RCI HOSPITALITY HOLDINGS, INC.

7. Debt

On October 1, 2025, the Company entered into a debt modification transaction with 22 investors by extending their promissory notes' maturity date to October 2028. Two new investors joined with a combined $2.1 million andtwo existing investors increased their participation by a combined $250,000. The promissory notes continue to bear a 12% annual interest rate with interest-only monthly installments until full balance at maturity.

On November 21, 2025, in connection with a stock repurchase transaction (see Note 3), the Company executed atwo-year $22.0 million unsecured promissory note bearing a 12% annual interest rate. The note is payable in monthly payments of principal and interest of $1.0 million for 23 months with the remaining balance paid at maturity.

On May 15, 2026, in relation toeleven 12% unsecured promissory notes included in the above-mentioned debt modification on October 1, 2025, the Company extended several notes and addedone new investor note to mature in October 2028, which total principal amount to $2.55 million. Several of those notes did not extend and were paid off amounting to $1.6 million. The promissory notes continue to bear a 12% annual interest rate with interest-only monthly installments until full balance at maturity.

Future maturities of debt obligations as of June 30, 2026, are as follows (in thousands):

8. Income Taxes

Income tax expense was $2.1 million and $733,000 during the three months ended June 30, 2026, and 2025, respectively. The effective income tax rate was approximately 24.7% and 15.3% for the three months ended June 30, 2026, and 2025, respectively. Income tax expense was $3.3 million and $3.6 million during the nine months ended June 30, 2026, and 2025, respectively. The effective income tax rate was approximately 66.8% and 18.3% for the nine months ended June 30, 2026, and 2025, respectively. Our effective income tax rate is affected by state taxes, permanent differences, and tax credits, including the FICA tip credit, for both years, and the impact of the nondeductible premium on stock repurchase during the current year.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. Fiscal year ended September 30, 2023, and subsequent years remain open to federal tax examination. The Company ordinarily goes through various federal and state reviews and examinations for various tax matters.

9. Commitments and Contingencies

Legal Matters

New York Indictment and Related Matters

On or about May 29, 2024, search warrants were executed on the Company’s corporate headquarters in Houston, Texas, three separate clubs in New York, New York, and for the mobile phone ofthree individuals (includingtwo executive officers and a non-executive corporate employee) by the New York State Attorney General (“NY AG”) and the New York State Department of Taxation and Finance (“NY DTF”). On June 7, 2024, the Company received a subpoena from the NY AG requesting documents and other information with respect to certain clubs in New York and Florida. The Company cooperated with the NY AG during 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.

On or about September 16, 2025, the Company, three subsidiaries, andfive employees, includingtwo executive officers, were arraigned in connection with an indictment filed by the NY AG in which the defendants were variously charged with committing the crimes of Criminal Tax Fraud in the First Degree in violation of Tax Law §1806, a class B felony; Bribery in the Second Degree in violation of Penal Law §200.03, a class C felony; Criminal Tax Fraud in the Second Degree in violation of Tax Law §1805, a class C felony; Criminal Tax Fraud in the Third Degree in violation of Tax Law §1804, a class D felony; Criminal Tax Fraud in the Fourth Degree in violation of Tax Law §1803, a class E felony; Conspiracy in the Fourth Degree in violation of Penal Law §105.10, a class E felony; and Offering a False Instrument for Filing in the First Degree in violation of Penal Law §175.35(1). According to the NY AG, “an investigation by the Office of the Attorney General revealed that RCI executives bribed an auditor with the NY DTF to avoid paying over $8 million in sales taxes to New York City and the state from 2010 to 2024.”

On November 25, 2025, the board of directors convened and approved a resolution for Eric Langan and Bradley Chhay to step down as CEO and CFO of the Company, respectively, effective November 28, 2025. In the same meeting, the board nominated and approved the appointment of Travis Reese and Albert Molina as Interim President and CEO and Interim CFO, respectively. Messrs. Langan and Chhay remain employed with the Company and will be focusing on operational improvement and strategic efforts as Head of M&A and Head of Corporate Development, respectively. On January 29, 2026, Mr. Langan stepped down as Chairman of the Company’s board of directors. Mr. Langan was replaced by Mr. Reese as Chairman. Mr. Langan remains a member of the board of directors. The non-executive corporate employee mentioned above continues to be on administrative leave during the pendency of the indictment. The defendants entered a plea of not guilty to all of the charges and are vigorously defending themselves against the charges in court. It is not possible at this time to determine whether the Company will incur (or to reasonably estimate the amount of) any fines, penalties, or liabilities in connection with the indictment.

