RCI Hospitality Holdings Inc (RICK) 2009 Q2 法說會逐字稿

Greetings and welcome to the second quarter conference call and webcast for Rick's Cabaret International. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

Your call today is being hosted by Mr. Eric Langan, President and CEO of Rick's Cabaret. Also on the call is Phil Marshall, CFO of Rick's Cabaret. Here to introduce Mr. Langan is Allan Priaulx, head of Investor Relations for Rick's Cabaret. Thank you Mr. Priaulx, you may begin.

Thank you very much. Good afternoon, I'm Allan Priaulx, Investor Relations Counselor for Rick's Cabaret International. Welcome to our second quarter 2009 conference call and webcast. In a moment I'll turn the call over to Eric Langan and Phil Marshall, who will present our second quarter results and then answer any questions you might have.

Before we begin, I would like to call your attention to our Safe Harbor statement, which is included in slide 2 of our PowerPoint presentation, available on our website and at PrecisionIR.com. Please take a good look at the statement, as this conference call may contain forward-looking-information within the meaning of Section 21E of the Securities Exchange Act of 1934. Later this week, a complete transcript of this call will be available on seekingalpha.com. I'd also like to remind you that Rick's Cabaret files reports and other documents with the Securities and Exchange Commission and all of them are available on our website at www.Ricks.com.

And now I'll turn the call over it Eric Langan.

Thank you, Allan. Good afternoon, everyone. Thanks for joining us tonight. I'll begin the presentation with a quick overview of what we're going to be talking about. We're going to review our second quarter 2009 performance. We're going to discuss the impact from discontinued operations on net income. We're going to update you on our steps to improve our performance, including our focus on Las Vegas. I want to discuss a renegotiation process that we went through on the put options and how we think that's going to help the company going forward. Give a slight outlook for the remainder of the year on how we think things are heading with the current economy. And then end the call with a question and answer session to allow you to ask questions on anything I don't touch on.

The second quarter versus our first quarter, we had total revenues of $18.36 million this quarter versus $17.1 million in the last quarter, or up about 7.9%. A lot of that increase was due to the last couple of weeks in Las Vegas, when we started a very aggressive marketing program around the 17th of March. Our income from continuing operations rose to $1.51 million versus $1.13 million (see presentation) or up 33.5%. Our net income rose to $839,000 versus $790,000 in the first quarter. So what we're seeing if quarter-over-quarter improvement and that's really what we're focused on more right now than year-over-year, simply because it's just a different economy now than it was a year ago.

Our same-store sales were still down for the quarter, but we are starting to see them trend up a little bit as you've seen from our April revenue numbers that we put out a week ago and our cash flow continues to be strong.

The highlights of our second quarter was Miami is still our powerhouse. Miami is doing good numbers. It was a little off for the quarter, year-over-year, but a very little amount, it's almost flat. In April we did see a slight improvement, still almost flat, but actually a little better than the previous year's April. We're hoping to see during May, that strength continue.

New York City continues to be a very strong performer for us. We've seen no slowdown really at that location. The numbers continue to be strong and our visits are up there. Our entertainer count is up and things are going very well there.

The Philadelphia Club Onyx really took off in this last quarter, after being re-concepted. We expect to see even stronger results as we move into the quarter. Philadelphia had a lot of very, very cold nights and a lot of bad weather and yet we still had 100 people plus standing in line on Friday and Saturday nights, waiting to get in. I wouldn't even stand in those lines in that weather. So, it's going to be a very good summer, we believe, at that location.

We also converted the Rick's in Dallas into an XTC Cabaret and that conversion has done very well for us, as we're seeing increase in revenues and the profitability out of that location. And our marketing program that we kicked off in Las Vegas has been very, very strong for us, as you've seen from the April numbers of $1.86 million in sales. Though the marketing costs are very expensive right now, we do believe that eventually we'll bring those numbers down without bringing the sales numbers down as much and we'll see that club return to profitability.

Speaking on Las Vegas, the club lost approximately $633,000 in the second quarter. We've cut costs, we've launched the marketing campaign, we've also formed a marketing partnership with the Hard Rock Hotel & Casino, to put the Rick's Cabaret Rockstar Suite in. We're hoping that the build-out on that will be done soon and that will launch -- and we're working on them with some other promotions, including we've done two poker tournaments with them and we're talking with some other partners out there that we could use to work together with towards increasing Rick's visibility and increase our market share.

