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, 2004
[ ] 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)
APPLICABLE ONLY TO CORPORATE ISSUERS
On May 6, 2004, there were 3,700,148 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 March 31, 2004 (unaudited)
and September 30, 2003 (audited) . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the three months and
six months ended March 31, 2004 and 2003 (unaudited) . . . . . . . 3
Consolidated Statements of Cash Flows for the six months
ended March 31, 2004 and 2003 (unaudited). . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . 13
PART II OTHER INFORMATION
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
i
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
3/31/04 9/30/03
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 665,717 $ 604,865
Accounts receivable:
Trade 51,598 45,319
Other, net 188,595 213,886
Marketable securities 171,150 135,000
Inventories 247,797 230,451
Other current assets 507,202 106,332
------------ ------------
Total current assets 1,832,059 1,335,853
------------ ------------
PROPERTY AND EQUIPMENT
Buildings, land and leasehold improvements 9,361,818 9,131,870
Furniture and equipment 2,231,827 2,068,648
------------ ------------
11,593,645 11,200,518
Accumulated depreciation (2,666,241) (2,423,461)
------------ ------------
Total property and equipment, net 8,927,404 8,777,057
------------ ------------
OTHER ASSETS
Goodwill 1,982,848 1,962,848
Notes receivable 172,463 179,754
------------ ------------
Total other assets 2,155,311 2,142,602
------------ ------------
Total assets $12,914,774 $12,255,512
============ ============
<FN>
See accompanying notes to consolidated financial statements.
1
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
3/31/04 9/30/03
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Accounts payable - trade $ 344,047 $ 189,208
Accrued liabilities 507,037 622,216
Deferred revenues 16,633 ---
Current portion of long-term debt 494,351 449,439
------------ ------------
Total current liabilities 1,362,068 1,260,863
Long-term debt, less current portion 3,500,530 3,576,896
------------ ------------
Total liabilities 4,862,598 4,837,759
------------ ------------
COMMITMENTS AND CONTINGENCIES --- ---
MINORITY INTERESTS 25,485 36,032
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par, 1,000,000 shares
authorized; none outstanding --- ---
Common stock, $.01 par, 15,000,000 shares
authorized; 4,608,678 shares issued at March 31,
2004 and September 30, 2003 46,087 46,087
Additional paid-in capital 11,273,149 11,273,149
Accumulated other comprehensive income 157,458 120,000
Accumulated deficit (2,156,223) (2,763,735)
Less: 908,530 shares of stock held in treasury at cost
at March 31, 2004 and September 30, 2003 (1,293,780) (1,293,780)
------------ ------------
Total stockholders' equity 8,026,691 7,381,721
------------ ------------
Total liabilities and stockholders' equity $12,914,774 $12,255,512
============ ============
<FN>
See accompanying notes to consolidated financial statements.
2
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2004 2003 2004 2003
Revenues
Sales of alcoholic beverages $1,875,520 $1,516,258 $ 3,723,441 $ 3,145,066
Sales of food and merchandise 422,070 393,176 812,223 784,980
Service revenues 1,521,891 1,268,024 2,870,755 2,585,816
Internet revenues 202,678 265,164 403,423 596,652
Other 129,163 101,294 193,515 160,788
----------- ----------- -------------- ------------
Total revenues 4,151,322 3,543,916 8,003,357 7,273,302
----------- ----------- -------------- ------------
Operating expenses
Cost of goods sold 519,657 518,765 1,028,526 1,084,120
Salaries and wages 1,353,453 1,293,060 2,641,440 2,636,478
Other general and administrative
Taxes and permits 607,287 515,307 1,139,569 997,519
Charge card fees 62,738 65,364 128,634 126,435
Rent 132,891 61,258 252,170 116,914
Legal and professional 144,719 200,301 280,575 406,834
Advertising and marketing 215,459 199,718 399,965 378,481
Depreciation 139,309 131,188 264,964 260,865
Other 546,930 504,240 1,131,141 1,024,324
----------- ----------- -------------- ------------
Total operating expenses 3,722,443 3,489,201 7,266,984 7,031,970
----------- ----------- -------------- ------------
Income from operations 428,879 54,715 736,373 241,332
Interest income 9,071 6,017 14,826 9,461
Interest expense (82,423) (99,036) (168,588) (196,856)
Gain from sale of marketable securities 16,878 --- 16,878 ---
Minority interests 1,020 11,207 10,546 13,641
Other (5,171) (1,874) (2,523) (1,874)
----------- ----------- -------------- ------------
Net income (loss) $ 368,254 $ (28,971) $ 607,512 $ 65,704
=========== =========== ============== ============
Basic and diluted earnings (loss) per share:
Net income (loss) $ 0.10 $ (0.01) 0.16 $ 0.02
=========== =========== ============== ============
Weighted average number of common
shares outstanding 3,700,148 3,720,048 3,700,148 3,728,931
=========== =========== ============== ============
Comprehensive income for the three months ended March 31, 2004 and 2003 were $253,212 and a loss of
$28,971, and for the six months were $644,970 and $65,704, respectively. This includes the changes
in available-for-sale securities and net income.