On or about May 20, 2025, the Company received a subpoena from the U.S. Securities and Exchange Commission (“SEC”) seeking certain documents and information related to the NY AG investigation and NY DTF issues. The Company is cooperating with the SEC and its investigation. It is not possible at this time to determine whether the Company will incur (or to reasonably estimate the amount of) any fines, penalties, or liabilities in connection with the SEC investigation.

Shareholder Class and Derivative Actions

In September 2025, a putative securities class action was filed against RCI Hospitality Holdings, Inc. and certain of its officers in the Southern District of Texas, Houston Division. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and 10b-5 promulgated thereunder based on alleged materially false and misleading statements made in the Company’s SEC filings and disclosures as they relate to the indictment filed by the NY AG and other related issues. The complaints seek unspecified damages, costs, and attorneys’ fees. This lawsuit is captioned Hernandez v. RCI Hospitality Holdings, Inc., et al. (filed September 21, 2025, naming the Company, Eric S. Langan, and Bradley Chhay). On April 14, 2026, the court entered an order appointing the lead plaintiff and the respective lead and liaison counsel for the purported class. The Company has not yet answered or otherwise responded to the complaint, but intends on moving to dismiss the operative pleading for failure to state a claim upon which relief can be granted. The Company intends to continue to vigorously defend against this action. This action is in its early stage, and a potential loss cannot yet be estimated.

On November 17, 2025, a shareholder derivative action was filed in Harris County District Court against officers and directors Eric S. Langan, Yura Barabash, Bradley Chhay, Luke Lirot, Elaine J. Martin, Arthur A. Priaulx, Travis Reese, and RCI Hospitality Holdings, Inc., as nominal defendant. The action alleges that the individual officers and directors made or caused the Company to make a series of materially false and/or misleading statements and omissions related to the indictment filed by the NY AG and other related issues and engaged in or caused the Company to, inter alia, fail to maintain internal controls over its business and financial reporting sufficient to ensure the accuracy of its public filings. The action asserts claims for breach of fiduciary duty and unjust enrichment. The complaint seeks injunctive relief, damages, restitution, costs, and attorneys’ fees. The case, Ayers v. RCI Hospitality Holdings, Inc., et al., is in its early stage, and a potential loss cannot yet be estimated.

On March 2, 2026, a shareholder derivative action was filed in the Eleventh Division of the Texas Business Court against officers and directors Eric S. Langan, Yura Barabash, Bradley Chhay, Luke Lirot, Elaine J. Martin, Arthur A. Priaulx, Travis Reese, and Ahmed Anakar. The action alleges that the individual officers and directors breached their fiduciary duties by failing to adequately monitor issues related to the indictment filed by the NY AG and other related issues. The action asserts claims for breaches of fiduciary duties respectively owed by the directors and officers. The complaint seeks injunctive relief, damages, restitution, costs, and attorneys’ fees. The case, Taylor v. Langan, et al., is in its early stage, and a potential loss cannot yet be estimated.

On July 23, 2026, a shareholder derivative action was filed in in the Southern District of Texas, Houston Division against officers and directors Eric S. Langan, Yura Barabash, Bradley Chhay, Luke Lirot, Elaine J. Martin, Arthur A. Priaulx, and Travis Reese, as well as the Company as a nominal defendant. The action alleges that the individual officers and directors breached their fiduciary duties by failing to adequately monitor issues related to the indictment filed by the NY AG and other related issues. The action asserts claims for breaches of fiduciary duties respectively owed by the directors and officers. The complaint seeks injunctive relief, damages, restitution, costs, and attorneys’ fees. The case, Snyder v. Langan, et al., is in its early stage, and a potential loss cannot yet be estimated.

