RICKS CABARET INTERNATIONAL INC, 10KSB, 1998-12-28

RICKS CABARET INTERNATIONAL INC
10KSB, 1998-12-28
EATING & DRINKING PLACES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934; For the Fiscal Year Ended: SEPTEMBER 30, 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 76-0458229
(State or other jurisdiction of (IRS Employer
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)

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class Name of Each Exchange on which Registered

N/A N/A

Securities registered pursuant to 12(g) of the Exchange Act:

Title of Each Class

Common Stock, $.01 par value

Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]

Issuer's revenues for the year ended September 30, 1998 were $7,831,531.
The aggregate market value of Common Stock held by non-affiliates of the
registrant at December 15, 1998, based upon the last reported sales prices on
NASDAQ, was $2,090,161. As of December 15, 1998, there were 6,547,453 shares of
Common Stock outstanding.

<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS

PART I
<S> <C> <C>
Item 1. Business 1

Item 2. Properties 10

Item 3. Legal Proceedings 12

Item 4. Submission of Matters to a Vote of Security Holders 13

PART II

Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 14

Item 6.. Management's Discussion and Analysis
of Financial Condition and Results of Operations 15

Item 7. Financial Statements 19

Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 19

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a)
of The Exchange Act 20

Item 10. Executive Compensation 22

Item 11. Security Ownership of Certain Beneficial Owners
And Management 26

Item 12. Certain Relationships and Related Transactions 27

Item 13. Exhibits and Reports on Form 8-K 30
</TABLE>

<PAGE>
PART I

ITEM 1. BUSINESS

Rick's Cabaret International, Inc. ("Rick's" or the "Company") currently
owns and operates premiere adult nightclubs offering adult entertainment and
restaurant and bar operations. The Company has two adult nightclubs in operation
in Houston, Texas as well as a non-sexually oriented discotheque, Tantra.
Additionally, the Company has adult nightclubs in operation in New Orleans,
Louisiana and Minneapolis, Minnesota. The Company owns the original location of
Rick's Cabaret on Bering Drive in Houston, Texas, the location of Tantra
discotheque, in Houston, Texas and the location in Minneapolis, Minnesota.
Rick's leases its location in north Houston, Texas located near George Bush
Intercontinental Airport, which opened in December, 1998 from a consolidated
subsidiary. The Company leases its New Orleans facility.

HISTORY AND INTRODUCTION

The Company was organized as a Texas corporation in 1994 to acquire all of
the outstanding capital stock of Trumps, Inc., a Texas corporation ("Trumps")
from Robert L. Watters, its sole stockholder. As a result of this transaction,
Trumps became a wholly owned subsidiary of the Company.

Trumps was incorporated in 1982 and has operated Rick's Cabaret since 1983.
Mr. Watters initially became a 10% stockholder of Trumps in November, 1987,
becoming one of three stockholders in Trumps. Mr. Watters' ownership interest
in Trumps increased to 50% of the outstanding stock in 1989. Mr. Watters became
the sole stockholder of Trumps in 1993 through a series of business transactions
with the only other then remaining stockholder.

In September, 1995, the Company acquired all of the capital stock of
Tantric Enterprises, Inc., Tantra Dance, Inc., and Tantra Parking, Inc.
(collectively "Tantra") from Mr. Watters. The Tantra companies own and operate
Tantra, a non-sexually oriented discotheque and billiard club in Houston, Texas.

In February, 1996, the Company formed RCI Entertainment (Louisiana) Inc., a
Louisiana corporation, which operates the Company's location in New Orleans,
Louisiana.

In January 1997, the Company formed RCI Entertainment (Minnesota), Inc., a
Minnesota corporation, for the purpose of administering, operating and managing
its location in Minneapolis, Minnesota, which began operations in 1998.

The Company formed RCI Entertainment (Texas), Inc., a Texas corporation, in
June, 1996, for the purpose of acquiring 1.13 acres of land in Houston, Texas.
The Company sold the property in November, 1997.

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In August, 1998, the Company acquired approximately 93% of the outstanding
common stock of Taurus Entertainment Companies, Inc., a Colorado corporation
("Taurus") in a private stock exchange transaction with certain principal
stockholders of Taurus. The Stock Exchange Agreement provided that the Company
exchange one share of its common stock for each three and one-half shares of
Taurus common stock owned by certain principal shareholders of Taurus. As a
result of the Exchange, the Company exchanged a total of 1,143,426 shares of its
common stock for approximately 4,002,006 shares of common stock of Taurus,
giving the Company control of Taurus. The terms and conditions of the Exchange
were determined by the parties through arms length negotiations. However, no
appraisal was conducted. The financial results of Taurus have been consolidated
into the Company's financial statements since the date of acquisition.

Taurus is a publicly owned company in the adult entertainment business
trading on the OTCBB under the symbol "TAUR". Taurus owns and operates two
adult entertainment nightclubs in Austin and Houston, Texas under the name XTC
Cabaret. Taurus owns one other facility in Houston, Texas which is leased to
the Company. This location, was remodeled and opened in December, 1998. Taurus
also leases one facility in New Orleans, Louisiana.

In a transaction simultaneous to the acquisition of Taurus, the Company
acquired certain real estate in San Antonio, Texas from one of the principal
stockholders of Taurus. The Company is holding this property for sale or
development. The Company acquired the property from a principal stockholder of
Taurus for the same price that the principal stockholder paid for the property.
The Company financed the purchase of the property by the issuance of a six year
$366,000 Convertible Debenture, secured by the real estate acquired.

BUSINESS STRATEGY

Prior to Rick's opening in 1983 in Houston, Texas, the topless nightclub
business was characterized by small establishments generally managed by their
owner. Such establishments were often dimly lit and the standards for
performers' personal appearance and personality were not maintained. It was
customary for performers to alternate between dancing and waitressing. The
quantity and quality of bar service was low and food was not frequently offered.
Music was usually "hard" rock and roll, played at a loud level by a disc jockey
who frequently interrupted the music to make general announcements. Usually,
only

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cash was accepted and businessmen felt uncomfortable in such an environment.
Recognizing a void in the market for a first-class adult cabaret, the Company
designed Rick's and targeted the businessmen's segment of the market by
providing a unique quality entertainment environment. The following summarize
the areas of operation of Rick's which management believe distinguish it from
its competitors.

FEMALE ENTERTAINMENT. Management of the Company has followed a policy of
maintaining high standards in the areas of both personal appearance and
personality of its topless entertainers and waitresses. Though a performer's
physical appearance is very important, of equal importance is her ability to
present herself attractively and to converse intelligently with customers.
Management prefers that the performers it hires are experienced dancers.
Prospective performers are initially interviewed by the Company's management
personnel. Management makes a determination as to whether a particular
applicant is suitable based on such factors of appearance, attitude, dress,
communication skills and demeanor.

MANAGEMENT. The Company has recruited its management staff primarily from
outside the topless industry, in the belief that management which has not been
exposed to operating practices prevalent in the topless industry and with
diverse management backgrounds will produce a management team that operates with
a high level of integrity. This practice of training management without adult
nightclub experience may cause the Company to experience a shortage of qualified
management necessary to fulfill its anticipated growth plans due to the
additional time required to train such personnel.

COMPLIANCE POLICIES. The management of Rick's has a policy of ensuring
that its business is carried on in conformity with local, state and federal
laws. In particular, the Company's management has a "no tolerance" policy as to
illegal drug use in or around the premises. Posters placed throughout the
nightclub reinforce this policy as do periodic unannounced searches of the
entertainer's lockers. Entertainers and waitresses who arrive for work are not
allowed to leave the premises without the permission of management. Once an
entertainer does leave the premises, she is not allowed to return to work until
the next day. Management continually monitors the behavior of entertainers,
waitresses and customers to ensure that proper standards of behavior are
observed.

Management also reviews all credit card charges made by customers while at
Rick's. Specifically, management has in place a formal policy which provides
that all credit card charges must be approved, in writing, by management before
any charges are accepted. Management is particularly trained to review credit
card charges to ensure that the only credit card charges approved for payment
are for food, drink and entertainment at Rick's Cabaret.

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FOOD AND DRINK. The Company believes a key to the success of a premiere
adult nightclub is a quality, first-class bar and restaurant operation to
compliment its adult entertainment. The Company employs Service Managers who
are in charge of recruiting and training a professional waitress staff and
ensuring that each customer receives prompt and courteous service. Rick's
employs Chefs with restaurant experience and Bar Managers, who are in charge of
ordering inventory and scheduling of bar staff. The Company believes that the
operation of a first class restaurant is a necessary component to the operation
of a premiere adult cabaret, as is the provision of premium wine, liquor and
beer in order to ensure that the customer perceives and obtains good value. The
Company's restaurant operations in all of its topless cabarets are full service
operations which provides business lunch buffets and a full-scale lunch and
dinner menu service offering hot and cold appetizers, salads, seafood, steak and
lobster. An extensive selection of premiere wines are offered to compliment any
customer's lunch or dinner selection.

CONTROLS. Operational and accounting controls are essential to the
successful operation of a cash intensive nightclub and bar business. The
Company has implemented internal procedures and controls designed to ensure the
integrity of its operational and accounting records. The Company separates
management personnel from all cash handling to ensure that management is
isolated from and does not handle any cash. The Company uses a combination of
accounting and physical inventory control mechanisms to ensure a high level of
integrity in its accounting practices. Computers play a significant role in
capturing and analyzing a variety of information to provide management with the
information necessary to efficiently manage and control the nightclub. Deposits
of cash and credit card receipts are reconciled each day to a daily income
report. In addition, management reviews on a daily basis (i) cash and credit
card summaries which tie together all cash and credit card transactions
occurring at the front door, the bars in the club and the cashier station, (ii)
a summary of the daily bartenders' check-out reports, and (iii) a daily cash
requirements analysis which reconciles the previous day=s cash on hand to the
requirements for the next day's operations. These daily computer reports alert
management of any variances from expected financial results based on historical
norms. Further, the Company conducts, on a monthly basis, an independent
overview of its financial condition and has engaged independent accountants to
conduct an annual audit and to review and advise the Company relating to its
internal controls.

ATMOSPHERE. Rick's maintains a high standard in its facility and in its decor.
The furniture and furnishings in the club area are designed to create the
feeling of an upscale restaurant. The sound system is designed to provide
quality sound at levels where conversations can still take place. This
environment is carefully monitored, in terms of maintenance, music selection,
entertainer and waitress appearance and all aspects of customer service on a
continuous basis.

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VIP ROOM. In keeping with Rick's emphasis on serving the upper-end of the
business market, Rick's opened its first VIP room in 1987, which is open
primarily to individuals who purchase memberships. All of the Company's topless
clubs have VIP rooms. A VIP room provides a higher level of luxury in its decor
and services. Membership in Rick's VIP room requires a joining membership fee
which ranges from $250 for a non-resident individual membership to $550 for an
individual resident membership and $1,200 for a corporate membership.
Additionally, a non-member may use the VIP room for a one-night admission fee.
Membership in any Rick's VIP room also entitles members to access to other VIP
rooms at all other locations opened by the Company.

ADVERTISING AND PROMOTION. Rick's marketing philosophy towards customers
is to portray Rick's as a premiere cabaret providing topless entertainment in a
fun, yet discreet, environment. Hotel publications, local radio, cable
television, newspapers, billboards, taxi-cab reader boards as well as a variety
of promotional campaigns ensure that Rick's name is kept before the public.

Rick's has received a significant amount of media exposure over the years.
Mr. Watters has appeared twice on the talk show "Geraldo" talking about Rick's
and was featured in an episode of "Lifestyles of the Rich and Famous" focusing
on the topless industry. In addition, Penthouse magazine produced a nine page
article on the club and Playboy magazine covered Rick's spring 1993 golf
tournament in a recent article. In the past, Rick's has sponsored golf
tournaments and outings which have generated significant interest and tradition.
Articles covering the nightclub have appeared in Glamour magazine as well as
Ladies Home Journal. The nightclub has been mentioned in an inside cover story
in Time magazine as well as being mentioned on numerous occasions in both the
Houston Chronicle and the Houston Post and in a 1995 article published in Texas
Monthly. In 1993 Rick's produced the Girls of Rick's, a 90 minute video
feature, which was aired as a Pay-per-View feature on Warner cable. The video
was reviewed in several local newspapers as well as the Hollywood Variety
magazine. In December, 1994, Rick's provided entertainers for a Pay-Per-View
feature produced by a local radio station.

Rick's received extensive national coverage of its IPO and articles
appeared in The Wall Street Journal, Los Angeles Times, Houston Business
Journal, and numerous other regional newspapers. The television program "Extra"
ran a short feature on Rick's, as did the program "Inside Edition." Rick's
Cabaret in New Orleans received an award for "Best Topless Club" in the
Southwest at the 1998 Exotic Dancer Award Show held in Las Vegas in September,
1998.

RICK'S CABARET IN NEW ORLEANS, LOUISIANA AND MINNEAPOLIS, MINNESOTA.

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In addition to the Company's original operation on Bering Drive in
Houston, Texas, the Company has opened a new location in December, 1998 near
George Bush Intercontinental Airport in Houston, Texas. The Company also has
locations in New Orleans, Louisiana and Minneapolis, Minnesota. The Company
opened its location in New Orleans, Louisiana, in December, 1996, which is
located at 315 Bourbon Street in the New Orleans celebrated French Quarter. The
Company's lease for the New Orleans' location commenced on May 7, 1996, and has
a term of 39 2 years. The lease is a triple net lease with the tenant paying
taxes, maintenance and insurance. The club occupies 16,200 square feet in a
three story building. The club is comprised of two entertainment venues, the
first being a cabaret in the format of Rick's Cabaret in Houston, Texas, which
is presently open and occupies the bottom floor. The second venue and format,
yet to be opened, will occupy the second floor of the building and will be a
theater seating 250 patrons. Live choreographed shows will take place twice a
night with a cast separate from the cabaret facilities. Rent is based on a
fixed minimum payment with a percentage supplement in the event that gross sales
exceed certain numbers.

A facility in downtown Minneapolis, Minnesota was purchased in November 1997,
renovated, and opened as a Rick's Cabaret in March, 1998. The Minneapolis
facility had previously been operated as an adult entertainment venue. The club
occupies 9,000 square feet in a one story building with a 6,400 square foot
lower floor and is located at 300 South 3rd St. in Minneapolis, near the Target
Center, home to the Timberwolves NBA team and the Metrodome, home to the NFL
Vikings team.

The Company leased a 10,000 square foot building from a subsidiary of
Taurus Entertainment Companies, Inc. in August 1998, located at 410 Sam Houston
Parkway East, in north Houston, near George Bush Intercontinental Airport. The
site was operated under the name Broadstreets Cabaret by Taurus Entertainment
Companies, Inc. and was damaged by a fire in May, 1998. The property was rebuilt
largely from funds provided by insurance monies and was opened as a topless
cabaret in December, 1998.

TANTRA

The Company owns and operates Tantra, a non-sexually oriented discotheque
and billiard club in Houston, Texas. Tantra is located in a 6,500 square foot
building and incorporates separate areas for bar service, dancing and playing
billiards. Tantra is designed to appeal to an audience of people between the
ages of 21 through 40 who wish to dance to music which may be categorized as
modern dance music. Tantra is designed to appeal to both couples and single men
and women. Tantra is seen as a separate, but complimentary, business activity
to Rick's Cabaret and is part of the Company's business philosophy to diversify
into a broader based entertainment Company.

FUTURE EXPANSION

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It is the Company's intention to continue to open adult cabarets in the
format and bearing the name "Rick's Cabaret" in other cities. The Company also
will consider the acquisition of adult cabarets in other cities. In determining
which cities will be prime locations for a "Rick's Cabaret" a variety of factors
will be considered. The current regulatory environment will be one of such
factors. The city must presently permit alcoholic beverages to be sold in a
topless cabaret and must permit table dancing. Another factor which will be
considered is the availability of sites. The city must have available a number
of sites suitable for conversion to a Rick's style cabaret, located in high
traffic commercial areas. The Company also will review potential competition in
the area and will attempt to analyze the current market conditions and
profitability of other adult cabarets in the city. The proximity to Houston of
a particular city will also be considered. In the early years of expansion the
city must be within easy commuting distance by air of Houston. This will
facilitate the training of management in Houston and enable the participation of
Houston-based management in the construction and opening of the new enterprise.
The existing business climate will also be of critical importance. The city
must have a significant population of indigenous businessmen, should be a
recognized tourist destination and should have a well developed convention
business.

