EXHIBIT 99.2
RICK’S CABARET INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements have been prepared to give effect to Rick’s Cabaret International, Inc.'s (“Rick’s”) acquisition of W.K.C., Inc., a Texas corporation (“WKC”). On April 23, 2007, we completed a transaction with BLP Holdings, LLC, a Texas limited liability company and Brian Paul for the purchase of 100% of the outstanding common stock of WKC (the “Business”), which owns and operates an adult entertainment cabaret known as New Orleans Nights (“New Orleans Nights”) located in Fort Worth, Texas. Pursuant to the Stock Purchase Agreement, we acquired the Business for a total cash purchase price of $4,900,000. As part of the transaction, Brian Paul entered a five-year covenant not to compete with us or the Business. In addition, RCI Holdings, Inc., our wholly owned subsidiary (“RCI”), entered into an Assignment of that certain Real Estate Sales Contract between Thomas Felsenthal and Conrad Schuberth (the “Sellers”) and WKC, for the purchase of the real property located at 7101 Calmont, Fort Worth, Texas 76116 (the “Real Property”) where New Orleans Nights is located for a total purchase price of $2,500,000 which consisted of $100,000 in cash and $2,400,000 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”). The Promissory Note is secured by a Deed of Trust and Security Agreement. Further, RCI entered into an Assignment and Assumption of Lease Agreement with Sellers to assume the lease agreement for the Real Property. We intend to change the name of the Business to Rick’s Cabaret. The terms and conditions of the transaction were the result of extensive arm’s length negotiations between the parties.
In April 2007, Rick’s issued 675,000 shares of Rick’s common stock for $5,345,500. The money received from this financing is being used for the acquisition of the club.
The pro forma condensed balance sheet gives effect to the WKC acquisition as if it had occurred on December 31, 2006 combining the balance sheets of Rick’s and WKC as of that date. The pro forma condensed statements of operations for the three months ended December 31, 2006 and for the year ended September 30, 2006 give effect to the acquisition as if it had occurred on October 1, 2005 combining the results of Rick’s for the three months ended December 31, 2006 and the year ended September 30, 2006 with those of WKC for the three months ended December 31, 2006 and for the year ended December 31, 2006.
The pro forma statements of operations for the three months ended December 31, 2006 and for the year ended September 30, 2006 include appropriate adjustments for amortization, interest and other items related to the transaction. The pro forma adjustments are based on preliminary appraisal results, estimates, available information and certain assumptions that management deems appropriate. The pro forma financial information is unaudited and does not purport to represent the results that would have been obtained had the transactions occurred at October 1, 2005, as assumed, nor does it purport to present the results which may be obtained in the future.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET | ||||||||||||||||
DECEMBER 31, 2006 | ||||||||||||||||
(IN THOUSANDS, EXCEPT SHARE INFORMATION) | ||||||||||||||||
Rick's | WKC | Pro Forma Adjustment (A) | Pro Forma Combined | |||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash and cash equivalents | $ | 1,463 | $ | - | $ | 345 | $ | 1,808 | ||||||||
Accounts receivable: | ||||||||||||||||
Trade | 270 | 39 | (39 | ) | 270 | |||||||||||
Employees | 185 | 61 | (61 | ) | 185 | |||||||||||
Marketable securities | 7 | - | - | 7 | ||||||||||||
Inventories | 359 | 36 | - | 395 | ||||||||||||
Prepaid expense and other current assets | 151 | - | - | 151 | ||||||||||||
Total current assets | 2,435 | 136 | 245 | 2,816 | ||||||||||||
Deferred tax assetss | - | 86 | (86 | ) | - | |||||||||||
Property and equipment, net | 18,497 | 512 | 2,500 | 21,509 | ||||||||||||
Goodwill and indefinite lived intangibles | 11,231 | - | 4,352 | 15,583 | ||||||||||||
Definite lived intangibles, net | 722 | - | 100 | 822 | ||||||||||||
Other | 395 | - | - | 395 | ||||||||||||
Total assets | $ | 33,280 | $ | 734 | $ | 7,111 | $ | 41,125 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Bank overdraft | $ | - | $ | 23 | $ | (23 | ) | $ | - | |||||||
Accounts payable and accrued liabilities | 1,826 | 417 | (317 | ) | 1,926 | |||||||||||
Current portion of long-term debt | 2,375 | - | 196 | 2,571 | ||||||||||||
Line-of-credit | - | 1 | (1 | ) | - | |||||||||||
Total current liabilities | 4,201 | 441 | (145 | ) | 4,497 | |||||||||||
Long-term debt less current portion | 11,626 | - | 2,204 | 13,830 | ||||||||||||
Deferred rent | 330 | 110 | (110 | ) | 330 | |||||||||||
Total liabilities | 16,157 | 551 | 1,949 | 18,657 | ||||||||||||
COMMITMENTS AND CONTINGENCIES | - | - | - | - | ||||||||||||
MINORITY INTERESTS | 528 | - | - | 528 | ||||||||||||
TEMPORARY EQUITY - Common stock, subject to put rights (285,000 shares) | 1,800 | - | - | 1,800 | ||||||||||||
STOCKHOLDERS' EQUITY: | ||||||||||||||||
Preferred stock, $.10 par, 1,000,000 shares authorized; none outstanding | - | - | - | - | ||||||||||||
Common stock, $.01 par, 15,000,000 shares authorized; 6,633,045 outstanding | 60 | 251 | (245 | ) | 66 | |||||||||||
