UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-QSB

--------------------------------------------------------------------------------


(Mark one)

   X     Quarterly  Report Under Section 13 or 15(d) of The Securities  Exchange
-------  Act of 1934


                  For the quarterly period ended September 30, 2004

         Transition  Report Under Section 13 or 15(d of The Securities  Exchange
-------  Act of 1934


                  For the transition period from ______________ to _____________

--------------------------------------------------------------------------------

                         Commission File Number: 0-27006
                                                 -------

                           Million Dollar Saloon, Inc.
        (Exact name of small business issuer as specified in its charter)

         Nevada                                                13-3428657
------------------------                                ------------------------
(State of incorporation)                                (IRS Employer ID Number)

                    6848 Greenville Avenue, Dallas, TX 75231
                    ----------------------------------------
                    (Address of principal executive offices)

                                 (214) 691-6757
                                 --------------
                           (Issuer's telephone number)


--------------------------------------------------------------------------------

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. YES X  NO
                                                             ---   ---

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: November 10, 2004: 5,731,778
                                          ----------------------------

Transitional Small Business Disclosure Format (check one): YES    NO X
                                                              ---   ---


<PAGE>

                           Million Dollar Saloon, Inc.

              Form 10-QSB for the Quarter ended September 30, 2004

                                Table of Contents


                                                                            Page
                                                                            ----
Part I - Financial Information

  Item 1   Financial Statements                                               3

  Item 2   Management's Discussion and Analysis or Plan of Operation         17

  Item 3   Controls and Procedures                                           20

Part II - Other Information

  Item 1   Legal Proceedings                                                 20

  Item 2   Unregistered Sales of Equity Securities and Use of Proceeds       21

  Item 3   Defaults Upon Senior Securities                                   21

  Item 4   Submission of Matters to a Vote of Security Holders               21

  Item 5   Other Information                                                 21

  Item 6   Exhibits                                                          21

Signatures                                                                   21















                                                                               2

<PAGE>
<TABLE>
<CAPTION>

Part I
Item 1 - Financial Statements

                  Million Dollar Saloon, Inc. and Subsidiaries
                           Consolidated Balance Sheets
                           September 30, 2004 and 2003

                                   (Unaudited)

                                                      September 30,    September 30,
                                                           2004             2003
                                                      -------------    -------------
<S>                                                   <C>              <C>
                                     ASSETS
                                     ------

Current Assets
   Cash on hand and in bank                           $     545,118    $     131,652
   Marketable securities                                     43,006          385,270
   Accounts receivable
     Trade                                                    8,500          133,770
     Prepaid income taxes                                      --             16,450
   Inventory                                                 25,531           34,377
   Prepaid expenses                                          85,740          142,830
                                                      -------------    -------------

     Total current assets                                   707,895          844,349
                                                      -------------    -------------


Property and Equipment - At Cost
   Buildings and related improvements                     1,394,854        2,096,714
   Furniture and equipment                                  529,595          889,699
                                                      -------------    -------------
                                                          1,924,449        2,986,413
   Less accumulated depreciation                         (1,346,767)      (1,976,286)
                                                      -------------    -------------
                                                            577,682        1,010,127
   Land                                                     210,000          741,488
                                                      -------------    -------------

     Net property and equipment                             787,682        1,751,615
                                                      -------------    -------------


Other Assets
   Land held for future development                       2,661,546        2,649,786
   Property and equipment held for sale                     870,930             --
   Operations agreement, net of accumulated
     amortization of approximately $134,250                 865,750             --
   Loan costs, net of accumulated amortization
     of approximately $514                                    9,774             --
   Deposits and other                                         1,725            1,725
                                                      -------------    -------------

     Total other assets                                   4,409,725        2,651,511
                                                      -------------    -------------

Total Assets                                          $   5,905,302    $   5,247,475
                                                      =============    =============
</TABLE>



                                                   - Continued -



    The consolidated financial information presented herein has been prepared
    by management without audit by independent certified public accountants.
        The accompanying notes are an integral part of these consolidated
                              financial statements.
                                                                               3

<PAGE>
<TABLE>
<CAPTION>

                  Million Dollar Saloon, Inc. and Subsidiaries
                     Consolidated Balance Sheets - Continued
                           September 30, 2004 and 2003

