UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 2007
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ______________ to _____________
Commission File Number: 0-27006
Million Dollar Saloon, Inc.
(Exact name of small business issuer as specified in its charter)
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 whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [ ] NO [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): YES [ ] NO [X]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: September 30, 2008: 5,731,778
-----------------------------
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
Million Dollar Saloon, Inc.
Form 10-QSB for the Quarter ended March 31, 2007
Index
Page
----
Part I - Financial Information
Item 1 - Financial Statements 3
Item 2 - Management's Discussion and Analysis or Plan of Operation 17
Item 3 - Controls and Procedures 19
Part II - Other Information
Item 1 - Legal Proceedings 20
Item 2 - Recent Sales of Unregistered Securities and Use of Proceeds 21
Item 3 - Defaults Upon Senior Securities 21
Item 4 - Submission of Matters to a Vote of Security Holders 21
Item 5 - Other Information 21
Item 6 - Exhibits 22
Signatures 22
2
Part I
Item 1 - Financial Statements
Million Dollar Saloon, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 2007 and 2006
(Unaudited)
September 30, September 30,
2007 2006
----------- -----------
ASSETS
------
Current Assets
Cash on hand and in bank $ 1,523,065 $ 975,364
Marketable securities 54,910 53,311
Accounts receivable
Trade 8,500 8,500
Federal income taxes receivable -- 93,683
Inventory 48,263 30,037
Prepaid expenses 2,689 6,393
----------- -----------
Total current assets 1,637,427 1,167,288
----------- -----------
Property and Equipment - At Cost
Buildings and related improvements 1,526,424 1,526,424
Furniture and equipment 466,071 464,881
----------- -----------
1,992,495 1,991,305
Less accumulated depreciation (1,602,701) (1,512,309)
----------- -----------
389,794 478,996
Land 210,000 210,000
----------- -----------
Net property and equipment 599,794 688,996
----------- -----------
Other Assets
Land held for future development 2,661,546 2,661,546
Property and equipment held for sale 870,930 870,930
Operations agreement, net of accumulated amortization
of approximately $666,590 and $484.730, respectively 333,410 515,270
Loan costs, net of accumulated amortization
of approximately $2,515 and $1,829, respectively 7,774 8,460
Deposits and other 1,725 1,725
----------- -----------
Total other assets 3,875,385 4,057,931
----------- -----------
Total Assets $ 6,112,606 $ 5,914,215
=========== ===========
- Continued -
The consolidated financial information presented herein has been prepared by
management without audit by independent certified public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
3
Million Dollar Saloon, Inc. and Subsidiaries
Consolidated Balance Sheets - Continued
September 30, 2007 and 2006
(Unaudited)
September 30, September 30,
2007 2006
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current maturities of long-term mortgage note payable $ 96,931 $ 92,082
Current maturities of long-term lawsuit settlement payable 70,550 121,330
Accounts payable - trade 23,440 20,768
Accrued liabilities 90,990 89,107
Federal income taxes payable 58,662 --
Contract payable to affiliated entities 1,000,000 1,000,000
Accrued interest payable to affiliated entities 139,835 273,333
---------- ----------
Total current liabilities 1,480,408 1,596,620
---------- ----------
Long-Term Liabilities
Mortgage note payable - long-term portion 1,597,154 1,684,986
Lawsuit settlement payable - long-term portion 87,270 108,517
Deferred tax liability 223,960 243,618
---------- ----------
Total liabilities 3,388,792 3,633,741
---------- ----------
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. 5,732 5,732
Retained earnings 2,718,082 2,274,742
---------- ----------
Total shareholders' equity 2,723,814 2,280,474
---------- ----------
Total Liabilities and Shareholders' Equity $6,112,606 $5,914,215
========== ==========
The consolidated financial information presented herein has been prepared by
management without audit by independent certified public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
4
Million Dollar Saloon, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
Nine and Three months ended September 30, 2007 and 2006
(Unaudited)
Nine months Nine months Three months Three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
----------- ----------- ----------- -----------
Revenues
Bar and restaurant sales $ 2,254,671 $ 2,155,224 $ 772,021 $ 736,497
Rental income 331,500 339,431 102,000 119,000
----------- ----------- ----------- -----------
Total revenues 2,586,171 2,494,655 874,021 855,497
----------- ----------- ----------- -----------
Cost of Sales - Bar and
Restaurant Operations 984,889 983,651 333,038 301,658
----------- ----------- ----------- -----------
Gross Profit 1,601,282 1,511,004 540,983 553,839
----------- ----------- ----------- -----------
Operating Expenses
General and administrative expenses 921,253 1,021,628 331,554 383,910
Interest 178,835 169,907 60,127 74,545
Depreciation and amortization 204,589 202,992 70,676 67,666
----------- ----------- ----------- -----------
Total operating expenses 1,304,677 1,394,527 462,357 526,121
----------- ----------- ----------- -----------
Income (Loss) from Operations 296,605 116,477 78,626 27,718
Other Income (Expenses)
Interest and other miscellaneous 27,492 19,769 9,658 6,186
Gain on sale of property easement 16,007 -- -- --
Lawsuit settlement -- (30,000) -- --
----------- ----------- ----------- -----------
Income (Loss) before Income Taxes 340,104 106,246 88,284 33,904
Income Tax (Expense) Benefit
Currently payable (115,635) (24,700) (34,135) (11,600)
Deferred -- -- -- --
----------- ----------- ----------- -----------
Net Income (Loss) 224,469 81,546 54,149 22,304
Other Comprehensive Income -- -- -- --
----------- ----------- ----------- -----------
Comprehensive Income (Loss) $ 224,469 $ 81,546 $ 54,149 $ 22,304
=========== =========== =========== ===========
Earnings per share of common stock
outstanding, computed on net income
- basic and fully diluted $ 0.04 $ 0.01 $ 0.01 $ 0.00
=========== =========== =========== ===========
Weighted-average number
of shares outstanding 5,731,778 5,731,778 5,731,778 5,731,778
=========== =========== =========== ===========
The consolidated financial information presented herein has been prepared by
management without audit by independent certified public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
5
Million Dollar Saloon, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine months ended September 30, 2007 and 2006
(Unaudited)
Nine months Nine months
ended ended
September 30, September 30,
2007 2006
----------- -----------
Cash Flows from Operating Activities
Net income $ 224,469 $ 81,546
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 205,103 203,506
Unrealized (gain) loss on marketable securities -- 213
