UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
- --------------------------------------------------------------------------------
(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --------
ACT OF 1934
For the quarterly period ended March 31, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
- --------------------------------------------------------------------------------
Commission File Number: 0-27006
MILLION DOLLAR SALOON, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 13-3428657
(State of incorporation) (IRS Employer ID Number)
6848 Greenville Avenue, Dallas, TX 75231
(Address of principal executive offices)
(214) 691-6757
(Issuer's telephone number)
- --------------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: April 30, 1998: 6,144,451
Transitional Small Business Disclosure Format (check one): YES NO X
MILLION DOLLAR SALOON, INC.
Form 10-QSB for the Quarter ended March 31, 1998
Table of Contents
Page
----
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 11
Part II - Other Information
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
2
Part 1 - Item 1 - Financial Statements
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
ASSETS
(Unaudited) (Audited)
March 31, December 31,
1998 1997
----------- -----------
CURRENT ASSETS
Cash on hand and in bank $ 785,680 $ 149,952
Note receivable - current portion 22,604 22,604
Prepaid income taxes receivable 4,248 37,248
Inventory 13,339 16,097
Prepaid expenses 81,782 73,544
----------- -----------
Total current assets 907,653 299,445
----------- -----------
PROPERTY AND EQUIPMENT
Buildings and related improvements 1,955,132 1,955,132
Furniture and equipment 757,110 757,110
Vehicles 52,728 52,728
----------- -----------
2,764,970 2,764,970
Less accumulated depreciation (1,497,934) (1,475,570)
----------- -----------
1,267,036 1,289,400
Land 741,488 741,488
----------- -----------
Net property and equipment 2,008,524 2,030,888
----------- -----------
OTHER ASSETS
Note receivable - noncurrent portion 99,995 105,442
Accounts receivable from officers, shareholders and affiliates 815,824 805,684
Organization costs, net of accumulated amortization
of $38,406 and $34,658, respectively 36,522 40,270
Loan costs, net of accumulated amortization of
$15,804 and $14,222 respectively 15,803 17,384
Other 7,725 7,725
----------- -----------
Total other assets 975,869 976,505
----------- -----------
TOTAL ASSETS $ 3,892,046 $ 3,306,838
=========== ===========
- Continued -
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
3
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
March 31, 1998 and December 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)(Audited)
March 31, December 31,
1998 1997
----------- -----------
CURRENT LIABILITIES
Current portion of long-term debt $ 163,288 $ 163,288
Accounts payable - trade 24,393 22,571
Accrued liabilities 46,200 35,622
Dividends payable 61,445 54,095
Tenant deposits 7,510 6,500
---------- ----------
Total current liabilities 302,836 282,076
---------- ----------
LONG-TERM LIABILITIES
Long-term debt, net of current maturities 295,631 334,872
Deferred tax liability 98,936 98,936
---------- ----------
Total liabilities 697,403 715,884
---------- ----------
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. 6,144,451 and 5,409,451 issued
and outstanding, respectively 6,144 5,409
Additional paid-in capital 598,965 --
Retained earnings 2,461,976 2,585,545
---------- ----------
Total shareholders' equity 3,194,643 2,590,954
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,892,046 $3,306,838
========== ==========
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
4
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
----------- -----------
REVENUES
Bar and restaurant sales $ 829,942 $ 841,070
Rental income 125,422 110,805
----------- -----------
Total revenues 955,364 951,875
----------- -----------
COST OF SALES - BAR AND
RESTAURANT OPERATIONS 464,553 473,558
----------- -----------
GROSS PROFIT 490,811 478,317
----------- -----------
OPERATING EXPENSES
General and administrative expenses 366,187 257,130
Interest expense 13,202 17,291
Depreciation and amortization 27,691 29,452
----------- -----------
Total operating expenses 407,080 303,873
----------- -----------
INCOME FROM OPERATIONS 83,731 174,444
OTHER INCOME (EXPENSES)
Interest and other miscellaneous 13,048 9,566
Gain on sale of fixed assets -- 48,499
----------- -----------
INCOME BEFORE
INCOME TAXES 96,779 232,509
INCOME TAX (EXPENSE) BENEFIT
Currently payable (33,000) (54,000)
Deferred -- --
----------- -----------
NET INCOME $ 63,779 $ 178,509
=========== ===========
Earnings per share of
common stock outstanding $ 0.01 $ 0.04
=========== ===========
Weighted-average number
of shares outstanding 5,515,618 5,010,084
=========== ===========
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
5
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 63,779 $ 178,509
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 27,691 29,452
Gain on sale of fixed assets -- (48,499)
Common stock issued for consulting fees 69,700 --
