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The accompanying unaudited condensed consolidated financial statements of RCI Hospitality Holdings, Inc. (the “Company,” “RCIHH,” “we,” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP” or “U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. The consolidated balance sheet data as of September 30, 2025, were derived from audited financial statements but do not include all disclosures required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements for the year ended September 30, 2025, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 19, 2026. The interim unaudited condensed consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended June 30, 2026, are not necessarily indicative of the results that may be expected for the year ending September 30, 2026.

In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which expands disclosures about income statement expenses. The guidance requires disaggregation of certain costs and expenses included in each relevant expense caption on our consolidated statements of income in a separate note to the financial statements at each interim and annual reporting period, including amounts of purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, as clarified by ASU 2025-01, with early adoption permitted. The amendments in this ASU should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of the ASU or (2) retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the impact of ASU 2024-03 on our financial statement disclosures.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which intended to improve the navigability of the guidance in Accounting Standards Codification ("ASC") Topic 270 and clarify when it applies. Under the amendments, an entity is subject to ASC 270 if it provides interim financial statements and notes in accordance with GAAP. The ASU also addresses the form and content of such financial statements, adds list to ASC 270 of the interim disclosures required by all other ASC topics, and establishes a principle under which an entity must disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments are not intended to change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements but rather to reflect the effects of the SEC's form and content requirements related to interim reporting. The amendments of this ASU are effective to us for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. This ASU may be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the impact of ASU 2025-11 on our interim reporting financial statement disclosures.

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The following table sets forth certain cash and noncash activities (in thousands), as follows:

			Nine Months Ended June 30,
			2026						2025
Cash paid during the period for:
Interest, net of amounts capitalized			$	12,911					$	11,827
Income taxes, net of refunds of $20 and $51, respectively			$	2,656					$	4,310
Restricted cash, included in other assets (at end of period)			$	—					$	250
Noncash investing and financing transactions:
Debt incurred in connection with stock repurchases			$	22,000					$	—
Debt incurred in connection with acquisition of businesses			$	—					$	8,000
Note receivable from sale of business			$	—					$	60
Unpaid excise tax on stock repurchases			$	254					$	91
Unpaid liabilities on capital expenditures			$	1,084					$	1,005

On November 21, 2025, the Company repurchased 821,000 shares of its own common stock from a single stockholder for $30.0 million, paid $8.0 million in cash and $22.0 million under a two-year 12% unsecured promissory note (see Note 7).

The Company, through its subsidiaries, owns and operates adult nightclubs and Bombshells Restaurants and Bars. The Company has identified such segments based on how the chief operating decision maker assigns management responsibility; how financial information is regularly reviewed; the nature of the Company’s products, services, and costs; regulatory environments; and how resources are allocated. There are no major distinctions in geographical areas served as all operations are in the United States. The Company's chief operating decision maker ("CODM") is its chief executive officer. The Company measures segment profit (loss) as income (loss) from operations. Segment assets are those assets controlled by each reportable segment. The Other category below includes our media and energy drink divisions that are not significant to the consolidated financial statements.

In adopting ASU 2023-07, we recast one of our shared-services subsidiaries from Other to Corporate. We also recast three previously planned and previously reported casino-related subsidiaries classified in Other to Nightclubs and Bombshells. We reclassified certain prior year segment disclosures to conform to current year presentation.

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4. Segment Information—continued

Below is the financial information (in thousands) related to the Company’s reportable segments as provided to the CODM:

