RCI Hospitality Holdings Inc (RICK) 2010 Q1 法說會逐字稿

Good afternoon. We are pleased to welcome you to the first quarter 2010 conference call of Rick's Cabaret International. On the call for Rick's Cabaret are Eric Langan, CEO, Phil Marshall, CFO, and Allen Priaulx, Investor Relations. The call is also webcast and is available at www.ricks.com. Following the presentation of first quarter results, Mr. Langan and Mr. Marshall will be available for your questions. Now I will turn the call over to Mr. Priaulx for opening remarks.

Thank you very much. Good afternoon. I am Allan Priaulx, the Investor Relations Counsel for Rick's Caberet. Welcome to our first quarter 2010 conference call and webcast. In a moment I will turn the call over to Eric Langan and Phil Marshall, who will present our first 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 on Slide two of our PowerPoint presentation available on our website, and at PrecisionIR.com. Please take a good look at this statement as this conference call may contain forward-looking information within the meaning of Section 21-E of the Securities and Exchange Act of 1934. Later this week a complete transcript of this call will be available on seekingalpha.com. I would 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, www.ricks.com. And now I turn the call over to Eric Langan.

Thank you, Allan. Welcome everybody. I will begin our conference call with a quick overview of first quarter 2010 overview. We will review our performance, highlights of the significant events, of the impact of marketing expenses on this quarter's results, discussion of the Rick's Cabaret/VCG Holding letter of intent, outlook for the remainder of the year, and then follow-up with a question and answer session.

Our total revenue was $20 million versus $17.1 million in 2009, a16.8% increase. Same store sales were up 14.5% over last year, while net income declined slightly to $782,688 in the quarter, versus $790,000 in the last quarter. Our earnings per share were $0.08, the same as last year.

The primary factors of our net income were affected by acquisition costs and an increase in marketing. We have since the end of December decreased those marketing expenses, and we expect to see a much higher bottom line in this quarter and going forward. The biggest event I think for the quarter was that in January, actually this quarter, in January we turned a profit in Las Vegas. The turning point really happened towards the middle of December, so we are very excited about that as well. And our cash flow continues strong, as we are continuing to make all of our payments and add cash to our bank account.

The highlights, clubs in Miami and New York continue to grow. We had a fantastic quarter October through December at those locations. While our competitors cut back in this quarter we made investments in our pro-marketing, and got very proactive in our marketing campaigns. As we have seen the corporate customer come back, as we have seen business start to increase, rather than sit back and take it in October and November and December quarter and get the increase there, we decided to go ahead and push forward on our marketing, and pull those corporate customers into our clubs, and continue with our discounting and what not, to continue to drive traffic into our locations. We believe that this has paid off, and we have earned a much larger share of the market, and that we are continuing to see that as we move forward, and as we have seen in January, when we put out our sales release, that our revenues have still increased, but our marketing budgets were drastically cut back.

The Vegas profitability has been great. We expect that on a going-forward basis that we will probably turn a profit for the entire quarter. The first week of February was fantastic out there, of course, with the Super Bowl. There are couple of conventions later on in February, and then of course in March we have March Madness, with all the college basketball game, which was a turning point for us last year. While the revenues may decline a little bit in Las Vegas, I think that we are now focused on more profitable revenues out there, and hopefully we will continue to see that location grow.

Our newly acquired clubs in Fort Worth had a fantastic quarter. We did spend a lot of money buying market share, and basically making that location a top location that it should be, and at the end of the quarter, actually I think even in December we gained pricing pressures, due to the fact that we were just really, really busy, on especially Tuesday and Wednesday nights, with the promos that we were running, and we were able to increase our prices on those nights, and still drive large amounts of traffic, and I think we will be focused in this quarter on the bottom line profitability of that location.

And we are now seeing Austin, where we are doing the same thing. We took Austin on a little slower scale than we did in the Fort Worth market, so as not to have a bigger drag on earnings in this quarter, but we are still seeing some fantastic results there, as we have had steady growth and each week has gotten a little better than the previous week going forward, and I think we will continue to see that moving through this quarter.

