RCI HOSPITALITY HOLDINGS, INC. - Annual Report: 2010 (Form 10-K)

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x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o	Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

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PART I				Page No.
Item 1.		Business		3
Item 1A.		Risk Factors		14
Item 1B.		Unresolved Staff Comments		18
Item 2.		Properties		18
Item 3.		Legal Proceedings		20
Item 4.		Removed and Reserved		21
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities		21
Item 6.		Selected Financial Data		23
Item 7.		Management's Discussion and Analysis of Financial Condition and Results of Operations		24
Item 7A.		Quantitative and Qualitative Disclosures about Market Risk		36
Item 8.		Financial Statements and Supplementary Data		36
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosures		85
Item 9A.		Controls and Procedures		85
Item 9B.		Other Information		85
PART III
Item 10.		Directors, Executive Officers and Corporate Governance		86
Item 11.		Executive Compensation		88
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		94
Item 13.		Certain Relationships and Related Transactions, and Director Independence		96
Item 14.		Principal Accounting Fees and Services		96
PART IV
Item 15.		Exhibits and Financial Statement Schedules		96
		Signatures		98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.

On November 30, 2007, we 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 Gardens 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, we acquired the Stellar Stock and the MGSO Stock from Norman Hickmore ("Hickmore") and Richard Stanton ("Stanton") for a total purchase price of $25 million payable $15 million in cash and payable $10 million pursuant to two Secured Promissory Notes in the amount of $5 million each to Stanton and Hickmore (the "Notes"). The Notes will bear interest at the rate of 14% per annum with the principal payable in one lump sum payment on November 30, 2012, as amended. Interest on the Notes will be payable monthly, in arrears, with the first payment being due thirty days after the closing of the Transaction. We cannot pre-pay the Notes during the first twelve months; thereafter, we may prepay the Notes, in whole or in part, provided that (i) any prepayment by us 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 us 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. Additionally, as part of the Transaction, we 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 us 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.

 

2.

On March 31, 2008, our 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 operated a nightclub previously known as “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, our 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, we paid a purchase price of $3.5 million in cash for the Partnership Interests and Membership Interests, and issued 195,000 shares of our restricted common stock (the “Rick’s Shares”) valued at $23 per share for the TEZ Shares.

 

 

 

3.

On March 31, 2008, our 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 us of RCI. Playmates owns an adult entertainment cabaret previously 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 $1.4 million which was paid $701,711 in cash and debt forgiveness at the time of closing and the issuance of 35,000 shares of our restricted common stock valued at $20.00 per share (the “Shares”). For accounting purposes, our investment in 2008 is only $751,000, due to the previous losses of the minority interest which have been expensed. The investment has been assigned to goodwill.

 

4.

On April 11, 2008, our 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 previously known as "The Executive Club" (the "Club"), located at 8550 North Stemmons Freeway, Dallas, Texas 75247 (the "Real Property"). As part of the transaction, our wholly owned subsidiary, RCI Holdings, Inc. ("RCI"), also acquired the Real Property from DPC Holdings, LLC, a Texas limited liability company ("DPC").

 

 

 

5.

On June 18, 2008, our 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”).

 

 

 

6.

On September 5, 2008, our 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 operated an adult entertainment cabaret previously known as “Scores” (the “Club”), located at 3355 Procyon Street, Las Vegas, Nevada 89102 (the “Real Property”).

 

 

(i)

$12 million payable by wire transfer;

(ii)

$3 million 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 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 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.

 

o

from April 5, 2009 until May 4, 2009, up to a total of 15,000 shares;

o

from May 5, 2009 until November 5, 2009 at a rate of 3,000 shares per month;

o

from November 5, 2009 until May 4, 2010 at a rate of 4,000 shares per month;

o

from May 5, 2010 until November 4, 2010 at a rate of 5,000 shares per month; and

o

from November 5, 2010 until October 4, 2011 at a rate of 6,000 shares per month.