Gain on sale of property easement (16,007) --
(Increase) decrease in
Accounts receivable - trade and other -- --
Federal income taxes refundable 120,423 (85,058)
Inventory (10,301) (4,652)
Prepaid expenses (2,526) (5,447)
Increase (decrease) in
Accounts payable and other liabilities (12,000) 19,884
Lawsuit settlement payable (67,500) (147,500)
Accrued interest payable to affiliated entities 59,835 60,000
Federal income taxes payable 58,662 --
----------- -----------
Net cash provided by operating activities 560,158 122,492
----------- -----------
Cash Flows from Investing Activities
Cash invested in marketable securities (781) (2,130)
Cash received on sale of property easement 16,007 --
Cash paid for property and equipment (1,191) (13,788)
----------- -----------
Net cash provided by (used in) investing activities 14,035 (15,918)
----------- -----------
Cash Flows from Financing Activities
Cash paid on long-term mortgage note payable (61,871) (61,387)
----------- -----------
Net cash provided by (used in) financing activities (61,871) (61,387)
----------- -----------
Increase in Cash and Cash Equivalents 512,322 45,187
Cash at beginning of period 1,010,743 930,177
----------- -----------
Cash at end of period $ 1,523,065 $ 975,364
=========== ===========
Supplemental Disclosures of Interest and Income Taxes Paid
Interest paid during the period $ 118,486 $ 109,393
=========== ===========
Income taxes paid (refunded) $ (63,450) $ 109,758
=========== ===========
Supplemental Disclosures of Non-Cash Financing
and Investing Activities None
The consolidated financial information presented herein has been prepared by
management without audit by independent certified public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
6
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2007 and 2006
NOTE A - Background and Organization
Million Dollar Saloon, Inc. (MDS) was incorporated under the laws of the State
of Nevada on September 28, 1987. MDS is a holding company providing management
support to its operating subsidiaries: Furrh, Inc., Tempo Tamers, Inc., Don,
Inc. and Corporation Lex.
Furrh, Inc. (Furrh) was incorporated under the laws of the State of Texas on
February 25, 1974. Furrh provides management services to Tempo Tamers, Inc, its
wholly-owned subsidiary. Tempo Tamers, Inc. (Tempo), was incorporated under the
laws of the State of Texas on July 3, 1978. Tempo operates an adult
entertainment lounge and restaurant facility, located in Dallas, Texas, under
the registered trademark and trade name "Million Dollar Saloon(R)". In
conjunction with an October 2002 Settlement Agreement with the City of Dallas,
Texas, the Company's adult entertainment lounge and restaurant, Million Dollar
Saloon, may operate in its present "non-conforming location" with a mandatory
closing date of July 31, 2009.
Don, Inc. (Don) was incorporated under the laws of the State of Texas on
November 8, 1973. Don owns and manages commercial rental property located in
Tarrant County, Texas.
Corporation Lex (Lex) was incorporated under the laws of the State of Texas on
November 30, 1984. Lex owns and manages commercial rental property located in
Dallas County, Texas.
NOTE B - Preparation of Financial Statements
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America and has
adopted a year-end of December 31.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented
During interim periods, the Company follows the accounting policies set forth in
its annual audited financial statements filed with the U. S. Securities and
Exchange Commission on its Annual Report on Form 10-KSB for the year ended
December 31, 2006. The information presented within these interim financial
statements may not include all disclosures required by generally accepted
accounting principles and the users of financial information provided for
interim periods should refer to the annual financial information and footnotes
when reviewing the interim financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the U. S. Securities and Exchange Commission's
instructions for Form 10-QSB, are unaudited and contain all material
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations and cash flows of
the Company for the respective interim periods presented. The current period
results of operations are not necessarily indicative of results which ultimately
will be reported for the full fiscal year ending December 31, 2007.
7
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
September 30, 2007 and 2006
NOTE B - Preparation of Financial Statements - Continued
These financial statements reflect the books and records of Million Dollar
Saloon, Inc., Furrh, Inc., Tempo Tamers, Inc., Corporation Lex and Don, Inc. for
each of the nine month periods ended September 30, 2007 and 2006, respectively.
All significant intercompany transactions have been eliminated in combination.
The consolidated entities are referred to as Company.
NOTE C - Summary of Significant Accounting Policies
1. Cash and Cash Equivalents
-------------------------
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
2. Marketable Securities
---------------------
Investments in the equity securities of other companies, including mutual
fund investments, that have readily determinable fair values (as defined in
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115) are
classified, at the date of acquisition, into three categories and accounted
for as follows:
Trading Securities - Equity securities that are bought and held
principally for the purpose of selling them in the near term are reported
at fair value. Unrealized gains and losses are included in earnings.
Available-for-Sale Securities - Equity securities not classified in other
categories are reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
shareholders' equity.
Held-to-Maturity Securities - Equity securities that the Company has the
positive intent and ability to hold to maturity are reported at amortized
cost.
Other investments that do not have a readily determinable fair value are
recorded at amortized cost.
The Company evaluates the carrying value of all marketable securities
classified as "held-to-maturity" or "other investments that do not have a
readily determinable fair value" on a quarterly basis in accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". Any permanent impairment, if
any, is charged to operations in the quarter in which the determination of
impairment is made.
For purposes of computing realized gains and losses, the specific
identification method is used.
3. Accounts Receivable and Revenue Recognition
-------------------------------------------
In the normal course of business, the Company extends unsecured credit to
virtually all of its tenants related to rental property operations and
accepts cash or nationally issued bankcards as payment for goods and
services in its adult lounge and entertainment facility. Bankcard charges
are normally paid by the clearing institution within three to fourteen days
from the date of presentation by the Company.
