BDO Resigns as RCI's Auditor

RCI management dropped another "Bombshell" on investors today, announcing that the company's auditor, BDO, has resigned. The auditors cited a lack of transparency from management and the board. I encourage investors the read the 8-K for all the details disclosed.

The company promised to release more details about the internal review next week, but given their lack of transparency with the auditors, I wouldn't expect them to be fully transparent with investors.

In the meantime, while management and the board have their hands full with the internal review, SEC investigation, and trying to find a new auditor, the underlying business continues to struggle. Bombshells posted another quarter of double-digits same store sales declines, but management continues to dump money into the declining brand.

Can someone check on the Cash Flow Kingdom's resident joker, Darren? Rather than changing his opinion and getting his clients out of the stock in the $30's after the report came out, he decided to aggressively bash me and my report. He continued to pump the stock while it cratered to the low 20's but hasn't been heard from since the announcement of the SEC investigation and the resignation of the auditor. I wonder if he still thinks my claims are made up?

"I sincerely thank the short authors for the [buying] opportunity they created." - Darren June 22, 2018 (Share price: $31.08)

Trust me, you are very welcome, Darren.

-Big Rick

Reposting the Original Report: Overvalued Roll Up with Hidden Related Party Transactions, Conflicts of Interest, SEC Violations, and 50%+ Downside

Due to strong investor demand after news of the SEC's investigation into RCI Hospitality, I am reposting the original short report that started it all.

A few things to keep in mind when reading the report:

• The report was published in June of 2018 when the stock was trading above $32 per share.
• The section predicting a Bombshells implosion was published while RICK was still posting strong positive comps from the chain. Just four months later, RCI reported the down 20% SSS quarter that started the brand's downfall. 
• After this publication, additional questionable dealings between CEO Eric Langan and Tannos Construction were uncovered and disclosed on Seeking Alpha
• We still have yet to hear if the Cash Flow Kingdom will be reimbursing its subscribers for losses suffered when it reiterated complete confidence in the stock and management, and advocated using the short report as a buying opportunity (shares were still at $30 post publication).

Here is the report: RCI Hospitality (RICK): Overvalued Roll Up with Hidden Related PartyTransactions, Conflicts of Interest, SEC Violations, and 50%+ Downside

RCI Discloses SEC Investigation, Once Again Fails to Timely File SEC Filings

With the stock now in the teens, RICK is slowly inching closer to the original $13-17 I valued it at back in June 2018 when shares were trading at $32. I hope members of the "Kingdom" took my advice and got out.

RCI Hospitality management has always entertained with its corporate dysfunction, and last week was no exception. RCI was supposed to deliver Q2 financials and file its 10-Q, but instead, management gave us news of an SEC investigation. I was pleasantly surprised to learn that the SEC has enjoyed reading the blog, and as a result, it has opened an investigation into RCI. Unfortunately for shareholders, this meant management was unable to timely file its 10-Q (but RICK investors should be used to that at this point).

Hopefully all of you got the chance to read RCI's May 10th press release for yourself:

RCI Will Not Timely File 2Q19 10-Q; Reports Preliminary Results

"In its filing, the company explained that in mid- and late 2018 a series of negative articles about RCI was anonymously published in forums associated with the short-selling community. Subsequent thereto in 2019, the SEC initiated an informal inquiry. In connection with these events, a special committee of the company's Audit Committee engaged independent outside counsel to conduct an internal review. RCI and its management are cooperating with both the internal review and the SEC inquiry. Because the internal review is still ongoing, the company will be delayed in filing its Form 10-Q. RCI will take steps to file its second quarter 10-Q as soon as practicable."


RCI has always had trouble filing SEC statements correctly and on time, including repeatedly late 10-K's, and this year is no exception. Lets recap:

Feb 11: RCI files first quarter 10-Q, which includes a new disclosure that the company previously miscalculated goodwill, and using the correct calculation, they would have reported nearly an additional $1 million of goodwill impairment in 2018. Oops. Sounds like maybe the auditors started double-checking calculations after so many questions about the value of failed clubs.

"Note 3. Revision of Prior Year Immaterial Misstatement

During the quarter ended December 31, 2018, the Company identified certain mechanical errors in our goodwill impairment analysis that was performed for our annual impairment testing for fiscal year ended September 30, 2018. These errors related to the use of an incorrect income tax rate assumption and the exclusion of certain debt service payments as part of our goodwill impairment testing for two of our reporting units, which resulted in a goodwill impairment charge of $834,000."

Mar 1: RCI has to refile the 10-Q for the first quarter because they made errors in the original Feb 11th filing:

"On February 11, 2019, RCI Hospitality Holdings, Inc. filed its Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2018 (“Form 10-Q”). We are filing this Amendment No. 1 to Form 10-Q to revise both Section 302 Certifications filed as Exhibits 31.1 and 31.2 to the Form 10-Q to conform with the requirements of Item 601 of Regulation S-K, including to correct the introductory section of paragraph 4 to include language that was inadvertently omitted. Because the certification relates to the entire Form 10-Q, we are including the entire filing with this Amendment No.1."

May 10: RCI announces they are unable to file the second quarter 10-Q on time and discloses that the SEC has opened an investigation.