 

7.   On September 30, 2009, the Company’s subsidiary, RCI Entertainment (North FW), Inc. (the “Purchaser”), purchased 100% of the outstanding common shares of Cabaret North, Inc., a Texas corporation (“CNI”).  CNI owns and operates an adult entertainment cabaret known as “Cabaret North” (the “Club”), located at 5316 Superior Parkway, Fort Worth, Texas 76106.  The Company paid the Sellers total aggregate consideration of $2.3 million (the “Purchase Price”).  The Purchase Price was payable as follows:

(i)

$140,000 directly to CNI to be used for the payment of outstanding liabilities;

(ii)

$2 million to the Sellers; and

(iii)

$160,000 to be held in an escrow account to pay any liabilities or obligations of CNI which were incurred but unpaid as of Closing and to be held in connection with the outcome of certain pending litigation.

 

8.

On April 15, 2008, our 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.

 

 

 

 

 

 

 

 

 

9.

On December 18, 2009, our wholly owned subsidiary, RCI Entertainment (3105 I-35), Inc. (“RCI”), entered into and closed a Stock Purchase Agreement (the “RCI Purchase Agreement”) with Spiridon Karamalegos (“Karamalegos”), the Joy Club of Austin, Inc. (“JOY”) and North IH-35 Investments, Inc. (“NIII”), whereby RCI acquired 51% of the outstanding stock of JOY and 49% of the outstanding stock of NIII.  JOY is the owner and operator of the adult nightclub business known as “Joy of Austin” which leases and occupies the real property and improvements located at 3105 South IH-35, Round Rock, Texas 78664 (the “Property”).  NIII is the owner of the Property and leases the Property to JOY.  Contemporaneously with entry into the RCI Purchase Agreement, RCI and Karamalegos entered into an Assignment and Assumption Agreement (the “Assignment Agreement”), whereby Karamalegos assigned to RCI his right to acquire the remaining 49% of the outstanding stock of JOY and the remaining 51% of the outstanding stock of NIII, which right Karamalegos obtained pursuant to a Purchase Agreement entered into between Karamalegos, Evangelos Polycrates (“Polycrates”), JOY and NIII (the “Polycrates Purchase Agreement”).  Pursuant to the RCI Purchase Agreement and the Assignment Agreement, RCI acquired and owns 100% of the outstanding stock of JOY and 100% of the outstanding stock of NIII.

(i)

$1.8 million by wire transfer to Karamalegos;

(ii)

$880,000 by wire transfer to Polycrates;

(iii)

$530,000 evidenced by a five year secured promissory note to Karamalegos, bearing interest at the rate of 4.75% per annum and payable in 60 equal monthly installments of principal and interest of $9,941 (the “Karamalegos Note”).  The Karamalegos Note is secured by a third lien in favor of Karamalegos against the Property and improvements located thereon and a second lien on all of the shares of JOY and NIII;

(iv)

$1.3 million evidenced by a five year secured promissory note to Polycrates, bearing interest at the rate of 4.75% per annum and payable in 60 equal monthly installments of principal and interest of $24,759 (the “Polycrates Note”).  The Polycrates Note is individually guaranteed by Karamalegos for the first thirty (30) months and is secured by a second lien in favor of Polycrates against the Property and improvements located thereon and a first lien on all of the shares of JOY and NIII; and

(v)

The assumption of a Promissory Note dated September 10, 2004, in the original principal amount of $850,000, executed by NIII and payable to First State Bank-Taylor, which Promissory Note had a current balance of $652,489 as of the date of acquisition, and is secured by the Property and improvements located thereon.  The note bears interest at the rate of 7.25%, payable in monthly installments of principal and interest of $7,761.  The interest rate is subject to adjustment on September 10, 2014 to the rate of prime plus 2.5%.  The note is due and payable on or before September 10, 2019.

Net current assets		$	44
Property and equipment and other assets			2,955
Non-compete agreement			200
Goodwill			2,031
SOB licenses			2,004
Deferred tax liability			(2,031	)
Net assets acquired		$	5,203

10.