8
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
September 30, 2007 and 2006
NOTE C - Summary of Significant Accounting Policies - Continued
3. Accounts Receivable and Revenue Recognition - continued
-------------------------------------------------------
Since December 31, 2000, all rental property lessors are entities
controlled by a Company controlling shareholder, officer and director. All
lease rental payments are due in advance on the first day of the week for
that week. All revenue sources are located either in Dallas or Tarrant
County, Texas.
Because of the credit risk involved, management has provided an allowance
for doubtful accounts which reflects its opinion of amounts which will
eventually become uncollectible. In the event of complete non-performance,
the maximum exposure to the Company is the recorded amount of trade
accounts receivable shown on the balance sheet at the date of
non-performance.
4. Inventory
---------
Inventory consists of food and liquor consumables necessary in the
operation of Tempo's adult lounge and entertainment facility. These items
are valued at the lower of cost or market using the first-in, first-out
method of accounting.
5. Property and Equipment
----------------------
Property and equipment is recorded at cost and is depreciated on a
straight-line basis, over the estimated useful lives (generally 5 to 40
years) of the respective asset. Major additions and betterments are
capitalized and depreciated over the estimated useful lives of the related
assets. Maintenance, repairs, and minor improvements are charged to expense
as incurred.
6. Income Taxes
------------
The Company files a consolidated Federal Income Tax return and utilizes the
asset and liability method of accounting for income taxes. The deferred tax
asset and deferred tax liability accounts, as recorded when material to the
financial statements, are entirely the result of temporary differences. No
valuation allowance was provided against deferred tax assets. Temporary
differences represent differences in the recognition of assets and
liabilities for tax and financial reporting purposes, primarily accumulated
depreciation and amortization.
7. Earnings per share
------------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) available to common shareholders by the weighted-average number of
common shares outstanding during the respective period presented in our
accompanying financial statements. Fully diluted earnings (loss) per share
is computed similar to basic income (loss) per share except that the
denominator is increased to include the number of common stock equivalents
(primarily outstanding options and warrants).
Common stock equivalents represent the dilutive effect of the assumed
exercise of the outstanding stock options and warrants, using the treasury
stock method, at either the beginning of the respective period presented or
the date of issuance, whichever is later, and only if the common stock
equivalents are considered dilutive based upon the Company's net income
(loss) position at the calculation date.
At September 30, 2007 and 2006, and subsequent thereto, the Company has no
outstanding stock warrants, options or convertible securities which could
be considered as dilutive for purposes of the loss per share calculation.
9
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
September 30, 2007 and 2006
NOTE D - Related Party Transactions
Since a change in majority shareholders of the Company in 2000, the rental
properties of Corporation Lex and Don, Inc. have been subject to leases with
entities controlled by Duncan Burch, an officer, director and controlling
shareholder of the Company. These respective leases were in place prior to the
2000 change in control.
In conjunction with the October 2002 Settlement Agreement with the City of
Dallas, Texas, as discussed previously, the Company entered into negotiations
between the Company's wholly-owned subsidiary, Tempo Tamers, Inc., Mainstage,
Inc. (Mainstage), an entity controlled by Nick Mehmeti, the Company's President,
which operated a non-conforming adult cabaret located in Dallas, Texas, called
P.T.'s and Allen-Burch, Inc. (Allen Burch), an entity controlled by Duncan
Burch, a Company officer and significant shareholder, also operating a
non-conforming adult cabaret known as The Fare. These negotiations were
initiated to determine which of these non-conforming entities would continue
operating in a "non-conforming location".
In May 2003, these three affiliated parties granted the exclusive right to
negotiate with the City of Dallas, Texas to Tempo Tamers, Inc. for the
continuance of the operations of The Million Dollar Saloon as a sexually
oriented business in a "non-conforming location."
This Settlement Agreement provided that, in the event that the City of Dallas,
Texas granted The Million Dollar Saloon the exclusive right to continue
operating as an adult cabaret in a "non-conforming location" for a six (6) year
period, Tempo Tamers would pay $500,000 each to Mainstage and Allen Burch and
Mainstage and Allen-Burch would each discontinue the operation of their
respective sexually oriented businesses.
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. Mainstage and Allen Burch then agreed with the City of Dallas,
Texas to discontinue the respective operations of Mainstage and The Fare,
respectively, as sexually oriented business in January and March, 2004,
respectively.
The cessation of operations by Mainstage and Allen Burch triggered the $500,000
payment clause to each entity as set forth in the May 2003 Settlement Agreement.
The aggregate $1,000,000 payment has been accrued in the accompanying financial
statements, bears interest at 8.0% per annum and is being amortized to
operations over the 67 month term from the triggering event date(s) through the
mandatory closing date of The Million Dollar Saloon in it's present
"non-conforming location" on July 31, 2009.
NOTE E - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if any.
10
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
September 30, 2007 and 2006
NOTE F - Concentrations of Credit Risk
The Company maintains its cash accounts in various financial institutions
subject to insurance coverage issued by the Federal Deposit Insurance
Corporation (FDIC). Under FDIC rules, the Company and its subsidiaries are
entitled to aggregate coverage of $100,000 per account type per separate legal
entity per financial institution. During the years ended December 31, 2006 and
2005 and the period through September 30, 2007, respectively, the various
operating companies maintained deposits in these financial institutions with
credit risk exposures in excess of statutory FDIC coverage. The Company has
incurred no losses during 2006 or 2005, and subsequent thereto, as a result of
any of these unsecured situations.
NOTE G - Marketable Securities
Marketable securities as of September 30, 2007 and 2006 consist entirely of an
investment in a money market instrument-based mutual funds and are summarized as
follows:
Available Held to
Trading for sale Maturity
------- -------- --------
September 30, 2007
- ------------------
Aggregate fair value $54,910 $ -- $ --
Gross unrealized holding gain $ -- $ -- $ --
Gross unrealized holding losses $ -- $ -- $ --
Amortized cost basis $54,910 $ -- $ --
September 30, 2006
- ------------------
Aggregate fair value $53,311 $ -- $ --
Gross unrealized holding gains $ 213 $ -- $ --
Gross unrealized holding losses $ -- $ -- $ --
Amortized cost basis $53,311 $ -- $ --
The net unrealized holding gains and (losses) on trading securities which have
been included in the statement of operations were approximately $-0- and $213
for the each of the respective nine month periods ended September 30, 2007 and
2006.