COMPETITION

The adult topless club entertainment business is highly competitive with
respect to price, service and location, as well as the professionalism of its
entertainment. For example, Rick's Cabaret in Houston competes with a number of
locally-owned adult cabarets, some of whose names may enjoy recognition that
equals that of Rick's. While there are restrictions on the location of a
so-called "sexually oriented business" there are no barriers to entry into the
adult cabaret entertainment market and only the name "Rick's" and "Rick's
Cabaret" are proprietary. There are approximately 50 adult cabarets located in
the Houston area of which approximately 10 are in direct competition with the
Company. In New Orleans, Rick's is ideally located on world famous Bourbon
Street. There are approximately 10 cabarets in New Orleans only one of which is
considered direct competition. In Minneapolis, Rick's is favorably located
downtown and is a short walk from the Metrodome Stadium and the Target Center.
There is only one cabaret in Minneapolis in direct competition with the Company.
The Company believes that the combination of its existing name recognition and
the entertainment environment that it has created, which is distinctive and
unique, will allow the Company to effectively compete within the industry and
within the cities in which the Company operates. Although the Company believes
that it is well-positioned to compete successfully, there can be no assurance
that Rick's will be able to maintain its high level of name recognition and
prestige within the marketplace.

GOVERNMENTAL REGULATIONS

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The Company is subject to various federal, state and local laws affecting
its business activities. In particular, in Texas the authority to issue a
permit to sell alcoholic beverages is governed by the Texas Alcoholic Beverage
Commission (the "TABC"), which has the authority, in its discretion, to issue
the appropriate permits. Rick's presently holds a Mixed Beverage Permit and a
Late Hours Permit (the "Permits"). These Permits are subject to annual renewal,
provided Rick's has complied with all rules and regulations governing the
permits. Renewal of a permit is subject to protest, which may be made by a law
enforcement agency or by a member of the general public. In the event of a
protest, the TABC may hold a hearing at which time the views of interested
parties are expressed. The TABC has the authority after such hearing not to
issue a renewal of the protested alcoholic beverage permit. Rick's has never
been the subject of a protest hearing against the renewal of its Permits.
Louisiana and Minnesota have similar laws which may limit the availability of a
permit to sell alcoholic beverages or which may provide for suspension or
revocation of a permit to sell alcoholic beverages in certain circumstances.
Prior to expanding into any new market, the Company will take all steps
necessary to ensure compliance with all licensing and regulatory requirements
for the sale of alcoholic beverages as well as the sale of food.

In addition to various regulatory requirements affecting the sale of
alcoholic beverages, in Houston, and in many other cities, location of a topless
cabaret is subject to restriction by city ordinance. Rick's in Houston, Texas
is subject to "The Sexually Oriented Business Ordinance" (the "Ordinance")
which contains prohibitions on the location of an adult cabaret. The
prohibitions deal generally with distance from schools, churches, and other
sexually oriented businesses and contain restrictions based on the percentage of
residences within the immediate vicinity of the sexually oriented business. The
granting of a Sexually Oriented Business Permit ("Business Permit") is not
subject to discretion; the Business Permit must be granted if the proposed
operation satisfies the requirements of the Ordinance.

In January 1997, the City Council of the City of Houston passed a
comprehensive new Ordinance regulating the location of and the conduct within
Sexually Oriented Businesses. The new Ordinance established new distances that
Sexually Oriented Businesses may be located to schools, churches, playgrounds
and other sexually oriented businesses. There were no provisions in the
Ordinance exempting previously permitted sexually oriented businesses from the
effect of the new Ordinance. In 1997, the Company was informed that Rick's
Cabaret at its location at 3113 Bering Drive failed to meet the requirements of
the Ordinance and accordingly the renewal of the Company's Business License at
that location was denied.

The Ordinance provided that a business which was denied a renewal of its
operating permit due to changes in distance requirements under the Ordinance
would be entitled to continue in operation for a period of time (the
"Amortization Period") if the owner were unable to recoup, by the effective date
of the Ordinance, its investment in the business that was incurred through the
date of the passage and approval of the Ordinance.

The Company filed a written request with the City of Houston requesting an
extension of time during which the Company could continue operations at its
original location under the Amortization Period provisions of the Ordinance
since the Company was unable to recoup its investment prior to the effective
date of the Ordinance. An administrative hearing (the "Hearing") was held by
the City of Houston to determine the appropriate Amortization Period to be
granted to the Company. At the Hearing, the Company was granted an amortization
period through July 1998. The Company has the right to appeal any decision of
the Hearing official to the district court in the State of Texas. The location
in north Houston opened in December, 1998 similarly failed to meet the
requirements of the Ordinance as passed, but the Company did receive an
Amortization Period through June 30, 2000 for the location in north Houston.

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In May, 1997, the City of Houston agreed to defer implementation of the
Ordinance until the constitutionality of the entire Ordinance was decided by
court trial. In February 1998 the U.S. District Court for the Southern
District of Texas, Houston, Division, struck down certain provisions of the
Ordinance, including the provision mandating a 1,500 foot distance between a
club and schools, churches and other sexually oriented business, leaving intact
the provision of the 750 foot distance as it existed in the prior Houston, Texas
Ordinance.

There are other provisions in the Houston, Texas Ordinance, such as
provisions governing the level of lighting in a sexually oriented business, the
distance between a customer and dancer while the dancer is performing in a state
of undress and provisions regarding the licensing of dancers that were upheld
which may be detrimental to the business by the Company. The Company, in
concert with other sexually oriented businesses, is appealing these aspects of
the Houston, Texas Ordinance.

The City of Houston, and the Company in concert with other sexually
oriented businesses, have appealed the court's rulings. In the event that the
City of Houston is successful in an appeal, the Company's Houston locations
could be out of compliance. Such an outcome could have an adverse impact on the
Company's future.

On April 1, 1998, the City of Houston began enforcing certain portions of
the Ordinance, including the distance requirement between a customer and a
dancer while dancing, and the requirement that dancers be licensed. The City of
Houston's enforcement of the recently implemented provisions of the Ordinance
could have an adverse impact on the Rick's location in Houston, Texas. The
current requirement of a three foot distance between a dancer and a customer
could reduce customer satisfaction and could result in fewer customers at the
Houston location. The requirement that a dancer be licensed may result in fewer
dancers working, which could have an adverse impact on the Houston location. It
is unknown what future impact the enforcement of the Ordinance may have on the
Company's Houston locations.

The Company is also required to have a dance hall permit for the operation
of a discotheque in the city of Houston. The dancehall permit is not a
discretionary permit, but must be granted by the city if the provisions of the
applicable ordinance are satisfied. A dancehall permit may be revoked or
renewal may be refused if certain criminal activities occur on the premises or
the person listed as the applicant has committed certain named offenses.
Tantra's dancehall permit is presently held by Mr. Watters. The Company
believes that it could obtain a new dance hall permit if for any reason Mr.
Watters failed to renew or was refused the renewal of the dance hall permit.
Prior to expanding into any new market, the Company will take all steps
necessary to obtain any required dance hall permits and to comply with any other
related regulatory requirements within that market.

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In Minneapolis, the Company is required to be in compliance with state and
city liquor licensing laws. The cabaret is located in an area presently zoned to
enable the operation of a topless cabaret.

In New Orleans, the Company is required to be in compliance with state and
city liquor licensing laws. The cabaret is located in an area presently zoned to
enable he operation of a topless cabaret.

In San Antonio, the Company would be required to be in compliance with
state liquor licensing law and the sexually oriented business ordinance
implemented by the City of San Antonio.

TRADEMARKS

Rights of the Company to the trademarks "Rick's" and "Rick's Cabaret" are
established under common law, based upon the Company's substantial and
continuous use of these trademarks in interstate commerce since at least as
early as 1987.

'RICK'S AND STARS DESIGN" logo was registered by the United States Patent
and Trademark Office ("PTO") in 1989. Due to an oversight, these registrations
were canceled by the PTO for failure of the Company to file a required affidavit
with the PTO setting forth that the service mark was still in use in commerce.
Applications for service mark registrations for this mark were refiled, and the
PTO has issued new registrations for the service mark "RICK'S AND STARS DESIGN".

The Company has also obtained service mark registrations from the PTO for
the Company's RICK'S CABARET service mark.

There can be no assurance that the steps taken by the Company to protect
its service marks will be adequate to deter misappropriation of its protected
intellectual property rights. Litigation may be necessary in the future to
protect the Company's rights from infringement, which may be costly and time
consuming.

EMPLOYEES AND INDEPENDENT CONTRACTORS

As of September 30, 1998, the Company had approximately 350 full-time
employees, of which 30 are in management positions, including corporate and
administrative operations, and approximately 150 are engaged in food and
beverage service, including bartenders and waitresses. None of the Company's
employees are represented by a union and the Company considers its employee
relations to be good.

Additionally, the Company has independent contractor relationships with
over 1000 entertainers, who are self-employed and work with the Company on a
non-exclusive basis as independent contractors. Performers in Minneapolis,
Minnesota act as commissioned employees.

ITEM 2. PROPERTIES

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The Company owns the premises where Rick's Cabaret is located in Houston,
Texas. The cabaret contains an aggregate 12,300 square feet, divided into two
separate club areas and executive and administrative offices. The main club
area and the VIP club area together contain 10,500 square feet and seat
approximately 300 people. The executive and administrative offices comprise
1,800 square feet. A woman's apparel boutique leases approximately 300 square
feet at the same location.

SRD Vending Company, Inc. ("SRD"), a Texas Corporation wholly-owned by the
Company also occupies 120 square feet at the same location. SRD provides and
maintains the cigarette vending machines located at Rick's Cabaret.

The Company owns a 6,500 square foot building in which Tantra is located. The
building incorporates separate areas for bar service, dancing and playing
billiards. The building is currently leased to Tantra, pursuant to a ten year
lease agreement which expires on August 1, 2004. The lease agreement provides
for lease payments of the greater of (i) $1,500 per month or (ii) 5% of Tantra's
gross receipts per month until such time as the Company has received $250,000 of
rental income.

The Company leases the premises where Rick's Cabaret is located in New Orleans,
Louisiana. The Company's lease for the New Orleans' location commenced on May
7, 1996, and has a term of 39 2 years. The lease is a triple net lease with
tenant paying taxes, maintenance and insurance. The club occupies 16,200 square
feet in a three story building.

The Company purchased a facility in downtown Minneapolis, Minnesota in
November, 1997 which opened as a Rick's Cabaret in 1998. The Minneapolis
facility had previously been operated as an adult entertainment venue. The
club occupies 15,400 square feet in a one story building with a fully developed
lower floor. The mortgage on the property was executed in November, 1997 with
an original principal amount of $500,000 and bearing interest of 9% per annum,
amortized over 20 years with monthly principal and interest payments of $4,498,
and a balloon payment due in July 2007.

11
<PAGE>
The Company purchased real estate in San Antonio, Texas from Ralph McElroy,
a principal stockholder of the Company, consisting of 1.5 acres. The Company is
analyzing its options regarding development of this property. The Company
acquired the property from Mr. McElroy for the same price that Mr. McElroy paid
for the property. The Company financed the purchase of the property by the
issuance of a six year $366,000 Convertible Debenture, secured by the real
estate acquired. The principal balance of the Convertible Debenture is due in
July, 2004, in one lump sum payment. Interest is due and payable monthly, with
the first interest payment beginning in September, 1998. The Convertible
Debenture is subject to redemption at the option of the Company, in whole or in
part, at 100% of the principal face amount of the Convertible Debenture redeemed
plus any accrued and unpaid interest on the redemption date, at any time and
from time to time, upon not less than 30 nor more than 60 days notice, if the
Closing Price of the common stock of the Company shall have equaled or exceeded
$8.50 per share of common stock for ten (10) consecutive trading days. The
Convertible Debenture is convertible into shares of Common Stock at any time
prior to maturity (unless earlier redeemed) at the Conversion Price of $2.75 per
share. See, Certain Relationships and Related Transactions.

Taurus purchased real estate in Houston, Texas from Ralph McElroy, a
principal stockholder of the Company, where Taurus operates an XTC Cabaret. The
Company acquired the property from Mr. McElroy for the same price that Mr.
McElroy paid for the property. The Company financed the purchase of the
property by the issuance of a six year $286,744 Convertible Debenture, secured
by the real estate acquired. The Company is a guarantor of this Convertible
Debenture. The principal balance of the Convertible Debenture is due in July,
2004, in one lump sum payment. Interest is due and payable monthly, with the
first interest payment beginning in September, 1998. The Convertible Debenture
is convertible into shares of Common Stock of the Company at any time prior to
maturity at the Conversion Price of $2.75 per share. See, Certain Relationships
and Related Transactions.

The Company leases premises located on the north side of Houston, Texas
from Taurus, where a topless cabaret opened in December, 1998. The Company's
lease for this location continues until July 31, 2018 at a monthly rent of
$15,000. The lease is a triple net lease with tenant paying taxes, maintenance
and insurance. The club will occupy 10,000 square feet in a one story building.

ITEM 3. LEGAL PROCEEDINGS

In November, 1998, LMTD, Inc. initiated litigation against a subsidiary of
one of the Company's subsidiaries, Citation Land, LLC ("Citation"), in a case
styled LMTD, Inc. v. Texas Warehouse Company, Inc., et al. Cause No. 98-12570,
in the 200th Judicial District Court of Travis County, Texas. The suit seeks
specific performance and damages against Texas Warehouse Company, Inc. regarding
a Purchase Option Agreement. Plaintiff also alleges a tortious interference
claim against Citation in the amount of $540,000. Counsel for Citation intends
to file a counterclaim and or cross action at the time that its answer is due.
Counsel for Citation believes that the exposure to Citation is minimal. The
Company intends to vigorously defend itself in this matter and to deny all
allegations.

On October 15, 1998, All City Beverage and Entertainment, Inc. initiated
litigation against one of the Company's subsidiaries in a case styled All City
Beverage and Entertainment, Inc. v. Taurus Entertainment Companies,
Inc.("Taurus"), Cause No. 98-49119, in the 61st Judicial District Court of
Harris County, Texas. The suit seeks damages in the amount of $25,000 and
175,000 shares of common stock of Taurus in connection with an Asset Purchase
Agreement between All City Beverage and Entertainment, Inc. and Taurus. Taurus
has filed a counter-claim asserting that there were undisclosed obligations
which Taurus was required to pay. The counter-claim seeks damages in an amount
in excess of $25,000. This matter is in the early stages of litigation and no
discovery has taken place. Taurus intends to vigorously defend itself in this
matter.

12
<PAGE>
SEXUALLY ORIENTED BUSINESS ORDINANCE OF HOUSTON, TEXAS

In May, 1997, the City of Houston agreed to defer implementation of the
Ordinance until the constitutionality of the entire Ordinance was decided by
court trial. In February 1998 the U.S. District Court for the Southern
District of Texas, Houston, Division, struck down certain provisions of the
Ordinance, including the provision mandating a 1,500 foot distance between a
club and schools, churches and other sexually oriented business, leaving intact
the provision of the 750 foot distance as it existed in the prior Houston, Texas
Ordinance.

There are other provisions in the Houston, Texas Ordinance, such as
provisions governing the level of lighting in a sexually oriented business, the
distance between a customer and dancer while the dancer is performing in a state
of undress and provisions regarding the licensing of dancers that were upheld
which may be detrimental to the business of the Company. The Company, in
concert with other sexually oriented businesses, is appealing these aspects of
the Houston, Texas Ordinance.

13
<PAGE>
The City of Houston and the Company, in concert with other sexually
oriented businesses has appealed the court's rulings. In the event that the
City of Houston is successful in an appeal, the Company's Houston locations
could be out of compliance. Such an outcome could have an adverse impact on the
Company's future.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 1998, there were no matters submitted to a
vote of the Security Holders, through solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock is traded on The NASDAQ SmallCap Market under
the symbol "RICK." The following table sets forth the quarterly high and low
last sales prices per share for the Common Stock, as reported by NASDAQ.

<TABLE>
<CAPTION>
COMMON STOCK PRICE RANGE

HIGH LOW
<S> <C> <C>
1997
First Quarter $ 5 1/2 $ 4.00
Second Quarter $4 7/16 $ 2 3/4
Third Quarter $ 3.00 $ 2 1/4
Fourth Quarter $ 2 5/8 $ 2.00

1998
First Quarter $3 3/16 $ 2 1/4
Second Quarter $3 3/16 $2 1/16
Third Quarter $ 4 3/8 $ 2 1/8
Fourth Quarter $3 3/16 $ 1/2
</TABLE>

14
<PAGE>
On December 15, 1998, the last sales price for the Common Stock as reported
by The NASDAQ SmallCap Market was $.50 per share. On December 15, 1998, there
were approximately 392 stockholders of record of the Common Stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, NY, NY 10005, (718)
921-8275.

