RCI HOSPITALITY HOLDINGS, INC. - Quarter Report: 2008 December (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
T QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended December 31, 2008
£ 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 incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
10959
Cutten Road
Houston,
Texas 77066
(Address
of principal executive offices) (Zip Code)
(281) 397-6730
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 T No
£
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer £ Accelerated
filer £
Non-accelerated filer £ Smaller
reporting company T
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes £ No T
As of
February 2, 2009, 9,344,325 shares of the Registrant’s Common Stock were
outstanding.
RICK'S CABARET INTERNATIONAL, INC.
TABLE OF
CONTENTS
|
PART
I
|
FINANCIAL
INFORMATION
|
|
|
Item
1.
|
Financial
Statements
|
|
|
1
|
||
|
3
|
||
|
4
|
||
|
6
|
||
|
Item
2.
|
23
|
|
|
Item
4T.
|
31
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
Item
1.
|
32
|
|
|
Item
2.
|
33
|
|
|
Item
6.
|
33
|
|
|
34
|
PART
I FINANCIAL
INFORMATION
|
Item
1.
|
Financial
Statements.
|
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
DECEMBER
31, 2008
|
SEPTEMBER
30, 2008
|
|||||||
|
(UNAUDITED)
|
|
|||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and cash equivalents
|
$ | 2,978,133 | $ | 5,602,645 | ||||
|
Accounts
receivable
|
||||||||
|
Trade,
net
|
785,558 | 637,035 | ||||||
|
Other,
net
|
199,537 | 230,298 | ||||||
|
Inventories
|
2,050,885 | 1,717,237 | ||||||
|
Prepaid
expenses and other current assets
|
557,424 | 568,599 | ||||||
|
Total
current assets
|
6,571,537 | 8,755,814 | ||||||
|
PROPERTY
AND EQUIPMENT:
|
||||||||
|
Buildings,
land and leasehold improvements
|
44,538,122 | 44,239,727 | ||||||
|
Furniture
and equipment
|
14,045,908 | 13,731,346 | ||||||
| 58,584,030 | 57,971,073 | |||||||
|
Accumulated
depreciation
|
8,714,434 | 7,932,809 | ||||||
|
Total
property and equipment, net
|
49,869,596 | 50,038,264 | ||||||
|
OTHER
ASSETS:
|
||||||||
|
Goodwill
and indefinite lived intangibles
|
76,506,045 | 76,457,694 | ||||||
|
Definite
lived intangibles, net
|
1,247,240 | 1,335,509 | ||||||
|
Other
|
570,450 | 481,525 | ||||||
|
Total
other assets
|
78,323,735 | 78,274,728 | ||||||
|
Total
assets
|
$ | 134,764,868 | $ | 137,068,806 | ||||
See
accompanying notes to consolidated financial statements.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
DECEMBER
31, 2008
|
SEPTEMBER
30, 2008
|
|||||||
|
(UNAUDITED)
|
|
|||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable – trade
|
$ | 845,669 | $ | 1,203,555 | ||||
|
Accrued
liabilities
|
2,873,587 | 4,579,918 | ||||||
|
Current
portion of long-term debt
|
2,245,532 | 2,644,541 | ||||||
|
Total
current liabilities
|
5,964,788 | 8,428,014 | ||||||
|
Deferred
tax liability
|
17,115,054 | 16,894,256 | ||||||
|
Other
long-term liabilities
|
563,925 | 537,967 | ||||||
|
Long-term
debt, less current portion
|
30,239,192 | 30,312,865 | ||||||
|
Long-term
debt-related parties
|
- | 600,000 | ||||||
|
Total
liabilities
|
53,882,959 | 56,773,102 | ||||||
|
COMMITMENTS
AND CONTINGENCIES
|
||||||||
|
MINORITY
INTERESTS
|
3,356,596 | 3,358,096 | ||||||
|
TEMPORARY
EQUITY – Common stock, subject to put rights (611,740
shares)
|
13,935,020 | 13,935,020 | ||||||
|
PERMANENT
STOCKHOLDERS' EQUITY:
|
||||||||
|
Preferred
stock, $.10 par, 1,000,000 shares authorized; none issued and
outstanding
|
- | - | ||||||
|
Common
stock, $.01 par, 15,000,000 shares authorized; 9,689,315 shares
issued
|
96,893 | 96,893 | ||||||
|
Additional
paid-in capital
|
53,968,216 | 53,948,172 | ||||||
|
Accumulated
other comprehensive income
|
- | (13,347 | ) | |||||
|
Retained
earnings
|
11,055,482 | 10,264,650 | ||||||
|
Less
956,730 and 908,530 shares of common stock held in treasury, at cost,
respectively
|
(1,530,298 | ) | (1,293,780 | ) | ||||
|
Total
permanent stockholders’ equity
|
63,590,293 | 63,002,588 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 134,764,868 | $ | 137,068,806 | ||||
See
accompanying notes to consolidated financial statements.
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
FOR
THE THREE MONTHS
ENDED
DECEMBER 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
(UNAUDITED)
|
||||||||
|
Revenues:
|
||||||||
|
Sales
of alcoholic beverages
|
$ | 6,736,310 | $ | 4,195,192 | ||||
|
Sales
of food and merchandise
|
1,429,385 | 1,060,332 | ||||||
|
Service
revenues
|
8,195,202 | 5,023,497 | ||||||
|
Internet
revenues
|
176,763 | 170,789 | ||||||
|
Media
revenues
|
183,636 | - | ||||||
|
Other
|
589,875 | 504,528 | ||||||
|
Total
revenues
|
17,311,171 | 10,954,338 | ||||||
|
Operating
expenses:
|
||||||||
|
Cost
of goods sold
|
2,269,588 | 1,341,831 | ||||||
|
Salaries
and wages
|
4,297,117 | 2,586,476 | ||||||
|
Stock-based
compensation
|
20,044 | 39,270 | ||||||
|
Other
general and administrative:
|
||||||||
|
Taxes
and permits
|
2,353,491 | 1,235,793 | ||||||
|
Charge
card fees
|
339,699 | 198,710 | ||||||
|
Rent
|
963,362 | 464,455 | ||||||
|
Legal
and professional
|
509,049 | 293,373 | ||||||
|
Advertising
and marketing
|
1,177,311 | 360,832 | ||||||
|
Insurance
|
243,047 | 201,396 | ||||||
|
Utilities
|
442,698 | 209,735 | ||||||
|
Impairment
of nightclub assets
|
221,563 | - | ||||||
|
Depreciation
and amortization
|
869,893 | 511,339 | ||||||
|
Other
|
1,447,174 | 939,231 | ||||||
|
Total
operating expenses
|
15,154,036 | 8,382,441 | ||||||
|
Income
from operations
|
2,157,135 | 2,571,897 | ||||||
|
Other
income (expense):
|
||||||||
|
Interest
income
|
5,734 | 43,069 | ||||||
|
Interest
expense
|
(833,471 | ) | (461,883 | ) | ||||
|
Minority
interests
|
(73,500 | ) | 177,911 | |||||
|
Income
before income taxes
|
1,255,898 | 2,330,994 | ||||||
|
Income
taxes
|
465,066 | 547,722 | ||||||
|
Net
income
|
$ | 790,832 | $ | 1,783,272 | ||||
|
Basic
and diluted earnings per share:
|
||||||||
|
Net
income, basic
|
$ | 0.08 | $ | 0.26 | ||||
|
Net
income, diluted
|
$ | 0.08 | $ | 0.24 | ||||
|
Weighted
average number of common shares outstanding:
|
||||||||
|
Basic
|
9,366,033 | 6,806,234 | ||||||
|
Diluted
|
9,599,954 | 7,635,326 | ||||||
Comprehensive
income for the three months ended December 31, 2008 and 2007 was $790,832 and
$1,767,700, respectively. This includes the changes in available-for-sale
securities and net income.
See
accompanying notes to consolidated financial statements.
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
FOR
THE THREE MONTHS
ENDED
DECEMBER 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
(UNAUDITED)
|
(UNAUDITED)
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income
|
$ | 790,832 | $ | 1,783,272 | ||||
|
Adjustments
to reconcile net income to cash provided by (used in) operating
activities:
|
||||||||
|
Depreciation
and amortization
|
869,893 | 511,339 | ||||||
|
Impairment
of nightclub assets
|
221,563 | - | ||||||
|
Deferred
taxes
|
220,085 | (52,828 | ) | |||||
|
Amortization
of note discount
|
- | 8,888 | ||||||
|
Beneficial
conversion
|
5,695 | 4,488 | ||||||
|
Minority
interests
|
73,500 | (177,911 | ) | |||||
|
Deferred
rents
|
25,958 | 29,388 | ||||||
|
Writeoff
of comprehensive income charge
|
13,347 | - | ||||||
|
Common
stock issued for interest payment
|
- | 21,448 | ||||||
|
Stock
compensation expense
|
20,044 | 39,270 | ||||||
|
Changes
in operating assets and liabilities
|
(2,816,599 | ) | 90,975 | |||||
|
Cash
provided by (used in) operating activities
|
(575,682 | ) | 2,258,329 | |||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Proceeds
from sale of property
|
- | 36,000 | ||||||
|
Additions
to property and equipment
|
(612,958 | ) | (570,019 | ) | ||||
|
Acquisition
of businesses, net of cash acquired
|
(48,351 | ) | (15,486,370 | ) | ||||
|
Payments
from notes receivable
|
2,374 | 62,943 | ||||||
|
Cash
used in investing activities
|
(658,935 | ) | (15,957,446 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Proceeds
from sale of common stock
|
- | 14,976,700 | ||||||
|
Proceeds
from stock options exercised
|
- | 161,700 | ||||||
|
Proceeds
from long-term debt
|
- | 1,000,000 | ||||||
|
Distributions
to minority interests
|
(75,000 | ) | - | |||||
|
Purchase
of treasury stock
|
(236,518 | ) | - | |||||
|
Payments
on long-term debt
|
(1,078,377 | ) | (404,741 | ) | ||||
|
Cash
provided by (used in) financing activities
|
(1,389,895 | ) | 15,733,659 | |||||
|
NET
INCREASE (DECREASE) IN CASH
|
(2,624,512 | ) | 2,034,542 | |||||
|
CASH
AT BEGINNING OF PERIOD
|
5,602,645 | 2,998,758 | ||||||
|
CASH
AT END OF PERIOD
|
$ | 2,978,133 | $ | 5,033,300 | ||||
|
CASH
PAID DURING PERIOD FOR:
|
||||||||
|
Interest
|
$ | 755,763 | $ | 297,814 | ||||
|
Taxes
|
$ | 1,655,000 | $ | 460,488 | ||||
See
accompanying notes to consolidated financial statements.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Non-cash
transactions:
On
November 30, 2007, the Company purchased Tootsie’s Cabaret in Florida for
$25,486,000 (which includes inventory and other assets), payable to
the sellers $15,486,000 in cash, $10,000,000 pursuant to two secured promissory
notes in the amount of $5,000,000 each, plus estimated transaction costs of
$125,000.
In
November 2007, the holder of a convertible debenture converted $713,807 of
principal and interest owed into 150,134 shares of restricted common
stock.