Additional paid-in capital | 16,134 | - | 5,339 | 21,473 | ||||||||||||
Accumulated other comprehensive income | (7 | ) | - | - | (7 | ) | ||||||||||
Accumulated deficit | (98 | ) | (68 | ) | 68 | (98 | ) | |||||||||
Less 908,530 shares of common stock held in treasury, at cost | (1,294 | ) | - | - | (1,294 | ) | ||||||||||
Total stockholders' equity | 14,795 | 183 | 5,162 | 20,140 | ||||||||||||
Total liabilities and stockholders' equity | $ | 33,280 | $ | 734 | $ | 7,111 | $ | 41,125 |
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RICK'S CABARET INTERNATIONAL, INC. | ||||||||||||||||
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS | ||||||||||||||||
THREE MONTHS ENDED DECEMBER 31, 2006 | ||||||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) | ||||||||||||||||
Rick's | WKC | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
Total revenue | $ | 7,030 | $ | 1,012 | $ | - | $ | 8,042 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of goods sold | 891 | 200 | - | 1,091 | ||||||||||||
Salaries and wages | 2,071 | 252 | - | 2,323 | ||||||||||||
Stock compensation | 65 | - | - | 65 | ||||||||||||
Depreciation & amortization | 365 | 24 | 18 | B | 407 | |||||||||||
Other general and administrative | 3,051 | 359 | (95 | ) | C | 3,315 | ||||||||||
Total operating expenses | 6,443 | 835 | (77 | ) | 7,201 | |||||||||||
Operating income | 587 | 177 | 77 | 841 | ||||||||||||
Interest expense | (326 | ) | - | (41 | ) | D | (367 | ) | ||||||||
Income tax expense | - | (53 | ) | - | (53 | ) | ||||||||||
Other | 92 | 3 | - | 95 | ||||||||||||
Net income | $ | 353 | $ | 127 | $ | 36 | $ | 516 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.07 | $ | 0.09 | ||||||||||||
Diluted | $ | 0.06 | $ | 0.08 | ||||||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 5,141 | 5,816 | ||||||||||||||
Diluted | 5,433 | 6,108 |
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RICK'S CABARET INTERNATIONAL, INC. | ||||||||||||||||
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS | ||||||||||||||||
YEAR ENDED SEPTEMBER 30, 2006 * | ||||||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) | ||||||||||||||||
Rick's | WKC * | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
Total revenue | $ | 24,487 | $ | 4,051 | $ | - | $ | 28,538 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of goods sold | 2,915 | 809 | - | 3,724 | ||||||||||||
Salaries and wages | 7,082 | 975 | - | 8,057 | ||||||||||||
Depreciation & amortization | 1,049 | 95 | 70 | B | 1,214 | |||||||||||
Other general and administrative | 10,450 | 1,443 | (378 | ) | C | 11,515 | ||||||||||
Total operating expenses | 21,496 | 3,322 | (308 | ) | 24,510 | |||||||||||
Operating income | 2,991 | 729 | 308 | 4,028 | ||||||||||||
Interest expense | (1,057 | ) | (19 | ) | (168 | ) | D | (1,244 | ) | |||||||
Income tax expense | - | (247 | ) | - | (247 | ) | ||||||||||
Other | (181 | ) | - | - | (181 | ) | ||||||||||
Net income | $ | 1,753 | $ | 463 | $ | 140 | $ | 2,356 | ||||||||
Net income per share: | ||||||||||||||||
Basic | $ | 0.38 | $ | 0.44 | ||||||||||||
Diluted | $ | 0.35 | $ | 0.41 | ||||||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 4,641 | 5,316 | ||||||||||||||
Diluted | 5,066 | 5,741 |
* Amounts for WKC are for the year ended December 31, 2006
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RICK’S CABARET, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENT
(A) | Records the WKC and Real Property acquisition, including: payment of $5,000,000 in cash, Promissory Note issued of $2,400,000, removal of WKC stockholder’s equity, and estimated transaction costs of $100,000. |
This acquisition was accounted for as a purchase with the total consideration preliminarily allocated to the assets assumed as follows:
DESCRIPTION | AMOUNT (IN THOUSANDS) | |||
Total consideration: | ||||
Cash | $ | 5,000 | ||
Issuance of Promissory Note | 2,400 | |||
Estimated transaction costs | 100 | |||
$ | 7,500 | |||
Allocation: | ||||
Current assets | $ | 36 | ||
Property and equipment | 3,012 | |||
Non-compete agreement | 100 | |||
Sexually oriented business license | 4,352 | |||
$ | 7,500 |
The foregoing allocations are based on estimated fair values and are subject to adjustment. Fair values of assets acquired were determined based on management’s valuation.
In January through April 2007, RCI issued 675,000 shares of its common stock for total proceeds of $5,345,000 to provide funding for the WKC and Real Property acquisition.
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RICK’S CABARET, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(B) Records adjustment to amortization expense to reflect increase for new basis of identifiable intangible assets including non-compete agreement and sexually oriented business license. Non-compete agreement is amortized straight-line over a five-year life. Sexually oriented business license is considered to have an indefinite life and is not amortized. Also, includes straight-line depreciation expense of the acquired building over a forty-year life, excluding $500,000 allocated to the value of the land.
(C) | Records adjustment to remove rent expense and other personal expenses. |
(D) | Records adjustment to interest expense to reflect interest on Rick's $2,400,000 Promissory Note arising related to the Real Property acquisition. |
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