UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: March 25, 2005
Million Dollar Saloon, Inc.
(Exact name of small business issuer as specified in its charter)
Commission File Number: 0-27006
Nevada 13-3428657
(State of incorporation) (IRS Employer ID Number)
6848 Greenville Avenue, Dallas, TX 75231
(Address of principal executive offices)
(214) 691-6757
(Issuer's telephone number)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(C) under the
Exchange Act (17 CFR 240.13e-4(C))
Item 2.02 - Results of Operations and Financial Condition
Through the filing of this Current Report on Form 8-K, on or about March 25,
2005, Million Dollar Saloon, Inc. announces that it will not file it's Annual
Report on Form 10-KSB by the deadline of March 31, 2005..
The Company, due to the impact of Sarbanes-Oxley Act of 2002 on the public
accounting profession and the resulting reduction in the number of independent
public accounting firms willing to perform auditing services for small publicly-
held companies, has been unable secure a replacement to the Company's former
auditing firm of S. W. Hatfield, CPA (SWHCPA). In a Current Report on Form 8-K
dated October 8, 2004, SWHCPA resigned as the Company's independent auditor as a
direct result of the auditor rotation provisions of Sarbanes-Oxley Act of 2002.
The Company wishes to make the following unaudited financial information
available prior to the release of its audited financial statements:
(Unaudited)
December 31, December 31,
2004 2003
------------ ------------
ASSETS
Current Assets
Cash on hand and in bank $ 499,083 $ 132,831
Marketable securities 49,537 389,919
Accounts receivable - trade and other 8,500 8,500
Prepaid Federal income taxes receivable 36,324 145,000
Inventory 21,156 23,352
Prepaid expenses 1,963 3,540
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Total current assets 616,563 705,142
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Property and Equipment - At Cost
Buildings and related improvements 1,473,356 2,174,417
Furniture and equipment 451,093 812,646
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1,924,449 2,987,063
Less accumulated depreciation (1,367,323) (2,004,640)
------------ ------------
557,126 982,423
Land 210,000 741,488
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Net property and equipment 767,126 1,723,911
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Other Assets
Land held for future development 2,661,546 2,649,786
Property and equipment held for sale 870,930 --
Operations agreement, net of accumulated
amortization of approximately $166,475 833,525 --
Loan costs, net of accumulated amortization
of approximately $629 9,660 --
Security deposits and other 1,725 1,725
------------ ------------
Total other assets 4,377,386 2,649,786
------------ ------------
Total Assets $ 5,761,075 $ 5,080,564
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable $ -- $ 2,156,714
Current maturities of long-term mortgage note payable 86,478 --
Loan from officer -- 140,000
Accounts payable - trade 139,628 106,352
Accrued liabilities 77,079 105,458
Contract payable to affiliated entities 1,000,000 --
Tenant deposits -- 6,500
------------ ------------
Total current liabilities 1,303,185 2,515,024
------------ ------------
Long-Term Liabilities
Long-term mortgage note payable, net of current maturities 1,838,431 --
Deferred tax liability 264,877 281,062
------------ ------------
Total liabilities 3,406,493 2,796,086
------------ ------------
Commitments and Contingencies
Shareholders' Equity Preferred stock - $0.001 par value
5,000,000 shares authorized
None issued and outstanding -- --
Common stock - $0.001 par value
50,000,000 shares authorized
5,731,778 shares issued and outstanding, respectively 5,732 5,732
Retained earnings 2,348,850 2,278,746
------------ ------------
Total shareholders' equity 2,354,582 2,284,478
------------ ------------
Total Liabilities and Shareholders' Equity $ 5,761,075 $ 5,080,564
============ ============
(Unaudited)
Year ended Year ended
December 31, December 31,
2004 2003
------------ ------------
Revenues
Bar and restaurant sales $ 3,359,444 $ 3,041,661
Rental income from related parties 456,113 677,654
------------ ------------
Total revenues 3,815,557 3,719,315
------------ ------------
Cost of Sales - Bar and Restaurant Operations
Direct labor 1,227,175 1,216,571
Purchases 660,162 565,244
------------ ------------
Total cost of sales 1,887,337 1,781,815
------------ ------------
Gross Profit 1,928,220 1,937,500
------------ ------------
Operating Expenses
Salaries, wages and related expenses 609,685 645,019
Consulting, legal and other professional fees 137,284 398,846
Rental expenses, principally taxes 142,205 56,805
Interest expense 131,456 154,587
Other operating expenses 585,081 683,997
Bad debt expense, related party -- 248,465