			Three Months Ended June 30, 2026																		Three Months Ended June 30, 2025
			Nightclubs						Bombshells						Total						Nightclubs						Bombshells						Total
Revenues
Third party			$	62,981					$	10,793					$	73,774					$	62,336					$	8,609					$	70,945
Intersegment			1,467						—						1,467						1,154						—						1,154
			64,448						10,793						75,241						63,490						8,609						72,099
Reconciliation of revenue
Other revenues, including intersegment															243																		258
Elimination of intersegment revenues															(1,545)																		(1,212)
Total consolidated revenues															73,939																		71,145
Less:
Cost of goods sold, including intersegment			7,043						2,604						9,647						7,071						2,037						9,108
Salaries and wages			14,651						3,291						17,942						14,276						2,860						17,136
Selling, general, and administrative, including intersegment			18,290						5,012						23,302						17,481						4,266						21,747
Depreciation and amortization			3,393						346						3,739						3,311						314						3,625
Impairments and other charges (gains), net			(31)						42						11						2,338						12						2,350
Other segment items			—						—						—						—						5						5
Segment income (loss)			21,102						(502)						20,600						19,013						(885)						18,128
Reconciliation of segment income (loss)
Other loss															(97)																		(28)
Interest expense, net															(4,368)																		(3,915)
Elimination of intersegment income															(1)																		(57)
Unallocated corporate overhead															(7,503)																		(9,335)
Consolidated income before income taxes															$	8,631																	$	4,793
Segment capital expenditures			$	367					$	831					$	1,198					$	1,972					$	1,278					$	3,250
Reconciliation to consolidated capital expenditures
Other operating segments															—																		325
Unallocated corporate															327																		106
Consolidated capital expenditures															$	1,525																	$	3,681

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4. Segment Information—continued

			Nine Months Ended June 30, 2026																		Nine Months Ended June 30, 2025
			Nightclubs						Bombshells						Total						Nightclubs						Bombshells						Total
Revenues
Third party			$	185,565					$	27,533					$	213,098					$	181,601					$	26,425					$	208,026
Intersegment			4,113						—						4,113						3,287						—						3,287
			189,678						27,533						217,211						184,888						26,425						211,313
Reconciliation of revenue
Other revenues, including intersegment															641																		673
Elimination of intersegment revenues															(4,363)																		(3,482)
Total consolidated revenues															213,489																		208,504
Less:
Cost of goods sold, including intersegment			20,938						6,655						27,593						20,707						6,211						26,918
Salaries and wages			43,958						8,984						52,942						42,297						8,458						50,755
Selling, general, and administrative, including intersegment			53,532						13,797						67,329						52,427						12,833						65,260
Depreciation and amortization			10,288						1,099						11,387						9,440						996						10,436
Impairments and other charges (gains), net			7,734						138						7,872						3,486						(1,159)						2,327
Other segment items			—						—						—						—						(974)						(974)
Segment income (loss)			53,228						(3,140)						50,088						56,531						60						56,591
Reconciliation of segment income (loss)
Other loss															(390)																		(305)
Interest expense, net															(13,052)																		(11,797)
Elimination of intersegment income															—																		(80)
Unallocated corporate overhead															(31,732)																		(24,442)
Consolidated income before income taxes															$	4,914																	$	19,967
Segment capital expenditures			$	2,300					$	2,488					$	4,788					$	4,218					$	6,924					$	11,142
Reconciliation to consolidated capital expenditures
Other operating segments															4																		762
Unallocated corporate															932																		385
Consolidated capital expenditures															$	5,724																	$	12,289

			June 30, 2026																		September 30, 2025
			Nightclubs						Bombshells						Total						Nightclubs						Bombshells						Total
Segment assets			$	455,843					$	78,502					$	534,345					$	478,516					$	78,877					$	557,393
Reconciliation to consolidated total assets
Other operating segments															3,470																		3,775
Unallocated corporate															31,845																		35,767
Consolidated total assets															$	569,660																	$	596,935

General corporate overhead includes corporate salaries, health insurance and social security taxes for officers, legal, accounting and information technology employees, corporate taxes and insurance, legal and accounting fees, unallocated self-insurance reserve, depreciation and other corporate costs such as automobile and travel costs. Management considers these to be non-allocable costs for segment purposes.

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Revenues, as disaggregated by revenue type, timing of recognition, and reportable segment (see also Note 4), are shown below (in thousands):

			Three Months Ended June 30, 2026																								Three Months Ended June 30, 2025
			Nightclubs						Bombshells						Other						Total						Nightclubs						Bombshells						Other						Total
Sales of alcoholic beverages			$	25,224					$	5,935					$	—					$	31,159					$	26,338					$	4,442					$	—					$	30,780
Sales of food and merchandise			5,897						4,793						—						10,690						5,914						4,123						—						10,037
Service revenues			27,076						3						—						27,079						25,166						3						—						25,169
Other revenues			4,784						62						165						5,011						4,918						41						200						5,159
			$	62,981					$	10,793					$	165					$	73,939					$	62,336					$	8,609					$	200					$	71,145
Recognized at a point in time			$	62,296					$	10,793					$	165					$	73,254					$	61,524					$	8,573					$	200					$	70,297
Recognized over time*			685						—						—						685						812						36						—						848
			$	62,981					$	10,793					$	165					$	73,939					$	62,336					$	8,609					$	200					$	71,145

