SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended: June 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-26958
RICK'S CABARET INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0037324
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
505 North Belt, Suite 630
Houston, Texas 77060
(Address of principal executive offices, including zip code)
(281) 820-1181
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2)has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Applicable Only to Corporate Issuers
On July 30, 1999, there were 3,547,992 shares of common stock, $.01 par
value, outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and September 30, 1998 (audited)
Consolidated Statements of Operations for the three and nine months
ended June 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1999 and 1998 (unaudited)
Selected Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
6/30/99 9/30/98
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
CASH $ 613,328 $ 597,644
ACCOUNTS RECEIVABLE 309,873 58,023
PREPAID EXPENSES 136,071 34,876
INVENTORIES 82,415 94,633
LAND HELD FOR SALE 569,069 569,069
------------ ------------
TOTAL CURRENT ASSETS 1,710,756 1,354,245
------------ ------------
PROPERTY AND EQUIPMENT
BUILDINGS, LANDS AND LEASEHOLD IMPROVEMENTS 7,788,435 9,851,798
FURNITURE & EQUIPMENT 1,380,325 1,609,031
------------ ------------
9,168,760 11,460,829
ACCUMULATED DEPRECIATION (1,266,959) (1,213,557)
------------ ------------
7,901,801 10,247,272
------------ ------------
OTHER ASSETS
GOODWILL LESS ACCUMULATED AMORTIZATION 3,014,716 3,154,804
OTHER 294,886 112,025
------------ ------------
3,309,602 3,266,829
------------ ------------
$12,922,159 $14,868,346
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT PORTION OF LONG TERM DEBT $ 366,598 $ 718,636
ACCOUNTS PAYABLE - TRADE 401,682 1,179,410
ACCRUED EXPENSES 120,064 344,032
------------ ------------
TOTAL CURRENT LIABILITIES 888,344 2,242,078
LONG TERM DEBT, LESS CURRENT PORTION
LONG-TERM DEBT LESS CURRENT PORTION 4,384,283 6,015,903
------------ ------------
TOTAL LIABILITIES 5,272,627 8,257,981
------------ ------------
COMMITMENTS AND CONTINGENCIES --- ---
MINORITY INTERESTS 15,904 11,896
STOCKHOLDERS' EQUITY
PREFERRED STOCK - $.10 PAR, AUTHORIZED
1,000,000 SHARES; NONE OUTSTANDING --- ---
COMMON STOCK - $.01 PAR, AUTHORIZED
15,000,000 SHARES
ISSUED 3,591,227 AND 3,233,677 35,912 32,337
ADDITIONAL PAID IN CAPITAL 9,537,326 8,973,714
RETAINED EARNINGS (DEFICIT) (1,939,610) (2,407,582)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,633,628 6,598,469
------------ ------------
$12,922,159 $14,868,346
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES
SALES $2,025,907 $2,097,954 $8,440,359 $5,774,362
----------- ----------- ----------- -----------
OPERATING EXPENSES
COST OF GOODS SOLD 274,966 281,520 1,165,671 806,047
SALARIES AND WAGES 785,678 727,953 2,756,267 1,748,195
OTHER GENERAL AND ADMINISTRATIVE
TAXES AND PERMITS 330,446 164,179 1,122,497 531,159
CHARGE CARD FEES 30,763 24,122 123,252 96,163
RENT 14,785 145,551 282,819 437,692
LEGAL AND ACCOUNTING 110,798 59,205 438,595 169,844
ADVERTISING 127,320 197,052 437,974 558,682
PREOPENING COSTS --- 17,634 --- 205,625
OTHER 474,919 498,005 1,619,257 1,246,937
----------- ----------- ----------- -----------
2,149,674 2,115,221 7,946,332 5,800,344
----------- ----------- ----------- -----------
INCOME/(LOSS) FROM OPERATION (123,766) (17,267) 494,027 (25,982)
INTEREST EXPENSE (111,295) (92,217) (421,721) (252,799)
INTEREST INCOME 10,207 740 10,863 5,354
LOSS ON TERMINATION OF LEASE --- --- (219,780) ---
GAIN ON SALE OF SUBSIDIARY --- --- 347,991 ---
----------- ----------- ----------- -----------
NET INCOME/(LOSS) BEFORE (224,855) (108,744) 211,380 (273,427)
EXTRAORDINARY ITEM
EXTRAORDINARY ITEM
GAIN ON FIRE DAMAGE --- --- 256,592 ---
----------- ----------- ----------- -----------
NET INCOME/(LOSS) $ (224,855) $ (108,744) $ 467,972 $ (273,427)
=========== =========== =========== ===========
BASIC NET LOSS PER COMMON SHARE:
INCOME BEFORE EXTRAORDINARY ITEM $(0.07) $ (0.05) $ 0.06 $ (0.13)
EXTRAORDINARY ITEM 0.00 0.00 0.08 0.00
----------- ----------- ----------- -----------
$ (0.07) $ (0.05) $ 0.14 $ (0.13)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,391,227 2,192,930 3,306,219 2,128,590
