10-Q 1 mds10q033108.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (Mark one) [X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2008 [.] 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 registrant as specified in its charter) Nevada 13-3428657 ------------------------ ----------------------- (State of incorporation) (IRS Employer ID Number) 6848 Greenville Avenue, Dallas, TX 75231 ---------------------------------------- (Address of principal executive offices) (214) 691-6757 -------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ ] NO [X] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ ] NO [ ] 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] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES [ ] NO [X] State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: January 13, 2010: 5,731,778 --------------------------- Transitional Small Business Disclosure Format (check one): YES [ ] NO [X] Million Dollar Saloon, Inc. Form 10-Q for the Quarter ended March 31, 2008 Table of Contents Page Part I - Financial Information Item 1 - Financial Statements 3 Item 2 - Management's Discussion and Analysis or Plan of Operation 18 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 21 Item 4 - Controls and Procedures 21 Part II - Other Information Item 1 - Legal Proceedings 21 Item 2 - Recent Sales of Unregistered Securities and Use of Proceeds 23 Item 3 - Defaults Upon Senior Securities 23 Item 4 - Submission of Matters to a Vote of Security Holders 23 Item 5 - Other Information 23 Item 6 - Exhibits 23 Signatures 23 2

The financial information presented herein has been prepared by management without audit by independent certified public accountants. The accompanying notes are an integral part of these financial statements. 6 [PG NUMBER] Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements March 31, 2008 and 2007 NOTE A - Background and Organization Million Dollar Saloon, Inc. (MDS) was incorporated under the laws of the State of Nevada on September 28, 1987. MDS is a holding company providing management support to its operating subsidiaries: Furrh, Inc., Tempo Tamers, Inc., Don, Inc. and Corporation Lex. Furrh, Inc. (Furrh) was incorporated under the laws of the State of Texas on February 25, 1974. Furrh provides management services to Tempo Tamers, Inc, its wholly-owned subsidiary. Tempo Tamers, Inc. (Tempo), was incorporated under the laws of the State of Texas on July 3, 1978. Tempo operates an adult entertainment lounge and restaurant facility, located in Dallas, Texas, under the registered trademark and trade name "Million Dollar Saloon(R)". In conjunction with an October 2002 Settlement Agreement with the City of Dallas, Texas, the Company's adult entertainment lounge and restaurant, Million Dollar Saloon, may operate in its present "non-conforming location" with a mandatory closing date of July 31, 2009. Don, Inc. (Don) was incorporated under the laws of the State of Texas on November 8, 1973. Don owns and manages commercial rental property located in Tarrant County, Texas. Corporation Lex (Lex) was incorporated under the laws of the State of Texas on November 30, 1984. Lex owns and manages commercial rental property located in Dallas County, Texas. NOTE B - Preparation of Financial Statements The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has adopted a year-end of December 31. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements filed with the U. S. Securities and Exchange Commission on its Annual Report on Form 10-K for the year ended December 31, 2007. The information presented within these interim financial statements may not include all disclosures required by generally accepted accounting principles and the users of financial information provided for interim periods should refer to the annual financial information and footnotes when reviewing the interim financial results presented herein. In the opinion of management, the accompanying interim financial statements, prepared in accordance with the U. S. Securities and Exchange Commission's instructions for Form 10-QSB, are unaudited and contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of the Company for the respective interim periods presented. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full fiscal year ending December 31, 2008. 7 Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements - Continued March 31, 2008 and 2007 NOTE B - Preparation of Financial Statements - Continued These financial statements reflect the books and records of Million Dollar Saloon, Inc., Furrh, Inc., Tempo Tamers, Inc., Corporation Lex and Don, Inc. for the respective periods ended March 31, 2008 and 2007, respectively. All significant intercompany transactions have been eliminated in combination. The consolidated entities are referred to as Company. NOTE C - Summary of Significant Accounting Policies 1. Cash and Cash Equivalents ------------------------- For Statement of Cash Flows purposes, the Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 2. 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. 3. 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. 4. 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. 5. Income Taxes ------------ The Company files income tax returns in the United States of America and various states, as appropriate and applicable. With few exceptions, the Company is no longer subject to U.S. federal, state and local, as applicable, income tax examinations by regulatory taxing authorities for years before 2005. The Company does not anticipate any examinations of returns filed for periods ending after December 31, 2004. 8 Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements - Continued March 31, 2008 and 2007 NOTE C - Summary of Significant Accounting Policies - Continued 5. Income Taxes - continued ----------- The Company uses the asset and liability method of accounting for income taxes. At March 31, 2008 and December 31, 2007, respectively, the deferred tax asset and deferred tax liability accounts, as recorded when material to the financial statements, are entirely the result of temporary differences. Temporary differences generally represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization, allowance for doubtful accounts and vacation accruals. The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes", on October 1, 2007. FASB Interpretation No. 48 requires the recognition of potential liabilities as a result of management's acceptance of potentially uncertain positions for income tax treatment on a "more-likely-than-not" probability of an assessment upon examination by a respective taxing authority. As a result of the implementation of Interpretation 48, the Company did not incur any liability for unrecognized tax benefits. 