We expect further improvement as the economy rebounds in Vegas. I've been out there since March. We're starting to see a pretty nice turnaround. If you look at the hotel occupancy rates it looks like they're starting to creep up a little bit. Some of the conventions have still been weak. Hopefully as we get through the summer we'll start seeing that, especially I think by October, November, December we'll start seeing a better increase in that. But I guess that remains to be seen on what the economy does.

At the Philly Club, like I said, the concept has been very fantastic for us. We're drawing in top athletes, top hip-hop artists and they're customer magnets, so whenever they show up, the cell phones and the text messages go crazy and the club fills up immediately. We also have been able to bring in certain porn stars and other acts that are increasing our brand there and building the club's reputation. That concept has been very, very profitable for us. As you can see in the Q, we discuss in full detail exactly the turnaround on those locations.

In Dallas, we've had the Club Onyx location which didn't have a liquor license in the last quarter and now has a liquor license and is now profitable. And the XTC format is continuing to be profitable for us. The New York City's continued strength, our positive impact from Howard Stern, from ESPN, from the New York Post and other media exposure that we've been able to get from New York. Our $10 gourmet lunch is still building and helping our day shift sales, which is increasing our monthly sales volume and we're continuing to build at that location.

Tootsie's in Miami has been unbelievably strong through all of this, even though the Miami market, like the Las Vegas market, was one of the hardest hit on the real estate. Our club has continued to do very, very well there and we're continuing to build that flight to quality and that flight to brand, where people want to go out, they want to go to a place where they know they're going to have a good time, and Tootsie's has been that place. We're still seeing strong sales and great margins at that location.

We'll also be presenting at a conference in Miami in June, around the 8th or 9th, and we'll be having a due diligence event at the club on June 9th for anyone that's in the Miami area at that time.

I want to talk about some of the put changes. What the put changes effectively did for us is deferred a lot of cash that would have gone out over the next 12 months. And by deferring that cash we will then start paying that cash in months 13 through 24 and months 24 through 36 going forward. Some of them have just extended out the term periods for 5, 6, 8, 10 months, depending on how we negotiate them. But in effect, those give us interest free loans, because the company would have paid that cash out and now we're going to get to hold onto that cash and buy those shares back at a slower rate. But it also gives us a chance that if the market rebounds and the stock goes back to previous levels between $20 and $30 that we used to trade in, that we may not have to put any of that cash out and it gives us a much longer period of time for the market to come back.

The other thing is, all the shares that have been put back to us, starting in April, the company has bought those shares back. We did not put those shares into the market and we just basically wrote checks and are retiring those shares back into treasury. We've also in our stock buyback, as you'll see in the 10-Q, we bought back 162,041 shares of stock so far in the last six months, at an average price buyback of about $3.615 a share. So our current outstanding shares, I believe it was as of May 4th, but I might not have the date right, were basically down to 9,215,000 shares. If you look at our average for the earnings per share calculation, the basic count was 9,313,000 and the diluted count was 9,487,000. So as you see, our share count is actually coming down a little bit.

One other thing I want to touch on is the patron tax. And the patron tax in Texas is the $5.00 per customer fee that the clubs are having to pay for everyone that enters our buildings -- our businesses in Texas. There was a bill put before the House that will change that to a 10% sales tax. It has passed the House. It went to Committee in Senate. It is now passed in the Senate Committee on a 5 to 0 vote and we hope to see that on the Senate floor sometime in the future. Should that bill pass as written, it will allow us to get a credit back for all the patron taxes that we've paid in the past, which would be -- I believe I have to go back to the Q, but about $2.4 million in tax credit that the company would receive back on that, that we could apply towards future payments of that 10% tax. So that will be a nice boost when we get that passed and done.

Our forward strategy going forward is we're going to continue to look at our core competencies, clubs that we're doing well in, focus on those clubs. We're going to continue to market until the economy recovers, so you're going to continue to see higher marketing costs. We believe that that brings in market share and then when the economy recovers, we'll be able to lower those costs down and increase our sales at the same time, which will have a doubling effect on our earnings.

