------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-QSB
-----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934; For the Quarterly Period Ended: March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-26958
RICK'S CABARET INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0037324
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3113 Bering Drive
Houston, Texas 77057
(Address of principal executive offices, including zip code)
(713) 785-0444
(Registrant's telephone number, including area code)
-----------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [x] No []
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
On May 4, 1998, there were 4,506,054 shares of common stock, $.01 par
value, outstanding.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [x]
------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC.
CONTENTS
--------
Page
<S> <C>
PART I - FINANCIAL INFORMATION
- -------------------------------------------------------------------------
Item 1. Financial Statements 1
Consolidated Balance Sheets as of March 31, 1998 (unaudited) 2
and September 30, 1997 (audited)
Consolidated Statements of Operations for the three and six months 3
ended March 31, 1998 and 1997 ( unaudited)
Consolidated Statements of Cash Flows for the six months 4
ended March 31, 1998 and 1997 ( unaudited)
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and 6
Results of Operations
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K II-2
(a) Exhibits
Financial Data Schedule -- Exhibit 27.1
(b) Reports on Form 8-K
None
Signatures
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, 1998 SEPTEMBER 30, 1997
(UNAUDITED) (AUDITED)
---------------- --------------------
<S> <C> <C>
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . $ 265,280 $ 357,410
Accounts receivable. . . . . . . . . . . 132,536 29,695
Prepaid expenses . . . . . . . . . . . . 42,559 57,413
Inventories. . . . . . . . . . . . . . . 81,142 61,953
Land held for sale . . . . . . . . . . . --- 815,652
---------------- --------------------
Total current assets . . . . . . . . . 521,517 1,322,123
---------------- --------------------
PROPERTY AND EQUIPMENT . . . . . . . . . . 7,873,262 6,473,919
Accumulated depreciation . . . . . . . . ( 965,609) ( 813,853)
---------------- --------------------
6,907,653 5,660,066
---------------- --------------------
OTHER ASSETS
Other. . . . . . . . . . . . . . . . . . 160,852 165,504
Goodwill (net of amortization) . . . . . 2,224,572 ---
---------------- --------------------
2,385,424 165,504
---------------- --------------------
$ 9,814,594 $ 7,147,693
================ ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt. . . . $ 532,847 $ 398,798
Accounts payable - trade . . . . . . . . 666,903 634,046
Accrued expenses . . . . . . . . . . . . 518,272 166,365
Income tax payable . . . . . . . . . . . 15,572 15,572
---------------- --------------------
Total current liabilities. . . . . . . 1,733,594 1,214,781
---------------- --------------------
LONG TERM DEBT, LESS CURRENT PORTION . . . 3,881,856 1,754,175
---------------- --------------------
Total liabilities. . . . . . . . . . . . 5,615,450 2,968,956
---------------- --------------------
COMMITMENTS AND CONTINGENCIES. . . . . . . ---- ---
STOCKHOLDERS' EQUITY
Preferred stock - $.10 par, authorized
1,000,000 shares; none outstanding --- ---
Common Stock - $.01 par, authorized
15,000,000 shares;
issued 4,275,471 and 4,114,922. . . 42,755 41,149
Additional paid in capital . . . . . . . 6,123,790 5,940,306
Retained earnings (deficit). . . . . . . ( 1,967,401) ( 1,802,718)
---------------- --------------------
Total stockholders' equity . . . . . . 4,199,144 4,178,737
---------------- --------------------
$ 9,814,594 $ 7,147,693
================ ====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
1998 1997 1998 1997
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
REVENUES
Sales. . . . . . . . . . . . . . . $ 2,007,982 $ 1,960,642 $ 3,676,408 $ 3,043,257
----------------- ---------------- ---------------- -----------------
OPERATING EXPENSES
Cost of goods sold . . . . . . . . 311,345 387,258 524,527 589,963
Salaries and wages . . . . . . . . 571,598 597,014 1,020,242 1,080,574
Other general and administrative
Taxes and permits. . . . . . . . 183,626 69,868 366,980 180,467
Charge card fees . . . . . . . . 40,908 15,208 72,041 34,564
Rent . . . . . . . . . . . . . . 141,419 96,978 292,141 237,919
Legal and accounting . . . . . . 55,797 59,625 110,639 173,933
Advertising. . . . . . . . . . . 154,720 203,860 361,630 439,261
Other. . . . . . . . . . . . . . 351,469 317,275 584,748 663,280
Pre-opening costs 187,991 --- 187,991 151,138
Depreciation & amortization. . . 97,534 129,762 164,184 129,762