DIVIDEND POLICY

The Company has not paid, and the Company does not currently intend to pay
cash dividends on its common stock in the foreseeable future. The current
policy of the Company's Board of Directors is to retain all earnings, if any, to
provide funds for operation and expansion of the Company's business. The
declaration of dividends, if any, will be subject to the discretion of the Board
of Directors, which may consider such factors as the Company's results of
operations, financial condition, capital needs and acquisition strategy, among
others.

RECENT SALES OF UNREGISTERED SECURITIES

In August, 1998, the Company acquired approximately 93% of the outstanding
common stock of Taurus Entertainment Companies, Inc., a Colorado corporation
("Taurus") in a private stock exchange transaction with certain principal
stockholders of Taurus. The Stock Exchange Agreement provided that the Company
exchange one share of its common stock for each three and one-half shares of
Taurus common stock owned by certain principal shareholders of Taurus. As a
result of the Exchange, the Company exchanged a total of 1,143,426 shares of its
common stock for approximately 4,002,006 shares of common stock of Taurus. The
Company believes that each of the persons had knowledge and experience in
financial and business matters which allowed them to evaluate the merits and
risk of the receipt of these securities of the Company, and that each person was
knowledgeable about the Company's operations and financial condition. These
transactions were effected by the Company in reliance upon exemptions from
registration under the Securities Act of 1933 as amended (the "Act") as provided
in Section 4(2) thereof. Each certificate issued for unregistered securities
contained a legend stating that the securities have not been registered under
the Act and setting forth the restrictions on the transferability and the sale
of the securities. No underwriter participated in, nor did the Company pay any
commissions or fees to any underwriter in connection with any of these
transactions. None of the transactions involved a public offering.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

15
<PAGE>
The following discussion should be read in conjunction with the financial
statements and notes thereto for the fiscal years ended September 30, 1998 and
1997.

FORWARD LOOKING STATEMENT AND INFORMATION

This Management Discussion and Analysis contains various forward looking
statements which represent the Company's expectations or beliefs concerning
future events and involve a number of risks and uncertainties. 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, competitive factors, the timing of the openings of other clubs, the
integration of operations of Taurus Entertainment Companies, Inc with the
operations and management of the Company, and the availability of acceptable
financing to fund corporate expansion efforts. The Company has no obligation to
update or revise these forward looking statements to reflect the occurrence of
future events or circumstances.

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 location in
New Orleans, Louisiana. The Company opened its facility in New Orleans in 1996.
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 facility in Minneapolis, Minnesota. The Company
opened its facility in Minneapolis, Minnesota in March, 1998. In December, 1998
the Company opened its fourth topless location in leased premises located in
north Houston, Texas. The Company's fiscal year end is September 30. In August,
1998, the Company acquired 93% of the outstanding common stock of Taurus
Entertainment Companies, Inc.

The Company's revenues are derived from the sale of liquor, beer, wine and
food, which comprises approximately 58% of total revenues, and charges to the
entertainers, cover charges and other income which comprise approximately 42% of
total fiscal 1998 revenues.

16
<PAGE>
RESULTS OF OPERATIONS

YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997.

For the 1998 fiscal year, the Company had consolidated total revenues of
$7,831,531, an increase of 25% or $1,553,952 above fiscal 1997 revenues of
$6,277,579. Revenues in New Orleans surpassed revenues in Houston for the
first time, with New Orleans contributing 51% of the gross revenues of the
Company, Houston 28%, Tantra 6% and Minneapolis (which was only open for
approximately one-half of the fiscal year) 11%. The Taurus Entertainment
Companies, Inc. group contributed, for the period from August 11, 1998 to
September 30, 1998 4% of the gross revenues of the Company.

Costs of goods sold were 24% and 32% of sales of alcoholic beverages and
food for fiscal 1998 and 1997, respectively. This decrease is due steps taken
by management to achieve continuing improvements in cost of goods sold. The
Company continues a program to improve margins from liquor and food sales and
food service efficiency.

Salaries and wages increased 25% or $530,427 from fiscal 1997 due to the
addition of management personnel in Minneapolis, as a result of the policy of
the Company in Minneapolis of treating the entertainers as employees and the
acquisition of Taurus Entertainment Companies, Inc. Management staffing was
increased in order to have adequately trained personnel to assist with the
planning and pre-opening activities of other locations.

Other general and administrative expenses increased 7% or $270,069 from
fiscal 1997 to fiscal 1998. Charge card fees increased $38,150 largely due to
increased sales. Legal and accounting fees increased $48,148 as a result of the
cost of the acquisition and opening of the store in Minneapolis, Minnesota and
the acquisition of Taurus Entertainment Companies, Inc.

Advertising and promotion decreased by $286,324 reflecting a change in the
Company's policy regarding advertising expenditures surrounding the opening of
new stores.

Other costs increased $290,694 during fiscal 1998 as a result of increased
travel and lodging costs incurred by staff involved with the New Orleans and
Minneapolis locations and the review of the Taurus Entertainment Companies, Inc.
acquisition and of other potential acquisitions.

17
<PAGE>
The Company experienced a net loss of $604,864 for fiscal 1998 compared to
a net loss of $1,293,330 for fiscal 1997. Management has taken steps as
discussed in greater detail below to ensure the Company will become profitable
in fiscal 1999, principally as a result of increased revenues and decreased
advertising expenditures and also as income from the opening of new locations is
realized. See, Liquidity and Capital Resources.

Interest expense increased to $384,037 during fiscal 1998 as a result of
the acquisition of the land and building in Minneapolis, Minnesota and inclusion
of the debt of Taurus Entertainment Companies, Inc.

YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996.

For the 1997 fiscal year, the Company had consolidated total revenues of
$6,277,579, an increase of $1,647,281 from fiscal 1996 revenues of $4,630,298.
Single location revenues for Rick's Cabaret - Houston declined 17% from fiscal
1996 to fiscal 1997 or approximately $594,000. The decline at Rick's Cabaret in
Houston was offset by the opening of Rick's Cabaret New Orleans which provided
revenues of $2,296,779 during the nine months of this fiscal period for which it
was open. The overall decline in single location revenues in Houston, Texas was
attributable to the increased level of competition in the area and the chilling
effect of a new ordinance passed in January, 1997 by the City of Houston City
Council.

Costs of goods sold were 32% and 30% of sales of alcoholic beverages and
food for fiscal 1997 and 1996, respectively. This slight increase is due to the
increase in food sales which carries a higher cost than beverage sales. The
Company continues a program to improve margins from liquor and food sales and
food service efficiency.

Salaries and wages increased 42% or $625,400 from fiscal 1996 due to the
addition of personnel in all areas of the company due to the opening of the New
Orleans location and in preparation for the opening of the location in
Minneapolis, Minnesota.

Other general and administrative expenses increased 23% or $749,579 from
fiscal 1996 to fiscal 1997. Charge card fees increased $40,951 largely due to
opening the new location in New Orleans. Legal and accounting decreased $25,099
as a result of the final settlement of two cases involving the company.
Advertising and promotion increased by $241,130 reflecting the cost of media
expenditure in New Orleans. The company's current media expenditures have
declined reflecting the decrease in need for advertising in New Orleans. Other
costs increased during fiscal 1996 as a result of (i) additional expenses of
$52,000 to recognize refunds due to wait staff employees in Houston for shift
charges and tip processing fees, and (ii) increased travel and lodging costs
incurred by staff involved with the opening of the New Orleans and Minneapolis
locations and the review of other potential acquisitions.

The Company experienced a net loss of $1,293,330 for fiscal 1997 compared
to a net loss of $708,614 for fiscal 1996.

18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1998 the Company had a working capital deficit of
$(887,833), compared to working capital of $107,342 at the end of fiscal 1997.
The decrease in working capital is primarily due to the sale of land held for
sale in November, 1997 and the use of the proceeds in renovating and opening the
nightclub in Minneapolis, Minnesota in March, 1998.
In the opinion of management, working capital is not a true indicator 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 the culmination of a
transaction.

Net cash provided by operating activities in fiscal 1998 was $427,172
compared to net cash used by operating activities of $544,768 in fiscal 1997.
The increase in cash provided by operating activities was due primarily to the
net loss of $570,864 being balanced by depreciation of $440,055, an increase in
accounts payable and accrued liabilities of $512,278. Net cash used in
investing activities was $(307,465) in 1998 and was due to investment in the
renovation of the property owned by the Company in Minneapolis, Minnesota.

Cash provided by financing activities was $120,527 due to proceeds raised
from selling common stock for $775,000 less payments made on long-term debt in
the amount of $654,473.

Management believes it has implemented plans that will ensure that the
Company will become profitable in fiscal 1999. The acquisition of Taurus
Entertainment Companies, Inc. represented the first multi-unit expansion for the
Company, and included locations outside of its original market of Houston,
Texas. 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.

19
<PAGE>
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 locations 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 in all states 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 all of its location 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.

YEAR 2000

The Company currently believes that it does not have any significant
exposure to uncertainties nor material anticipated costs related to Year 2000
issues including Company, vendor and customer issues. The Company's current
systems and any anticipated upgrades are Year 2000 compliant.

ITEM 7. FINANCIAL STATEMENTS

The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes in accountants since the Registrant's
incorporation in 1994, nor have there been any disagreements with accountants on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.

20
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS.

Directors are elected annually and hold office until the next annual
meeting of the stockholders of the Company or until their successors are elected
and qualified. Officers are elected annually and serve at the discretion of the
Board of Directors. There is no family relationship between or among any of the
directors and executive officers of the Company. The Company's Board of
Directors consists of five persons.

<TABLE>
<CAPTION>
Name Age Position
- ------------------ --- ---------------------------------------------------
<S> <C> <C>
Robert L. Watters 47 Director, Chairman of the Board,
Chief Executive Officer and Chief Financial Officer

Erich Norton White 28 Director and Executive Vice President

Eric Langan 30 Director and Vice-President-Systems,
Marketing and Promotion

Scott C. Mitchell 45 Director

Martin Sage 47 Director
</TABLE>

Robert L. Watters, age 47, has been a director of the Company since 1986,
and has been the sole stockholder of the Company since March 1993. Mr. Watters
has been president and chief executive officer of the Company since 1991 and
presently serves also as its chief financial officer. He was also a founder in
1989 and operator until 1993 of the Colorado Bar & Grill, an adult cabaret
located in Houston, Texas and in 1988 performed site selection, negotiated the
property purchase and oversaw the design and permitting for the cabaret that
became the Cabaret Royale, in Dallas, Texas. Mr. Watters practiced law as a
solicitor in London, England and is qualified to practice law in New York state.
Mr. Watters worked in the international tax group of the accounting firm of
Touche, Ross & Co. (now succeeded by Deloitte & Touche) from 1979 to 1983 and
was engaged in the private practice of law in Houston, Texas from 1983 to 1986,
when he became involved in the full-time management of the Company. Mr. Watters
graduated from the London School of Economics and Political Science, University
of London, in 1973 with a Bachelor of Laws (Honours) degree and in 1975 with a
Master of Laws degree from Osgoode Hall Law School, York University.

21
<PAGE>
Erich Norton White, age 28, vice president, secretary and general manager
has served as a Director of the Company since July, 1995. Mr. White joined the
Company in January, 1993 as a night manager and from May, 1995 until November,
1998 has been a General Manager, first in Houston and subsequently in New
Orleans. Mr. White presently oversees General Management in all locations
controlled by the Company. From October, 1989, until joining the Company in
1993, Mr. White worked in the hospitality industry for the Bennigan's restaurant
chain. Mr. White completed the Bennigan's Restaurant Management Training
Program in 1992.

Eric Langan, age 30, has been involved in the adult entertainment business
since 1989. He has served as the President and Director of Taurus since
November, 1997. From January 1997 through the present, he has held the position
of President with XTC Cabaret, Inc., which was subsequently acquired by Taurus.
Since 1989, Mr. Langan has exercised managerial control over the grand openings
and operations of numerous adult entertainment businesses. Through these
activities, Mr. Langan has acquired the knowledge and skills necessary to
successfully operate adult entertainment businesses. Mr. Langan has also been
an officer of Citation Land Company which owned commercial income real estate in
Houston, Texas, which also was subsequently acquired by Taurus. Mr. Langan has,
from November, 1998 has been responsible for development of business systems,
marketing and promotion at all of the locations controlled by the Company.

Scott C. Mitchell, age 45, has served as a director of the Company since
December, 1994. Mr. Mitchell has been a certified public accountant in private
practice since 1976 and has been a principal of his own firm since 1981. Mr.
Mitchell's current firm Mitchell & Cavallo, P.C. serves a wide range of
business and individual clients. Mr. Mitchell has been licensed since 1980 to
practice law in the State of Texas and since 1986 has been admitted to practice
before the Tax Court of the United States. Further, Mr. Mitchell has been
appointed by various District Courts as a receiver and special master of
business entities under court jurisdiction. Mr. Mitchell was appointed a
Receiver of the Company in September, 1989 with limited authority to oversee and
review the receipt and disbursement of revenues of the Company. Mr. Mitchell,
however, had no authority over the management of the Company. The receivership
was terminated in March, 1993. Mr. Mitchell graduated from the University of
Texas with an honors degree in Business Administration.

Martin Sage, age 47, has served as a Director of the Company since July,
1995. Mr. Sage is the founder and director of Sage Productions, Inc., which is
involved in the development of applying advanced learning theory to business.
The Sage Learning Method enables individuals to build innovative approaches to
management, leadership and team building. The Sage Learning Method works to
create dynamic relationships which motivate and create synergy between
individuals and the businesses where they work. For the past 16 years, Mr. Sage
has served as a consultant to businesses throughout the United States bringing
his innovative approach to business to many organizations and corporations.

COMMITTEES OF THE BOARD OF DIRECTORS

22
<PAGE>
The Company has no compensation committee and no nominating committee.
Decisions concerning executive officer compensation for 1998 were made by the
full Board of Directors. Robert L. Watters, Eric Langan and Erich Norton White
are the only directors of the Company who are also officers of the Company.

In January, 1998 the Company established an Audit Committee of independent
directors whose members are Martin Sage and Scott Mitchell. The primary purpose
of the Audit Committee is to oversee the Company's financial reporting process
on behalf of the Board of Directors. The Audit Committee meets privately with
the Company's Chief Accounting Officer and with the Company's independent public
accountants and evaluates the responses by the Chief Accounting Officer both to
the facts presented and to the judgments made by the outside independent
accountants. The Audit Committee will reports activities to the full Board
after each meeting. In addition, the activities and responsibilities of the
Audit Committee include the nomination or selection of the independent auditors,
review of the results of the audit and a detailed review of the overall Company
and the adequacy of the Company's internal controls.

CERTAIN SECURITIES FILINGS

The Company believes that all persons subject to Section 16(a) of the
Exchange Act in connection with the Company have complied on a timely basis.

ITEM 10. EXECUTIVE COMPENSATION

The following table reflects all forms of compensation for services to the
Company for the fiscal years ended September 30, 1998, 1997, 1996 of the chief
executive officer and the executive vice-president of the Company. No other
executive officer of the Company received compensation which exceeded $100,000
during 1998.

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

Annual Compensation Long Term Compensation
Awards Payouts
Other Securities All
Name and Annual Restricted Underlying Other
Principal Compen- Stock Options/ LTIP Compens-
Position Year Salary Bonus sation (1) Awards SARs Payouts sation
- --------- ---- -------- ---------- ---------- ---------- ---------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L 1998 $325,000 -0- -0- -0- 20,000 -0- -0-
Watters 1997 $325,000 -0- -0- -0- -0- -0- -0-
CEO 1996 $325,000 -0- -0- -0- -0- -0- -0-

Erich 1998 $100,000 -0- -0- -0- 35,000 -0- -0-
Norton 1997 $ 65,000 -0- -0- -0- -0- -0- -0-
White 1996 $ 50,000 -0- -0- -0- -0- -0- -0-
EVP
<FN>
(1) The Company provides Messrs. Watters, and White with certain personal benefits. Since the
value of such benefits does not exceed the lesser of $50,000 or 10% of annual compensation, the
amounts are omitted.
</TABLE>

23
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)

Percent of Potential Realizable Value At
Number of Total Assumed Annual Rates of
Securities Options/SARs Stock Price Appreciation For
Underlying Granted To Exercise Option Term
Options/SARs Employees Or Base
Granted In Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
- --------------- ------------- ------------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Robert L.
Watters (1) 20,000 30% $ 2.50 1-28-03 -0- -0-

Erich Norton
White (1,2) 35,000 50% $ 2.50 1-28-03 -0- -0-
______________
<FN>
1 Messrs. Watters and White received 20,000 options in theirs capacity as Directors of the Company.
See,Director Compensation.
2 Mr. White also received 15,000 options as employee compensation.
</TABLE>

<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES

Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs At Options/SARs At
Fiscal Year-End Fiscal Year-End
Shares Value (#) ($)
Acquired On Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Robert L.
Watters (1) No exercises -0- -0- /20,000 -0- / -0-

Erich Norton
White (1) No exercises -0- 43,750 /20,000 -0- / -0-
</TABLE>

DIRECTOR COMPENSATION

The Company does not currently pay any cash directors' fees, but it pays
the expenses of its directors in attending board meetings. Scott C. Mitchell,
Martin Sage and Erich N. White, directors of the Company were granted stock
options on October 12, 1995 for services provided to the Company as directors
pursuant to which Messrs. Mitchell, Sage and White were each granted 5,000
stock options, all at an exercise price of $3.00 per share, expiring in January,
2005. The options are exercisable only as to one-fourth of the total number of
shares covered by each grant of options during each 12-month period commencing

24
<PAGE>
12 months after the grant date. In January, 1998, the Company issued 20,000
options on the Company's common stock to each of Messrs. Watters, White,
Mitchell and Sage, who were then Directors, all at an exercise price of $2.50
per share, expiring in January, 2003. The options are exercisable only as to
one-fourth of the total number of shares covered by each grant of options during
each 12-month period commencing 12 months after the grant date.