			Nine Months Ended June 30, 2026																								Nine Months Ended June 30, 2025
			Nightclubs						Bombshells						Other						Total						Nightclubs						Bombshells						Other						Total
Sales of alcoholic beverages			$	75,373					$	14,742					$	—					$	90,115					$	77,948					$	13,886					$	—					$	91,834
Sales of food and merchandise			17,490						12,705						—						30,195						17,169						12,385						—						29,554
Service revenues			78,330						8						—						78,338						72,214						48						—						72,262
Other revenues			14,372						78						391						14,841						14,270						106						478						14,854
			$	185,565					$	27,533					$	391					$	213,489					$	181,601					$	26,425					$	478					$	208,504
Recognized at a point in time			$	183,660					$	27,533					$	391					$	211,584					$	179,964					$	26,387					$	478					$	206,829
Recognized over time*			1,905						—						—						1,905						1,637						38						—						1,675
			$	185,565					$	27,533					$	391					$	213,489					$	181,601					$	26,425					$	478					$	208,504

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

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5. Revenues—continued

The Company does not have contract assets with customers. The Company’s unconditional right to consideration for goods and services transferred to the customer is included in receivables, net in our unaudited condensed consolidated balance sheets. A reconciliation of contract liabilities with customers is presented below (in thousands):

			Balance at September 30, 2025						Net Consideration Received/Recognized						Recognized in Revenue						Balance at June 30, 2026
Ad revenue			$	45					$	261					$	(247)					$	59
Expo revenue			1						263						—						264
VIP cards			—						806						(571)						235
Other			31						42						(66)						7
			$	77					$	1,372					$	(884)					$	565

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

In relation to the Illinois BIPA settlement (see Notes 6 and 9), VIP card claims processed during the first quarter of fiscal 2026 amounting to $470,000 were recorded in unearned revenues and subsequently ratably recognized in revenues with no actual cash received.

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

			June 30, 2026						September 30, 2025
Credit card receivables			$	1,715					$	1,637
Income tax refundable			—						951
ATM in-transit			393						374
Current portion of notes receivable			187						320
Other (net of allowance for doubtful accounts of $142 and $91, respectively)			576						658
Total receivables, net			$	2,871					$	3,940

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

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6. Selected Account Information—continued

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

			June 30, 2026						September 30, 2025
Prepaid insurance			$	2,086					$	3,367
Prepaid legal			154						123
Prepaid taxes and licenses			696						498
Prepaid rent			457						324
Other			667						656
Total prepaid expenses and other current assets			$	4,060					$	4,968

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

			June 30, 2026						September 30, 2025
Legal fees			$	6,500					$	9,366
Insurance			947						1,600
Payroll and related costs			5,192						4,930
Property taxes			2,525						3,501
Sales and liquor taxes			2,429						2,303
Lawsuit settlement			2,814						4,173
Estimated self-insurance liability			2,423						2,555
Construction in progress			323						464
Patron tax			1,236						1,078
Income taxes			1,897						—
Interest			555						524
Unearned revenues			565						77
Other			2,598						2,036
Total accrued liabilities			$	30,004					$	32,607

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

			June 30, 2026						September 30, 2025
Estimated self-insurance liability			$	7,008					$	7,008
Advances from creditors			—						1,250
Other			1,111						1,251
Total other long-term liabilities			$	8,119					$	9,509

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6. Selected Account Information—continued

The components of selling, general, and administrative expenses are as follows (in thousands):

			Three Months Ended June 30,												Nine Months Ended June 30,
			2026						2025						2026						2025
Taxes and permits			$	3,832					$	3,418					$	11,048					$	10,664
Advertising and marketing			2,905						2,974						8,638						8,537
Supplies and services			2,889						2,503						8,334						7,459
Insurance			2,594						5,389						7,819						13,495
Legal			1,734						1,383						4,103						4,138
Lease			1,652						1,607						4,893						4,746
Charge card fees			2,103						1,791						6,026						5,189
Utilities			1,581						1,320						4,757						4,199
Security			1,060						1,019						3,238						3,121
Stock-based compensation			—						392						589						980
Accounting and professional fees			1,467						1,259						3,896						3,570
Repairs and maintenance			1,338						1,221						4,045						3,712
Other			2,217						1,864						5,887						5,437
Total selling, general, and administrative expenses			$	25,372					$	26,140					$	73,273					$	75,247

