SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934; For the Quarterly Period Ended: March 31, 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
On May 3, 1999, there were 3,297,983 shares of common stock, $.01 par value,
outstanding.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [x]
<PAGE>
RICK'S CABARET INTERNATIONAL, INC.
CONTENTS
--------
PART I - FINANCIAL INFORMATION
- ----------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (unaudited)
and September 30, 1998 (audited)
Consolidated Statements of Operations for the three and six months
ended March 31, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the six months
ended March 31, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
- -------------------------------
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
3/31/99 9/30/98
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,195,984 $ 597,644
Accounts receivable 669,294 58,023
Prepaid expenses 190,236 34,876
Inventories 94,543 94,633
Land held for sale 569,069 569,069
------------ ------------
Total current assets 2,719,126 1,354,245
------------ ------------
PROPERTY AND EQUIPMENT
Buildings, lands and leasehold improvements 7,330,187 9,851,798
Furniture & equipment 1,336,773 1,609,031
------------ ------------
8,666,960 11,460,829
Accumulated depreciation (1,197,491) (1,213,557)
------------ ------------
7,469,469 10,247,272
------------ ------------
OTHER ASSETS
Goodwill less accumulated amortization 3,053,580 3,154,804
Other 59,278 112,025
------------ ------------
3,112,858 3,266,829
------------ ------------
$13,301,453 $14,868,346
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 460,586 $ 718,636
Accounts payable - trade 807,780 1,179,410
Accrued expenses 332,079 344,032
------------ ------------
Total current liabilities 1,600,445 2,242,078
LONG TERM DEBT, LESS CURRENT PORTION
Long-term debt less current portion 4,396,622 6,015,903
------------ ------------
Total Liabilities 5,997,067 8,257,981
------------ ------------
COMMITMENTS AND CONTINGENCIES --- ---
MINORITY INTERESTS 13,090 11,896
STOCKHOLDERS' EQUITY
Preferred stock - $.10 par, authorized
1,000,000shares; none outstanding --- ---
Common stock - $.01 par, authorized
15,000,000 shares
issued 3,273,727 and 3,233,677 32,737 32,337
Additional paid in capital 8,973,314 8,973,714
Retained earnings (deficit) (1,714,755) (2,407,582)
------------ ------------
Total stockholder's equity 7,291,296 6,598,469
------------ ------------
$13,301,453 $14,868,346
============ ============
</TABLE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES
Sales $3,096,483 $2,007,982 $6,414,452 $3,676,408
----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of goods sold 402,846 311,345 890,705 524,527
Salaries and wages 965,646 571,598 1,970,589 1,020,242
Other general and administrative
Taxes and permits 503,355 183,626 792,051 366,980
Charge card fees 34,982 40,908 92,489 72,041
Rent 132,879 141,419 268,034 292,141
Legal and accounting 185,689 55,797 327,797 110,639
Advertising 112,231 154,720 310,654 361,630
Preopening Costs 0 187,991 0 187,991
Other 566,868 449,003 1,144,339 748,932
----------- ----------- ----------- -----------
2,904,496 2,096,407 5,796,658 3,685,123
----------- ----------- ----------- -----------
INCOME/(LOSS) FROM OPERATIONS 191,987 (88,425) 617,794 (8,715)
Interest Expense (167,182) (116,425) (310,426) (160,582)
Interest Income 145 4,614 656 4,614
Loss on Termination of Lease (219,780) (219,780)
Gain on Sale of Subsidiary 347,991 347,991
----------- ----------- ----------- -----------
NET INCOME/(LOSS) BEFORE 153,161 (200,236) 436,235 (164,683)
EXTRAORDINARY ITEM
EXTRAORDINARY ITEM
Gain on Fire Damage 256,592 256,592
----------- ----------- ----------- -----------
NET INCOME/(LOSS) $ 409,753 $ (200,236) $ 692,827 $ (164,683)
=========== =========== =========== ===========
BASIC NET INCOME (LOSS) PER COMMON SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ 0.05 $ (0.09) $ 0.13 $ (0.08)
EXTRAORDINARY ITEM 0.08 0.00 0.08 0.00
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 0.13 $ (0.09) $ 0.21 $ (0.08)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,273,727 2,112,575 3,263,714 2,097,599
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET INCOME $ 692,827 $ (164,683)
ADJUSTMENTS TO RECONCILE NET
LOSS TO NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES:
Depreciation and amortization 236,013 164,184
Loss on sale of land 0 42,910
Gain on fire damage and disposal of assets (247,865) 0
Loss on termination of lease 219,780 0
Gain on sale of subsidiary (347,991) 0
Minority Interest 8,390 0
Changes in assets and liabilities:
Accounts receivable (611,271) (102,841)
Prepaid expenses (155,360) 14,854
Inventories 90 (19,189)
Other assets 52,747 4,652
Accounts payable and accrued expenses (383,583) 384,764
------------ ------------
Cash provided (used) by operating expenses (536,224) 324,651
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property equipment (239,316) (1,399,343)
Increase in goodwill 0 (2,147,000)
Proceeds from insurance on fire damage 504,457 0