Moving on to the Las Vegas slide. Obviously the marketing campaign has worked. We have earned our position there, people know us. The locals know us. Our local parties are becoming a must for the locals, as we are seeing more and more people come, and more and more people talk about it. We have reduced market spending out there. We are changing our format, the marketing format a little bit to include more promoters, and relying less on the taxi and limo drivers, however, they are still a major part of our business and probably always will be in that market, simply because of the hotel visitors, and the fact that everyone takes cabs or limos out there. We do expect to benefit from the national conventions coming up in February. Magic is going to be out there soon, and in March and April we have a pretty decent calendar as well.

New clubs contributed $827,000 in revenue in the first quarter, Austin we have converted Joy into a Rick's Cabaret of Austin now. It would only contribute about 14 days of that revenue, or probably a little under $100,000 of that revenue. The majority of the revenue was from the Cabaret North location. We have made a major push in marketing there. We are increasing prices and focusing on the bottom line. The new turnkey DFW Airport location we expect to open sometime in fiscal 2010, and hope to have groundbreaking ceremonies there some time in the next few weeks.

New York had a record month again in the first quarter,October, November, December. It is a fantastic location, it is becoming a very popular, the Howard Stern gang has been fantastic for us. They have had lots of parties there, and have been helping with the promotions, and also Vivid Entertainment is starting to do some release parties, and some other deals at the New York location, as well as the Super Bowl party we did there, and we expect and hope to continue doing cross-promotion work with Vivid. Tootsie's in Miami had a good quarter, but also really was the buildup to Super Bowl and Pro-Bowl, which was fantastic. We had two very huge weeks there, the club was packed almost every day, and the numbers were even better than we anticipated.

Moving on to the VCG Holding acquisition or merger. The Letter of intent was signed today. This would make us the largest operator of upscale clubs by revenue. We believe definitely a public company, with 38 locations, and 39 or 40 in the works, meaningful EBIT gains are expect. We do expect lower corporate overhead from the combined companies, eliminating the duplicate costs of being public. The regional management synergies that we are going to get should be fantastic for us, and help to better the overall management. We are going to get better corporate buying and spending, and a brand expansion of the Rick's Cabaret name. The financial details of the proposed transaction are available on our Form 8-K that has been filed by both companies.

And if you look at the slides you can see the market coverage that we have on each company standalone, and then you can see on Slide 13 the combined companies, and you can see we are really starting to cover a lot of the country, and we are hoping that this will definitely increase our business and our exposure, as customers travel from market to market. If you take a look at Slide 14 and 15, additional information about the merger and where to find it is all available there, and I would suggest that you definitely read that information, and if you have any questions feel free to let us know.

Outlook going forward we are going to reaffirm our latest guidance. We still believe our earnings will come in the range of $0.95 to $1.05 per share for fiscal 2010, not including, the VCG acquisition is not factored into the guidance. Revenue range is $84 million to $86 million without the merger. The Q2 is starting off very well as anticipated, and we believe that we are on track with analyst estimates in this quarter.

I would like to thank everyone and definitely invite you out to the Due Diligence party tonight. I will be at the New York City location from 6 PM to 9 PM tonight, so feel free to stop by. If you have any questions just the operator will tell you how to get in line for the queue. I will take any questions at this time.

Thank you. (Operator Instructions). Our first question comes from the line of Joe Giamichael with Rodman & Renshaw. Please proceed with your question.

Good afternoon, gentlemen.

Good afternoon, how are you?

I am well. I think for now I am going to leave the VCG aspect off the call, and let somebody ask those questions. I am having a problem reconciling guidance with the previous run rates with the add in marketing expense being the only truly subjective variable there. Q1 being anomalously high, if we drop run rates down to sort of where they have been traditionally, it seems like we are going to come in quite a bit higher on an EPS basis than where guidance is. Am I missing something there, or are these are sort of numbers that you guys are overly comfortable with at this point?