EMPLOYEE STOCK OPTION PLAN

While the Company has been successful in attracting and retaining qualified
personnel, the Company believes that its future success will depend in part on
its continued ability to attract and retain highly qualified personnel. The
Company pays wages and salaries which it believes are competitive. The Company
also believes that equity ownership is an important factor in its ability to
attract and retain skilled personnel, and in 1995 adopted a Stock Option Plan
(the "Plan") for employees and directors.

The purpose of the Plan is to further the interest of the Company, its
subsidiaries and its stockholders by providing incentives in the form of stock
options to key employees and directors who contribute materially to the success
and profitability of the Company. The grants will recognize and reward
outstanding individual performances and contributions and will give such persons
a proprietary interest in the Company, thus enhancing their personal interest in
the Company's continued success and progress. This Plan will also assist the
Company and its subsidiaries in attracting and retaining key employees and
directors. The options granted under this Plan may be either Incentive Stock
Options, as that term is defined in Section 422A of the Internal Revenue Code of
1986, as amended, or nonstatutory options taxed under Section 83 of the Internal
Revenue Code of 1986, as amended. The Plan is administered by the Board of
Directors or by a Compensation Committee of the Board of Directors. The Board
of Directors has the exclusive power to select the participants in the Plan, to
establish the terms of the options granted to each participant, provided that
all options granted shall be granted at an exercise price equal to at least 85%
of the fair market value of the Common Stock covered by the option on the grant
date and to make all determinations necessary or advisable under the Plan. A
total of 300,000 shares may be optioned and sold under the Company's Stock
Option Plan. As of September 30, 1998, 300,000 stock options had been granted
under the Plan, none of which have been exercised.

EMPLOYMENT AGREEMENT

25
<PAGE>
The Company has a three year employment agreement with Robert L. Watters
(the "Agreement") to serve as its President and Chief Executive Officer. The
Agreement, which extends through December 31, 2000, provides for an annual base
salary of $300,000. The Agreement also allows for an annual bonus, in the
discretion of the Board of Directors (excluding Mr. Watters), based upon the
financial performance, including evaluation of the income and earnings of the
Company during the year. The Agreement also provides for participation in all
benefit plans maintained by the Company for salaried employees. Mr. Watters'
Agreement contains a confidentiality provision and an agreement by Mr. Watters
not to compete with the Company upon the expiration of the Agreement. The
Company has not established, nor does it provide for, long-term incentive plans
or defined benefit or actuarial plans.

The Company has a three year employment agreement with Eric Langan (the
"Langan Agreement") to serve as its Vice-president of Operations. The Langan
Agreement, which extends through August 11, 2001 and provides for an annual base
salary of $171,600. The Langan Agreement also provides for participation in all
benefit plans maintained by the Company for salaried employees. Mr. Langan=s
Agreement contains a confidentiality provision and an agreement by Mr. Langan
not to compete with the Company upon the expiration of the Langan Agreement.
The Company has not established long-term incentive plans or defined benefit or
actuarial plans. Pursuant to the Langan Agreement, Mr. Langan will receive
options to purchase 250,000 of the Company's shares at an exercise price of
$1.75 per share, vesting in August, 1999.

The Company has a three year employment agreement with Erich Norton White
(the "White Agreement") to serve as its Executive Vice-president. The White
Agreement, which extends through April, 2000, provides for an annual base salary
of $100,000. The White Agreement also provides for participation in all benefit
plans maintained by the Company for salaried employees. Mr. White=s Agreement
contains a confidentiality provision and an agreement by Mr. White not to
compete with the Company upon the expiration of the White Agreement.

The Company has not established long-term incentive plans or defined
benefit or actuarial plans.

26
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information at December 17, 1998,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company who owns beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each executive officer of the Company and (iv) all executive officers and
directors of the Company as a group. As of December 17, 1998, there were
6,547, 453 shares of Common Stock outstanding.

<TABLE>
<CAPTION>
Name and Number of Title of Percent
Address Shares Class of Class
- ------------------------------ ---------------- ------------ ----------
<S> <C> <C> <C>
Robert L. Watters
3113 Bering
Houston, Texas 77057 1,769,500 (1,4) Common Stock 27.1%

Erich Norton White
3113 Bering
Houston, Texas 77057 43,750 (1,2,4) Common Stock 0.6%

Scott C. Mitchell
820 Gessner ,Suite 1380
Houston, Texas 77024 13,750 (1,3,4) Common Stock 0.2%

Martin Sage
1714-A Nantucket
Houston, Texas 77057 3,750 (1,3,4) Common Stock 0.1%

Eric Langan
3113 Bering
Houston, Texas 77057 402,811 (1) Common Stock 6.2%

Ralph McElroy 817,688 (1,5) Common Stock 12.5%
1211 Choquette
Austin, Texas, 78757

All directors and officers as
a group (five (5) persons) 2,233,534 Common Stock 34.1%
<FN>
___________________
(1) Messrs. Watters, White, Langan, Mitchell, Sage and McElroy have sole
voting and investment power with respect to the shares shown as beneficially owned
by them.

27
<PAGE>
(2) Includes options to purchase 28,750 shares at an exercise price of $3.00
per share, which are presently exercisable; includes an option to purchase 15,000
shares at an exercise price of $2.50 per share which is presently exercisable; and
does not include options to purchase an additional 1,250 shares at an exercise
price of $3.00 per share, which will not become exercisable within the next 60
days.

(3) Includes options to purchase 3,750 shares at an exercise price of $3.00 per
share, which are presently exercisable; and does not include option to purchase
1,250 shares at an exercise price of $3.00 per share which will not become
exercisable within the next 60 days. Does not include options to purchase 20,000
shares which will not become exercisable within the next 60 days.

(4) Does not include options to purchase 20,000 shares which will not become
exercisable within the next 60 days.

(5) Includes 133,091 shares of common stock issuable upon conversion of a
convertible debenture. This debenture is currently convertible at a conversion
price of $2.75 per share and has a face amount of $366,000. Also includes 104,270
shares of common stock issuable upon conversion of a convertible debenture Taurus
of which the Company is a guarantor. This debenture is currently convertible at a
conversion price of $2.75 per share and has a face amount of $$286,744.
</TABLE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Prior to the Company's reorganization, the Company, as a privately-held
company engaged in certain business transactions with Mr. Watters, its sole
stockholder. These transactions are described below. The Board of Directors of
the Company has adopted a policy that Company affairs will be conducted in all
respects by standards applicable to publicly-held corporations and that the
Company will not enter into any future transactions and/or loans between the
Company and its officers, directors and 5% shareholders unless the terms are no
less favorable than could be obtained from independent, third parties and will
be approved by a majority of the independent, disinterested directors of the
Company. In the Company's view, all of the transactions described below
involving the Company meet this standard.

The Company was organized in 1994 to acquire all of the outstanding common
stock of Trumps, Inc. ("Trumps"), a Texas corporation formed in 1982, from
Robert L. Watters, its sole stockholder. The Company issued to Mr. Watters
1,750,000 shares of its common stock in exchange for the common stock of Trumps.
This exchange, which resulted in Trumps becoming a wholly owned subsidiary of
the Company, was consummated in February 1995. The transaction was entered as
part of a corporate reorganization, the result of which was to create the
Company as a holding company for Trumps.

28
<PAGE>
In August, 1995, the Board of Directors of the Company authorized the
acquisition from Mr. Watters of all of the capital stock of Tantric Enterprises,
Inc., Tantra Dance, Inc., and Tantra Parking, Inc. (collectively "Tantra"). The
Company issued to Mr. Watters 50,000 shares of its common stock in exchange for
the stock of Tantra. The exchange was consummated in September, 1995. The
Tantra companies own and operate Tantra, a non-sexually oriented discotheque and
billiard club in Houston, Texas. The Board of Directors determined that the
combination of the business operations of Tantra and the Company will create a
synergy which will enhance the profitability of both businesses. Moreover, the
diversification of the Company's operations into the business of Tantra is
anticipated to enhance the public image of the Company. The Board of Directors
has received an opinion of an independent third-party appraiser that the terms
of the transaction are fair and reasonable to the Company and are at least as
favorable to the Company as would be the case between unrelated parties. Mr.
Watters had no cost basis in the stock of Tantra.

In 1998, Mr. Watters loaned $121,000 to the Company. This loan is
evidenced by a demand promissory note which bears interest at 12% per annum.

During the Company's fiscal years ending 1998 and 1997, the Company paid
$33,000 and $20,090, respectively, for accounting services to accounting firms
in which Mr. Mitchell, a director of the Company, was a principal.

In August, 1998, the Company acquired approximately 93% of the outstanding
common stock of Taurus Entertainment Companies, Inc. ("Taurus") in a private
stock exchange transaction with the certain principal stockholders of Taurus,
among whom were Eric Langan and Ralph McElroy. The Stock Exchange Agreement
provided that the Company exchange one share of its common stock for each three
and one-half shares of Taurus common stock owned by certain principal
shareholders of Taurus. As a result of the Exchange, Mr. Langan received
402,146 shares of common stock of the Company, and Mr. McElroy received 393,389
shares of common stock the Company. The terms and conditions of the Exchange
were determined by the parties through arms length negotiations.

29
<PAGE>
In a transaction simultaneous to the acquisition of Taurus, the Company
acquired certain real estate in San Antonio, Texas from Mr. McElroy. The
Company acquired the property from Mr. McElroy for the same price that Mr.
McElroy paid for the property. The Company financed the purchase of the
property by the issuance of a six year $366,000 Convertible Debenture, secured
by the real estate acquired. The Convertible Debenture bears interest at the
rate of 12% per annum, with interest payable monthly. Interest payments began
in September, 1998. The principal balance of the Convertible Debenture is due
in one lump sum payment in July, 2004. The Convertible Debenture is subject to
redemption at the option of the Company, in whole or in part, at 100% of the
principal face amount of the Convertible Debenture redeemed plus any accrued and
unpaid interest on the redemption date, at any time and from time to time, upon
not less than 30 nor more than 60 days notice, if the Closing Price of the
common stock of the Company shall have equaled or exceeded $8.50 per share of
common stock for ten (10) consecutive trading days. The Convertible Debenture is
convertible into shares of Common Stock at any time prior to maturity (unless
earlier redeemed) at the Conversion Price of $2.75 per share. In the event that
the Company files a Registration Statement to register shares of its Common
Stock with the Securities and Exchange Commission (ASEC@) on Form S-3 or other
similar form (except for Form S-8 or Form S-4) than the Company will undertake
to use its best efforts to register for resale all of
Mr. McElroy=s shares into which the Convertible Debenture may be converted under
the same Registration Statement.

In a transaction simultaneous to the acquisition of Taurus, Taurus acquired
certain real estate in Houston, Texas from Mr. McElroy. Taurus acquired the
property from Mr. McElroy for the same price that Mr. McElroy paid for the
property. The Company financed the purchase of the property by the issuance of
a six year $286,744 Convertible Debenture, secured by the real estate acquired.
The Company is a guarantor of this Convertible Debenture. The Convertible
Debenture bears interest at the rate of 12% per annum, with interest payable
monthly. Interest payments began in September, 1998. The principal balance of
the Convertible Debenture is due in one lump sum payment in July, 2004. The
Convertible Debenture is convertible into shares of Common Stock of the Company
at any time prior to maturity at the Conversion Price of $2.75 per share. In
the event that the Company files a Registration Statement to register shares of
its Common Stock with the Securities and Exchange Commission (ASEC@) on Form S-3
or other similar form (except for Form S-8 or Form S-4) than the Company will
undertake to use its best efforts to register for resale all of Mr. McElroy=s
shares into which the Convertible Debenture may be converted under the same
Registration Statement.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

30
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Identification of Exhibit
<C> <S>
3.1 * The Company's Articles of Incorporation, which are incorporated by
reference to the Company's Form SB-2 Exhibit 3.1 as effective with the Commission
on October 12, 1995.

3.2 * The Company's By-laws, which are incorporated by reference to the Company's Form
SB-2 Exhibit 3.2 as effective with the Commission on October 12, 1995.

4.1 * Specimen of the Company's common stock certificate, which is incorporated by
reference to the Company's Form SB-2 Exhibit 4.1 as effective with the Commission
on October 12, 1995.

4.2 * Instruments defining the rights of security holders, which are incorporated by
reference to the Company's Form SB-2 Exhibit 4.2 as effective with the Commission
on October 12, 1995.

4.3 * Form of Debenture, which is incorporated by reference to the Company's Form 8-K
dated August 11, 1998 Exhibit 4.1.

10.1 * Form of Stock Exchange Agreement With Certain Taurus Holders, which is
incorporated by reference to the Company's Form 8-K dated August 11, 1998 Exhibit
10.1.

10.2 ** Employment Agreement with Robert L. Watters

10.3 ** Employment Agreement with Erich Norton White.

21.1 ** Subsidiaries

27.1 ** Financial Data Schedule
<FN>
______________________
* Incorporated by reference
** Filed herewith
</TABLE>

(b) Reports on Form 8-K.

The Company filed a report on Form 8-K dated August 11, 1998 which reported
the acquisition of assets and other events.

SIGNATURES

31
<PAGE>
In accordance with the requirements of Section 13 of 15(d) of the Exchange
Act, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 23nd day of December 1998.

RICK'S CABARET INTERNATIONAL, INC.

By: /s/ ROBERT L. WATTERS
------------------------
Robert L. Watters, Chairman of the Board,
Chief Executive Officer

Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ------------------------ -----------------
<S> <C> <C>
/s/ ROBERT L. WATTERS Chairman of the Board, December 23, 1998
- -------------------------
Robert L. Watters Chief Executive Officer,
Chief Accounting Officer,
and Director

/s/ ERICH NORTON WHITE Director and Executive December 23, 1998
- -------------------------
Erich Norton White Vice President

/s/ ERIC LANGAN Director and December 28, 1998
- -------------------------
Eric Langan Vice-President-Systems,
Marketing and Promotion

/s/ SCOTT C. MITCHELL Director December 23, 1998
- -------------------------
Scott C. Mitchell

/s/ MARTIN SAGE Director December 23, 1998
- -------------------------
Martin Sage
</TABLE>

32
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
AUDITED FINANCIAL INFORMATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

- ----------------------------------------------------------
<S> <C>
Independent Auditor's Report . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets for the years ended
September 30, 1998 and 1997. . . . . . . . . . . . . . . . F-3

Consolidated Statements of Operations for the years ended
September 30, 1998 and 1997. . . . . . . . . . . . . . . . F-4

Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 1998 and 1997. . . . . . F-5

Consolidated Statements of Cash Flows for the years ended
September 30, 1998 and 1997. . . . . . . . . . . . . . . . F-6

Notes to Consolidated Financial Statements . . . . . . . . F-7
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Rick's Cabaret International, Inc.

We have audited the accompanying consolidated balance sheets of Rick's Cabaret
International, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rick's
Cabaret International, Inc. and subsidiaries as of September 30, 1998 and 1997,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.

Jackson & Rhodes P.C.