                                   (Unaudited)

                                                                September 30,   September 30,
                                                                     2004            2003
                                                                -------------   -------------
<S>                                                             <C>             <C>
                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------

Current Liabilities
   Note payable                                                 $        --     $   2,156,714
   Current maturities of long-term mortgage note payable               85,092            --
   Loan from officer                                                     --           140,000
   Accounts payable - trade                                            22,767          23,734
   Accrued liabilities                                                 60,901          61,825
   Federal income taxes payable                                        66,163            --
   Contract payable to affiliated entities                          1,000,000            --
     Tenant deposits                                                    6,500           6,500
                                                                -------------   -------------

     Total current liabilities                                      1,241,423       2,388,773
                                                                -------------   -------------


Long-Term Liabilities
   Long-term mortgage note payable, net of current maturities       1,860,764            --
   Deferred tax liability                                             281,062         288,916
                                                                -------------   -------------

     Total liabilities                                              3,383,249       2,677,689
                                                                -------------   -------------


Commitments and Contingencies


Shareholders' Equity
   Preferred stock - $0.001 par value
     5,000,000 shares authorized
     None issued and outstanding                                         --              --
   Common stock - $0.001 par value
     50,000,000 shares authorized
     5,731,778 shares issued and outstanding                            5,732           5,732
   Retained earnings                                                2,516,321       2,564,054
                                                                -------------   -------------

     Total shareholders' equity                                     2,522,053       2,569,786
                                                                -------------   -------------

Total Liabilities and Shareholders' Equity                      $   5,905,302   $   5,247,475
                                                                =============   =============
</TABLE>


    The consolidated financial information presented herein has been prepared
    by management without audit by independent certified public accountants.
        The accompanying notes are an integral part of these consolidated
                              financial statements.
                                                                               4

<PAGE>
<TABLE>
<CAPTION>

                  Million Dollar Saloon, Inc. and Subsidiaries
      Consolidated Statements of Operations and Comprehensive Income (Loss)
             Nine and Three months ended September 30, 2004 and 2003

                                   (Unaudited)

                                               Nine months      Nine months     Three months     Three months
                                                  ended            ended            ended            ended
                                              September 30,    September 30,    September 30,    September 30,
                                                   2004             2003             2004             2003
                                              -------------    -------------    -------------    -------------
<S>                                           <C>              <C>              <C>              <C>
Revenues
   Bar and restaurant sales                   $   2,855,558    $   2,541,912    $     857,084    $     835,416
   Rental income                                    339,113          442,959          102,000          126,050
                                              -------------    -------------    -------------    -------------
     Total revenues                               3,194,671        2,984,871          959,084          961,466
                                              -------------    -------------    -------------    -------------

Cost of Sales - Bar and
   Restaurant Operations                          1,604,842        1,465,881          550,557          507,383
                                              -------------    -------------    -------------    -------------

Gross Profit                                      1,589,829        1,518,990          408,527          454,083
                                              -------------    -------------    -------------    -------------

Operating Expenses
   General and administrative expenses              924,924        1,274,853          325,748          458,133
   Interest                                         108,617          110,106           55,801           44,052
   Depreciation and amortization                    199,547           68,042          156,015           22,663
                                              -------------    -------------    -------------    -------------
     Total operating expenses                     1,233,088        1,453,001          537,564          524,848
                                              -------------    -------------    -------------    -------------

Income (Loss) from Operations                       356,741           65,989         (129,037)         (70,765)

Other Income (Expenses)
   Interest and other miscellaneous                   3,234           12,640              265            4,773
   Unrealized gain on marketable securities            --              6,462             --               --
                                              -------------    -------------    -------------    -------------

Income (Loss) before Income Taxes                   359,975           85,091         (128,772)         (65,992)

Income Tax (Expense) Benefit
   Currently payable                               (122,400)         (20,000)          37,600           35,000
   Deferred                                            --               --               --               --
                                              -------------    -------------    -------------    -------------

Net Income (Loss)                                   237,575           65,091          (91,172)         (30,992)

Other Comprehensive Income                             --               --               --               --
                                              -------------    -------------    -------------    -------------