You mean our $0.95 to $1.05?

Right.

That is a number that we are very comfortable with at this time. Depending on how much we cut back that marketing, and what we are able to, we could exceed those numbers but we want to be on the cautious side. The Las Vegas market has been very fickle for us, and the needs for the marketing expenses to fluctuate drastically without much notice could happen at any time, due to competitors making plays for market share. We do believe at this time that all of the clubs have kind of settled down in that regard, and are all trying to focus on bottom lines, which is good for us as well.

Like I said, our top line number in Vegas may decline a little bit but it will be because we are focused on customers that we are actually making money off of, rather than just putting more and more people through the door. And that is really going to be the focus in Vegas for the remainder of this year.

Okay. And then just as it relates to the other expense item in the quarter, could you just give us a little background as to what that is?

The legal and professional, it was high last year also, but it was actually very high this year with the acquisition costs in there. Not only the Joy of Austin, but also of course, having some legal, and different people working on this VCG deal as well.

Okay, great. Thank you very much. VCG is within something similar to what we talked about a long time ago, and it is exciting to see it coming to fruition.

Yes. Definitely. We are very excited about it. I think that the combined company is unbelievable, the growth, the EBITDA numbers that we can generate, the cash flow that the combined companies generate will be fantastic. And acquisitions I mean we can basically fund acquisitions about one a quarter out of our own cash flow so it will be very exciting.

That is great. Thank you very much, Eric.

Thank you.

Our next question comes from the line of Peter Heise with RedChip. Please proceed with your question.

Hi, guys.

Hi, how are you doing?

Good. I was wondering if you guys saw any significant effects of the inclement weather we have had recently? Has that hurt the business or actually helped the business?

Well, it obviously had, New York was basically, we weren't closed, we were actually open, and we actually had a really good night, but only about eight girls made it into work that night, but we still did a pretty decent night because the hotels were full, and all of the restaurants were closed, because a lot of their employees didn't make it in. Our staff made it in, and we served a lot of dinners that night, and still had a pretty average night for that night.

Philadelphia has been affected greatly. The club was closed for a weekend, and we had some other snow days, and snow issues effect there. We did lose one day in Dallas for two of the clubs, actually in Fort Worth, the Fort Worth clubs closed. But Dallas clubs actually stayed open, and actually had a very fantastic night, because it was part of that NBA All-Star Week, so we still did some pretty respectable numbers there even with the weather. I can't imagine what we would have done without the weather. Overall the NBA All-Star Game was fantastic for both locations in Dallas, and helped the Fort Worth locations mildly. It was more focused towards the Club Onyx concept there. Club Onyx did absolutely fantastic numbers during that four or five day period there.

That is great. And can you give us any color on the high-end spending, what that is doing right now? The ultra-high end?

We are starting to see the customers come back. We have seen it in Miami during the Super Bowl. We had some fantastic tabs that were run during that time period. A lot of spending. A lot of bottle service. What we are really seeing is we are even seeing the mid level customer coming out of the shell a little bit, and we are starting to see, like I said more bottle service again, and that is really where the money is. Once guys get a bottle they have the anchor, they are anchored into the location, and so we have really been pushing and working on bottle specials and trying to move the customer so those bottles, get those anchors in, and get them in and get them spending money, and we are having some pretty good success with it.

Great. And one more quick question. I am just starting to look through the VCGH deal. Are you planning on changing those into a Rick's Cabaret, or an XTC, or Club Onyx?

As part of the transaction we are buying the licensing rights to the PT's Showclub name as well. We will keep that name. We are also picking up the Diamond Cabaret name, so we may use that on certain locations. We envision a conversion of some of their top locations into Rick's Cabaret, as well as maybe some of our B clubs into PT's Showclubs, and we have of course, all of the names as we move forward and make acquisitions we will evaluate each acquisition individually, and see which name will work the best, and which format the market needs, and use those.

Great, thanks.

Thank you.