See accompanying notes to consolidated financial statements.
3
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2004 AND 2003
2004 2003
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income $ 607,512 $ 65,704
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 264,964 260,865
Minority interests (10,546) (13,641)
Gain on sale of marketable securities (16,878) ---
Changes in operating assets and liabilities (342,912) 16,317
------------ ------------
Cash provided by operating activities 502,140 329,245
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (170,311) (328,878)
Proceeds from sale of marketable securities 18,186 ---
Acquisition of business (265,000) ---
Proceeds from notes receivable 7,291 11,719
------------ ------------
Cash used in investing activities (409,834) (317,159)
------------ ------------
Cash flows from financing activities:
Purchases of treasury stock --- (88,566)
Proceeds from long-term debt 300,000 ---
Payments on long-term debt (331,454) (323,381)
------------ ------------
Cash used in financing activities (31,454) (411,947)
------------ ------------
Net increase/(decrease) in cash and cash equivalents 60,852 (399,861)
Cash and cash equivalents at beginning of period 604,865 733,366
------------ ------------
Cash and cash equivalents at end of period $ 665,717 $ 333,505
============ ============
Cash paid during the period for:
Interest $ 168,588 $ 196,856
============ ============
<FN>
See accompanying notes to consolidated financial statements.
4
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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-QSB of Regulation S-B. 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, 2003 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, 2004 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2004.
2. STOCK OPTIONS
The Company accounts for its stock options under the recognition and measurement
principles of Accounting Principles Board ("APB") opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of Statement of Financial
Accounting Standard ("SFAS") No. 123, Accounting for Stock Based Compensation,
to stock-based employee compensation. The following presents pro forma net
income and per share data as if a fair value accounting method had been used to
account for stock based compensation:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2004 2003 2004 2003
Net income (loss), as reported $368,254 $(28,971) $607,512 $65,704
Less total stock-based employee
compensation expense determined
under the fair value based method
for all awards (163,236) --- (175,179) ---
--------- --------- --------- -------
Pro forma net income (loss) $205,018 $(28,971) $432,333 $65,704
========= ========= ========= =======
Earnings (loss) per share:
Basic and diluted - as reported $ 0.10 $ (0.01) $ 0.16 $ 0.02
========= ========= ========= =======
Basic and diluted - pro forma $ 0.06 $ (0.01) $ 0.12 $ 0.02
========= ========= ========= =======
5
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
3. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
4. COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with the provisions
of SFAS No. 130, Reporting Comprehensive Income. Comprehensive income consists
of net income and unrealized gains (losses) on available-for-sale marketable
securities.
5. SEGMENT INFORMATION
Below is the financial information related to the Company's segments:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2004 2003 2004 2003
REVENUES
Club operations $3,948,644 $3,278,752 $7,599,934 $6,676,650
Internet websites 202,678 265,164 403,423 596,652
----------- ----------- ----------- -----------
$4,151,322 $3,543,916 $8,003,357 $7,273,302
=========== =========== =========== ===========
NET INCOME/(LOSS)
Club operations $ 749,509 $ 398,379 $1,336,261 $ 927,016
Internet websites 22,027 10,674 25,908 36,430
Corporate expenses (403,282) (438,024) (754,657) (897,742)
----------- ----------- ----------- -----------
$ 368,254 $ (28,971) $ 607,512 $ 65,704
=========== =========== =========== ===========
6. 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. This includes daily, annual and lifetime VIP memberships.
