UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark one)
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of
1934
For the fiscal year ended December 31, 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, Texas 75231
(Address of principal executive offices)
(214) 691-6757
(Issuer's telephone number)
Securities registered under Section 12 (b) of the Exchange Act - None
Securities registered under Section 12(g) of the Exchange Act: - Common Stock -
$0.001 par value
Indicate by check mark if the registrant is a well known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant has (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 the Company 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
1
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes [ ] No [X]
The aggregate market value of voting and non-voting common equity held by
non-affiliates as of June 25, 2009 was approximately $96,362 based upon
1,606,038 shares held by non-affiliates and a closing market price of $0.06 per
share as reported on www.bigcharts.com for January 13, 2010.
As of January 13, 2010, there were 5,731,778 shares of Common Stock issued and
outstanding.
2
Million Dollar Saloon, Inc.
Index to Contents
Page Number
Part I
Item 1 Business 3
Item 1A Risk Factors 8
Item 2 Properties 8
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote of Security Holders 10
Part II
Item 5 Market for Registrant's Common Equity,
Related Stockholder Matters and
Issuer Purchases of Equity Securities 10
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 7A Quantitative and Qualitative Disclosures About Market Risk 15
Item 8 Financial Statements and Supplementary Data F-1
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
Item 9A Controls and Procedures 16
Part III
Item 10 Directors, Executive Officers and Corporate Governance 17
Item 11 Executive Compensation 19
Item 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 20
Item 13 Certain Relationships and Related Transactions, and
Director Independence 21
Item 14 Principal Accountant Fees and Services 22
Part IV
Item 15 Exhibits and Financial Statement Schedules 22
Signatures 51
3
Caution Regarding Forward-Looking Information
---------------------------------------------
Certain statements contained in this Form 10-K, 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-K 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 whether to reflect new information, future results, events, developments
or otherwise.
PART I
Item 1 - Description of Business
General
Million Dollar Saloon Inc. (the "Company") was incorporated under the laws of
the State of Nevada on September 28, 1987. The Company provides management
support and conducts its business operations through its wholly-owned operating
subsidiaries: Furrh, Inc., Tempo Tamers, Inc., Don, Inc. and Corporation Lex.
The Company owns and operates an adult cabaret in Dallas, Texas and owns one
other commercial properties located in the Dallas-Fort Worth Metroplex.
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.
("Tempo"), its wholly-owned subsidiary. Tempo was incorporated under the laws of
the State of Texas on July 3, 1978. Tempo operates the Company's adult
entertainment lounge and restaurant facility, located in Dallas, Texas under the
registered trademark and trade name "Million Dollar Saloon(R)."
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 owned commercial rental property located in Dallas
County, Texas through February 2008.
The Company's principal offices are located at 6848 Greenville Avenue, Dallas,
Texas 75231, and its telephone number is (214) 691-6757. Unless otherwise
indicated, the "Company" refers to the Company, each of its wholly-owned
subsidiaries and Tempo. The Company's common stock is traded on the OTC Bulletin
Board under the symbol "MLDS".
The Company is based in Dallas, Texas and currently conducts business in two
distinct areas:
o Owning and operating an adult cabaret.
o Owning and managing commercial real estate.
4
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, operated in its present "non-conforming location" with a
mandatory closing date of July 31, 2009.
Business closure
Effective at the close of business on July 31, 2009, the Company ceased all
operations of Tempo Tamers, Inc. and the Company's adult entertainment lounge
and restaurant, Million Dollar Saloon.
Purchase of Real Estate
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, which included a $140,000 unsecured, non-interest bearing advance to the
Company from Duncan Burch, a controlling shareholder, 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. The payment of the note is secured with a
lien against the property granted to the note holder by the Company. The
interest on the note is payable monthly (approximately $14,678 per month)
beginning April 1, 2003 with the principal amount due and payable on February 1,
2004.
In January 2004, the Company obtained permanent long-term financing from
Citizens National Bank, Waxahachie, Texas, and used the proceeds to pay off in
full the original note payable to the seller. The term loan had an original
balance of $2,000,000 and initially bore interest at 6.5% for the first year and
then adjusts to 1% above the published prime rate. The interest rate adjusts
every 12 months commencing January 29, 2005. The note required initial monthly
principal and interest payments of $17,426. As this is a variable interest rate
note, the payments may change after the 12th payment and every succeeding 12th
payment thereafter. The note matures on January 29, 2019. The note is secured by
the underlying land and the separate personal guaranty of Duncan Burch and Nick
Mehmeti, each a Company officer, director and controlling shareholder.
The property is undeveloped and suitable for commercial development. Although
the Company has not determined the usage of the land, the Company may, subject
to zoning and permissible use statutes, 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.
Adult Cabaret
General - The Company, through Tempo, owns and operates an adult cabaret
under the name "The Million Dollar Saloon," which is its primary business
operation. The Million Dollar Saloon opened in 1982 with the intent of
establishing a sophisticated entertainment environment focused on attracting
a professional clientele. To enhance the club's appeal to its target market,
the Million Dollar Saloon offers restaurant and first-class bar service
conducive to attracting businessmen and out-of-town convention clientele.
Although the Company, in February 2003, purchased 6.6 acres of undeveloped
land in Dallas, Texas, the Company has not determined whether the land will
be developed as an adult cabaret or for other purposes. Other than the recent
purchase of the Dallas, Texas property, no specific locations for potential
additional Million Dollar Saloons have been identified.
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."
5
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 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.
To reiterate, 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.
Female Entertainment - The entertainers at the Million Dollar Saloon must
follow management's policy of high personal appearance and personality
standards. A performer's physical appearance and her ability to present
herself attractively and to converse intelligently with customers is very
important to management. Management insists that the performers at The
Million Dollar Saloon be experienced dancers. The performers dance on the
main stage or on small stages throughout the club. While their performances
include topless dancing, management insists that performers wear elegant
attire when not dancing, as opposed to being scantily dressed as in many
other adult cabarets. Management never allows full nudity in the club.
Management provides performers with guidelines for the manner of dress,
hairstyle, makeup and general demeanor. The guidelines are intended to
maintain a high standard of professionalism among the performers and maintain
a pleasant, congenial demeanor. Further, management evaluates each
performer's appearance and performance on a nightly basis and advises them if
their dress, makeup, hairstyle, general appearance or demeanor does not meet
the Company's standards. Though these policies have the effect of limiting
the number of performers who are permitted to dance at the Million Dollar
Saloon, the Company believes that its policy of maintaining these high
standards is in the best interest of the Company and its long-term market
position.
Compliance Policies - The Company's management has policies in place intended
to ensure that its business is carried on in conformity with local, state and
federal laws. In particular, the Company's management has a "no tolerance"
policy as to illegal drug use in or around the premises. Posters placed
throughout the nightclub reinforce this policy as do periodic unannounced
searches of the entertainer's lockers. Entertainers and waitresses who arrive
for work are not allowed to leave the premises without the permission of
management. Once an entertainer does leave the premises, she is not allowed
to return to work until the next day. Management continually monitors the
behavior of entertainers, waitresses and customers to ensure that proper
standards of behavior are observed.
Management also reviews all credit card charges made by customers while at
the Million Dollar Saloon. Specifically, the Company's policy is that all
credit card charges must be approved, in writing, by management before any
charges are accepted. Club supervisory personnel review various credit card
charges, including those purchasing "house" money or charges with total
charges above an in-house floor limit as a control to ensure collection of
the charges and to minimize challenges and or chargebacks initiated by
patrons after leaving the premises.
Food and Drink - The Company believes a key to the success of a premier adult
cabaret is a quality, first-class bar and restaurant operation to complement
its adult entertainment. The Company's restaurant operation is a full service
operation with a full-scale lunch and dinner menu service offering hot and
cold appetizers, salads, seafood, steak and other entrees. A variety of
premier wines are offered to compliment a customer's lunch or dinner
selection. The Company employs a full-time Service Manager who is in charge
of recruiting and training a professional waitress staff and ensuring that
each customer receives prompt and courteous service.
6
Controls - Operational and accounting controls are essential to the
successful management of a cash intensive nightclub and bar business. The
Company uses a combination of nightclub-oriented accounting software and
physical inventory control mechanisms intended to maintain a high level of
integrity in its accounting practices. Computers play a significant role in
capturing and analyzing a variety of information to provide management with
the information necessary to efficiently monitor and control the nightclub.
Management controls, restricts and supervises carefully all personnel with
cash handling responsibilities. Management personnel reconcile deposits of
cash and credit card receipts to produce a detailed daily income report.
Daily computer reports alert management of any variances from expected
financial results based on historical norms.
Atmosphere - We believe that the Million Dollar Saloon maintains an elegant
atmosphere through its Mediterranean decor theme and other customer related
amenities. We believe the furniture and furnishings in the Million Dollar
Saloon contribute to the atmosphere equivalent to that of an upscale
restaurant. The club offers a gourmet menu, two cigar humidors and an
extensive champagne and fine wine list. The sound system design provides
quality high-energy music levels that also permit easy conversation to take
place. The Million Dollar Saloon also provides a state-of-the-art light show
and employs a sound and light engineer to upgrade, monitor, and maintain its
sound and light systems. Management regularly monitors the environment of the
Million Dollar Saloon for appropriate music selection, customer service, and
upscale appearance, and ambience.
