UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 Or 15(d) of the Securities
Exchange Act of 1934; For the quarterly period ended: March 31, 2002
[ ] 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 IRS Employer
of incorporation or organization) Identification No.)
505 North Belt, Suite 630
Houston, Texas 77060
(Address of principal executive offices, including zip code)
(281) 820-1181
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
On May 10, 2001, there were 4,567,978 shares of common stock, $.01 par value,
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
RICK'S CABARET INTERNATIONAL, INC.
TABLE OF CONTENTS
-----------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2002 (unaudited)
and September 30, 2001 (audited) . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations for the three months
ended December 31, 2002 and 2001 (unaudited). . . . . . . . . . . .4
Consolidated Statements of Cash Flows for the three months
ended December 31, 2002 and 2001 (unaudited) . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
3/31/2002 9/30/2001
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash $ 964,086 $ 704,628
Accounts receivable 460,532 379,653
Prepaid expenses 81,580 81,477
Inventories 195,682 196,300
Land held for sale --- 200,000
---------------- ----------------
Total current assets 1,701,880 1,562,058
---------------- ----------------
PROPERTY AND EQUIPMENT
Buildings, land and leasehold improvements 9,034,018 8,974,252
Furniture & equipment 1,857,883 1,545,876
---------------- ----------------
10,891,901 10,520,128
Accumulated depreciation (1,962,888) (1,717,214)
---------------- ----------------
8,929,013 8,802,914
---------------- ----------------
OTHER ASSETS
Goodwill less accumulated amortization 4,581,582 4,415,391
Other 141,461 168,137
---------------- ----------------
4,723,043 4,583,528
---------------- ----------------
$ 15,353,936 $ 14,948,500
================ ================
2
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
3/31/2002 9/30/2001
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Current portion of long term debt $ 192,160 $ 327,162
Accounts payable - trade 240,315 234,591
Accrued expenses 438,914 499,049
---------------- ----------------
Total current liabilities 871,389 1,060,802
LONG TERM DEBT, LESS CURRENT PORTION
Long-term debt less current portion 3,595,866 3,509,914
---------------- ----------------
Total Liabilities 4,467,255 4,570,716
---------------- ----------------
COMMITMENTS AND CONTINGENCIES --- ---
MINORITY INTERESTS 78,816 78,816
STOCKHOLDERS' EQUITY
Preferred stock - $.10 par, authorized
1,000,000shares; none outstanding --- ---
Common stock - $.01 par, authorized
15,000,000 shares, issued 4,598,678 45,987 45,987
Additional paid in capital 11,257,449 11,257,449
Treasury stock, at cost (97,648) (73,619)
Retained earnings (deficit) (397,923) (930,849)
---------------- ----------------
Total stockholder's equity 10,807,865 10,298,968
---------------- ----------------
$ 15,353,936 $ 14,948,500
================ ================
3
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2002 2001 2002 2001
REVENUES
Sales of alcoholic beverages $ 1,658,207 $ 1,458,119 $ 3,292,431 $ 2,798,161
Sales of foods 220,988 212,391 436,575 404,336
Service revenues 1,319,776 1,361,437 2,593,095 2,634,153
Internet revenues 485,125 2,125,616 1,148,845 4,136,416
Others 226,086 240,708 493,661 476,618
--------------- --------------- --------------- ---------------
3,910,182 5,398,271 7,964,607 10,449,684
OPERATING EXPENSES
Cost of goods sold 716,636 2,339,866 1,579,184 4,173,895
Salaries and wages 1,229,429 1,188,951 2,496,956 2,414,953
Other general and administrative
Taxes and permits 506,016 442,258 1,009,904 922,146
Charge card fees 45,981 85,035 107,264 169,164
Rent 96,100 78,340 148,568 155,407
Legal and accounting 156,395 178,079 307,481 395,870
Advertising 156,332 131,864 332,415 264,137
Other 640,057 715,047 1,286,687 1,380,433
--------------- --------------- --------------- ---------------
3,546,946 5,159,440 7,268,459 9,876,005
--------------- --------------- --------------- ---------------
INCOME/(LOSS) FROM OPERATIONS 363,236 238,831 696,148 573,679