NOTE H - Property and Equipment
Property and equipment consists of the following at September 30, 2007 and 2006:
September 30, September 30,
2007 2006 Estimated life
----------- ----------- --------------
Buildings and related improvements $ 1,526,424 $ 1,526,424 55 months - 40 years
Furniture and equipment 466,071 464,881 55 months -10 years
----------- -----------
1,992,495 1,924,449
Less accumulated depreciation (1,602,701) (1,512,309)
----------- -----------
389,794 478,996
Land 210,000 210,000
----------- -----------
Net property and equipment $ 599,794 $ 688,996
=========== ===========
11
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
September 30, 2007 and 2006
NOTE H - Property and Equipment - Continued
Depreciation expense for the nine months ended September 30, 2007 and 2006 was
approximately $68,194 and $66,597, respectively.
NOTE I - Land Held for Future Development
Note Payable
Loan from Officer
Long-term Mortgage Note Payable
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. On January 29, 2004, the
Company obtained permanent long-term mortgage financing to retire the $2,156,713
note payable issued at the initial closing. The new note was for an initial
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% for all subsequent periods that the debt is
outstanding. The interest rate adjusts every 12th month, commencing on January
29, 2005. The long-term mortgage note requires payments of principal and accrued
interest 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 long-term mortgage note
matures on January 29, 2019 and 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.
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.
As of September 30, 2007 and 2006, the Company owes approximately $1,694,085 and
$1,777,068 on the long-term mortgage note payable, respectively.
Future maturities of the long-term mortgage note payable are as follows:
Year ending Principal
December 31 due
----------- ---------
2007 $ 96,931
2008 103,203
2009 111,918
2010 119,212
2011 126,227
2012-2016 773,083
2017-2019 425,382
----------
Total $1,755,956
==========
12
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
September 30, 2007 and 2006
NOTE J - Property and Equipment held for Sale
During the 3rd quarter of Calendar 2004, Company management listed the real
estate and other significant assets owned by Corporation Lex for sale through a
commercial real estate brokerage firm and reclassified the net carrying values
at the listing date to "Property and Equipment held for Sale" in the
accompanying financial statements.
In accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the Company
follows the policy of evaluating all qualifying assets as of the end of each
reporting quarter. As of September 30, 2007, management has determined that no
impairment of the carrying value of property and equipment held for sale was
necessary.
This property was sold on February 5, 2008 for net proceeds of approximately
$896,000, resulting in a recognized gain at the date of sale of approximately
$25,000.
NOTE K - Operations Agreement
Contract Payable to Affiliated Entities
In conjunction with the October 2002 Settlement Agreement with the City of
Dallas, Texas, as discussed previously, the Company entered into negotiations
between the Company's wholly-owned subsidiary, Tempo Tamers, Inc., Mainstage,
Inc. (Mainstage), an entity controlled by Nick Mehmeti, the Company's President,
which operated a non-conforming adult cabaret located in Dallas, Texas, called
P.T.'s and Allen-Burch, Inc. (Allen Burch), an entity controlled by Duncan
Burch, a Company officer and significant shareholder, also operating a
non-conforming adult cabaret known as The Fare. These negotiations were
initiated to determine which of these non-conforming entities would continue
operating in a "non-conforming location".
In May 2003, these three affiliated parties granted the exclusive right to
negotiate with the City of Dallas, Texas to Tempo Tamers, Inc. for the
continuance of the operations of The Million Dollar Saloon as a sexually
oriented business in a "non-conforming location."
This Settlement Agreement provided that, in the event that the City of Dallas,
Texas granted The Million Dollar Saloon the exclusive right to continue
operating as an adult cabaret in a "non-conforming location" for a six (6) year
period, Tempo Tamers would pay $500,000 each to Mainstage and Allen Burch and
Mainstage and Allen-Burch would each discontinue the operation of their
respective sexually oriented businesses.
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. Mainstage and Allen Burch then agreed with the City of Dallas,
Texas to discontinue the respective operations of Mainstage and The Fare,
respectively, as sexually oriented business in January and March, 2004,
respectively.
The cessation of operations by Mainstage and Allen Burch triggered the $500,000
payment clause to each entity as set forth in the May 2003 Settlement Agreement.
The aggregate $1,000,000 payment has been accrued in the accompanying financial
statements and is being amortized to operations over the 67 month term from the
triggering event date(s) through the mandatory closing date of The Million
Dollar Saloon in it's present "non-conforming location" on July 31, 2009.
(Remainder of this page left blank intentionally)
13
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
September 30, 2007 and 2006
NOTE L - Income Taxes
The components of income tax expense (benefit) for each of the nine month
periods ended September 30, 2007 and 2006, respectively, are as follows:
Nine months Nine months
ended ended
September 30, September 30,
2007 2006
-------- --------
Federal:
Current $115,635 $ 24,700
Deferred -- --
-------- --------
115,635 24,700
-------- --------
State:
Current -- --
Deferred -- --
-------- --------
-- --
-------- --------
Total $115,635 $ 24,700
======== ========
The Company's income tax expense (benefit) for each of the nine month periods
ended September 30, 2007 and 2006, respectively, differed from the statutory
federal rate of 34 percent as follows:
Nine months Nine months
ended ended
September 30, September 30,
2007 2006
-------- --------
Statutory rate applied to earnings before income taxes $115,635 $ 36,000
Increase (decrease) in income taxes resulting from:
State income taxes -- --
Deferred income taxes -- --
Effect of incremental tax brackets and the
application of business tax credits -- (11,300)
-------- --------
Income tax expense $115,635 $ 24,700
======== ========
The deferred current tax asset and non-current deferred tax liability on
September 30, 2007 and 2006, respectively, balance sheet consists of the
following:
September 30, September 30,
2007 2006
--------- ---------
Non-current deferred tax liability $(223,960) $(243,618)
========= =========
The non-current deferred tax liability results from the usage of statutory
accelerated tax depreciation and amortization methods.