"VIP" Area - To provide service for the upper-end of the business market
segment, the Company maintains a spacious VIP mezzanine encompassing the
entire upstairs public area of the Million Dollar Saloon facility. The VIP
area is opened to individuals who pay an increased daily admission charge or
purchase annual or lifetime memberships. The VIP area provides a higher level
of luxury in its decor and more personalized services. The VIP area consists
of approximately 1,800 square feet for food and entertainment purposes and
has a maximum occupancy of 100 persons. Catering to the upscale VIP customer,
this area includes "The Champagne Room" accessible for an additional fee. The
downstairs club and dining area consists of approximately 4,500 square feet
for entertainment purposes and can accommodate a maximum of 250 persons. The
lower level also offers "The Blue Room", a private entertainment space for
bachelor and other large group activities.
Advertising and Promotion - The Company's marketing philosophy is to position
the Million Dollar Saloon as a premiere adult cabaret providing female
entertainment in a sophisticated, discreet environment for its patrons. Hotel
publications, local radio, cable television, newspapers, billboards, and a
variety of other promotional activities are regularly employed so that the
public recognizes the Million Dollar Saloon name.
This facility was closed at the close of business on July 31, 2009.
Future Expansion
The Company has not determined evaluated or identified any specific locations
outside of the Dallas market or conducted any efforts related to future
expansion, but it believes, based upon its experience, that opportunities for
expansion exist primarily in metropolitan areas in the Southwest United States.
The aforementioned approximately 6.6 acre tract located in Dallas, Texas may be
suitable for relocation of the club subsequent to the expiration of its
operating permit in July 2009; however, these plans are subject to change based
on municipal changes in zoning, neighboring businesses or developments or
societal norms. The Company may expand through the acquisition of sports bars,
casual clubs and adult cabarets that may use the trademark "Million Dollar
Saloon." In determining which cities may be suitable locations for expansion, a
variety of factors will be considered, including, but not limited to, the
current regulatory environment, the availability of sites located in high
traffic commercial areas suitable for conversion to the Million Dollar Saloon
style cabarets or sports bars or casual clubs, potential competition in the
area, current market conditions and profitability of other adult cabarets in the
city. At the present time, the Company has no definitive expansion, relocation
or other plans for the operation of the existing facility after July 31, 2009 or
any other conceptual facility in the future.
Competition
The adult entertainment nightclub industry is highly competitive with respect to
price, service, location, and the professionalism of its entertainment. The
Million Dollar Saloon competes with many locally-owned adult cabarets in Dallas,
7
Texas, certain of which may enjoy recognition that equals or exceeds that of the
Million Dollar Saloon and may be owned or controlled by either Duncan Burch or
Nick Mehmeti, the Company's officers, directors and controlling shareholders.
While there may be local governmental restrictions on the location of a
"sexually oriented business", there are no barriers to entry into the adult
cabaret market. There are in excess of 30 adult cabarets located in the Dallas,
Texas metropolitan area of which several are in direct competition with the
Million Dollar Saloon. Some of the competitive adult cabarets are owned by
corporations controlled by or affiliated with Nick Mehmeti and Duncan Burch, who
are officers and directors of the Company. The Company believes that the
combination of its existing name recognition and its distinctive and unique
entertainment environment will allow the Company to effectively compete within
this industry.
Governmental Regulations
The Company is subject to various federal, state and local laws affecting its
business activities. In Texas, the authority to issue a permit to sell alcoholic
beverages is governed by the Texas Alcoholic Beverage Commission ("TABC"). The
TABC has the authority, in its discretion, to issue appropriate permits. The
Company, through a management agreement with Tempo Tamers Beverage Company,
Inc., an affiliated corporation, operates its business under a Texas Mixed
Beverage Permit and Late Hours Permit (the "Permits"). These Permits are subject
to annual renewal, provided the Company and its affiliated corporation have
complied with all rules and regulations governing the Permits. Renewal of a
permit is subject to protest by a law enforcement agency or by a member of the
public. In case of protest, the TABC may hold a hearing for interested parties
to express their views. The TABC has the authority after such hearing not to
issue a renewal of the protested alcoholic beverage permit. The failure of the
Company to obtain a renewal of its Permits would have a material adverse effect
upon the financial condition and prospects of the Company.
In 2008, the Texas Alcoholic Beverage Commission initiated a regulatory action
against Tempo Tamers Beverage Company, Inc. styled "Texas Alcoholic Beverage
Commission v. Tempo Tamers Beverage Company Inc." 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 Million Dollar Saloon.
Various groups have increasingly advocated certain restrictions on "happy hour"
and other promotions involving alcoholic beverages. The Company believes its
entertainment value, admittance charge beginning after normal "happy hours" and
its policies of not discounting drink prices are effective tools in promoting
its business. The Company cannot predict whether additional restrictions on the
promotion of sales of alcoholic beverages will be adopted, or if adopted, the
effect of such restrictions on its business.
Beyond various regulatory requirements affecting the sale of alcoholic
beverages, the location of an adult cabaret is subject to restriction by city
ordinance. In Dallas, the Company is subject to "The Sexually Oriented Business
Ordinance" (the "Ordinance") which contains prohibitions on the location of an
adult cabaret. The prohibitions deal generally with distance from schools,
churches, and other sexually oriented businesses and contain restrictions based
on the percentage of residences within the immediate vicinity of the sexually
oriented business. The granting of a Sexually Oriented Business Permit
("Business Permit") is not subject to discretion; the Business Permit must be
granted if the proposed operation satisfies the requirements of the Ordinance.
The Company has held a Business Permit since passage of the city ordinance. The
Business Permit is valid for a period of one year and is renewable by
application of the permit holder subject to a hearing.
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".
8
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.
To reiterate, 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.
Beginning January 1, 2008, the Million Dollar Saloon became subject to a new
state law requiring a $5 surcharge for every club visitor. A lawsuit has been
filed by the Texas Entertainment Association, an organization to which we are a
member, alleging the fee amounts to be an unconstitutional tax. This tax could
discourage certain potential customers from visiting the Million Dollar Saloon.
Employees
As of May 29, 2009, the Company had approximately 19 full-time employees, of
which 10 were in management positions, including corporate and administrative
operations and 9 were engaged in food and beverage service, including bartenders
and waitresses. The Company also employed 28 part-time employees who were
engaged in food and beverage service and 14 part-time employees who were engaged
in club operations. Contract entertainers numbered approximately 94 working on
both full and part time schedules, as individually determined by the contractor.
None of the Company's employees are represented by a union and the Company
considers its employee relations to be good.
Insurance
The Company maintains insurance in amounts it considers adequate for property
damage.
The Company does not maintain personal injury liquor liability insurance for
exposures or potential liabilities that may be imposed pursuant to the Texas
"Dram Shop" statute or similar "Dram Shop" statutes or common law theories of
liability in other states. The Texas "Dram Shop" statute provides a person
injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to such person if it
was apparent to the server that the individual being sold, served or provided
with an alcoholic beverage was obviously intoxicated to the extent that he
presented a clear danger to himself and others.
Commercial Real Estate
9
The Company owns a total of three (3) properties in the Dallas-Fort Worth
Metroplex. One facility is Company operated, the Million Dollar Saloon, located
in Dallas, Texas. The second property is owned by Don, Inc. and is located in
Fort Worth, Texas. This property is leased to an entity controlled by Duncan
Burch, an officer and director of the Company, for the operation of an adult
cabaret. The third property consists of 6.6 acres of undeveloped real estate
located in Dallas, Texas. The Company has not determined the best and ultimate
use of this undeveloped property.
The Company-operated Million Dollar Saloon is located in North Dallas and
consists of a 9,750 square foot building located on an approximate 25,500 square
foot tract of land fronting a major traffic artery.
Management believes that all of its properties are adequately covered by
insurance.
Risk Factors
Not required for a Smaller Reporting Company.
Item 2 - Description of Property
The Company maintains its corporate office at 6848 Greenville Avenue in Dallas,
Texas. The corporate office is comprised of approximately 2,700 square feet and
is subject to a monthly rental payment of approximately $3,600. The Company
occupies the premises for its corporate offices on a month-to-month basis. Based
on current local market conditions and available information, management is of
the belief that it will be able to relocate to a comparable location at a
comparable cost if necessary.
The Million Dollar Saloon is located in North Dallas and consists of a 9,750
square foot building located on an approximate 25,500 square foot tract of land
fronting a major traffic artery.
The Fort Worth, Texas facility is owned by Don, Inc. and is leased to an entity
controlled by Duncan Burch, an officer and director of the Company, for the
operation of an adult cabaret. The property is a stand-alone structure and is
100% occupied with a single tenant. The property is subject to a month-to-month
lease that requires the tenant to pay a weekly rental of $8,500.
The following is a summary of the terms, conditions and operating parameters of
the referenced properties:
Location/Address
----------------
3601 State Highway 157
Ft. Worth, Texas
----------------
Owner Don, Inc.