Interest income from shareholders capitalized as principal (10,140) (10,683)
(Increase) decrease in
Federal income taxes receivable 33,000 --
Inventory 2,758 (556)
Prepaid expenses (8,238) (23,517)
Deferred tax asset and other -- --
Increase (decrease) in
Accounts payable and other accrued liabilities 12,402 (26,369)
Tenant deposits 1,010 --
Income taxes payable -- 54,000
--------- ---------
Net cash provided by operating activities 191,962 152,337
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collections on note receivable 5,447 3,386
Net proceeds from sale of fixed assets -- 149,374
Purchases of property and equipment -- (1,081)
--------- ---------
Net cash used in investing activities 5,447 151,679
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Private placement of common stock 530,000 --
Principal payments on long-term notes payable (39,241) (60,057)
Funds advanced to affiliated and shareholders - net -- --
Dividends paid (52,440) (150,301)
--------- ---------
Net cash used in financing activities 439,319 (210,358)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 635,728 93,658
Cash and cash equivalents at beginning of period 149,952 267,856
--------- ---------
Cash and cash equivalents at end of period $ 785,680 $ 361,514
========= =========
- Continued -
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
6
MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
------- --------
SUPPLEMENTAL DISCLOSURES OF
INTEREST AND INCOME TAXES PAID
Interest paid during the period $13,202 $ 17,291
======= ========
Income taxes paid (refunded) $ -- $ --
======= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Declaration of first quarter
dividend at $0.01 and $0.04
per share, respectively $61,445 $200,401
======= ========
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
7
MILLION DOLLAR SALOON, INC.
Notes to Financial Statements
Note 1 - Basis of Presentation
Million Dollar Saloon, Inc. (Company) was incorporated under the laws of the
State of Nevada on September 28, 1987. These financial statements reflect the
books and records of Million Dollar Saloon, Inc. (Nevada), Million Dollar
Saloon, Inc. (Texas), Furrh, Inc., Tempo Tamers, Inc., Corporation Lex and Don,
Inc. for the periods ended March 31, 1998 and 1997, respectively. All
significant intercompany transactions have been eliminated in combination. The
consolidated entities are referred to as Company.
During interim periods, the Company follows the accounting policies set forth in
its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the Securities and Exchange Commission. The
December 31, 1997 balance sheet data was derived from audited financial
statements of the Company, but does not include all disclosures required by
generally accepted accounting principles. Users of financial information
provided for interim periods should refer to the annual financial information
and footnotes contained in its Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 on Form 10-KSB when reviewing the interim
financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending December 31, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Note 2 - Summary of Significant Accounting Policies
a) Accounting principles adopted and pending adoption
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
(SFAS130) which established standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS130 was effective for periods beginning after December 15,
1997. The Company does not have any items which would be required to be
presented in this separate statement and experienced no material impact from
this change in presentation of its consolidated financial statements.
8
MILLION DOLLAR SALOON, INC.
Notes to Financial Statements - Continued
Note 2 - Summary of Significant Accounting Policies - Continued
a) Accounting principles adopted and pending adoption - continued
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information", (SFAS131) which establishes revised
standards for the method in which public business enterprises are to report
information about operating segments in their annual financial statements and
requires those enterprises to report selected information about operating
segments in interim financial reports issued to shareholders. This statement
also revises the related disclosures about products and services, geographic
areas and major customers. SFAS131 replaces the "industry segment" concept
established in Statement of Financial Accounting Standard No. 14 with a
"management approach" concept as the basis for identifying reportable
segments. SFAS131 is effective for financial statements for annual periods
beginning after December 31, 1997 and for interim periods presented after
December 31, 1998. The Company does not anticipate a material impact from
this change in disclosure presentation in its consolidated financial
statements upon adoption of this standard.
Note 3 - Property and equipment
During the first quarter of 1997, the Company sold a rental property for
gross cash proceeds of approximately $149,474, net of closing costs, and
recognized a gain of approximately $48,499.
