],["Alcoholic beverages","","","18.3","%","","","18.8","%","","","20.4","%"],["Food and merchandise","","","33.6","%","","","33.0","%","","","35.1","%"],["Service and other","","","0.6","%","","","0.5","%","","","0.7","%"],["Total cost of goods sold (exclusive of items shown separately below)","","","15.4","%","","","14.7","%","","","13.8","%"],["Salaries and wages","","","25.9","%","","","29.5","%","","","27.5","%"],["Selling, general and administrative","","","28.0","%","","","39.1","%","","","33.1","%"],["Depreciation and amortization","","","4.2","%","","","6.7","%","","","5.0","%"],["Other charges, net","","","6.8","%","","","8.0","%","","","1.4","%"],["Total operating expenses","","","80.3","%","","","97.9","%","","","80.8","%"],["Income from operations","","","19.7","%","","","2.1","%","","","19.2","%"],["Other income (expenses)"],["Interest expense","","","(5.1",")%","","","(7.4",")%","","","(5.6",")%"],["Interest income","","","0.1","%","","","0.2","%","","","0.2","%"],["Non-operating gains (losses), net","","","2.7","%","","","(0.0",")%","","","(0.3",")%"],["Income (loss) before income taxes","","","17.5","%","","","(5.1",")%","","","13.4","%"],["Income tax expense (benefit)","","","2.0","%","","","(0.4",")%","","","2.1","%"],["Net income (loss)","","","15.4","%","","","(4.8",")%","","","11.3","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["\u2020","Percentages may not foot due to rounding. Percentage of revenue for individual cost of goods sold items pertains to their respective revenue line."]]
[[/GREPCENT_TABLE]]

27

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)

[[GREPCENT_TABLE]]
[["","","Better (Worse)"],["","","2021 vs. 2020","","","2020 vs. 2019"],["","","Amount","","","%","","","Amount","","","%"],["Sales of alcoholic beverages","","$","27,605","","","","46.7","%","","$","(16,060",")","","","(21.4",")%"],["Sales of food and merchandise","","","16,651","","","","68.1","%","","","(1,370",")","","","(5.3",")%"],["Service revenues","","","14,299","","","","34.7","%","","","(26,893",")","","","(39.5",")%"],["Other","","","4,376","","","","57.4","%","","","(4,409",")","","","(36.6",")%"],["Total revenues","","","62,931","","","","47.6","%","","","(48,732",")","","","(26.9",")%"],["Cost of goods sold"],["Alcoholic beverages","","","(4,786",")","","","(43.1",")%","","","4,206","","","","27.5","%"],["Food and merchandise","","","(5,653",")","","","(69.4",")%","","","915","","","","10.1","%"],["Service and other","","","(177",")","","","(89.8",")%","","","381","","","","65.9","%"],["Total cost of goods sold (exclusive of items shown separately below)","","","(10,616",")","","","(54.6",")%","","","5,502","","","","22.1","%"],["Salaries and wages","","","(11,557",")","","","(29.6",")%","","","10,763","","","","21.6","%"],["Selling, general and administrative","","","(2,916",")","","","(5.6",")%","","","8,204","","","","13.7","%"],["Depreciation and amortization","","","598","","","","6.8","%","","","236","","","","2.6","%"],["Other charges, net","","","(2,638",")","","","(25.0",")%","","","(7,928",")","","","(302.6",")%"],["Total operating expenses","","","(27,129",")","","","(20.9",")%","","","16,777","","","","11.5","%"],["Income from operations","","","35,802","","","","1,303.8","%","","","(31,955",")","","","(92.1",")%"],["Other income/expenses"],["Interest expense","","","(181",")","","","(1.8",")%","","","398","","","","3.9","%"],["Interest income","","","(71",")","","","(21.9",")%","","","(15",")","","","(4.9",")%"],["Non-operating gains (losses), net","","","5,394","","","","*","","","","548","","","","89.5","%"],["Income/loss before income taxes","","","40,944","","","","601.7","%","","","(30,994",")","","","(128.1",")%"],["Income tax expense/benefit","","","(4,482",")","","","*","","","","4,237","","","","113.2","%"],["Net income/loss","","$","36,462","","","","*","","","$","(26,757",")","","","(130.9",")%"]]
[[/GREPCENT_TABLE]]

*
Not meaningful.

Revenues

Overall, our consolidated revenues trended significantly
better in fiscal 2021 compared to the more pandemic impacted fiscal 2020 with a 47.6% increase. But even though 2021 was still affected
by the pandemic, revenues grew 7.8% compared to pre-pandemic fiscal 2019. Excluding COVID-19 impact, consolidated same-store sales increase
in 2021 was 1.5%. Including the impact of COVID-19 on comparable units (see definition of Adjusted Same-Store Sales on page 25), adjusted
same-store sales in 2021 would be an increase of 48.7%. Consolidated revenues decreased by $48.7 million, or 26.9%, from 2019
to 2020. The decrease from 2019 to 2020 was mainly caused by significantly
lower traffic due to the COVID-19 restrictions. Excluding COVID-19 impact, consolidated same-store sales decrease in 2020 was 4.4%. Including
the impact of COVID-19 on comparable units, adjusted same-store sales in 2020 would be a decrease of 34.7%.

28

Segment
contribution to total revenues was as follows (in thousands):

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Nightclubs"],["Sales of alcoholic beverages","","$","54,305","","","$","31,950","","","$","57,277"],["Sales of food and merchandise","","","17,221","","","","8,561","","","","13,051"],["Service revenues","","","55,146","","","","41,004","","","","67,893"],["Other revenues","","","10,676","","","","6,858","","","","10,385"],["","","","137,348","","","","88,373","","","","148,606"],["Bombshells"],["Sales of alcoholic beverages","","","32,380","","","","27,130","","","","17,863"],["Sales of food and merchandise","","","23,890","","","","15,899","","","","12,779"],["Service revenues","","","315","","","","158","","","","162"],["Other revenues","","","36","","","","28","","","","24"],["","","","56,621","","","","43,215","","","","30,828"],["Other"],["Other revenues","","","1,289","","","","739","","","","1,625"],["","","$","195,258","","","$","132,327","","","$","181,059"]]
[[/GREPCENT_TABLE]]

Nightclubs
segment revenues. Nightclubs revenues increased by 55.4% from 2020 to 2021 and decreased by 40.5% from 2019 to 2020. A breakdown
of the changes compared to total change in Nightclubs revenues is as follows:

[[GREPCENT_TABLE]]
[["","","2021 vs. 2020","","","2020 vs. 2019"],["Impact of 2.1% and 9.0% decrease in same-store sales, respectively, to total revenues (excluding COVID-19 impact)","","","(1.2",")%","","","(4.9",")%"],["Newly acquired and reconcepted units","","","-","","","","0.9","%"],["Closed units (including COVID-19 impact)","","","56.4","%","","","(36.3",")%"],["Other","","","0.2","%","","","(0.2",")%"],["","","","55.4","%","","","(40.5",")%"]]
[[/GREPCENT_TABLE]]

Including
the impact of COVID-19 on comparable Nightclubs locations (see Adjusted Same-Store Sales on page 25), the breakdown would have
been:

[[GREPCENT_TABLE]]
[["","","2021 vs. 2020","","","2020 vs. 2019"],["Impact of 59.2% increase and 41.7% decrease in same-store sales, respectively, to total revenues (including COVID-19 impact)","","","56.9","%","","","(40.3",")%"],["Newly acquired and reconcepted units","","","-","","","","0.9","%"],["Closed units (excluding COVID-19 impact)","","","(1.8",")%","","","(0.9",")%"],["Other","","","0.2","%","","","(0.2",")%"],["","","","55.4","%","","","(40.5",")%"]]
[[/GREPCENT_TABLE]]

By
type of revenue line item, changes in Nightclubs segment revenue dollars are broken down as:

[[GREPCENT_TABLE]]
[["","","2021 vs. 2020","","","2020 vs. 2019"],["Sales of alcoholic beverages","","","70.0","%","","","(44.2",")%"],["Sales of food and merchandise","","","101.2","%","","","(34.4",")%"],["Service revenues","","","34.5","%","","","(39.6",")%"],["Other","","","55.7","%","","","(34.0",")%"]]
[[/GREPCENT_TABLE]]

Nightclubs
segment sales mix did not change much through the three fiscal years:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Sales of alcoholic beverages","","","39.5","%","","","36.2","%","","","38.5","%"],["Sales of food and merchandise","","","12.5","%","","","9.7","%","","","8.8","%"],["Service revenues","","","40.2","%","","","46.4","%","","","45.7","%"],["Other","","","7.8","%","","","7.7","%","","","7.0","%"],["","","","100.0","%","","","100.0","%","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Included
in the 2019 new units are Rick’s Cabaret Chicago and Rick’s Cabaret Pittsburgh, which were acquired in November 2018 (see
Note 15 to our consolidated financial statements) and contributed $5.0 million and $4.6 million in revenues for 2019 since acquisition
date. No new clubs were acquired or constructed in 2020 and 2021.

Included
in other revenues of the Nightclubs segment is real estate rental revenue amounting to $1.5 million in 2021, $1.3 million in 2020, and
$1.7 million in 2019.

29

Bombshells
segment revenues. Bombshells revenues increased by 31.0% from 2020 to 2021 and by 40.2% from 2019 to 2020. A breakdown of the changes
compared to total changes in Bombshells revenues is as follows:

[[GREPCENT_TABLE]]
[["","","2021 vs. 2020","","","2020 vs. 2019"],["Impact of 7.7% and 18.3% increase in same-store sales, respectively, to total revenues (excluding COVID-19 impact)","","","5.2","%","","","9.7","%"],["New units","","","9.6","%","","","35.0","%"],["Closed units (including COVID-19 impact)","","","16.2","%","","","(4.5",")%"],["","","","31.0","%","","","40.2","%"]]
[[/GREPCENT_TABLE]]

Including
the impact of COVID-19 on comparable Bombshells locations (see Adjusted Same-Store Sales on page 25), the breakdown would have
been:

[[GREPCENT_TABLE]]
[["","","2021 vs. 2020","","","2020 vs. 2019"],["Impact of 24.8% and 6.5% increase in same-store sales, respectively, to total revenues (including COVID-19 impact)","","","21.4","%","","","5.1","%"],["New units","","","9.6","%","","","35.0","%"],["Closed units (excluding COVID-19 impact)","","","-","","","","0.1","%"],["","","","31.0","%","","","40.2","%"]]
[[/GREPCENT_TABLE]]

By
type of revenue line item, changes in Bombshells segment revenues are broken down as:

[[GREPCENT_TABLE]]
[["","","2021 vs. 2020","","","2020 vs. 2019"],["Sales of alcoholic beverages","","","19.4","%","","","51.9","%"],["Sales of food and merchandise","","","50.3","%","","","24.4","%"],["Service and other revenues","","","88.7","%","","","0.0","%"]]
[[/GREPCENT_TABLE]]

Bombshells
segment sales mix for the three fiscal years is as follows:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Sales of alcoholic beverages","","","57.2","%","","","62.8","%","","","57.9","%"],["Sales of food and merchandise","","","42.2","%","","","36.8","%","","","41.5","%"],["Service and other revenues","","","0.6","%","","","0.4","%","","","0.6","%"],["","","","100.0","%","","","100.0","%","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Bombshells
I-10 was opened in the first quarter of 2019, while Bombshells 249 was opened in the second quarter of 2019. Bombshells Katy was opened
in the first quarter of 2020, while Bombshells 59 was opened in the second quarter of 2020. No new Bombshells location was opened in
2021.

Other
segment revenues. Other revenues included revenues from Drink Robust in all three fiscal years presented. Drink Robust sales were
$249,000, $150,000, and $231,000 in fiscal 2021, 2020, and 2019, respectively, which excludes intercompany sales to Nightclubs and Bombshells
units amounting to $141,000, $70,000, and $140,000 in fiscal 2021, 2020, and 2019, respectively. Media business revenues were $1.0 million,
$589,000, and $1.4 million in fiscal 2021, 2020, and 2019, respectively. Due to the COVID-19 pandemic, the 2020 ED EXPO that was supposed
to be held in August 2020 (fiscal 2020) was canceled. All unearned sponsorship and advertising revenues related to the event were either
further deferred or refunded and no revenue was recognized.

Operating
Expenses

Total
operating expenses, as a percent of consolidated revenues, were 80.3%, 97.9%, and 80.8% for the fiscal year 2021, 2020, and 2019,
respectively. Significant contributors to the change in operating expenses as a percent of revenues are explained below.

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 15.4%, 14.7%, and 13.8% for fiscal 2021,
2020, and 2019, respectively. See above for breakdown of percentages for each line item of consolidated cost of goods sold as it relates
to the respective consolidated revenue line. For the Nightclubs segment, cost of goods sold was 11.8%, 10.7%, and 11.2% for fiscal 2021,
2020, and 2019, respectively, which was primarily caused by shifts in sales mix. Bombshells cost of goods sold was 23.8%, 22.6%,
and 25.3% for fiscal 2021, 2020, and 2019, respectively, which was mainly driven by the shift in sales mix to lower-margin food sales
in 2021, to higher-margin alcoholic beverage sales in 2020, and from food cost inflation in 2019.