Square footage
Building 4,850
Real estate tract 60,398
Mortgages None
Lease expiration Month-to-month
Scheduled rentals $8,500 per week
Effective annual rental per square foot
(Total lease term) $91.13
Gross book basis (including land) $160,447
Net book basis (including land) $43,235
Federal income tax basis (excluding land) $16,724
Depreciation method and life ACRS-15 years
10
Item 3 - 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. The Plaintiff further asserted to have no or
diminished capacity to continue his 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.
11
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 "John 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) Furrh Inc. v. Charlene McCartney et al., Cause #06-01564 in the 193rd
District Court for Dallas County, Texas.
This was a claim by Furrh Inc. against its landlord for offices and parking
for contracting to sell the leasehold without allowing Furrh Inc. the
opportunity to exercise its right of first refusal under the party's lease.
Counterclaims were filed. The case was settled and dismissed with Furrh
Inc. allowing the sale with concessions to allow use of the offices and
parking to continue as long as the adjacent property owned by Furrh Inc can
be operated as a SOB by the Lessee.
7) 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
12
defending any current actions and anticipates aggressively defending future
actions, if any. Accordingly, no material impact to the Company's financial
condition is anticipated.
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has not conducted any meetings of shareholders during the preceding
quarter or periods subsequent thereto.
PART II
Item 5 - Market for the Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Transfer Agent
Our independent stock transfer agent is Securities Transfer Corporation. Their
address is 2591 Dallas Parkway, Suite 102, Frisco, TX 75034. Their phone number
is (469) 633-0101 and their fax number is (469) 633-0088.
Market for Trading
As of May 29, 2009, the Company had approximately 800 holders of record,
exclusive of shares held in "street name", of its Common Stock and had 5,731,778
issued and outstanding shares of Common Stock.
The Company's Common Stock has been quoted on The OTC Bulletin Board under
symbol "MLDS" since January 29, 1996. The following table sets forth the
quarterly average high and low closing bid prices per share for the Common
Stock:
High Low
Fiscal year ending December 31, 2006
Quarter ended March 31, 2006 $0.20 $0.15
Quarter ended June 30, 2006 0.30 0.16
Quarter ended September 30, 2006 0.20 0.15
Quarter ended December 31, 2006 0.25 0.15
Fiscal year ended December 31, 2007
Quarter ended March 31, 2007 $0.23 $0.19
Quarter ended June 30, 2007 0.25 0.19
Quarter ended September 30, 2007 0.25 0.19
Quarter ended December 31, 2007 0.25 0.19
Fiscal year ended December 31, 2008
Quarter ended March 31, 2008 $0.28 $0.19
Quarter ended June 30, 2008 0.25 0.20
Quarter ended September 30, 2008 0.20 0.09
Quarter ended December 31, 2008 0.14 0.09
The source for the high and low closing bids quotations is the National
Quotation Bureau, Inc. and does not reflect inter-dealer prices, such quotations
are without retail mark-ups, mark-downs or commissions, and may not represent
actual transactions and have not been adjusted for stock dividends or splits.
The reported closing price of the Company's common stock, based on the last
reported trade of approximately 15,000 shares on May 29, 2009 was $0.14 per
share.
13
Common Stock
The Company's Articles of Incorporation authorize the issuance of up to
50,000,000 shares of $0.001 par value Common Stock. Each record holder of Common
Stock is entitled to one vote for each share held on all matters properly
submitted to the stockholders for their vote. The Company's Articles of
Incorporation do not permit for cumulative voting for the election of directors.
Holders of outstanding shares of Common Stock are entitled to such dividends as
may be declared from time to time by the Board of Directors out of legally
available funds; and, in the event of liquidation, dissolution or winding up of
the affairs of the Company, holders are entitled to receive, ratably, the net
assets of the Company available to stockholders after distribution is made to
the preferred stockholders, if any, who are given preferred rights upon
liquidation. Holders of outstanding shares of Common Stock have no preemptive,
conversion or redemption rights. All of the issued and outstanding shares of
Common Stock are, and all unissued shares when offered and sold will be, duly
authorized, validly issued, fully paid, and non-assessable. To the extent that
additional shares of the Company's Common Stock are issued, the relative
interests of then existing stockholders may be diluted.
Recent issuances of Unregistered Securities
None
Dividend policy
No dividends have been paid in the most recent fiscal year and the Company's
Board of Directors does not anticipate paying dividends in the foreseeable
future. It is the current policy to retain all earnings, if any, to support
current operations.
Item 6 - Selected Financial Data
Not applicable
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
financial statements and related notes included elsewhere in this annual report
on Form 10-K. This discussion contains forward-looking statements reflecting our
current expectations, estimates and assumptions concerning events and financial
trends that may affect our future operating results or financial position.
Actual results and the timing of events may differ materially from those
contained in these forward-looking statements due to a number of factors,
including those discussed in the sections entitled "Risk Factors" and "Caution
Regarding Forward-Looking Information" appearing elsewhere in this annual report
on Form 10-K.
(1) Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America, or GAAP. The preparation of these consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. We have identified certain of these
policies as being of particular importance to the portrayal of our financial
position and results of operations and which require the application of
significant judgment by our management. We analyze our estimates including those
related to marketable securities, accounts receivable, revenue recognition,
14
inventory, and income taxes, and base our estimates on historical experience and
various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements:
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.
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.
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.
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.
15
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.
(2) Results of Operations
Year ended December 31, 2007 as compared to Year ended December 31, 2006
- ------------------------------------------------------------------------
Bar and restaurant sales increased by approximately $167,000 (or +6.6%) in the
year ended December 31, 2007. Bar and restaurant sales were approximately
$2,705,000 for the year ended December 31, 2007 as compared to approximately
$2,538,000 for 2006.
Management is of the opinion that the overall fluctuations in visitor traffic to
the Dallas-Ft. Worth Metroplex and the effects of changes in the economic and
ethnic populations in the immediate geographic area of the Company's physical
location has stabilized. The Company experienced deteriorating revenues during
the fiscal years ended December 31, 2006 and 2005. Given the demographics,
mobility and economic conditions of the City of Dallas and the specific location
of the Million Dollar Saloon, management is unable to predict any future trend
with any degree of certainty.
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 most
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.
Further, due to the Company's agreement with the City of Dallas, Texas, all
operations in the current format at the Million Dollar Saloon will cease on July
31, 2009.
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 to approximately $442,000 for the
year ended December 31, 2007 as compared to approximately $441,000 for Calendar
2006. All of the leases were/are with entities controlled by Duncan Burch, one
of the Company's controlling shareholders.
During Calendar 2004, 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. This property
was sold on February 5, 2008 for net proceeds of approximately $896,000,
resulting in a net gain at the time of sale of approximately $61,000.
Accordingly, management did not and has not provided a loss or impairment of the
recorded carrying value as of the date of the accompanying financial statements.
16
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. This arrangement continues in this fashion
through the date of this filing.
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 slightly by approximately $37,000 from approximately
$1,034,000 for the year ended December 31, 2006 to approximately $1,061,000 for
the year ended December 31, 2007. Gross profit percentages improved to
approximately 66.3% (approximately $2,086,000) for the year ended December 31,
2007 versus 65.3% (approximately $1,946,000) for the year ended December 31,
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 $1,853,000 for the year
ended December 31, 2007 as compared to approximately $1,876,000 for 2006.
Management attention to expenditures of all types caused the Company to
experience a relatively flat expenditure level for overhead expenses.
Management; however, is continually aware of inflationary pressures in the
economy, fluctuating legal expenses as a result of ongoing litigation and the
general nature of a litigious society and issues related to the City of Dallas
Sexually Oriented Business Ordinance. Further, the Company's executive
compensation remains relatively stable and is 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.
The Company experienced net income before income taxes was approximately
$192,000 for the year ended December 31, 2007 versus approximately $65,000 for
Calendar 2006. The increase in income before income taxes is directly
attributable to our increase in gross profit in operating the Million Dollar
Saloon. After-tax net income increased by approximately $19,000 from
approximately $106,000 for the year ended December 31, 2007 as compared to
approximately $87,000 for Calendar 2006. The Company experienced earnings per
share of approximately $0.02 and $0.02 per share for each of the years ended
December 31, 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 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.
(3) Liquidity
As of December 31, 2007 and 2006, the Company has working capital of
approximately $(160,,000) and $(355,000). The Company achieved positive cash
flows from operations of approximately $231,000 for Calendar 2007 as compared to
approximately$180,000 for 2006.
The Company's working capital is directly related to the cash expended and
future debt service requirements to acquire land for future development.
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
17
operating license for the Company's Million Dollar Saloon operation in a
"non-conforming location" through July 31, 2009. This debt was retired from the
proceeds of the sale of land in Calendar 2008.
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 obtained permanent long-term financing from
Citizens National Bank, Waxahachie, Texas, and used the proceeds to pay off in
full the original note payable to the seller. The term loan had an original
balance of $2,000,000 and initially bore interest at 6.5% for the first year and
then adjusts to 1% above the published prime rate. The interest rate adjusts
every 12 months commencing January 29, 2005. The note required initial monthly
principal and interest payments of $17,426. As this is a variable interest rate
note, the payments may change after the 12th payment and every succeeding 12th
payment thereafter. The note matures on January 29, 2019. The note is secured by
the underlying land and the separate personal guaranty of Duncan Burch and Nick
Mehmeti, each a Company officer, director and controlling shareholder.