Note 4 - Common stock transactions
On March 19, 1998, the Company sold 530,000 shares of restricted, unregistered
common stock to an individual under a Stock Purchase Agreement (Agreement) at a
price of $1.00 per share for total proceeds to the Company of$530,000. The
Agreement also contains a "second closing" clause whereby the individual will
acquire an additional 400,000 shares of equivalent restricted, unregistered
common stock at $1.10 per share for gross proceeds of $440,000, on or before
July 15, 1998.
Further, the Company has granted the individual the option to purchase an
additional 1,000,000 shares of restricted, unregistered common stock at a price
of $1.25 per share on or before February 28, 1999. The option expiration may be
accelerated if the Company's common stock is traded on the NASDAQ Small-Cap
Market or other national exchange and the closing bid price equals or exceeds
$1.75 per share for 10 consecutive trading days (Trading Period). In this event,
the expiration date of the option shall be the 90th day after the Trading Period
and the Company must notify the individual of the acceleration in writing.
9
MILLION DOLLAR SALOON, INC.
Notes to Financial Statements - Continued
Note 4 - Common stock transactions - Continued
On March 19, 1998, concurrent with the Stock Purchase Agreement discussed above,
the Company entered into a Consulting Agreement with a separate individual for
consulting, advisory and management services to be performed as directed by the
Company's Board of Directors. The Consulting Agreement is for a term of one (1)
year and may be terminated by either party with ten (10) days written notice.
The compensation for the Consulting Agreement was paid in restricted,
unregistered common stock of the Company as follows: 150,000 shares as payment
for for consulting, advisory and management services to be performed as directed
by the Company's Board of Directors and an additional 55,000 shares upon receipt
of the $530,000 discussed above. An additional 45,000 shares will be issued to
the consultant upon receipt of the $440,000 due on or before July 15, 1998.
The Company, upon execution of the Consulting Agreement and receipt of the
$530,000 related to the Stock Purchase Agreement, issued the respective 150,000
and 55,000 shares due under the terms of the Consulting Agreement. These
transactions were valued at approximately $0.34 per share, or an aggregate
$69,700, which approximated the "fair value" of the Company's restricted stock
issued on the transaction date.
(Remainder of this page left blank intentionally)
10
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(1) Results of Operations
Bar and restaurant operations remained relatively constant between the first
quarter of 1998 as compared to the first quarter of 1997. Total bar and
restaurant sales for the 1998 period were approximately $830,000 as compared to
approximately $841,000 for the 1997 period. The decline of approximately $11,000
was due to fluctuations in patronage, which is dependent upon convention and
visitor activity and other uncontrollable factors in the Dallas-Ft. Worth
Metroplex geographic area. Additionally, rental income increased by
approximately $15,000 for the same period from approximately $111,000 for the
first quarter of 1997 to approximately $125,000 for the first quarter of 1998.
This is due to scheduled increases in weekly rental income on the Company's
properties.
The Company continues to seek effective marketing and advertising methods to
maintain and increase its bar and restaurant patronage.
Cost of sales decreased by approximately $9,000 during the first three months of
1998 as compared to the same expenses for the same period in 1996. This decrease
reflects the effect of the restructured inventory management controls which were
implemented during the second quarter of 1997. Gross profit percentages
increased slightly to 51.3% for the first three months of 1998 versus 50.2% for
the first three months of 1997.
General and administrative expenses increased by approximately $109,000 in the
first three months of 1998 versus the first three months of 1997. Included in
this increase is a non-cash charge of $69,700 as compensation under the
Consulting Agreement to Steve Wheeler, increased legal and professional fees
incurred by management related to preliminary investigations of potential merger
and/or acquisition candidates and development of overall corporate operational
strategies and other broad based increases in general corporate overhead
expenses. As of this filing, management has not identified any suitable merger
or acquisition candidates as a result of their preliminary investigations.
Further, management continues to monitor its expenditure levels to achieve
optimum financial results.
Net income before income taxes, excluding the gain on the sale of fixed assets
of approximately $48,000, was approximately $184,000 for the first three months
of 1997 versus approximately $97,000 for the first three months of 1996.
After-tax net income has declined by approximately $115,000 yielding earnings
per share of approximately $0.01 per share for the first three months of 1998 as
compared to approximately $0.04 per share for the first three months of 1997.