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
|
1.
|
BASIS
OF PRESENTATION
|
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q of
Regulation SX. They do not include all information and footnotes
required by accounting principles generally accepted in the United States of
America 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, 2008
included in the Company's Annual Report on Form 10-KSB, as 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 three months ended December 31, 2008 are not necessarily indicative of the
results that may be expected for the year ending September 30,
2009.
|
2.
|
RECENT
ACCOUNTING STANDARDS AND
PRONOUNCEMENTS
|
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 141R, “Business Combinations,”
(“SFAS 141R”). SFAS 141R requires most identifiable assets, liabilities,
noncontrolling interests, and goodwill acquired in a business combination to be
recorded at full fair value. The Statement applies to all business combinations,
including combinations among mutual entities and combinations by contract alone.
Under SFAS 141R, all business combinations will be accounted for by applying the
acquisition method. SFAS 141R is effective for fiscal years beginning on or
after December 15, 2008 and will be effective for the Company beginning in
fiscal 2010 for business combinations occurring after the effective
date.
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51,” (“SFAS 160”). SFAS 160 will require noncontrolling
interests (previously referred to as minority interests) to be treated as a
separate component of equity, not as a liability or other item outside of
permanent equity. The Statement applies to the accounting for noncontrolling
interests and transactions with noncontrolling interest holders in consolidated
financial statements. SFAS 160 is effective for fiscal years beginning on or
after December 15, 2008 and is effective for the Company beginning in fiscal
2010. The Company does not expect that SFAS 160 will have a material impact on
its financial statements.
In
December 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements,” (“SFAS 157”). SFAS 157 clarifies the definition
of fair value, describes methods used to appropriately measure fair value, and
expands fair value disclosure requirements, but does not change existing
guidance as to whether or not an instrument is carried at fair value. For
financial assets and liabilities, SFAS 157 is effective for fiscal years
beginning after November 15, 2007, which will require the Company to adopt these
provisions in fiscal 2009. For nonfinancial assets and liabilities, SFAS 157 is
effective for fiscal years beginning after November 15, 2008, which will require
the Company to adopt these provisions in fiscal 2010. In February 2007, the FASB
issued Statement of Financial Accounting Standards No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities,” (“SFAS 159”). SFAS 159
provides companies with an option to report selected assets and liabilities at
fair value. This statement contains financial statement presentation and
disclosure requirements for assets and liabilities reported at fair value as a
consequence of the election and is effective for the Company beginning in fiscal
2009. The initial adoption of SFAS 157 did not have a material effect on
the Company’s financial condition or results of operations. However,
the Company is still in the process of evaluating this standard with respect to
its effect on non-financial assets and liabilities and therefore has not yet
determined the impact that it will have on the Company’s consolidated financial
statements upon full adoption.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
2.
|
RECENT
ACCOUNTING STANDARDS AND PRONOUNCEMENTS –
continued
|
The Staff
of the Securities and Exchange Commission issued Staff Accounting Bulletin
("SAB") 110 which expresses the views of the staff regarding the use of a
"simplified" method, as discussed in SAB No. 107 ("SAB 107"), in developing an
estimate of expected term of "plain vanilla" share options in accordance with
Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment”. In particular, the staff indicated in SAB 107 that it will accept a
company's election to use the simplified method, regardless of whether the
company has sufficient information to make more refined estimates of expected
term. At the time SAB 107 was issued, the staff believed that more detailed
external information about employee exercise behavior (e.g., employee exercise
patterns by industry and/or other categories of companies) would, over time,
become readily available to companies. Therefore, the staff stated in SAB 107
that it would not expect a company to use the simplified method for share option
grants after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available by
December 31, 2007. Accordingly, the staff will continue to accept, under certain
circumstances, the use of the simplified method beyond December 31, 2007. There
were no option grants during the quarter ended December 31, 2008.
|
3.
|
STOCK
OPTIONS AND STOCK-BASED EMPLOYEE
COMPENSATION
|
Below is
the summary of common stock options outstanding as of December 31,
2008:
|
Employee
and Director Stock Option Plan:
|
Options
Authorized
|
Options
Outstanding
|
Options
Vested
|
Available
for Grant
|
||||||||||||
|
1999
Stock Option Plan
|
1,500,000 | 420,000 | 410,000 | 438,000 | ||||||||||||
Employee
and Director Stock Option Plans
In August
1999, the Company adopted the 1999 Stock Option Plan (“the
Plan”). The options granted under the Plan may be either incentive
stock options or non-qualified options. 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
individuals to receive grants, 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. The options are subject to
termination of employment and generally expire five years from the date of
grant. Employee options generally vest in installments over two
years. As of December 31, 2008, 438,000 shares of common stock were
available for future grants under the Plan.
The
compensation cost recognized for the three months ended December 31, 2008 and
2007 was $20,044 and $39,270, respectively. There were 35,000 stock
option exercises for the three months ended December 31, 2007. There
were no stock option grants for the three month periods ended December 31, 2008
and 2007.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
3.
|
STOCK
OPTIONS AND STOCK-BASED EMPLOYEE COMPENSATION -
continued
|
Stock
Option Activity
The
following is a summary of all stock option transactions for the three months
ended December 31, 2008:
|
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Term (years)
|
Aggregate
Intrinsic Value
|
|||||||||||||
|
Outstanding
as of September 30, 2008
|
420,000 | $ | 3.86 | |||||||||||||
|
Granted
|
- | - | ||||||||||||||
|
Cancelled
or expired
|
- | - | ||||||||||||||
|
Exercised
|
- | - | ||||||||||||||
|
Outstanding
as of December 31, 2008
|
420,000 | $ | 3.86 | 1.00 | $ | 488,050 | ||||||||||
|
Options
exercisable as of December 31, 2008
|
410,000 | $ | 3.73 | .93 | $ | 488,050 | ||||||||||
|
4.
|
SEGMENT
INFORMATION
|
Below is
the financial information related to the Company’s segments:
|
FOR
THE THREE MONTHS
ENDED
DECEMBER 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
REVENUES
|
||||||||
|
Club
operations
|
$ | 16,950,773 | $ | 10,783,549 | ||||
|
Media
|
183,636 | - | ||||||
|
Internet
websites
|
176,762 | 170,789 | ||||||
| $ | 17,311,171 | $ | 10,954,338 | |||||
|
NET
INCOME
|
||||||||
|
Club
operations
|
$ | 2,753,070 | $ | 3,248,672 | ||||
|
Media
|
(216,277 | ) | - | |||||
|
Internet
websites
|
34,731 | 14,170 | ||||||
|
Corporate
expenses
|
(1,780,692 | ) | (1,479,570 | ) | ||||
| $ | 790,832 | $ | 1,783,272 | |||||
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
5.
|
LONG-TERM
DEBT
|
During
November 2008, $600,000 of related party debt matured and was paid in cash by
the Company. The Company also made $478,377 in payments on other
long-term debt.
|
6.
|
COMMON
STOCK
|
During
the quarter ended December 31, 2008, the Company purchased 48,200 shares of
Company common stock for its treasury at an aggregate cost of
$236,518.
|
7.
|
EARNINGS
PER SHARE (EPS)
|
The
Company computes earnings per share in accordance with SFAS No. 128, Earnings Per
Share. SFAS No. 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. Diluted earnings per share reflect the potential dilution of
securities that could share in the earnings of the Company.
Potential
common stock shares consist of shares that may arise from outstanding dilutive
common stock warrants and options (the number of which is computed using the
“treasury stock method”) and from outstanding convertible debentures (the number
of which is computed using the “if converted method”). Diluted EPS
considers the potential dilution that could occur if the Company’s outstanding
common stock warrants and convertible debentures were converted into common
stock that then shared in the Company’s earnings (as adjusted for interest
expense, that would no longer occur if the debentures were
converted).
Net
earnings applicable to common stock and the weighted – average number of shares
used for basic and diluted earnings per share computations are summarized in the
table that follows:
|
FOR
THE THREE MONTHS ENDED DECEMBER 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
(UNAUDITED)
|
(UNAUDITED)
|
|||||||
|
Basic
earnings per share:
|
||||||||
|
Net
earnings applicable to common stockholders
|
$ | 790,832 | $ | 1,783,272 | ||||
|
Average
number of common shares outstanding
|
9,366,033 | 6,806,234 | ||||||
|
Basic
earnings per share
|
$ | 0.08 | $ | 0.26 | ||||
|
Diluted
earnings per share:
|
||||||||
|
Net
earnings applicable to common stockholders
|
$ | 790,832 | $ | 1,783,272 | ||||
|
Adj.
to net earnings from assumed conversion of debentures
(1)
|
- | 62,550 | ||||||
|
Adj.
net earnings for diluted EPS computation
|
$ | 790,832 | $ | 1,845,822 | ||||
|
Average
number of common shares outstanding:
|
||||||||
|
Common
shares outstanding
|
9,366,033 | 6,806,234 | ||||||
|
Potential
dilutive shares resulting from exercise of warrants and options
(2)
|
233,921 | 403,138 | ||||||
|
Potential
dilutive shares resulting from conversion of debentures
(3)
|
- | 425,954 | ||||||
|
Total
average number of common shares outstanding used for
dilution
|
9,599,954 | 7,635,326 | ||||||
|
Diluted
earnings per share
|
$ | 0.08 | $ | 0.24 | ||||
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
7.
|
EARNINGS
PER SHARE – (EPS) - continued
|
(1) Represents
interest expense on dilutive convertible debentures, that would not occur if
they were assumed converted.
(2) All
outstanding warrants and options were considered for the EPS
computation.
(3)
Convertible debentures (principal and accrued interest) outstanding at December
31, 2008 and 2007 totaling $960,582 and $3,074,639, respectively, were
convertible into common stock at a price from $12.00 to $25.32 per share in 2008
and $3.00 to $12.00 per share in 2007 and resulted in additional common shares
(based on average balances outstanding). Potential dilutive shares of
89,257 and 72,463 for the three months ended December 31, 2008 and 2007,
respectively, have been excluded from earnings per share due to being
anti-dilutive.
|
8.
|
ACQUISITIONS
AND DISPOSITIONS
|
On
November 30, 2007, the Company entered into a Stock Purchase Agreement for the
acquisition of 100% of the issued and outstanding common stock of Stellar
Management Corporation, a Florida corporation (the "Stellar Stock") and 100% of
the issued and outstanding common stock of Miami Garden Square One, Inc., a
Florida corporation (the "MGSO Stock") which owns and operates an adult
entertainment cabaret known as "Tootsie’s Cabaret" ("Tootsie’s") located at 150
NW 183rd Street, Miami Gardens, Florida 33169 (the "Transaction"). Pursuant to
the Stock Purchase Agreement, the Company acquired the Stellar Stock and the
MGSO Stock from Norman Hickmore ("Hickmore") and Richard Stanton ("Stanton") for
a total purchase price of $25,486,000 (which includes inventory and other
assets), payable to the sellers $15,486,000 in cash, $10,000,000 pursuant to two
secured promissory notes in the amount of $5,000,000 each to Stanton and
Hickmore (the "Notes"), plus estimated transaction costs of $175,000. The Notes
will bear interest at the rate of 14% per annum with the principal payable in
one lump sum payment on November 30, 2010. Interest on the Notes will be payable
monthly, in arrears, with the first payment being due thirty (30) days after the
closing of the Transaction. The Company cannot pre-pay the Notes during the
first twelve (12) months; thereafter, the Company may prepay the Notes, in whole
or in part, provided that (i) any prepayment by the Company from December 1,
2008 through November 30, 2009, shall be paid at a rate of 110% of the original
principal amount and (ii) any prepayment by the Company after November 30, 2009,
may be prepaid without penalty at a rate of 100% of the original principal
amount. The Notes are secured by the Stellar Stock and MGSO Stock under a Pledge
and Security Agreement. As part of the Transaction, Hickmore and
Stanton entered into five-year covenants not to compete with the Company.