Our next question comes from the line of Eric Beder with Brean Murray. Please proceed with your question.

This is Jennifer his assistant. I am filling in for Eric today.

Hi, Jennifer.

Could you provide an update on the New York lawsuit?

The New York lawsuit. It is ongoing. We are fighting it. That is basically where we are at right now. We are going to be doing some depositions, so there will just continue to be some expenses from that lawsuit, probably through the next three to six months.

So you see it trending upwards still?

You know, I don't think it is going to get a whole lot more. We had so many motions and so many, the summary judgment files, and then all of the things that we spent money on. I don't expect that it will get a whole lot more expensive than it has been. And of course, the Minnesota case is settled, so those costs will go down. So I am kind of hoping here that the legal and accounting will, as far as the lawsuits go will kind of stay flat, and then start declining as we move in later, later into the year.

And then also just with the VCG acquisition, can you maybe help me understand what the transition will be like in terms of converting these different clubs, what is the length of time, and kind of what are, go into a little bit more depth into the different synergies that you see?You mentioned a few of them before.

VCG has some A clubs, but they don't really have an A brand. They kind of license their name, they licensed The Men's Club, they licensed Penthouse's name. They have the Diamond Cabaret name. Basically what we see is taking some of those higher end clubs, putting the Rick's Caberet on them, and slowly converting them into Rick's, just as if we acquired a single club operator. As well the PT's Showclub name, has been around for 30 years or 35 years, it is a very well-known name in its markets, and we think we can take that name, and expand it into other markets as well.

We actually get two brands non-competing. One is more of a B club type brand, and the other is the A club brand, and we will be able to build both of those brands on a combined basis. The real savings I think we get obviously the obvious savings, the cost of public company, two sets of upper management, those kind of savings will be immediate. Some of the other savings will be over time as we convert to more national purchasing with liquor companies, and then different liquor brands, the marketing and promotion stuff that we can work out with these companies that will benefit the Company, and benefit our cost of goods sold. So there will be lots of savings in those aspects as well.

And how long do you think that will take for --?

Some of it will be immediate. You know, I think integration, probably I would guess around six months for full integration. You are talking about taking not just our culture and their culture and merging the cultures, but also really taking each location and going to each market competitively, and figuring out with the management teams in those markets which locations are the best brand, the best to be branded Rick's, which will be best to be branded with the PT's name, or with outside names, for that matter.

Okay, thank you.

Our next question comes from the line of [Steven Gart], who is a private investor. Please proceed with your question.

Hi, guys, how are you? I have got a quick question. I notice your alcohol revenue was up like 21%, which is above the entertainment and substantially above the food. Is that pricing, was that volume? Just curious, are people just depressed and drinking a lot?

Well, the two new clubs, of course, were both liquor clubs.

Right.

So that is going to increase it a little bit, versus the BYOB clubs so that will increase your liquor a little bit. But really what we are seeing is that people are drinking more, like I said, we are seeing more bottle sales, so the bottle sales increase your liquor.

I didn't know if you were doing any more 8 before eight o'clock, or 7 before seven o'clock.

In certain markets we have done dollar beer nights, we have done some discounting on stuff that has brought a lot more people in. And really what we are seeing as far as service revenue hasn't increased as much as we have done a lot of free passes, a lot of get in free coupons or promotions, where we have no cover charges or stuff like that to pull people into our building.

We have been really focused on gaining that market share, introducing basically our competitors' customers to our business, and saying we hope you will come back. And that is what we are seeing, as we have rolled the marketing back we are still seeing that top line growth and that is what we were really hoping for and that is what we are seeing so far, through the first six weeks of this quarter. And the real test will show as we move into the summer, and we get a nice six month window of it we will find out if the investment that we made pays off like we think it will.

When a lot of companies were cutting back and everybody was kind of like, sitting back on their laurels because business was starting to come back a little bit we decided now is when we make the really big push, and go in and make the move and keep those top customers, and I think that is a lot of it too, is those top customers buy bottles, and they buy more expensive champagnes, and the more premium liquors and that is really what we are seeing.