Our primary source of liquidity is generated from ongoing operations. Our
liquidity beyond July 2009 will be greatly diminished after the closing of the
Million Dollar Saloon.
(4) 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, subject
to zoning and permissible use statutes, 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.
(5) Accounting Pronouncements
The Company knows of no new accounting releases or pronouncements that will have
any impact upon the Company's financial condition or position upon adoption.
Item 7 - Index to Financial Statements
18
The required financial statements begin on page F-1 of this document.
Item 7A - Quantitative and Qualitative Disclosures about Market Risk
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.
Item 8 - Financial Statements and Supplementary Data
The required financial statements begin on page F-1 of this document.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 9A - Controls and Procedures
Disclosure Controls and Procedures. Our management, under the supervision and
with the participation of our Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), has evaluated the effectiveness of our disclosure
controls and procedures as defined in Rules 13a-15 promulgated under the
Exchange Act as of the end of the period covered by this Annual Report. Based on
such evaluation, our CEO and CFO have concluded that, as of the end of the
period covered by this Annual Report, our disclosure controls and procedures are
effective. Disclosure controls and procedures are controls and procedures
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and
include controls and procedures designed to ensure that information we are
required to disclose in such reports is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act.
Internal control over financial reporting is defined under the Exchange Act as a
process designed by, or under the supervision of, our CEO and CFO and effected
by our board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
- -- Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of our assets;
19
- -- Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and
directors; and
- -- Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial statements.
Because of its inherent limitation, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluations of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate. Accordingly, even an effective
system of internal control over financial reporting will provide only reasonable
assurance with respect to financial statement preparation.
Our management, with the participation of our CEO and CFO, evaluated the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2007. In making this assessment, our management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control - Integrated Framework. Based on this evaluation
and those criteria, our management, with the participation of our CEO and CFO,
concluded that, as of December 31, 2007, our internal control over financial
reporting was effective.
This Annual Report does not include an attestation report of our registered
public accounting firm regarding our internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this Annual Report.
Changes in Internal Control over Financial Reporting. There have not been any
changes in our internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f)) that occurred during the quarter ended December 31, 2007
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART III
Item 10 - Directors, Executive Officers and Corporate Governance
The following table sets forth certain information about the directors and
executive officers of the Company. All directors of the Company hold office
until the next annual meeting of shareholders or until their successors have
been elected and qualified. Executive officers of the Company are elected by the
Board of Directors to hold office until the annual meeting of directors
following the annual meeting of shareholders or until their respective
successors are duly elected and qualified or their earlier resignation or
removal.
Name Age Position
------------ ------- --------------------------
Nick Mehmeti 53 President, Chief Executive
Officer, Chief Financial
Officer and Director
Duncan Burch 53 Executive Vice President
and Director
Dewanna Ross 55 Secretary/Treasurer
Nick Mehmeti - Mr.Mehmeti has served as the Company's President, Chief Executive
Officer and a director since January 2000 and as the Company's Chief Financial
Officer since March 2, 2001. Mr. Mehmeti, his affiliates and his affiliated
companies have owned and operated restaurants and adult cabarets in the
Dallas-Fort Worth Metroplex for more than 15 years. Mr. Mehmeti will devote as
much of his time as is necessary to perform his duties as President, Chief
Executive Officer, Chief Financial Officer and a director of the Company.
20
Duncan Burch - Mr. Burch has served as the Company's Executive Vice President
and a director since January 2000. Mr. Burch, his affiliates and his affiliated
companies have owned and operated restaurants and adult cabarets in the
Dallas-Fort Worth Metroplex for at least the past ten years. Mr. Burch will
devote as much of his time as is necessary to perform his duties as an officer
and a director of the Company.
Dewanna Ross - Ms. Ross has served in various positions with the Company since
1995. Ms. Ross served as a director of the Company from 1995 until January 2002.
She served as President and Chief Executive Officer of the Company from July
1999 to January 2000. She served as Vice President of Operations and Chief
Operating Officer of the Company from January 19, 2000 to January 10, 2002. She
currently serves as Secretary-Treasurer of the Company. Ms. Ross is responsible
for the development of the corporate procedures, including the hiring and
training of corporate staff and the day-to-day operations of the Company's
Million Dollar Saloon. Ms. Ross has also served as an officer and operator of a
private club and as an officer of other businesses. Ms. Ross has a Bachelor of
Arts degree from the University of Texas at Dallas.
Board of Directors and Committees
We are managed under the direction of our board of directors. The size of our
board of directors is set at three members, and we currently have three
directors, all of whom are employees of the Company. During the fiscal year
ended December 31, 2007, the Board held only one meeting - its annual meeting.
The Company does not have a standing audit committee, compensation committee or
nominating committee or any other committee. The Company does not have an
independent audit committee financial expert, as defined in Item 407(d)(5). The
Company currently does not pay a director fee for attending scheduled and
special meetings of the Board of Directors. The Company pays expenses of all of
its directors in attending meetings.
Identifying and Evaluating Nominees for Directors
Our board of directors does not have a standing nominating committee. The entire
board of directors participates in the consideration of director nominees. Our
board of directors does not consider it necessary to establish a nominating
committee because our board of directors is relatively small in size and
believes it can operate more effectively in concert. Further, because there has
not been turnover on our board of directors, there has been no need to nominate
new directors. In the event that vacancies are anticipated or otherwise arise,
our board of directors will consider various potential candidates. Our board of
directors anticipates that it would utilize a variety of methods for identifying
and evaluating nominees for director. Candidates may come to the attention of
our board of directors through current board members, professional search firms,
stockholders or other persons. These candidates would be evaluated at regular or
special meetings of our board of directors and may be considered at any point
during the year.
Our board of directors will consider stockholder nominations for director
candidates upon written submission of such recommendation to our corporate
secretary along with, among other things, the nominee's qualifications and
certain biographical information regarding the nominee, such nominee's written
consent to serving as a director if elected and being named in any proxy or
information statement and certain information regarding the status of the
stockholder submitting the recommendation, all in the manner required by our
amended and restated bylaws and the applicable rules and regulations promulgated
under the Securities Exchange Act of 1934, as amended. Following verification of
the stockholder status of persons proposing candidates, recommendations will be
aggregated and considered by our board of directors at a regularly scheduled or
special meeting. If any materials are provided by a stockholder in connection
with the nomination of a director candidate, such materials will be forwarded to
our board of directors.
Communications with the Board
21
Individuals may communicate with the Company's Board of Directors or individual
directors by writing to the Company's Secretary at 6848 Greenville Avenue,
Dallas, Texas 7231. The Secretary will review all such correspondence and
forward to the Board of Directors a summary of all such correspondence and
copies of all correspondence that, in the opinion of the Secretary, relates to
the functions of the Board or committees thereof or that he otherwise determines
requires their attention. Directors may review a log of all such correspondence
received by the Company and request copies. Concerns relating to accounting,
internal control over financial reporting or auditing matters will be
immediately brought to the attention of the Board of Directors and handled in
accordance with its procedures established with respect to such matters.
Code of Ethics
The Company's Board of Directors have adopted a Code of Ethics which applies to
its Chief Executive Officer and Chief Financial Officer has filed as an exhibit
to our Form 10-K in a prior period. A copy of the code of ethics is available in
print without charge to any person who sends a request to the office of the
Secretary of the Company at 6848 Greenville Avenue, Dallas, Texas 75231.
Indemnification of Officers and Directors.
The Company's By-Laws provide for the indemnification of its, directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses incurred by them in any litigation to which they become
a party arising from their association with or activities on behalf of the
Company. The Company will also bear the expenses of such litigation for any of
its directors, officers, employees, or agents, upon such persons promise to
repay the Company therefor if it is ultimately determined that any such person
shall not have been entitled to indemnification. This indemnification policy
could result in substantial expenditures by the Company, which it may be unable
to recoup.
Director Independence and Conflicts of Interest
None of our directors are independent directors under NASDAQ or AMEX general
independence rules and under the independence rules applicable to audit
committees, nominating committees and compensation committees. Non of our
directors are "non-employee directors" as defined by Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended, or "outside directors" as
defined by Section 162(m) of the Internal Revenue Code.
None of the officers of the Company will devote of their respective time to the
affairs of the Company than is deemed necessary by them. Mr. Mehmeti and Mr.
Burch have ownership interests in other business ventures which are in direct
competition with the Company. These business interests present potential
conflicts of interest with those of the Company and its stockholders. There will
be occasions when the time requirements of the Company's business conflict with
the demands of the officers' other business and investment activities. Such
conflicts may require that the Company attempt to employ additional personnel.
There is no assurance that the services of such persons will be available or
that they can be obtained upon terms favorable to the Company.
The Company has adopted a policy under which any consulting or finders fee that
may be paid to a third party for consulting services to assist management in
evaluating a prospective business opportunity would be paid in stock rather than
in cash, if deemed beneficial to the Company. Accordingly, the Company is unable
to predict whether, or in what amount, such stock issuance might be made.
However, through the filing date of this report, no such shares have been issued
pursuant to arrangements of this nature.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Exchange Act requires the Company's directors, executive
officers and persons who own more than ten percent of a registered class of the
Company's equity securities ("10% holders"), to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Directors, officers and 10% holders are required by SEC regulation to furnish
the Company with copies of all of the Section 16(a) reports they file.