Comprehensive Income (Loss)                   $     237,575    $      65,091    $     (91,172)   $     (30,992)
                                              =============    =============    =============    =============

Earnings per share of common stock
   outstanding, computed on net income
   - basic and fully diluted                  $        0.04    $        0.01    $       (0.02)   $       (0.01)
                                              =============    =============    =============    =============

Weighted-average number
   of shares outstanding                          5,731,778        5,731,778        5,731,778        5,731,778
                                              =============    =============    =============    =============
</TABLE>



    The consolidated financial information presented herein has been prepared
    by management without audit by independent certified public accountants.
        The accompanying notes are an integral part of these consolidated
                              financial statements.
                                                                               5

<PAGE>
<TABLE>
<CAPTION>

                  Million Dollar Saloon, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                  Nine months ended September 30, 2004 and 2003

                                   (Unaudited)

                                                                               Nine months      Nine months
                                                                                  ended            ended
                                                                              September 30,    September 30,
                                                                                   2004             2003
                                                                              -------------    -------------
<S>                                                                           <C>              <C>
Cash Flows from Operating Activities
   Net income                                                                 $     237,575    $      65,091
   Adjustments to reconcile net income to
     net cash provided  by operating activities
       Depreciation and amortization                                                200,061           68,042
       Unrealized loss on marketable securities                                        --             (6,462)
       (Increase) decrease in
         Accounts receivable - trade and other                                         --            (65,242)
         Federal income taxes refundable                                            145,000             --
         Inventory                                                                     (179)          13,710
         Prepaid expenses                                                           (82,200)         (99,087)
       Increase (decrease) in
         Accounts payable and other liabilities                                    (128,140)        (229,532)
         Federal income taxes payable                                                66,163          (14,950)
         Unearned revenues                                                             --             (9,500)
                                                                              -------------    -------------
Net cash provided by operating activities                                           438,280         (227,930)
                                                                              -------------    -------------

Cash Flows from Investing Activities
   Purchases of property and equipment                                                 --             (8,788)
   Cash received from sale of marketable securities                                 346,913             --
   Cash paid for land held for future development                                   (11,760)        (493,072)
                                                                              -------------    -------------
Net cash provided by (used in) investing activities                                 335,153         (501,860)
                                                                              -------------    -------------

Cash Flows from Financing Activities
   Cash paid on long-term mortgage note payable                                    (210,858)            --
   Cash received (paid) on note payable to officer                                 (140,000)         140,000
   Cash paid for fees related to long-term mortgage note payable                    (10,288)            --
   Cash paid for marketable securities                                                 --            (11,715)
                                                                              -------------    -------------
Net cash provided by (used in) financing activities                                (361,146)         128,285
                                                                              -------------    -------------

Increase in Cash and Cash Equivalents                                               412,287         (651,505)

Cash at beginning of period                                                         132,831          783,157
                                                                              -------------    -------------

Cash at end of period                                                         $     545,118    $     131,652
                                                                              =============    =============

Supplemental Disclosures of Interest and Income Taxes Paid
   Interest paid during the period                                            $     108,103    $     110,106
                                                                              =============    =============
   Income taxes paid (refunded)                                               $     (88,763)   $      34,950
                                                                              =============    =============

Supplemental Disclosures of Non-Cash Financing and Investing Activities
   Accrual of amount payable to affiliated entities for operating agreement   $   1,000,000    $        --
                                                                              =============    =============
   Reclassification of property and equipment, net of accumulated
     depreciation to property and equipment held for sale                     $     870,930    $        --
                                                                              =============    =============
</TABLE>


    The consolidated financial information presented herein has been prepared
    by management without audit by independent certified public accountants.
        The accompanying notes are an integral part of these consolidated
                              financial statements.
                                                                               6

<PAGE>

                  Million Dollar Saloon, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements


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)".

Don,  Inc.  (Don)  was  incorporated  under  the  laws of the  State of Texas on
November 8, 1973. Don owns and manages  commercial  rental  property  located in
Tarrant County, Texas.

Corporation Lex (Lex) was  incorporated  under the laws of the State of Texas on
November 30, 1984. Lex owns and manages  commercial  rental property  located in
Dallas County, Texas.