30

Consolidated salaries and wages increased by $11.6
million, or 29.6%, from 2020 to 2021 and decreased by $10.8 million, or 21.6%, from 2019 to 2020. The dollar decrease from
2019 to 2020 was mainly from furloughed employees due to COVID-19, which increased back in 2021 due to hiring and rehiring after
easing restrictions. As a percentage of revenues, consolidated salaries and wages were 25.9%, 29.5%, and 27.5% in 2021, 2020, and 2019,
respectively, mainly due to sales trend and the impact of fixed salaries on lower sales. Corporate salary pay cuts made in 2020 during
the height of the pandemic restrictions were paid back in 2021.

By
reportable segment, salaries and wages are broken down as follows (in thousands):

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Nightclubs","","$","26,986","","","$","19,590","","","$","32,267"],["Bombshells","","","13,041","","","","10,427","","","","8,887"],["Other","","","582","","","","491","","","","617"],["General corporate","","","10,018","","","","8,562","","","","8,062"],["","","$","50,627","","","$","39,070","","","$","49,833"]]
[[/GREPCENT_TABLE]]

Unit-level
manager payroll is included in salaries and wages of each location, while payroll for regional manager and above are included in general
corporate.

The
components of consolidated selling, general and administrative expenses are in the tables below (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Years Ended September 30,","","","Percentage of Revenues"],["","","2021","","","2020","","","2019","","","2021","","","2020","","","2019"],["Taxes and permits","","$","8,701","","","$","8,071","","","$","10,779","","","","4.5","%","","","6.1","%","","","6.0","%"],["Advertising and marketing","","","6,676","","","","5,367","","","","8,392","","","","3.4","%","","","4.1","%","","","4.6","%"],["Supplies and services","","","6,190","","","","4,711","","","","5,911","","","","3.2","%","","","3.6","%","","","3.3","%"],["Insurance","","","5,676","","","","5,777","","","","5,429","","","","2.9","%","","","4.4","%","","","3.0","%"],["Lease","","","3,942","","","","4,060","","","","3,896","","","","2.0","%","","","3.1","%","","","2.2","%"],["Legal","","","3,997","","","","4,725","","","","5,180","","","","2.0","%","","","3.6","%","","","2.9","%"],["Utilities","","","3,366","","","","2,945","","","","3,165","","","","1.7","%","","","2.2","%","","","1.7","%"],["Charge card fees","","","3,376","","","","2,382","","","","3,803","","","","1.7","%","","","1.8","%","","","2.1","%"],["Security","","","3,892","","","","2,582","","","","2,973","","","","2.0","%","","","2.0","%","","","1.6","%"],["Accounting and professional fees","","","2,031","","","","3,463","","","","2,815","","","","1.0","%","","","2.6","%","","","1.6","%"],["Repairs and maintenance","","","2,767","","","","2,289","","","","2,980","","","","1.4","%","","","1.7","%","","","1.6","%"],["Other","","","3,994","","","","5,320","","","","4,573","","","","2.0","%","","","4.0","%","","","2.5","%"],["","","$","54,608","","","$","51,692","","","$","59,896","","","","28.0","%","","","39.1","%","","","33.1","%"]]
[[/GREPCENT_TABLE]]

By
reportable segment, selling, general and administrative expenses are broken down as follows (in thousands):

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Nightclubs","","$","32,725","","","$","30,105","","","$","40,033"],["Bombshells","","","14,883","","","","11,735","","","","10,441"],["Other","","","237","","","","268","","","","356"],["General corporate","","","6,763","","","","9,584","","","","9,066"],["","","$","54,608","","","$","51,692","","","$","59,896"]]
[[/GREPCENT_TABLE]]

31

The
significant variances in selling, general and administrative expenses are as follows:

In
light of decreased sales activity caused by the COVID-19 pandemic from 2019 to 2020, most of our selling, general and administrative
expenses for 2020 decreased, except for relatively fixed expenses such as insurance, rent, and accounting and professional fees. As a
percentage of revenues, relatively fixed expenses increased in rate due to lower sales, while more discretionary/controllable expenses
such as advertising and marketing were kept to a minimum. Conversely, due to the increase in revenues in 2021 from 2020, almost all selling,
general and administrative expenses consequently increased except accounting and professional fees, insurance, leases, and legal. Accounting
and legal fees primarily decreased from prior year’s SEC matters; lease expense decreased due to lease credits we received from
certain landlords; while insurance decreased due to credits given by insurers for unused coverage due to COVID-19 closures in 2020.

Depreciation
and amortization decreased by $598,000, or 6.8%, from 2020 to 2021 and by $236,000, or 2.6%, from 2019 to 2020. The decrease from 2019
to 2020 was mainly due to properties sold or disposed during the current and prior year, while the decrease from 2020 to 2021 was mainly
from significantly low capital expenditure in 2020.

The
components of other charges, net are in the table below (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","Years Ended September 30,","","","Percentage of Revenues"],["","","2021","","","2020","","","2019","","","2021","","","2020","","","2019"],["Impairment of assets","","$","13,612","","","$","10,615","","","$","6,040","","","","7.0","%","","","8.0","%","","","3.3","%"],["Settlement of lawsuits","","","1,349","","","","174","","","","225","","","","0.7","%","","","0.1","%","","","0.1","%"],["Gain on sale of businesses and assets","","","(522",")","","","(661",")","","","(2,877",")","","","(0.3",")%","","","(0.5",")%","","","(1.6",")%"],["Loss (gain) on insurance","","","(1,253",")","","","420","","","","(768",")","","","(0.6",")%","","","0.3","%","","","(0.4",")%"],["Total other charges, net","","$","13,186","","","$","10,548","","","$","2,620","","","","6.8","%","","","8.0","%","","","1.4","%"]]
[[/GREPCENT_TABLE]]

The
significant variances in other charges, net are discussed below:

During 2021, we recorded aggregate impairment charges
amounting to $13.6 million related to goodwill of seven clubs ($6.3 million), SOB licenses of three clubs ($5.3 million),
and property and equipment of five clubs, one of which is held for sale ($2.0 million). During 2020, we recorded aggregate
impairment charges amounting to $10.6 million related to goodwill of seven clubs ($7.9 million), SOB licenses of two clubs ($2.3 million),
and $406,000 of long-lived assets of one club and one Bombshells restaurant (including impairment on operating lease right-of-use assets
of $104,000). During 2019, we recorded aggregate impairment charges amounting to $6.0 million related to goodwill of four clubs ($1.6
million), SOB license of one club ($178,000), and property and equipment of two clubs ($4.2 million). See Notes 2 and 15 to our consolidated
financial statements.

