MEMORANDUM OF RESPONSES
RICK'S CABARET INTERNATIONAL, INC.
FILE NO. 001-13992
FORM 10-KSB/A FOR FISCAL YEAR ENDING 9/30/2005
FORM 10-QSB FOR FISCAL QUARTER ENDING 3/31/2006
FORM 10-QSB FOR FISCAL QUARTER ENDING 6/30/2006
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1. In response to the Staff's comment, please be advised that in August 2006,
the Company foreclosed on 3,000,000 shares of Bluestar Health, Inc.
("Bluestar") that were collateralized on the note receivable. As such, the
Company presently owns the shares and can sell them in the open market.
Although Bluestar is delinquent in its filings, the shares of Bluestar are
presently traded on the Pink Sheets at $0.10 bid - $0.13 ask. Further, the
Company is not an affiliate of Bluestar and the shares which the Company
owns are eligible to be sold pursuant to Rule 144(k). While the Company
recognizes that the shares of Bluestar are thinly traded, the Company
believes that it could sell a sufficient number of shares in the open
market, even at reduced prices to the existing market prices, to recover
the amounts under the note receivable. We intend to refine such disclosure
in future filings. Legal counsel for the Company has contacted counsel for
Bluestar with respect to the possible sale of the shares to Bluestar or
other third parties.
2. In response to the Staff's comment, please note that the licenses in New
York and North Carolina are the result of zoning ordinance. Thus, they are
valid until cancelled by new ordinance, which is not anticipated to happen
for an indefinite period of time. Further, the license in New York is
grand-fathered into revised zoning ordinances. In Houston, there is no
zoning ordinance. Discounted cash flow method of income approach was used
in calculating the value of these licenses. When we purchased the New York
club we fully intended to completely remodel the three story club, which we
did over a period of eight months while all operations were stopped at that
location. During that time, we changed the style of entertainment from
all-nude serving a demographic with less disposable income to a topless
only club with a high end restaurant on the entire second floor serving a
clientele characterized by greater disposable income, which was the result
of our remodel and marketing campaign. Virtually no employees or clientele
of the previous club remain from prior to our acquisition. The major value
of purchasing the clubs clearly was the licenses which have been
grand-fathered into new zoning ordinances and are virtually unattainable
without purchasing a club. We intend to refine such disclosure in future
filings to provide more detail.
3. In response to the Staff's comment, the warrants are exercisable at any
time within the period beginning on July 22, 2005 and expiring at 5:00 p.m.
Houston, Texas time, on July 22, 2008. We intend to refine such disclosure
in future filings.
4. We have noted the Staff's comment and intend to make appropriate disclosure
in future filings.
5. In response to the Staff's comment, the 180,000 shares were sold
periodically in the open market from November 1, 2005 through May 11, 2006,
when a total of all shares had been sold. The amounts would be transferred
to permanent equity as the shares were sold through the open market. The
equity amounts were properly classified as permanent equity in the Form
10-QSB for fiscal quarter ending June 30, 2006. Therefore, we do not
believe the amounts to be material to require reclassification in the
previously filed financial statements. However, we will properly reclassify
such amount in the Company's Form 10-KSB for the year ended September 30,
2006 as temporary equity in the 2005 comparative balances.
6. In response to the Staff's comment, please note that during our market
research of the property values for similar properties in the area of the
property purchased, we found that the market price of land was
approximately $5 per square foot and buildings were approximately $100 per
square foot, which approximated a total fair value of $1,300,000. As
disclosed we paid $500,000 in cash at closing and provided 160,000 shares
of our common stock that were restricted, and recorded a total value of
approximately $1,300,000. As noted in Yahoo! Finance, the closing price of
our common stock was $5.40 per share on April 5, 2006, but the shares were
restricted and we deemed the estimated fair market value of the property
purchased to be an appropriate value to record and that the $0.40 discount
per share (approximately 7%) to the value of our stock provided was
reasonable as it was restricted from sale for a period of 9 to 10 1/2
months dependent on when the registration statement was filed. We intend to
refine such disclosure in future filings.
7. In response to the Staff's comment, we appreciate the intent of the staff's
comment and agree that through this SEC review there have been
opportunities of improvement noted that we plan to implement in future
filings. Several key comments were supplied by the SEC staff that we
believe will enable us to continue to enhance our future filings through
more comprehensive disclosure. We intend to continue to monitor our
processes to ensure all information is consistently provided accurately and
timely as required.
We have assessed the items addressed in the SEC's comments and their impact
on the effectiveness of the design and operation of our disclosure controls
and procedures and internal controls over financial reporting. Based on
this assessment, management intends, as noted above, to improve future
filings related to these specific issues, however, it does not believe
these items qualify as a material weakness on an individual or combined
basis. As such, management believes that the design and operation of its
disclosure controls and procedures and internal controls over financial
reporting are effective.
Memorandum of Responses - Page 2