Under Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements, membership revenue should be deferred and recognized 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
6
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.
If the Company had deferred membership revenue and recognized it based on the
lives above, the impact on revenue and net income (loss) recognized would have
been an increase of approximately $17,392 and a decrease of $1,986 for the three
months and an increase of $23,749 and a decrease of $18,481 for the six months
ended March 31, 2004 and 2003, respectively. This would have also resulted in a
deferred revenue balance of approximately $35,801 and $58,822 for the six months
ended March 31, 2004 and 2003, respectively. Management does not believe the
impact of this difference in accounting treatment is material to the Company's
annual and quarterly financial statements. However, the Company began to record
revenues in such manner effective January 1, 2004, and hence as of March 31,
2004 deferred revenues of $16,633 have been recorded related to such
memberships.
The Company recognizes Internet revenue from monthly subscriptions to its online
entertainment sites when notification of a new subscription is received from the
third party hosting company or from the credit card company, usually two to
three days after the transaction has occurred. The Company recognizes Internet
auction revenue when payment is received from the credit card company as
revenues are not deemed estimable nor collection deemed probable prior to that
point.
7. ACQUISITIONS AND DISPOSITIONS
On March 3, 2004, the Company acquired the assets and business of a 7,000 square
foot gentlemen's club in North Houston and will name it as the Company's fifth
XTC Cabaret. As a part of the transaction, the Company entered into a new
five-year lease with an option for five additional years. The results of
operations of this new venue are included in the accompanying consolidated
financial statements from the date of acquisition. The $265,000 all-cash
purchase transaction generated goodwill of approximately $20,000 and property
and equipment at $245,000.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with our 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," "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 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 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
Our Company presently conducts its business in two different areas of operation:
1. We own and operate upscale adult nightclubs serving primarily businessmen
and professionals that offer live adult entertainment, restaurant and bar
operations. We own and operate ten adult nightclubs under the name "Rick's
Cabaret" and "XTC" in Houston, Austin and San Antonio, Texas, and
Minneapolis, Minnesota. We also own and operate an adult-themed club called
"Encounters" that serves the couples or "swingers'" market and a sports bar
called "Hummers" in Houston. No sexual contact is permitted at any of our
locations. On March 3, 2004, we acquired the assets and business of a 7,000
square foot gentlemen's club in North Houston and will name it as the
Company's fifth XTC Cabaret. As a part of the transaction, we entered into
a new five-year lease with an option for five additional years. The results
of operations of this new venue are included in the accompanying
consolidated financial statements from the date of acquisition. The
$265,000 all-cash purchase transaction generated goodwill of approximately
$20,000. Proforma
8
results of operations have not been provided, as the amounts were not
deemed material to our consolidated financial statements.
2. We have extensive internet activities.
a) We currently own two adult internet membership websites at
www.couplestouch.com, www.otherstouch.com and www.xxxpassword.com. We
-------------------- ------------------- -------------------
acquire our website content from wholesalers.
b) We operate a network of nine online auction sites accessible on the
internet under the flagship site www.naughtybids.com. These sites provide
-------------------
customers with the opportunity to purchase adult products and services in
an auction format. We earn revenues by charging service fees for each
transaction conducted on the highly automated sites, all of which utilize a
single technology platform that we operate.
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
service. 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.
Our fiscal year end is September 30.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 2003
For the three months ended March 31, 2004, the Company had consolidated total
revenues of $4,151,322 compared to consolidated total revenues of $3,543,916 for
the three months ended March 31, 2003, an increase of $607,406 or 17.14%. The
increase in total revenues was primarily attributable to the increase in
revenues generated by the Company's club businesses in the amount of $669,892, a
20.43% increase from a year ago, offset by a decrease of $62,486 by the
Company's internet business. The Company's club operations in Houston benefited
from the Super Bowl. Total revenues for same-location-same-period of club
operations increased to $3,860,498 for the three months ended March 31, 2004
from $3,263,254 for same period ended March 31, 2003, or by 18.30%.