Dallas, Texas
November 13, 1998

F-2
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997

ASSETS

1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 597,644 $ 357,410
Accounts receivable 58,023 29,695
Inventories 94,633 61,953
Prepaid expenses 34,876 57,413
Land held for sale 569,069 815,652
------------
Total current assets 1,354,245 1,322,123
------------ ------------

Property and equipment:
Buildings, land and leasehold improvements 9,851,798 5,285,119
Furniture and equipment 1,609,031 1,188,800
------------ ------------
11,460,829 6,473,919

Less accumulated depreciation (1,213,557) (813,853)
------------ ------------

10,247,272 5,660,066
------------ ------------

Other assets:
Goodwill, less accumulated amortization of $91,924 3,154,804 -
Other 112,025 165,504
------------ ------------
3,266,829 165,504
------------ ------------
$14,868,346 $ 7,147,693
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt (Note 4) $ 718,636 $ 398,798
Accounts payable - trade 1,179,410 649,618
Accrued expenses 344,032 166,365
------------ ------------
Total current liabilities 2,242,078 1,214,781

Long-term debt, less current portion (Note 4) 6,015,903 1,754,175
------------ ------------

Total liabilities 8,257,981 2,968,956
------------ ------------

Commitments and contingencies (Note 7) - -

Minority interests 11,896 -

Stockholders' equity (Notes 1 and 9):
Preferred stock - $.10 par, authorized
1,000,000 shares; none issued - -
Common stock - $.01 par, authorized
15,000,000 shares; issued 6,467,353 and 4,114,922 64,673 41,149
Additional paid-in capital 8,941,378 5,940,306
Retained earnings (deficit) (2,407,582) (1,802,718)
------------ ------------
Total stockholders' equity 6,598,469 4,178,737
------------ ------------
$14,868,346 $ 7,147,693
============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Sales of alcoholic beverages $ 4,028,988 $ 3,192,356
Sales of food 515,821 563,281
Service revenues 3,010,999 2,184,002
Other 275,723 337,940
------------ ------------

7,831,531 6,277,579
------------ ------------

Operating expenses:
Cost of goods sold 1,102,556 1,197,416
Salaries and wages 2,653,558 2,123,131
Other general and administrative:
Taxes and permits 831,388 705,516
Charge card fees 160,474 122,324
Rent 395,038 341,509
Legal and accounting 355,186 307,038
Advertising 488,224 774,548
Other 2,065,934 1,775,240
------------ ------------

8,052,358 7,346,722
------------ ------------

Loss from operations (220,827) (1,069,143)

Interest expense (384,037) (160,784)
------------ ------------

Loss before income taxes and cumulative effect
of accounting change (604,864) (1,229,927)

Income taxes (benefit) (Note 5) - (87,735)
------------ ------------

Loss before cumulative effect of accounting change (604,864) (1,142,192)

Cumulative effect of change in accounting for preopening
costs - no income tax effect - (151,138)
------------ ------------

Net loss $ (604,864) $(1,293,330)
============ ============

Loss per common share:
Before cumulative effect of change in accounting (0.14) (0.30)
Effect of accounting change - (0.03)
------------ ------------

Loss per common share $ (0.14) $ (0.33)
============ ============

Weighted average shares outstanding 4,338,034 4,114,922
============ ============

Proforma amounts assuming the new accounting method
is applied retroactively:
Net loss $(1,217,809)
============

Net loss per share $ (0.30)
============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

Common Stock Additional Retained
-------------------
Number of Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1996 4,068,077 $ 40,681 $5,788,528 $ (509,388) $ 5,319,821

Sale of common stock for cash 46,845 468 151,778 - 152,246

Net income (loss) - - - (1,293,330) (1,293,330)
--------- -------- ---------- ------------ ------------

Balance, September 30, 1997 4,114,922 41,149 5,940,306 (1,802,718) 4,178,737

Acquisition of Taurus Entertainment
Companies, Inc. 1,443,426 14,434 1,993,316 - 2,007,750

Acquisition of Minnesota property 147,632 1,476 180,667 - 182,143

Shares issued for accounts payable 44,000 440 59,263 - 59,703

Sales of common stock for cash 717,373 7,174 767,826 - 775,000

Net income (loss) - - - (604,864) (604,864)
--------- -------- ---------- ------------ ------------

Balance, September 30, 1998 6,467,353 $ 64,673 $8,941,378 $(2,407,582) $ 6,598,469
========= ======== ========== ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997

1998 1997
------------ ------------
<S> <C> <C>
Net loss $ (604,864) $(1,293,330)

Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 440,055 311,464
Cumulative effect of accounting change - 151,138
Minority interest (6,826) -
Loss on sale of land 33,650
Other 15,169
Changes in assets and liabilities:
Accounts receivable (56,975) 43,836
Inventories (31,935) (14,333)
Prepaid expenses and other assets 126,620 (150,207)
Accounts payable and accrued liabilities 512,278 218,894
Income taxes payable/receivable - 187,770
------------ ------------
Net cash provided (used) by operating activities 427,172 (544,768)
------------ ------------

Cash flows from investing activities:
Additions to property and equipment and goodwill (1,089,467) (4,321,541)
Proceeds from sale of land 782,002 -
------------ ------------
Net cash used by investing activities (307,465) (4,321,541)
------------ ------------

Cash flows from financing activities:
Common stock issued, less offering costs 775,000 152,246
Increase in long-term debt - 2,070,332
Payments on long-term debt (654,473) (148,862)
------------ ------------
Net cash provided by financing activities 120,527 2,073,716
------------ ------------

Net increase (decrease) in cash 240,234 (2,792,593)

Cash at beginning of year 357,410 3,150,003
------------ ------------

Cash at end of year $ 597,644 $ 357,410
============ ============

Cash paid during the period for:
Interest $ 380,560 $ 151,338
============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997

1. ORGANIZATION

Rick's Cabaret International, Inc. (the "Company") was formed in December
1994, to acquire all the outstanding capital stock of Trumps Inc.
("Trumps"), a company owned 100% by the Company's sole stockholder. On
October 13, 1995, the Company completed its public offering of 1,840,000
shares of common stock. The proceeds from the sale of stock amounted to
approximately $4,270,000 net of underwriting discounts, commissions and
expenses of the offering. The Company originally owned a premiere adult
nightclub offering topless entertainment and restaurant and bar operations
and a non-sexually oriented bar in Houston, Texas. The Company opened
another premier adult nightclub in leased facilities on Bourbon Street in
New Orleans, Louisiana in January 1997, and during the year ended September
30, 1998, the Company opened another premier adult nightclub in a facility
purchased in Minneapolis, Minnesota. Also during the year ended September
30, 1998, the Company acquired approximately 93% of the outstanding common
stock of Taurus Entertainment Companies, Inc. ("Taurus"), a publicly held
company which also owns adult nightclubs (see Note 3). In December 1998,
the Company will open a fourth premier adult nightclub in north Houston,
located near George Bush Intercontinental Airport in premises leased from a
subsidiary of Taurus.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty. The Company has reported net losses of
$570,864 and $1,293,330 for the years ended September 30, 1998 and 1997 and
net cash resources were used in operating activities for each year. The
following is a summary of management's plan to raise capital and generate
additional operating funds.

Management has instituted plans to both increase the profitability of each
operating unit in the company as well as to place non-income producing
assets of the company on the market for sale. Management believes that
these actions will enable the company to operate the company from the
company's internally generated funds. Scheduled principal payments in the
fiscal year ending September 30, 1999 will be $107,000 less than in the
year ended September 30, 1998 and interest expense will also be reduced.
Steps have been taken in the original Houston operation to restore
profitability by reductions in management expense and increase in local
promotions. Management believes that the profitability of the New Orleans
operation will remain strong.

F-7
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of Presentation

Management also believes that the Minneapolis operation will continue to
increase its sales and will become profitable and that the new location
opened in December 1998 in north Houston will quickly become profitable.
The Company has no present plans for expansion in the fiscal year ending
September 30, 1999 that will require additional cash.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany balances
and transactions are eliminated in consolidation.

Net Loss Per Common Share

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128").
SFAS 128 provides a different method of calculating earnings per share than
was formerly used in APB Opinion 15. SFAS 128 provides for the calculation
of basic and diluted earnings per share. Basic earnings per share includes
no dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding
for the period. Dilutive earnings per share reflects the potential dilution
of securities that could share in the earnings of the Company. The Company
was required to adopt this standard in the fourth quarter of calendar 1997.
Because the Company's potential dilutive securities are antidilutive, the
accompanying presentation is only of basic loss per share.

Use of Estimates and Assumptions

Preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.

Inventories

Inventories, consisting principally of liquor and food products, are stated
at the lower of cost or market (first-in, first-out method).

Cash Equivalents

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.

F-8
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

Property and equipment are stated at cost. Cost of property renewals and
betterments are capitalized; costs of property maintenance and repairs are
charged against operations as incurred. Depreciation is computed using the
straight-line method over the estimated useful lives of the individual
assets, as follows:

Building and improvements 31 years
Equipment 5-7 years
Leasehold improvements 40 years

Revenue Recognition

The Company recognizes all revenues at point-of-sale upon receipt of cash,
check or charge sale. This includes VIP Room Memberships, since the
memberships are non-refundable and the Company has no material obligation
for future performance.

Income Taxes

The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which reflects an asset and
liability approach in accounting for income taxes. The objective of the
asset and liability method is to establish deferred tax assets and
liabilities for the temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities at enacted
tax rates expected to be in effect when such amounts are realized or
settled.

Change in Accounting Principle - Preopening Costs

During the year ended September 30, 1997, the Company has changed its
method of accounting for preopening costs for new locations from the
deferral method to directly expensing the costs in the period in which they
were incurred. Management believes that the direct expense method is
preferable because it does not subject future periods to losses resulting
from estimates of future recoverability and more reasonably matches costs
with revenues.

The change in accounting principle resulted in an increase in net loss of
$151,138 for the year ended September 30, 1997, reflecting the cumulative
effect of this change for the periods prior to 1997. The effect of the
change on the net loss before cumulative effect of the accounting change is
an increase of approximately $312,000.

F-9
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising Costs

During 1997, the Company deferred costs of approximately $101,000 which
represents expenditures incurred to develop a new advertising campaign
which will be used in other locations during the next eighteen months.
These costs are for logo design, artwork and ad layouts, a photographic
library and the associated creative fees. These costs are being amortized
over eighteen months. Amortization amounted to approximately $49,000 and
$52,000 during the years ended September 30, 1998 and 1997, respectively.

3. ACQUISITION

On August 11, 1998, the Company acquired approximately 93% of the
outstanding common stock of Taurus Entertainment Companies, Inc. ("Taurus")
for 1,143,426 shares of common stock. This acquisition has been accounted
for using the purchase method of accounting. Accordingly, the accompanying
financial statements include the operations of Taurus from the date of
acquisition. Under purchase accounting, the total purchase price was
allocated to the tangible and intangible assets and liabilities of Taurus
based upon their respective estimated fair values as of the closing date
based upon valuations and other analyses. The estimated purchase price and
preliminary adjustments to the historical book value of Taurus are as
follows:

<TABLE>
<CAPTION>
Purchase price, based on value
of common stock issued (including 300,000
<S> <C>
shares issued as a commission on the transaction) $2,007,750
Book value of net assets acquired (174,176)
-----------

Purchase price in excess of net assets acquired $1,833,574
===========

Allocation of purchase price in excess of
net assets acquired:

Increase in property, plant and equipment to
fair market value $1,031,000
Goodwill 802,574
-----------

Total $1,833,574
===========
</TABLE>

The following unaudited pro forma consolidated information for the years
ended September 30, 1998 and 1997 give effect to the transaction as if it
had occurred at the beginning of each year. The unaudited pro forma
consolidated information is presented for informational purposes only and
is not necessarily indicative of the results

F-10
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. ACQUISITION (CONTINUED)

of operations that would have been achieved had the transaction been completed
as of the beginning of each year, nor are they indicative of the Company's
future results of operations.

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues $10,947,305 $ 8,037,965
------------ ------------
Loss before cumulative effect of
accounting change $(1,166,340) $(1,293,407)
------------ ------------
Net loss $(1,166,340) $(1,444,545)
------------ ------------
Net loss per common share $ (0.23) $ (0.28)
------------ ------------
</TABLE>

A facility in downtown Minneapolis, Minnesota was purchased in November
1997, and renovated. The facility cost approximately $3,000,000: $200,000
cash at closing, 95,000 shares of Company common stock, a 10% note payable
of $200,000 due in eighteen months and the balance of $2,500,000 in a 10%
note with a twenty-year amortization, maturing in 2007 (see Note 4). The
acquisition resulted in recording goodwill in the amount of approximately
$2,423,000. The Company also issued 52,632 shares for related costs. The
Company opened the location for business in March 1998. The Minneapolis
facility had previously been operated as an adult entertainment venue.
Because the Company did not buy a business in the transaction, no pro forma
information is available.

4. LONG-TERM DEBT

Following is a summary of long-term debt at September 30:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Note payable to a bank, payable $10,000 per month,
plus interest at 8.5%, collateralized by all assets of
the Companysubsidiary, RCI Entertainment
Louisiana, Inc. $ 117,749 $ 231,904

Note payable to a bank, payable $9,919 per month,
including interest at 8.5%, matures July 2002,
collateralized by all assets of the Company
subsidiary, RCI Entertainment Louisiana, Inc. 740,427 793,159

Note payable to a bank, payable $13,434 per month,
including interest at the prime rate plus 1%, matures
December 2001, collateralized by land and building
in Houston, Texas. 562,308 960,260

F-11
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. LONG-TERM DEBT (CONTINUED)

1998 1997
----------- -----------
12% convertible debenture, payable monthly (interest
only) until maturity July 2004. See Note 9. $ 364,000 $ -

10% note payable to an individual, payable $12,314
per month, including interest, matures August 1999. 128,922 -

9% notes payable to an individual, monthly payments
aggregating $22,732, including interest, maturing in
2018. Collateralized by real estate in Minneapolis,
Minnesota. See Note 3. 2,499,364 -

Note payable to partnership maturing March 2026,
due in monthly installments of $576 including principal
and interest at 12%; collateralized by real estate. 55,443 -

Note payable to partnership maturing July 2007,
due in monthly installments of $653 including principal
and interest at 12%; collateralized by real estate. 62,868 -

Note payable to corporation maturing December 2000,
due in monthly principal installments of $2,000 plus
interest at 9%; collateralized by real estate. 147,854 -

Note payable to individual maturing July 2004,
due in monthly installments of $2,868 including principal
and interest at 12%; collateralized by real estate. 286,745 -

Note payable to individual maturing March 2006,
due in monthly installments of $2,573, plus interest at
9.25%; collateralized by real estate. 310,455 -

Note payable to corporation maturing April 2002,
due in monthly installments of $13,758 including
principal and interest at 10%; collateralized by real estate. 528,970 -

F-12
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. LONG-TERM DEBT (CONTINUED)

1998 1997
----------- -----------
Note payable to a financing company maturing
August 2003, due in monthly installments of $5,380,
including interest at 10%, collateralized by real estate 556,566 -

Various notes, at interest rates ranging from 6% to 12%,
payable in monthly installments, including interest,
aggregating approximately $8,500, collateralized by
real estate. 372,868 167,650
----------- -----------
6,734,539 2,152,973
Less current maturities (718,636) (398,798)
----------- -----------
$6,015,903 $1,754,175
=========== ===========
</TABLE>

Substantially all the Company's assets are pledged to secure the above
debt. The prime rate was 8.5% at September 30, 1998. Following are the
maturities of long-term debt for the years ending September 30:

<TABLE>
<CAPTION>
<S> <C>
1999 $ 718,636
2000 581,698
2001 524,900
2002 481,110
2003 669,870
Thereafter 3,758,325
----------
$6,734,539
==========
</TABLE>

5. INCOME TAXES

Income tax expense (benefit) consisted of current taxes for 1998 and 1997.
Following is a reconciliation of income taxes (benefit) at the U.S. Federal
tax rate to the amounts recorded by the Company for the years ended
September 30:

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Tax credit on loss before income
taxes at the statutory rate $(384,996) $(418,000)
Separate return limitation - unavailable
loss carrybacks 384,996 330,265
---------- ----------
$ - $ (87,735)
========== ==========
</TABLE>

F-13
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. INCOME TAXES (CONTINUED)

The components of the net deferred tax asset/liability are as follows at
September 30:

<TABLE>
<CAPTION>
<S> <C> <C>
Operating loss carryforwards $(1,139,000) $(476,000)
Deferred tax asset valuation allowance 1,139,000 476,000
------------ ----------
$ - $ -
============ ==========
</TABLE>

For tax purposes, the Company has a net operating loss carryforward
amounting to approximately $3,350,000 which will expire, if not utilized,
beginning in 2012.

6. RELATED PARTY TRANSACTIONS

During 1998 and 1997, the Company paid $33,000 and $20,000, respectively,
for accounting services to an accounting firm in which a director of the
Company was a principal.

Included in accounts payable in the accompanying consolidated balance sheet
is approximately $122,000 payable to the Company's Chief Executive Officer,
the result of his payment of certain expenses principally related to the
Minnesota acquisition.