We're going to continue the battle in Las Vegas. I can't tell you how long that battle will last and I can't tell you in the end what it's going to cost us, but what I can tell you is that we are winning the battle. And to give you an idea, I know there's a million rumors going around about what this is costing us and how it's going to play out and what not. Let me tell you what I'm seeing so far. In the month of February we did about $250,000 in sales. In the month of March we did about $1.25 million in sales. We lost less money in March than we lost in April, even though we paid out over $1 million in marketing. No, in April we grossed even more money. We did $1.866 million in April and we paid out a considerable amount of money, but we lost less money in April than we lost in March.

So, sequentially from February, where we only had that quarter of a million in sales and the losses were at a certain level, in March we did a lot more sales and the losses came down, even though our advertising and marketing costs were higher, and in April we've seen the same thing, our advertising and marketing costs were much higher, our revenues were much higher, but our losses were narrowing. We're hoping as we move forward, as we move into May, we've cut back the marketing expenses somewhat and there's talk with the other clubs and bringing those marketing expenses down even more and if we're able to do that, then I think we'll see a return to profitability at that Las Vegas location. I don't know if it'll happen this month, next month or six months from now, but eventually at some point all the clubs are not going to continue to set there and operate at losses forever.

I do know that we have taken a huge market share. Our revenues are there. Our entertainer count is higher than it's ever been. Some of the numbers we're doing are exceeding the revenues from before we bought the location. Now it's just a matter of getting those costs in line and keeping those revenues up.

Looking for acquisition growth, we are looking again. We're starting to look around and see what we can find, see what's available out there. As the stock continues to come back, we will get more aggressive. If our stock price gets back to a level we're comfortable with, we would consider using equity again. Otherwise, we'll continue, we'll use company cash and debt. The main reason we were so excited about lowering our cash outlays on the put option was because by keeping that cash in the company we'll have a much larger pool of cash to go after acquisitions with.

There are large portfolio potential acquisitions out there right now, so we're being very selective. We are looking for locations that will help build our brand and expand the Rick's name and also something that's immediately profitable for us, so that we don't have to go in and have a ramp-up period. We're also looking at locations that we can re-concept similar to the XTC or the Club Onyx brand in certain markets that we feel are underserved in that and we believe would be immediately profitable for us.

To recap our second quarter, the first half behind us now, our total revenues for the six months were $35 million compared to about $25 million the previous year. Our operating income is becoming much stronger. Our losing clubs are turned around. We continue to cut costs where we can, which is helping lead to better operating efficiencies. We're now in the process of trying to bring down some of our other cost of goods sold and some other things through national buying programs. Our aggressive marketing tactics are paying off. We're gaining market share in some of our locations, especially in Las Vegas. And I think that we're posed for exceptional growth once this recession ends. I think we'll see increase in same-store sales again soon, provided the economy continues to come out of this.

So at this time I'll end the presentation and take any questions that you might have.

(Operator instructions) Your first question is from Eric Wold with Merriman Curhan Ford.

I guess two questions following on your comments towards the end. One on Vegas, can you talk about what experience you've seen in the past when there has been cab wars in the past and you've had some market share shifts and then you kind of revert back to maybe more normalized level after the frenzy dies down, what happens to market share after that, do customers return back to where they were before or do they stay where they're going to now?

Well, you've got to remember; in our industry it's all about the girls. So, he who has the girls can have the customers and he who has the customers has the girls, so it's really a chicken and egg and which came first. So the trick is of course keeping the girls and the customers on a platform. So, as the marketing costs come down, some of the customer count may come down initially, but it's just really more of a matter of keeping the girls happy and keeping the girls there and then the customer base will always return. The guys go where the girls are.

That's understandable. What's happened with the payments the girls are making to work at the clubs during this period in Vegas, are they--?

They're probably some of the highest levels they've been.

Do you think that's sustainable once the war ends?

You know, we're still below everyone else, so I think our numbers are sustainable. I don't know if some of the other clubs are. Some of the other clubs also have gone to like $50 to get in the club, with two drink minimums, they've raised the house fees on the girls $50, they've done a lot of things to try to offset those expenses. We've just kind of kept right on eating the losses that we've been sustaining before.

