10QSB 1 doc1.txt 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, 2001 [ ] 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 7, 2001, there were 4,595,494 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, 2001 (unaudited) and September 30, 2000 (audited) Consolidated Statements of Operations for the three and six months ended March 31, 2001 and 2000 (unaudited) Consolidated Statements of Cash Flows for the six months ended March 31, 2001 and 2000 (unaudited) Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Signatures
PART I - FINANCIAL INFORMATION Item 1. Financial Statements RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS ----------- 3/31/2001 9/30/2000 (UNAUDITED) (AUDITED) CURRENT ASSETS Cash $ 514,830 $ 374,532 Accounts receivable 354,565 297,761 Prepaid expenses 105,529 67,661 Inventories 195,640 200,471 Land held for sale 200,000 200,000 ----------- ----------- Total current assets 1,370,564 1,140,425 ----------- ----------- PROPERTY AND EQUIPMENT Buildings, land and leasehold improvements 8,438,437 8,360,090 Furniture & equipment 1,566,788 1,508,990 ----------- ----------- 10,005,225 9,869,080 Accumulated depreciation (1,496,991) (1,296,898) ----------- ----------- 8,508,234 8,572,182 ----------- ----------- OTHER ASSETS Goodwill less accumulated amortization 3,481,176 3,412,827 Other 214,148 288,223 ----------- ----------- 3,695,324 3,701,050 ----------- ----------- $13,574,122 $13,413,657 =========== ===========
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------- 3/31/2001 9/30/2000 (UNAUDITED) (AUDITED) CURRENT LIABILITIES Current portion of long term debt $ 372,735 $ 456,749 Accounts payable - trade 332,695 437,083 Accrued expenses 453,174 380,279 ---------- ---------- Total current liabilities 1,158,604 1,274,111 LONG TERM DEBT, LESS CURRENT PORTION Long-term debt less current portion 3,243,215 3,409,767 ---------- ---------- Total Liabilities 4,401,819 4,683,878 ---------- ---------- COMMITMENTS AND CONTINGENCIES --- --- MINORITY INTERESTS 73,456 64,410 STOCKHOLDERS' EQUITY Preferred stock - $.10 par, authorized 1,000,000 shares; none outstanding --- --- Common stock - $.01 par, authorized 15,000,000 shares issued 4,348,678 and 4,348,678 43,487 43,487 Additional paid in capital 10,891,794 10,867,449 Retained earnings (deficit) (1,836,434) (2,245,567) ---------- ---------- Total stockholder's equity 9,098,847 8,665,369 ---------- ---------- $13,574,122 $13,413,657 ========== ===========
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, 2001 2000 2001 2000 REVENUES Sales of alcoholic beverages $ 1,458,119 $ 1,129,924 $ 2,798,161 $ 2,234,507 Sales of foods 212,391 163,030 404,336 313,406 Service revenues 1,361,437 1,229,004 2,634,153 2,441,236 Internet revenues 2,125,616 131,943 4,136,416 181,807 Others 240,708 187,614 476,618 388,734 ----------- ----------- ----------- ----------- 5,398,271 2,841,515 10,449,684 5,559,690 OPERATING EXPENSES Cost of goods sold 2,339,866 467,679 4,173,895 831,458 Salaries and wages 1,188,951 988,057 2,414,953 1,898,213 Other general and administrative Taxes and permits 442,258 435,156 922,146 840,657 Charge card fees 85,035 39,961 169,164 79,046 Rent 78,340 15,235 155,407 26,725 Legal and accounting 178,079 173,988 395,870 286,054 Advertising 131,864 210,737 264,137 408,142 Other 715,047 527,070 1,380,433 1,021,472 ----------- ----------- ----------- ----------- 5,159,440 2,857,883 9,876,005 5,391,767 ----------- ----------- ----------- ----------- INCOME/(LOSS) FROM OPERATIONS 238,831 (16,368) 573,679 167,923 Interest Expense (88,305) (104,834) (181,118) (213,511) Interest Income 7,842 7,924 16,572 16,336 ----------- ----------- ----------- ----------- NET INCOME/(LOSS) $ 158,368 $ (113,278) $ 409,133 $ (29,252) =========== =========== =========== =========== BASIC NET INCOME (LOSS) PER COMMON SHARE: NET INCOME (LOSS) $ 0.04 $ (0.03) $ 0.09 $ (0.01) =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 4,348,678 3,683,845 4,348,678 3,648,761 =========== =========== =========== ===========
RICK'S CABARET INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2001 AND 2000 2001 2000 (UNAUDITED) (UNAUDITED) NET INCOME/(LOSS) $ 409,133 $ (29,252) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 382,762 260,057 Minority Interest 9,046 (7,469) Changes in assets and liabilities: Accounts receivable (56,804) (84,228) Prepaid expenses (37,868) (56,833) Inventories 4,831 (6,806) Other assets (176,943) 38,401 Accounts payable and accrued expenses (31,493) 146,732 ---------- --------- Cash provided by operating expenses 502,664 260,602 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property equipment (136,145) (250,817) ---------- --------- Cash used by investing activities (136,145) (250,817) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock issued, less offering costs 24,345 217,086 Payments on long-term debt (250,566) (214,386) ---------- --------- Cash provided (used) by financing activities (226,221) 2,700 ---------- --------- NET INCREASE IN CASH 140,298 12,485 CASH AT BEGINNING OF PERIOD 374,532 378,161 ---------- --------- CASH AT END OF PERIOD $ 514,830 $ 390,646 ========= ========== CASH PAID DURING PERIOD FOR: Interest $ 181,118 $ 213,511 ========= ==========
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, 2000 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, 2001 are not necessarily indicative of the results that may be expected for the year ending September 30, 2001. 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 SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, 2001 2000 2001 2000 REVENUES Internet Web-sites $ 2,125,616 $ 133,267 $ 4,136,416 $ 183,131 Club operation 3,272,655 2,708,248 6,313,268 5,376,559 ----------- ----------- ------------ ------------ $ 5,398,271 $ 2,841,515 $ 10,449,684 $ 5,559,690 NET INCOME/(LOSS) Internet Web-sites $ (90,132) $ (194,724) $ 179,332 $ (270,392) Club operation 468,620 221,491 625,375 493,466 Corporate expenses (220,120) (140,045) (395,574) (252,326) ----------- ----------- ------------ ------------ $ 158,368 $ (113,278) $ 409,133 $ (29,252) PROPERTY & EQUIPMENT Internet Web-sites $ 241,429 $ 233,882 Clubs operation 8,266,805 8,393,033 ------------ ------------ $ 8,508,234 $ 8,626,915 ============ ============