NOTE M - Capital Stock Transactions
On March 19, 1998, the Company entered into a Stock Purchase Agreement
(Agreement) with an unrelated individual. The Agreement contained a "second
closing" clause, as amended, whereby the individual may acquire an additional
400,000 shares of restricted, unregistered common stock at a price of $1.10 per
share on or before the close of business on October 18, 2004. This Agreement
expired with no shares of common stock issued in accordance with the "second
closing" portion of the Agreement.
14
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
September 30, 2007 and 2006
NOTE N - Commitments
The rental property owned by Don, Inc. is 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 lessee has not indicated to the Company
whether a new long-term lease will be negotiated on this property. The lessee is
also responsible for normal maintenance and repairs, insurance and other direct
operating expenses related to the property.
NOTE O - Litigation
1) City of Dallas licensing
In conjunction with an October 2002 Settlement Agreement with the City of
Dallas, Texas, the Company entered into negotiations between the Company's
wholly-owned subsidiary, Tempo Tamers, Inc., Mainstage, Inc. (Mainstage),
an entity controlled by Nick Mehmeti, the Company's President, which
operated a non-conforming adult cabaret located in Dallas, Texas, called
P.T.'s and Allen-Burch, Inc. (Allen Burch), an entity controlled by Duncan
Burch, a Company officer and significant shareholder, also operating a
non-conforming adult cabaret known as The Fare. These negotiations were
initiated to determine which of these non-conforming entities would
continue operating in a "non-conforming location". In May 2003, these three
affiliated parties granted the exclusive right to negotiate with the City
of Dallas, Texas to Tempo Tamers, Inc. for the continuance of the
operations of The Million Dollar Saloon as a sexually oriented business in
a "non-conforming location." This Settlement Agreement provided that, in
the event that the City of Dallas, Texas granted The Million Dollar Saloon
the exclusive right to continue operating as an adult cabaret in a
"non-conforming location" for a six (6) year period, Tempo Tamers would pay
$500,000 each to Mainstage and Allen Burch and Mainstage and Allen-Burch
would each discontinue the operation of their respective sexually oriented
businesses. In May 2003, the City of Dallas, Texas agreed to allow Tempo
Tamers to continue to operate The Million Dollar Saloon at its current
location through the last day of July 2009. Mainstage and Allen Burch then
agreed with the City of Dallas, Texas to discontinue the respective
operations of Mainstage and The Fare, respectively, as sexually oriented
business in January and March, 2004, respectively. The cessation of
operations by Mainstage and Allen Burch triggered the $500,000 payment
clause to each entity as set forth in the May 2003 Settlement Agreement.
The aggregate $1,000,000 payment has been accrued in the Company's
financial statements and is being amortized to operations over the 67 month
term from the triggering event date(s) through the mandatory closing date
of The Million Dollar Saloon in it's present "non-conforming location" on
July 31, 2009.
2) "John Doe I" v. Tempo Tamers Beverage Company, Inc. dba Million Dollar
Saloon and Christopher John Thornton, Dallas County Texas District Court
Cause No. 05-02015; filed February 24, 2005 and settled on October 20,
2005. Plaintiff "Doe I" filed a wrongful death/survivor claim under Section
2.02 of the Texas Alcoholic Beverage Code (dram shop). The suit alleged
that a customer of the Company's Tempo Tamers, Inc. subsidiary (dba Million
Dollar Saloon) (Club) was served in violation of Section 2.02 resulting in
a motor vehicle collision causing the wrongful death of "Doe I's" spouse.
While the Company's wholly-owned subsidiary denied all allegations; the
case was settled on October 20, 2005 under a sealed confidentiality
agreement. The settlement was for the gross sum of $460,000 to be paid as
follows: $50,000 on the signing of the settlement documents, $50,000 on or
about January 13, 2006 and $7,500 per month starting on November 1, 2005
through October 1, 2009. The settlement is non-interest bearing and, per
the requirements of generally accepted accounting principles, has been
discounted at the Prime Rate of 6.75% to yield a net settlement of
approximately $415,026, exclusive of imputed interest. The entire
discounted settlement was charged to operations on the October 2005
settlement date.
3) "John Doe II" v. Tempo Tamers, Inc. dba Million Dollar Saloon; Dallas
County Texas 44th District Court Cause No. 04-09918-A; filed September 24,
2004. Clarendon American Insurance Company v. Tempo Tamers, Inc. dba
Million Dollar Saloon; Dallas County Texas 44th District Court Cause No.
06-11838; filed November 17, 2006.
15
Million Dollar Saloon, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - Continued
September 30, 2007 and 2006
NOTE O - Litigation - Continued
This is a suit for damages/loss of consortium brought by Plaintiffs under
Section 2.02 of the Texas Alcoholic Beverage Code. The Plaintiff claimed he
was served by Club employees in violation of Section 2.02 resulting in a
motorcycle accident whereby he sustained head injuries and has medical
bills over $300,000.00. The Plaintiff further asserted to have no or
diminished capacity to continue his professional profession. The Company's
wholly-owned subsidiary, Tempo Tamers, Inc., vigorously denied the
allegations and asserted that the Plaintiff's accident was primarily, if
not exclusively, of his own doing and asserted that the Plaintiff was more
than 50% responsible for his injuries and that the only valid cause of
action was pursuant to Section 2.02. The Company denied all liability.
In 2006, the Company's insurance carrier (Clarendon) sued the Company
claiming that they had no obligation to pay the claim of the plaintiffs in
the Doe II litigation.
In 2007, the Company, without an admission of liability, settled all claims
in a confidential settlement agreement whereby Tempo Tamers, Inc. agreed to
reimburse Clarendon $25,000 of the monies Clarendon paid to Plaintiffs, in
five (5) monthly installments of $5,000 each, with the first monthly
installment to be paid on November 1, 2007 and the last installment to be
paid on March 1, 2008. Thereafter, Tempo Tamers, Inc. agreed to pay Doe II
and Doe II's counsel the total sum of $75,000, to be paid in 15 monthly
installments of $5,000 each, commencing on April 1, 2008 with the final
installment to be paid on July 1, 2009. The effect and settlement of these
actions was charged to operations on the November 2007 settlement date.