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

			Three Months Ended June 30,												Nine Months Ended June 30,
			2026						2025						2026						2025
Impairment of assets			$	—					$	—					$	8,433					$	1,780
Settlement of lawsuits, net of recoveries (Notes 5 and 9)			92						3,281						(503)						3,587
Loss (gain) on sale of businesses and assets			41						202						292						(984)
Gain on insurance			(107)						(1,134)						(330)						(2,151)
Total impairments and other charges, net			$	26					$	2,349					$	7,892					$	2,232

The components of non-operating gains (losses), net are as follows (in thousands):

			Three Months Ended June 30,												Nine Months Ended June 30,
			2026						2025						2026						2025
Premium on stock repurchase			$	—					$	—					$	(9,885)					$	—
Gain on lease termination			—						—						—						979
Other			31						(5)						35						(5)
Non-operating gains (losses), net			$	31					$	(5)					$	(9,850)					$	974

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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 and two 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 a two-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 to eleven 12% unsecured promissory notes included in the above-mentioned debt modification on October 1, 2025, the Company extended several notes and added one 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):

			Regular Amortization						Balloon Payments						Total Payments
July 2026 - June 2027			$	28,554					$	1,001					$	29,555
July 2027 - June 2028			20,988						13,200						34,188
July 2028 - June 2029			17,554						9,518						27,072
July 2029 - June 2030			18,452						—						18,452
July 2030 - June 2031			15,311						—						15,311
Thereafter			31,511						86,060						117,571
			$	132,370					$	109,779					$	242,149

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.

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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 of three individuals (including two executive officers and a non-executive corporate employee) by the New York State Attorney General (“NY AG”) and the New York State Department of Taxation and Finance (“NY DTF”). On June 7, 2024, the Company received a subpoena from the NY AG requesting documents and other information with respect to certain clubs in New York and Florida. The 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, and five employees, including two 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.

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9. Commitments and Contingencies—continued

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.

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9. Commitments and Contingencies—continued

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 resolves two 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.

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9. Commitments and Contingencies—continued

General

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

The Company recorded lawsuit settlements incurred, 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.

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.

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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):

			Three Months Ended June 30,												Nine Months Ended June 30,
			2026						2025						2026						2025
Operating lease expense – fixed payments			$	1,152					$	1,078					$	3,462					$	3,266
Variable lease expense			407						435						1,162						1,194
Short-term and other lease expense (includes $103 and $103 recorded in advertising and marketing for the three months ended June 30, 2026, and 2025, respectively, and $286 and $294 for the nine months ended June 30, 2026, and 2025, respectively; and $170 and $140 recorded in repairs and maintenance for the three months ended June 30, 2026, and 2025, respectively, and $513 and $415 for the nine months ended June 30, 2026, and 2025, respectively; see Note 6)			366						337						1,068						995
Total lease expense			$	1,925					$	1,850					$	5,692					$	5,455
Other information:
Operating cash outflows from operating leases			$	2,007					$	1,916					$	5,922					$	5,695
Weighted average remaining lease term – operating leases															8.4 years						9.1 years
Weighted average discount rate – operating leases															5.8		%				5.8		%

Future maturities of operating lease liabilities as of June 30, 2026, are as follows (in thousands):

			Principal Payments						Interest Payments						Total Payments
July 2026 - June 2027			$	3,370					$	1,466					$	4,836
July 2027 - June 2028			2,865						1,281						4,146
July 2028 - June 2029			2,851						1,112						3,963
July 2029 - June 2030			2,535						947						3,482
July 2030 - June 2031			2,514						806						3,320
Thereafter			14,036						1,879						15,915
			$	28,171					$	7,491					$	35,662

On October 7, 2025, the Company sold 100% of the common stock of a club subsidiary located in Harlingen, Texas, for $600,000. The sale did not include the real estate where the club is located. The Company recognized a loss of approximately $17,000 on the sale.

On February 6, 2026, the Company sold a club located in Edinburg, Texas, for $1.1 million recognizing a $219,000 loss on the sale. Proceeds from the sale were used to pay down certain related debt.

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