6. 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 March 31, 2008 and 2007, and subsequent thereto, the Company has no outstanding stock warrants, options or convertible securities which could be considered as dilutive for purposes of the earnings per share calculation. 7. 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. 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. 9 Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements - Continued March 31, 2008 and 2007 NOTE D - Related Party Transactions - Continued 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. 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 March 31, 2008, the $1,000,000 aggregate payable has been accrued in the accompanying financial statements and all accrued interest payable has been paid in full through 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. 10 Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements - Continued March 31, 2008 and 2007 NOTE E - Fair Value of Financial Instruments - Continued 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 the listed aggregate coverage per account type per separate legal entity per financial institution. During the period ended March 31, 2008 and for each of 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 as a result of any of these unsecured situations. NOTE G - Property and Equipment Property and equipment consists of the following at March 31, 2008 and December 31, 2007: March 31, December 31, Estimated 2008 2007 life ----------- ----------- ----------- Buildings and related improvements $ 1,526,424 $ 1,526,424 15-40 years Furniture and equipment 466,070 466,070 5-10 years ----------- ----------- 1,992,494 1,992,494 Less accumulated depreciation (1,648,012) (1,625,313) ----------- ----------- 344,482 367,181 Land 210,000 210,000 ----------- ----------- Net property and equipment $ 554,482 $ 577,181 =========== =========== Depreciation expense for the three months ended March 31, 2008 and 2007, respectively, was approximately $22,700 and $21,493. NOTE H - 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 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 if it will be able to develop the property, acquire a construction loan in an amount sufficient to facilitate development or if obtained, whether the terms of the loan will be favorable to the Company. 11 Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements - Continued March 31, 2008 and 2007 NOTE H - 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 March 31, 2008 and December 31, 2007, respectively, the Company owed approximately $1,649,007 and $1,672,530 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 I - 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. 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 $62,000. NOTE J - 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." 12 Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements - Continued March 31, 2008 and 2007 NOTE J - Operations Agreement Contract Payable to Affiliated Entities - 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 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 the three months ended March 31, 2008 and 2007, respectively, the Company paid or accrued approximately $20,000 and $20,000 in interest payable on this Agreement. NOTE K - Income Taxes The components of income tax expense (benefit) for the three month periods ended March 31, 2008 and 2007, respectively, are as follows: Three months Three months ended ended March 31, March 31, 2008 2007 ---------- --------- Federal: Current $ 152,300 $ 28,001 Deferred (115,410) -- --------- --------- 36,890 28,001 --------- --------- State: Current -- -- Deferred -- -- --------- --------- -- -- --------- --------- Total $ 36,890 $ (21,698) ========= ========= (Remainder of this page left blank intentionally) 13

The non-current deferred tax liability results from the usage of statutory accelerated tax depreciation and amortization methods. NOTE L - 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 M - 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." 14 Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements - Continued March 31, 2008 and 2007 NOTE M - 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. 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. 15 Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements - Continued March 31, 2008 and 2007 NOTE M - Litigation - Continued 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 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 N - 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 March 31, 2008 and December 31, 2007, respectively, all rental revenues are derived from entities controlled by Duncan Burch, an officer, director and controlling shareholder. Approximately 14.8% and 14.8% of total revenues for 2007 and 2006, respectively, were derived from these related parties. NOTE O - 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. 16 Million Dollar Saloon, Inc. and Subsidiaries Notes to Consolidated Financial Statements - Continued March 31, 2008 and 2007 NOTE O - Subsequent Events - Continued 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) 17 Part I - Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Caution Regarding Forward-Looking Information Certain statements contained in this Form 10-Q, 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-Q 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. (2) Results of Operations Bar and restaurant sales increased nominally in the three months ended March 31, 2008 as compared to the three month period ended March 31, 2007. The Company experienced net revenues of approximately $702,000 in the 2008 period as compared to approximately $710,000 for the 2007 period. 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 increased nominally to approximately $118,000 for the three months ended March 31, 2008 as compared to approximately $110,500 for the comparable three months ended March 31, 2007. The difference relates directly to the timing of the billing for reimbursement of property taxes paid 18 by Don, Inc. on the rental property. Due to the uncertainty of collection and the fact that this is a related party transaction, the Company records the reimbursement in the accompanying financial statements upon receipt of the funds. 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. 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 $84,000 from approximately $265,000 for the three months ended March 31, 2007 to approximately $349,000 for the three months ended March 31, 2008. Gross profit percentages declined to approximately 57.4% (approximately $471,000) for the three months ended March 31, 2008 versus 67.7% (approximately $556,000) for the three months ended March 31, 2007. 