4) Cody Staus and Kelly Nowlin v. Million Dollar Saloon Inc. dba Million
Dollar Saloon; Dallas County Texas District Court Cause No.; 05-04622-K,
filed May 10, 2005. This case was brought by Plaintiffs Staus and Nowlin
claiming they were assaulted by employees/security of Million Dollar Saloon
and seek actual and punitive damages. This matter was settled in June 2006
for an aggregate $10,000 cash to all Plaintiffs and charged to operations
at the settlement date.
5) Beatrice Hunter v. Tempo Tamers, Inc. and Tempo Tamers Beverage Company
Cause # 06-12954 in the116th Judicial District Court for Dallas County
Texas, filed December 28, 2006.
This case was originally brought by a person injured in a car accident with
an alleged customer of the Club against Million Dollar Saloon, Inc.
alleging a variety of causes of action including violations under Section
2.02 of the Texas Alcoholic Beverage Code, negligence, gross negligence and
other allegations. Million Dollar Saloon, Inc. claimed that it was not
liable as it did not operate the Club and claimed that Section 2.02 was the
only valid cause of action and injuries were due to the conduct of the
driver of the woman's car to an extent to bar any recovery against the
club. The initial case was dismissed against Million Dollar Saloon Inc.
when a settlement was reached between the Plaintiff and alleged customer. A
new lawsuit was thereafter refiled against Tempo Tamers Inc. and Tempo
Tamers Beverage Company Inc. This case is scheduled for a jury trial to
commence on August 11, 2008 and the ultimate outcome is not determinable at
this time. Management is aggressively defending these actions and no
material impact to the Company's financial condition is anticipated at this
time.
6) Texas Alcoholic Beverage Commission v. Tempo Tamers Beverage Company Inc.
This is Administrative action brought by a state regulatory agency against
a non subsidiary corporation which provides Tempo Tamers, Inc. with liquor
permitting and services for the Tempo Tamers, Inc.'s business operations
known as "Million Dollar Saloon".
This Action is being vigorously contested by the Company and the potential
outcome of this administrative action is not determinable at this time.
Management is aggressively defending these actions and no material impact
to the Company's financial condition is anticipated at this time; however,
a finding against Tempo Tamers Beverage Company, Inc. could have a
significant detrimental impact on the operation of the Club.
From time-to-time, in the ordinary course of business, the Company has become
and may become party to other lawsuits. The outcome of this litigation, existing
or future, if any, is not determinable at this time. Management is aggressively
defending any current actions and anticipates aggressively defending future
actions, if any. Accordingly, no material impact to the Company's financial
condition is anticipated.
16
Part I - Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(1) Caution Regarding Forward-Looking Information
Certain statements contained in this annual filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national and
local general economic and market conditions: demographic changes; the ability
of the Company to sustain, manage or forecast its growth; the ability of the
Company to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-QSB and investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
(2) Results of Operations
Nine months ended September 30, 2007 as compared to Nine months ended
- ---------------------------------------------------------------------
September 30, 2006
- ------------------
Bar and restaurant sales decreased by approximately $100,000 (or approximately
4.6%) in the nine months ended September 30, 2006. Bar and restaurant sales were
approximately $2,255,000 for the nine months ended September 30, 2007 as
compared to approximately $2,155,000 for the nine months ended September 30,
2006. The increase is relatively nominal and is directly attributable to overall
fluctuations in visitor traffic to the Dallas-Ft. Worth Metroplex and the
effects of shifts in economic and ethnic populations in the immediate
geographical area of the Company's location. 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 nominally $7,000 to approximately $332,000
for the nine months ended September 30, 2007 as compared to approximately
$339,000 for the comparable nine month period ended September 30, 2006. All of
the leases were/ are with entities controlled by Duncan Burch, one of the
Company's controlling shareholders.
All of the leases were/are with entities controlled by Duncan Burch, one of the
Company's controlling shareholders. The Corporation Lex property was vacant
through February 2008 when it was sold for an approximate gain of $25,000 over
the carrying value in the accompanying financial statements. The rental real
estate owned by Don, Inc. is subject to a lease with a separate entity
controlled by Duncan Burch, an officer, director and controlling shareholder of
17
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.
Although the Company is seeking a long-term lease for the Don, Inc. property on
terms that are at least comparable to terms for similar properties in the
geographic area, there can be no assurance that the Company will be able to
renew its lease with entities controlled by Mr. Burch or any other unaffiliated
third-party, or if renewed, that the terms of the leases will be as favorable to
the Company as it could have obtained from an unaffiliated party. The failure of
the Company to obtain long-term lease agreements with Mr. Burch, or other third
parties, with terms at least comparable to the existing lease arrangements could
have a material adverse effect on the revenues of the Company.
Cost of sales remained relatively consistent at approximately $985,000 for the
nine months ended September 30, 2007 as compared to approximately $984,000 for
the same period of 2006. Gross profit percentages rose to approximately 61.92%
(approximately $1,601,000) for the nine months ended September 30, 2007 versus
60.57% (approximately $1,511,000) for the nine months ended September 30, 2006.
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 $1,305,000 for the nine
months ended September 30, 2007 as compared to approximately $1,395,000 for the
comparable period of 2006. Management is of the opinion that G&A expenses should
remain relatively constant in future periods and management continues to monitor
its expenditure levels to achieve optimum financial results.
Pursuant to an October 20, 2005 settlement of a lawsuit filed on February 24,
2005, the Company has accrued the discounted present value of approximately
$415,026 at the prime interest rate of 6.75% to yield the gross agreed-upon
settlement of $460,000.
During the quarter ended June 30, 2006, the Company settled two outstanding
lawsuits for an aggregate sum of $30,000. The Company anticipates no further
obligation under these two situations.