22
Based solely on a review of reports furnished to the Company during the fiscal
year ended December 31, 2007 or written representations from the Company's
directors and executive officers, Mr. Mehmeti, Mr. Burch and Ms. Ross failed to
comply with the Section 16(a) filing requirements applicable to its directors,
officers and 10% holders for either year were complied with.
Involvement on Certain Material Legal Proceedings During the Past Five (5) Years
(1) No director, officer, significant employee or consultant has been
convicted in a criminal proceeding, exclusive of traffic violations or is
subject to any pending criminal proceeding.
(2) No bankruptcy petitions have been filed by or against any business or
property of any director, officer, significant employee or consultant of
the Company nor has any bankruptcy petition been filed against a
partnership or business association where these persons were general
partners or executive officers.
(3) No director, officer, significant employee or consultant has been
permanently or temporarily enjoined, barred, suspended or otherwise
limited from involvement in any type of business, securities or banking
activities.
(4) No director, officer or significant employee has been convicted of
violating a federal or state securities or commodities law.
Item 11 - Executive Compensation
The following summary compensation table sets forth the compensation paid or
accrued by the Company to each of the Company's executive officers for services
rendered to the Company during the Company's fiscal years ended December 31,
2007, 2006 and 2005.
Long-Term
Compensation
Annual Compensation Awards Payouts
------------------- ------ -------
Other Restricted Securities All
Salary/ Annual Stock Underlying LTIP Other
Year Bonus Compensation Awards Options/SARs Payouts Compensation
---- ------- ------------ ------ ------------ ------- ------------
Name/Title
- ----------
Nick Mehmeti 2007 $101,550 $-0- $-0- $-0- $-0- $-0-
Chief Executive Officer and 2006 $78,000 $-0- $-0- $-0- $-0- $-0-
Chief Financial Officer 2005 $78,000 $-0- $-0- $-0- $-0- $-0-
Duncan Burch 2007 $101,550 $-0- $-0- $-0- $-0- $-0-
Executive Vice President 2006 $78,000 $-0- $-0- $-0- $-0- $-0-
2005 $78,000 $-0- $-0- $-0- $-0- $-0-
Dewanna Ross 2007 $80,675 $-0- $-0- $-0- $-0- $-0-
Secretary/Treasurer 2006 $80,000 $-0- $-0- $-0- $-0- $-0-
2005 $80,000 $-0- $-0- $-0- $-0- $-0-
Option Grants In Last Fiscal Year
There were no grants of stock options to any officer or director of the Company
during the fiscal year ended December 31, 2007, 2006 and 2005, respectively.
23
Option Exercises And Holdings
The Company does not have a stock option plan. Except as disclosed in "Security
Ownership of Certain Beneficial Owners and Management," no officer, director or
employee of the Company holds any stock options to purchase shares of Common
Stock of the Company.
Committees of the Board of Directors and Director Compensation
There are no audit, compensation or other committees of the Board of Directors
of the Company. The Company currently does not pay a director fee for attending
scheduled and special meetings of the Board of Directors. The Company pays
expenses of all of its directors in attending meetings.
Item 12 - Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth certain information as of the filing date of this
Annual Report relating to the beneficial ownership (as defined by the rules of
the Securities and Exchange Commission) of shares of Common Stock by (I) each
person who owns beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) the President and Chief
Executive Officer of the Company for the year ended December 31, 2004, and (iv)
each named executive officer of the Company, and (v) all executive officers and
directors of the Company as a group.
% of Class
Name and address Number of Shares Beneficially Owned (1)
---------------- ---------------- ------------------
Nick Mehmeti (2) 1,675,787 (3) 29.24%
Duncan Burch (2) 1,675,787 (3) 29.24%
The Irrevocable Equity Trust No. 1
J. M. Tibbals, Trustee (4) 451,558 7.88%
Ronald A. Zlatniski (5) 322,610 5.63%
Dewanna Ross (2) 4,000 0.70%
All Officers and Directors
as a Group 3,355,574 58.54%
(1) Beneficial ownership is determined in accordance with the SEC's rules. In
determining the percent of Common Stock owned by a person (a) the numerator
is the number of shares of Common Stock beneficially owned by the person,
including shares the beneficial ownership of which may be acquired within
60 days upon the exercise of options or warrants or conversion of
convertible securities, and (b) the denominator is the total of (I) the
5,731,778 shares in the aggregate of Common Stock on the filing date of
this Annual Report and (ii) any shares of Common Stock which the person has
the right to acquire within 60 days upon the exercise of options or
warrants or conversion of convertible securities. Neither the numerator nor
the denominator includes shares which may be issued upon the exercise of
any options or warrants or the conversion of any other convertible
securities held by any other person.
(2) Mr. Mehmeti is the President, Chief Executive Officer, Chief Financial
Officer and a director of the Company and Mr. Burch is the Executive Vice
President and a director of the Company. Ms. Ross is the Corporate
Secretary/Treasurer. The mailing address for these individuals is c/o the
Company, 6848 Greenville Ave., Dallas, Texas 75231.
(3) Excludes an expired option to purchase 400,000 shares of the Common Stock
of the Company for $440,000 ($1.10 per share) which was jointly owned by
Messrs. Mehmeti and Burch and could have been exercised in whole or in part
at any time through October 18, 2004 when such option expired.
24
(4) The mailing address for The Irrevocable Equity Trust No. 1 is c/o J.M.
Tibbals, Arter & Hadden, 1717 Main Street, Suite 4100, Dallas, Texas 75201.
(5) The mailing address for Mr. Zlatniski is 1450 Raleigh Road, Suite 300,
Chapel Hill, NC 27517.
Changes in Control
There are currently no arrangements which may result in a change in control of
the Company.
Item 13 - Certain Relationships and Related Transactions, and Director
Independence
The Company provides management support and conducts its business operations
through its wholly-owned operating subsidiaries: Furrh, Inc., Tempo Tamers, Inc.
("Tempo Tamers"), Don, Inc. and Corporation Lex ("Lex"). The Company owns and
operates an adult cabaret in Dallas, Texas and owns and manages two other
commercial properties located in the Dallas-Fort Worth Metroplex.
Tempo Tamers owns and operates an adult cabaret at 6826 Greenville, Avenue in
Dallas, Texas operates under the registered trademark and trade name "Million
Dollar Saloon (R)." The 6826 Greenville Avenue location is, and has been, a
"non-conforming location" under the Dallas Sexually Oriented Business Ordinance
since 1986 due to the fact that 6826 Greenville Avenue is within 1,000 feet of a
residentially zoned property. Various other sexually oriented businesses,
including those owned or controlled by entities owned by Duncan Burch, Executive
Vice President and a director of the Company, and/or Nick Mehmeti, President,
Chief Executive Officer, Chief Financial Officer and a Director of the Company,
were likewise in "non-conforming locations." While many of these locations had
previously been successful in obtaining locational exemptions from the Dallas
Sexually Oriented Business Ordinance so as to allow their continued operation as
sexually oriented businesses, the City of Dallas recently proposed legislation
to eliminate the possibility of a locational exemption. Despite years of
intensive and expensive litigation funded primarily by entities owned by Messrs.
Burch and Mehmeti, the City of Dallas is moving toward closure of all sexually
oriented businesses in "non-conforming locations." Accordingly, the Company,
through Tempo Tamers, and other similarly situated operators of sexually
oriented businesses entered into settlement negotiations with the City of
Dallas. During those negotiations, it became the view of the Company and
operators of other sexually oriented businesses in "non-conforming locations"
that the City would allow one such sexually oriented business to remain in
business in a "non-conforming location" for a limited period of time, if all of
the other sexually oriented businesses operating in "non-conforming locations"
ceased operations.
In October, 2002, entities controlled by Mr. Burch entered into a settlement
agreement with the City of Dallas which provides for the closure of the sexually
oriented business known as Chicas Locas, which is operated by an affiliate of
Mr. Burch, and Baby Dolls Saloon which is also operated by an affiliate of Mr.
Burch. Chicas Locas was the tenant of the Company's property located at 3021 W.
Northwest Highway in Dallas, Texas. Nick Mehmeti, the Company and its
subsidiary, Corporation Lex, the record owner of the 3021 W. Northwest Highway,
signed the settlement agreement for limited purposes. In accordance with the
settlement agreement and an agreement reached between Corporation Lex and Chicas
Locas, Chicas Locas agreed to terminate the lease and the Company agreed not to
allow the operation of an adult cabaret business at its 3021 W. Northwest
Highway property after July 31, 2003. Chicas Locas ended its month-to-month
lease arrangements with the Company regarding the 3021 W. Northwest Highway
property and vacated the premises effective July 31, 2003. During 2002, the
Company received $52,000 in lease payments for this property from Chicas Locas.
Chicas Locas owed approximately $69,000 at December 31, 2002 and $137,000 at
July 31, 2003 on the lease for accrued, unpaid rent for this property. Pursuant
to their agreement, Corporation Lex agreed to forego the accrued, unpaid rent
from the 3021 W. Northwest Highway property. The Company sold this property in
February 2008.