We're happy, I mean, when I set out to do this, I really thought that we would increase our losses by about a $0.25 million a month and I figured it would last about three or four months. What has been amazing to me is not only have I not seen those losses, I've actually lost less money than I was losing before. And when I went out there and we talked about doing this and we did all the numbers and I crunched everything and I just could not foresee how rapidly the change would be.

I'll give you an idea. The week of March 10th to March 17th, we probably did $120,000 in sales. The week of March 17th, the day we started the program through the 24th, we did $400,000 in sales. The next week we did $500,000 and some in sales. So you want to talk about something that is immediate, I don't know anyplace in the world you can spend marketing dollars like that and the response be so rapid.

We were running 60 girls. We had 8 waitresses on the first Friday night trying to serve 1,400 guests. I mean, we were just so under-prepared for how quickly it happened that I don't know how we didn't lose more money. Everything I know about the business said we should have lost more money, not less. But when we sit down and crunch the numbers and you see the sales, it's amazing. It's that old club thing. You go to nine clubs and you walk in and they're completely dead and you go, wow, this is a very nice place. You think that's where people would want to go party, but no, they'll go down the street to a place where they're standing shoulder to shoulder and they can't move in the place, and spend more money. And that's just the nightclub business and that's what we're seeing in Vegas. The busier that we are, the more people want to be there and the more people stand, the longer they stay and the higher and higher average per head goes up.

Okay. Then last question, on the M&A side, once you start getting back in the M&A picture, is it likely to be in kind of the flagship type stores like Miami, like Vegas or could you kind of go to more smaller locations that may be more price--?

Right now I'm looking, to be honest with you, because of where our equity is, we're not going to be using equity, even at $7 a share, probably not even at $10 a share would we be looking to do anything with equity. So, I think really what we're going to be looking at is more Fort Worth type locations; locations we can go in and buy for anywhere from $3 to $5 million and that are making $1 million a year and we can go in and buy 2 or 3 of those with $1 million, $2 million, $3 million cash down, finance the rest through the owner and make the acquisitions easy and just basically can sit there and continuously add to our cash flow.

Your next question is from Jamie Clement with Sidoti.

Eric, the year-over-year increase in advertising and marketing, I think some of that probably had a little something to do with Dallas and Philly. Can you give us a sense roughly of how much the year-over-year increase was specifically related to Vegas?

About $1 million. We did about $470,000 last year and about $1.67 million this year. So I'd say about $1 million of that and about $200,000 of that is probably associated with Dallas and Philly, with the bulk of that in Dallas. Dallas is where we spent the real advertising dollars.

Okay. A lot of consumer companies noticed a seemingly scary period of time in February, there was a lot of bad news headlining the newspapers and that sort of thing. Did you guys see the same thing and since that time have you seen it -- it seems like you've seen some sense of stabilization?

To be honest with you, December was like we thought we were in a black hole. January it looked like there was a light at the end of that tunnel and that light was the Super Bowl. Super Bowl came and we've seen our numbers start getting better. In December and January it was like it was almost un-American to go out and party or go out and have any fun, like the media had everyone convinced that it was wrong to go have any fun or go party or go spend money drinking and partying.

When the Super Bowl came, it's like everybody let out a big sigh and said hey, it's Super Bowl, we can party again! So that's really where we started seeing it. Then right as that was wearing off, about three or four weeks into February, at the end of February then March came, then March madness hit and it was like all the sudden all the college basketball got everybody crazy again and all the sudden it was okay to party again. And so that's what we've seen. And that has not slowed down. It's been pretty steady.

Because I think the media out there is now picking up and the government's kind of changed their tune to things are getting better. And if things are getting better, then it's okay to have that occasional drink, it's okay to go out and have that one blowout night. Maybe not as much as you would if you were -- as you did last year, but you're still going out a little bit, and I think that's what we're seeing.

And last question, Eric. Can you talk a little bit more about the partnership with the Hard Rock? I obviously saw the press release about the suite, but what other forms is that going to take?

Well, we've done two poker tournaments with them. The first poker tournament was one of their biggest nights their poker room had had since it opened. This last turnout was completely sold out, in fact we even had people that wanted to play that couldn't. So it's been a great deal for them. They actually added like 7 more tables to the tournament. So it's been a great turnout. It's been a lot of fun. We're doing some parties at the pool. On Monday we take a bunch of the girls out to [relax] Mondays now and the girls hang out at the poolside. So it's just a lot of fun stuff, just gets our name out there and it adds benefits to the girls.