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET INCOME $ 467,972 $ (273,427)
ADJUSTMENTS TO RECONCILE NET
LOSS TO NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES:
DEPRECIATION 344,345 310,219
LOSS ON SALE OF LAND --- 42,910
GAIN ON FIRE DAMAGE AND DISPOSAL OF ASSETS (247,865) ---
LOSS ON TERMINATION OF LEASE 219,780 ---
GAIN ON SALE OF SUBSIDIARY (347,991) ---
MINORITY INTEREST 4,008 ---
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (251,850) (99,769)
PREPAID EXPENSES (101,195) 16,189
INVENTORIES 12,218 (15,074)
LAND HELD FOR SALE --- ---
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (1,001,696) 109,575
------------ ------------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES (902,274) 90,623
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
CHANGE IN OTHER ASSETS (182,861) 18,502
ADDITIONS TO PROPERTY AND EQUIPMENT 955,506 (1,478,555)
INCREASE IN GOODWILL --- (2,147,000)
PROCEEDS FROM INSURANCE ON FIRE DAMAGE 504,457 ---
PROCEEDS FROM SALE OF SUBSIDIARY 1,057,327 ---
PROCEEDS FROM SALE OF LAND --- 772,742
------------ ------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES 2,334,429 (2,834,311)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
COMMON STOCK ISSUED, LESS OFFERING COSTS 567,187 634,890
INCREASE IN LONG TERM DEBT --- 2,700,000
PAYMENTS ON LONG TERM DEBT (1,983,658) (542,640)
------------ ------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,416,471) 2,792,250
------------ ------------
NET (DECREASE) IN CASH 15,684 48,562
CASH AT BEGINNING OF PERIOD 597,644 357,410
------------ ------------
CASH AT END OF PERIOD $ 613,328 $ 405,972
============ ============
CASH PAID DURING PERIOD FOR:
INTEREST $ 278,477 $ 92,217
============ ============
</TABLE>
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB of Regulation S-B. They do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, except as disclosed
herein, there has been no material change in the information disclosed in the
notes to the financial statements for the year ended September 30, 1998 included
in the Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission. The interim unaudited financial statements should be read
in conjunction with those financial statements included in the Form 10-KSB. In
the opinion of Management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments, have been made.
Operating results for the nine months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending September 30,
1999.
2. FIRE DAMAGE
On December 15, 1998, a fire damaged the adult entertainment facility known as
XTC Cabaret at Gulf Freeway located in Houston, Texas. The Company incurred a
material decline in revenues subsequent to the closure of XTC - Houston. The
insurance settlement resulted in an extraordinary gain of $256,592.
3. TERMINATION OF LEASE
On February 28, 1999, the Company and the Landlord agreed to terminate the lease
of one of the subsidiaries known as Lucky's located in New Orleans, Louisiana.
The transaction resulted in a Loss Company's of $219,780.
4. SALE OF SUBSIDIARY
On March 29,1999, an investment partnership, headed by Eric Langan, President of
Rick's Cabaret International, Inc. ("Company'), and another investor, acquired
all of Robert Watters' 895,000 outstanding shares of stock of the Company (post
reverse split). At the same time, the Company sold one of its subsidiaries, RCI
Entertainment Louisiana, Inc. ("Rick's New Orleans"), which operates a Rick's
Cabaret in New Orleans, Louisiana, to Robert Watters for the purchase price of
$2,200,000, consisting of $1,057,327 in cash, a $652,744 secured promissory
note made by one or the purchasers of Robert Watters' stock, a $326,773 secured
promissory note by Robert Watters, and the cancellation by Robert Watters of the
Company's $163,156 debt to him.
5. REVERSE SPLIT 2 FOR 1
On March 3, 1999, the Company had approved a two-for-one reverse stock split,
which became effective and of record on March 15, 1999. All shares and per
share amounts in the accompanying financial statements have been retroactively
adjusted for the reverse split.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited consolidated financial statements and related notes thereto included
in this quarterly report and in the audited consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contained in the Company's 10-KSB for the year ended
September 30, 1998.