Interest Expense (82,549) (88,305) (174,271) (181,118)
Interest Income 5,017 7,824 11,049 16,572
--------------- --------------- --------------- ---------------
NET INCOME $ 285,704 $ 158,368 $ 532,926 $ 409,133
=============== =============== =============== ===============
BASIC NET INCOME PER COMMON SHARE:
NET INCOME $ 0.06 $ 0.04 $ 0.12 $ 0.09
=============== =============== =============== ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,567,978 4,348,678 4,567,978 4,348,678
=============== =============== =============== ===============
4
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
2002 2001
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 532,926 $ 409,133
Depreciation and amortization 245,674 382,762
Changes in working capital (134,775) (289,231)
------------ ----------
Cash provided by operating expenses $ 643,825 $ 502,664
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property equipment (171,773) (136,145)
Increase in goodwill and other assets (139,515) ---
------------ ----------
Cash used by investing activities $ (311,288) $(136,145)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued, less offering costs --- 24,345
Purchase of treasury stock (24,029) ---
Payments on long-term debt (49,050) (250,566)
------------ ----------
Cash provided used by financing activities $ (73,142) $(226,221)
------------ ----------
NET INCREASE IN CASH 259,458 140,298
CASH AT BEGINNING OF PERIOD $ 704,628 $ 374,532
------------ ----------
CASH AT END OF PERIOD $ 964,086 $ 514,830
============ ==========
CASH PAID DURING PERIOD FOR:
Interest $ 174,271 $ 181,118
============ ==========
5
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB of Regulation S-B. They do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, except as
disclosed herein, there has been no material change in the information disclosed
in the notes to the financial statements for the year ended September 30, 2001
included in the Company's Annual Report on Form 10-KSB filed with the Securities
and Exchange Commission. The interim unaudited financial statements should be
read in conjunction with those financial statements included in the Form 10-KSB.
In the opinion of Management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments, have been made.
Operating results for the six months ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2002.
2. SEGMENT INFORMATION
In October 1999, the Company launched its web-sites operation. This
segment derives revenues from membership fees, traffic sold, and sale of feeds
to other web-site operators. Below is the financial information on this
segment.
FOR THE THREE MONTHS FOR THE SX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2002 2001 2002 2001
REVENUES
Internet Web-sites $ 485,125 $ 2,125,616 $ 1,148,845 $ 4,136,416
Club operation 3,425,057 3,272,655 6,815,762 6,313,268
------------ ---------- ------------ ---------------
$ 3,910,182 $ 5,398,271 $ 7,964,607 $ 10,449,684
NET INCOME/(LOSS)
Internet Web-sites $ 119,364 $ (90,132) $ 256,103 $ 179,332
Club operation 551,397 468,620 957,494 625,375
Corporate expenses (385,057) (220,120) (680,671) (395,574)
------------ ------------ ------------ ---------------
$ 285,704 $ 158,368 $ 532,926 $ 409,133
PROPERTY & EQUIPMENT
Internet Web-sites $ 106,124 $ 241,429
Club operation 8,822,889 8,266,805
------------ ---------------
$ 8,929,013 $ 8,508,234
============ ===============
6
3. NEW ACCOUNTING STANDARD
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets"
("FSA No. 142"). As its title implies, FAS No. 142 addresses the accounting for
goodwill and other intangible assets. Under FAS 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are reviewed at least
annually for impairment. With respect to good will amortization. Rick's adopted
FAS 142 effective October 1, 2001.
Rick's performed a transitional impairment test of its goodwill as of
October 1, 2001 and determined there may be impairment to goodwill recorded in
its Internet web site segment. Rick's is in the process of performing analysis
and evaluation procedures to determine the effects of the impairment write-off
in the 2002 fiscal year. The Company expects to take the impairment write off in
the 2002 fiscal year.