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. 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 AND SIX MONTHS ENDED MARCH 31, 2001 AS COMPARED TO THE THREE AND SIX MONTHS ENDED MARCH 31, 2000 For the three months ended March 31, 2001, the Company had consolidated total revenues of $5,398,271 compared to consolidated total revenues of $2,841,515 for the three months ended March 31, 2000, or an increase of $2,556,756. The increase in total revenues was due to the increase in revenues in the Company's existing and new club locations of $563,083 and to the increase in revenues generated by the Company's Internet businesses of $1,993,673. The increase in the revenues generated by the club operations were primarily due to increase in cover charges, floor fees, and merchandise revenues. The cost of goods sold for the three months ended March 31, 2001 was 43.35% of total revenues compared to 16.46% for the three months ended March 31, 2000. The increase was due primarily to the costs of maintaining our Internet operations and the addition of logo merchandise to our sales mix. The cost of goods sold for the club operation for the three months ended March 31, 2001 was 14.19% of the sales of alcoholic beverages and food compared to 12.81% for the three months ended March 31, 2000. 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, 2001 was 88.24%. Payroll and related costs for the three months ended March 31, 2001 were $1,188,951 compared to $988,057 for the three months ended March 31, 2000. The increase was a reflection of the additional personnel experienced by the Company as it adds more locations and continues to increase the size and the scope of our internet operation. 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, 2001 were $1,630,623 compared to $1,402,147 for the three months ended March 31, 2000. The increase was due to increased number of the Company's locations and the expansion of our Internet business. Interest expense for the three months ended March 31, 2001 was $88,305 compared to $104,834 for the three months ended March 31, 2000. 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, 2001 was $158,368 compared to a net loss of $113,278 for the three months ended March 31, 2000. The increase in net income was primarily due to the increase in revenues in the Company's club locations. For the six months ended March 31, 2001, the Company had consolidated total revenues of $10,449,684 compared to consolidated total revenues of $5,559,690 for the fiscal six months ended March 31, 2000, or an increase of $4,889,994. The increase in total revenues was due to the increase in revenues in the Company's existing and new club locations of $935,385 and to the increase in revenues generated by the Company's Internet businesses of $3,954,609. The cost of goods sold for the six months ended March 31, 2001 was 39.95% of total revenues compared to 14.96% for the six months ended March 31, 2000. The increase was due primarily to the initial and maintenance costs of our internet operation. The cost of goods sold for the club operation for the six months ended March 31, 2001 was 14.25%. 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, 2001 were $2,414,953 compared to $1,898,213 for the six months ended March 31, 2000. The increase was a reflection of the additional personnel experienced by the Company as it adds more locations and continues to increase the size and the scope of our internet operation. Management currently believes that its labor and management staff levels are of appropriate levels. The labor cost for the internet operation was $230,281 and for the clubs operation was $1,917,814. 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, 2001 were $3,287,157 compared to $2,662,096 for the six months ended March 31, 2000. The increase was due to increased number of the Company's locations and the expansion of our Internet business. Interest expense for the six months ended March 31, 2001 was $181,118 compared to $213,511 for the six months ended March 31, 2000. The decrease was primarily attributable to Company's aggressive effort to pay off its debt and not acquiring a new debt. Net income for the six months ended March 31, 2001 was $409,133 compared to a net loss of ($29,252) for the six months ended March 31, 2000. The increase in net income was primarily due to the increase in revenues in Company's locations and its internet business. Management currently believes that the Company is in the position to be profitable in fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, the Company had working capital of $211,960 compared to a working capital deficit of $133,686 at September 30, 2000. 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, 2001 was $502,664 compared to $260,602 for the six months ended March 31, 2000. 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, 2001 were $382,762 compared to $260,057 for the six months ended March 31, 2000. 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. 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 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 99.1 -- Report of Independent Auditor on Review of Unaudited Financial Statements. (b) Reports on Form 8-K None 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 10, 2001 By: /s/ Eric S. Langan Eric S. Langan President and Chief Accounting Officer