On June 1, 2010, our wholly owned subsidiary RCI Entertainment (3315 North Freeway FW), Inc. (the “Purchaser”) completed the acquisition of certain assets (the “Purchased Assets”) of Restaurant Associates, Inc., a Texas corporation (the “Seller”) pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) between Purchaser, Seller, Voldar, LLC, a Texas limited liability company (“Voldar”), Sherri Mofid (“Mofid”), John Faltynski (“Faltynski”) and James Noryian (“Noryian”).  The Purchase Agreement was executed and closed on June 1, 2010.  Seller owned and operated an adult entertainment cabaret known as “Fort Worth Gentleman’s Club” (the “Club”), located at 3315 North Freeway, Fort Worth, Texas 76106 (the “Real Property”).

Net current assets		$	42
Property and equipment and other assets			1,301
Non-compete agreement			200
Goodwill			613
Net assets acquired		$	2,156

11.

On July 16, 2010, our wholly owned subsidiary RCI Entertainment (Fort Worth), Inc. (the “Purchaser”) completed the acquisition of certain assets (the “Purchased Assets”) of Golden Productions JGC Fort Worth, LLC, a Texas limited liability company (“Golden Productions”) and VCG Holding Corp., a Colorado corporation (“VCGH”) pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) between Purchaser, Golden Productions and VCGH.  The Purchase Agreement was executed and closed on July 16, 2010.  Golden Productions owned and operated an adult entertainment cabaret previously known as “Jaguar’s Gold Club Fort Worth” (the “Club”), located at 12325 Calloway Cemetery Road, Fort Worth, Texas, 76040 (the “Premises”).  VCGH owned the improvements on the Premises, including the building and fixtures (the “Improvements”).  The Club is now operated as “Cabaret East”.

 

Property and equipment		$	1,959
Non-compete agreement			50
Net assets acquired		$	2,009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

●

our performance and prospects;

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the depth and liquidity of the market for our securities;

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sales by selling shareholders of shares issued or issuable in connection with certain convertible notes;

●

investor perception of us and the industry in which we operate;

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changes in earnings estimates or buy/sell recommendations by analysts;

●

general financial and other market conditions; and

●

domestic economic conditions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.

Club Onyx, located on Bering Drive in Houston, has an aggregate 12,300 square feet of space. In December 2004, we paid off the old mortgage and obtained a new one with an initial balance of $1.3 million and an interest rate of 10% per annum over a 10 year term. The money received from this new note was used to finance the acquisition of the New York club. As of September 30, 2010, the balance of the mortgage was $1.1 million. During fiscal year 2010, we paid $12,256 in monthly principal and interest payments. The monthly payment is calculated based on a 20 year amortization schedule. The last mortgage payment is due in 2015.

 

2.

The Rick's Cabaret, located on North Belt Drive in Houston, has 12,000 square feet of space. In November 2004, we obtained a mortgage using this property as collateral. The principal balance of the new mortgage was $1,042,000, with an annual interest rate of 10% over a 10 year term. The money received from this new note was used to finance the acquisition of the New York club. As of September 30, 2010, the balance of the mortgage was $913,806. The monthly payment of principal and interest is $10,056. The monthly payment is calculated based on a 20 year amortization schedule. The last mortgage payment is due in 2014.

3.	The Rick's Cabaret located in Minneapolis has 15,400 square feet of space. The balance, as of September 30, 2010, that we owe on the mortgage is $1 million and the interest rate is 9%. We pay $7,500 in monthly interest payments. The last mortgage payment is due in 2013.

 

4.

The property for our XTC Cabaret nightclub in Austin has 8,600 square feet of space, which sits on 1.2 acres of land. In August 2005, we restructured the mortgage by extending the term to 10 years. The balance of the this mortgage as of September 30, 2010 is $156,465 with an interest rate of 11% and monthly principal and interest payments of $3,445. We also have an additional mortgage on the property which we obtained in November 2004. The principal balance of the additional mortgage was $900,000, with an annual interest rate of 11% over a 10 year term. In June and July 2005, we obtained additional funds in the amount of $200,000, which we combined with the $900,000 mortgage, and in August 2005 we restructured this additional mortgage. The monthly principal and interest payment is $15,034. As of September 30, 2010, the balance of the additional mortgage was $682,772. The last payments for both mortgages are due in 2015.