In
2021, we settled a case with one of our Bombshells landlord for $1.0 million. See Note 11 to our consolidated financial statements.

In
relation to insurance claims and recoveries, we recognized a $1.3 million gain in 2021, a $420,000 loss in 2020, and a $768,000 gain
in 2019 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. Gains related to insurance recoveries were recognized when the contingencies
related to the insurance claims have been resolved, which may be in a subsequent reporting period. See Note 14 to our consolidated
financial statements.

Income
from Operations

During
fiscal 2021, 2020, and 2019, our consolidated operating margin was 19.7%, 2.1%, and 19.2%, respectively.

Below
is a table which reflects segment contribution to income from operations (in thousands):

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Nightclubs","","$","43,815","","","$","13,056","","","$","50,724"],["Bombshells","","","13,264","","","","9,237","","","","2,307"],["Other","","","35","","","","(614",")","","","(309",")"],["General corporate","","","(18,566",")","","","(18,933",")","","","(18,021",")"],["","","$","38,548","","","$","2,746","","","$","34,701"]]
[[/GREPCENT_TABLE]]

Nightclubs operating margin was 31.9%,
14.8%, and 34.1% in 2021, 2020, and 2019, respectively, primarily due to the impact of the COVID-19 pandemic in 2020 and the closure
of underperforming units, fixed expense leverage on increasing sales, and impairment of assets of $13.6 million, $10.4 million,
and $5.9 million for 2021, 2020, and 2019, respectively. Bombshells operating margin was 23.4%, 21.4%, and 7.5% in 2021, 2020, and 2019,
respectively, mainly due to two new units and same-store sales increase in 2021, partially offset by COVID-19 impact in 2020, and pre-opening
expenses in 2019 (particularly in salaries and wages and selling, general and administrative expenses.

32

Excluding
certain items, non-GAAP operating income (loss) and non-GAAP operating margin are computed in the tables below (dollars in thousands).
Refer to discussion of Non-GAAP Financial Measures on page 35.

[[GREPCENT_TABLE]]
[["","","For the Year Ended September 30, 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","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","For the Year Ended September 30, 2020"],["","","Nightclubs","","","Bombshells","","","Other","","","Corporate","","","Total"],["Income (loss) from operations","","$","13,056","","","$","9,237","","","$","(614",")","","$","(18,933",")","","$","2,746"],["Amortization of intangibles","","","211","","","","15","","","","383","","","","-","","","","609"],["Settlement of lawsuits","","","174","","","","-","","","","-","","","","-","","","","174"],["Impairment of assets","","","10,370","","","","245","","","","-","","","","-","","","","10,615"],["Loss (gain) on sale of businesses and assets","","","(639",")","","","16","","","","-","","","","(38",")","","","(661",")"],["Loss (gain) on insurance","","","433","","","","-","","","","-","","","","(13",")","","","420"],["Non-GAAP operating income (loss)","","$","23,605","","","$","9,513","","","$","(231",")","","$","(18,984",")","","$","13,903"],["GAAP operating margin","","","14.8","%","","","21.4","%","","","(83.1",")%","","","(14.3",")%","","","2.1","%"],["Non-GAAP operating margin","","","26.7","%","","","22.0","%","","","(31.3",")%","","","(14.3",")%","","","10.5","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","For the Year Ended September 30, 2019"],["","","Nightclubs","","","Bombshells","","","Other","","","Corporate","","","Total"],["Income (loss) from operations","","$","50,724","","","$","2,307","","","$","(309",")","","$","(18,021",")","","$","34,701"],["Amortization of intangibles","","","230","","","","11","","","","383","","","","-","","","","624"],["Settlement of lawsuits","","","169","","","","3","","","","-","","","","53","","","","225"],["Impairment of assets","","","5,920","","","","-","","","","-","","","","120","","","","6,040"],["Loss (gain) on sale of businesses and assets","","","(2,858",")","","","27","","","","-","","","","(46",")","","","(2,877",")"],["Gain on insurance","","","(654",")","","","-","","","","-","","","","(114",")","","","(768",")"],["Non-GAAP operating income (loss)","","$","53,531","","","$","2,348","","","$","74","","","$","(18,008",")","","$","37,945"],["GAAP operating margin","","","34.1","%","","","7.5","%","","","(19.0",")%","","","(10.0",")%","","","19.2","%"],["Non-GAAP operating margin","","","36.0","%","","","7.6","%","","","4.6","%","","","(9.9",")%","","","21.0","%"]]
[[/GREPCENT_TABLE]]

Other
Income/Expenses

Interest
expense increased by $181,000 from 2020 to 2021 and decreased by $398,000 from 2019 to 2020. The net increase in interest expense in
2021 was primarily caused by the expensed loan costs and written off unamortized debt issuance costs related to the September 2021 Refinancing
Note (see Note 9 to our consolidated financial statements), partially offset by the impact of a lower average debt balance. The decrease
in interest expense in 2020 was primarily due to the lower average debt balance. During 2019, our debt repayments were significantly
higher than our borrowing, excluding borrowings from acquisitions, thereby reducing interest expense as a percentage of revenue. During
2020, with the onset of the COVID-19 pandemic, certain debt principal and interest payments were deferred, but we continue to
accrue interest on these debts. At the end of 2021, we refinanced several of our existing bank and seller-financed real estate debt with
the issuance of a $99.1 million 5.25% note with a term of 10 years.

33

We
consider rent 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. Total occupancy cost rate (total occupancy
cost as a percentage of revenues) increased in 2020 due to lower sales activity caused by the pandemic as shown below.

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Rent","","","2.0","%","","","3.1","%","","","2.2","%"],["Interest","","","4.8","%","","","7.4","%","","","5.6","%"],["Total occupancy cost","","","6.8","%","","","10.5","%","","","7.8","%"]]
[[/GREPCENT_TABLE]]

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. The $637,000 interest expense includes $103,000 in unamortized debt issuance
costs that were written off and $228,000 in expensed new loan costs.

In
fiscal 2021, we received 11 notices of forgiveness for our PPP loans approving the forgiveness of 100% of each of the 11 PPP loans amounting
to $5.3 million in principal and interest, which were included in non-operating gains (losses), net. In November 2021, we received
a partial forgiveness of the remaining $124,000 PPP loan for $85,000 in principal and interest. See Note 9 to our consolidated financial
statements.