Net income (loss) before income taxes was approximately $340,000 for the nine
months ended September 30, 2007 versus approximately $106,000 for the nine
months ended September 30, 2006. After-tax net income increased by approximately
$142,000 from approximately $82,000 for the nine months ended September 30, 2006
to approximately $224,000 for the same period ended September 30, 2007. While
the Company's operations have stabilized and remain fairly consistent, the
Company continues to experience economic pressures due to a deteriorating
neighborhood around the Million Dollar Saloon and lower convention and visitor
traffic in the Dallas/Ft. Worth metropolitan area.
The Company experienced earnings (loss) per share of approximately $0.04 and
$0.01 for each of the respective nine month periods ended September 30, 2007 and
2006, 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 visitor,
convention and business travel levels and impacts related to the City of Dallas'
various enforcement actions and on-premises monitoring of entertainer conduct
and the condition of the surrounding environment as maintained and monitored by
the City of Dallas, Texas. Management makes it's best efforts to timely adjust
its expenditure levels to these events as they occur in order to maintain
profitability.
(3) Liquidity
As of September 30, 2007, December 31, 2006 and September 30, 2006, the Company
has working capital of approximately $157,000, $(355,000) and $(110,000). The
major contributor to the Company's working capital deficit at December 31, 2006
and September 30, 2006, respectively, is the $1,000,000 payable to related
parties related to an Operating Agreement which was triggered with the City of
Dallas granting a non-confirming operating permit to the Company through July
31, 2009 and the closing of two competing operations owned and controlled by the
Company's controlling shareholders. During 2007, the Company's operations have
generated positive cash flows from operations to the extent that the Company has
positive working capital, including the $1,000,000 payable to related parties,
as of September 30, 2007.
The Company achieved positive cash flows from operations of approximately
$560,000 and $122,000 for the nine months ended September 30, 2007 and 2006,
respectively, as compared to $180,000 for the year ended December 31, 2006.
18
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.
The Company, in accordance with an agreement with the City of Dallas, Texas,
will cease operating the Million Dollar Saloon at the close of business on July
31, 2009. This event will have a detrimental impact on the Company's liquidity
and business operations.
(4) Capital Resources
On October 20, 2005, the Company's wholly-owned subsidiary, Tempo Tamers, Inc.,
settled a lawsuit filed on February 24, 2005 for the gross sum of $460,000 to be
paid as follows: $50,000 on the signing of the settlement documents, $50,000 on
or about January 13, 2006 and $7,500 per month starting on November 1, 2005
through October 1, 2009. The settlement is non-interest bearing and, per the
requirements of generally accepted accounting principles, has been discounted at
the Prime Rate of 6.75% to yield a net settlement of approximately $415,026,
exclusive of imputed interest. The entire discounted settlement has been charged
to operations in the accompanying financial statements.
On January 29, 2004, the Company obtained permanent long-term mortgage financing
to retire the $2,156,713 note payable issued at the initial closing. The new
note was for an initial 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% for all subsequent periods
that the debt is outstanding. The interest rate adjusts every 12th month,
commencing on January 29, 2005. The long-term mortgage note requires payments of
principal and accrued interest 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
long-term mortgage note matures on January 29, 2019 and 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.
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 identified no other significant capital requirements for 2007,
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.
(5) Recent Accounting Pronouncements
The Company knows of no new accounting releases or pronouncements that will have
any impact upon the Company's financial statements upon adoption.
Item 3 - Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer,
we conducted an evaluation of our disclosure controls and procedures, as
such term is defined under Rule 13a-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (Exchange Act), as of September 30, 2007.
Based on this evaluation, our principal executive officer and principal
19
financial officer concluded that our disclosure controls and procedures are
effective in alerting them on a timely basis to material information
relating to our Company required to be included in our reports filed or
submitted under the Exchange Act.
(b) Changes in Internal Controls
There were no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal
controls over financial reporting that occurred during the quarter ended
September 30, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1 - Legal Proceedings
1) City of Dallas licensing
In conjunction with an October 2002 Settlement Agreement with the City of
Dallas, Texas, the Company entered into negotiations between the Company's
wholly-owned subsidiary, Tempo Tamers, Inc., Mainstage, Inc. (Mainstage),
an entity controlled by Nick Mehmeti, the Company's President, which
operated a non-conforming adult cabaret located in Dallas, Texas, called
P.T.'s and Allen-Burch, Inc. (Allen Burch), an entity controlled by Duncan
Burch, a Company officer and significant shareholder, also operating a
non-conforming adult cabaret known as The Fare. These negotiations were
initiated to determine which of these non-conforming entities would
continue operating in a "non-conforming location". In May 2003, these three
affiliated parties granted the exclusive right to negotiate with the City
of Dallas, Texas to Tempo Tamers, Inc. for the continuance of the
operations of The Million Dollar Saloon as a sexually oriented business in
a "non-conforming location." This Settlement Agreement provided that, in
the event that the City of Dallas, Texas granted The Million Dollar Saloon
the exclusive right to continue operating as an adult cabaret in a
"non-conforming location" for a six (6) year period, Tempo Tamers would pay
$500,000 each to Mainstage and Allen Burch and Mainstage and Allen-Burch
would each discontinue the operation of their respective sexually oriented
businesses. In May 2003, the City of Dallas, Texas agreed to allow Tempo
Tamers to continue to operate The Million Dollar Saloon at its current
location through the last day of July 2009. Mainstage and Allen Burch then
agreed with the City of Dallas, Texas to discontinue the respective
operations of Mainstage and The Fare, respectively, as sexually oriented
business in January and March, 2004, respectively. The cessation of
operations by Mainstage and Allen Burch triggered the $500,000 payment
clause to each entity as set forth in the May 2003 Settlement Agreement.
The aggregate $1,000,000 payment has been accrued in the Company's
financial statements and is being amortized to operations over the 67 month
term from the triggering event date(s) through the mandatory closing date
of The Million Dollar Saloon in it's present "non-conforming location" on
July 31, 2009.