Thereafter, negotiations began between Mainstage, Inc. d/b/a P.T.'s
("Mainstage"), an entity controlled by Nick Mehmeti which operated a
non-conforming adult cabaret called P.T.'s, Allen-Burch, Inc. ("Allen Burch"),
an entity controlled by Duncan Burch operating a non-conforming adult cabaret
known as The Fare, and Tempo Tamers regarding which of these non-conforming
entities would negotiate with the City of Dallas to become the sexually oriented
business to continue operating in a "non-conforming location." Pursuant to a
settlement agreement entered into in May 2003, Tempo Tamers, Mainstage, and
Allen Burch, Tempo Tamers was granted the exclusive right to negotiate with the
City of Dallas to continue to operate the Million Dollar Saloon as a sexually
25
oriented business in a "non-conforming location." The settlement agreement
provided that, in the event that the city 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 to each of
P.T.'s and Allen Burch, and they would each discontinue the operation of
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 until July 2009. Mainstage and Allen Burch agreed to discontinue
operations of P.T.'s and The Fare, respectively, as sexually oriented business
in January and March, 2004.
To reiterate, 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.
On February 14, 2003, the Company purchased 6.695 acres of undeveloped property
located in Dallas, Texas. Although the Company has not yet determined the
ultimate usage of the land, the Company knows that it will be necessary to
relocate the Million Dollar Saloon in 2009 if the facility is to remain in
business. The Company may elect to use a portion of this new land to relocate
the Million Dollar Saloon, subject to zoning and permit restrictions, and/or
sell or lease any remaining properties to third parties.
Item 14 - Principal Accountant Fees and Services
The Company paid or accrued the following fees in each of the prior two fiscal
years to it's principal accountant, Blanchfield, Kober & Company, PC of
Hauppauge, NY:
Year ended Year ended
December 31, December 31,
2007 2006
------- -------
Audit fees $34,618 $ 9,112
Audit-related fees -- --
Tax fees -- --
All other fees -- --
------- -------
Totals $34,618 $ 9,112
======= =======
The Company has no formal audit committee. However, the entire Board of
Directors (Board) is the Company's defacto audit committee. In discharging its
oversight responsibility as to the audit process, the Board obtained from the
independent auditors a formal written statement describing all relationships
between the auditors and the Company that might bear on the auditors'
independence as required by the appropriate Professional Standards issued by the
Public Company Accounting Oversight Board, the U. S. Securities and Exchange
Commission and/or the American Institute of Certified Public Accountants. The
Board discussed with the auditors any relationships that may impact their
objectivity and independence, including fees for non-audit services, and
satisfied itself as to the auditors' independence. The Board also discussed with
management, the internal auditors and the independent auditors the quality and
adequacy of the Company's internal controls.
The Board discussed and reviewed with the independent auditors all matters
required to be discussed by auditing standards generally accepted in the United
States of America.
The Board reviewed the audited consolidated financial statements of the Company
as of and for the year ended December 31, 2007 and 2006, with management and the
independent auditors. Management has the sole ultimate responsibility for the
preparation of the Company's financial statements and the independent auditors
have the responsibility for their examination of those statements.
26
Based on the above-mentioned review and discussions with the independent
auditors and management, the Board of Directors approved the Company's audited
consolidated financial statements and recommended that they be included in its
Annual Report on Form 10-K for the year ended December 31, 2007, for filing with
the Securities and Exchange Commission.
The Company's principal accountant, Blanchfield, Kober & Company, P. C., did not
engage any other persons or firms other than the principal accountant's
full-time, permanent employees.
Item 15 - Exhibits, Financial Statement Schedules
Exhibits
2.1 Stock Purchase Agreement dated August 23, 1995 by and between Art Beroff
and Bjorn Heyerdahl (*)
2.2 Stock Purchase Agreement dated August 23, 1995 by and between Joseph
MacDonald, Goodheart Ventures, Inc., and Bjorn Heyerdahl. (*)
2.3 Stock Purchase Agreement dated September 7, 1995 by and among Million
Dollar Saloon, Inc., Goodheart Ventures, Inc., and certain individuals. (*)
2.4 Addendum and Modification to Stock Purchase Agreement dated September 19,
1995, by and among Million Dollar Saloon, Inc., Goodheart Ventures, Inc.,
and certain individuals. (*)
2.5 Stock Exchange Agreement dated September 7, 1995 by and among Million
Dollar Saloon, Inc., Goodheart Ventures, Inc., and J.M. Tibbals, Trustee
for Irrevocable Equity Trust No. 1. (*)
2.6 Addendum and Modification to Stock Exchange Agreement dated September 19,
1995, by and among Million Dollar Saloon, Inc., Goodheart Ventures, Inc.,
and J.M. Tibbals, Trustee for Irrevocable Equity Trust No. 1. (*)
2.7 Agreement and Plan of Merger dated October 5, 1995 by and between Million
Dollar Saloon, Inc., a Texas corporation, and Goodheart Ventures, Inc., a
Nevada corporation. (*)
2.8 Addendum and Modification to Stock Purchase Agreement made and entered into
the 7th day of September 1995 by and among Million Dollar Saloon, Inc.,
Goodheart Ventures, Inc., and certain individuals dated October 31, 1995.
(**)
3(I) Articles of Incorporation of The Company, as amended to date. (*)
3(ii) Bylaws of the Company. (*)
3(iii) Amended and Restated Bylaws of the Company effective July 9, 1999 (**)
4.1 Specimen Common Stock Certificate. (*)
10.1 Leases of Properties. (*)
10.2 Promissory Note for $750,000 with Abrams Centre National Bank dated
September 22, 1995. (*)
10.3 Modification of Lease Agreement dated January 31, 2001 between Corporation
Lex and MD II Entertainment, Inc. (***)
10.4 Promissory Note dated February 14, 2003 (the "Note") in the principal
amount of $2,156,713.50 payable by the Company to One Stemmons Land Limited
Partnership with interest at 8% per annum, interest payable monthly, with a
single principal payment due and payable on February 1, 2004. (+)
10.5 Deed of Trust, dated February 14, 2003, signed by the Company granting a
security interest in 6.6 acres of undeveloped real estate in Dallas, Texas
to secure payment of the Note. (+)
10.6 Special Warranty Deed with Vendor's Lien dated February 14, 2002 relating
to 6.6 acres of real estate located in Dallas, Texas. (+)
10.7 Promissory Note, dated January 29, 2004, in the principal amount of
$2,000,000 payable by the Company to Citizens National Bank in Waxahachie,
Texas. (o)
10.8 Deed of Trust, dated January 29, 2004, signed by the Company granting a
security interest in 6.6 acres of undeveloped real estate in Dallas, Texas,
to secure payment of the note payable to Citizens National Bank in
Waxahachie, Texas (o)
14.1 Code of Ethics (z)
21.1 Subsidiaries of the Company. (*)
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 - Chief
Executive and Financial Officer.
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002 - Chief
Executive and Financial Officer.
27
- --------------
* Incorporated by reference to the Company's Form 10-SB filed December 26,
1995.
** Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1999.
*** Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2001.
+ Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2002.
o Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2003.
z Incorporated by reference to the Company's Annual report on Form 10-KSB for
the fiscal year ended December 31, 2004.
(Remainder of this page left blank intentionally)
(Financial statements follow on the next page, beginning F-1)
28
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Registered Independent Public Accounting Firm F-2
Consolidated Financial Statements
Consolidated Balance Sheets
as of December 31, 2007 and 2006 F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the years ended December 31, 2007 and 2006 F-5
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2007 and 2006 F-7
Consolidated Statements of Cash Flows
for the years ended December 31, 2007 and 2006 F-8
Notes to Consolidated Financial Statements F-10
F-1
Letterhead of Blanchfield, Meyer, Kober & Rizzo, LLP
REPORT OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Million Dollar Saloon, Inc.
We have audited the consolidated balance sheets of Million Dollar Saloon, Inc.
and Subsidiaries (a Nevada corporation and Texas corporations, respectively) as
of December 31, 2007 and 2006 and the related consolidated statements of income
and comprehensive income, changes in shareholders' equity, and cash flows for
each of the years ended December 31, 2007 and 2006, respectively. These
consolidated financial statements are the responsibility of Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Million
Dollar Saloon, Inc. and Subsidiaries as of December 31, 2007 and 2006 and the
results of its operations and its cash flows for each of the years ended
December 31, 2007 and 2006, respectively, in conformity with generally accepted
accounting principles generally accepted in the United States of America.