NOTE B - Preparation of Financial Statements

The  Company  follows  the  accrual  basis  of  accounting  in  accordance  with
accounting principles generally accepted in the United States of America and has
adopted a year-end of December 31.

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

Management further acknowledges that it is solely responsible for adopting sound
accounting  practices,   establishing  and  maintaining  a  system  of  internal
accounting  control and preventing and detecting  fraud. The Company's system of
internal  accounting  control is designed to assure,  among other items, that 1)
recorded  transactions  are valid; 2) valid  transactions  are recorded;  and 3)
transactions  are  recorded in the proper  period in a timely  manner to produce
financial  statements which present fairly the financial  condition,  results of
operations  and cash  flows of the  Company  for the  respective  periods  being
presented

During interim periods, the Company follows the accounting policies set forth in
its annual  audited  financial  statements  filed with the U. S.  Securities and
Exchange  Commission  on its  Annual  Report on Form  10-KSB  for the year ended
December 31, 2003.  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, 2004.

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 nine and three months ended September 30, 2004 and 2003,  respectively.  All
significant intercompany  transactions have been eliminated in combination.  The
consolidated entities are referred to as Company.

                                                                               7

<PAGE>

                  Million Dollar Saloon, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements - Continued


NOTE C - Summary of Significant Accounting Policies

1.   Cash and Cash Equivalents
     -------------------------

     For  Statement of Cash Flows  purposes,  the Company  considers all cash on
     hand  and  in  banks,  certificates  of  deposit  and  other  highly-liquid
     investments with maturities of three months or less, when purchased,  to be
     cash and cash equivalents.

     Cash  overdraft  positions may occur from time to time due to the timing of
     making bank deposits and releasing checks, in accordance with the Company's
     cash management policies.

2.   Marketable Securities
     ---------------------

     Investments in the equity  securities of other companies,  including mutual
     fund investments, that have readily determinable fair values (as defined in
     Statement  of  Financial  Accounting  Standards  No. 115,  "Accounting  for
     Certain   Investments  in  Debt  and  Equity  Securities"  (SFAS  115)  are
     classified, at the date of acquisition, into three categories and accounted
     for as follows:

     Trading Securities - Equity securities that are bought and held principally
     for the  purpose  of  selling  them in the near term are  reported  at fair
     value. Unrealized gains and losses are included in earnings.

     Available-for-Sale  Securities - Equity  securities not classified in other
     categories  are reported at fair value,  with  unrealized  gains and losses
     excluded   from   earnings  and   reported  in  a  separate   component  of
     shareholders' equity.

     Held-to-Maturity  Securities - Equity  securities  that the Company has the
     positive  intent and ability to hold to maturity  are reported at amortized
     cost.

     Other  investments that do not have a readily  determinable  fair value are
     recorded at amortized cost.

     The Company  evaluates  the  carrying  value of all  marketable  securities
     classified as  "held-to-maturity"  or "other investments that do not have a
     readily  determinable  fair value" on a quarterly  basis in accordance with
     Statement of Financial  Accounting  Standards No. 144,  "Accounting for the
     Impairment or Disposal of Long-Lived Assets". Any permanent impairment,  if
     any, is charged to operations in the quarter in which the  determination of
     impairment is made.

     For  purposes  of  computing   realized  gains  and  losses,  the  specific
     identification method is used.

3.   Accounts Receivable and Revenue Recognition
     -------------------------------------------

     In the normal course of business,  the Company extends  unsecured credit to
     virtually  all of its tenants  related to rental  property  operations  and
     accepts  cash or  nationally  issued  bankcards  as  payment  for goods and
     services in its adult lounge and entertainment  facility.  Bankcard charges
     are normally paid by the clearing institution within three to fourteen days
     from the date of presentation by the Company.

     Since  December  31,  2000,  all  lessors of Company  rental  property  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.


                                                                               8

<PAGE>

                  Million Dollar Saloon, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements - Continued


NOTE C - Summary of Significant Accounting Policies - Continued

3.   Accounts Receivable and Revenue Recognition - continued
     -------------------------------------------

     Because of the credit risk  involved,  management has provided an allowance
     for doubtful  accounts  which  reflects  its opinion of amounts  which will
     eventually become uncollectible.  In the event of complete non-performance,
     the  maximum  exposure  to the  Company  is the  recorded  amount  of trade
     accounts   receivable   shown  on  the   balance   sheet  at  the  date  of
     non-performance.