Information Regarding and Factors Affecting Forward Looking Statements
The Company is including the following cautionary statement in this Report
on Form 10-QSB to make applicable and take advantage of the safe harbor
provision of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Words
such as "expects", "anticipates", "estimates", and similar expressions are
intended to identify forward looking statements. Such statements are subject
to risks and uncertainties that could cause actual results to differ materially
from those projected. Certain statements contained in this Report on Form
10-QSB are forward-looking statements and the matters discussed in these
forward-looking statements are subject to risks and uncertainties which could
cause actual results or outcomes to differ materially from those expressed in
the forward-looking statements. The Company's forward-looking statements are
expressed in good faith and are believed by the Company to have a reasonable
basis based on management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that any matter discussed in a forward-looking
statement will ultimately be achieved, or if achieved, will have the same impact
on the Company as discussed in the forward-looking statement. In addition to
those factors already mentioned, other factors which could effect
forward-looking statements are: the impact and implementation of the sexually
oriented business ordinance in the City of Houston; the execution of the
Company's Internet e-commerce strategy, and the availability of acceptable
financing to fund corporate expansion efforts. The Company has no obligation to
update or revise any forward-looking statements to reflect future events.
<PAGE>
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. 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. The Company closed and re-deployed one of its assets, the location of
the former discotheque, Tantra, to serve as its Internet e-commerce media
production studio. Additionally, the Company has adult nightclubs in operation
in Austin, Texas and Minneapolis, Minnesota. The Company owns the original
location of Rick's Cabaret on Bering Drive in Houston, Texas, the location of
the Internet e-commerce media production facility, in Houston, Texas, the Rick's
location in north Houston, Texas located near George Bush Intercontinental
Airport, the XTC Cabaret location in Austin, Texas, and the Rick's location in
Minneapolis, Minnesota. The Company presently has under construction an XTC
location in San Antonio, Texas. Revenues are derived from the sale of liquor,
beer, wine and food, as well as from dancer performances, cover charges and
other income. The Company anticipates that Internet e-commerce will provide
revenues in the future.
In March, 1999, the Company sold its New Orleans club for $2,200,000, of
which $1,057,327 was in cash with the balance in secured promissory notes and
forgiveness of debt. At the same time, the Company reduced its payroll costs
by terminating two executive employment agreements. The Company plans to
utilize these funds and the expected payroll savings to open the XTC Cabaret
facility in San Antonio, Texas and to operate an Internet e-commerce adult
website and Internet media production studio.
With the starting of construction on dancerdorm.com, the Company is also
investigating several adult internet companies as acquisition candidates. The
Company anticipates revenues from its e-commerce site to begin in the
1st quarter of fiscal 2000.
On August 12, 1999, the Company had the grand opening of XTC Cabaret in San
Antonio, Texas. The increase in revenues from this new location is expected
to outweigh its related overhead costs.
Results of Operations
The Three Months Ended June 30, 1999
Compared to the Three Months Ended June 30, 1998
For the three months ended June 30, 1999, the Company had consolidated
total revenues of $ 2,025,907 compared to consolidated total revenues of $
2,097,954 for the three months ended June 30, 1998, or a decrease of $ 72,047.
The decrease in total revenues was due to the sale of the New Orleans location
in March, 1999.
The cost of goods sold for the three months ended June 30, 1999 was 13 % of
<PAGE>
total revenues compared to 13 % for the three months ended June 30, 1998.
Payroll and related costs for the three months ended June 30, 1999 were $
785,678 compared to $ 727,953 for the three months ended June 30, 1998. The
increase was a reflection of the additional personnel experienced by the company
as it adds more locations. Management currently believes that its labor and
management staff levels are of appropriate levels.
Other selling, general and administrative expenses for the three months
ended June 30, 1999 were $ 1,089,030 compared to $ 1,105,748 for the three
months ended June 30, 1998. The decrease was primarily due to the decrease in
advertising, rent and other general and administrative costs.
Interest expense for the three months ended June 30, 1999 was $ 111,295
compared to
$ 92,217 for the three months ended June 30, 1998. The increase was
attributable to interest expenses arising from the acquisitions of additional
Company owned real estate.