2) "John Doe I" v. Tempo Tamers Beverage Company, Inc. dba Million Dollar
Saloon and Christopher John Thornton, Dallas County Texas District Court
Cause No. 05-02015; filed February 24, 2005 and settled on October 20,
2005. Plaintiff "Doe I" filed a wrongful death/survivor claim under Section
2.02 of the Texas Alcoholic Beverage Code (dram shop). The suit alleged
that a customer of the Company's Tempo Tamers, Inc. subsidiary (dba Million
Dollar Saloon) (Club) was served in violation of Section 2.02 resulting in
a motor vehicle collision causing the wrongful death of "Doe I's" spouse.
While the Company's wholly-owned subsidiary denied all allegations; the
case was settled on October 20, 2005 under a sealed confidentiality
agreement. The settlement was for the gross sum of $460,000 to be paid as
follows: $50,000 on the signing of the settlement documents, $50,000 on or
about January 13, 2006 and $7,500 per month starting on November 1, 2005
through October 1, 2009. The settlement is non-interest bearing and, per
the requirements of generally accepted accounting principles, has been
discounted at the Prime Rate of 6.75% to yield a net settlement of
approximately $415,026, exclusive of imputed interest. The entire
discounted settlement was charged to operations on the October 2005
settlement date.
3) "John Doe II" v. Tempo Tamers, Inc. dba Million Dollar Saloon; Dallas
County Texas 44th District Court Cause No. 04-09918-A; filed September 24,
2004. Clarendon American Insurance Company v. Tempo Tamers, Inc. dba
Million Dollar Saloon; Dallas County Texas 44th District Court Cause No.
06-11838; filed November 17, 2006.
This is a suit for damages/loss of consortium brought by Plaintiffs under
Section 2.02 of the Texas Alcoholic Beverage Code. The Plaintiff claimed he
was served by Club employees in violation of Section 2.02 resulting in a
motorcycle accident whereby he sustained head injuries and has medical
bills over $300,000.00. The Plaintiff further asserted to have no or
diminished capacity to continue his professional profession. The Company's
wholly-owned subsidiary, Tempo Tamers, Inc., vigorously denied the
allegations and asserted that the Plaintiff's accident was primarily, if
20
not exclusively, of his own doing and asserted that the Plaintiff was more
than 50% responsible for his injuries and that the only valid cause of
action was pursuant to Section 2.02. The Company denied all liability.
In 2006, the Company's insurance carrier (Clarendon) sued the Company
claiming that they had no obligation to pay the claim of the plaintiffs in
the Doe II litigation.
In 2007, the Company, without an admission of liability, settled all claims
in a confidential settlement agreement whereby Tempo Tamers, Inc. agreed to
reimburse Clarendon $25,000 of the monies Clarendon paid to Plaintiffs, in
five (5) monthly installments of $5,000 each, with the first monthly
installment to be paid on November 1, 2007 and the last installment to be
paid on March 1, 2008. Thereafter, Tempo Tamers, Inc. agreed to pay Doe II
and Doe II's counsel the total sum of $75,000, to be paid in 15 monthly
installments of $5,000 each, commencing on April 1, 2008 with the final
installment to be paid on July 1, 2009. The effect and settlement of these
actions was charged to operations on the November 2007 settlement date.
4) Cody Staus and Kelly Nowlin v. Million Dollar Saloon Inc. dba Million
Dollar Saloon; Dallas County Texas District Court Cause No.; 05-04622-K,
filed May 10, 2005. This case was brought by Plaintiffs Staus and Nowlin
claiming they were assaulted by employees/security of Million Dollar Saloon
and seek actual and punitive damages. This matter was settled in June 2006
for an aggregate $10,000 cash to all Plaintiffs and charged to operations
at the settlement date.
5) Beatrice Hunter v. Tempo Tamers, Inc. and Tempo Tamers Beverage Company
Cause # 06-12954 in the116th Judicial District Court for Dallas County
Texas, filed December 28, 2006.
This case was originally brought by a person injured in a car accident with
an alleged customer of the Club against Million Dollar Saloon, Inc.
alleging a variety of causes of action including violations under Section
2.02 of the Texas Alcoholic Beverage Code, negligence, gross negligence and
other allegations. Million Dollar Saloon, Inc. claimed that it was not
liable as it did not operate the Club and claimed that Section 2.02 was the
only valid cause of action and injuries were due to the conduct of the
driver of the woman's car to an extent to bar any recovery against the
club. The initial case was dismissed against Million Dollar Saloon Inc.
when a settlement was reached between the Plaintiff and alleged customer. A
new lawsuit was thereafter refiled against Tempo Tamers Inc. and Tempo
Tamers Beverage Company Inc. This case is scheduled for a jury trial to
commence on August 11, 2008 and the ultimate outcome is not determinable at
this time. Management is aggressively defending these actions and no
material impact to the Company's financial condition is anticipated at this
time.
6) Texas Alcoholic Beverage Commission v. Tempo Tamers Beverage Company Inc.
This is Administrative action brought by a state regulatory agency against
a non subsidiary corporation which provides Tempo Tamers, Inc. with liquor
permitting and services for the Tempo Tamers, Inc.'s business operations
known as "Million Dollar Saloon".
This Action is being vigorously contested by the Company and the potential
outcome of this administrative action is not determinable at this time.
Management is aggressively defending these actions and no material impact
to the Company's financial condition is anticipated at this time; however,
a finding against Tempo Tamers Beverage Company, Inc. could have a
significant detrimental impact on the operation of the Club.
Item 2 - Recent Sales of Unregistered Securities and Use of Proceeds
None
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
Item 5 - Other Information
In conjunction with an October 2002 Settlement Agreement with the City of
Dallas, Texas, the Company's adult entertainment lounge and restaurant,
Million Dollar Saloon, may operate in its present "non-conforming location"
with a mandatory closing date of July 31, 2009.
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Item 6 - Exhibits
Exhibits
--------
31.1Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Million Dollar Saloon, Inc.
Dated: September 30, 2008 /s/ Nick Mehmeti
------------------ ---------------------------
Nick Mehmeti
Chief Executive Officer,
Chief Financial Officer and
and Director
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