 

5.

We own the property for our XTC Cabaret nightclub in San Antonio, which has 7,800 square feet of space. In November 2004, we obtained a mortgage using this property as collateral. The principal balance of the new mortgage was $590,000, with an annual interest rate of 10% over a 10 year term. The money received from this new note was used to finance the acquisition and renovation of the New York club. As of September 30, 2010, the balance of this mortgage was $517,414. The monthly principal and interest payment is $5,694. The last mortgage payment is due in 2014.

 

6.	We own an 8,000 square foot Houston property which has been leased for $8,500 per month through December 2012. In November 2004, this property, together with property in Austin, was used as additional collateral to secure the $900,000 mortgage referenced in paragraph 4 above.

7.

On April 5, 2006, our wholly owned subsidiary, RCI Holdings, Inc. completed the acquisition of real property located at 9009 Airport Blvd., Houston, Texas where we previously operated Club Onyx South and Divas Latinas. Pursuant to the terms of the agreement, we paid a total sales price of $1,300,000, which consisted of $500,000 in cash and 160,000 shares of our restricted common stock.  This property is currently leased by a tenant for $8,000 per month through November 2012.

 

8.

On August 24, 2006, our subsidiary, RCI Holdings, Inc. acquired 100% of the interest in the improved real property upon which our Rick’s-San Antonio is located. The total purchase price for the business and real property was $2.9 million. Under terms of the agreement, the Company paid the owners of the club and property $600,000 in cash at the time of closing and signed promissory notes for the remaining balance. As of September 30, 2010, the balance of the promissory notes was $827,477.  This note matures in 2011.

 

9.

On April 23, 2007, RCI Holdings, Inc., our wholly owned subsidiary, acquired the real property located at 7101 Calmont, Fort Worth, Texas for a total purchase price of $2.5 million which consisted of $100,000 in cash and $2.4 million payable in a six year promissory note to the sellers which will accrue interest at the rate of 7.25% for the first two years, 8.25% for years three and four and 9.25% thereafter. The promissory note is secured by a Deed of Trust and Security Agreement. Further, RCI Holdings, Inc. entered into an Assignment and Assumption of Lease Agreement with the sellers to assume the lease agreement for the real property. We currently operate this property as Rick’s Cabaret. As of September 30, 2010, the balance of the promissory note was $1.7 million.

 

10.

As part of the acquisition of The End Zone in Philadelphia, Pennsylvania, we acquired 51% of the issued and outstanding partnership interest of the partnership that owns the real property at 2908 S. Columbus Blvd., Philadelphia, Pennsylvania. At closing, we paid a purchase price of $3.5 million in cash for the partnership interests.  This property is currently operated as Club Onyx.

 

11.

As part of the transaction to acquire Hotel Development, Ltd. which operated the Executive Club in Dallas, RCI Holdings, Inc. acquired the related real property located at 8550 N. Stemmons Freeway, Dallas, Texas from DPC Holdings, LLC, a Texas limited liability company. As consideration for the purchase of the real property, RCI Holdings, Inc. paid total consideration of $5.6 million, which was paid (i) $4.3 million, payable $610,000 in cash and $3.6 million through the issuance of a five year promissory note and (ii) the issuance of 57,918 shares of our restricted common stock to be valued at $23.30 per share ($1.4 million). 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 us and Eric Langan, our Chief Executive Officer, individually. As of September 30, 2010, the balance of the promissory note was $3.4 million.  This property is currently operated as XTC Cabaret.

 

12.

As part of the acquisition of the Platinum Club II in Dallas, we acquired the real property located at 10557 Wire Way Place (at Northwest Highway), Dallas, Texas from Wire Way, LLC, a Texas limited liability company. Pursuant to a Real Estate Purchase and Sale Agreement dated May 10, 2008, we paid total consideration of $6 million, which was paid $1.6 million in cash and $4.4 million through the issuance of a five (5) year 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 us and by Eric Langan, our Chief Executive Officer, individually. As of September 30, 2010, the balance of the promissory note was $4.1 million. This property is currently operated as Club Onyx.