The girls got to play in the poker tournament and they got a little excitement and they got on VegasTV.com and a few other things, so it's just exposure really is what it is. It's building the brand and letting people know that not only is Rick's in Vegas, but how Rick's is different, what our customer service is and the things that we care about and the things we do for the girls and with the entertainers out there.

Is having a club on The Strip at one of the casinos still, you think, an achievable long-term goal?

You know, it's definitely a goal. Whether it'll ever happen is unknown. There's a lot of pressure out there right now. There's a lot of the regular nightclubs that have had some major problems and some lawsuits out there because of those problems and they're getting a little bit of backlash I think from the Gaming Board on who's liable and who's responsible for these types of things. And there's talk in the newspapers of trying to make the gaming license holder responsible for some of those things. So depending on how that debate plays out, it'll probably have an affect on that. It's just hard to say.

If they're found that they are actual tenants and not part of the gaming licensee, yes, then I think we could do it tomorrow. Otherwise, if they start ruling in the other direction like they are responsible for the nightclubs that are on their premises, then I think we could be farther away. So it's just really difficult to tell at this time if and when that will ever happen.

Eric, thank you very much for the assessment; appreciate the time.

Your next question is from David [Fuller] with Montgomery [2] Research.

Do you have a close date for the Austin club right now for us?

We don't have a date yet. It could be any day. It could be tomorrow, it could be next Friday, it could be a week from now. We just don't know at this time. All of our stuff is done; we're waiting on the other side to finish up some of their last licensing stuff and what not, and once all that's done, I hope we will get that done.

Okay. And then maybe back on the M&A front also, Eric, and the other guy's questions, are you seeing more of an up-tick and I guess maybe private owners approaching you guys now in this current market or is it kind of (inaudible)?

Yes, what we're getting is you know, everyone knows we're a serious buyer and so we're starting to get calls from brokers when they first get a property. So it's nice, because we're starting to get a lot of first looks. I guess we'll go out, we'll see if they're just using us to test the waters or if they're serious about selling their clubs. I believe that there's two or three guys that we're dealing with right now and stuff that we're looking at right now that could become very serious in the next 60 to 90 days.

And I guess more on maybe a larger scale, are you seeing M&A among some of the larger private guys out there, those guys looking to acquire new properties as well in this kind of environment?

I'm sorry, you broke up for a second.

Maybe on the private side, are you seeing any of the larger private guys looking to buy clubs as well in this current environment?

You know, there's guys out there that are talking, but it's like the old days, everybody wants to steal your clubs. I don't think there's a lot of real serious guys out there right now. If you owner finance, if you could buy like for example the Austin club, we tried to sell it and of course we wanted to do an all cash deal, but the problem is that people were having too much difficulty coming up with large amounts of cash. So we want ahead and carried some paper on it and we got a very significant down payment and we'll carry the paper on the rest of it.

Okay. It may be too soon for this, but are you going to give maybe some kind of outlook for the June quarter right now?

No, we haven't. April was strong. We put out the sales numbers for April. I think that we're definitely starting to do better and I think that we'll continue to see that happen.

I just got something handed to me, I don't know if it's -- it looks like the Senate passed the repeal of the $5.00 patron tax today. So that might be really good news for us. I'll have to look into it. It goes to the Governor, so I guess it's going to depend on if the Governor signs it or not. But I look forward to seeing that bill later, but someone just handed me an article in the Houston Chronicle that came out today.

Great news.

Yes, that's big for us especially. That's a huge amount of revenue for us that's been set there in limbo. We've been expensing it out the whole time, so if we get a tax credit back, then we'll income that back in and have a credit here. We have to talk to the auditors exactly how we lift that, but basically it will show up on our balance sheet as some type of prepaid tax asset.

(Operator instructions) Your next question is from David Cooper, a private investor.

I have several questions and some comments regarding the Las Vegas club in particular, specifically relating to the marketing campaign as it were. I haven't seen in anything sent to me, in any press releases, delineating or explaining exactly what that marketing campaign is or how it works. But as I understand it, and I'm involved in this industry and I've heard some inaccuracies in things you've described as far as what's happening industry-wide with house fees going up and different things. I know those things are inaccurate. Some clubs have increased their cover, not the $50 with a two drink minimum on top of that, but that's $30 plus two drink minimum to--.