----------------- ---------------- ---------------- -----------------
2,096,407 1,876,666 3,685,123 3,680,861
----------------- ---------------- ---------------- -----------------
INCOME (LOSS) FROM OPERATIONS. . . . ( 88,425) 83,976 ( 8,715) ( 637,604)
Interest expense . . . . . . . . . ( 116,425) ( 42,191) ( 160,582) ( 42,191)
Interest income. . . . . . . . . . 4,614 190 4,614 5,831
----------------- ---------------- ---------------- -----------------
NET INCOME (LOSS). . . . . . . . . . $( 200,236) $ 41,975 $( 164,683) $( 673,964)
================= ================ ================ =================
NET INCOME (LOSS) PER COMMON SHARE $( .05) $ .01 $( .04) $( .15)
================= ================ ================ =================
WEIGHTED AVERAGE SHARES OUTSTANDING. 4,225,150 4,120,922 4,195,197 4,099,307
================= ================ ================ =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
(UNAUDITED) (UNAUDITED)
-------------- ---------------
<S> <C> <C>
NET INCOME (LOSS) . . . . . . . . . . . . . . $( 164,683) $( 673,964)
ADJUSTMENTS TO RECONCILE NET
INCOME (LOSS) TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Depreciation and amortization . . . . . . . 164,184 129,762
Loss on sale of land 42,910 ---
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . ( 102,841) 20,543
Prepaid expenses. . . . . . . . . . . . . 14,854 ( 20,628)
Inventories . . . . . . . . . . . . . . . ( 19,189) 70,899
Accounts payable and accrued expenses . . 384,764 461,387
Income tax payable/receivable . . . . . . --- 3,791
-------------- ---------------
Cash provided (used) by operating expenses. 319,999 ( 8,210)
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment . . . . ( 1,399,343) ( 4,665,708)
Change in other assets. . . . . . . . . . . 4,652 ( 100,969)
Increase in Goodwill. . . . . . . . . . . . ( 2,147,000) ---
Sale of land. . . . . . . . . . . . . . . . 772,742 ---
-------------- ---------------
Cash used by investing activities . . . . . ( 2,768,949) ( 4,766,677)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued, less offering costs. . 95,090 168,746
Increase in long term debt. . . . . . . . . 2,700,000 1,800,000
Payments on long term debt. . . . . . . . . ( 438,270) ( 28,388)
-------------- ---------------
Cash provided by financing activities . . . 2,356,820 1,940,358
-------------- ---------------
NET (DECREASE) IN CASH. . . . . . . . . . . . ( 92,130) (2,834,529)
CASH AT BEGINNING OF PERIOD . . . . . . . . . 357,410 3,150,003
-------------- ---------------
CASH AT END OF PERIOD . . . . . . . . . . . . $ 265,280 $ 315,474
============== ===============
CASH PAID DURING PERIOD FOR:
Interest. . . . . . . . . . . . . . . . . . $ 116,425 $ 42,000
============== ===============
Income tax. . . . . . . . . . . . . . . . . $ --- $ ---
============== ===============
</TABLE>
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB of Regulation S-B. They do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, except as disclosed
herein, there has been no material change in the information disclosed in the
notes to the financial statements for the year ended September 30, 1997 included
in the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The interim unaudited financial statements should be read
in conjunct ion with those financial statements included in the Form 10-KSB. In
the opinion of Management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments, have been made.
Operating results for the six months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending September 30,
1998.
2. PURCHASE OF MINNESOTA CLUB AND RELATED BORROWINGS
On November 21, 1997, RCII acquired property in Minneapolis, Minnesota for a
purchase price of $3,000,000. Four separate notes totaling $2,700,000 were
executed to finance this purchase. The notes are secured by the property and
are payable as follows: $2,500,000 at 9% amortized over 240 months and $200,000
at 10% amortized over 18 months.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited consolidated financial statements and related notes thereto included
in this quarterly report and in the audited consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contained in the Company's 10-KSB for the year ended
September 30, 1997. Certain statements in the following MD&A are forward
looking statements. Words such as "expects", "anticipates", "estimates", and
similar expressions are intended to identify forward looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. such risks and uncertainties
are set forth below and under "Special Note Regarding Forward Looking
Information".
GENERAL
The Company was formed in December 1994 to acquire all of the outstanding
capital stock of Trumps, Inc., a Texas corporation ("Trumps") formed in 1982.