On August 3, 2026, a shareholder derivative action was filed in in the Southern District of Texas, Houston Division against officers and directors Eric S. Langan, Yura Barabash, Bradley Chhay, Luke Lirot, Elaine J. Martin, Arthur A. Priaulx, and Travis Reese, as well as the Company as a nominal defendant. The action alleges that the individual officers and directors breached their fiduciary duties by failing to adequately monitor issues related to the indictment filed by the NY AG and other related issues. The action asserts claims for breaches of fiduciary duties respectively owed by the directors and officers, among other claims. The complaint seeks injunctive relief, damages, restitution, costs, and attorneys’ fees. The case, Barbin v. Langan, et al., is in its early stage, and a potential loss cannot yet be estimated.

Illinois BIPA Matter

On April 14, 2025, the Company's subsidiaries, RCI Management Services, Inc., Pooh Bah Enterprises, Inc., and RCI Dining Services (Harvey), Inc. (collectively, “Defendants”) entered into a class action settlement agreement to resolve claims under the Illinois Biometric Information Privacy Act (“BIPA”), 740 ILCS 14/1 et seg., arising from the alleged collection of customer fingerprints at Rick's Cabaret in Chicago and Scarlett's Cabaret in Washington Park, Illinois. The settlement resolvestwo consolidated cases: Rapp et al. v. RCI Management Services, Inc. et al., Case No. 22LA0884 (St. Clair County, Illinois) and Loera v. Pooh Bah Enterprises, Inc., Case No. 2021CH04759 (Cook County, Illinois).

Under the terms of the agreement, and without admitting any liability, Defendants will provide a settlement fund valued at approximately $2.95 million, consisting of $1.25 million in cash and $1.7 million in VIP cards. The settlement includes payments to class members submitting valid claims, attorneys' fees of up to 40% of the fund, incentive awards to named plaintiffs, and administrative costs. Any unclaimed funds remaining after payment of valid claims, fees, and costs will revert to the Defendants. The cash settlement was paid in full in July 2025 and the VIP cards were issued in December 2025, with unclaimed VIP cards amounting to $1.23 million.

Other

On June 23, 2014, Mark H. Dupray and Ashlee Dupray filed a lawsuit against Pedro Antonio Panameno and our subsidiary, JAI Dining Services (Phoenix), Inc. (“JAI Phoenix”), in the Superior Court of Arizona for Maricopa County. The complaint alleged that Mr. Panameno injured Mr. Dupray in a traffic accident after being served alcohol at an establishment operated by JAI Phoenix and asserted claims against JAI Phoenix under theories of common law dram shop negligence and dram shop negligence per se. Following a jury trial, in April 2017, the court entered judgment in favor of the plaintiffs and awarded compensatory and punitive damages, allocating approximately $1.4 million in compensatory damages and $4.0 million in punitive damages to JAI Phoenix. JAI Phoenix filed post-trial motions, which were denied in August 2017, and subsequently filed a notice of appeal in September 2017. In June 2018, the Arizona Court of Appeals heard the matter and, on November 15, 2018, issued a decision vacating the jury’s verdict and remanding the case for a new trial.

The retrial was held in June 2025. The jury found Mr. Panameno 94% responsible and JAI Phoenix 6% responsible. The jury awarded total damages of $5.1 million and punitive damages of $125,000. Based on the jury’s allocation of fault, JAI Phoenix is responsible for $332,884 of the total award. Plaintiffs have filed an appeal in May 2026. The Company intends to vigorously defend against this action.

In March 2023, the New York State Department of Labor assessed a final judgment against one of our subsidiaries in a state unemployment tax matter for the years 2009-2022. The assessment of $2.8 million, which was recorded by the Company during the quarter ended March 31, 2023, was issued in final notice by the NY DOL after several appeals were denied by the Supreme Court of the State of New York, Appellate Division, Third Department. In September 2023, the NY DOL assessed another of our subsidiaries for approximately $280,000 on the same matter for the period January 2015 through June 2022. We recorded this latter assessment during the fiscal year ended September 30, 2023.