Additionally, as part of the Transaction, the Company entered into Assignment to
Lease Agreements with the landlord for the property where Tootsie’s is located.
The underlying lease agreements for the property provide for an original lease
term through June 30, 2014, with two option periods which give the Company the
right to lease the property through June 30, 2034. The terms and
conditions of the transaction were the result of extensive arm's length
negotiations between the parties.
The
following information summarizes the allocation of fair values assigned to the
assets and liabilities at the acquisition date.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
|
Net
current assets
|
$ | 390,000 | ||
|
Property
and equipment and other assets
|
4,823,020 | |||
|
Non-compete
agreement
|
200,000 | |||
|
Other
assets
|
96,000 | |||
|
Goodwill
|
7,044,050 | |||
|
SOB
licenses
|
20,125,856 | |||
|
Deferred
tax liability
|
(7,044,050 | ) | ||
|
Net
assets acquired
|
$ | 25,634,876 |
The
results of operations of this acquired entity are included in the Company’s
results of operations since December 1, 2007.
The
following unaudited pro forma information presents the results of operations for
the quarter ended December 31, 2007 as if the acquisition had occurred as of the
beginning of the immediate preceding period. The pro forma
information is not necessarily indicative of what would have occurred had the
acquisition been made as of such periods, nor is it indicative of future results
of operations. The pro forma amounts give effect to appropriate
adjustments for the fair value of the assets acquired, amortization of
intangibles and interest expense.
|
Revenues
|
$ | 13,960,992 | ||
|
Net
income
|
$ | 2,126,997 | ||
|
Net
income per share – basic
|
$ | 0.29 | ||
|
Net
income per share – diluted
|
$ | 0.26 | ||
|
Weighted
average shares outstanding –
basic
|
7,439,387 | |||
|
Weighted
average shares outstanding – diluted
|
8,268,479 |
On March
31, 2008, the Company’s wholly owned subsidiary, RCI Entertainment
(Philadelphia), Inc. (the “Purchaser”) completed the acquisition of 100% of the
issued and outstanding shares of common stock (the “TEZ Shares”) of The End
Zone, Inc., a Pennsylvania corporation (the “Corporation”) which owns and
operates “Crazy Horse Too Cabaret” (the “Club”) located at 2908 South Columbus
Blvd., Philadelphia, Pennsylvania 19148 (the “Real Property”) from
Vincent Piazza (the “Seller”). As part of the transaction, the
Company’s wholly owned subsidiary, RCI Holdings, Inc. (“RCI Holdings”) acquired
from the Piazza Family Limited Partnership (the “Partnership Seller”) 51% of the
issued and outstanding partnership interest (the “Partnership Interests”) in TEZ
Real Estate, LP, a Pennsylvania limited partnership (the “Partnership”) and 51%
of the issued and outstanding membership interest (the “Membership Interests”)
in TEZ Management, LLC, a Pennsylvania limited liability company, which is the
general partner of the Partnership (the “General Partner”). The Partnership owns
the Real Property where the Club is located. At closing, the Company
paid a purchase price of $3,500,000 in cash for the Partnership Interests and
Membership Interests, and issued 195,000 shares of the Company’s restricted
common stock (the “Rick’s Shares”) valued at $23 per share for the TEZ
Shares.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
As part
of the transaction, the Company entered into a Lock-Up/Leak-Out Agreement with
the Seller pursuant to which, on or after one year after the closing date, the
Seller shall have the right, but not the obligation, to have Rick’s purchase
from Seller not more than 5,000 Rick’s Shares per month (the “Monthly Shares”),
calculated at a price per share equal to $23.00 (“Value of the Rick’s
Shares”). At the Company’s election during any given month, the
Company may either buy the Monthly Shares or, if the Company elects not to buy
the Monthly Shares from the Seller, then the Seller shall sell the Monthly
Shares in the open market. Any deficiency between the amount which
the Seller receives from the sale of the Monthly Shares and the Value of the
Rick’s Shares shall be paid by the Company within three (3) business days of the
date of sale of the Monthly Shares during that particular month. The Company’s
obligation to purchase the Monthly Shares from the Seller shall terminate and
cease at such time as the Seller has received a total of $4,485,000 from the
sale of the Rick’s Shares and any deficiency. As of September 30,
2008, the 195,000 shares of restricted common stock were classified on the
consolidated balance sheet as temporary equity in accordance with EITF Topic
D-98, Classification and
Measurement of Redeemable Securities.
Additionally,
at closing, the Seller and the Partnership Seller entered a five-year agreement
not to compete with the Company within a twenty (20) mile radius of the Club.
Finally, the Corporation entered into a new lease agreement with the Partnership
giving it the right to lease the Real Property for twenty (20) years (“Original
Term”) with an option for an additional nine (9) years eleven (11) eleven months
(“Option Term”) with rent payable at the rate of (i) $50,000 per month, subject
to adjustment for increases in the Consumer Price Index (CPI) every five years
during the Original Term and the Option Term, or (ii) 8% of gross sales,
whichever is higher. The maximum increase in the CPI for any five (5) year
period shall be 15%.
The
following information summarizes the allocation of fair values assigned to the
assets and liabilities at the acquisition date based on a preliminary
valuation. Subsequent adjustments may be recorded upon the completion
of the valuation and the final determination of the purchase price
allocation.
|
Property
and equipment and other assets
|
$ | 3,882,885 | ||
|
Non-compete
agreement
|
100,000 | |||
|
Goodwill
|
1,458,583 | |||
|
SOB
licenses
|
4,207,770 | |||
|
Deferred
tax liability
|
(1,458,583 | ) | ||
|
Net
assets acquired
|
$ | 8,190,655 |
The
results of operations of this acquired entity are included in the Company’s
results of operations since March 31, 2008.
Proforma
results of operations have not been provided, as the amounts were not deemed
material to the consolidated financial statements. The transaction follows the
Company’s growth strategy.
On March
31, 2008, the Company’s subsidiary, RCI Entertainment (Austin), Inc. (“RCI”),
completed the acquisition of 49% of the membership interest of Playmates
Gentlemen’s Club, LLC (“Playmates”) from Behzad Bahrami (“Seller”), resulting in
100% ownership by the Company of RCI. Playmates owns an adult entertainment
cabaret known as “Playmates” (the “Club”) located at 8110 Springdale Road,
Austin, Texas 78724 (the “Premises”). Under the terms of the Purchase
Agreement, RCI paid a total purchase price of $1,401,711 which was paid $701,711
in cash and debt forgiveness at the time of closing and the issuance of 35,000
shares of the Company’s restricted common stock valued at $20.00 per share (the
“Shares”). For accounting purposes, the Company’s investment is only $751,000,
due to the previous losses of the minority interest which have been
expensed. The investment has been assigned to
goodwill.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
Pursuant
to the terms of the Purchase Agreement, on or after one year after the closing
date, the Seller shall have the right, but not the obligation to have the
Company purchase from Seller not more than 5,000 Shares per month (the “Monthly
Shares”), calculated at a price per share equal to $20.00 (“Value of the
Shares”). Seller shall notify the Company during any given month of
its election to “Put” the Monthly Shares to the Company during that particular
month. At the Company’s election during any given month, the Company
may either buy the Monthly Shares or, if the Company elects not to buy the
Monthly Shares from the Seller, then the Seller shall sell the Monthly Shares in
the open market. Any deficiency between the amount which the Seller
receives from the sale of the Monthly Shares and the Value of the Shares shall
be paid by the Company within three (3) business days of the date of sale of the
Monthly Shares during that particular month. The Company’s obligation to
purchase the Monthly Shares from the Seller shall terminate and cease at such
time as the Seller has received a total of $700,000 from the sale of the
Shares. As of September 30, 2008, the 35,000 shares of restricted
common stock were classified on the consolidated balance sheet as temporary
equity in accordance with EITF Topic D-98, Classification and Measurement of
Redeemable Securities.
In the
event the Seller elects not to “Put” the Shares to the Company, the Seller shall
not sell more than 10,000 Shares during any 90-day period in the open market,
provided that Seller complies with Rule 144 of the Securities Act of 1933, as
amended, in connection with his sale of the Shares.
The full
results of operations of this entity are included in the Company’s results of
operations since March 31, 2008.
In April
11, 2008, the Company’s wholly owned subsidiary, RCI Entertainment (Dallas),
Inc., completed the acquisition of 100% of the issued and outstanding
partnership interest (the "Partnership Interest") of Hotel Development - Texas,
Ltd, a Texas limited partnership (the "Partnership") and 100% of the issued and
outstanding membership interest (the "Membership Interest") of HD-Texas
Management, LLC, a Texas limited liability company, the general partner of the
Partnership (the "General Partner") from Jerry Golding, Kenneth Meyer, and
Charles McClure (the "Sellers"). The Partnership owns and operates an adult
entertainment cabaret known as "The Executive Club" (the "Club"), located at
8550 North Stemmons Freeway, Dallas, Texas 75247 (the "Real Property"). As part
of the transaction, the Company’s wholly owned subsidiary, RCI Holdings, Inc.
("RCI"), also acquired the Real Property from DPC Holdings, LLC, a Texas limited
liability company ("DPC"). At closing, the Company paid a total purchase price
of $3,590,609 for the Partnership Interest and Membership Interest, which was
paid through the issuance of 50,694 shares of the Company’s restricted common
stock to each of Messrs. Golding, Meyer and McClure, for an aggregate total of
152,082 shares (collectively, the "Rick's Club Shares") to be valued at $23.30
per share ($3,544,119) and $46,490 in cash. As consideration for the purchase of
the Real Property, RCI paid total consideration of $5,599,721, which was paid
(i) $4,250,000, payable $610,000 in cash and $3,640,000 through the issuance of
a five year promissory note (the "Promissory Note") and (ii) the issuance of
57,918 shares of the Company’s restricted common stock (the "Rick's Real
Property Shares") to be valued at $23.30 per share ($1,349,721). The Promissory
Note bears interest at a varying rate at the greater of (i) two percent (2%)
above the Prime Rate or (ii) seven and one-half percent (7.5%), and is
guaranteed by Rick's and Eric Langan, individually. At Closing, the Parties
entered into an Amendment to Purchase Agreement solely to provide for the
Sellers to set aside 10,500 Rick's Club Shares under an Escrow Agreement for the
offset of certain liabilities of the Partnership. The Company also
incurred costs in the amount of $37,848, which was paid in cash.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
At
Closing, the Sellers entered into Lock-Up/Leak-Out Agreements pursuant to which
on or after one year after the closing date, the Sellers shall have the right,
but not the obligation to have Rick's purchase from Sellers not more than an
aggregate of 3,621 Shares per month (the "Monthly Club Shares"), calculated at a
price per share equal to $25.00 per share ("Value of the Rick's Club Shares")
until each of the individual Sellers has received a total of $1,267,350 from the
sale of the Rick's Club Shares. At the Company’s election during any given
month, the Company may either buy the Monthly Club Shares or, if the Company
elects not to buy the Monthly Club Shares from the Sellers, then the Sellers
shall sell the Monthly Club Shares in the open market. Any deficiency between
the amount, which the Sellers receive from the sale of the Monthly Club Shares
and the Value of the Rick's Club Shares shall be paid by the Company within
three (3) business days of the date of sale of the Monthly Club Shares during
that particular month. The Company’s obligation to purchase the
Monthly Club Shares from the Sellers shall terminate and cease at such time as
the Sellers have received an aggregate total of $3,802,050 from the sale of the
Rick's Club Shares and any deficiency.