Depreciation and amortization 252,331 95,221
------------ ------------
Total operating expenses 1,858,042 2,282,940
------------ ------------
Income from Operations 70,178 (345,440)
Other Income (Expenses)
Interest income and other 2,574 13,821
Unrealized gain (loss) on marketable securities 1,081 9,940
Impairment of carrying value on long-term assets -- --
------------ ------------
Income before Income Taxes 73,833 (321,679)
Provision for Income Taxes
Currently (payable) refundable (19,913) 93,608
Deferred (expense) benefit 16,184 7,854
------------ ------------
Net Income 70,104 (220,217)
Other Comprehensive Income -- --
------------ ------------
Comprehensive Income (Loss) $ 70,104 $ (220,217)
============ ============
Earnings per share of common stock
outstanding, computed on net income (loss) -
basic and fully diluted $ 0.01 $ (0.04)
============ ============
Weighted-average number of shares outstanding 5,731,778 5,731,778
============ ============
Results of Operations
Year ended December 31, 2004 as compared to Year ended December 31, 2003
- ------------------------------------------------------------------------
Bar and restaurant sales increased by approximately $317,000 (or 10.42)% in the
year ended December 31, 2004. Bar and restaurant sales were approximately
$3,359,000 for the year ended December 31, 2004 as compared to approximately
$3,042,000 for 2003.
The increase over the comparable period from the preceding year is directly
attributable to overall fluctuations in visitor traffic to the Dallas-Ft. Worth
Metroplex during the first quarter of Calendar 2004 and the effects of shifts in
economic and ethnic populations in the immediate geographical area of the
Company's location. The Company has experienced continually deteriorating
revenue volumes over the past 4 calendar quarters and management is unable to
predict if these trends are expected to continue into 2005 or reverse
themselves.
In May 2003, the City of Dallas agreed to allow Tempo Tamers to continue to
operate The Million Dollar Saloon at its current location through the last day
of July 2009. While the Company's facility holds a valid "sexually oriented
business" license issued by the City of Dallas, Texas; the City of Dallas, Texas
continues to pursue vigorous enforcement of its Sexually Oriented Business
Ordinance. This Ordinance restricts the attire and dancing activities at the
Company's Million Dollar Saloon, and other local adult cabarets, which has
resulted in unpredictable fluctuations in patron attendance at the Company's
facilities.
The Company's operating location, when originally built, was in one of the
dynamic retail and entertainment corridors within the City of Dallas, Texas. At
the current time, the expansion of the City into other geographic areas has
contributed to a diversification of retail and entertainment districts within
the City. These newer areas have received better reception from the patronage
traffic than the Company's current location which has suffered from City neglect
in infrastructure maintenance, the introduction of economically depressed foot
traffic as a result of available mass transit facilities and a shift in economic
and ethnic population in the immediate vicinity of the Company's club.
While the City of Dallas' efforts against the Company's principal business
activity, the lack of efforts by the City of Dallas to maintain a degree of
economic and ethnic diversity and prosperity in the vicinity of the Company's
facility may contribute to further revenue deterioration in future periods.
Management's continues to direct it's efforts towards customer service and
increasing sales through effective marketing and advertising methods to maintain
and increase its bar and restaurant patronage and comply with current regulatory
conditions and environment.
The Company's rental income declined by approximately $222,000 to approximately
$456,000 for the year ended December 31, 2004 as compared to approximately
$678,000 for Calendar 2003. All of the leases were/are with entities controlled
by Duncan Burch, one of the Company's controlling shareholders.
On January 30, 2001, the Company's Board of Directors approved an amendment to
the lease agreement covering the property owned by Corporation Lex, a Company
subsidiary. The amendment provided that effective January 1, 2001, the base
rental was reduced from $4,750 per week to $1,000 per week. Additionally, the
amended lease provided that the Company, as landlord, shall receive 10% of the
gross revenues generated from the business located at the property, less State
Liquor and State Sales Taxes, payable quarterly, with a minimum weekly payment
of $1,000 which will be credited against the quarterly percentage rent due.
During Calendar 2003, approximately $31,000 in lease payments were received by
the Company for this property.