Income
Taxes

Income taxes were an expense of approximately
$4.0 million in 2021, a benefit of $493,000 in 2020, and an expense of $3.7 million in 2019. Our effective income tax rate was a
11.7% expense in 2021, 7.2% benefit in 2020, and a 15.5% expense in 2019. The components of our annual effective income tax rate
are the following:

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Federal statutory income tax expense/benefit","","","21.0","%","","","21.0","%","","","21.0","%"],["State income taxes, net of federal benefit","","","2.1","%","","","(3.7",")%","","","2.8","%"],["Permanent differences","","","(1.3",")%","","","(5.8",")%","","","0.2","%"],["Change in state tax rate","","","(2.4",")%","","","-","","","","-"],["Change in valuation allowance","","","(1.9",")%","","","(18.7",")%","","","-"],["Tax credits","","","(3.5",")%","","","13.9","%","","","(3.7",")%"],["Other","","","(2.4",")%","","","0.6","%","","","(4.8",")%"],["Total effective income tax rate","","","11.7","%","","","7.2","%","","","15.5","%"]]
[[/GREPCENT_TABLE]]

* Positive or negative percentages are in relation
to income or loss before income taxes of the respective fiscal year. Percentages may not foot due to rounding.

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, and
tax credits that are mostly FICA tip credits. The effective income tax rate for fiscal 2020 was also affected by the pre-tax loss mostly
caused by the pandemic and the changes in the deferred tax asset valuation allowance in fiscal 2021 and 2020.

34

Non-GAAP
Financial Measures

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

Non-GAAP
Operating Income and Non-GAAP Operating Margin. We calculate non-GAAP operating income and non-GAAP operating margin by excluding
the following items from income from operations and operating margin: (a) amortization of intangibles, (b) impairment of assets, (c)
gains or losses on sale of businesses and assets, (d) gains or losses on insurance, (e) settlement of lawsuits, and (f) costs and
charges related to debt refinancing. We believe that excluding these items assists investors in evaluating period-over-period changes
in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations.

Non-GAAP
Net Income and Non-GAAP Net Income per Diluted Share. We calculate non-GAAP net income and non-GAAP net income per diluted share
by excluding or including certain items to net income attributable to RCIHH common stockholders and diluted earnings per share. Adjustment
items are: (a) amortization of intangibles, (b) impairment of assets, (c) costs and charges related to debt refinancing, (d) gains or
losses on sale of businesses and assets, (e) gains or losses on insurance, (f) unrealized loss on equity securities, (g) settlement of
lawsuits, (h) gain on debt extinguishment, (i) costs and charges related to debt refinancing, (j) the income tax effect of the
above-described adjustments, and (k) change in deferred tax asset valuation allowance. Included in the income tax effect of the
above adjustments is the net effect of the non-GAAP provision for income taxes, calculated at 13.5%, 26.0%, and 15.5% effective
tax rate of the pre-tax non-GAAP income before taxes for the 2021, 2020, and 2019, respectively, and the GAAP income tax expense (benefit).
We believe that excluding and including such items help management and investors better understand our operating activities.

Adjusted
EBITDA. We calculate adjusted EBITDA by excluding the following items from net income 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, and (i) gain on debt extinguishment. We believe that adjusting for such items helps management and investors better understand
our operating activities. Adjusted EBITDA provides a core operational performance measurement that compares results without the need
to adjust for federal, state and local taxes which have considerable variation between domestic jurisdictions. The results are, therefore,
without consideration of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess the unleveraged
performance return on our investments. Adjusted EBITDA multiple is also used as a target benchmark for our acquisitions of nightclubs.

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

35

The
following tables present our non-GAAP performance measures for the periods indicated (in thousands, except per share amounts and percentages):

[[GREPCENT_TABLE]]
[["","","For the Year Ended September 30,"],["","","2021","","","2020","","","2019"],["Reconciliation of GAAP net income (loss) to Adjusted EBITDA"],["Net income (loss) attributable to RCIHH common stockholders","","$","30,336","","","$","(6,085",")","","$","20,294"],["Income tax expense (benefit)","","","3,989","","","","(493",")","","","3,744"],["Interest expense, net","","","9,739","","","","9,487","","","","9,900"],["Settlement of lawsuits","","","1,349","","","","174","","","","225"],["Impairment of assets","","","13,612","","","","10,615","","","","6,040"],["Gain on sale of businesses and assets","","","(522",")","","","(661",")","","","(2,877",")"],["Depreciation and amortization","","","8,238","","","","8,836","","","","9,072"],["Unrealized loss on equity securities","","","84","","","","64","","","","612"],["Gain on debt extinguishment","","","(5,329",")","","","-","","","","-"],["Loss (gain) on insurance","","","(1,253",")","","","420","","","","(768",")"],["Adjusted EBITDA","","$","60,243","","","$","22,357","","","$","46,242"],["Reconciliation of GAAP net income (loss) to non-GAAP net income"],["Net income (loss) attributable to RCIHH common stockholders","","$","30,336","","","$","(6,085",")","","$","20,294"],["Amortization of intangibles","","","258","","","","609","","","","624"],["Settlement of lawsuits","","","1,349","","","","174","","","","225"],["Impairment of assets","","","13,612","","","","10,615","","","","6,040"],["Gain on sale of businesses and assets","","","(522",")","","","(661",")","","","(2,877",")"],["Costs and charges related to debt refinancing**","","","694","","","","-","","","","-"],["Unrealized loss on equity securities","","","84","","","","64","","","","612"],["Gain on debt extinguishment","","","(5,329",")","","","-","","","","-"],["Loss (gain) on insurance","","","(1,253",")","","","420","","","","(768",")"],["Change in deferred tax asset valuation allowance","","","(632",")","","","1,273","","","","-"],["Net income tax effect","","","(1,845",")","","","(1,700",")","","","(580",")"],["Non-GAAP net income","","$","36,752","","","$","4,709","","","$","23,570"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","For the Year Ended September 30,"],["","","2021","","","2020","","","2019"],["Reconciliation of GAAP diluted earnings (loss) per share to non-GAAP diluted earnings per share"],["Diluted shares","","","9,005","","","","9,199","","","","9,657"],["GAAP diluted earnings (loss) per share","","$","3.37","","","$","(0.66",")","","$","2.10"],["Amortization of intangibles","","","0.03","","","","0.07","","","","0.06"],["Settlement of lawsuits","","","0.15","","","","0.02","","","","0.02"],["Impairment of assets","","","1.51","","","","1.15","","","","0.63"],["Gain on sale of businesses and assets","","","(0.06",")","","","(0.07",")","","","(0.30",")"],["Costs and charges related to debt refinancing**","","","0.08","","","","-","","","","-"],["Unrealized loss on equity securities","","","0.01","","","","0.01","","","","0.06"],["Gain on debt extinguishment","","","(0.59",")","","","-","","","","-"],["Loss (gain) on insurance","","","(0.14",")","","","0.05","","","","(0.08",")"],["Change in deferred tax asset valuation allowance","","","(0.07",")","","","0.14","","","","-"],["Net income tax effect","","","(0.20",")","","","(0.18",")","","","(0.05",")"],["Non-GAAP diluted earnings per share","","$","4.08","","","$","0.51","","","$","2.44"],["Reconciliation of GAAP operating income to non-GAAP operating income"],["Income from operations","","$","38,548","","","$","2,746","","","$","34,701"],["Amortization of intangibles","","","258","","","","609","","","","624"],["Settlement of lawsuits","","","1,349","","","","174","","","","225"],["Impairment of assets","","","13,612","","","","10,615","","","","6,040"],["Gain on sale of businesses and assets","","","(522",")","","","(661",")","","","(2,877",")"],["Costs and charges related to debt refinancing**","","","57","","","","-","","","","-"],["Loss (gain) on insurance","","","(1,253",")","","","420","","","","(768",")"],["Non-GAAP operating income","","$","52,049","","","$","13,903","","","$","37,945"],["Reconciliation of GAAP operating margin to non-GAAP operating margin"],["GAAP operating margin","","","19.7","%","","","2.1","%","","","19.2","%"],["Amortization of intangibles","","","0.1","%","","","0.5","%","","","0.3","%"],["Settlement of lawsuits","","","0.7","%","","","0.1","%","","","0.1","%"],["Impairment of assets","","","7.0","%","","","8.0","%","","","3.3","%"],["Gain on sale of businesses and assets","","","(0.3",")%","","","(0.5",")%","","","(1.6",")%"],["Costs and charges related to debt refinancing**","","","0.0","%","","","-","","","","-"],["Loss (gain) on insurance","","","(0.6",")%","","","0.3","%","","","(0.4",")%"],["Non-GAAP operating margin","","","26.7","%","","","10.5","%","","","21.0","%"]]
[[/GREPCENT_TABLE]]