Correct, that's $50 to get in, with the two drink minimum--.

What the marketing campaign really is, is a cab payout war. It's diversionary by state law, which is by definition illegal, but it's been going on so long, there's a lot of litigation, I've never heard Rick's talk about anything on that. There's serious litigation happening now with respect to that, but I was shocked when I saw Rick's elevate this cab war up to previously unknown levels, beginning in--.

I guess you work for one of our competitors, I take it?

No I don't. I'm a shareholder. And you would know that if you look through your rolls. I have an interest in what's going on here, because $100 payout, my concern is you're supposed to go down to $30 with these clubs on the 15th and market share--.

I don't know anything about that.

Well, it's out there, so we'll see if it happens on the 15th. But the market share is going to drop significantly when that occurs, because it's not a chicken and egg theory in Las Vegas about who's got the girls who has the customers; it's who has dominion over drivers. Drivers bring people, drivers influence people, people staying on The Strip don't read magazines, they don't see billboards, they don't listen to radio, but they do listen to drivers and that's fine. I think when it goes down to $30 I think we'll see a return largely to Spearmint Rhino and Sapphire retaining and Treasures retaining large market share, so I'm very interested to see what happens with Rick's.

A couple more questions I have are regarding--.

That's more of an opinion than a question, but go ahead.

Well, I have a question concerning the payout. What can you tell me for instance about this payout?

I won't discuss on an open line our marketing program. I'm sorry, it's not going to happen.

Okay, well I'm glad you said that. Let's move on. Is there any plan to 1099 these drivers that are getting paid out all this money?

I'm not going to discuss our marketing program in any form or fashion about Las Vegas on an open line. It's not going to happen.

Okay. Another question I have for you is, are the entertainers still being charged in addition to their house fee, a 15 to 20% cut of their earnings nightly?

A what? I don't know what you're talking about. No, we don't charge entertainers 15% or 20% of anything.

Okay, well that should be looked into. But largely where I'm going to--.

Are you from Minnesota?

No.

You sound like [Plaintiff's Counsel].

Well, at any rate, what I'm looking at here is I wouldn't call that an aggressive marketing campaign if it's just paying cabs, because anybody can do that. In other words, anybody can come along and pay $100 to $110, $150 per head, charging a $30 to $50 cover, if that was what they wanted to do and get the market share--.

Anybody can rent a billboard, anybody can put an ad in a newspaper, anybody can stand on a street corner and pass out flyers. I mean, I don't understand the point.

I agree. Well, the point is, this is not nearly -- I'm going to be curious to see how this whole thing gets written off. The reason I ask or the reason I comment is I read your article in Forbes magazine going back to maybe it was -- don't know if it was the fourth quarter or somewhere in the first quarter, but there was a real decidedly aggressive stance in that article against cab drivers and paying out as they were gouging and you know, I come to find out that that's entirely the opposite of what's actually transpired since that article came out. So, I think you should be more forthcoming and have transparency with respect -- the questions you refuse to answer, you should answer. This is shareholder money that you're playing with here--.

Our trade secrets, I don't think that's--.

I don't think it's trade secrets, I think this is how you're doing business and I think it needs to be disclosed and I think there's likely to be some--.

I think if you read our 10-Q you can see exactly how we disclose what we do.

Well, I think you're inflating the stock price and something's going to happen with this.

You think I'm what?

I said I think you're manipulating the stock price by what you're doing in Las Vegas and I don't think there's any transparency there. I think people deserve to know where the money's going.

Well, I'm sorry you feel that way and I'll take the next call, operator. I'm not going to argue over that with you. I appreciate your time. Thank you.

Your next question is from Ben Lichtenberg with Noble Financial.

Just one quick question. It looks like you restructured your put options and a more favorable outcome to the company. What incentivised the holders to actually do that?

I guess my kind voice and pretty face. The reality is they had no obligation to do it whatsoever. You know, we called, we asked, we had purchased their clubs from them, we had built relationships with these individuals over time and said look, here's the deal. We're trying to grow the company--.