Right. Okay, next question, just you gave a fair amount of color on just what your thoughts are with the acquisition, certainly it is exciting, I am sure it will be challenging for you guys also. I guess I am looking over the club list. What geography are you most excited about getting into from this? I know it is a different brand. I am curious because it does diversify you a lot.

It helps with diversification. VCG is very concentrated and very dominant in Denver. They are very dominant in St. Louis. Those are two markets that Rick's probably would have a hard time ever getting into, and now with the merger not only are we into those markets, we are the leader in those markets. And so I think that those are the two most exciting markets I think we are most excited about are those locations. The addition of two clubs in the Dallas/Ft. Worth market. We have really been focusing and moving into that Dallas/Ft. Worth market, very heavy, we believe it is a fantastic market for growth.

Right. I guess the next thing is the opposite end of the spectrum. It is a decent size club list obviously that you kind of see at least initially, it might not be they don't really fit where you want to be, or your strategy, and you would be looking to divest them, or hard to tell yet?

If you look at VCG's list, and if have you ever listened to their calls, you will know Troy tells you, their locations are all profitable. So as long as they are making money, and as long as we are able to manage them without getting to the point where it costs us more money than we are making. I don't think it makes any sense. We are very happy with all of the markets that we are in.

My third and final question is what do you think finally was their motivation to do this? I understand yours, and I guess commonly what is thought about theirs, you are the better run company and the better brand, at least better established brand with the investment community. VCG was always the, I guess the word would have should have, but doesn't seem to be doing it. But I would have expected this a while ago, and it never materialized. That is why I was pretty surprised to see this now.

Troy and I have talked off and on for over four years from time to time, about maybe some day putting the two companies together if it made sense. I think it just came to a point in time where it makes sense. We are coming out of the recession, like you said, we have got the investment community who has looked at Rick's, and had an eye on Rick's for a long time, and they have got, VCG has fantastic assets. We take those assets and we put them into Rick's company, and put our brand on them, so we build the brand even larger, I mean I just think it just makes a lot of sense, and now is a great time. It is a great time for us. It is a great time for the VCG shareholders were not really getting a lot of value for being a public company. I think combined their shareholders will become our shareholders, and we will all get a lot more value out of the combined assets.

Great. Okay, that does it for me, thank you.

You bet.

Our next question comes from the line of [Brian Brown], who is a private investor. Please proceed with your question.

Could you talk about the Internet or the other categories, in terms of if you are happy with the way the Media division is? Are you seeing some synergies and do you feel like you have a better opportunity with more clubs now to try to leverage that?

Now that the economy is coming back a little bit, you have seen the media revenues were up drastically. Convention was fantastic this year. We are planning a bigger and better convention this year. We moved the convention to the Mirage this year. We are very excited about the possibilities from the media.

As far as the Internet goes, it as tough world in the Internet world, especially with the economy the way it is. Both of our business models, our consumer is our product at the same time. And so obviously if we have less subscriptions, and we have less product on our couples dating site, and we have less buyers as money is tighter we have less buyers on the auction site, so we have seen a little decline in that, but I think we will start to see that come back as the economy comes back. But overall we are very happy with the Internet division, also is our entire IT department, and so they do more than just the Internet division. Most companies would spend a lot of money to have an IT department, where our IT department generates positive cash flow for us, and does all of the work. So they pay for themselves, as well as generating additional money for us.

We are happy with both of those. We are looking at the new mobile phone stuff. The new phone technologies look very promising, so we are hoping we can come up with some great stuff. and of course, with 38 to 40 clubs to market and push those technologies in, we think that it will help. And then of course, bringing people into the clubs through the technologies is the real, as we think, is the real plus side for us. It is marketing that pays us.

Thank you. And one follow-up question. Since this is a stock deal, does that mean in terms of from obviously in other words, no cash, are you still looking to keep the idea of adding a club a quarter, or are you going to hold off a while to integrate the VCG acquisition?