As set forth in the risk factors as disclosed in this report, the adult entertainment industry standard is to classify adult entertainers as independent contractors, not employees. While we take steps to ensure that our adult entertainers are deemed independent contractors, from time to time, we are named in lawsuits related to the alleged misclassification of entertainers. Claims are brought under both federal and where applicable, state law. Based on the industry standard, the manner in which the independent contractor entertainers are treated at the clubs, and the entertainer license agreements governing the entertainer’s work at the clubs, the Company believes that these lawsuits are without merit. Lawsuits are handled by attorneys with an expertise in the relevant law and are defended vigorously.

General

In the regular course of business affairs and operations, we are subject to possible loss contingencies arising from third-party litigation and federal, state, and local environmental, labor, health and safety laws and regulations. We assess the probability that we could incur liability in connection with certain of these lawsuits. Our assessments are made in accordance with generally accepted accounting principles, as codified in ASC 450-20, and is not an admission of any liability on the part of the Company or any of its subsidiaries. In certain cases that are in the early stages and in light of the uncertainties surrounding them, we do not currently possess sufficient information to determine a range of reasonably possible liability. In matters where there is insurance coverage, in the event we incur any liability, we believe it is unlikely we would incur losses in connection with these claims in excess of our insurance coverage.

The Company recorded lawsuit settlements incurred, net of recoveries, amounting to net settlements of $92,000 and net recoveries of $503,000 for the three and nine months ended June 30, 2026, respectively, and net settlements of $3.3 million and $3.6 million for the three and nine months ended June 30, 2025, respectively. As of June 30, 2026, and September 30, 2025, the Company has accrued $2.8 million and $4.2 million, respectively, related to settlement of lawsuits, which is included in accrued liabilities in our unaudited condensed consolidated balance sheets.

10. Related Party Transactions

Presently, our director and former Chairman, President, and CEO, Eric Langan, personally guarantees all of the commercial bank indebtedness of the Company. Mr. Langan receives no compensation or other direct financial benefit for any of the guarantees. The balance of our commercial bank indebtedness, net of debt discount and issuance costs, as of June 30, 2026, and September 30, 2025, was $132.8 million and $139.6 million, respectively.

Included in the debt balance as of June 30, 2026, and September 30, 2025, is a note borrowed from a related party for $350,000 and $150,000, respectively, from a brother of the Company's former CFO, Bradley Chhay, in which the terms of the note is the same as the rest of the lender group.

We used the services of Tall Oak Custom Furniture and Nottingham Barrels and Furniture, previously Nottingham Creations, all furniture fabrication companies that manufacture tables, chairs and other furnishings for our Bombshells locations, as well as providing ongoing maintenance. Tall Oak Custom Furniture and Nottingham Barrels and Furniture are owned by a brother of Eric Langan (as was Nottingham Creations). Amounts billed to us for goods and services provided by Tall Oak Custom Furniture, Nottingham Barrels and Furniture, and Nottingham Creations were $3,793 and $12,344 during the three months ended June 30, 2026, and 2025, respectively, and $3,793 and $19,098 during the nine months ended June 30, 2026, and 2025, respectively. As of June 30, 2026, and September 30, 2025, we owed Tall Oak Custom Furniture, Nottingham Barrels and Furniture, and Nottingham Creations $0 and $3,312, respectively, in unpaid billings.

TW Mechanical LLC provided plumbing and HVAC services to both a third-party general contractor providing construction services to the Company, as well as directly to the Company during fiscal 2026 and 2025. A son-in-law of Eric Langan owns a 50% interest in TW Mechanical. Amounts billed by TW Mechanical to the third-party general contractor were $0 and $0 for the three months ended June 30, 2026, and 2025, respectively, and $0 and $0 for the nine months ended June 30, 2026, and 2025, respectively. Amounts billed directly to the Company were $41,359 and $455 for the three months ended June 30, 2026, and 2025, respectively, and $48,909 and $1,856 for the nine months ended June 30, 2026, and 2025. As of June 30, 2026, and September 30, 2025, the Company owed TW Mechanical $801 and $0, respectively, in unpaid direct billings.

11. Leases

Total lease expense included in selling, general and administrative expenses in our unaudited condensed consolidated statements of income for the three and nine months ended June 30, 2026, and 2025 is as follows (in thousands):