I guess the biggest incentive is of course if the stock trades for $29 a share, they make more money on it. So it's just a matter of if they believed when we did all this, when they merged their company in that the combined assets were going to create more value and then you believe that this is just a recession and the markets will return to a more normal period at some time in the future, obviously the longer they have on those put options, the better chance they have of getting more money for them than the $20 per share. So that's one of their motivations. I think the biggest motivation is I called and said hey, can you help me out.

Got it. Obviously it's a favorable transaction to the company.

When you look at it on an individual basis, it really wasn't that much from each individual. It's when you add up all of the individual changes up that it becomes a big deal. For example, if you take the Dallas one that we just did, there are three parties involved in that. So each one of those parties basically deferred $200,000 in payouts to themselves, so each one of those individuals gets $200,000 less over the next year, that they're going to get back over the next year and the next year. However, the company in aggregate saved $600,000 in cash layouts this year. Same thing in the Las Vegas deal, where we deferred some of that. It's two different individuals, so it's not all one person that--.

Everybody got the same deal and it was a handful of different people and even though it seems pretty -- of a decent dollar size in the whole, individually it was probably less out.

Right. It was less money to each individual, but when you add up all the different individuals from the four different transactions, of course you take the [Odabi] transaction and that was all one person, I just asked, can you help me out and he said yes. He owns half the real estate with us. We're making the rent payments with him. He's getting his rent income off of his half of the real estate, so for the club to be successful is important to him as well. And for the company to be successful long-term is important for him as well.

Those are some of the motivations. I mean, you'd have to talk to the individuals and find out exactly why. Did we give anything? We gave on the Dallas transaction the lawyers had originally messed up one of the collateral documents and we corrected that collateral document for him. Other than that, on the other deals we just did basic amendments to the original purchase agreement. The only thing that really changed was how many shares they could put to us and when.

Your next question is from William Steppacher, a private investor.

Eric, I like how you handled that short investor.

Is that what he is, he's short? I thought he was one of the other club owners that have been getting hit by this program out there. Let's face it, we didn't increase our business from 200,000 to $1.8 million basically in six weeks time without picking up some enemies out there. We knew that was going to happen and we tried for six months, the first six months we were there, to get everyone to make an agreement to bring the payouts down, to play fair, to not pay doormen cash on the side, to not do all these things that go on in Vegas, and say let's all play on the same playing field and nobody wanted to do it. And Rick's took the brunt of the hit for six months and after six months, we got tired of it and said okay, if you want to play this way, we can play this way too. And that's just basically how it ended.

And then the cab drivers I spoke with, they actually prefer the payments to be lower.

Of course. There's no doubt that cab drivers would prefer a $20 payment, because then the line guys at the hotels and casinos don't pull people out of line and put them in a limo, they just put them in the cabs and the cabs get the rides. Look, I stand out in front of the clubs, I've been there since March 24 and I've been out there almost everyday. I was there 17 days straight from 7 p.m. at night until 7 a.m. in the morning. I went home for the weekend, I went back out there for 11 more days. I'll be back there Friday night for the Shopping Center Convention. I'll be there Friday through Friday of next week, because it's going to be one of the biggest weeks in Vegas. That guy had inside information that only six people know about that he was asking questions about, are private negotiations. Believe me, he was calling from one of the other clubs. I know he was. Or he'd been talking with one of the other club owners and was put up to the call. Which is fine by me. They don't need to know what Rick's is going to do; they'll find out when I do it. That's the way I look at it.

My question is about the tax in Texas. Did you say they're proposing a 10% sales tax?

Right, it would be a 10% sales tax on the cover in lieu of the $5.00 fee.

So is that something that can be passed on? I noticed you said you were going to put the proceeds that will be returned towards that tax.

Well, they won't be returned. What we'll do is we'll get a credit. The bill calls for a credit to be issued against all future taxes that would be collected and allows them to immediately release those funds to the victims' organization, which is fine by us, as long as we get the credit. We'd pay the money over the next year, two years or three years anyway, whatever the timeframe may be.

Caller, we didn't get your name. Could you identify yourself again?

William Steppacher.

We have no further questions in the queue at this time.

All right, if there's no one else that needs to ask a question, then we'll go ahead and end the call. But I'd like to invite everyone out, I'll be heading over to 50 West 33rd Street here in New York; anyone who wants to come out for the Due Diligence Ball, I'll be more than happy to discuss any questions that you might have there.

Thank you ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.