Exhibit 99.1
D. I. FOOD AND BEVERAGE OF LAS VEGAS, LLC
FINANCIAL STATEMENTS
Year Ended December 31, 2007
Table of Contents
| Report of Independent Registered Public Accounting Firm | | 1 |
| | | |
| Audited Financial Statements: | | |
| | | |
| Balance Sheet | | 2 |
| | | |
| Statement of Income | | 3 |
| | | |
| Statement of Changes in Members’ Equity | | 4 |
| | | |
| Statement of Cash Flows | | 5 |
| | | |
| Notes to Financial Statements | | 6 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
D. I. Food and Beverage of Las Vegas, LLC
We have audited the accompanying balance sheet of D. I. Food and Beverage of Las Vegas, LLC as of December 31, 2007, and the related statements of income, changes in members’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of D. I. Food and Beverage of Las Vegas, LLC as of December 31, 2007, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Whitley Penn LLP
Dallas, Texas
November 18, 2008
D. I. FOOD AND BEVERAGE OF LAS VEGAS, LLC
BALANCE SHEET
DECEMBER 31, 2007
| Assets | | | |
| Current assets: | | | |
| Cash | | $ | 1,299,691 | |
| Accounts receivable, trade | | | 241,698 | |
| Inventories | | | 215,078 | |
| Prepaid expenses | | | 43,717 | |
| Total current assets | | | 1,800,184 | |
| | | | | |
| Property and equipment, net | | | 2,161,893 | |
| Total assets | | $ | 3,962,077 | |
| | | | | |
| Liabilities and Members’ Equity | | | | |
| Current liabilities: | | | | |
| Accounts payable and accrued liabilities | | $ | 411,860 | |
| Note payable, related party | | | 2,000,000 | |
| Current maturities of long-term debt | | | 284,625 | |
| Total current liabilities | | | 2,696,485 | |
| | | | | |
| Long-term debt, less current maturities | | | 878,310 | |
| | | | | |
| Total liabilities | | | 3,574,795 | |
| | | | | |
| Commitments and contingencies | | | | |
| | | | | |
| Members’ equity | | | 387,282 | |
| Total liabilities and members’ equity | | $ | 3,962,077 | |
See accompanying notes to financial statements.
D. I. FOOD AND BEVERAGE OF LAS VEGAS, LLC
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2007
| Revenues: | | | |
| Sales of alcoholic beverages | | $ | 9,148,686 | |
| Service revenues | | | 7,743,827 | |
| Other | | | 1,660,137 | |
| | | | 18,552,650 | |
| | | | | |
| Operating expenses: | | | | |
| Cost of goods sold | | | 2,296,397 | |
| Transportation | | | 5,867,950 | |
| Salaries and wages | | | 2,784,916 | |
| Other general and administrative: | | | | |
| Taxes and permits | | | 680,468 | |
| Charge card fees | | | 505,702 | |
| Rent | | | 1,212,000 | |
| Advertising and marketing | | | 736,364 | |
| Depreciation | | | 465,421 | |
| Other | | | 2,356,408 | |
| | | | 16,905,626 | |
| | | | | |
| Income from operations | | | 1,647,024 | |
| | | | | |
| Interest expense | | | (288,006 | ) |
| | | | | |
| Net income | | $ | 1,359,018 | |
See accompanying notes to financial statements.
D. I. FOOD AND BEVERAGE OF LAS VEGAS, LLC
STATEMENT OF CHANGES IN MEMBERS’ EQUITY
YEAR ENDED DECEMBER 31, 2007
| Balance at December 31, 2006 | | $ | 418,889 | |
| Member distributions | | | (1,390,625 | ) |
| Net income | | | 1,359,018 | |
| | | | | |
| Balance at December 31, 2007 | | $ | 387,282 | |
See accompanying notes to financial statements.
D. I. FOOD AND BEVERAGE OF LAS VEGAS, LLC
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2007
| Operating Activities | | | |
| Net income | | $ | 1,359,018 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Depreciation | | | 465,421 | |
| Changes in operating assets and liabilities: | | | | |
| Accounts receivable | | | 117,830 | |
| Inventories | | | (9,587 | ) |
| Prepaid expenses | | | (90,848 | ) |
| Accounts payable and accrued liabilities | | | 169,935 | |
| Net cash provided by operating activities | | | 2,011,769 | |
| | | | | |
| Investing Activities | | | | |
| Purchases of property and equipment | | | (46,507 | ) |
| | | | | |
| Financing Activities | | | | |
| Payments on debt | | | (259,386 | ) |
| Stockholder distributions | | | (1,390,625 | ) |
| Net cash used in financing activities | | | (1,650,011 | ) |
| | | | | |
| Net increase in cash | | | 315,251 | |
| Cash at beginning of year | | | 984,440 | |
| | | | | |
| Cash at end of year | | $ | 1,299,691 | |
| | | | | |
| Supplemental Disclosures of Cash Flow Information | | | | |
| Cash paid during the year for interest | | $ | 292,996 | |
See accompanying notes to financial statements.