Net loss for the three months ended June 30, 1999 was $ 224,855 compared to
a net loss of $ 108,744 for the three months ended June 30, 1998. The increase
in loss was due to the decrease in revenue from the sale of the New Orleans
location, increase in legal and accounting costs associated with such sale,
costs associated with the Company entering e-commerce business, and losses
associated with the seasonality at the Company's Minneapolis location.
Management believes that it has taken steps to minimize these losses for the
next quarter. Management currently believes that the Company is in the position
to be profitable for fiscal 1999.
The Nine Months Ended June 30, 1999
Compared to the Nine Months Ended June 30, 1998
For the nine months ended June 30, 1999, the Company had consolidated total
revenues of $ 8,440,359 compared to consolidated total revenues of $ 5,774,362
for the nine months ended June 30, 1998, or an increase of $ 2,665,997. The
increase in total revenues was due to increased number of Company's locations.
The cost of goods sold for the nine months ended June 30, 1999 was 14 % of
total revenues compared to 14 % for the nine months ended June 30, 1998.
<PAGE>
Payroll and related costs for the nine months ended June 30, 1999 were $
2,756,267 compared to $ 1,748,195 for the nine months ended June 30, 1998. The
increase was a reflection of the additional personnel experienced by the company
as it adds more locations. Management currently believes that its labor and
management staff levels are of appropriate levels.
Other selling, general and administrative expenses for the nine months
ended June 30, 1999 were $ 4,024,394 compared to $ 3,246,102 for the nine months
ended June 30, 1998. The increase was due to increased number of the Company's
locations and costs associated with the sale of the Louisiana subsidiary.
Interest expense for the nine months ended June 30, 1999 was $ 421,721
compared to
$ 252,799 for the nine months ended June 30, 1998. The increase was
attributable to interest expenses arising from the acquisitions of additional
Company owned real estate.
Net income for the nine months ended June 30, 1999 was $ 467,972 compared
to a net loss of $ 273,427 for the nine months ended June 30, 1998. The
increase was due to positive income from operations, gain on sale of the
Company's subsidiary, and an extraordinary gain on fire damage.
Liquidity and Capital Resources
At June 30, 1999, the Company had working capital of $ 822,412 compared to
negative working capital of $ 887,833 at September 30, 1998. The increase in
working capital was due to the proceeds received form insurance company on fire
damage, the issuance of stocks, and the proceeds received from the sale of the
Company's subsidiary.
Net cash used by operating activities in the nine months ended June 30,
1999 was
$ 902,274 compared to net cash provided of $ 90,623 for the nine months ended
June 30, 1998. The decrease in cash provided by operating activities was due to
a decrease in accounts payable and accrued expenses.
Depreciation and Amortization for the nine months ended June 30, 1999 were
$ 344,345 compared to $ 310,219 for the nine months ended June 30, 1998.
In the opinion of management, working capital is not a true indicator of
the financial status. Typically, the Company carries current liabilities in
excess of current assets because the business receives substantially immediate
payment for sales, with nominal receivables, while inventories and other current
liabilities normally carry longer payment terms. Vendors and purveyors often
remain flexible with payment terms providing the Company with opportunities to
adjust to short term business conditions. The Company considers the primary
indicators of financial status to be the long term trend, the mix of sales
revenues, overall cash flow, profitability from operations and the level of long
term debt.
Seasonality
<PAGE>
The Company is significantly affected by seasonal factors. Typically, the
Company has experienced reduced revenues from April through September, with the
strongest operating results occurring during October through March.
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the quarter ended June 30, 1999, the following 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.
In June, 1999, the Company issued 250,000 of common stock to a total of
four persons for cash consideration of $2.00 per share, totaling $500,000 in
cash These person were accredited investors. The Company believes that each
person had knowledge and experience in financial and business matters which
allowed them to evaluate the merits and risk of the purchase of these securities
of the Company, and that they were knowledgeable about the Company's operations
and financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Financial Data Schedule -- Exhibit 27.1
(b) Reports on Form 8-K
On April 6, 1999, the Company filed a Report on Form 8-K dated March 29, 1999
reporting Change in Control, Disposition of Assets, Other Events and Financial
Statements.
On May 28, 1999, the Company filed a Report on Form 8-K Amendment No. 1 dated
March 29, 1999 reporting Financial Statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RICK'S CABARET INTERNATIONAL, INC.
August 16, 1999 By: /s/ Eric Langan
---------------
Eric Langan
Director, President
and Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
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<S> <C>
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
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<BONDS> 4750881
<COMMON> 35912
0
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