/s/ Blanchfield, Meyer, Kober & Rizzo, LLP
-------------------------------------
BLANCHFIELD, MEYER, KOBER & RIZZO, LLP
Hauppauge, New York
December 28, 2008 (except for Note Q
as to which the date is January 10, 2010)
F-2
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
December 31, December 31,
2007 2006
----------- -----------
ASSETS
Current Assets
Cash on hand and in bank $ 1,211,293 $ 1,010,743
Marketable securities -- 54,129
Accounts receivable - trade and other -- 8,500
Prepaid Federal income taxes receivable -- 120,423
Inventory 62,840 37,962
Prepaid expenses 10,040 163
----------- -----------
Total current assets 1,284,173 1,231,920
----------- -----------
Property and Equipment - At Cost
Buildings and related improvements 1,526,424 1,526,424
Furniture and equipment 466,070 464,880
----------- -----------
1,992,494 1,991,304
Less accumulated depreciation (1,625,313) (1,534,507)
----------- -----------
367,181 456,797
Land 210,000 210,000
----------- -----------
Net property and equipment 577,181 666,797
----------- -----------
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 $712,055
and $530,195, respectively 287,945 469,805
Loan costs, net of accumulated amortization
of approximately $2,687 and $2,001, respectively 7,602 8,288
Security deposits and other 1,725 1,725
----------- -----------
Total other assets 3,829,748 4,012,294
----------- -----------
Total Assets $ 5,691,102 $ 5,911,011
=========== ===========
- Continued -
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31, 2007 and 2006
December 31, December 31,
2007 2006
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current maturities of long-term mortgage note payable $ 103,203 $ 96,931
Current maturities of long-term lawsuit settlement payable 152,037 70,550
Accounts payable - trade 43,095 48,778
Accrued liabilities 90,475 77,653
Federal income taxes payable 55,000 --
Contract payable to affiliated entities 1,000,000 1,000 000
Accrued interest payable to affiliated entities -- 293,333
---------- ----------
Total current liabilities 1,443,810 1,587,245
---------- ----------
Long-Term Liabilities
Long-term mortgage note payable, net of current maturities 1,569,327 1,659,025
Long-term lawsuit settlement payable 87,734 154,770
Deferred tax liability 198,173 223,959
---------- ----------
Total liabilities 3,299,044 3,624,999
---------- ----------
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 2,386,326 2,280,280
---------- ----------
Total shareholders' equity 2,392,058 2,286,012
---------- ----------
Total Liabilities and Shareholders' Equity $5,691,102 $5,911,011
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years ended December 31, 2007 and 2006
Year ended Year ended
December 31, December 31,
2007 2006
----------- -----------
Revenues
Bar and restaurant sales $ 2,705,283 $ 2,538,469
Rental income from related parties 442,000 441,431
----------- -----------
Total revenues 3,147,283 2,979,900
----------- -----------
Cost of Sales - Bar and Restaurant Operations
Direct labor 549,257 530,545
Purchases 511,565 503,582
----------- -----------
Total cost of sales 1,060,822 1,024,127
----------- -----------
Gross Profit 2,086,461 1,945,773
----------- -----------
Operating Expenses
Salaries, wages and related expenses 507,446 457,496
Consulting, legal and other professional fees 153,765 260,620
Rental expenses, principally taxes 70,484 113,610
Interest expense 257,511 244,452
Other operating expenses 591,197 529,181
Depreciation and amortization 272,666 270,656
----------- -----------
Total operating expenses 1,853,069 1,876,015
----------- -----------
Income (Loss) from Operations 233,392 69,758
Other Income (Expenses)
Interest income and other 42,832 25,734
Lawsuit settlement (100,000) (30,000)
Gain on sale of land easement 16,007 --
Unrealized loss on marketable securities -- (106)
----------- -----------
Income before Income Taxes 192,231 65,386
Provision for Income Taxes
Currently (payable) refundable (111,973) 2,040
Deferred (expense) benefit 788 19,658
----------- -----------
Net Income 106,046 87,084
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
Other Comprehensive Income -- --
----------- -----------
Comprehensive Income $ 106,046 $ 87,084
=========== ===========
Earnings per share of common stock
outstanding, computed on net income
basic and fully diluted $ 0.02 $ 0.02
=========== ===========
Weighted-average number of shares outstanding 5,731,778 5,731,778
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2007 and 2006
Common Stock Retained
------------ shareholders' Total
# shares Amount equity earnings
---------- ---------- ---------- ----------
Balances at January 1, 2006 5,731,778 $ 5,732 $2,193,196 $2,198,928
Net loss for the year -- -- 87,084 87,084
---------- ---------- ---------- ----------
Balances at December 31, 2006 5,731,778 5,732 2,280,280 2,286,012
Net loss for the year -- -- 106,046 106,046
---------- ---------- ---------- ----------
Balances at December 31, 2007 5,731,778 $ 5,732 $2,386,326 $2,392,058
========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2007 and 2006
Year ended ear ended
December 31, December 31,
2007 2006
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 106,046 $ 87,084
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 273,354 271,342
Unrealized loss on marketable securities -- 106
Deferred income taxes (25,788) (19,658)
(Increase) decrease in
Accounts receivable - trade 8,500 --
Federal income taxes receivable 120,423 (111,798)
Inventory (24,878) (12,577)
Prepaid expenses and other (9,877) 783
Increase (decrease) in
Accounts payable and other accrued liabilities 7,139 6,438
Lawsuit settlement payable 14,451 (122,027)
Income taxes payable 55,000 --
Accrued interest payable to affiliated entities (293,333) 80,000
----------- -----------
Net cash provided by operating activities 231,037 179,693
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received from sale of marketable securities 54,129 (2,841)
Purchases of property and equipment (1,190) (13,787)
----------- -----------
Net cash provided by (used in) investing activities 52,939 (16,628)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal paid on long-term mortgage note payable (83,426) (82,499)
----------- -----------
Net cash used in financing activities (83,426) (82,499)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 200,550 80,566
Cash and cash equivalents at beginning of year 1,010,743 930,177
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,211,293 $ 1,010,743
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
SUPPLEMENTAL DISCLOSURES OF
INTEREST AND INCOME TAXES PAID
Interest paid $ 550,158 $ 163,766
=========== ===========
Income taxes paid (refunded) $ (63,450) $ 109,758
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING AND FINANCING ACTIVITIES None None
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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
These financial statements reflect the books and records of Million Dollar
Saloon, Inc., Furrh, Inc., Tempo Tamers, Inc., Corporation Lex and Don, Inc. for
the years ended December 31, 2007 and 2006, respectively. All significant
intercompany transactions have been eliminated in combination. The consolidated
entities are referred to as Company.
(Remainder of this page left blank intentionally)
F-10
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
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.
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.
F-11
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
NOTE C - Summary of Significant Accounting Policies - Continued
3. Accounts Receivable and Revenue Recognition - continued
-------------------------------------------------------
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 December 31, 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.
8. Pending and/or New Accounting Pronouncements
--------------------------------------------
The Company is of the opinion that any pending accounting pronouncements,
either in the adoption phase or not yet required to be adopted, will not
have a significant impact on the Company's financial position or results of
operations.
F-12
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 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 October 2002, Duncan Burch, Nick Mehmeti (officers and directors of the
Company) and certain of their affiliated businesses (the "Clubs") entered into a
Compromise Settlement Agreement and Mutual Releases (the "Settlement Agreement")
with the City of Dallas to settle pending litigation, claims and disputes
between the parties arising out of the operation of the Clubs in alleged
violation of the Dallas City Code, including the Sexually Oriented Business
Ordinance. The Settlement Agreement did not involve the Company's Million Dollar
Saloon nor did the Settlement Agreement affect the operation of the Million
Dollar Saloon.
However, the Settlement Agreement did affect the usage of the Company's property
owned by Corporation Lex, which was subject to a month-to-month basis. In
accordance with the Settlement Agreement, lessee agreed to terminate the
operation of the adult cabaret business at the Corporation Lex property by July
31, 2003. The entity controlled by Duncan Burch concurrently tendered notice to
the Company that the associated lease would be terminated on July 31, 2003 as a
result of this action.
The Company and its subsidiary, Corporation Lex, signed the Settlement Agreement
for a limited purpose. The Company and Corporation Lex are not bound by the
terms of the Settlement Agreement except that Corporation Lex has agreed it will
not allow the Clubs to use the property, as or in support of, a sexually
oriented business, dance hall, business featuring exotic striptease, business
featuring scantily clad employees, individuals or performers, any business
featuring individuals, employees, licensees, or independent contractors
displaying specified anatomical areas or engaging in specified sexual
activities, or operation by the Clubs of a business in any other manner
circumventing or frustrating, or intending to circumvent or frustrate the intent
of Chapter 41A and 51A of the Dallas City Code. The Company and/or Corporation
Lex may lease the premises for any other lawful purpose.
The property 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. This lease has converted to a month-to-month
basis.
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.
F-13
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
NOTE D - Related Party Transactions - Continued
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. As of December 31, 2007, the
$1,000,000 aggregate payable has been accrued in the accompanying financial
statements and all accrued interest payable was paid in full on December 31,
2007.
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.
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 $250,000 per account type per separate legal
entity per financial institution. During the years ended December 31, 2007 and
2006, 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 2007 and 2006, and
subsequent thereto, as a result of any of these unsecured situations.
NOTE G - Marketable Securities
Marketable securities as of December 31, 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
------- -------- --------
December 31, 2007
- -----------------
Aggregate fair value $ - $ - $ -
Gross unrealized holding gain $ - $ - $ -
Gross unrealized holding losses $ - $ - $ -
Amortized cost basis $ - $ - $ -
F-14
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
NOTE G - Marketable Securities - Continued
Available Held to
Trading for sale Maturity
------- -------- --------
December 31, 2006
- -----------------
Aggregate fair value $51,394 $ - $ -
Gross unrealized holding gains $ 151 $ - $ -
Gross unrealized holding losses $ - $ - $ -
Amortized cost basis $51,243 $ - $ -
The net unrealized holding gains or (losses) on trading securities which have
been included in the statement of operations were approximately $-0- and $(106)
for the each of the respective years ended December 31, 2007 and 2006,
respectively.