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

**
Costs and charges related to debt refinancing consist of $637,000 in interest expense and $57,000 in legal and professional fees. The
$637,000 interest expense portion above includes $103,000 in unamortized debt issuance costs that were written off and $228,000 in expensed
new loan costs.

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.

36

LIQUIDITY
AND CAPITAL RESOURCES

At September 30, 2021, our cash and cash equivalents
were approximately $35.7 million compared to $15.6 million at September 30, 2020. Because of the large volume of cash we handle, we have
very stringent cash controls. As of September 30, 2021, we had working capital of $26.1 million compared to a negative working
capital of $5.9 million as of September 30, 2020, excluding net assets held for sale (net of associated liabilities of $1.1 million and
$0, respectively) amounting to $3.8 million and $0 as of September 30, 2021 and 2020, respectively. Although we believe that our ability
to generate cash from operating activities is one of our fundamental financial strengths, the temporary closure of our clubs and restaurants
caused by the COVID-19 pandemic presented operational challenges. Our strategy was to open locations and operate in accordance
with local and state guidelines. Revenues seem favorable now that all our locations are not under pandemic-related closure mandates.
We believe that we can borrow capital if needed but currently we do not have unused credit facilities so there can be no guarantee
that additional liquidity will be readily available or available on favorable terms.

In fiscal 2020, to adapt to the situation,
we took significant steps to augment an anticipated decline in operating cash flows, including negotiating deferment of some of our debts,
reducing the number of our employees and related payroll costs where necessary, and deferring or modifying certain fixed and variable
monthly expenses, among others.

On May 8, 2020, the Company received approval and
funding under the Paycheck Protection Program of the CARES Act for its restaurants, shared service entity and lounge. Ten of our restaurant
subsidiaries received amounts ranging from $271,000 to $579,000 for an aggregate amount of $4.2 million; our shared-services subsidiary
received $1.1 million; and one of our lounges received $124,000. None of our adult nightclub and other non-core business subsidiaries
received funding under the PPP. The Company believes it used the entire loan amount for qualifying expenses. Under the terms of the PPP,
certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company utilized
all of the PPP funds and submitted its forgiveness applications. During the year ended September 30, 2021, we received 11 Notices of
PPP Forgiveness Payment from the Small Business Administration out of the 12 of our PPP loans granted. All of the notices received forgave
100% of each of the 11 PPP loans totaling the amount of $5.3 million in principal and interest during the period and were included
in non-operating gains (losses), net in our consolidated statement of operations. In November 2021, we received a partial forgiveness
of the remaining $124,000 PPP loan for $85,000 in principal and interest. The remaining unforgiven portion of approximately $41,000 in principal will be repaid as debt plus accrued interest.

As
of the release of this report, we do not know the future extent and duration of the impact of COVID-19 on our businesses. Closures and
operating restrictions, as caused by local, state and national guidelines, could lead to adverse financial results. However, we will
continually monitor and evaluate our cash flow situation and will determine any further measures to be instituted.

We
continue to adhere to state and local government mandates regarding the pandemic and, since March 2020, have closed and reopened a number
of our locations depending on changing government mandates, including operating hour and limited occupancy restrictions, where applicable.
Currently, all of our locations are open except two clubs that are being renovated and/or remodeled.

We
have not recently raised capital through the issuance of equity securities. Instead, we use debt financing to lower our overall cost
of capital and increase our return on stockholders’ equity. We have a history of borrowing funds in private transactions and from
sellers in acquisition transactions and have secured traditional bank financing on our new development projects and refinancing of our
existing notes payable, but with the significant global impact of the COVID-19 pandemic, there can be no assurance that any of these
financing options would be presently available on favorable terms, if at all. We also have historically utilized these cash flows to
invest in property and equipment, adult nightclubs, and restaurants/sports bars.

On October 18, 2021, we and certain of our
subsidiaries completed our acquisition of eleven gentlemen’s clubs, six related real estate properties, and associated
intellectual property for a total agreed acquisition price of $88.0 million (with a total consideration preliminary fair value of
$88.4 million based on the Company’s stock price at acquisition date and discounted due to the lock-up period). The
acquisition gives the Company presence in six additional states. We paid for the acquisition with $36.8 million in cash, $21.2
million in four seller-financed notes, and 500,000 shares of our common stock.

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

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

[[GREPCENT_TABLE]]
[["","","Year Ended September 30,"],["","","2021","","","2020","","","2019"],["Operating activities","","$","41,991","","","$","15,632","","","$","37,174"],["Investing activities","","","(6,814",")","","","(994",")","","","(27,147",")"],["Financing activities","","","(15,096",")","","","(13,130",")","","","(13,656",")"],["Net increase (decrease) in cash and cash equivalents","","$","20,081","","","$","1,508","","","$","(3,629",")"]]
[[/GREPCENT_TABLE]]

We
require capital principally for the acquisition of new clubs, construction of new Bombshells, renovation of older units, and investments
in technology. 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.