7. COMMITMENTS AND CONTINGENCIES

Leases

The Company formerly leased its Houston nightclub space from a company
whose ownership was subject to litigation. Ownership was claimed by the
Company's sole stockholder, Mr. Robert Watters, and by a former Company
stockholder. Lease payments were equal to the larger of $10,000 per month
or 5% of gross receipts per month. The lease expired in February 1996, and
the Company began leasing the space on a month-to-month basis. The lease
provided that the Company was obligated to pay for any maintenance to the
premises, to maintain adequate insurance on the building and to pay all
utilities and taxes. Rental expense on the building amounted to $63,000 for
the year ended September 30, 1997. The lawsuit was settled in 1996,
resulting in the former stockholder owning the building. The Company has
purchased the property from the former stockholder.

The Company has entered into an operating lease for a nightclub in New
Orleans, Louisiana. The 39 year lease commenced in May 1996 and is a triple
net lease with the tenant paying taxes, maintenance and insurance. The
lease also requires certain contingent rentals based on revenues at the
nightclub. The Company also leases corporate office facilities. Following
is a schedule of minimum lease payments for the years ending September 30:

<TABLE>
<CAPTION>
<S> <C>
1999 $ 425,445
2000 320,000
2001 300,000
2002 300,000
2003 300,000
Therafter 8,015,000
</TABLE>

F-14
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Concentration of Credit Risk

The Company invests its cash and certificates of deposit primarily in
deposits with major banks. Certain deposits may be in excess of federally
insured limits. The Company has not incurred losses related to its cash on
deposit with banks.

Litigation

In November, 1998, LMTD, Inc. initiated litigation against a subsidiary of
one of the Company's subsidiaries, Citation Land, LLC ("Citation"), in a
case styled LMTD, Inc. v. Texas Warehouse Company, Inc., et al. Cause No.
98-12570, in the 200th Judicial District Court of Travis County, Texas. The
suit seeks specific performance and damages against Texas Warehouse
Company, Inc. regarding a Purchase Option Agreement. Plaintiff also alleges
a tortious interference claim against Citation in the amount of $540,000.
Counsel for Citation intends to file a counterclaim and or cross action at
the time that its answer is due. Counsel for Citation believes that the
exposure to Citation is minimal. The Company intends to vigorously defend
itself in this matter and to deny all allegations.

On October 15, 1998, All City Beverage and Entertainment, Inc. initiated
litigation against one of the Company's subsidiaries in a case styled All
City Beverage and Entertainment, Inc. v. Taurus Entertainment Companies,
Inc.("Taurus"), Cause No. 98- 49119, in the 61st Judicial District Court of
Harris County, Texas. The suit seeks damages in the amount of $25,000 and
175,000 shares of common stock of Taurus in connection with an Asset
Purchase Agreement between All City Beverage and Entertainment, Inc. and
Taurus. Taurus has filed a counter-claim asserting that there were
undisclosed obligations which Taurus was required to pay. The counter-claim
seeks damages in an amount in excess of $25,000. This matter is in the
early stages of litigation and no discovery has taken place. Taurus intends
to vigorously defend itself in this matter.

The Company is also the subject of other routine legal matters in the
ordinary course of business. The Company does not believe that the ultimate
resolution of the above matters will have a material impact on the
Company's financial position or results of operations.

Sexually Oriented Business Ordinance of Houston, Texas

F-15
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Sexually Oriented Business Ordinance of Houston, Texas

businesses. There were no provisions in the Ordinance exempting previously
permitted sexually oriented businesses from the effect of the new
Ordinance. In 1997, the Company was informed that Rick's Cabaret at its
location at 3113 Bering Drive failed to meet the requirements of the
Ordinance and accordingly the renewal of the Company's Business License at
that location was denied. The location in north Houston opened in December,
1998 similarly failed to meet the requirements of the Ordinance as passed.

The Ordinance provided that a business which was denied a renewal of its
operating permit due to changes in distance requirements under the
Ordinance would be entitled to continue in operation for a period of time
(the "Amortization Period") if the owner were unable to recoup, by the
effective date of the Ordinance, its investment in the business that was
incurred through the date of the passage and approval of the Ordinance.

The Company filed a written request with the City of Houston requesting an
extension of time during which the Company could continue operations at its
original location under the Amortization Period provisions of the Ordinance
since the Company was unable to recoup its investment prior to the
effective date of the Ordinance. An administrative hearing (the "Hearing")
was held by the City of Houston to determine the appropriate Amortization
Period to be granted to the Company. At the Hearing, the Company was
granted an amortization period through July 1998. The Company has the right
to appeal any decision of the Hearing official to the district court in the
State of Texas.

In May, 1997, the City of Houston agreed to defer implementation of the
Ordinance until the constitutionality of the entire Ordinance was decided
by court trial. In February 1998 the U.S. District Court for the Southern
District of Texas, Houston, Division, struck down certain provisions of the
Ordinance, including the provision mandating a 1,500 foot distance between
a club and schools, churches and other sexually oriented business, leaving
intact the provision of the 750 foot distance as it existed in the prior
Houston, Texas Ordinance.

There are other provisions in the Houston, Texas Ordinance, such as
provisions governing the level of lighting in a sexually oriented business,
the distance between a customer and dancer while the dancer is performing
in a state of undress and provisions regarding the licensing of dancers
that were upheld which may be detrimental to the business by the Company.
The Company, in concert with other sexually oriented businesses, is
appealing these aspects of the Houston, Texas Ordinance.

The City of Houston and the Company, in concert with other sexually
oriented businesses has appealed the court's rulings. In the event that the
City of Houston is successful in an appeal, the Company's Houston locations
could be out of compliance. Such an outcome could have an adverse impact on
the Company's future.

F-16
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Sexually Oriented Business Ordinance of Houston, Texas

On April 1, 1998, the City of Houston began enforcing certain portions of
the Ordinance, including the distance requirement between a customer and a
dancer while dancing, and the requirement that dancers be licensed. The
City of Houston's enforcement of the recently implemented provisions of the
Ordinance could have an adverse impact on the Rick's location in Houston,
Texas. The current requirement of a three foot distance between a dancer
and a customer could reduce customer satisfaction and could result in fewer
customers at the Houston location. The requirement that a dancer be
licensed may result in fewer dancers working, which could have an adverse
impact on the Houston location. It is unknown what future impact the
enforcement of the Ordinance may have on the Company's Houston locations.

Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies.

The fair value of financial instruments classified as current assets or
liabilities including cash and cash equivalents and notes and accounts
payable approximate carrying value due to the short-term maturity of the
instruments. The fair value of short-term and long-term debt approximate
carrying value base on their effective interest rates compared to current
market rates.

Other

The Company presently has a three year employment agreement with Robert L.
Watters (the "Agreement") to serve as its President and Chief Executive
Officer. The Agreement, which extends through December 31, 2000, provides
for an annual base salary of $300,000. The Agreement also allows for an
annual bonus, at the discretion of the Board of Directors (excluding Mr.
Watters), based upon the financial performance, including evaluation of the
income and earnings of the Company during the year. The Agreement also
provides for participation in all benefit plans maintained by the Company
for salaried employees. The Agreement contains a confidentiality provision
and an agreement by Mr. Watters not to compete with the Company upon the
expiration of the Agreement.

8. EMPLOYEE STOCK OPTION PLAN

The Company has adopted a Stock Option Plan (the "Plan") for employees and
directors. The options granted under this Plan maybe either Incentive Stock
Options, as that term is defined in Section 422A of the Internal Revenue
Code of 1986, as amended, or nonstatutory options taxed under Section 83 of
the Internal Revenue Code of 1986, as amended. The Plan

F-17
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. EMPLOYEE STOCK OPTION PLAN (CONTINUED)

is administered by the Board of Directors or by a Compensation Committee of
the Board of Directors. The Board of Directors has the exclusive power to
select the participants in the Plan, to establish the terms of the options
granted to each participant, provided that all options granted shall be
granted at an exercise price equal to at least 85% of the fair market value
of the Common Stock covered by the option on the grant date and to make all
determinations necessary or advisable under the Plan. A total of 300,000
shares may be optioned and sold under the Company's Stock Option Plan.

During the year ended September 30, 1998 and 1997, options were granted as
follows:

<TABLE>
<CAPTION>
1998 1997
---------------- --------------
<S> <C> <C>
Outstanding at beginning of year 105,000 105,000
Granted 230,000 -
Expired (35,000) -
Exercised - -
Outstanding at end of year 300,000 105,000
---------------- --------------
Exercisable at end of year 50,000 -
---------------- --------------
Exercise price per share $1.875 to $4.75 $3.00 to $4.75
</TABLE>

SFAS 123

In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123 defines a
fair value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt that method
of accounting for all of their employee stock compensation plans. Under the
fair value based method, compensation cost is measured at the grant date
based on the value of the award. However, SFAS 123 also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees."

Under the intrinsic value based method, compensation cost is the excess, if
any, of the quoted market price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.
Entities electing to remain with the accounting in Opinion 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied. The pro forma disclosure
requirements are effective for financial statements for fiscal years
beginning after December 15, 1995. The Company has elected to measure
compensation cost, including options issued, under Opinion 25. The Company
issued no options during the year ended September 30, 1997.

F-18
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. EMPLOYEE STOCK OPTION PLAN (CONTINUED)

Pro forma disclosures as required by SFAS 123 for the fiscal year ended
September 30, 1998 are as follows:

Pro forma net loss $ (634,407)
-----------
Pro forma net loss per share $ (.15)
-----------

The fair value of the awards was estimated at the grant date using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1998: risk-free interest rate of 4.4%; volatility factor of
127%; and an expected life of the awards of one to four years. The weighted
average contractual life of the outstanding options at September 30, 1998
was 4.5 years.

9. STOCKHOLDERS' EQUITY

The Company has outstanding 1,160,000 warrants to purchase its common stock
as a result of its public offering. The warrants are exercisable as
follows: 920,000 at $3.00 per share until October 1998 (expired), 160,000
at $4.35 per share until October 2000 and 80,000 at $4.35 per share until
October 1998 (expired).

The Company acquired certain real estate in San Antonio, Texas under terms
of a 12% subordinated convertible debenture (Note 4). The debenture is
payable monthly, interest only, until maturity in July 2004. The Company
has the option to redeem the debenture, in whole or in part, at its option
if the closing price of the Company's common stock should equal or exceed
$8.50 per share for a period of ten days. The holder of the debenture has
the option to convert any portion of the debenture to common shares of the
Company at the conversion price of $2.75 per share. The debentures are
subordinated to the Company's bank debt and other "Senior Debt", as
defined. The debentures are collateralized by the acquired real estate.

Taurus purchased real estate in Houston, Texas from Ralph McElroy, a
principal stockholder of the Company, where Taurus operates an XTC Cabaret.
The Company acquired the property from Mr. McElroy for the same price that
Mr. McElroy paid for the property. The Company financed the purchase of the
property by the issuance of a six year $286,744 Convertible Debenture,
secured by the real estate acquired. The Company is a guarantor of this
Convertible Debenture. The principal balance of the Convertible Debenture
is due in July, 2004, in one lump sum payment. Interest is due and payable
monthly, with the first interest payment beginning in September, 1998. The
Convertible Debenture is convertible into shares of Common Stock of the
Company at any time prior to maturity at the Conversion Price of $2.75 per
share.

F-19
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. ACCOUNTING DEVELOPMENTS

SFAS 129

Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure ("SFAS 129"), effective for periods
ending after December 15, 1997, establishes standards for disclosing
information about an entity's capital structure. SFAS 129 requires
disclosure of the pertinent rights and privileges of various securities
outstanding (stock, options, warrants, preferred stock, debt and
participating rights) including dividend and liquidation preferences,
participant rights, call prices and dates, conversion or exercise prices
and redemption requirements. Adoption of SFAS 129 has had no effect on the
Company as it currently discloses the information specified.

SFAS 130

In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position are
unaffected by implementation of these new standar Statement of Financial
Accounting Standards (SFAS) 130, "Reporting Comprehensive Income",
establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Results of operations and financial position are
unaffected by implementation of this new standard.

SFAS 131

SFAS 131, "Disclosure about Segments of a Business Enterprise", establishes
standards for the way that public enterprises report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. This accounting
pronouncement will not have an effect on the Company's financial
statements, since the Company only operates in one segment of business, the
operation of adult night clubs.

F-20
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS

EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
<C> <S>
3.1 * The Company's Articles of Incorporation, which are incorporated by
reference to the Company's Form SB-2 Exhibit 3.1 as effective with the Commission
on October 12, 1995.

3.2 * The Company's By-laws, which are incorporated by reference to the Company's Form
SB-2 Exhibit 3.2 as effective with the Commission on October 12, 1995.

4.1 * Specimen of the Company's common stock certificate, which is incorporated by
reference to the Company's Form SB-2 Exhibit 4.1 as effective with the Commission
on October 12, 1995.

4.2 * Instruments defining the rights of security holders, which are incorporated by
reference to the Company's Form SB-2 Exhibit 4.2 as effective with the Commission
on October 12, 1995.

4.3 * Form of Debenture, which is incorporated by reference to the Company's Form 8-K
dated August 11, 1998 Exhibit 4.1.

10.1 * Form of Stock Exchange Agreement With Certain Taurus Holders, which is
incorporated by reference to the Company's Form 8-K dated August 11, 1998 Exhibit
10.1.

10.2 ** Employment Agreement with Robert L. Watters

10.3 ** Employment Agreement with Erich Norton White.

21.1 ** Subsidiaries

27.1 ** Financial Data Schedule
<FN>
______________________
* Incorporated by reference
** Filed herewith
</TABLE>

EMPLOYMENT AGREEMENT
--------------------

THIS EMPLOYMENT AGREEMENT ("Agreement") between Rick's Cabaret International,
Inc., a Texas corporation, having its principal office and place of business in
Houston, Texas (hereinafter referred to as the "Company") and Robert Watters, a
resident of Houston, Texas (hereinafter referred to as the "Employee").

RECITALS:
---------

The Company presently operates Rick's Cabaret in Houston, Texas and Rick's
Cabaret in New Orleans, Louisiana and Tantra in Houston, Texas and the Company
desires to employ the Employee in the capacity of the President and Chief
Executive Officer of the Company to manage the day-to-day operations of the
nightclubs and the Employee desires to be so employed under this Agreement,
subject to the terms, conditions and covenants contained herein.

CONDITIONS OF AGREEMENT
-----------------------

I.
CONSIDERATION
-------------

This Agreement is executed and delivered for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged. The special
training and knowledge acquired or to be acquired by the Employee during
employment are material factors relating to the employment of the Employee
without which the employment relationship would not be commenced. The parties
hereto acknowledge and agree that this Agreement is necessary to protect the
Company's legitimate interests, including, but not limited to, its business
goodwill, trade secrets and other confidential or proprietary information.

II.

TERM OF EMPLOYMENT
------------------

2.1 Term. The Company hereby employs the Employee and the Employee hereby
----
accepts employment with the Company for a term of three (3) years ('Initial
Term") which shall commence on the 15th day of April, 1997 and shall Continue
for the entire Initial Term, subject to earlier termination as provided in this
Agreement.

2.2 Extension of Initial Term. After the expiration of the Initial Term, this
--------------------------
Agreement will he automatically extended for additional and successive one (1)
year periods, unless either party gives written notice to the other at least 30
days prior to the expiration of the Initial Term, or any one year renewal term,
that such

1
<PAGE>
automatic extension shall not occur, in which event Employee's employment shall
terminate upon the expiration of the Initial Term, or such renewal,

III.

DUTIES OF EMPLOYEE
------------------

3.1 Duties. The Employee is hereby employed as President and Chief Executive
-------
Officer of the Company. The Employee's responsibilities for such office shall be
as set forth in the Bylaws of the Company including managing the day-to-day
operations of the Company's business and its ongoing expansion efforts.
Generally, in his capacity as President and Chief Executive Officer of the
Company, the Employee will be primarily responsible for the general supervision,
direction, and control of the Company, subject to the control of the President.
In the discharge of such duties and throughout Employee's employment with
Company, Employee shall, with respect to conduct involving certain matters
including, but not limited to, conflicts of interest, usurpation of corporate
authority, and personal and professional decorum and reputation, comply with (i)
all requirements imposed by the Company upon similarly situated employees of the
Company; (ii) standards generally accepted within the business community
regarding similarly situated persons; and (iii) any relevant legal authority.

3.2 Change in Duties.The duties of Employee shall be those assigned to him from
-----------------
time by the Company and may be changed by the Company from time to time without
resulting in rescission or termination of this Agreement.