4.   Inventory
     ---------

     Inventory  consists  of  food  and  liquor  consumables  necessary  in  the
     operation of Tempo's adult lounge and entertainment  facility.  These items
     are  valued at the lower of cost or market  using the  first-in,  first-out
     method of accounting.

5.   Property and Equipment
     ----------------------

     Property  and  equipment  is  recorded  at  cost  and is  depreciated  on a
     straight-line  basis,  over the estimated  useful lives  (generally 5 to 40
     years)  of the  respective  asset.  Major  additions  and  betterments  are
     capitalized and depreciated  over the estimated useful lives of the related
     assets. Maintenance, repairs, and minor improvements are charged to expense
     as incurred.

     In accordance  with  Statement of Financial  Accounting  Standards No. 144,
     "Accounting  for the  Impairment  or Disposal of  Long-Lived  Assets",  the
     Company  follows the policy of evaluating all  qualifying  assets as of the
     end of each reporting quarter.

6.   Income Taxes
     ------------

     The Company files a consolidated Federal Income Tax return and utilizes the
     asset and liability method of accounting for income taxes. The deferred tax
     asset and deferred tax liability accounts, as recorded when material to the
     financial statements, are entirely the result of temporary differences.  No
     valuation  allowance was provided  against  deferred tax assets.  Temporary
     differences   represent  differences  in  the  recognition  of  assets  and
     liabilities for tax and financial reporting purposes, primarily accumulated
     depreciation and amortization.

7.   Earnings per share
     ------------------

     Basic  earnings  (loss) per share is computed  by  dividing  the net income
     (loss) available to common shareholders by the  weighted-average  number of
     common shares  outstanding  during the respective  period  presented in our
     accompanying financial statements.  Fully diluted earnings (loss) per share
     is  computed  similar  to basic  income  (loss) per share  except  that the
     denominator is increased to include the number of common stock  equivalents
     (primarily  outstanding  options and  warrants).  Common stock  equivalents
     represent the dilutive  effect of the assumed  exercise of the  outstanding
     stock options and warrants,  using the treasury stock method, at either the
     beginning  of the  respective  period  presented  or the date of  issuance,
     whichever is later, and only if the common stock equivalents are considered
     dilutive  based  upon the  Company's  net  income  (loss)  position  at the
     calculation date.

     At September 30, 2004 and 2003, the Company had no common stock equivalents
     outstanding.



                                                                               9

<PAGE>

                  Million Dollar Saloon, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements - Continued


NOTE D - Related Party Transactions

Since a change in  majority  shareholders  of the  Company  in 2000,  the rental
properties  of  Corporation  Lex and Don,  Inc. have been subject to leases with
entities  controlled  by Duncan  Burch,  an officer,  director  and  controlling
shareholder of the Company.  These respective  leases were in place prior to the
2000 change in control.

In October  2002,  Duncan  Burch,  Nick Mehmeti  (officers  and directors of the
Company) and certain of their affiliated businesses (the "Clubs") entered into a
Compromise Settlement Agreement and Mutual Releases (the "Settlement Agreement")
with the City of  Dallas to  settle  pending  litigation,  claims  and  disputes
between  the  parties  arising  out of the  operation  of the  Clubs in  alleged
violation  of the Dallas City Code,  including  the Sexually  Oriented  Business
Ordinance. The Settlement Agreement did not involve the Company's Million Dollar
Saloon nor did the  Settlement  Agreement  affect the  operation  of the Million
Dollar Saloon.

However, the Settlement Agreement did affect the usage of the Company's property
owned by  Corporation  Lex,  which was  subject to a  month-to-month  basis.  In
accordance  with the  Settlement  Agreement,  lessee  agreed  to  terminate  the
operation of the adult cabaret  business at the Corporation Lex property by July
31, 2003. The entity controlled by Duncan Burch concurrently  tendered notice to
the Company that the associated  lease would be terminated on July 31, 2003 as a
result of this action.