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 $273,000 for the three months ended March 31, 2008 as compared to approximately $324,000 for the comparable period ended March 31, 2007. 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 $146,000 for the three months ended March 31, 2008 versus approximately $115,000 for the comparable period ended March 31, 2007. The increase in income before income taxes is directly attributable to the sale of land and building owned by Don, Inc. After-tax net income increased by approximately $22,000 from approximately $87,000 for the three months ended March 31, 2007 as compared to approximately $109,000 for the comparable period ended March 31, 2008. The Company experienced earnings per share of approximately $0.02 and $0.02 per share for each of the three month periods ended March 31, 2008 and 2007, 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 March 31, 2008 and December 31, 2007, the Company has working capital of approximately $717,000 and $(160,000). The Company achieved positive cash flows from operations of approximately $130,000 for the three months ended March 31, 2008 as compared to approximately $126,000 for the comparable period in 2007. 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 19 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 the second quarter of 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 on July 31, 2009. (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 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 if it will be able to develop the property, acquire a construction loan in an amount sufficient to facilitate development or if obtained, whether the terms of the loan will be favorable to the Company. 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 identified no other significant capital requirements for 2008, 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) Critical Accounting Policies Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. Our significant accounting policies are summarized in Note C of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report. 20 (6) 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 3 - Quantitative and Qualitative Disclosures About Market Risk In future periods, the Company may become subject to certain market risks, including changes in interest rates and currency exchange rates. At the present time, the Company has no identified exposure and does not undertake any specific actions to limit exposures, if any. Item 4 - Controls and Procedures 1. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of March 31, 2008. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to our Company required to be included in our reports filed or submitted under the Exchange Act. 2. Changes in Internal Controls There were no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Part II - Other Information Item 1 - Legal Proceedings 1) City of Dallas licensing In conjunction with an October 2002 Settlement Agreement with the City of Dallas, Texas, the Company entered into negotiations between the Company's wholly-owned subsidiary, Tempo Tamers, Inc., Mainstage, Inc. (Mainstage), an entity controlled by Nick Mehmeti, the Company's President, which operated a non-conforming adult cabaret located in Dallas, Texas, called P.T.'s and Allen-Burch, Inc. (Allen Burch), an entity controlled by Duncan Burch, a Company officer and significant shareholder, also operating a non-conforming adult cabaret known as The Fare. These negotiations were initiated to determine which of these non-conforming entities would continue operating in a "non-conforming location". In May 2003, these three affiliated parties granted the exclusive right to negotiate with the City of Dallas, Texas to Tempo Tamers, Inc. for the continuance of the operations of The Million Dollar Saloon as a sexually oriented business in a "non-conforming location." This Settlement Agreement provided that, in the event that the City of Dallas, Texas granted The Million Dollar Saloon the exclusive right to continue operating as an adult cabaret in a "non-conforming location" for a six (6) year period, Tempo Tamers would pay $500,000 each to Mainstage and Allen Burch and Mainstage and Allen-Burch would each discontinue the operation of their respective sexually oriented businesses. In May 2003, the City of Dallas, Texas agreed to allow Tempo Tamers to continue to operate The Million Dollar Saloon at its current location through the last day of July 2009. Mainstage and Allen Burch then agreed with the City of Dallas, Texas to discontinue the respective operations of Mainstage and The Fare, respectively, as sexually oriented business in January and March, 2004, respectively. The cessation of operations by Mainstage and Allen Burch triggered the $500,000 payment clause to each entity as set forth in the May 2003 Settlement Agreement. The aggregate $1,000,000 payment has been accrued in the Company's financial statements and is being amortized to operations over the 67 month term from the triggering event date(s) through the mandatory closing date of The Million Dollar Saloon in it's present "non-conforming location" on July 31, 2009. 2) "John Doe I" v. Tempo Tamers Beverage Company, Inc. dba Million Dollar Saloon and Christopher John Thornton, Dallas County Texas District Court Cause No. 05-02015; filed February 24, 2005 and settled on October 20, 21 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. 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. 22 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 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 2 - Recent Sales of Unregistered Securities and Use of Proceeds None Item 3 - Defaults on Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders The Company has held no regularly scheduled, called or special meetings of shareholders during the reporting period. Item 5 - Other Information In conjunction with an October 2002 Settlement Agreement with the City of Dallas, Texas, the Company's adult entertainment lounge and restaurant, Million Dollar Saloon, may operate in its present "non-conforming location" with a mandatory closing date of July 31, 2009. Item 6 - Exhibits Exhibits -------- 31.1Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 32.1Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Million Dollar Saloon, Inc. Dated: January 14, 2010 /s/ Nick Mehmeti ---------------- --------------------------- Nick Mehmeti Chief Executive Officer, Chief Financial Officer and Director 23

MILLION DOLLAR SALOON INC 10-Q