13.

As part of the acquisition of Joy Club of Austin on December 18, 2009, we acquired the real property located on IH 35 in Austin, Texas from North IH-35 Investments, Inc. (“NIII”).  In connection with the purchase we issued two promissory notes to the sellers and assumed another bank note.  The notes aggregated $2.5 million at the date of purchase.  The notes bear interest at rates ranging from 4.75% to 7.25% and are payable at an aggregate of $42,461, including interest, per month.  As of September 30, 2010, the balance of the promissory notes was an aggregate of $2.2 million.  This property is currently operated as Rick’s Cabaret.

14.

In April 2010, we purchased the land and building which is occupied by one of our clubs in Austin, Texas (formerly Rick’s and Club Onyx, now a managed club property).  We paid $2.5 million for the property, which was paid $300,000 in cash and though the issuance of a $2.2 million promissory note. The note bears interest at the prime rate plus two points and is payable over 36 monthly installments (currently $19,774 per month).  The balance of the note at September 30, 2010 was $2.2 million.

 

 

1.	We lease the property in Houston, Texas, where our XTC North is located. The lease term was for five years, beginning March 2004, and is currently on a month-to-month lease. The monthly rent is now $9,500.

 

2.	We lease the property in New York City, New York, where our Rick’s Cabaret NYC is located. We assumed the existing lease, which will terminate in April 2023. The monthly rent is currently $46,674. Under the term of the existing lease, the base rent will increase by approximately 3% each year.

 

3.	We lease the property in Charlotte, North Carolina, where our Club Onyx Charlotte is located. We executed an amended lease in February 2007, which will terminate in February 2017. The monthly rent is $18,500 until February 2013, at which time the rent will escalate to $20,000 until February 2017.

 

4.

We lease the property in South Houston, Texas, where our XTC South is located. The lease term is for 79 months, beginning May 1, 2006, and terminates in December 2022. The monthly rent is $3,000 until December 2012, then $3,500 until December 2014 then $4,000 until December 2019 and $4,500 for the remaining three years of the lease.

5.	We lease the property in Miami Gardens, Florida, where Tootsie’s Cabaret is located with monthly rent of $74,503. Under the Assignment of Lease, the original lease term continues through June 30, 2014, with two option periods which give us the right to lease the property through June 30, 2034.

 

6.

We lease the property in Las Vegas, Nevada, where our new Rick’s Cabaret Las Vegas club is located with monthly rent of $100,000. The original lease term has been modified and continues through January 1, 2013 with an option period beginning on that date through January 1, 2018 at $180,000 per month. We also have an option to acquire the property through January 1, 2018 for $23 million.

7.

We acquired a club in Fort Worth, Texas on September 30, 2009.  The property is leased from a third party for $30,000 per month until 2018. We also received an option to purchase the five-acre property on which the club sits within 19 months for approximately $2.4 million.  This property is currently operated as Cabaret North.

8.

We acquired another club in Fort Worth, Texas on June 1, 2010.  The property is leased from a third party for $22,000 per month until 2015. We also received an option to purchase the property on which the club sits within 120 months for approximately $4.5 million, escalating to $5.2 million by the end of the term.  This property is currently operated as XTC Cabaret.

9.

We acquired another club in Fort Worth, Texas on July 16, 2010.  We acquired the building in the purchase.  The land is leased from a third party for $20,000 per month until 2015 with four five-year options thereafter. We also received an option to purchase the land at any time after the 12th anniversary of the lease for fair market value, but in no event less than $3 million.  This property is currently operated as Cabaret East.