The Company and its subsidiary, Corporation Lex, signed the Settlement Agreement
for a limited  purpose.  The  Company and  Corporation  Lex are not bound by the
terms of the Settlement Agreement except that Corporation Lex has agreed it will
not  allow  the  Clubs to use the  property,  as or in  support  of, a  sexually
oriented business,  dance hall,  business featuring exotic striptease,  business
featuring  scantily clad  employees,  individuals  or  performers,  any business
featuring  individuals,   employees,   licensees,   or  independent  contractors
displaying   specified   anatomical   areas  or  engaging  in  specified  sexual
activities,  or  operation  by the  Clubs  of a  business  in any  other  manner
circumventing or frustrating, or intending to circumvent or frustrate the intent
of Chapter 41A and 51A of the Dallas City Code. The Company  and/or  Corporation
Lex may lease the premises for any other lawful purpose.

Since January 1, 2001, the  renegotiated  lease between  Corporation Lex and the
entity  controlled by Duncan Burch  contained a percentage  rent clause  whereby
Corporation  Lex would receive a base rental equal to 10% of the gross  revenues
generated from the business located at the property, less State Liquor and State
Sales Taxes,  payable  quarterly,  with a minimum weekly payment of $1,000 which
will be credited  against the quarterly  percentage rent due. The minimum weekly
rent payment  shall not be less than $1,000 per week.  During  Calendar 2003 and
2002,  approximately  $31,000 and $52,000 of lease payments were received by the
Company for this property.

In March 2004, the Company received the required  supporting  documentation from
the lessee to validate the  percentage  rents due for Calendar  2002 and through
July 31, 2003,  which caused a significant  upward  revision of our estimate for
amounts  due in  Calendar  2002,  which was  adjusted  during the 4th quarter of
Calendar 2003. As of July 31, 2003, the lessee owed percentage rent as follows:

                 Year ended
                December 31,            Amount due
                ------------            ----------
                    2001                $   42,952
                    2002                    98,000
                    2003                   107,513
                                        ----------
                                        $  248,465

In December 31, 2003, the Company's Board of Directors  accepted notice from the
lessee,  controlled  by Duncan  Burch,  an  officer,  director  and  controlling
shareholder,  that the  percentage  rent due to the  Company  would not be paid.
Accordingly,  the Company  recognized a charge to  operations  of  approximately
$248,465 as bad debt expense from  uncollectible  trade  accounts  receivable on
December 31, 2003.


                                                                              10

<PAGE>

                  Million Dollar Saloon, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements - Continued


NOTE D - Related Party Transactions - Continued

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.  The lessee has not  indicated  to the  Company
whether a new long-term lease will be negotiated on this property.

On February 14,  2003,  Duncan  Burch  advanced the Company  $140,000 for use in
closing the acquisition of certain  property being held for future  development.
This advance was non-interest  bearing and due upon demand. On January 29, 2004,
the Company  refinanced  the subject  property  and repaid Mr.  Burch the entire
$140,000 at closing of the refinancing.

In  conjunction  with the October  2002  Settlement  Agreement  with the City of
Dallas,  Texas, as discussed  previously,  the Company entered into negotiations
between the Company's  wholly-owned  subsidiary,  Tempo Tamers, Inc., Mainstage,
Inc. (Mainstage), an entity controlled by Nick Mehmeti, the Company's President,
which operated a non- conforming adult cabaret located in Dallas,  Texas, called
P.T.'s and  Allen-Burch,  Inc.  (Allen  Burch),  an entity  controlled by Duncan
Burch,  a  Company  officer  and  significant  shareholder,   also  operating  a
non-conforming  adult  cabaret  known  as  The  Fare.  These  negotiations  were
initiated to determine  which of these  non-conforming  entities  would continue
operating in a "non-conforming location".

In May 2003,  these three  affiliated  parties  granted the  exclusive  right to
negotiate  with  the  City of  Dallas,  Texas  to  Tempo  Tamers,  Inc.  for the
continuance  of the  operations  of The  Million  Dollar  Saloon  as a  sexually
oriented business in a "non-conforming location."