(2) Liquidity
As of March 31, 1998, the Company has working capital of approximately $608,198
as compared to approximately $17,369at December 31, 1997 and approximately
$103,000 at March 31, 1997. The Company achieved positive cash flows from
operations of approximately $192,000 for the first three months of 1998 versus
approximately $152,000 for the first three months of 1997. The Company's working
capital position was greatly enhanced by the receipt of approximately $530,000
in proceeds related to the sale of approximately 530,000 shares of restricted,
unregistered common stock on March 19, 1998.
11
The Company has identified no significant capital requirements for the current
annual period. Liquidity requirements mandated by future business expansions or
acquisitions, if any are specifically identified or undertaken, are not readily
determinable at this time as no substantive plans have been formulated by
management.
The Stock Purchase Agreement specifically details and limits the utilization of
the $530,000 received as follows:1) potential acquisition of a similar bar and
restaurant operation in Denver, Colorado; 2) expansion and renovation of the
Company's existing Dallas, Texas bar and restaurant operation; 3) expansion and
renovation of property owned by the Company which is under lease to an unrelated
third party and which lease expires during 1998; 4) acquisition of treasury
stock and 5) other corporate expenses related to strategic planning. As of this
filing, the Company has no definitive agreements to acquire or expand any
properties.
The Company anticipates the continuance of dividend payments and paid
approximately $52,000 during the first quarter of 1998 and declared a dividend
of approximately $61,400 to be paid in the second quarter of 1998. Future
operating liquidity, debt service and dividend payments 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 offerings.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
On March 19, 1998, the Company sold 530,000 shares of restricted,
unregistered common stock pursuant to an exemption from registration to Linda
S. Weaver, an individual unrelated to the Company, (Weaver) for gross
proceeds of $530,000. Weaver will also purchase an additional 400,000 shares
of restricted, unregistered common stock at $1.10 per share, for gross
proceeds of $440,000, on or before July 15, 1998. Further, the Company
granted Weaver an option to purchase up to an additional 1,000,000 shares of
restricted, unrestricted common stock on or before February 28, 1998 at a
price of $1.25 per share. This option expires on February 28, 1998 and the
expiration may be accelerated if the Company's common stock is traded on the
NASDAQ Small-Cap Market or other national exchange and the closing bid price
equals or exceeds $1.75 per share for 10 consecutive trading days (Trading
Period). In this event, the expiration date of the option shall be the 90th
day after the Trading Period and the Company must notify the individual of
the acceleration in writing.
On March 19, 1998, the Company issued an aggregate 205,000 shares of
restricted, unregistered common stock to Steve Wheeler (Wheeler) under the
terms of a Consulting Agreement for consulting, advisory and management
services to be performed as directed by the Company's Board of Directors. The
Consulting Agreement is for a term of one (1) year and may be terminated by
either party with ten (10) days written notice. The compensation for the
Consulting Agreement was paid in restricted, unregistered common stock of the
Company as follows: 150,000 shares as payment for for consulting, advisory
and management services to be performed as directed by the Company's Board of
Directors and an additional 55,000 shares upon receipt of the $530,000
discussed above. An additional 45,000 shares will be issued to Wheeler upon
receipt of the $440,000 due on or before July 15, 1998.
12
Upon execution of the Consulting Agreement and receipt of the $530,000
related to the Stock Purchase Agreement, the Company issued to Wheeler the
respective 150,000 and 55,000 shares due under the terms of the Consulting
Agreement. These transactions were valued at approximately $0.34 per share,
or an aggregate $69,700, which approximated the "fair value" of the Company's
restricted stock issued on the transaction date.
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 10.1 - Stock Purchase Agreement by and among Million Dollar Saloon,
Inc., Bjorn Heyerdahl, The Joshua Furrh Trust (Sellers) and
Linda S. Weaver (Purchaser)
Exhibit 10.2 - Consulting Agreement by and between Million Dollar Saloon,
Inc. and Steve Wheeler
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MILLION DOLLAR SALOON, INC.
April 30 , 1998 /s/ Nina J. Furrh
-------- ------------------------------------
Nina J. Furrh
President and Director
April 30 , 1998 /s/ Ronald W. Johnston
-------- -----------------------------------
Ronald W. Johnston
Chief Financial Officer and Director
14