The following schedule shows the effect of this change on the three month and
six month periods ended March 31, 2002 and 2001:
For the three months ended March 31, 2002 2001
-------- --------
Reported net income $285,704 $158,368
Add back: Goodwill Amortization -- 98,669
Adjusted net income $285,704 $257,037
Basic earnings per share:
Reported net income $ .06 $ .04
Goodwill amortization -- .02
Adjusted net income $ .06 $ .06
For the six months ended March 31, 2002 2001
-------- --------
Reported net income $532,926 $409,133
Add back: Goodwill Amortization -- 182,493
Adjusted net income $532,926 $591,626
Basic earnings per share:
Reported net income $ .12 $ .09
Goodwill amortization -- .04
Adjusted net income $ .12 $ .13
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited and unaudited 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-QSB to make applicable and take advantage of the safe harbor provision of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, the Company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements, which are
other than statements of historical facts. Certain statements in this Form
10-QSB are forward-looking statements. Words such as "expects", "anticipates"
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 affects 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
ordinance in the City of Houston, competitive factors, the timing of the
openings of other clubs, the integration of operations of Taurus Entertainment
Companies, Inc. with our operations and management, the availability of
acceptable financing to fund corporate expansion efforts, competitive factors,
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.
8
GENERAL
We currently own and operate three adult Internet membership web sites at
www.dancerdorm.com, www.amateurdan.com, and www.xxxpassword.com plus an auction
-------------- ------------------ -------------------
site at www.naughtybids.com.
-------------------
We also own and operate adult nightclubs under the name "Rick's Cabaret"
and "XTC" which offer live adult entertainment, restaurant and bar operations.
We own and operate our Internet content production studio and web site
operations center, and three adult nightclubs in Houston, Texas. We also own
and operate adult nightclubs in Austin and San Antonio, Texas, and Minneapolis,
Minnesota.
Our revenues are derived from subscriptions to adult content internet web
sites and from the sale of liquor, beer, wine and food, cover charges and other
income. Our fiscal year end is September 30.
RESULTS OF OPERATIONS FOR THE THREE ENDED MARCH 31, 2002 AS COMPARED TO THE
THREE ENDED MARCH 31, 2001
For the three months ended March 31, 2002, the Company had consolidated
total revenues of $3,910,182 compared to consolidated total revenues of
$5,398,271 for the three months ended March 31, 2001, or an decrease of
$1,488,089. The decrease in total revenues was due to a decrease in revenues in
the Company's Internet businesses of $1,640,491. The decrease in the revenues
generated by the Internet business was primarily due to the Company's efforts to
migrate from high revenue sources, which produce low margins to sources that
produce higher margins from less revenues. The company has not realized the
full effects of this migration process, but intends to follow its plan and
expects the results of operation from the Internet business to improve in future
periods.
9
The cost of goods sold for the three months ended March 31, 2002 was 18.33%
of total revenues compared to 43.34% for the three months ended March 31, 2001.
The decrease in the cost of goods sold percentage was due to eliminating costs
related to the Internet business and the addition of logo merchandise to our
sales mix. The cost of goods sold for club operations for the three months
ended March 31, 2002 was 14.99% compared to 14.19% for the three months ended
March 31, 2001. The increase was due primarily to the increase in food costs
and the addition of logo merchandise in our sales mix. We continued our efforts
to achieve reductions in cost of goods sold of the club operations through
improved inventory management. We continue a program to improve margins from
liquor and food sales and food service efficiency. The cost of sales from our
Internet operation for the three months ended March 31, 2002 was 58.12% and
88.24% for the three months ended March 31, 2001.
Payroll and related costs for the three months ended March 31, 2002 were
$1,229,429 compared to $1,188,951 for the three months ended March 31, 2001.
The increase was a result of additional personnel in the club operations added
to eliminate reliance on outside vendors for services. Management currently
believes that its labor and management staff levels are of appropriate levels.
Other selling, general and administrative expenses for the three months
ended March 31, 2002 were $1,600,881 compared to $1,630,623 for the three months
ended March 31, 2001. This decrease was due to the Company's efforts to reduce
costs related to the club operations and to the elimination of costs related to
the Internet business.
Interest expense for the three months ended March 31, 2002 was $82,549
compared to $88,305 for the three months ended March 31, 2001. The decrease was
primarily due to the Company's position in not obtaining new debts, but to
aggressively reduce its debt burden.
Net income for the three months ended March 31, 2002 was $285,704 compared
to $158,368 for the three months ended March 31, 2001. The increase in net
income was primarily due to the increase in revenues in the Company's club
locations and to the reduction in cost of goods sold and selling, general and
administrative expenses.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2002 AS COMPARED TO THE
SIX MONTHS ENDED MARCH 31, 2001
For the six months ended March 31, 2002, the Company had consolidated total
revenues of $7,964,607 compared to consolidated total revenues of $10,449,684
for the fiscal six months ended March 31, 2001, or a decrease of $2,485,077.