This Settlement  Agreement  provided that, in the event that the City of Dallas,
Texas  granted  The  Million  Dollar  Saloon  the  exclusive  right to  continue
operating as an adult cabaret in a "non-conforming  location" for a six (6) year
period,  Tempo Tamers would pay $500,000  each to Mainstage  and Allen Burch and
Mainstage  and  Allen-Burch  would  each  discontinue  the  operation  of  their
respective sexually oriented businesses.

In May 2003,  the City of Dallas  agreed to allow  Tempo  Tamers to  continue to
operate The Million Dollar Saloon at its current  location  through the last day
of July 2009.  Mainstage  and Allen  Burch then  agreed with the City of Dallas,
Texas to  discontinue  the  respective  operations  of  Mainstage  and The Fare,
respectively,  as  sexually  oriented  business  in  January  and  March,  2004,
respectively.

The cessation of operations by Mainstage and Allen Burch  triggered the $500,000
payment clause to each entity as set forth in the May 2003 Settlement Agreement.
The aggregate $1,000,000 payment has been accrued in the accompanying  financial
statements and is being  amortized to operations over the 67 month term from the
triggering  event  date(s)  through the  mandatory  closing  date of The Million
Dollar Saloon in it's present "non-conforming location" on July 31, 2009.

NOTE E - Fair Value of Financial Instruments

The carrying amount of cash,  accounts  receivable,  accounts  payable and notes
payable, as applicable,  approximates fair value due to the short term nature of
these items  and/or the current  interest  rates  payable in relation to current
market conditions.

Interest  rate risk is the risk  that the  Company's  earnings  are  subject  to
fluctuations  in interest  rates on either  investments  or on debt and is fully
dependent  upon  the  volatility  of  these  rates.  The  Company  does  not use
derivative  instruments  to moderate its exposure to interest rate risk, if any.
Financial  risk  is  the  risk  that  the  Company's  earnings  are  subject  to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the  volatility  of  these  rates.  The  company  does  not use  derivative
instruments to moderate its exposure to financial risk, if any.


                                                                              11

<PAGE>
<TABLE>
<CAPTION>

                  Million Dollar Saloon, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements - Continued


NOTE F - Concentrations of Credit Risk

The Company  maintains its cash accounts in a financial  institution  subject to
insurance coverage issued by the Federal Deposit Insurance  Corporation  (FDIC).
Under FDIC rules,  the Company and its  subsidiaries  are  entitled to aggregate
coverage of $100,000 per account type per  separate  legal entity per  financial
institution.  During  the  nine  months  ended  September  30,  2004  and  2003,
respectively,   the  various  operating  companies  had  deposits  in  financial
institutions  with credit risk  exposures in excess of statutory  FDIC coverage.
The Company has  incurred no losses  during  Calendar  2002,  Calendar  2003 and
through September 30, 2004 as a result of any of these unsecured situations.


NOTE G - Marketable Securities

Marketable  securities as of September 30, 2004 and 2003 consist  entirely of an
investment in a money market instrument-based mutual funds and are summarized as
follows:

                                                            Available   Held to
                                                Trading     for sale    Maturity
                                               ---------   ---------   ---------
September 30, 2004
------------------
   Aggregate fair value                        $  43,006   $    --     $    --
   Gross unrealized holding gains              $    --     $    --     $    --
   Gross unrealized holding losses             $    --     $    --     $    --
   Amortized cost basis                        $  43,006   $    --     $    --
September 30, 2003
------------------
   Aggregate fair value                        $ 378,808   $    --     $    --
   Gross unrealized holding gains              $   6,462   $    --     $    --
   Gross unrealized holding losses             $    --     $    --     $    --
   Amortized cost basis                        $ 385,270   $    --     $    --

The net  unrealized  holding gains and losses on trading  securities  which have
been included in the statement of operations were  approximately $-0- and $6,462
for the nine months ended September 30, 2004 and 2003, respectively.


NOTE H - Property and Equipment

Property and equipment consists of the following at September 30, 2004 and 2003,
respectively.