NOTE H - Property and Equipment
Property and equipment consists of the following at December 31, 2007 and 2006:
December 31, December 31,
2007 2006 Estimated life
----------- ----------- --------------
Buildings and related improvements $ 1,526,424 $ 1,526,424 15-40 years
Furniture and equipment 466,070 464,880 5-10 years
----------- -----------
1992,494 1,991,304
Less accumulated depreciation (1,625,313) (1,534,507)
----------- -----------
367,181 456,797
Land 210,000 210,000
----------- -----------
Net property and equipment $ 577,181 $ 666,797
=========== ===========
Depreciation expense for the years ended December 31, 2007 and 2006 was
approximately $90,806 and $88,796, respectively.
NOTE I - Land Held for Future Development
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. 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. The payment of the note
is secured with a lien against the property granted to the note holder by the
Company. The interest on the note is payable monthly (approximately $14,678 per
month) beginning April 1, 2003 with the principal amount due and payable on
February 1, 2004. This debt was refinanced on January 29, 2004 and paid in full.
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.
F-15
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
NOTE I - Land Held for Future Development - Continued
Long-term Mortgage Note Payable
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.
As of December 31, 2007 and 2006, respectively, the Company owed approximately
$1,672,530 and $1,755,956 on the long-term mortgage note payable.
Future maturities of the long-term mortgage note payable are as follows:
Year ending Principal
December 31 due
----------- -----------
2008 $ 103,203
2009 111,918
2010 119,212
2011 126,227
2012-2016 773,083
2017-2019 438,887
----------
Total $1,672,530
==========
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 December 31, 2004, 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
$61,000.
F-16
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
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, 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.
During each of the years ended December 31, 2007 and 2006, the Company paid
approximately $293,000 and $-0- in accrued interest payable on this Agreement.
NOTE L - Income Taxes
The components of income tax expense (benefit) for the years ended December 31,
2007 and 2006, respectively, are as follows:
Year ended Year ended
December 31, December 31,
2007 2006
--------- ---------
Federal:
Current $ 111,973 $ (2,040)
Deferred (25,788) (19,658)
--------- ---------
86,185 (21,698)
--------- ---------
State:
Current -- --
Deferred -- --
--------- ---------
-- --
--------- ---------
Total $ 86,185 $ (21,698)
========= =========
F-17
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
NOTE L - Income Taxes - Continued
The Company's income tax expense (benefit) for the years ended December 31, 2006
and 2005, respectively, differed from the statutory federal rate of 34 percent
as follows:
Year ended Year ended
December 31, December 31,
2007 2006
-------- --------
Statutory rate applied to earnings before income taxes $ 65,400 $ 22,200
Increase (decrease) in income taxes resulting from:
State income taxes -- --
Deferred income taxes (25,788) (19,658)
Effect of incremental tax brackets and the
application of business tax credits 46,573 (24,240)
-------- --------
Income tax expense $ 86,185 $(21,698)
======== ========
The deferred current tax asset and non-current deferred tax liability on
December 31, 2007 and 2006, respectively, balance sheet consists of the
following:
Year ended Year ended
December 31, December 31,
2007 2006
-------- --------
Non-current deferred tax liability $(198,173) $(154,770)
========= =========
The non-current deferred tax liability results from the usage of statutory
accelerated tax depreciation and amortization methods.
NOTE M - 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 for normal maintenance and repairs, insurance and other direct operating
expenses related to the property.
NOTE N - 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."
F-18
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
NOTE N - Litigation - Continued
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. The Plaintiff further asserted to have no or
diminished capacity to continue his 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.
F-19
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 "John 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.
F-20
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
NOTE N - Litigation - Continued
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.
NOTE O - Segment Information
The Company operates with a centralized management structure and has two
identifiable operating segments: an adult entertainment lounge and restaurant
located in Dallas, Texas and commercial rental real estate located in Dallas and
Tarrant Counties, Texas. All revenues are generated operations in these
geographic areas. As of December 31, 2007 and 2006, respectively, all rental
revenues are derived from entities controlled by Duncan Burch, an officer,
director and controlling shareholder. Approximately 14.0% and 14.8% of total
revenues for 2007 and 2006, respectively, were derived from these related
parties.
F-21
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
NOTE O - Segment Information - Continued
A summary of the Company's operating segments is as follows:
Restaurant Rental General and
facility real estate administrative Total
-------- ----------- -------------- -----
Year ended December 31, 2007
- ----------------------------
Revenue from external customers $ 2,705,283 $ -- $ -- $ 2,705,283
Revenue from related parties -- 442,000 -- 442,000
Revenue (expenses) from/to
intercompany sources -- -- -- --
Interest income 6,277 35,699 856 42,832
Interest expense 19,450 -- 238,061 257,511
Depreciation and amortization 86,463 4,343 181,860 272,666
Income tax expense (benefit) 49,800 180,300 (143,915) 86,185
Segment assets 310,926 2,340,677 3,039,499 5,691,102
Fixed asset expenditures 1,190 -- -- 1,190
Year ended December 31, 2006
- ----------------------------
Revenue from external customers $ 2,538,469 $ -- $ -- $ 2,538,469
Revenue from related parties -- 441,431 -- 441,431
Revenue (expenses) from/to
intercompany sources (65,000) (145,000) 210,000 --
Interest income -- 15,061 10,673 25,734
Interest expense 17,974 -- 226,478 244,452
Depreciation and amortization 265,627 4,343 686 270,656
Income tax expense (benefit) (3,569) 94,174 (112,303) (21,698)
Segment assets 371,645 1,634,591 3,904,775 5,911,011
Fixed asset expenditures 13,787 -- -- 13,787
NOTE P- Selected Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2007 and 2006, respectively.
Quarter ended Quarter ended Quarter ended Quarter ended Year ended
March 31, June 30, September 30, December 31, December 31,
--------- -------- ------------- ------------ ------------
Calendar 2007
- -------------
Restaurant sales $ 710,237 $ 772,413 $ 772,021 $ 450,612 $ 2,705,283
Rental income -
Related party $ 110,500 $ 119,000 $ 102,000 $ 110,500 $ 442,000
Gross profit $ 556,122 $ 504,177 $ 540,983 $ 485,179 $ 2,086,461
Net earnings after
provision for
income taxes $ 86,913 $ 73,702 $ 63,854 $ (118,423) $ 106,046
Basic and fully diluted
earnings per share $ 0.02 $ 0.01 $ 0.01 $ (0.02) $ 0.02
Weighted average
number of shares
issued and outstanding 5,731,788 5,731,788 5,731,788 5,731,788 5,731,788
F-22
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2007 and 2006
NOTE P- Selected Financial Data (Unaudited)
Quarter ended Quarter ended Quarter ended Quarter ended Year ended
March 31, June 30, September 30, December 31, December 31,
--------- -------- ------------- ------------ ------------
Calendar 2006
- -------------
Restaurant sales $ 757,137 $ 661,590 $ 736,497 $ 383,245 $ 2,538,469
Rental income -
Related party $ 102,000 $ 118,431 $ 119,000 $ 102,000 $ 441,431
Gross profit $ 529,100 $ 428,065 $ 553,839 $ 434,759 $ 1,945,773
Net earnings after
provision for
income taxes $ 103,022 $ (43,780) $ 22,304 $ 5,538 $ 65,386
Basic and fully diluted
earnings per share $ 0.02 $ (0.01) $ 0.00 $ 0.00 $ 0.01
Weighted average
number of shares
issued and outstanding 5,731,788 5,731,788 5,731,788 5,731,788 5,731,788
NOTE Q - Subsequent Events
On July 31, 2009, in accordance with an agreement with the City of Dallas, the
Company ceased all operations associated with the Million Dollar Saloon and
Tempo Tamers, Inc.
Management has evaluated all activity of the Company through January 13, 2010
(the issue date of the financial statements) and concluded that no subsequent
events, other than disclosed above, have occurred that would require recognition
in the financial statements or disclosure in the notes to financial statements.
(Remainder of this page left blank intentionally)
(Signatures follow on next page)
F-23
SIGNATURES
In accord with Section 13 or 15(d) of the Securities Act of 1933, as amended,
the Company caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
Million Dollar Saloon, Inc.
Dated: January 14, 2010 By: /s/ Nick Mehmeti
---------------- -----------------------------
Nick Mehmeti
Chairman, Chief Executive Officer,
Chief Financial Officer and Director
In accordance with the Securities Exchange Act of 1934, as amended, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date as indicated.
Dated: January 14, 2010 By: /s/ Nick Mehmeti
---------------- -----------------------------
Nick Mehmeti
Chairman, Chief Executive Officer,
Chief Financial Officer and Director
Dated: January 14, 2010 By: /s/ Duncan Burch
---------------- ----------------------------
Duncan Burch
Executive Vice President
and Director
Dated: January 14, 2010 By: /s/ Dewanna Ross
---------------- ---------------------------
Dewanna Ross
Secretary and Treasurer
51