D. I. FOOD AND BEVERAGE OF LAS VEGAS, LLC
Notes to Financial Statements
December 31, 2007
D. I. Food and Beverage of Las Vegas, LLC (“the Company”), a Nevada limited liability company, was formed on September 1, 2004. The Company owns and operates a nightclub that offers live adult entertainment. The nightclub and corporate office are located in Las Vegas, Nevada.
| B. | Summary of Significant Accounting Policies |
A summary of the Company’s significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:
Basis of Accounting
The accounts are maintained and the financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Use of Estimates
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. Actual results could differ from these estimates and assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At December 31, 2007, the Company had no such investments. The Company maintains deposits primarily in two financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2007, the uninsured portion of these deposits approximated $797,000. The Company has not incurred any losses related to its cash on deposit with financial institutions.
Accounts Receivable
Accounts receivable, trade is comprised of credit card charges and ATM receivables, which are generally converted to cash in two to five days after a purchase is made. The Company recognizes allowances for doubtful accounts when, based on management judgment, circumstances indicate that accounts receivable will not be collected. There was no allowance for doubtful accounts as of December 31, 2007.
Inventories
Inventories include non-alcoholic beverages, bar supplies, and Company merchandise. Inventories are carried at the lower of average cost, which approximates actual cost determined on a first-in, first-out (“FIFO”) basis, or market.
D. I. FOOD AND BEVERAGE OF LAS VEGAS, LLC
Notes to Financial Statements
(Continued)
| B. | Summary of Significant Accounting Policies -- continued |
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets for financial reporting purposes. Leasehold improvements are depreciated using the straight-line method over the shorter of the respective lease term or the estimated useful lives of the assets. Equipment, furniture and fixtures and leasehold improvements have estimated useful lives between five and seven 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 recognized in the accompanying statement of income of the respective period.
Revenue Recognition
The Company recognizes revenue from the sale of beverages, food and merchandise, and services at the point-of-sale upon receipt of cash, check, or credit card charge.
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 statement of income.
Income Taxes
The Company is organized as a limited liability company for federal income tax purposes. As a result, income or losses are taxable or deductible to the member rather than at the Company level; accordingly, no provision for income taxes is made in the accompanying financial statements.
Fair Value of Financial Instruments
In accordance with the reporting requirements of Statement of Financial Accounting Standards (“SFAS”) No. 107, Disclosures About Fair Value of Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this statement and includes this additional information in the notes to financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short maturity of these instruments. The carrying value of the Company’s notes payable also approximates fair value since these instruments bear market rates of interest. None of these instruments are held for trading purposes.
D. I. FOOD AND BEVERAGE OF LAS VEGAS, LLC
Notes to Financial Statements
(Continued)
Property and equipment consisted of the following:
| | | December 31, | |
| | | 2007 | |
| Leasehold improvements | | $ | 421,612 | |
| Equipment, furniture and fixtures | | | 2,680,274 | |
| | | | 3,101,886 | |
| Less accumulated depreciation | | | 939,993 | |
| | | $ | 2,161,893 | |
Following is a summary of notes payable as of December 31, 2007:
| Demand note payable to a member, interest payable monthly at 8%, modified annually based on the prime rate, collateralized by a personal guarantee by the other two members. | | $ | 2,000,000 | |
| | | | | |
| Note payable to a commercial bank, payable $31,420 monthly, including interest at the prime rate plus 1% (8.25% at December 31, 2007), matures August 2009, guaranteed by the Company’s members. | | | 1,156,579 | |
| | | | | |
| Other | | | 6,356 | |
| | | | 3,162,935 | |
| Less current maturities | | | 2,284,625 | |
| Long-term debt | | $ | 878,310 | |
Future maturities of long-term debt consist of the following:
Year ended December 31:
| 2008 | | $ | 2,284,625 | |
| 2009 | | | 878,310 | |
| | | $ | 3,162,935 | |
D. I. FOOD AND BEVERAGE OF LAS VEGAS, LLC
Notes to Financial Statements
(Continued)
| E. | Commitments and Contingencies |
Leases
The Company leases a building and corporate office space under triple net operating leases, of which rent expense was approximately $1,200,000 for the year ended December 31, 2007.
Future minimum annual lease obligations as of December 31, 2007, approximate the following:
| Years ended December 31: | | | |
| 2008 | | $ | 1,200,000 | |
| 2009 | | | 1,200,000 | |
| 2010 | | | 1,200,000 | |
| Total future minimum lease obligations | | $ | 3,600,000 | |
Litigation
The Company can be subjected to certain routine legal matters in the ordinary course of business. The Company does not believe that the ultimate resolution of the matters will have a material impact on the Company's financial position or results of operations.
Effective September 5, 2008, the Company was acquired by Rick’s Cabaret International, Inc., which operates live adult entertainment nightclubs. Rick’s Cabaret International, Inc. is a publicly traded company.
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