3.3 Engaging in Other Employment.The Employee shall devote such productive time,
-----------------------------
ability, and attention to the business of the Company during the term of this
Agreement as is required to fulfill his duties and responsibilities as set forth
in Section 3.1 above. During the period of employment, the Employee further
agrees not to (I) solely or jointly with others undertake or join any planning
for or organization of any business activity competitive with the business
activities of the Company, and (ii) directly or indirectly, engage or
participate in any other activities in conflict with the best interest of the
Company. Notwithstanding anything herein contained to the contrary, the Employee
shall be able to devote such time as he deems reasonably necessary to his own
private investments and affairs, so long as the performance of the Employee
hereunder is not impaired and the covenants contained herein are not violated,

IV.

COMPENSATION TO EMPLOYEE
------------------------

4.1. Monthly Salary. During the Initial Term of this Agreement, the Employee
----------------
shall be entitled to a monthly salary of $25,000.00, less all payroll deductions
and applicable taxes. The time of payment for each installment shall be
consistent with the general business practices of the Company.

2
<PAGE>

4.2 Other CompensationThe Employee understands and agrees that any additional
-------------------
compensation to the Employee (whether a bonus or other form of additional
compensation shall rest in the sole discretion of the Board of Directors (or any
Compensation Committee consisting of members of the Board of Directors) and
shall be based upon the performance of the Company as well as participation in
all benefit plans maintained by the company for salaried employees.

4.3 Review. The Employee, after the initial Term, if still employed by the
-------
Company, shall be reviewed at such times as are consistent with the Company's
general personnel policies.

4.4 Fringe Benefits-Employee Benefits Plan. The Employee shall be entitled to
-----------------------------------------
participate on an equitable basis, as the Board of Directors may, in the
exercise of its discretion deem appropriate, in any stock option plan and any
additional year end or other profit sharing or incentive or deferred
compensation arrangements, whether provided for in stock, cash or otherwise,
which the Company may distribute to or provide for officers and employees
generally, or for a limited or selected group, as well as under any other plans,
benefits, customs or practices now or hereinafter made available to other
executives of the Company, including as examples only, group life insurance and
medical insurance. The Company may terminate, amend or modify any or all such
plans at any time and may choose not to adopt additional plans. The Employee's
rights under any benefits plans now in force or later adopted by the Company
shall be governed solely by their terms.

4.5 Expense Account.The Employee is authorized to incur reasonable and necessary
----------------
expenses directly associated with the promotion of the interests of the Company,
and the performance of his assignments, including expenditures for entertainment
and travel. The Company will reimburse the Employee from time to time for all
such business expenses, upon the Employee's presenting to the Company such
information and support as prescribed by Company policy.

4.6 Holidays and Vacations. The Employee shall be entitled to three (3) weeks
-----------------------
of paid vacation for each year during the term hereof. Additionally, the
Employee shall be entitled to such fully paid holidays as are normally taken by
other full time employees of businesses similar to the Company, and such other
holidays which may be particular to the Employee's religious preference.

4.7 Replacement of Present Contract. This agreement shall replace the contract
--------------------------------
presently in existence between Robert Watters and the Company which commenced on
January 1, 1995 and which expires on December 31, 1997.

LIFE INSURANCE
--------------

3
<PAGE>

At any time during the term of this Agreement, the Company shall have the
right to insure the Employee's life for the Company's sole benefit, and to
determine the amount and type of insurance and type of policy. The Company shall
be required to pay all premiums due on such policies. The Employee shall
cooperate with the Company in taking out insurance by submitting to physical
examination(s), by supplying all information required by the insurance company,
and by executing any and all other necessary documents. The Employee shall incur
no financial obligation by executing the required documents and shall have no
interest in any such policies, except as otherwise provided herein.

V1.

TERMINATION OF EMPLOYMENT
-------------------------

6.1 Termination by the Employee Without Cause. If theemployment of the Employee
------------------------------------------
is terminated by the Employee for any reason other than as set forth in the
other paragraphs of this Article VI (such termination being herein defined as
without cause"), the Employee shall give the Company thirty (30) days written
notice of termination; provided, however, that the Employee shall not be
entitled to terminate his employment with the Company during the initial Term
without cause. Except as otherwise provided for herein, any such termination of
the Employee's employment for any reason whatsoever, whether voluntary or
involuntary, shall not prejudice any other remedy to which any party may be
entitled either at law, in equity, or under this Agreement.

6.2 Termination for Cause by the Company. The Company may "for cause" terminate
-------------------------------------
the employment of the Employee at any time without notice. "For cause" for the
purpose of this Agreement is defined as:

A. The willful and continued failure to substantially perform his duties as
set forth in this Agreement;
B. The breach by the Employee of any of the provisions of this Agreement or
of the covenants contained in Article Vll of this Agreement;
C. If the Employee is convicted of any crime involving moral turpitude;
including without limitation, fraud or embezzlement or similar acts of
dishonesty toward the Company; or

If the Employee is terminated for cause as hereinabove defined, the Company
shall pay to the Employee onlythat compensation specified in Paragraph 6.3
----
below.

6.3 Effect of Termination on Compensation. In the event of the termination of
----------------------------------------
employment by the Company or the Employee for any reason whatsoever, including
resignation or voluntary termination by the Employee, the Employee shall be
entitled to the compensation earned by him including all compensation specified
in Article IV

4
<PAGE>

herein, prior to the date of termination as provided for in this Agreement,
computed pro rata up to and including the date of such termination of
employment. Upon such payment to the Employee, the Company shall be relieved of
further obligation as it relates to this Agreement; however, the Employee shall
still be bound by the covenants and restrictions contained in Article VII below.

VII.

RESTRICTIVE COVENANTS
---------------------

7.1 Definition. The Employee hereby acknowledges that during the course of his
-----------
employment with the Company, he will have access to and will become familiar
with various trade secrets and other proprietary and confidential information
which are owned by the Company and which are used in the operation of the
Company's business. "Trade secrets and other proprietary and confidential
information" consist of, for example, and not intending to be inclusive, (i)
methods of doing business; (ii) financial information, consisting of financial
cost, and sales data and other information; (iii) personnel information (iv)
lists of Customers and accounts, contracts, sales information, pricing list,
vendor and supplier list of the Company; (v) other information of a confidential
nature which must remain confidential for the continuing success of the Company;
and (vi) such other information concerning the business of the Company and the
Company's goodwill.

7.2 Non-Disclosure and Confidentiality Covenants. The Employee acknowledges
---------------------------------------------
that the Company's trade secrets and other proprietary and confidential
information, as they may exist from time to time, are valuable, special and
unique assets of the Company's business. Additionally, Employee acknowledges
that the business goodwill and business contacts of the Company are the sole
property of the Company and are among the Company's most valuable business
property. Therefore, in consideration of the mutual promises herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and to protect the foregoing valuable property of
the Company, the Employee expressly covenants and agrees as follows:

Except as required in the course of his employment with the Company, the
Employee will not, during and after the termination of his employment:

(1) Disclose, directly or indirectly, the Company's trade secrets and
proprietary and confidential information, or any part thereof, to any
person, corporation, association or other entity for any reason or purpose
whatsoever; or

(2) Directly or indirectly use the Company's trade secrets and other
proprietary and confidential information, or any part thereof, for his own
purpose or for his own benefit in any activity of any nature whatsoever.

7.3 Return of Company's Property. The Employee covenants and agrees that, upon
-----------------------------
the

5
<PAGE>

request of the Company or upon termination of employment, the Employee shall
turn over to the Company all files, records, documents, drawings, presentations,
specifications, equipment, disks or other computer media, data, computer
printouts, records, written materials and similar items relating to the business
of the Company, and any other property of the Company in his possession or under
his control. In the event the Employee fails to return the Company's property
when required or requested to do so, the Company may, in addition to any other
remedy provided by law, withhold any amounts due the Employee until full
compliance with this Paragraph 7.3.

7.4 Covenant Not to Compete. So long as the Employee is employed by the Company
------------------------
and for a period of eighteen (18) months after either (i) the voluntary
termination of employment by Employee or (ii) the termination of the Employee by
the Company for cause, as set forth in Section 6.2 hereof, the Employee
specifically agrees that he will not, for himself, on behalf of, or in
conjunction with any person, firm, corporation or entity, other than the Company
(either as principal, employee, shareholder, member, director, partner,
consultant, owner or part owner of any corporation, partnership or any type of
business entity) anywhere in any county in which the Company is doing business
at the time of termination, directly or indirectly, own, manage, operate,
control, be employed by, participate in, or he connected in any manner with the
ownership, management, operation, or control of any business similar to the type
of business conducted by the Company at the time of termination of the
Employee's employment.

7.5 Employee's Acknowledgements and Agreements. The Employee acknowledges and
--------------------------------------------
agrees that:

(1) Due to the nature of the Company's business, the foregoing
covenants place no greater restraint upon the Employee than is reasonably
necessary to protect the business and goodwill of the Company;

(2) These covenants protect a legitimate interest of the Company and
do not serve solely to limit the Company's future competition;

(3) This Agreement is not an invalid or unreasonable restraint of
trade;

(4) A breach of these covenants by the Employee would cause
irreparable damage to the Company;

(5) These covenants will not preclude the Employee from becoming
gainfully employed following termination of employment with the Company;

(6) These covenants are reasonable in scope and are reasonably
necessary to protect the Company's business and goodwill and valuable and
extensive trade which the Company has established through its own expense
and effort;

6
<PAGE>

(7) The signing of this Agreement is necessary for the Employee's
employment; and

(8) He has carefully read and considered all provisions of this
Agreement and that all of the restrictions set forth are fair and
reasonable and are reasonably required for the protection of the interests
of the Company.

7.6 Remedies Injunction. In the event of the Employee's actual or threatened
---------------------
breach provisions of this Agreement, the Employee agrees that the Company shall
be entitled to a temporary restraining order, preliminary injunction and/or
permanent injunction restraining and prohibiting the Employee from violating the
provisions herein. Nothing in this Agreement shall be construed to prohibit the
Company from pursuing any other available remedies for such breach or threatened
breach, including the recovery of damages from the Employee. The Employee
further agrees that for the purpose of any such injunction proceeding, it shall
be presumed that the Company's legal remedies would be inadequate and that the
Company would suffer irreparable harm as a result of the Employee's violation of
the provisions of this Agreement. In any proceeding brought by the Company to
enforce the provisions of this Agreement, no other matter relating to the terms
of any claim or cause of action of the Employee against the Company will be
defense thereto.

7.7 Severability. In the event that any of the provisions of this Agreement are
-------------
held to be invalid or unenforceable in whole or in part, those provisions to the
extent enforceable and all other: provisions shall nevertheless continue to
valid and enforceable as though the invalid or unenforceable parts had not been
included in this Agreement. In the event that any provision relating to the time
period or scope of a restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period or scope such court deems
reasonable and enforceable, then the time period or scope of the restriction
deemed reasonable and enforceable by the court shall become and shall thereafter
be the maximum time period or the applicable scope of the restriction. The
Employee further agrees that such covenants and/or any portion thereof are
severable, separate and independent, and should any specific restriction or the
application thereof, to any person, firm, corporation, or situation be held to
be invalid, that holding shall not affect the remainder of such provisions or
covenants.

VIII.

GENERAL PROVISIONS

7
<PAGE>

in accordance with this Paragraph 8.1 Notices delivered personally shall be
deemed communicated as of actual receipt; mailed notices shall be deemed
communicated as of three (3) days after mailing.

If to Company: Rick's Cabaret International, Inc.
3113 Bering Drive
Houston, Texas 77057

If to Employee: Robert Waiters
3113 Bering Drive
Houston, Texas

8.2 Law Governing Agreement and Venue. This Agreement shall be governed by and
-----------------------------------
construed in accordance with the laws of the State of Texas. This Agreement is
executed in Harris County, Texas. Venue shall be in Harris County, Texas for any
legal proceeding to enforce the terms, conditions or covenants contained herein.

8.3 Attorneys' Fees and Costs. If any action at law or in equity is necessary
---------------------------
to enforce or interpret the terms of this Agreement, the prevailing parties
shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which he may be entitled.

8.4 Contract Terms to be Exclusive. This Agreement Contains the sole and entire
-------------------------------
agreement between the parties and shall supersede any and all other agreements
between the parties with respect to the Employee's employment. The parties
acknowledge and agree that neither of them has made any representation with
respect to the subject matter of this Agreement or any other agreement executed
between them or any representations inducing the execution and delivery hereof
or any other agreement executed between them except such representations as are
specifically set forth herein and each of the parties hereto acknowledges that
he or it has relied on his or its own judgement in entering into the same. The
parties hereto further acknowledge that any statements or representations that
may have heretofore been made by either of them to the other are void and of no
effect and that neither of them has relied thereon in connection with his or its
dealings with the other.

8.5 Waiver or Modification Ineffective Unless in Writing. It is further agreed
-----------------------------------------------------
that no waiver or modification of this Agreement or of any covenant, condition,
or limitation herein contained shall be valid unless in writing and duly
executed by the party to be charged therewith and that no evidence of any waiver
or modification shall be offered or received in evidence in any proceeding or
litigation between the parties hereto arising out of or affecting this
Agreement, or the rights or obligations of any party hereunder, unless such
waiver or modification is in writing, duly executed as aforesaid, and the
parties further agree that the provisions of this paragraph may not be waived as
herein set forth.

8.6 Invalidity of Contract. Should any provision(s) of this Agreement be
-----------------------
declared

8
<PAGE>

invalid or unenforceable by a court of competent jurisdiction, 11 shall he
severed or modified and the remainder of this Agreement shall be enforced in
Iota[ Additionally, if the Employee claims that any provision or covenant
contained herein is invalid or unenforceable, he nevertheless agrees to comply
with such provision or covenant as written until a court of competent
jurisdiction determines the enforceability or validity of such provision or
covenant. or limit. the scope thereof and further agrees to be liable for any
and all damages to the Company pending such determination by the court.

8.7 Assignment The rights and benefits of the Company under this Agreement shall
----------
inure in the benefit of and be binding upon the successors and assigns of the
Company. The rights of the Employee hereunder are personal and nontransferable
except that the rights and benefits hereof shall inure to the benefit of the
heirs, executors and legal representatives of the Employee.

8.8 Gender In all cases where a feminine or masculine pronoun is used it shall
------
be deemed to include the other and as may be applicable to the instant matter.

IN WITINESS WHEREOF, this Agreement has been executed in Houston, Harris
County. Texas, as of the 15 day ______, 1997.
--

COMPANY;

RICK'S CABARET INTERNATIONAL, INC.

By: /s/ Erich N. White
----------------------------------------
ERICH N. WHITE, VICE PRESIDENT

EMPLOYEE:

/S/ ROBERT WATTERS
--------------------
ROBERT WATTERS

9
<PAGE>

EMPLOYMENT AGREEMENT
--------------------

THIS EMPLOYMENT AGREEMENT ("Agreement") between RCT Entertainment (Louisiana),
Inc., a Louisiana corporation, having its principal office and place of business
in New Orleans, Louisiana (hereinafter referred to as the "Company") and Erich
Norton White, a resident of New Orleans, Louisiana (hereinafter referred to as
the "Employee").

RECITALS:
---------

The Company presently operates Rick's Cabaret, a premier adult nightclub
offering topless entertainment in New Orleans, Louisiana and the Company desires
to employ the Employee in the capacity of the General Manager of the Company to
manage the day-to-day operations of the nightclub and the Employee desires to be
so employed under this Agreement, subject to the terms, conditions and covenants
contained herein and as a Vice President Operations of Rick's Cabaret
International, Inc.

CONDITIONS OF AGREEMENT
-----------------------

CONSIDERATION
-------------

II.

TERM OF EMPLOYMENT
------------------

2.1 Term. The Company hereby employs the Employee and the Employee hereby
-----
accepts employment with the Company for a term of three (3) years ("Initial
Term") which shall commence on the 15th day of April, 1997 and shall
continue for the entire Initial Term, subject to earlier termination as
provided in this Agreement.

2.2 Extension of Initial Term. After the expiration of the Initial Term, this
--------------------------
Agreement will he automatically extended for additional and successive one
(1) year periods, unless either party gives written notice to the other at
least 30 days

1
<PAGE>

prior to the expiration of the Initial Term, or any one year renewal term, that
such automatic extension shall not occur, in which event Employee's employment
shall terminate upon the expiration of the Initial Term, or such renewal.

III.