	HIGH				LOW
Fiscal Year Ended September 30,  2010
First Quarter		$	8.83			$	6.97
Second Quarter		$	15.45			$	9.15
Third Quarter		$	13.15			$	7.88
Fourth Quarter		$	8.79			$	6.05
Fiscal Year Ended September 30,  2009
First Quarter		$	9.69			$	3.56
Second Quarter		$	5.69			$	2.44
Third Quarter		$	7.59			$	4.53
Fourth Quarter		$	9.03			$	5.75

 

 

 

 

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
Jul-10			16			$	7.78				-			$	4,171
Aug-10			73			$	6.56				57			$	3,812
Sept-10			16			$	6.40				-			$	3,812
Total for the three months ended Sept 30, 2010			105			$	6.72				57			$	3,812

 

 

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted-average exercise price of outstanding options, warrants and rights (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			100			$	8.48				0
Equity compensation plans notapproved by security holders			465			$	10.25				465

 

 

 

 

 

 

 

(In thousands, except per share data)
Year Ended September 30,		2010				2009				2008				2007				2006
Revenue		$	82,987			$	75,829			$	59,008			$	31,088			$	24,003
Income (loss) from continuing operations		$	(7,641	)		$	5,795			$	7,801			$	3,391			$	1,910
Fully diluted income (loss) from continuing operations per common share		$	(0.81	)		$	0 .58			$	0.93			$	0.55			$	0.38
Total assets		$	148,371			$	145,076			$	137,069			$	42,588			$	29,743
Total Rick’s stockholders' equity		$	69,939			$	70,092			$	63,003			$	24,043			$	13,908
Long-term debt		$	42,686			$	37,812			$	33,557			$	14,387			$	13,921

 

 

 

 

 

1.

We own and/or operate upscale adult nightclubs serving primarily businessmen and professionals. Our nightclubs offer live adult entertainment, restaurant and bar operations. Through our subsidiaries, we currently own and/or operate a total of twenty-one adult nightclubs that offer live adult entertainment, 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; six operate under the name "XTC Cabaret" one club operates as “Tootsie’s Cabaret”, one operates as “Cabaret North”, one operates as “Jaguars” and one operates as “Cabaret East”.  Additionally, we are awaiting licensing to open another Rick’s Cabaret near DFW International Airport.  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.

 

 

 

 

 

 

 

		2010				2009				2008
Adjusted EBITDA		$	17,605			$	16,024			$	16,516
Diluted adjusted EBITDA per common share		$	1.82			$	1.70			$	1.96
Diluted weighted average common shares outstanding			9,697				9,428				8,413

		2010				2009				2008
Income (loss) from continuing operations		$	(7,641	)		$	5,795			$	7,801
Net income from noncontrolling interests			(260	)			(294	)			31
Income taxes			(3,221	)			2,854				3,532
Interest expense			4,473				3,423				2,713
Depreciation and amortization			3,743				3,423				2,439
Impairment of assets			20,511				823				-
Adjusted EBITDA		$	17,605			$	16,024			$	16,516

		2010				%				2009				%
Sales of alcoholic beverages		$	33,101				39.9	%		$	28,679				37.8	%
Sales of food and merchandise			6,850				8.3	%			6,203				8.2	%
Service Revenues			37,725				45.5	%			36,310				47.9	%
Internet Revenues			562				0.7	%			641				0.8	%
Media			1,440				1.7	%			1,404				1.9	%
Other			3,309				4.0	%			2,592				3.4	%
Total Revenues			82,987				100.0	%			75,829				100.0	%
Cost of Goods Sold			9,927				12.0	%			8,895				11.7	%
Salaries & Wages			17,767				21.4	%			16,429				21.7	%
Stock-based Compensation			405				0.5	%			96				0.1	%
Taxes and permits			12,367				14.9	%			9,396				12.4	%
Charge card fees			1,434				1.7	%			1,612				2.1	%
Rent			4,108				5.0	%			3,716				4.9	%
Legal & professional			3,071				3.7	%			2,963				3.9	%
Advertising and marketing			6,740				8.1	%			8,174				10.8	%
Depreciation and amortization			3,743				4.5	%			3,423				4.5	%
Insurance			1,125				1.4	%			1,100				1.5	%
Utilities			1,721				2.1	%			1,646				2.2	%
Impairment of assets			20,511				24.7	%			823				1.1	%
Other			6,441				7.8	%			5,826				7.7	%
Total operating expenses			89,360				107.7	%			64,099				84.5	%
Income (loss) from continuing operations			(6,373	)			-7.7	%			11,730				15.5	%
Interest income			18				0.0	%			16				0.0	%
Interest expense			(4,023	)			-4.8	%			(3,358	)			-4.4	%
Interest expense - loan origination costs			(450	)			-0.5	%			(65	)			-0.1	%
Gain (loss) on change in fair value of derivative instruments			(31	)			0.0	%			145				0.2	%
Gain (loss) on sale of assets and other			(3	)			0.0	%			181				0.2	%
Income (loss) from continuing operations before income taxes		$	(10,862	)			-13.1	%		$	8,649				11.4	%