37

Cash
Flows from Operating Activities

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

[[GREPCENT_TABLE]]
[["","","Year Ended September 30,"],["","","2021","","","2020","","","2019"],["Net income (loss)","","$","30,150","","","$","(6,312",")","","$","20,445"],["Depreciation and amortization","","","8,238","","","","8,836","","","","9,072"],["Deferred tax expense (benefit)","","","(1,253",")","","","(1,268",")","","","821"],["Impairment of assets","","","13,612","","","","10,615","","","","6,040"],["Gain on debt extinguishment","","","(5,298",")","","","-","","","","-"],["Net change in operating assets and liabilities","","","(3,451",")","","","1,380","","","","2,822"],["Other","","","(7",")","","","2,381","","","","(2,026",")"],["Net cash provided by operating activities","","$","41,991","","","$","15,632","","","$","37,174"]]
[[/GREPCENT_TABLE]]

Net
cash flows from operating activities increased from 2020 to 2021 mainly due to significantly higher income from operations partially
offset by higher interest payments, which included deferred debt interest payments from 2020, and higher income taxes paid. Net cash
flows from operating activities significantly decreased in 2020 mainly due to the impact of the COVID-19 pandemic on our operations and
partially offset by lower interest and income taxes paid.

Cash
Flows from Investing Activities

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

[[GREPCENT_TABLE]]
[["","","Year Ended September 30,"],["","","2021","","","2020","","","2019"],["Proceeds from sale of businesses and assets","","$","5,415","","","$","2,221","","","$","7,223"],["Proceeds from insurance and notes receivable","","","1,282","","","","2,521","","","","258"],["Issuance of notes receivable","","","-","","","","-","","","","(420",")"],["Payments for property and equipment and intangible assets","","","(13,511",")","","","(5,736",")","","","(20,708",")"],["Acquisition of businesses, net of cash acquired","","","-","","","","-","","","","(13,500",")"],["Net cash used in investing activities","","$","(6,814",")","","$","(994",")","","$","(27,147",")"]]
[[/GREPCENT_TABLE]]

In 2021, we acquired four real estate properties
either for future club or restaurant locations or for corporate use. On one of the real properties purchased, we opened a Bombshells
restaurant on December 6, 2021 in Arlington, Texas. There were no new Bombshells units opened in 2021. We also sold two real estate properties
in 2021. We opened two new Bombshells units in 2020 (one in Katy, Texas and another on U.S. Highway 59 in
Houston, Texas) and sold three real estate properties. In 2019, we opened four new units (acquired two clubs in Chicago, Illinois
and Pittsburgh, Pennsylvania, and built two new Bombshells in Houston, Texas) and seven real estate properties sold. As of September
30, 2021, 2020, and 2019, we had $3.4 million, $20,000, and $8.9 million in construction-in-progress related mostly to Bombshells
opening in the subsequent fiscal year. In 2019, we acquired two clubs (one in Pittsburgh and another in Chicago) where
we paid a total of $13.5 million at closing. See Note 15 to our consolidated financial statements.

Following
is a reconciliation of our additions to property and equipment for the years ended September 30, 2021, 2020, and 2019 (in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended September 30,"],["","","2021","","","2020","","","2019"],["New capital expenditures in new clubs and Bombshells units and equipment*","","$","7,604","","","$","3,585","","","$","16,850"],["Maintenance capital expenditures","","","5,907","","","","2,151","","","","3,858"],["Total capital expenditures, excluding business acquisitions","","$","13,511","","","$","5,736","","","$","20,708"]]
[[/GREPCENT_TABLE]]

*
Includes real estate except those acquired through business acquisitions.

See discussion of acquisitions subsequent to September
30, 2021 in Note 15 to our consolidated financial statements, the most significant of which is our acquisition of eleven clubs on October
18, 2021 for which part of the total acquisition price was paid with $36.8 million in cash at closing.

38

Cash
Flows from Financing Activities

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

[[GREPCENT_TABLE]]
[["","","Year Ended September 30,"],["","","2021","","","2020","","","2019"],["Proceeds from long-term debt","","$","38,490","","","$","6,503","","","$","13,511"],["Payments on long-term debt","","","(49,178",")","","","(8,832",")","","","(22,924",")"],["Payment of dividends","","","(1,440",")","","","(1,286",")","","","(1,252",")"],["Purchase of treasury stock","","","(1,794",")","","","(9,484",")","","","(2,901",")"],["Payment of loan origination costs","","","(1,174",")","","","-","","","","(20",")"],["Distribution to noncontrolling interests","","","-","","","","(31",")","","","(70",")"],["Net cash used in financing activities","","$","(15,096",")","","$","(13,130",")","","$","(13,656",")"]]
[[/GREPCENT_TABLE]]

See Note 9 to our consolidated financial statements
for a detailed discussion of our debt obligations.

We
purchased shares of our common stock representing 74,659 shares, 516,102 shares, and 128,040 shares in 2021, 2020, and 2019, respectively.
We paid quarterly dividends of $0.03 per share in fiscal 2020 and 2019, except for the fourth quarter of 2019 and the second and fourth
quarter of 2020 where we paid $0.04 per share. We paid quarterly dividends of $0.04 per share in fiscal 2021.

Non-GAAP
Cash Flow Measure

Management
also uses 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.
See table below (in thousands):

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Net cash provided by operating activities","","$","41,991","","","$","15,632","","","$","37,174"],["Less: Maintenance capital expenditures","","","5,907","","","","2,151","","","","3,858"],["Free cash flow","","$","36,084","","","$","13,481","","","$","33,316"]]
[[/GREPCENT_TABLE]]

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

Debt
Financing

Significant
financing activities were as follows:

[[GREPCENT_TABLE]]
[["","\u25cf","$99.1 million bank refinancing loan on September 30, 2021"],["","\u25cf","$17.0 million borrowings from private investors on October 12, 2021 (subsequent to year-end)"],["","\u25cf","$21.2 million seller-financed notes related to the October 18, 2021 acquisition (subsequent to year-end)"]]
[[/GREPCENT_TABLE]]

See
Note 9 to our consolidated financial statements for more details regarding our debt activity.

39

Contractual
Obligations and Commitments

We
have long-term contractual obligations primarily in the form of debt obligations and operating leases. The following table (in thousands)
summarizes our contractual obligations and their aggregate maturities as well as future minimum rent payments. Future interest payments
related to debt were estimated using the interest rate in effect as of September 30, 2021.