Proceeds from sale of subsidiary 1,057,327
Proceeds from sale of land 0 772,742
------------ ------------
Cash provided (used) by investing activities 1,322,468 (2,773,601)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued, less offering costs 0 95,090
Increase in long term debt 0 2,700,000
Payments on long term debt (187,904) (438,270)
------------ ------------
Cash provided (used) by financing activities (187,904) 2,356,820
------------ ------------
NET (DECREASE) IN CASH 598,340 (92,130)
CASH AT BEGINNING OF PERIOD 597,644 357,410
------------ ------------
CASH AT END OF PERIOD $ 1,195,984 $ 265,280
============ ============
CASH PAID DURING PERIOD FOR:
Interest $ 167,182 $ 116,425
============ ============
</TABLE>
<PAGE>
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 six months ended March 31, 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 Company's subsidiaries known as Lucky's located in New Orleans,
Louisiana. The transaction resulted in a loss 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. Certain statements in the following MD&A are
forward-looking statements. Words such as "expects", "anticipates",
"estimates", and similar expressions are intended to identify forward looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties are set forth below and under "Special Note Regarding Forward
Looking Information".
GENERAL
The Company was formed in December 1994 to acquire all of the outstanding
capital stock of Trumps, Inc., a Texas corporation ("Trumps") formed in 1982.
Since 1983, Trumps has operated Rick's Cabaret, a premier adult nightclub
offering topless entertainment in Houston, Texas. 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 Austin, Texas 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, the location in
north Houston, Texas located near George Bush Intercontinental Airport, the
location in Austin, Texas, and the location in Minneapolis, Minnesota. Revenues
are derived from the sale of liquor, beer, wine and food, as well as from dancer
performances, cover charges and other income.
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 a club in San Antonio,
Texas and to operate an e-commerce adult internet website.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1999 AS
COMPARED TO THE THREE AND SIX MONTHS ENDED MARCH 31, 1998
For the quarter ended March 31, 1999, the Company had consolidated total
revenues of $3,096,483 compared to consolidated total revenues of $2,007,962 for
the fiscal quarter ended March 31, 1998, or an increase of $1,088,521. The
increase in total revenues was due to increased number of the Company's
locations.
<PAGE>
The cost of goods sold for the quarter ended March 31, 1999 was 13.01% of
total revenues compared to 15.51% for the quarter ended March 31, 1998. The
decrease was due primarily to the continuing efforts of management to achieve
reductions in cost of goods sold through improved inventory management. The
Company continues a program to improve margins from liquor and food sales and
food service efficiency.
Payroll and related costs for the quarter ended March 31, 1999 were
$965,464 compared to
$571,598 for the quarter ended March 31, 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 quarter ended
March 31, 1999 were $1,536,004 compared to $1,213,464 for the quarter ended
March 31, 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 quarter ended March 31, 1999 was $167,182 compared to
$116,425 for the quarter ended March 31, 1998. The increase was attributable to
interest expenses arising from the acquisitions of additional Company owned real
estates.
Net income for the quarter ended March 31, 1999 was $409,753 compared to a
loss of $200,236 for the quarter ended March 31, 1998. The increase was due to
positive income from operations, gain on sale of the Company's subsidiary, and
gain on fire damage. Management currently believes that the Company is in the
position to be profitable in fiscal 1999.
For the six months ended March 31, 1999, the Company had consolidated total
revenues of $6,414,452 compared to consolidated total revenues of $3,676,408 for
the fiscal six months ended March 31, 1998, or an increase of $2,738,044. The
increase in revenues was due to increased number of the Company's locations.
The cost of goods sold for the six months ended March 31, 1999 was 13.89%
of total revenues compared to 14.27% for the six months ended March 31, 1998.
The decrease was due primarily to the continuing efforts of management to
achieve reductions in cost of goods sold through improved inventory management.
The Company continues a program to improve margins from liquor and food sales
and food service efficiency.
Payroll and related costs for the six months ended March 31, 1999 were
$1,970,589 compared to $1,020,242 for the six months ended March 31, 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 six months ended
March 31, 1999 were $2,935,364 compared to $2,140,354 for the six months ended
March 31, 1998. The increase was due to increased number of the Company's
locations.