Additionally,
at Closing, DPC entered into a Lock-Up/Leak-Out Agreement pursuant to which on
or after one year after the closing date, DPC shall have the right, but not the
obligation to have Rick's purchase from DPC not more than 1,379 Shares per month
(the "Monthly Real Estate Shares"), calculated at a price per share equal to
$25.00 per share ("Value of the Rick's Real Estate Shares") until DPC has
received a total of $1,447,950 from the sale of the Rick's Real Estate Shares.
At the Company’s election during any given month, the Company may either buy the
Monthly Real Estate Shares or, if the Company elects not to buy the Monthly Real
Estate Shares from DPC, then DPC shall sell the Monthly Real Estate Shares in
the open market. Any deficiency between the amount which DPC receives from the
sale of the Monthly Real Estate Shares and the Value of the Rick's Real Estate
Shares shall be paid by the Company within three (3) business days of the date
of sale of the Monthly Real Estate Shares during that particular month. The
Company’s obligation to purchase the Monthly Real Estate Shares from DPC shall
terminate and cease at such time as DPC has received an aggregate total of
$1,447,950 from the sale of the Rick's Real Estate Shares and any deficiency.
Finally, at Closing each of the Sellers entered a five year Non-Competition
Agreement with the Company pursuant to which they agreed not to compete with the
Company in Dallas County or any adjacent county.
The
following information summarizes the allocation of fair values assigned to the
assets and liabilities at the acquisition date based on a preliminary
valuation. Subsequent adjustments may be recorded upon the completion
of the valuation and the final determination of the purchase price
allocation.
|
Net
current assets
|
$ | 34,445 | ||
|
Property
and equipment and other assets
|
6,264,850 | |||
|
Non-compete
agreement
|
300,000 | |||
|
Goodwill
|
977,082 | |||
|
SOB
licenses
|
2,640,763 | |||
|
Deferred
tax liability
|
(977,082 | ) | ||
|
Net
assets acquired
|
$ | 9,240,058 |
The
results of operations of this entity are included in the Company’s results of
operations since April 11, 2008.
Proforma
results of operations have not been provided, as the amounts were not deemed
material to the consolidated financial statements. The transaction follows the
Company’s growth strategy.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
On June
18, 2008, the Company’s wholly owned subsidiary RCI Entertainment (Northwest
Highway), Inc. (the “Purchaser”) completed the acquisition of certain assets
(the “Purchased Assets”) of North by East Entertainment, Ltd., a Texas limited
partnership (the “Seller”) by and through its general partner, Northeast
Platinum, LLC, a Texas limited liability company (the “General Partner”)
pursuant to an Asset Purchase Agreement dated May 10, 2008. The
Seller owned and operated an adult entertainment cabaret known as “Platinum Club
II” (the “Club”), located at 10557 Wire Way (at Northwest Highway), Dallas,
Texas 75220 (the “Real Property”).
At
closing, the Company paid a total purchase price of $1,500,000 cash for the
Purchased Assets. At Closing, the principal of the Seller entered
into a five-year agreement not to compete with the Club by operating an
establishment with an urban theme that both serves liquor and provides live
female nude or semi-nude adult entertainment in Dallas County, Tarrant County,
Texas or any of the adjacent counties thereto.
As part
of the transaction, the Company’s wholly owned subsidiary RCI Holdings, Inc.
(“RCI”) also acquired the Real Property from Wire Way, LLC, a Texas limited
liability company (“Wire Way”). Pursuant to a Real Estate Purchase
and Sale Agreement (the “Real Estate Agreement”) dated May 10, 2008, RCI paid
total consideration of $6,000,000, which was paid $1,650,000 in cash and
$4,350,000 through the issuance of a five (5) year promissory note (the
“Promissory Note”). The Promissory Note bears interest at a varying
rate at the greater of (i) two percent (2%) above the Prime Rate or (ii) seven
and one-half percent (7.5%), which is guaranteed by the Company and by Eric
Langan, the Company’s Chief Executive Officer, individually. The
Company also incurred $77,599 in costs, which was paid in cash.
The
following information summarizes the initial allocation of fair values assigned
to the assets and liabilities at the acquisition date based on a preliminary
valuation. Subsequent adjustments may be recorded upon the completion
of the valuation and the final determination of the purchase price
allocation.
|
Net
current assets
|
$ | 151,784 | ||
|
Property
and equipment and other assets
|
6,000,000 | |||
|
Non-compete
agreement
|
100,000 | |||
|
Goodwill
|
1,410,571 | |||
|
Other
assets
|
43,500 | |||
|
Net
assets acquired
|
$ | 7,705,855 |
The
results of operations of this entity are included in the Company’s results of
operations since June 18, 2008.
Proforma
results of operations have not been provided, as the amounts were not deemed
material to the consolidated financial statements. The transaction follows the
Company’s growth strategy.
On
September 5, 2008, the Company’s wholly owned subsidiary RCI Entertainment (Las
Vegas), Inc. (the “Purchaser”) completed the acquisition of certain assets (the
“Purchased Assets”) of DI Food & Beverage of Las Vegas, LLC, a Nevada
limited liability company (the “Seller”) pursuant to a Third Amended Asset
Purchase Agreement (the “Third Amendment”) between Purchaser,
Rick’s
Cabaret International, Inc. (“Rick’s”), Seller, and Harold Danzig (“Danzig”),
Frank Lovaas (“Lovaas”) and Dennis DeGori (“DeGori”) who are all members of
Seller. The Seller owned and
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
operated
an adult entertainment cabaret known as “Scores” (the “Club”), located at 3355
Procyon Street, Las Vegas, Nevada 89102 (the “Real Property”).
At
Closing, Purchaser paid Seller an aggregate amount as follows (the “Purchase
Price”):
|
|
(i)
|
$12,000,000
payable by wire transfer;
|
|
|
(ii)
|
$3,000,000
pursuant to a promissory note (“the Rick’s Promissory Note”), executed by
and obligating Rick’s, bearing interest at eight percent (8%) per annum
with a five (5) year amortization, with monthly payments of principal and
interest, with the initial monthly payment due in April 2009 with a
balloon payment of all then outstanding principal and interest due upon
the expiration of two (2) years from the execution of the Rick’s
Promissory Note; and
|
|
|
(iii)
|
200,000
shares of restricted common stock, par value $0.01 of Rick’s (the “Rick’s
Shares”) issued to the Seller, valued at $13.77 per
share.
|
As part
of the transaction, the Company entered into a Lock-Up/Leak-Out Agreement with
the Seller pursuant to which, on or after seven (7) months after the closing
date, the Seller shall have the right, but not the obligation, to have Rick’s
purchase from Seller a total of 150,000 of the Rick’s Shares (“Rick’s Put
Share”) in an amount and at a rate of not more than 6,250 of the Rick’s Put
Shares per month (the “Monthly Shares”) calculated at a price per share equal to
$20.00 per share (“Value of the Rick’s Shares”). At the Company’s election
during any given month, the Company may either buy the Monthly Shares or, if the
Company elects not to buy the Monthly Shares from the Seller, then the Seller
shall sell the Monthly Shares in the open market. Any deficiency between the
amount which the Seller receives from the sale of the Monthly Shares and the
Value of the Rick’s Shares shall be paid by us within three (3) business days of
the date of sale of the Monthly Shares during that particular month. The
Company’s obligation to purchase the Monthly Shares from the Seller shall
terminate and cease at such time as the Seller has received a total of
$3,000,000 from the sale of the Rick’s Shares and any deficiency. Under the
terms of the Lock-Up/Leak-Out Agreement, Seller may not sell more than 25,000
Rick’s Shares per 30- day period, regardless of whether the Seller “Puts” the
Rick’s Put Shares to Rick’s or sells them in the open market or
otherwise.
Upon
closing of the transaction, the Company entered a two-year Non-Compete Agreement
with DeGori (the “DeGori Non-Compete Agreement”) pursuant to which DeGori agreed
not to compete with the Club by operating an establishment serving liquor and
providing live female nude or semi-nude adult entertainment in Clark County,
Nevada or in a radius of 25 miles of Clark County, Nevada; provided, however,
that the Non-Competition Agreement specifically excluded the Penthouse Club and
the Bada Bing Club located in Clark County, Nevada. The Company agreed to pay
DeGori cash consideration of $66,667 for entering into the Non-Competition
Agreement. Additionally, at Closing, the Company also entered into a 12-month
Consulting Agreement with DeGori (the “Consulting Agreement”) for a total
aggregate of $133,333 in consulting fees payable in eighteen (18) equal monthly
payments of $7,407.38 per month with the first payment due October 15,
2008. Upon closing of the transaction, the Company entered a one-year
Non-Compete Agreement with Lovaas (the “Lovaas Non-Compete Agreement”) pursuant
to which Lovaas agreed not to compete with the Club by operating an
establishment serving liquor and providing live female nude or semi-nude adult
entertainment in Clark County, Nevada, or any of its surrounding counties;
provided, however, that this Non-Competition Agreement shall specifically
exclude the Penthouse Club and the Bada Bing Club located in Clark County,
Nevada.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
The
Company incurred $367,580 in costs in connection with the
acquisition.
The
following information summarizes the initial allocation of fair values assigned
to the assets and liabilities at the acquisition date based on a preliminary
valuation. Subsequent adjustments may be recorded upon the completion
of the valuation and the final determination of the purchase price
allocation.
|
Net
current assets
|
$ | 112,885 | ||
|
Property
and equipment and other assets
|
1,953,065 | |||
|
Non-compete
agreement
|
100,000 | |||
|
Goodwill
|
16,022,298 | |||
|
Net
assets acquired
|
$ | 18,188,248 |
The
results of operations of this acquired entity are included in the Company’s
results of operations since September 5, 2008.