[[GREPCENT_TABLE]]
[["","","Payments Due by Period"],["","","Total","","","2022","","","2023","","","2024","","","2025","","","2026","","","Thereafter"],["Long-term debt \u2013 regular(a)","","$","60,843","","","$","6,625","","","$","4,825","","","$","5,094","","","$","5,409","","","$","5,745","","","$","33,145"],["Long-term debt \u2013 balloon(a)","","","65,953","","","","-","","","","3,676","","","","-","","","","-","","","","-","","","","62,277"],["Interest payments on debt","","","52,213","","","","6,933","","","","6,324","","","","5,996","","","","5,681","","","","5,345","","","","21,934"],["Operating leases(b)","","","36,766","","","","3,296","","","","3,173","","","","3,177","","","","3,245","","","","3,304","","","","20,571"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(a)","See Note 9 to our consolidated financial statements."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(b)","See Note 19 to our consolidated financial statements."]]
[[/GREPCENT_TABLE]]

Other
than the potentially prolonged effect of the COVID-19 pandemic and the notes payable financing 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.
Typically, businesses in our industry carry current liabilities in excess of current assets because businesses in our industry receive
substantially immediate payment for sales, with nominal receivables, while inventories and other current liabilities normally carry longer
payment terms. Vendors and purveyors often remain flexible with payment terms, providing businesses in our industry with opportunities
to adjust to short-term business downturns. We consider the primary indicators of financial status to be the long-term trend of revenue
growth, the mix of sales revenues, overall cash flow, profitability from operations and the level of long-term debt.

The
following table presents a summary of such indicators (dollars in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Increase","","","","","","Increase"],["","","2021","","","(Decrease)","","","2020","","","(Decrease)","","","2019"],["Sales of alcoholic beverages","","$","86,685","","","","46.7","%","","$","59,080","","","","(21.4",")%","","$","75,140"],["Sales of food and merchandise","","","41,111","","","","68.1","%","","","24,460","","","","(5.3",")%","","","25,830"],["Service revenues","","","55,461","","","","34.7","%","","","41,162","","","","(39.5",")%","","","68,055"],["Other","","","12,001","","","","57.4","%","","","7,625","","","","(36.6",")%","","","12,034"],["Total revenues","","$","195,258","","","","47.6","%","","$","132,327","","","","(26.9",")%","","$","181,059"],["Net cash provided by operating activities","","$","41,991","","","","168.6","%","","$","15,632","","","","(57.9",")%","","$","37,174"],["Adjusted EBITDA*","","$","60,243","","","","169.5","%","","$","22,357","","","","(51.7",")%","","$","46,242"],["Free cash flow*","","$","36,084","","","","167.7","%","","$","13,481","","","","(59.5",")%","","$","33,316"],["Debt (end of period)","","$","125,168","","","","(11.5",")%","","$","141,435","","","","(1.5",")%","","$","143,528"]]
[[/GREPCENT_TABLE]]

*
See definition and calculation of Adjusted EBITDA and Free Cash Flow under Non-GAAP Financial Measures and Liquidity and Capital Resources
above.

40

We
have not established financing other than the notes payable discussed in Note 9 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.

Share
Repurchase

As
part of our capital allocation strategy, we buy back shares in the open market or through negotiated purchases, as authorized by our
Board of Directors. During fiscal years 2021, 2020, and 2019, we paid for treasury stock amounting to $1.8 million, $9.5 million, and
$2.9 million representing 74,659 shares, 516,102 shares, and 128,040 shares, respectively. On February 6, 2020, the Board of Directors
increased the repurchase authorization by an additional $10.0 million. We have approximately $9.0 million remaining to purchase additional
shares as of September 30, 2021.

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. However, there can be no assurance that we will
be able to do so in the future.

SEASONALITY

Our
nightclub operations are affected by seasonal factors. Historically, we have experienced reduced revenues from April through September
(our fiscal third and fourth quarters) with the strongest operating results occurring during October through March (our fiscal first
and second quarters), but in fiscal 2020, due to the COVID-19 pandemic, revenues during the second through the fourth quarter were significantly
reduced. Our revenues in certain markets are also affected by sporting events that cause unusual changes in sales from year to year.

GROWTH
STRATEGY

We
believe that our nightclub operations can continue to grow organically and through careful entry into markets and demographic segments
with high growth potential. Our growth strategy involves the following: (i) to acquire existing units in locations that are consistent
with our growth and income targets and which appear receptive to the upscale club formula we have developed; (ii) to open new units after
market analysis; (iii) to franchise our Bombshells brand; (iv) to form joint ventures or partnerships to reduce start-up and operating
costs, with us contributing equity in the form of our brand name and management expertise; (v) to develop new club concepts that are
consistent with our management and marketing skills; (vi) to develop and open our restaurant concepts as our capital and manpower allow;
and (vii) to control the real estate in connection with club operations, although some units may be in leased premises.

We
believe that Bombshells can grow organically and through careful entry into markets and demographic segments with high growth potential.
All ten of the existing Bombshells as of September 30, 2021 are located in Texas. Our growth strategy is to diversify our operations
with these units which do not require SOB licenses, which are sometimes difficult to obtain. While we are searching for adult nightclubs
to acquire, we are able to also search for restaurant/sports bar locations that are consistent with our income targets.

41

During
fiscal 2019, we acquired two clubs, one in Illinois (rebranded as Rick’s Cabaret Chicago) and another in Pennsylvania (rebranded
as Rick’s Cabaret Pittsburgh) for an aggregate purchase price of $25.5 million. See Note 15 to the consolidated financial statements
for details of the transactions.

We
opened two new Bombshells units in fiscal 2019.

In
October 2018, the Company sold its nightclub in Philadelphia for a total sales price of $1.0 million, payable $375,000 in cash at closing
and a 9% note payable over a 10-year period. See Note 15 to the consolidated financial statements for details of the disposition.

We
opened two new Bombshells units in fiscal 2020.

On
October 18, 2021, we and certain of our subsidiaries completed our acquisition of eleven gentlemen’s clubs, six related real
estate properties, and associated intellectual property for a total agreed acquisition price of $88.0 million (with
a total consideration preliminary fair value of $88.4 million based on the Company’s stock price at acquisition date and
discounted due to the lock-up period). See Note 15 to our consolidated financial statements for details of the
transaction.

On
November 8, 2021, the Company acquired a club and related real estate in Newburgh, New York for a total purchase price of $3.5 million,
by which $2.5 million was paid in cash at closing and $1.0 million through a seller-financed 7-year promissory note with an interest
rate of 4.0% per annum. The note is payable $13,669 per month, including principal and interest. See Note 15 to our consolidated financial
statements.

In December 2021, we opened a new Bombshells location in Arlington,
Texas.

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