The decrease in total revenues was due to the decline in revenues from the
Internet business as a result of the Company's transition from programs which
generate high revenues with very low margins to programs which will produce
higher margins from lower revenues.
The cost of goods sold for the six months ended March 31, 2002 was 19.83%
of total revenues compared to 39.95% for the six months ended March 31, 2001.
This decrease is attributable to the elimination of cost of goods sold related
to the Internet business. The cost of goods sold for the club operations for
the six months ended March 31, 2002 was 15.04% and 14.25% for the six months
10
ended March31, 2001. Management continued its efforts to achieve reductions in
cost of goods sold through improved inventory management. The Company continues
a program to improve margins from liquor and food sales and food service
efficiency.
Payroll and related costs for the six months ended March 31, 2002 were
$2,496,956 compared to $2,414,953 for the six months ended March 31, 2001. This
increase is a result additional personnel added to the Company's club operations
to eliminate reliance on outside vendors for services. Management currently
believes that its labor and management staff levels are of appropriate levels.
Other selling, general and administrative expenses for the six months ended
March 31, 2002 were $3,192,319 compared to $3,287,157 for the six months ended
March 31, 2001. The decrease was due to the Company's efforts to control costs
and to the elimination of costs related to the Internet business.
Interest expense for the six months ended March 31, 2002 was $174,271
compared to $181,118 for the six months ended March 31, 2001. The decrease was
primarily attributable to Company's aggressive effort to pay off its debt and
not acquire new debt.
Net income for the six months ended March 31, 2002 was $532,926 compared to
$409,133 for the six months ended March 31, 2001. The increase in net income
was primarily due to the increase in revenues in Company's club locations, to
lower cost of goods sold and to a reduction in selling, general and
administrative expenses. Management currently believes that the Company is in
the position to continue to be profitable in fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company had working capital of $830,491 compared to
$501,256 at September 30, 2001. The increase in working capital was due
primarily to the increase in net income.
Net cash provided by operating activities in the six months ended March 31,
2002 was $643,825 compared to $502,664 for the six months ended March 31, 2001.
The increase in cash provided by operating activities was due principally to the
increase in net income from operation.
Depreciation and Amortization for the six months ended March 31, 2002 were
$245,674 compared to $382,762 for the six months ended March 31, 2001.
In the opinion of management, working capital is not a true indicator of
the financial status. Typically, the Company carries current liabilities in
excess of current assets because the business receives substantially immediate
payment for sales, with nominal receivables, while inventories and other current
liabilities normally carry longer payment terms. Vendors and purveyors often
remain flexible with payment terms providing the Company with opportunities to
adjust to short-term business down turns. The Company considers the primary
indicators of financial status to be the long-term trend and mix of sales
revenues, overall cash flow and profitability from operations and the level of
long-term debt.
11
We have not established lines of credit other than the existing debt. There
can be no assurance that we will be able to obtain additional financing on
reasonable terms, if at all.
Because of the large volume of cash we handle, stringent cash controls have
been implemented. In the event the sexually oriented business industry is
required in all states to convert the entertainers who perform from independent
contractor to employee status, we have prepared alternative plans that we
believe will protect our profitability. We believe that the industry standard
of treating the entertainers as independent contractors provides sufficient safe
harbor protection to preclude any payroll tax assessment for prior years.
The sexually oriented business industry is highly competitive with respect
to price, service and location, as well as the professionalism of the
entertainment. Although we believe 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.
SEASONALITY
The Company is significantly affected by seasonal factors. Typically, the
Company has experienced reduced revenues from April through September with the
strongest operating results occurring during October through March.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEDURES
Not Applicable
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERRS
Not Applicable
Item 5. OTHER INFORMAITON
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Form 8-K
No reports on Form 8-k were filed during the quarter ended
March 31, 2002.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RICK'S CABARET INTERNATIONAL, INC.
--------------------------------------
Date: May 14, 2002 By: /s/ Eric S. Langan
Eric S. Langan
President and Chief Accounting Officer
13