The
following unaudited pro forma information presents the results of operations as
if the acquisition had occurred as of the beginning of the immediate preceding
period. The pro forma information is not necessarily indicative of
what would have occurred had the acquisition been made as of such periods, nor
is it indicative of future results of operations. The pro forma
amounts give effect to appropriate adjustments for the fair value of the assets
acquired, amortization of intangibles and interest expense.
|
2007
|
||||
|
Revenues
|
$ | 15,404,160 | ||
|
Net
income
|
$ | 2,001,316 | ||
|
Net
income per share – basic
|
$ | 0.26 | ||
|
Net
income per share – diluted
|
$ | 0.24 | ||
|
Weighted
average shares outstanding – basic
|
7,678,234 | |||
|
Weighted
average shares outstanding – diluted
|
8,507,326 | |||
The
following unaudited pro forma information presents the results of operations for
the quarter ended December 31, 2007 as if the acquisitions of Miami Gardens
Square One, Inc. and DI Food and Beverage of Las Vegas, LLC had occurred as of
the beginning of the immediate preceding period. The pro forma information is
not necessarily indicative of what would have occurred had the acquisition been
made as of such periods, nor is it indicative of future results of
operations. The pro forma amounts give effect to appropriate
adjustments for the fair value of the assets acquired, amortization of
intangibles and interest expense.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
|
Revenues
|
$ | 18,370,814 | ||
|
Net
income
|
$ | 2,345,041 | ||
|
Net
income per share – basic
|
$ | 0.28 | ||
|
Net
income per share – diluted
|
$ | 0.26 | ||
|
Weighted
average shares outstanding – basic
|
8,311,387 | |||
|
Weighted
average shares outstanding – diluted
|
9,140,479 |
Media
Acquisitions
On April
15, 2008, the Company’s wholly owned subsidiary, RCI Entertainment (Media
Holdings), Inc., a Texas corporation ("RCI Media"), acquired 100% of the issued
and outstanding common stock (the "ED Stock") of ED Publications, Inc., a Texas
corporation ("ED"), 100% of the issued and outstanding common stock (the "TEEZE
Stock") of TEEZE International, Inc., a Delaware corporation ("TEEZE") and 100%
of the issued and outstanding membership interest (the "Membership Interest") of
Adult Store Buyers Magazine, LLC, a Georgia limited liability
company.
ED Publications,
Inc.
Under the
terms of a Purchase Agreement between Don Waitt ("Waitt"), RCI Media and Rick's
Cabaret International, Inc. ("Rick's") dated April 15, 2008 (the "ED Purchase
Agreement"), the Company agreed to pay Waitt the following consideration for the
purchase of the ED Stock:
(i)
$300,000 cash at closing;
(ii)
$200,000 cash payable in 6 months (paid); and
(iii) The
issuance of 8,696 shares of restricted common stock valued at $23.00 per share
(the "Closing Shares").
Additionally,
during the three (3) year period following the Closing Date (the "Earn Out
Period"), Waitt shall be entitled to earn additional consideration (the
"Additional Consideration") of up to $2,000,000 (the "Maximum Amount")
consisting of $500,000 cash (the “Cash”) and 65,217 shares of restricted common
stock valued at $23.00 per share (the "Earn Out Shares"), based upon the
earnings before income tax, depreciation and amortization ("EBITDA") of RCI
Media. RCI Media will pay the Maximum Amount of the Additional Consideration to
the Seller if RCI Media's EBITDA during the three (3) year period following the
Closing Date totals an aggregate of $2,400,000. At the end of each twelve (12)
month period after the Closing Date, RCI Media shall determine its EBITDA and
shall pay to Waitt any such portion of the Additional Consideration as has been
earned. The Closing Shares and Earn Out Shares are collectively referred to as
the "Rick's Shares".
At
Closing, Waitt entered into a Lock-Up/Leak-Out Agreement with the Company
pursuant to which on or after one year after the closing date with respect to
the Closing Shares, or on or after seven (7) months from the date of issuance
with respect to the Earn Out Shares, if any, Waitt shall have the right, but
not
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
the
obligation to have with respect to the Earn Out Shares, if any, Waitt shall have
the right, but not the obligation to have Rick's purchase from Waitt 5,000
Rick's Shares per month (the "Monthly Shares"), calculated at a price per share
equal to $23.00 per share ("Value of the Rick's Shares") until Waitt has
received an aggregate of $1,700,000 (i) from the sale of the Rick's Shares sold
in the open market or in a private transaction or otherwise, and (ii) the
payment of any deficiency (as defined in the ED Purchase Agreement) by Rick's.
At the Company’s election during any given month, the Company may either buy the
Monthly Shares or, if the Company elects not to buy the Monthly Shares from
Waitt, then Waitt shall sell the Monthly Shares in the open market. Any
deficiency between the amount which Waitt receives from the sale of the Monthly
Shares and the Value of the Rick's Shares shall be paid by the Company within
three (3) business days of the date of sale of the Monthly Shares during that
particular month. The Company’s obligation to purchase the Monthly Shares from
Waitt shall terminate and cease at such time as Waitt has received an aggregate
total of $1,700,000 from the sale of the Rick's Shares and any deficiency (as
defined in the ED Purchase Agreement).
At
Closing, Waitt also entered a three (3) year Employment Agreement with RCI Media
(the "Employment Agreement") pursuant to which he will serve as President. The
Employment Agreement extends through April 15, 2011, and provides for an annual
base salary of $250,000. Pursuant to the Employment Agreement, Mr. Waitt is also
eligible to participate in all benefit plans maintained by the Company for
salaried employees. Under the terms of the Employment Agreement, Mr. Waitt is
bound to a confidentiality provision and cannot compete with the Company upon
the expiration of the Employment Agreement.
TEEZE/Adult Store Buyers
Magazine LLC
Under the
terms of a Purchase Agreement between John Cornetta ("Cornetta"), Waitt, RCI
Media and Rick's dated April 15, 2008 (the "TEEZE/ASB Purchase Agreement"), the
Company agreed to pay the following consideration to Cornetta and Waitt for the
purchase of the TEEZE Stock and the Membership Interest:
|
|
(i)
|
an
aggregate of $200,000 cash at closing;
and
|
|
|
(ii)
|
the
issuance of 6,522 shares of restricted common stock to each of Messrs.
Waitt and Cornetta, for an aggregate of 13,044 shares of restricted common
stock to be valued at $23.00 per share (the "Rick's TEEZE
Shares").
|
Pursuant
to the TEEZE/ASB Purchase Agreement, on or after one year after the closing
date, each of Messrs. Waitt and Cornetta shall have the right, but not the
obligation to have Rick's purchase the Rick's TEEZE Shares calculated at a price
per share equal to $23.00 per share ("Value of the Rick's TEEZE Shares") until
Messrs. Waitt and Cornetta have each received $150,000 (i) from the sale of the
Rick's TEEZE Shares sold by them, regardless of whether sold to Rick's, sold in
the open market or in a private transaction or otherwise, and (ii) the payment
of any deficiency (as defined in the TEEZE/ASB Purchase Agreement) by Rick's. At
the Company’s election during any given month, the Company may either buy the
Rick's TEEZE Shares or, if the Company elects not to buy the Rick's TEEZE
Shares, then Cornetta and/or Waitt shall sell the Rick's TEEZE Shares in the
open market. Any deficiency between the amount which Cornetta or Waitt receives
from the sale of the Rick's TEEZE Shares and the Value of the Rick's TEEZE
Shares shall be paid by the Company within three (3) business days of the date
of sale of the Rick's TEEZE Shares during that particular month. The Company’s
obligation to purchase the Rick's TEEZE Shares shall terminate and cease at such
time as Waitt and Cornetta have each received $150,000 from the sale of the
Rick's TEEZE Shares and any deficiency.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
8.
|
ACQUISITIONS
AND DISPOSITIONS - continued
|
At
Closing, Cornetta entered a five year Non-Competition Agreement with the Company
pursuant to which he agreed not to compete with the Company either directly or
indirectly with TEEZE, ASB, RCI Media, Rick's or any of their affiliates by
publishing any sexually oriented industry trade print publications, with the
exception of a publication known as "Xcitement" which is currently owned and
operated by Cornetta.
The
following information summarizes the initial allocation of fair values assigned
to the assets and liabilities at the acquisition date based on a preliminary
valuation for the ED Publications, Inc., Adult Store Buyers Magazine LLC, and
TEEZE International, Inc. acquisitions. Subsequent adjustments may be
recorded upon the completion of the valuation and the final determination of the
purchase price allocation.
|
Net
current assets
|
$ | 469,378 | ||
|
Non-compete
agreement
|
100,000 | |||
|
Goodwill
|
567,125 | |||
|
Net
current liabilities
|
(66,749 | ) | ||
|
Net
assets acquired
|
$ | 1,069,754 |
The
results of operations of these entities are included in the Company’s results of
operations since April 15, 2008.
Proforma
results of operations have not been provided, as the amounts were not deemed
material to the consolidated financial statements. The transaction follows the
Company’s growth strategy.
|
9.
|
INCOME
TAXES
|
Income
tax expense for the periods presented differs from the “expected” federal income
tax expense computed by applying the U.S. federal statutory rate of 34% to
earnings before income taxes for the three months ended December 31, as a result
of the following:
|
2008
|
2007
|
|||||||
|
Computed
expected tax expense
|
$ | 427,005 | $ | 792,538 | ||||
|
State
income taxes
|
37,393 | 23,310 | ||||||
|
Stock
option disqualifying dispositions and other permanent
differences
|
668 | (268,126 | ) | |||||
|
Total
income tax expense
|
$ | 465,066 | $ | 547,722 | ||||
Included
in the Company’s deferred tax liabilities at December 31, 2008 is approximately
$14,200,000 representing the tax effect of indefinite lived intangible assets
from club acquisitions which are not deductible for tax
purposes. These deferred tax liabilities will remain in the Company’s
balance sheet until the related clubs are sold.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
10.
|
IMPAIRMENT
OF NIGHTCLUB ASSETS
|
The
Company’s San Antonio nightclub, “Encounters” is currently for
sale. The accompanying financial statements as of and for the quarter
ended December 31, 2008 include an impairment for the estimated loss on the sale
of $221,563.
|
11.
|
COMMITMENTS
AND CONTINGENCIES
|
Sexually
Oriented Business Ordinance of Houston, Texas
In 1997,
the City of Houston passed a comprehensive new ordinance regulating the location
of and the conduct within sexually oriented businesses (the “Ordinance”), which
became the subject of litigation, which affects the Company’s Sexually Oriented
Business licenses in Houston, Texas. After extensive litigation, the Trial Court
in Houston rendered its judgment in favor of the City of Houston in January
2007. The Trial Court found that the City of Houston met its burden
that there were sufficient alternate sites available to relocate all of the
existing sexually oriented businesses in Houston in 1997. The Trial
Court found the Ordinance constitutional and enforceable. Post-trial motions
were heard and the relief sought, a stay against enforcement, was denied by the
Trial Court. An appeal to the Fifth Circuit Court of Appeals was
timely filed. The Fifth Circuit granted a stay pending appeal Oral argument was
held before the Fifth Circuit Court of Appeals in August 2007. The
Fifth Circuit Court of Appeals ruled in favor of the City of Houston in
September 2007. Pleadings were filed seeking a stay against enforcement of
the provisions of the Ordinance with the United States Supreme Court in
conjunction with the request that the United States Supreme Court hear an appeal
of the Fifth Circuit Court of Appeals ruling. The United States
Supreme Court refused to hear the matter.