The cost of goods sold for the three months ended March 31, 2004 was 12.52% of
total revenues compared to 14.64% for the three months ended March 31, 2003.
The decrease was due primarily to the reduction in costs of maintaining our
internet operations. The cost of goods sold for the club operations for the
three months ended March 31, 2004 was 12.55% compared to 14.25% for the three
months ended March 31, 2003. 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 goods sold from our internet operations for the
three months ended March 31, 2004 was 11.56% compared to 20.22% for the three
months ended March 31, 2003. The cost of goods sold for
same-location-same-period of club operations for the three months ended March
31, 2004 was 12.55%, compared to 14.25% for the same period ended March 31,
2003.
9
Payroll and related costs for the three months ended March 31, 2004 were
$1,353,453 compared to $1,293,060 for the three months ended March 31, 2003.
Payroll for same-location-same-period of club operations increased to $1,078,631
for the three months ended March 31, 2004 from $1,048,542 for the same period
ended March 31, 2003. Management has implemented labor cost reduction and
currently believes that its labor and management staff levels are appropriate.
Other general and administrative expenses for the three months ended March 31,
2004 were $1,849,333 compared to $1,677,375 for the three months ended March 31,
2003. The increase was due primarily to an increase in taxes related to the
increase in revenues, direct operating expenses, rents, utilities, marketing and
promotional expenses, and insurance from opening new locations.
Interest expense for the three months ended March 31, 2004 was $82,423 compared
to $99,036 for the three months ended March 31, 2003. The decrease was
attributable to the Company's effort to reduce long-term debts. As of March 31,
2004, the balance of long-term debts was $3,994,881 compared to $4,283,972 a
year earlier.
Net income for the three months ended March 31, 2004 was $368,254 compared to a
net loss of $28,971 for the three months ended March 31, 2003. The increase in
net income was primarily due to the increase in the Company's club business and
reductions in corporate overhead. Net income for same-location-same-period of
club operations increased to $798,437 for the three months ended March 31, 2004
from $401,077 for same period ended March 31, 2003, or by 99.07%.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2004 AS COMPARED TO THE
SIX MONTHS ENDED MARCH 31, 2003
For the six months ended March 31, 2004, the Company had consolidated total
revenues of $8,003,357 compared to consolidated total revenues of $7,273,302 for
the six months ended March 31, 2003, or an increase of $730,055. The increase in
total revenues was primarily attributable to the increase in revenues generated
by the Company's club businesses in the amount of $923,284, an increase of
13.83% from a year ago, offset by a decrease of $193,229 by the Company's
internet business. The Company's club operations in Houston benefited from the
Super Bowl. Total revenues for same-location-same-period of club operations
increased to $7,459,091 for the six months ended March 31, 2004 from $6,660,740
for same period ended March 31, 2003, or by 11.98%. The decrease in internet
revenues was due to 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, 2004 was 12.85% of
total revenues compared to 14.91% for the six months ended March 31, 2003. This
decrease is attributable to the reduction in costs of maintaining our internet
operations. The cost of goods sold for the club operations for the six months
ended March 31, 2004 was 12.96% and 14.90% for the six months ended March 31,
2003. 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. The cost
of goods sold from our internet operations for the six months ended March 31,
2004 was 10.82% compared to 21.61% for the six months ended March 31, 2003. The
cost of goods sold for same-location-same-period of club operations for the six
months ended March 31, 2004 was 12.90%, compared to 14.34% for the same period
ended March 31, 2003.
10
Payroll and related costs for the six months ended March 31, 2004 were
$2,641,440 compared to $2,636,478 for the six months ended March 31, 2003. This
nominal increase was the result of additional personnel added to the Company's
new club operations offset by labor cost reduction in the Company's existing
club operations. Management currently believes that its labor and management
staff levels are appropriate.
Other general and administrative expenses for the six months ended March 31,
2004 were $3,597,018 compared to $3,311,372 for the six months ended March 31,
2003. The increase was due primarily to an increase in taxes related to the
increase in revenues, direct operating expenses, rents, utilities, marketing and
promotional expenses, and insurance from opening new locations.