It is hard to say at this point. We are really kind of, now we are getting here. and we are really starting to wrap our minds around it. We have got to get in and we have got to meet with some of the VCG management teams, and just basically see where we are at management wise. We will probably slow down a little bit. Obviously we already have a new club that is going be opening in Dallas, hopefully some time this summer. And if other deals come up it really depends on our cash position and our ability to manage, obviously we don't want to take on too much too fast, but at the same time, we have got money we if need to get to work or we have people we need to put the work, or the right deal comes along, we are going to move on it still.

All right, thank you.

Our next question comes from the line of Jamie Clement with Sidoti & Company. Please proceed with your question.

Good afternoon, Eric.

Hey Jamie, how are you?

I am doing fine, thanks. Just a couple of questions on structure of the deal, and this is sort of a follow-up to a previous gentleman's questions. In terms of the max cash outlay that Rick's would have in this, now Mr. Lowrie can elect to receive cash for all 5.77 million shares?

Correct. At $2.44 a share.

So that would be about I think about $14 million? Is that right? That is about right. Trust my math. It is about right.

I don't know. Okay, I believe you.

Okay. So based on where the stock has been, and kind of the language you used in example in the press release, you are talking about you then have to issue about 2.6 million Rick's shares to cover the remaining shares?

You have 17.3 million shares outstanding. So if you took off the 5.6-- .6, yes. You are at what, 11 and change. So divided by, or let me see what the split ends up being there. If you take 11.3. We actually we have to do the stock price. Depends on, of course, the moving stock price.

I think we are doing math the same way. That is okay.

You just tell me what the number is, you are probably right.

I think it was roughly 2.6 million based on the $11.76 Rick's Cabaret share price as used in the example in the press.

Right. $11.76 divided by $2.66 is 4.42. Take you 11 million divided by 4.42, 11.3.

All right, all right. Sounds good. Anyway.

Yes, $2.6 million, you are right.

Mr. Lowrie can accept 30% of his consideration in stock, correct?

Correct.

So Mr. Lowrie would actually be a larger shareholder than you, Eric, under that circumstance, yes?

No, 5.77 divided by 4.42. I didn't do that right, did I? 770,000.

Well, basically, he is basically getting about $14 million.

He would have about 390,000 shares.

Okay. Maybe my math is a little screwed up. Okay. If you add about $14 million for 5.8 million,5.77 million shares, right?

You are not doing the split, remember, you have to take 4.4. You have to take their stock, and divide it by the conversion ratio, which is 4.42 based on the $11.76. He would get 30% of 5.7 million. So you take 5.7 million times 30% divided by 4.42 and that is how many Rick's shares he would end up with.

Maybe Phil and I will circle back after this. Okay. The other thing. It was unclear to me based on the wording of this, have you all done due diligence at the local level yet for this transaction?

No. This is a letter of intent. Through the letter of intent, we have until March 12th enter into the definitive documents, and then we will have a due diligence period. Of course, it will be subject to shareholder approval. That is why we say there is the additional information, where to find it, that is why it is in the release, that is why it is everywhere. It is not a simple cut and dried deal like the old days, like the small clubs we have bought in the past, where we buy a single location. Both companies will be getting shareholder approval of this transaction. Rick's will be filing a Registration Statement, of course, to register the shares.

Right.

So the SEC will review. It is a time period. We estimate as much as six months before we could actually have a closing.

Okay. In terms of the debt and sort of related liabilities on VCGH's balance sheet. Is there anything, I mean I could go back and check this but is there anything in the event of a change of control where you have to deal with refinancing part of those things?

There is, but Troy has agreed to stay on as part of this transaction, to stay on that debt as a personal guarantor. While we haven't necessarily talked with every one of the banks, and all of the lien holders and all of that, we anticipate with Troy staying on as a guarantor on those, that most of that debt we will be able to be continued to be paid off on its current terms.

Very good. Thank you very much.

Yes.