Since 1983, Trumps has operated Rick's Cabaret, a premier adult nightclub
offering topless entertainment in Houston, Texas. In 1995, the Company acquired
Tantra, a non-sexually oriented discotheque and billiard club also located in
Houston, Texas from Robert L. Watters, the principal shareholder. Tantra became
operational during the second quarter of fiscal 1995. In February 1996, the
Company formed RCI Entertainment (Louisiana) Inc., a Louisiana corporation for
the purpose of administering, operating, managing and leasing its new location
in New Orleans, Louisiana. The Company opened its new facility in New Orleans
in January, 1997. In addition, the Company formed RCI Entertainment (Texas)
Inc. in June 1996, for the purpose of acquiring 1.13 acres of land in Houston,
Texas. The Company sold the Land in November, 1997. In January, 1997 the
Company formed RCI Entertainment (Minnesota) Inc. for the purpose of acquiring,
renovating operating and managing its new facility in Minneapolis, Minnesota.
The Company opened its new facility in Minneapolis, Minnesota on March 5, 1998.
The Company's fiscal year end is September 30.
Revenues are derived from the sale of liquor, beer, wine and food, as well
as from dance performances, cover charges and other income.
RESULTS OF OPERATIONS
Three months ended March 31, 1998 as compared to the three months ended
March 31, 1997. For the quarter ended March 31, 1998, the Company had
consolidated total revenues of $2,007,982 compared to revenues of $1,960,642 for
the three months ended March 31, 1997, an increase of $47,340. The increase in
revenues from 1997 is due to revenues arising from the Company's new location in
Minneapolis, which opened March 5, 1998.
Cost of goods sold were 15.5% and 19.8% of all sales for the second
quarters of fiscal 1998 and 1997, respectively. The decrease in 1998 is due
primarily to the continuing efforts of management to achieve reductions in costs
of goods sold through improved inventory management and occurred despite the
increase in the costs incurred due to complimentary drinks given away during the
grand opening of the new location in Minneapolis, Minnesota.
Payroll and related costs were $571,598 for the second quarter compared to
$597,014 for the same fiscal period in 1997. The slight decrease was
significant as it was achieved despite the increased costs associated with
hiring and training a new staff for the Company's new location in Minneapolis.
Management currently believes that its labor and management staff levels are of
appropriate levels.
Other selling, general and administrative expenses increased 21% from the
second quarter of fiscal 1997 to the second quarter of fiscal 1998. The
increase was due primarily to sales tax increases in New Orleans and increased
charge card fees reflecting a shift to credit card sales in New Orleans.
Advertising decreased $49,140 for the quarter.
Net interest income was $4,614 for the quarter compared to $190 for the
previous year. Management is very pleased with the income produced from
operations during the quarter, which was in the amount of $197,100.
Depreciation and Amortization, Pre-Opening Expenses for Minneapolis and Interest
Expense, net of interest income, totaled $397,336. Interest Expense was
$116,425 for the second quarter compared to $42,191 for the second quarter of
1997. The increase was attributable to interest expense arising from the
acquisition of the Minneapolis location. Net Income was ($200,236) or a loss of
.05 per share compared with income of .01 per share in the second quarter of
1997.
Six Months Ended March 31, 1998 compared to the Six Months Ended March 31,
1997. For the six months ended March 31, 1998, the Company had consolidated
total revenues of $3,676,408, an increase of $633,151 from net revenues of
$3,043,257 for the six months ended March 31, 1997.
Cost of goods sold was 14.3% and 19.4% of sales for the first six months of
fiscal 1998 and 1997 respectively. (See management discussion above relating to
this item.)
Payroll and related costs decreased $65,436 from the first six months of
fiscal 1997. (See management discussion above relating to this item.)
Other selling, general and administrative expenses increased $130,030 from
the first six months of fiscal 1997. (See management discussion above relating
to this item.)
Net loss for the six months ended March 31, 1998 was $164,683. The company
incurred depreciation and amortization of $164,184 for the six months ended
March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998 the Company has a working capital deficit of $1,212,077
compared to working capital deficit of $606,370 at March 31, 1997. The decrease
in working capital is due primarily to the Company's investment in its opening
of its facility in Minneapolis, Minnesota.
In the opinion of management, working capital is not a true indication of
the status of the Company, due to the short cycle to liquidity, which results in
the realization of cash within no more than five (5) days after culmination of a
transaction.
Net cash provided by operating activities in the first six months of fiscal
1998 was $319,999 compared to net cash used of $8,210 for the same period in
fiscal 1997. The improvement in cash provided by operating activities was due
primarily to income from operations.
Net cash used in investing activities was $2,768,949 which resulted from
the purchase in November, 1997 of the Minneapolis location. Cash provided by
financing activities was $2,356,820 due primarily to funding of purchase money
loans on the acquisition of the Minneapolis location.