Additionally,
the Company filed on behalf of three of the Company’s club locations in Houston
state court lawsuits seeking judicial review of the results of the amortization
process contained within the Ordinance. The amortization process was
abated in 1998 due to the possible multiplicity of court actions. The
final order by the Trial Court resulted in the termination of the abatement and
allowed the amortization process to continue as provided in the
Ordinance. Trial on the amortization cases was held in April
2008. At the conclusion of the trial, the Court ruled that the
amortization awards were proper and requested that findings of fact and
conclusions of law be submitted to the Court as well as a judgment in the case.
A form of judgment has been entered by the Court. The amortization award periods
have already expired for the Company’s affected clubs. An appeal of
the amortization review by the Harris County District Court was
filed. A stay sought by the clubs during the appeal was
denied. In the event all efforts to stop enforcement activity fail
and the City of Houston elects to enforce the judgment, the Company, as well as
every other similarly situated sexually oriented business located within the
incorporated area of Houston, Texas, will have to either cease providing nude or
semi-nude entertainment or develop alternate methods of operating. We
have already taken steps to clothe the Company’s entertainers in a manner to
eliminate the need for licenses and not to be subject to the
Ordinance. Approximately 7.6% of the Company’s club operation’s
revenues and 1.8% of income before income taxes for the three months ended
December 31, 2008 were in Houston, Texas. It is unknown at this time
whether this will have a material effect on the Company’s
operations.
RICK'S
CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
|
11.
|
COMMITMENTS
AND CONTINGENCIES - continued
|
Other
Legal Matters
Beginning
January 1, 2008, our Texas clubs became subject to a new state law requiring
each club to collect pay a $5 surcharge for every club visitor. A
lawsuit was filed by the Texas Entertainment Association, an organization to
which we are a member, alleging the fee amounts to be an unconstitutional
tax. On March 28, 2008, a State District Court Judge in Travis
County, Texas ruled that the new state law violates the First Amendment to the
United States Constitution and is therefore invalid. The judge’s order enjoined
the State from collecting or assessing the tax. The State has
appealed the court’s
ruling. In Texas, when cities or the State give notice of appeal, it
supersedes and suspends the judgment, including the
injunction. Therefore, the judgment of the District Court cannot be
enforced until the appeals are completed. Given the suspension of the
judgment, the State has opted to collect the tax pending the outcome of its
appeal. The Texas Third Court of Appeals heard oral argument in this
case on February 11, 2009, however no decision is expected in the immediate
future. In the meantime, we have paid the tax for the first four calendar
quarters under protest and expensed the tax in the accompanying financial
statements, except for two locations in Dallas where the taxes have not been
paid, but we are accruing and expensing the liability. The
Company’s
Texas clubs have filed a separate lawsuit against the State to demand repayment
of the taxes.
For all
the above legal matters, no contingent reserves as liabilities have been
recorded in the accompanying balance sheets as such potential losses are not
deemed probable or estimable.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The
following discussion should be read in conjunction with our audited consolidated
financial statements and related notes thereto included in this quarterly
report.
FORWARD
LOOKING STATEMENT AND INFORMATION
The
Company is including the following cautionary statement in this Form 10-Q to
make applicable and take advantage of the safe harbor provision of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements, which are other
than statements of historical facts. Certain statements in this Form
10-Q are forward-looking statements. Words such as "expects,"
“believes,” "anticipates," “may," and "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. 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 limitation, 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
expectation, beliefs or projections will result, 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 effects on the Company's financial
condition and results of operations: the risks and uncertainties relating to our
Internet operations, the impact and implementation of the sexually oriented
business ordinances in the jurisdictions where our facilities operate,
competitive factors, the timing of the openings of other clubs, the availability
of acceptable financing to fund corporate expansion efforts, and the dependence
on key personnel. The Company has no obligation to update or revise
these forward-looking statements to reflect the occurrence of future events or
circumstances.
GENERAL
We
operate in three businesses in the adult entertainment industry:
|
1.
|
We
own and/or operate upscale adult nightclubs serving primarily businessmen
and professionals. Our nightclubs offer live adult entertainment and
restaurant and bar operations. Through our subsidiaries, we
currently own and/or operate a total of nineteen adult nightclubs that
offer live adult entertainment and restaurant and bar
operations. Seven of our clubs operate under the name "Rick's
Cabaret" four operate under the name “Club Onyx”, upscale venues that
welcome all customers but cater especially to urban professionals,
businessmen and professional athletes; five clubs operate under the name
"XTC Cabaret" one club that operated as “Encounters” closed in January
2009, one club operates as “Tootsie’s” and one club operates as “Divas
Latinas” (formerly an Onyx). Our nightclubs are in Houston, Austin, San
Antonio, Dallas and Fort Worth, Texas; Charlotte, North Carolina;
Minneapolis, Minnesota; New York, New York; Miami Gardens, Florida;
Philadelphia, Pennsylvania and Las Vegas, Nevada. No sexual
contact is permitted at any of our
locations.
|
|
2.
|
We
have extensive Internet activities.
|
|
|
a)
|
We
currently own two adult Internet membership Web sites at
www.CoupleTouch.com and www.xxxpassword.com. We acquire xxxpassword.com
site content from wholesalers.
|
|
|
b)
|
We
operate an online auction site www.NaughtyBids.com. This site provides our
customers with the opportunity to purchase adult products and services in
an auction format. We earn revenues by charging fees for each transaction
conducted on the automated site.
|
|
3.
|
In
April 2008, we acquired a media division, including the leading trade
magazine serving the multi-billion dollar adult nightclubs industry. As
part of the transaction we also acquired two industry trade shows, two
other industry trade publications and more than 25 industry
websites.
|
Our
nightclub revenues are derived from the sale of liquor, beer, wine, food,
merchandise, cover charges, membership fees, independent contractors' fees,
commissions from vending and ATM machines, valet parking and other products and
services. Our Internet revenues are derived from subscriptions to adult content
Internet websites, traffic/referral revenues, and commissions earned on the sale
of products and services through Internet auction sites, and other activities.
Media revenues include sale of advertising content and revenues from an annual
Expo convention. Our fiscal year end is September 30.
For
several years, we have greatly reduced our usage of promotional pricing for
membership fees for our adult entertainment web sites. This reduced our revenues
from these web sites.
CRITICAL
ACCOUNTING POLICIES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts in the financial
statements and accompanying notes. Estimates and assumptions are based on
historical experience, forecasted future events and various other assumptions
that we believe to be reasonable under the circumstances. Estimates and
assumptions may vary under different assumptions or conditions. We evaluate our
estimates and assumptions on an ongoing basis. We believe the accounting
policies below are critical in the portrayal of our financial condition and
results of operations.
Accounts and Notes
Receivable
Trade
accounts receivable for the nightclub operation is primarily comprised of credit
card charges, which are generally converted to cash in two to five days after a
purchase is made. The media division’s accounts receivable is
primarily comprised of receivables for advertising sales and Expo registration.
The Company’s accounts receivable, other is comprised of employee advances and
other miscellaneous receivables. The long-term portion of notes receivable are
included in other assets in the accompanying consolidated balance sheets. The
Company recognizes interest income on notes receivable based on the terms of the
agreement and based upon management’s evaluation that the notes receivable and
interest income will be collected. The Company recognizes allowances for
doubtful accounts or notes when, based on management judgment, circumstances
indicate that accounts or notes receivable will not be collected.
Inventories
Inventories
include alcoholic beverages, food, and Company merchandise. Inventories are
carried at the lower of cost, average cost, which approximates actual cost
determined on a first-in, first-out (“FIFO”) basis, or market.
Property and
Equipment
Property
and equipment are stated at cost. Provisions for depreciation and amortization
are made using straight-line rates over the estimated useful lives of the
related assets and the shorter of useful lives or terms of the applicable leases
for leasehold improvements. Buildings have estimated useful lives ranging from
31 to 40 years. Furniture, equipment and leasehold improvements have estimated
useful lives between five and ten years. Expenditures for major renewals and
betterments that extend the useful lives are capitalized. Expenditures for
normal maintenance and repairs are expensed as incurred. The cost of assets sold
or abandoned and the related accumulated depreciation are eliminated from the
accounts and any gains or losses are charged or credited in the accompanying
consolidated statement of operations of the respective period.
Goodwill and Intangible
Assets
In June
2001, the FASB issued SFAS No. 142, Goodwill and Other Intangibles
Assets, which addresses the accounting for goodwill and other intangible
assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives
are no longer amortized, but reviewed on an annual basis for impairment. The
Company adopted SFAS No. 142 effective October 1, 2001. The Company’s annual
evaluation was performed as of September 30, 2008, based on a projected
discounted cash flow method using a discount rate determined by management to be
commensurate with the risk inherent in the current business model. The Company
determined that there is no goodwill impairment at September 30, 2008. All of
the Company’s goodwill and intangible assets relate to the nightclub segment,
except for $567,000 related to the media segment. Definite lived
intangible assets are amortized on a straight-line basis over their estimated
lives. Fully amortized assets are written-off against accumulated
amortization.
Revenue
Recognition
The
Company recognizes revenue from the sale of alcoholic beverages, food and
merchandise and services at the point-of-sale upon receipt of cash, check, or
credit card charge.
The
Company recognizes revenue for VIP memberships in accordance with Staff
Accounting Bulletin No. 104, Revenue Recognition, by
deferring membership revenue and recognizing over the estimated membership usage
period. Management estimates that the weighted average useful lives for
memberships are 12 and 24 months for annual and lifetime memberships,
respectively. The Company does not track membership usage by type of membership,
however it believes these lives are appropriate and conservative, based on
management’s knowledge of its client base and membership usage at the
clubs.
The
Company recognizes Internet revenue from monthly subscriptions to its online
entertainment sites when notification of a new or existing subscription and its
related fee are received from the third party hosting company or from the credit
card company, usually two to three days after the transaction has occurred. The
monthly fee is not refundable. The Company recognizes Internet auction revenue
when payment is received from the credit card as revenues are not deemed
estimable nor collection deemed probable prior to that point.
Revenues
from the sale of magazines and advertising content are recognized when the issue
is published and shipped. Revenues and external expenses related to
the Company’s annual Expo convention are recognized upon the completion of the
convention in August.
Sales and Liquor
Taxes
The
Company recognizes sales and liquor taxes paid as revenues and an equal expense
in accordance with EITF 06-3, How Taxes Collected from Customers
and Remitted to Governmental Authorities Should Be Presented in the Income
Statement. Total sales and liquor taxes aggregated $1,073,166
and $740,032 for the three months ended December 31, 2008 and 2007,
respectively.
Advertising and
Marketing
Advertising
and marketing expenses are primarily comprised of costs related to public
advertisements and giveaways, which are used for promotional purposes.
Advertising and marketing expenses are expensed as incurred and are included in
operating expenses in the accompanying consolidated statements of
operations.
Income
Taxes
Deferred
income taxes are determined using the liability method in accordance with SFAS
No. 109, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. In addition, a valuation allowance is
established to reduce any deferred tax asset for which it is determined that it
is more likely than not that some portion of the deferred tax asset will not be
realized.
In June
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income
Taxes (FIN 48), to create a single model to address accounting for uncertainty
in tax positions. FIN 48 clarifies the accounting for income taxes by
prescribing a minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides
guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The Company has adopted FIN
48 as of October 1, 2007, as required. The adoption of FIN 48 has had no
effect on the Company's consolidated financial position, results of operations
or cash flows. There are no unrecognized tax benefits to disclose in the notes
to the financial statements.