Interest expense for the six months ended March 31, 2004 was $168,588 compared
to $196,856 for the six months ended March 31, 2003. The decrease was
attributable to the Company's effort to reduce long-term debts. As of March 31,
2004, the balance of long-term debts was $3,994,881 compared to $4,283,972 a
year earlier.
Net income for the six months ended March 31, 2004 was $607,512 compared to
$65,704 for the six months ended March 31, 2003. The increase in net income was
primarily due to the increase in the Company's club business and reductions in
corporate overhead. Net income for same-location-same-period of club operations
increased to $1,410,877 for the six months ended March 31, 2004 from $929,714
for same period ended March 31, 2003, or by 51.75%. Management currently
believes that the Company is in the position to continue to be profitable in
fiscal 2004.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, the Company had a working capital of $469,991 compared to a
working capital of $74,990 at September 30, 2003. The increase in working
capital was primarily due to an increase in cash, marketable securities, and
other current assets offset by an increase in accounts payable and accrued
liabilities. The value of available-for-sale marketable securities increased by
$47,922.
Net cash provided by operating activities in the six months ended March 31, 2004
was $502,140 compared to net cash provided of $329,245 for the six months ended
March 31, 2003. The increase in cash provided by operating activities was
primarily due to increases in net income and accounts payable offset by
increases in other current assets and accrued liabilities.
The Company used $409,834 and $317,159 of cash in investing activities and
$31,454 and $411,947 of cash in financing activities during the six months ended
March 31, 2004 and 2003, respectively.
The Company's need for capital historically was a result of construction or
acquisition of new clubs, renovation of older clubs, and investments in
technology. During fiscal 2003, the Company has utilized capital to repurchase
its common stock as part of the Company's share repurchase program. On March 15,
2004, the Company secured an additional $300,000 debt from one of the lenders,
bearing interest rate of 11% and it has a 3 year term.
On September 16, 2003, the Company was authorized by its board of directors to
repurchase up to $500,000 worth of the Company's common stock. No shares have
been purchased under this plan.
11
In the opinion of management, working capital is not a true indicator of the
financial status. Typically, businesses in the industry carry current
liabilities in excess of current assets because the business receives
substantially immediate payment for sales, with nominal receivables, while
accounts payable and other current liabilities normally carry longer payment
terms. Vendors and purveyors often remain flexible with payment terms providing
businesses 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 of revenue growth and mix of sales revenues, overall cash flow,
profitability from operations and the level of long-term debt.
We have not established lines of credit or financing other than 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.
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 at our locations, from being
independent contractors 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 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
Our nightclub operations are significantly 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
The Company believes that its club operations can continue to grow organically
and through careful entry into markets and demographic segments with high growth
potential. Upon careful research, new clubs may be opened, or existing clubs
acquired, in locations that are consistent with our growth and income targets
and which appear receptive to the upscale club formula we have developed. We
may form joint ventures or partnerships to reduce start-up and operating costs,
with our Company contributing assets in the form of our brand name and
management expertise. We may also develop new club concepts that are consistent
with our management and marketing skills. We may also acquire real estate in
connection with club operations, although some clubs may be in leased premises.
We also expect to continue to grow our Internet profit centers and plan to focus
in the future on high-margin activities that leverage our marketing skills while
requiring a low level of start-up expense and ongoing operating costs.
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Item 3. Controls and Procedures.
As of the end of the period of this report, the Company carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. This evaluation was carried out under the
supervision and with the participation of the Company's management, including
the Company's chief executive officer and chief financial officer. Based on
that evaluation, the Company's chief executive officer and chief financial
officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in the Company's periodic reports to the Securities and Exchange
Commission. There have been no significant changes in the Company's internal
controls or in other factors, which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.
PART II OTHER INFORMATION
Item 5. Other Information.
The Board has not adopted a formal policy with regard to the process to be used
for identifying and evaluating nominees for director. At this time, the
consideration of candidates for the Board of Directors is in the Board's
discretion, which we believe is adequate based on the size of the Company and
each current board member's qualifications.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 31.1 - Certification of Chief Executive Officer and 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 and
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.
(b) Reports on Form 8-K
None.
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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 17, 2004 By: /s/ Eric S. Langan
-----------------------------------
Eric S. Langan
Chief Executive Officer and acting Chief
Financial Officer
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