Interest expense for the six months ended March 31, 1999 was $310,426
compared to $160,582 for the six months ended March 31, 1998. The increase was
attributable to interest expenses arising from the acquisitions of additional
Company owned real estate.
Net income for the six months ended March 31, 1999 was $692,827 compared to
a loss of $164,683 for the six months ended March 31, 1998. The increase was due
to positive income from operations, gain on sale of the Company's subsidiary,
and gain on fire damage. Management currently believes that the Company is in
the position to be profitable in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had working capital of $1,118,681 compared
to negative working capital of $ 887,833 at September 30, 1998. The increase in
working capital was due to the proceeds received from the sale of the Company's
subsidiary.
<PAGE>
Net cash used by operating activities in the six months ended March 31,
1999 was $536,224 compared to net cash provided of $324,651 for the six months
ended March 31, 1998. The decrease in cash provided by operating activities was
due to an increase in accounts receivable and a decrease in accounts payable.
Depreciation and Amortization for the six months ended March 31, 1999 were
$236,013 compared to $164,184 for the six months ended March 31, 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 down turns. The Company considers the primary
indicators of financial status to be the long term trend and mix of sales
revenues, overall cash flow and profitability from operations and the level of
long term debt.
SEASONALITY
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.
SPECIAL NOTE REGARDING FORWARD LOOKING INFORMATION
<PAGE>
The Company is including the following cautionary statement in this
Quarterly 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. Certain
statements contained herein are forward looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result, or be achieved, or be accomplished. In addition to
other factors and matters discussed elsewhere herein, the following are
important factors that, in the view of the Company, could cause material adverse
affects on the Company's financial condition and results of operations.
Important factors that could cause actual results to differ materially from
those indicated include risks and uncertainties relating to the impact and
implementation of the sexually oriented business ordinance in the City of
Houston, and the availability of acceptable financing to fund corporate
expansion efforts.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
On April 20, 1999 the Company was served as a defendant in litigation that
was filed on February 23, 1999. The lawsuit is styled John M. Skora and Robert
Martin v. Trumps, Inc., Rick=s Cabaret International, Inc., RCI Entertainment
(Texas), Inc., and Robert L. Watters, Cause No. 1999-09394, in the 11th Judicial
District Court of Harris County, Texas. The plaintiffs claim that they
purchased a dance from one of the dancers at the Company=s club and paid for the
dance by the use of their credit card. The plaintiffs claim that the Company
charges $25 for a dance when using a credit card and $20 for a dance when using
cash. Therefore, the plaintiffs assert that the Company violated the Texas
Finance Code by imposing a surcharge for credit card use. The plaintiffs are
seeking reimbursement for all alleged surcharges, plus statutory penalties and
interest as allowed by law, attorney=s fees and all other damages, in law or in
equity, which plaintiffs and other class members similarly situated are
entitled. The Company intends to file an answer denying all allegations
contained in the complaint and intends to vigorously defend itself in this
matter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Financial Data Schedule -- Exhibit 27.1
(b) Reports on Form 8-K
On February 24, 1999, the Company filed a Report on Form 8-K dated February 22,
1999 reporting Other Events.
On March 4, 1999, the Company filed a Report on Form 8-K dated March 2, 1999
reporting Other Events.
On April 6, 1999, the Company filed a Report on Form 8-K dated March 29, 1999
reporting a Change in Control, the Acquisition or Disposition of Assets, Other
Events, and Financial Statements and Exhibits.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RICK'S CABARET INTERNATIONAL, INC.
Date: May 17, 1999 By: /s/ Eric Langan
-- -----------------------------
Eric Langan, President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1195984
<SECURITIES> 0
<RECEIVABLES> 669294
<ALLOWANCES> 0
<INVENTORY> 94543
<CURRENT-ASSETS> 2719126
<PP&E> 8666960
<DEPRECIATION> 1197491
<TOTAL-ASSETS> 13301453
<CURRENT-LIABILITIES> 1600445
<BONDS> 4857208
<COMMON> 32737
0
0
<OTHER-SE> 7258559
<TOTAL-LIABILITY-AND-EQUITY> 13301453
<SALES> 3096483
<TOTAL-REVENUES> 3096483
<CGS> 402846
<TOTAL-COSTS> 2904496
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167182
<INCOME-PRETAX> 153161
<INCOME-TAX> 0
<INCOME-CONTINUING> 24950
<DISCONTINUED> 128211
<EXTRAORDINARY> 256592
<CHANGES> 0
<NET-INCOME> 409753
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