(in thousands)		Year Ended September 30,
		2010				2009				2008
Loss from discontinued operations		$	(88	)		$	(225	)		$	(263	)
Loss on sale of discontinued operations			-				(226	)			-
Income tax - discontinued operations			31				158				92
Total loss from discontinued operations, net of tax		$	(57	)		$	(293	)		$	(171	)

(in thousands)		September 30,
		2010				2009
Current assets		$	30			$	60
Property and equipment			115				146
Other assets			3				4
Current liabilities			(14	)			(19	)
Long-term liabilities			(33	)			(33	)
Net assets (liabilities)		$	101			$	158

 

 

(in thousands)		2009				%					2,008			%
Sales of alcoholic beverages		$	28,679				37.8	%		$	21,764				36.9	%
Sales of food and merchandise			6,203				8.2	%			5,145				8.7	%
Service Revenues			36,310				47.9	%			28,362				48.1	%
Internet Revenues			641				0.8	%			716				1.2	%
Media			1,404				1.9	%			801				1.4	%
Other			2,592				3.4	%			2,220				3.8	%
Total Revenues			75,829				100.0	%			59,008				100.0	%
Cost of Goods Sold			8,895				11.7	%			6,796				11.5	%
Salaries & Wages			16,429				21.7	%			13,485				22.9	%
Stock-based Compensation			96				0.1	%			157				0.3	%
Taxes and permits			9,396				12.4	%			7,365				12.5	%
Charge card fees			1,612				2.1	%			1,060				1.8	%
Rent			3,716				4.9	%			2,371				4.0	%
Legal & professional			2,963				3.9	%			1,629				2.8	%
Advertising and marketing			8,174				10.8	%			2,510				4.3	%
Depreciation and amortization			3,423				4.5	%			2,439				4.1	%
Insurance			1,100				1.5	%			845				1.4	%
Utilities			1,646				2.2	%			1,218				2.1	%
Impairment of assets			823				1.1	%			-				0.0	%
Other			5,826				7.7	%			5,147				8.7	%
Total operating expenses			64,099				84.5	%			45,022				76.3	%
Income from continuing operations			11,730				15.5	%			13,986				23.7	%
Interest income			16				0.0	%			60				0.1	%
Interest expense			(3,358	)			-4.4	%			(2,713	)			-4.6	%
Interest expense - loan origination costs			(65	)			-0.1	%			-				0.0	%
Gain (loss) on change in fair value of derivative instruments			145				0.2	%			-				0.0	%
Gain (loss) on sale of assets and other			181				0.2	%			-				0.0	%
Income from continuing operations before income taxes		$	8,649				11.4	%		$	11,333				19.2	%

 

 

 

 

		Years ended September 30,
		2010				2009				2008
Net cash provided by operating activities		$	17,377			$	8,948			$	14,779
Net cash used in investing activities			(12,816	)			(3,806	)			(38,691	)
Net cash provided by financing activities			1,757				2,204				26,497
Net increase in cash and cash equivalents		$	6,318			$	7,346			$	2,585

 

 

Volatility			68	%
Expected life		1.5 years
Expected dividend yield			-
Risk free rate			1.18	%

 

 

		Payments Due by Period
		Total				2011				2012				2013				2014				2015				Thereafter
Long-term debt		$	42,686			$	7,883			$	5,494			$	13,541			$	1,666			$	3,659			$	10,443
Interest payments			13,357				3,802				3,172				2,320				1,659				1,381				1,023
Operating leases			21,979				3,898				3,888				2,956				2,448				1,651				7,138