Management believes it has implemented plans that will ensure that the
Company will continue its operational profitability in fiscal 1998. Management
took steps in January, 1998 to restructure management compensation to reduce the
salary costs of management and to reorganize its accounting function to more
efficiently manage the business. Steps were also taken in January, 1998 to
significantly reduce advertising expenditures by over $400,000 in fiscal 1998
compared to fiscal 1997. New Orleans represented the first expansion for the
Company outside of its original market of Houston, Texas and as a result the
opening expenses for New Orleans reflected the Company's determination to make a
market impact through widespread advertising. In Minneapolis, by comparison,
the Company expects to capitalize on its high traffic location and on the
relative lack of competition instead of spending heavily on media and
advertising. Extensive use was made in opening the Minneapolis location on
media materials developed for the opening of the New Orleans location. Emphasis
will continue to be placed on reduction of Cost of Goods Sold by setting and
monitoring management goals at each location.
Although the Company has not established lines of credit other than the
existing debt, there can be no assurance that the Company will be able to obtain
additional financing on reasonable terms, if at all. The Company has, however,
developed numerous contacts with professionals who have expertise in raising
capital through private placement of securities and the Company will look to the
public marketplace to find the resources necessary to continue its planned
expansion.
Because of the large volume of cash handled by the Company, stringent cash
controls have been implemented by the Company. These procedures have been
improved over the life of the Company, to take advantage of improvements in
technology. Management believes that it will be able to duplicate the financial
controls that exist at its current location at future locations, and that these
controls will provide sufficient safeguards to protect the interests of the
Company. In the event the topless club industry is required to convert the
entertainers who perform from independent contractor to employee status, the
Company has prepared alternative plans that Management believes will protect the
profitability of the Company. In addition, Management believes that the
industry standard of treating the entertainers as independent contractors
provides sufficient safe harbor protection to preclude any tax assessment for
prior years payroll taxes.
The adult topless club entertainment business is highly competitive with
respect to price, service and location, as well as the professionalism of the
entertainment. Rick's Cabaret in Houston competes with a number of
locally-owned adult cabarets, some of whose names enjoy recognition that equals
that of Rick's. Although the Company believes that it is well-positioned to
compete successfully in the future, there can be no assurance that Rick's will
be able to maintain its high level of name recognition and prestige within the
marketplace.
SEASONALITY
The Company is significantly affected by seasonal factors. Typically,
Rick's has experienced reduced revenues from May through September. The Company
has historically experienced its strongest operating results during October
through April.
SPECIAL NOTE REGARDING FORWARD LOOKING INFORMATION
The Company is including the following cautionary statement in this
Quarterly Report on Form 10-Q to make applicable and take advantage of the safe
harbor provision of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result, or be achieved, or be accomplished.
In addition to other factors and matters discussed elsewhere herein, the
following are important factors that, in the view of the Company, could cause
material adverse affects on the Company's financial condition and results of
operations. Important factors that could cause actual results to differ
materially from those indicated include risks and uncertainties relating to the
impact and implementation of the sexually oriented business ordinance in the
City of Houston, the recent opening of the club in Minneapolis, Minnesota and
the availability of acceptable financing to fund corporate expansion efforts.
<PAGE>
PART II
OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Information required pursuant to Item 701 of Regulation S-B:
On February 27, 1998, the Company sold 100,000 shares of common stock to
Sun Merchant Group, Inc. ("Sun Merchant") for consideration of $75,000.00 in
reliance Section 4(2) of the Securities Act. Sun Merchant was an accredited
investor as that term is defined in Regulation D of the Securities Act. The
Company utilized the proceeds for general corporate purposes.
On February 24, 1998, the Company issued 95,000 shares of common stock to
Larry Holmberg ("Holmberg") in reliance Section 4(2) of the Securities Act.
This transaction was in connection with an asset purchase agreement related to
the Company's acquisition of certain real estate and related assets in
Minneapolis, Minnesota.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation SB
(2) Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RICK'S CABARET INTERNATIONAL, INC.
Date: May 14, 1998 By:/s/ Robert L. Watters
------------------------------
Robert L. Watters, President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 265280
<SECURITIES> 0
<RECEIVABLES> 132536
<ALLOWANCES> 0
<INVENTORY> 81142
<CURRENT-ASSETS> 521517
<PP&E> 7873262
<DEPRECIATION> 965609
<TOTAL-ASSETS> 9814594
<CURRENT-LIABILITIES> 1733594
<BONDS> 0
<COMMON> 42755
0
0
<OTHER-SE> 6123790
<TOTAL-LIABILITY-AND-EQUITY> 9814594
<SALES> 2007982
<TOTAL-REVENUES> 2007982
<CGS> 311345
<TOTAL-COSTS> 2096407
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116425
<INCOME-PRETAX> (200236)
<INCOME-TAX> 0
<INCOME-CONTINUING> (200236)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (200236)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.00)
</TABLE>