In March 2004, the Company received the required supporting documentation from
the lessee to validate the percentage rents due for Calendar 2002 and through
July 31, 2003. This previously unprovided information caused a significant
upward revision of our estimate for amounts due for percentage rent in Calendar
2002, which was recognized as a 4th quarter 2003 event in our financial
statements, given the events discussed in subsequent paragraphs. As of July 31,
2003, the lessee owed percentage rent as follows:
Year ended
December 31, Amount due
------------ ----------
2001 $ 42,952
2002 98,000
2003 107,513
----------
$ 248,465
==========
In December 2003, the Company's Board of Directors accepted notice from the
lessee, an entity controlled by Duncan Burch, an officer, director and
controlling shareholder, that the percentage rent due to the Company would not
be paid. Accordingly, the Company recognized a charge to operations on December
31, 2003 of approximately $248,465 as bad debt expense from uncollectible trade
accounts receivable.
At the present time, this property is vacant and has been listed with a
commercial real estate brokerage firm for sale. Accordingly, Management
reclassified the net carrying value, approximately $871,000, to "Property and
equipment held for sale" in the Company's financial statements on the date of
listing for sale during the quarter ended September 30, 2004. At this time,
based on the property's location and competing properties in the same geographic
area, management is unable, to determine if any loss or impairment of this
carrying value will occur; however, the carrying cost as of the date of the
accompanying financial information, and subsequent thereto, remains in excess of
management's estimate of the eventual net realizable value of this property.
Our rental real estate owned by Don, Inc. is also subject to a lease with a
separate entity controlled by Duncan Burch, an officer, director and controlling
shareholder of the Company. This lease expired in August 2003 and is being
continued on a month-to-month basis at the final contractual rental rate of
approximately $8,500 per week..The Company has been advised that the tenant does
not intend to renew the Fort Worth lease with the current terms. Instead, the
tenant has requested to renegotiate the lease terms. As of the date of this
filing, no formal lease has been negotiated. There can be no assurance that the
Company will be able to obtain terms similar to the current lease or that the
related party tenant will agree to the terms of a new lease.
Although the Company is seeking either an outright sale or long-term lease on
these properties, respectively, that are at least comparable to terms for
similar properties in the geographic area, there is no assurance that the
Company will be able to renew its lease with the entity controlled by Mr. Burch
or any other unaffiliated third-party, or if renewed, that the terms of the
lease will be as favorable to the Company as it could have obtained from an
unaffiliated party. The failure of the Company to obtain a long-term lease
agreement with Mr. Burch, or other third parties, with terms at least comparable
to the existing lease arrangements will have a material adverse effect on the
revenues of the Company.
Cost of sales increased to approximately $1,887,000 for the year ended December
31, 2004 as compared to approximately $1,782,000 for the 2003. Gross profit
percentages remain relatively constant at 50.54% (approximately $1,928,000) for
the year ended December 31, 2004 versus 52.09% (approximately $1,938,000) for
2003. Fluctuations in the Company's gross profit percentages react to and
parallel the key areas of management focus for cost of sales expenditure control
- - principally personnel staffing levels and food and beverage costs. These
areas, specifically cost controls over purchasing, inventory management
protocols and labor management, are continuously monitored to maintain the
Company's gross profit percentages.
General and administrative expenses were approximately $1,858,000 for the year
ended December 31, 2004 as compared to approximately $2,283,000 for 2003. The
decrease was attributable to the lack of professional fees for investigation of
possible business acquisition targets and increased legal expenses as a result
of ongoing litigation and issues related to the City of Dallas Sexually Oriented
Business Ordinance which were incurred during 2003 and did not recur in the
current operating year. Further, the Company's executive compensation, which
increased dramatically during 2002, has stabilized and current expenditure
levels are anticipated to remain stable into the foreseeable future. The Company
anticipates relatively constant expenditure levels for general operating
expenses in future periods and management continues to monitor its expenditure
levels to achieve optimum financial results.
Net income before income taxes was approximately $74,000 for the year ended
December 31, 2004 versus approximately $(321,679) for 2003. After-tax net income
increased by approximately $291,000 from approximately $(220,000) for year ended
December 31, 2003 to approximately $71,000 for 2004. The Company experienced
earnings per share of approximately $0.01 and $(0.04) per share for each of the
years ended December 31, 2004 and 2003, respectively.
As a general rule, the Company's adult cabaret operations experience
unpredictable fluctuations as a result of the overall discretionary spending
habits related to the U. S. economy, visitation levels related to tourism,
convention and business travel levels and impacts related to the City of Dallas'
various enforcement actions and on-premises monitoring of entertainer conduct.
Management makes it's best efforts to timely adjust its expenditure levels to
these events as they occur in order to maintain profitability.