DUTIES OF EMPLOYEE
------------------

3.1 Duties. The Employee is hereby employed as General Manager of the New
-------
Orleans nightclub and as a Vice President Operations of Rick's Cabaret
International, Inc. The Employee's responsibilities for such office shall be as
directed by the President of Rick's Cabaret International, Inc. and the
President of RCI Entertainment (Louisiana) Inc. and as set forth in the Bylaws
of the Company including managing the day-to-day operations of the Company's
business. Generally, in his capacity as General Manager of the Company, the
Employee will be primarily responsible for the general supervision, direction,
and control of the Company, subject to the control of the President. In the
discharge of such duties and throughout Employee's employment with Company,
Employee shall, with respect to conduct involving certain matters including, but
not limited to, conflicts of interest, usurpation of corporate authority, and
personal and professional decorum and reputation, comply with (i) all
requirements imposed by the Company upon similarly situated employees of the
Company; (ii) standards generally accepted within the business community
regarding similarly situated persons; and (iii) any relevant legal authority.

3.3 Engaging in Other Employment.The Employee shall devote such productive time,
-----------------------------
ability, and attention to the business of the Company during the term of this
Agreement as is required to fulfill his duties and responsibilities as set forth
in Section 3.1 above. During the period of employment, the Employee further
agrees not to (i) solely or jointly with others under-take or join any planning
for or organization of any business activity competitive with the business
activities of the Company, and (ii) directly or indirectly, engage or
participate in any other activities in conflict with the best interest of the
Company. Notwithstanding anything herein contained to the contrary, the Employee
shall be able to devote such time as he deems reasonably necessary to his own
private investments and affairs, so long as the performance of the Employee
hereunder is not impaired and the covenants contained herein are not violated,

IV.

COMPENSATION TO EMPLOYEE
------------------------

4.1. Monthly Salary. During the Initial Term of this Agreement, the Employee
---------------
shall be entitled to a monthly salary of $5,000.00, less all payroll deductions
and applicable taxes.

2
<PAGE>
The time of payment for each installment shall be consistent with the general
business practices of the Company.

4.2 Other CompensationEmployee is hereby granted 25,000 options under the terms
------------------
of the Employee Stock Option Plan of Rick's Cabaret International, Inc. The
options are to purchase stock in Rick's Cabaret International, Inc. at the
closing price on April 11, 1997, minus any discount permitted under the terms of
the Employee Stock Option Plan.

Employee will be entitled to a an annual bonus in the amount of 6% of the net
profitability (before calculation of any allocated US Federal Income Tax) after
an allocation of 30% of the overhead of the parent company, Rick's Cabaret
International, Inc. (which for the purposes of the initial term will be assumed
not to exceed $500,000 for 100% of overhead).

Employee will not be entitled to any bonus in the event that the profitability
of RCI Entertainment (Louisiana) Inc., before computation of any allocated US
federal income tax, is less than $500,000.00. In the event that profitability is
in excess of $500,000.00 then Employee shall be entitled to a bonus equaling 6%
of the entire profitability. Any bonus accruing due shall be paid annually 15
days after the close of the fiscal year.

For the fiscal year ending September 30, 1997 the minimum threshold for
profitability will be $375,000 rather than $500,000.00. Employee shall be
entitled to draw down on any bonus accrued every fiscal quarter of the Company,
to the extent 50% of the accrued bonus.

In the event that Employee's bonus exceeds $30,000 in any fiscal year, the
Company agrees to match the excess with a grant of stock in an identical amount
to the excess (for example if the bonus payable to Employee in the fiscal year
were $70,000 Employee would receive stock valued at $40,000 (valued as at the
end of the relevant fiscal year)).

4.3 Review. The Employee, after the initial Term, if still employed by the
Company, shall be reviewed at such times as are consistent with the Company's
general personnel policies.

4.4 Fringe Benefits-Employee Benefits Plan.The Employee shall be entitled to
------------------------------------------
participate on an equitable basis, as the Board of Directors may, in the
exercise of its discretion deem appropriate, in any stock option plan and any
additional year end or other profit sharing or incentive or deferred
compensation arrangements, whether provided for in stock, cash or otherwise,
which the Company may distribute to or provide for officers and employees
generally, or for a limited or selected group, as well as under any other plans,
benefits, customs or practices now or hereinafter made available to other
executives of the Company, including as examples only, group life insurance and
medical insurance. The Company may terminate, amend or modify any or all such
plans at any time and may choose not to adopt additional plans. The Employee's
rights under any benefits plans now in force or later adopted by the Company
shall be governed solely by their terms.

3
<PAGE>
4.5 Expense Account. The Employee is authorized to incur reasonable and
----------------
necessary expenses directly associated with the promotion of the interests of
the Company, and the performance of his assignments, including expenditures for
entertainment and travel. The Company will reimburse the Employee from time to
time for all such business expenses, upon the Employee's presenting to the
Company such information and support as prescribed by Company policy.

4.6 Holidays and Vacations.The Employee shall be entitled to two (2) weeks of
-------------------------
paid vacation for each year during the term hereof Additionally, the Employee
shall be entitled to such fully paid holidays as are normally taken by other
full time employees of businesses similar to the Company, and such other
holidays which may be particular to the Employee's religious preference.

LIFE INSURANCE
--------------

At any time during the term of this Agreement, the Company shall have the
right to insure the Employee s life for the Company's sole benefit, and to
determine the amount and type of insurance and type of policy. The Company shall
be required to pay all premiums due on such policies. The Employee shall
cooperate with the Company in taking out insurance by submitting to physical
examination(s), by supplying all information required by the insurance company,
and by executing any and all other necessary documents. The Employee shall incur
no financial obligation by executing the required documents and shall have no
interest in any such policies, except as otherwise provided herein.

VI.

TERMINATION OF EMPLOYMENT
-------------------------

6.1 Termination by the Employee Without Cause. If the employment of the Employee
------------------------------------------
is terminated by the Employee for any reason other than as set forth in the
other paragraphs of this Article VI (such termination being herein defined as
without cause"), the Employee shall give the Company thirty (30) days written
notice of termination; provided, however, that the Employee shall not be
entitled to terminate his employment with the Company during the initial Term
without cause. Except as otherwise provided for herein, any such termination of
the Employee's employment for any reason whatsoever, whether voluntary or
involuntary, shall not prejudice any other remedy to which any party may be
entitled either at law, in equity, or under this Agreement.

6.2 Termination for Cause by the Company. The Company may "for cause"
-------------------------------------

4
<PAGE>
terminate the employment of the Employee at any time without notice. "For cause"
for the purpose of this Agreement is defined as:

A. The willful and continued failure to substantially perform his duties as
set forth in this Agreement;
B. The breach by the Employee of any of the provisions of this Agreement or
of the covenants contained in Article VII of this Agreement;
C. If the Employee is convicted of any crime involving moral turpitude;
including without limitation, fraud or embezzlement or similar acts of
dishonesty toward the Company; or
D. If the Employee fails to achieve the minimum profitability goals as set
forth in Paragraph 4.2 of this Agreement in any fiscal year.

If the Employee is terminated for cause as hereinabove defined, the Company
shall pay to the Employee only that compensation specified in Paragraph 6.3
----
below.

6.3 Effect of Termination on Compensation. In the event of the termination of
---------------------------------------
employment by the Company or the Employee for any reason whatsoever, including
resignation or voluntary termination by the Employee, the Employee shall be
entitled to the compensation earned by him including all compensation specified
in Article IV herein, prior to the date of termination as provided for in this
Agreement, computed pro rata up to and including the date of such termination of
employment. Upon such payment to the Employee, the Company shall be relieved of
further obligation as it relates to this Agreement; however, the Employee shall
still be bound by the covenants and restrictions contained in Article VII below.

VII.

RESTRICTIVE COVENANTS
---------------------

7.2 Non-Disclosure and Confidentiality Covenants.The Employee acknowledges
-----------------------------------------------
that

5
<PAGE>
the Company's trade secrets and other proprietary and confidential information,
as they may exist from time to time, are valuable, special and unique assets of
the Company's business. Additionally, Employee acknowledges that the business
goodwill and business contacts of the Company are the sole property of the
Company and are among the Company's most valuable business property. Therefore,
in consideration of the mutual promises herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and to protect the foregoing valuable property of the Company, the
Employee expressly covenants and agrees as follows:

Except as required in the course of his employment with the Company, the
Employee will not, during and after the termination of his employment:

7.3 Return of Company's Property.The Employee covenants and agrees that, upon
-------------------------------
the request of the Company or upon termination of employment, the Employee shall
turn over to the Company all files, records, documents, drawings, presentations,
specifications, equipment, disks or other computer media, data, computer
printouts, records, written materials and similar items relating to the business
of the Company, and any other property of the Company in his possession or under
his control. In the event the Employee fails to return the Company's property
when required or requested to do so, the Company may, in addition to any other
remedy provided by law, withhold any amounts due the Employee until full
compliance with this Paragraph 7.3.

7.4 Covenant Not to Compete.So long as the Employee is employed by the Company
-------------------------
and for a period of six (6) months after either (i) the voluntary termination of
employment by Employee or (ii) the termination of the Employee by the Company
for cause, as set forth in Section 6.2 hereof, the Employee specifically agrees
that he will not, for himself, on behalf of, or in conjunction with any person,
firm, corporation or entity, other than the Company (either as principal,
employee, shareholder, member, director, partner, consultant, owner or part
owner of any corporation, partnership or any type of business entity) anywhere
in any county in which the Company is doing business at the time of termination,
directly or indirectly, own, manage, operate, control, be employed by,
participate in, or he connected in any manner with the ownership, management,
operation, or control of any business similar to the type of business conducted
by the Company at the time of termination of the Employee's employment.

7.5 Employee' Acknowledgements and Agreements.The Employee acknowledges and
---------------------------------------------
agrees that:

6
<PAGE>
(1) Due to the nature of the Company's business, the foregoing covenants
place no greater restraint upon the Employee than is reasonably necessary to
protect the business and goodwill of the Company;

(2) These covenants protect a legitimate interest of the Company and do not
serve solely to limit the Company's future competition;

(3) This Agreement is not an invalid or unreasonable restraint of trade;

(4) A breach of these covenants by the Employee would cause irreparable
damage to the Company;

(5) These covenants will not preclude the Employee from becoming gainfully
employed following termination of employment with the Company;

(6) These covenants are reasonable in scope and are reasonably necessary to
protect the Company's business and goodwill and valuable and extensive trade
which the Company has established through its own expense and effort;

(7) The signing of this Agreement is necessary for the Employee's
employment; and

(8) He has carefully read and considered all provisions of this Agreement
and that all of the restrictions set forth are fair and reasonable and are
reasonably required for the protection of the interests of the Company.

7.6 Remedies Injunction.In the event of the Employee's actual or threatened
---------------------
breach provisions of this Agreement, the Employee agrees that the Company shall
be entitled to a temporary restraining order, preliminary injunction and/or
permanent injunction restraining and prohibiting the Employee from violating the
provisions herein. Nothing in this Agreement shall be construed to prohibit the
Company from pursuing any other available remedies for such breach or threatened
breach, including the recovery of damages from the Employee. The Employee
further agrees that for the purpose of any such injunction proceeding, it shall
be presumed that the Company's legal remedies would be inadequate and that the
Company would suffer irreparable harm as a result of the Employee's violation of
the provisions of this Agreement. In any proceeding brought by the Company to
enforce the provisions of this Agreement, no other matter relating to the terms
of any claim or cause of action of the Employee against the Company will be
defense thereto.

7.7 Severability. In the event that any of the provisions of this Agreement
-------------
are held to be invalid or unenforceable in whole or in part, those provisions to
the extent enforceable and all other: provisions shall nevertheless continue to
valid and

7
<PAGE>
enforceable as though the invalid or unenforceable parts had not been included
in this Agreement. In the event that any provision relating to the time period
or scope of a restriction shall be declared by a court of competent jurisdiction
to exceed the maximum time period or scope such court deems reasonable and
enforceable, then the time period or scope of the restriction deemed reasonable
and enforceable by the court shall become and shall thereafter be the maximum
time period or the applicable scope of the restriction. The Employee further
agrees that such covenants and/or any portion thereof are severable, separate
and independent, and should any specific restriction or the application thereof,
to any person, firm, corporation, or situation be held to be invalid, that
holding shall not affect the remainder of such provisions or covenants.

VIII.

GENERAL PROVISIONS

8.1 Notices. Any notices to be given hereunder by either party to the other may
--------
be effected either by personal delivery in writing or by mail, registered or
certified, postage prepaid with return receipt requested. Mailed notices shall
be addressed to the parties at the addresses set forth below, but each party may
change their address by written notice in accordance with this Paragraph 8.1
Notices delivered personally shall be deemed communicated as of actual receipt;
mailed notices shall be deemed communicated as of three (3) days after mailing.

If to Company: Rick's Cabaret International, Inc.
3113 Bering Drive
Houston, Texas 77057

If to Employee: Erich Norton White
315 Bourbon Street
New Orleans, Louisiana

8.4 Contract Terms to be Exclusive. This Agreement Contains the sole and entire
-------------------------------

8
<PAGE>
agreement between the parties and shall supersede any and all other agreements
between the parties with respect to the Employee's employment. The parties
acknowledge and agree that neither of them has made any representation with
respect to the subject matter of this Agreement or any other agreement executed
between them or any representations inducing the execution and delivery hereof
or any other agreement executed between them except such representations as are
specifically set forth herein and each of the parties hereto acknowledges that
he or it has relied on his or its own judgement in entering into the same. The
parties hereto further acknowledge that any statements or representations that
may have heretofore been made by either of them to the other are void and of no
effect and that neither of them has relied thereon in connection with his or its
dealings with the other.

8.6 Invalidity of Contract. Should any provision(s) of this Agreement be
-------------------------
declared invalid or unenforceable by a court of competent jurisdiction, it shall
be severed or modified and the remainder of this Agreement shall be enforced in
total. Additionally, if the Employee claims that any provision or covenant
contained herein is invalid or unenforceable, he nevertheless agrees to comply
with such provision or covenant as written until a court of competent
jurisdiction determines the enforceability or validity of such provision or
covenant, or limits the scope thereof, and further agrees to be liable for any
and all damages to the Company pending such determination by the court.

8.7 Assignment. The rights and benefits of the Company under this Agreement
-----------
shall inure to the benefit of and be binding upon the successors and assigns of
the Company. The rights of the Employee hereunder are personal and
nontransferable except that the rights and benefits hereof shall inure to the
benefit of the heirs, executors and legal representatives of the Employee.

8.8 Gender. In all cases where a feminine or masculine pronoun is used it shall
-------
be deemed to include the other and as may be applicable to the instant matter.

IN WITNESS WHEREOF, this Agreement has been executed in Houston, Harris
County, Texas as of the _ day of _____, 1997

9
<PAGE>
COMPANY;

RCI ENTERTAINMENT (LOUISIANA), INC.

/S/ ROBERT WATTERS
--------------------
ROBERT WATTERS, PRESIDENT

EMPLOYEE:

BY: /S/ ERICH N. WHITE
--------------------------
ERICH N. WHITE

10
<PAGE>
AMENDMENT TO IMPLOYMENT AGREEMENT

THIS AGREEMENT is made as of the 14th day of May, 1998
---- ---

WHEREAS Erich Norton While and RCI Entertainment (Louisiana) Inc. entered into
an Employment Agreement on the 15th day of April, 1997, and,

WHEREAS both parties wish to amend the Employment Agreement,

NOW THEREFORE, in consideration of the above and in further consideration of the
benefits to both parties arising from he following amendment to the Employment
Agreement. the parties have agreed as follows:

Section 4.1 of the Employment Agreement shall be modified such that the annual
salary of Erich Norton White shall be $100,000 payable in bi-weekly
installments.

Section 4.2 of the Employment Agreement continue in force with no modification.

Section 2.1 of the Employment Agreement shall be modified such that the Initial
Term of the Employment Agreement shall continue until April 14, 2001.

IN WITNESS whereto the parties have signed this Agreement on the date first
above written,

BY: /S/ ERICH N. WHITE
- --------------------------
ERICH N. WHITE

/S/ ROBERT WATTERS
- --------------------------------------------------
ROBERT WATTERS, PRESIDENT
PRESIDENT, RCI ENTERTAINMENT (LOUISIANA), INC.
PRESIDENT, RICK'S CABARET INTERNATIONAL, INC.

11
<PAGE>

Exhibit 21.1 Subsidiaries

Trumps, Inc., a Texas corporation, 100% owned.
Tantric Enterprises, Inc., a Texas corporation, 100% owned.
Tantra Dance, Inc., a Texas corporation, 100% owned.
Tantra Parking, Inc., a Texas corporation, 100% owned.
RCI Entertainment (Texas), Inc., a Texas corporation, 100% owned.
RCI Entertainment (Louisiana) Inc., a Louisiana corporation, 100% owned.
RCI Entertainment (Minnesota), Inc., a Minnesota corporation, 100% owned.
Taurus Entertainment Companies, Inc., a Colorado corporation, 93% owned.
<PAGE>

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