Stock
Options
The
compensation cost recognized for the three months ended December 31, 2008 and
2007 was $20,044 and $39,270, respectively. There were 35,000 stock
option exercises for the three months ended December 31, 2007. There
were no stock options exercises for the three months ended December 31,
2008.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AS COMPARED TO THE
THREE MONTHS ENDED DECEMBER 31, 2007
For the
three months ended December 31, 2008, we had consolidated total revenues of
$17,311,171 compared to consolidated total revenues of $10,954,338 for the three
months ended December 31, 2007, an increase of $6,356,833 or
58.0%. The increase in total revenues was primarily attributable to
the increase in revenues generated by our new media division and new clubs in
Miami Gardens, Florida, Dallas, Texas, Philadelphia, Pennsylvania, and Las
Vegas, Nevada, in the amount of $6,360,179. Total revenues for
same-location-same-period of club operations decreased 0.1% to $8,767,438 for
the three months ended December 31, 2008 from $8,772,902 for the same period
ended December 31, 2007.
Following
is a comparison of the Company’s income statement for the quarters ended
December 31, 2008 and 2007 with percentages compared to total
revenue:
|
2008
|
%
|
2007
|
%
|
|||||||||||||
|
Sales
of alcoholic beverages
|
6,736,310 | 38.9 | % | 4,195,192 | 38.3 | % | ||||||||||
|
Sales
of food and merchandise
|
1,429,385 | 8.3 | % | 1,060,332 | 9.7 | % | ||||||||||
|
Service
Revenues
|
8,195,202 | 47.3 | % | 5,023,497 | 45.9 | % | ||||||||||
|
Internet
Revenues
|
176,763 | 1.0 | % | 170,789 | 1.6 | % | ||||||||||
|
Media
|
183,636 | 1.1 | % | - | 0.0 | % | ||||||||||
|
Other
|
589,875 | 3.4 | % | 504,528 | 4.6 | % | ||||||||||
|
Total
Revenues
|
17,311,171 | 100.0 | % | 10,954,338 | 100.0 | % | ||||||||||
|
Cost
of Goods Sold
|
2,269,588 | 13.1 | % | 1,341,831 | 12.2 | % | ||||||||||
|
Salaries
& Wages
|
4,297,117 | 24.8 | % | 2,586,476 | 23.6 | % | ||||||||||
|
Stock Base
Compensation
|
20,044 | 0.1 | % | 39,270 | 0.4 | % | ||||||||||
|
Taxes
and permits
|
2,353,491 | 13.6 | % | 1,235,793 | 11.3 | % | ||||||||||
|
Credit
card fees
|
339,699 | 2.0 | % | 198,710 | 1.8 | % | ||||||||||
|
Rent
|
963,362 | 5.6 | % | 464,455 | 4.2 | % | ||||||||||
|
Legal
& professional
|
509,049 | 2.9 | % | 293,373 | 2.7 | % | ||||||||||
|
Advertising
and marketing
|
1,177,311 | 6.8 | % | 360,832 | 3.3 | % | ||||||||||
|
Insurance
|
243,047 | 1.4 | % | 201,396 | 1.8 | % | ||||||||||
|
Utilities
|
442,698 | 2.6 | % | 209,735 | 1.9 | % | ||||||||||
|
Impairment
Expense
|
221,563 | 1.3 | % | - | 0.0 | % | ||||||||||
|
Depreciation
and amortization
|
869,893 | 5.0 | % | 511,339 | 4.7 | % | ||||||||||
|
Other
|
1,447,174 | 8.4 | % | 939,231 | 8.6 | % | ||||||||||
|
Total
operating expenses
|
15,154,036 | 87.5 | % | 8,382,441 | 76.5 | % | ||||||||||
|
Income
from operations
|
2,157,135 | 12.5 | % | 2,571,897 | 23.5 | % | ||||||||||
|
Interest
income
|
5,734 | 0.0 | % | 43,069 | 0.4 | % | ||||||||||
|
Interest
expense
|
(833,471 | ) | -4.8 | % | (461,883 | ) | -4.2 | % | ||||||||
|
Minority
interests
|
(73,500 | ) | -0.4 | % | 177,911 | 1.6 | % | |||||||||
|
Income
taxes
|
(465,066 | ) | -2.7 | % | (547,722 | ) | -5.0 | % | ||||||||
|
Net
Income
|
790,832 | 4.6 | % | 1,783,272 | 16.3 | % | ||||||||||
Following
is an explanation of significant variances in the above amounts.
The
increase in the cost of goods sold as a percentage of revenues for the three
months ended December 31, 2008 was due primarily to the addition of our
media operation and its related cost of goods which is significantly higher as a
percentage of revenues compared to the nightclub operation. Media
cost of goods amounted to $98,220 for the quarter ended December 31,
2008. The cost of goods sold for the club operations for the three
months ended December 31, 2008 was 12.8% compared to 12.4% for the three months
ended December 31, 2007. The cost of goods sold from our internet
operations for the three months ended December 31, 2008 was 1.7% compared to
4.6% for the three months ended December 31, 2007. The cost of goods
sold for same-location-same-period of club operations for the three months ended
December 31, 2008 was 12.2%, compared to 12.6% for the same period ended
December 31, 2007.
The
increase in payroll and related costs, stated as “Salaries & Wages” above,
was primarily due to the addition of the new clubs. The
increase in percentage to total revenues is principally due to the new clubs in
Dallas and Philadelphia which had significantly higher manager payrolls and also
the addition of a general manager and a manager in Miami and the change to
salaried personnel for maintenance and landscaping in Miami from an outsourced
company. Payroll for same-location-same-period of club
operations decreased to $1,879,663 for the three months ended December 31, 2008
from $1,886,657 for the same period ended December 31,
2007. Management currently believes that its labor and management
staff levels are appropriate.
The
increase in the percentage of taxes and permits to total revenues is principally
due to the patron tax in our nightclubs in Texas which was instituted in January
2008 and amounted to $437,000 during the quarter ended December 31,
2008.
The
increase in the percentage of advertising and marketing to total revenue is
principally due to the rebranding of the Club Onyx in Philadelphia and the
addition of our new club in Las Vegas.
Rent
expense increased principally due to significant new leases in Las Vegas and
Philadelphia.
The
increase in legal and professional expense is principally due to contesting of
labor lawsuits in Minnesota and New York.
Impairment
expense of nightclub assets relates to the impairment of the assets of our
nightclub, “Encounters”, which is for sale at the current
time. Encounters experienced a loss of approximately $44,000 before
income taxes for the quarter ended December 31, 2008.
The
increase in interest expense was attributable to our obtaining new debt during
the year ended September 30, 2008 to finance the purchase of the new clubs and
related real estate. As of December 31, 2008, the balance of
long-term debt was $32,484,724 compared to $24,304,285 a year
earlier.
The
significant change in minority interests is due to the purchase, effective March
31, 2008, of the remaining 49% of our Austin Rick’s Cabaret location and the
purchase, effective the same day, of 51% of the partnership owning the real
estate for our Philadelphia location.
Income
taxes, as a percentage of income before taxes was 37% and 23.5% for the quarters
ended December 31, 2008 and 2007, respectively. The increase in 2008
is due to the lack of significant permanent difference deductions in 2008
compared to 2007, principally related to exercised stock options and also to the
increased significance of state taxes in 2008.
The
decrease in net income was primarily due to the increase in expenses detailed
above and losses in our new operations in Dallas, Philadelphia and Las
Vegas. Income before income taxes (exclusive of corporate
overhead) for same-location-same-period of club operations decreased to
$1,974,984 for the three months ended December 31, 2008 from $2,295,644 for same
period ended December 31, 2007, or by 14.0%.
Losses,
before income taxes, at clubs losing money during the quarter ended December 31,
2008 exceeded $1.9 million. The significant losing clubs include
Rick’s Cabarets in Austin, Las Vegas, Dallas and Philadelphia and Club Onyx in
Dallas. Following is an explanation of the steps management has taken
or is in the process of taking to remedy these losses:
The
Rick’s Cabaret in Dallas lost $323,000 before income taxes during the quarter
ended December 31, 2008. In January 2009, we have converted the
location to XTC Cabaret Dallas. Early results are very encouraging
and we expect to at least break even for the quarter ended March 31, 2009 and
become profitable after that.
The
Rick’s Cabaret in Austin lost $240,000 before income taxes during the quarter
ended December 31, 2008. We have negotiated lower rent, discontinued
day shift and all kitchen and food operations and are currently considering
re-concepting this location.
The
Rick’s Cabaret in Philadelphia lost $276,000 before income taxes during the
quarter ended December 31, 2008. We have converted the location to
Club Onyx Philadelphia in January 2009 and the club has already turned a slight
profit in January 2009. We expect continued profitability in 2009
going forward.
Club Onyx
Dallas did not have a liquor license during the quarter ended December 2008
until December 5, 2008 and lost $188,000 before income taxes during the
quarter. January is already profitable and we expect ongoing profits
in this location.
Rick’s
Cabaret Las Vegas lost approximately $678,000 before income taxes for the
quarter ended December 31, 2008. Due to the economy in Las
Vegas, we will continue to lose money at this location until the Las Vegas
economy improves, but we have made expense reductions in this location
subsequent to December 31, 2008 and hope to see better results in the subsequent
quarters.
LIQUIDITY
AND CAPITAL RESOURCES
Working Capital and Cash
Flows
At
December 31, 2008, we had working capital of $606,749 compared to $327,800 at
December 31, 2007.
Net cash
used by operating activities in the three months ended December 31, 2008 was
$575,682 compared to cash provided of $2,258,329 for the three months ended
December 31, 2007. The decrease in cash provided by operating
activities was primarily due to the payment of income taxes and accounts payable
during the quarter ended December 31, 2008.
We used
$658,935 of cash in investing activities during the three months ended December
31, 2008 compared to $15,957,446 during the three months ended December 31,
2007. The decrease was principally due to the acquisition of the new
club in Miami Gardens, Florida on November 30, 2007. Cash of
$1,389,895 was used by financing activities during the three months ended
December 31, 2008 compared to $15,733,659 cash provided during the three months
ended December 31, 2007. The decrease in cash provided by financing
activities is primarily the result of common stock issuances to raise capital
for acquiring the new Florida club in 2007.
We
require capital principally for construction or acquisition of new clubs,
renovation of older clubs and investments in technology. We may also
utilize capital to repurchase our common stock as part of our share repurchase
program.
Put
Options
As part
of certain of our acquisition transactions, we have entered into
Lock-Up/Leak-Out Agreements with the sellers pursuant to which, on or after a
contractual period after the closing date, the seller shall have the right, but
not the obligation, to have us purchase from seller a certain number of our
shares of common stock issued in the transactions in an amount and at a rate of
not more than a contractual number of the shares per month (the “Monthly
Shares”) calculated at a price per share equal to a contractual value per share
(“Value of the Rick’s Shares”). At our election during any given month, we may
either buy the Monthly Shares or, if we elect not to buy the Monthly Shares from
the seller, then the seller shall sell the Monthly Shares in the open market.