Our next question comes from the line of Ephraim Fields with Clarus. Please proceed with your question.

Good afternoon and congratulations on a great quarter, and what looks like a very interesting deal. Just a couple of questions, as I read through the release. When you say the combined company has $25 million of combined EBITDA.

Right. That is trailing 12 months.

But you kind of took their reported EBITDA as it was.

Exactly, no add backs.

No add backs, okay. And will Troy be a paid employee of the combined company going forward?

Troy will be a consultant. We will enter into a three year consulting agreement with Troy, and he will work on some special projects for us as well as, it is going to take time to convert all of these licenses, liquor licenses, and different things, he may remain on certain of the subsidiaries during the time while those licenses are being done. It is a very, very complicated transaction. We are dealing with ten different states, which all have different liquor license laws and several different municipalities which all have different adult entertainment license laws. He will definitely have to be involved in helping with that. And you know, the future from there it will evolve as time goes on. And we will see, I don't know what his involvement will want to be, it depends on what he wants to do I guess is the real answer to that question.

Got it. Okay. And I was just a little unclear by the press release. Is it a fixed ratio, and there is just a floor and a ceiling, is that the way this is working out?

Actually, it as collar. It is very, very difficult to just try to explain to you, it's this, this, or this. Basically it is a collar that wraps around but basically kind of fixes the ratio, depending on where Rick's share price is of somewhere between 3.64 and 5.25 shares to one, based on Rick's share price.

And what kind of approval do both parties need to get the transaction?

That will be worked out in the definitive documents. There is a lot of discussion on that right now, as to which way we are going to go with that. Obviously Rick's will have a full shareholder vote. As far as the VCG vote that is something their Special Committee will really have to decide, and come back with on and on what vote is going be required on that.

Got it. Okay. Well, I will follow up with you offline on some additional questions.

Okay. Fantastic.

Thank you. Congratulations.

Yes.

Our next question comes from the line of John Hall, who is a private investor. Please proceed with your question.

Good afternoon.

Good afternoon.

Any update you want to provide on the legal proceedings in Texas?I just saw a small note.

The Supreme Court is going to have oral arguments on March 25th, and we will go from there. I guess they will decide after that point, the oral arguments are to decide if they are going to take it on by the full Court. I am even confused. I think the lawyers ever even confused. This is not normal, normally it doesn't happen like this. Normally they just say, yes we are going to hear the case, or no we are not going to hear the case, they don't have a hearing to decide if they are going to hear, which is kind of what they are doing in this instance. Hopefully they will have their things in the order they should be going, and hopefully our side will be convincing enough that this will put an end to this once and for all. But it is just hard to say right now.

Right, okay. Thank you.

Yes, thank you.

Our next question comes from the line of Don McKiernan with Landolt Securities.

Good afternoon. Did you include a balance sheet with your press release today?

No, we did not. It is available on our website. The entire Q is on the website.

I am looking at that right now. I think it would be helpful in the future if you did. You have got oh, maybe, close to $10 million in cash, and in the VCG deal if Lowrie wants to receive most of his money in cash, that is almost $14 million, how would you come up with the money?

There are lots of options we have available to us for financing. At this point we haven't really picked one. As we move into a definitive act as we move forward, I think we have about six months before closing, so we have got plenty of time to come to how we are going to fund that remaining money.

And then for Mr. Lowrie am I correct in that in addition to the $14 million worth of stock, there is another personal note that he provided to his company for $5.7 million that you are assuming?

Yes, that is existing debt of VCG.

Okay, great. Alright, thank you.

Gentlemen, there are no further questions in the queue at this time. I would like to hand it back over to management for closing comments.

All right, well, thank you for your time, everyone. And, once again, I would like to invite you down to the club this evening. 50 West 33rd in New York City. We will be there from 6 pm to 9 pm. I would be happy to talk to you if you have any questions, and come down for some Due Diligence, and see the club. Alright, thank you for your time.

Thank you very much. Good night.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful evening.