Liquidity
As of December 31, 2004 and 2003, the Company has working capital of
approximately $(687,000) and $(1,810,000). The Company achieved positive
(negative) cash flows from operations of approximately $418,000 for the 2004
versus approximately $(276,000) for 2003.
The Company's working capital is directly related to the cash expended and
future debt service requirements to acquire land for future development and for
Calendar 2003 expenditures related to the abandoned acquisition efforts on
facilities owned and/or controlled by the Company's controlling shareholders;
Duncan Burch and Nick Mehmeti. Additionally, the Company incurred a liability of
approximately $1,000,000 ($500,000 each) to two entities controlled by the
Company's controlling shareholders, Nick Mehmeti and Duncan Burch related to the
securing of an operating license for the Company's Million Dollar Saloon
operation in a "non-conforming location" through July 31, 2009.
Future operating liquidity and debt service are expected to be sustained from
continuing operations. Additionally, management is of the opinion that there is
additional potential availability of incremental mortgage debt and the
opportunity for the sale of additional common stock through either private
placements or secondary public offerings.
On January 29, 2004, the Company refinanced the initial acquisition debt related
to land held for future development. The new permanent long-term financing
retired the entire initial short-term $2,156,713 note payable issued at the
initial closing. The new note is for a principal balance of $2,000,000 and bears
interest at 6.50% for the first year and then adjusts to 1.0% above the Wall
Street Journal published prime rate, rounded to the nearest 0.125%. The interest
rate adjusts every 12th month, commencing on January 29, 2005. The new note
requires payments of principal and accrued interest in the amount of
approximately $17,426 monthly, commencing on February 29, 2004. As this is a
variable interest rate note, the payments may change after the 12th payment and
after every succeeding 12th payment. The new note matures on January 29, 2019.
The long-term note is secured by underlying land and the separate personal
guaranty of each of the Company's officers, directors and controlling
shareholders; Duncan Burch and Nick Mehmeti.
Capital Resources
On February 14, 2003, the Company purchased 6.695 acres of undeveloped property
located in Dallas, Texas. The purchase price was approximately $2,650,312,
including closing expenses of approximately $53,599. The Company paid $493,072
cash, inclusive of a $140,000 loan to the Company from Duncan Burch, an officer
and director of the Company, and issued to the seller a one-year note in the
principal amount of $2,156,713 with 8% annual interest. This debt was paid in
full with proceeds of the $2,000,000 long-term mortgage note refinancing. The
Company paid approximately $153,800 during Calendar 2003 and approximately
$14,700 during Calendar 2004 to service this initial short-term debt.
The property is undeveloped and suitable for commercial development. Although
the Company has not determined the usage of the land, the Company may use a
portion of the land for an adult cabaret and sell the remaining undeveloped
property to a third party. The development of the property will be subject to
the Company obtaining a construction loan. The Company does not currently know
the amount of the loan it will need to develop this property or whether it will
be able to obtain a sufficient loan for development of the property or, if
obtained, whether the terms of the loan will be favorable to the Company.
The Company has also remitted approximately $366,000 at the closing of the
permanent long-term financing in January 2004 for closing costs, interim
interest, loan origination fees and other ancillary items.
The Company has identified no other significant capital requirements for 2004,
other than normal repair and replacement activity at the Company's commercial
rental properties and the adult entertainment lounge and restaurant facility.
Liquidity requirements mandated by future business expansions or acquisitions,
if any are specifically identified or undertaken, are not readily determinable
at this time as no substantive plans have been formulated by management.
The Company knows of no new accounting releases or pronouncements that will have
any impact upon the Company's financial statements upon adoption.
Item 4.01 - Changes in Registrant's Certifying Accountant
In a Current Report on Form 8-K dated October 8, 2004, SWHCPA resigned as the
Company's independent auditor as a direct result of the auditor rotation
provisions of Sarbanes-Oxley Act of 2002.
The Company, due to the impact of Sarbanes-Oxley Act of 2002 on the public
accounting profession and the resulting reduction in the number of independent
public accounting firms willing to perform auditing services for small publicly-
held companies, has been unable secure a replacement to the Company's former
auditing firm of S. W. Hatfield, CPA (SWHCPA).
At the time the Company is able to replace SWHCPA, an announcement through a
Current Report on Form 8-K will be made by the Company.
================================================================================
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Million Dollar Saloon, Inc.
Dated: March 25, 2005 /s/ Nick Mehmeti
-------------- ---------------------------
Nick Mehmeti
Chief Executive Officer,
Chief Financial Officer and
and Director