Any deficiency between the amount which the seller receives from the sale of the
Monthly Shares and the value of the shares shall be paid by us within three (3)
business days of the date of sale of the Monthly Shares during that particular
month. Our obligation to purchase the Monthly Shares from the Seller shall
terminate and cease at such time as the seller has received a contractual amount
from the sale of the Rick’s Shares and any deficiency. Under the terms of the
Lock-Up/Leak-Out Agreements, the seller may not sell more than a contractual
number of our shares per 30-day period, regardless of whether the seller “Puts”
the shares to us or sells them in the open market or otherwise.
The
maximum obligation that could be owed if our stock were valued at zero is
$13,935,020 and is recorded in our balance sheet at September 30, 2008 as
Temporary Equity. We consider this type of financing transaction to be similar
to interest-free debt. If we are required to buy back any of these put options,
the buy-back transaction will be purely a balance sheet transaction, affecting
only Temporary Equity and Stockholders’ Equity and will have no income statement
effect. Following is a schedule of the annual obligation we would have if our
stock price remains in the future at the closing market price on February 2,
2009 of $4.00 per share, of which there can be no assurance:
|
For
the Year Ended September 30:
|
||||
|
2009
|
$ | 2,670,336 | ||
|
2010
|
3,702,724 | |||
|
2011
|
3,000,000 | |||
|
2012
|
2,115,000 | |||
|
Total
|
$ | 11,488,060 | ||
Each
$1.00 per share movement of our stock price has an aggregate effect of $611,740
on the total obligation.
Other Liquidity and Capital
Resources
We have
not established lines of credit or financing other than the above mentioned
notes payable and our existing debt. There can be no assurance that
we will be able to obtain additional financing on reasonable terms in the
future, if at all, should the need arise.
On
September 29, 2008, our Board of Directors authorized us to repurchase up to
$5,000,000 worth of our common stock. During the fiscal year ending
September 30, 2008, no shares were purchased under this
program. During the three months ended December 31, 2008, we
purchased 48,200 shares of common stock in the open market at prices ranging
from $3.54 to $5.95.
We
believe that the adult entertainment industry standard of treating entertainers
as independent contractors provides us with safe harbor protection to preclude
payroll tax assessment for prior years. We have prepared plans that
we believe will protect our profitability in the event that sexually oriented
business industry is required in all states to convert dancers who are now
independent contractors into employees.
The
sexually oriented business industry is highly competitive with respect to price,
service and location, as well as the professionalism of the
entertainment. Although management believes that we are
well-positioned to compete successfully in the future, there can be no assurance
that we will be able to maintain our high level of name recognition and prestige
within the marketplace.
IMPACT
OF INFLATION
We have
not experienced a material overall impact from inflation in our operations
during the past several years. To the extent permitted by
competition, we have managed to recover increased costs through price increases
and may continue to do so. However, there can be no assurance that we
will be able to do so in the future.
SEASONALITY
Our
nightclub operations are affected by seasonal factors. Historically,
we have experienced reduced revenues from April through September with the
strongest operating results occurring during October through
March. Our experience to date indicates that there does not appear to
be a seasonal fluctuation in our Internet activities.
GROWTH
STRATEGY
We
believe that our nightclub operations can continue to grow organically and
through careful entry into markets and demographic segments with high growth
potential. Our growth strategy is: (a) to open new clubs after
careful market research, (b) to acquire existing clubs in locations that are
consistent with our growth and income targets and which appear receptive to the
upscale club formula we have developed, as is the case with the acquisitions of
the clubs in Austin and Fort Worth, Texas, Miami Gardens,
Florida, Philadelphia, Pennsylvania, and Las Vegas, Nevada, (c) to
form joint ventures or partnerships to reduce start-up and operating costs, with
us contributing equity in the form of our brand name and management expertise,
(d) to develop new club concepts that are consistent with our management and
marketing skills, (e) to acquire real estate in connection with club operations,
although some clubs may be in leased premises, and/or (f) to enter into
licensing agreements in strategic locations, as is the case with the license
agreement with Rick’s Buenos Aires Sociedad Anonima in Argentina.
On
November 30, 2007, we purchased one night club operation for $25,486,000 (which
includes inventory and other assets). The acquisition was funded by
the issuance of 1,165,000 shares of our restricted common stock and $10,000,000
in debt. For the three months ended December 31, 2008, this nightclub
operation had total revenues of approximately $5,721,000 and income before
income taxes of approximately $2,267,000, compared to approximately $2,001,000
and $954,000, respectively, for the month of December 2007 after purchase in the
previous year.
We
continue to evaluate opportunities to acquire new nightclubs and anticipate
acquiring new locations that fit our business model as we have done in the
past.
We also
expect to continue to grow our Internet profit centers. We plan to focus on
high-margin Internet activities that leverage our marketing skills while
requiring a low level of start-up cost and ongoing operating costs and refine
and tune our Internet sites for better positioning in organic search rankings
amongst the major search providers. We will restructure affiliate programs
to provide higher incentives to our current affiliates to better promote our
Internet sites, while actively seeking new affiliates to send traffic to our
Internet sites.
The
acquisition of additional clubs and/or internet operations will require us to
obtain additional debt or issuance of our common stock, or
both. There can be no assurance that we will be able to obtain
additional financing on reasonable terms in the future, if at all, should the
need arise. An inability to obtain such additional financing could
have an adverse effect on our growth strategy.
Item 4T. Controls and Procedures.
Disclosure Controls and
Procedures. We maintain "disclosure controls and procedures," as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (the "Exchange Act"), that are designed to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in Securities and Exchange Commission rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the disclosure controls and procedures are met. Additionally, in
designing disclosure controls and procedures, our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible disclosure controls and procedures. The design of any disclosure
controls and procedures also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions.
There
were no changes in our internal control over financial reporting during our
first quarter ended December 31, 2008, that have materially affected or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II—OTHER INFORMATION
Item 1. Legal Proceedings.
In 1997,
the City of Houston passed a comprehensive new ordinance regulating the location
of and the conduct within sexually oriented businesses (the “Ordinance”), which
became the subject of litigation which affects our Sexually Oriented Business
licenses in Houston, Texas. After extensive litigation, the Trial Court in
Houston rendered its judgment in favor of the City of Houston in January,
2007. The Trial Court found that the City of Houston met its burden
that there were sufficient alternate sites available to relocate all of the
existing sexually oriented businesses in Houston in 1997. The Trial
Court found the Ordinance constitutional and enforceable. Post-trial
motions were heard and the relief sought, a stay against enforcement, was denied
by the Trial Court. An appeal to the Fifth Circuit Court of Appeals
was timely filed. The Fifth Circuit granted a stay
pending appeal. Oral argument was held before the Fifth Circuit Court
of Appeals in August 2007. The Fifth Circuit Court of Appeals ruled
in favor of the City of Houston in September 2007. Pleadings were filed
seeking a stay against enforcement of the provisions of the Ordinance with the
United States Supreme Court in conjunction with the request that the United
States Supreme Court hear an appeal of the Fifth Circuit Court of Appeals
ruling. The United States Supreme Court refused to hear the
matter.
Additionally,
we filed on behalf of three of our club locations in Houston state court
lawsuits seeking judicial review of the results of the amortization process
contained within the Ordinance. The amortization process was abated
in 1998 due to the possible multiplicity of court actions. The final
order by the Trial Court resulted in the termination of the abatement and
allowed the amortization process to continue as provided in the
Ordinance. Trial on the amortization cases was held in April
2008. At the conclusion of the trial, the Court ruled that the
amortization awards were proper and requested that findings of fact and
conclusions of law be submitted to the Court as well as a judgment in the case.
A form of judgment has been entered by the Court. The amortization award periods
have already expired for our affected clubs. An appeal of the
amortization review by the Harris County District Court was filed. A
stay sought by the clubs during the appeal was denied. In the event
all efforts to stop enforcement activity fail and the City of Houston elects to
enforce the judgment, we, as well as every other similarly situated sexually
oriented business located within the incorporated area of Houston, Texas, will
have to either cease providing nude or semi-nude entertainment or develop
alternate methods of operating. We have already taken steps to clothe
our entertainers in a manner to eliminate the need for licenses and not to be
subject to the Ordinance. Approximately 7.6% of our club operation’s
revenues and 1.8% of income before income taxes for the three months ended
December 31, 2008 were in Houston, Texas. It is unknown at this time
whether this will have a material effect on our operations.
OTHER
LEGAL MATTERS
Beginning
January 1, 2008, our Texas clubs became subject to a new state law requiring
each club to collect pay a $5 surcharge for every club visitor. A
lawsuit was filed by the Texas Entertainment Association, an organization to
which we are a member, alleging the fee amounts to be an unconstitutional
tax. On March 28, 2008, a State District Court Judge in Travis
County, Texas ruled that the new state law violates the First Amendment to the
United States Constitution and is therefore invalid. The judge’s order enjoined
the State from collecting or assessing the tax. The State has
appealed the court’s
ruling. In Texas, when cities or the State give notice of appeal, it
supersedes and suspends the judgment, including the
injunction. Therefore, the judgment of the District Court cannot be
enforced until the appeals are completed. Given the suspension of the
judgment, the State has opted to collect the tax pending the outcome of its
appeal. The Texas Third Court of Appeals heard oral argument in this
case on February 11, 2009, however no decision is expected in the immediate
future. In the meantime, we have paid the tax for the first four calendar
quarters under protest and expensed the tax in the accompanying financial
statements, except for two locations in Dallas where the taxes have not been
paid, but we are accruing and expensing the liability. The
Company’s
Texas clubs have filed a separate lawsuit against the State to demand repayment
of the taxes.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
During
the three months ended December 31, 2008, we purchased 48,200 shares of common
stock in the open market at prices ranging from $3.54 to
$5.95. Following is a summary of our purchases by month:
|
Period:
|
(a)
|
(b)
|
(c)
|
(d)
|
|
Month
Ending
|
Total
Number of Shares (or Units) Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares (or Units) Purchased as Part of Publicly Announced Plans
or Programs
|
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be
Purchased Under the Plans or Programs
|
|
October
31, 2008
|
-
|
-
|
-
|
$5,000,000
|
|
November
30, 2008
|
46,500
|
$4.94
|
46,500
|
$4,953,500
|
|
December
31, 2008
|
1,700
|
$4.03
|
1,700
|
$4,951,800
|
|
Total
|
48,200
|
$4.91
|
48,200
|
$4,951,800
|
Item 6. Exhibits.
Exhibit 31.1 – Certification of Chief Executive Officer of
Rick’s Cabaret International, Inc. required by Rule 13a – 14(1) or Rule 15d –
14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 – Certification of Chief Financial Officer of
Rick’s Cabaret International, Inc. required by Rule 13a – 14(1) or Rule 15d –
14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 -- Certification of Chief Executive Officer
of Rick’s Cabaret International, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
Exhibit 32.2 -- Certification of Chief Financial Officer
of Rick’s Cabaret International, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
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: February
17, 2009
|
By:
/s/ Eric S.
Langan
|
|
Eric
S. Langan
|
|
|
Chief
Executive Officer and
President
|
|
Date: February
17, 2009
|
By:
/s/ Phillip K.
Marshall
|
|
Phillip
K. Marshall
|
|
|
Chief
Financial Officer and Principal Accounting
Officer
|
34