                                          September 30,    September 30,
                                               2004             2003       Estimated life
                                          -------------    -------------   --------------
     <S>                                  <C>              <C>              <C>
     Buildings and related improvements   $   1,394,854    $   2,096,714    15-40 years
     Furniture and equipment                    529,595          889,699    5-10 years
                                          -------------    -------------

                                               1,924,449        2,986,413
     Less accumulated depreciation           (1,346,767)      (1,976,286)
                                          -------------    -------------

                                                577,682        1,010,127
     Land                                       210,000          741,488
                                          -------------    -------------

     Net property and equipment           $     787,682    $   1,751,615
                                          =============    =============
</TABLE>

Depreciation  expense for the nine months ended  September 30, 2004 and 2003 was
approximately $65,297 and $68,042, respectively.


                                                                              12

<PAGE>

                  Million Dollar Saloon, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements - Continued


NOTE I - Land Held for Future Development
         Note Payable
         Loan from Officer
         Long-term Mortgage Note Payable

On February 14, 2003, the Company purchased 6.695 acres of undeveloped  property
located in Dallas,  Texas.  The  purchase  price was  approximately  $2,650,312,
including closing expenses of approximately  $53,599.  The Company paid $493,072
cash,  inclusive of a $140,000 loan to the Company from Duncan Burch, an officer
and  director of the  Company,  and issued to the seller a one-year  note in the
principal amount of $2,156,713 with 8% annual interest.  The payment of the note
is secured with a lien  against the  property  granted to the note holder by the
Company. The interest on the note is payable monthly  (approximately $14,678 per
month)  beginning  April 1, 2003 with the  principal  amount due and  payable on
February 1, 2004.

The Company paid  approximately  $153,800 during Calendar 2003 and approximately
$14,700 during Calendar 2004 to service this debt.

The property is undeveloped  and suitable for commercial  development.  Although
the  Company  has not  determined  the usage of the land,  the Company may use a
portion  of the land for an adult  cabaret  and sell the  remaining  undeveloped
property to a third party.  The  development  of the property will be subject to
the Company  obtaining a construction  loan. The Company does not currently know
the amount of the loan it will need to develop this  property or whether it will
be able to obtain a  sufficient  loan for  development  of the  property  or, if
obtained, whether the terms of the loan will be favorable to the Company.

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 September 30, 2004, the Company owes  approximately  $1,945,856 on the new
long-term mortgage note payable.


NOTE J - Property and Equipment held for Sale

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  144,
"Accounting  for the Impairment or Disposal of Long-Lived  Assets",  the Company
follows the policy of  evaluating  all  qualifying  assets as of the end of each
reporting quarter.  As of September 30, 2004, Company  management,  upon listing
the real estate and other  significant  assets owned by Corporation Lex for sale
through a real estate brokerage firm,  reclassified these net carrying values at
that  date to  "Property  and  Equipment  held  for  Sale"  in the  accompanying
financial statements.



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                                                                              13

<PAGE>

                  Million Dollar Saloon, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements - Continued


NOTE K - Operations Agreement
         Contract Payable to Affiliated Entities

In  conjunction  with the October  2002  Settlement  Agreement  with the City of
Dallas,  Texas, as discussed  previously,  the Company entered into negotiations
between the Company's  wholly-owned  subsidiary,  Tempo Tamers, Inc., Mainstage,
Inc. (Mainstage), an entity controlled by Nick Mehmeti, the Company's President,
which operated a non- conforming adult cabaret located in Dallas,  Texas, called
P.T.'s and  Allen-Burch,  Inc.  (Allen  Burch),  an entity  controlled by Duncan
Burch,  a  Company  officer  and  significant  shareholder,   also  operating  a
non-conforming  adult  cabaret  known  as  The  Fare.  These  negotiations  were
initiated to determine  which of these  non-conforming  entities  would continue
operating in a "non-conforming location".

In May 2003,  these three  affiliated  parties  granted the  exclusive  right to
negotiate  with  the  City of  Dallas,  Texas  to  Tempo  Tamers,  Inc.  for the
continuance  of the  operations  of The  Million  Dollar  Saloon  as a  sexually
oriented business in a "non-conforming location."

This Settlement  Agreement  provided that, in the event that the City of Dallas,
Texas  granted  The  Million  Dollar  Saloon  the  exclusive  right to  continue
operating as an adult cabaret in a "non-conforming  location" for a six (6) year
period,  Tempo Tamers would pay $500,000  each to Mainstage  and Allen Burch and
Mainstage  and  Allen-Burch  would  each  discontinue  the  operation  of  their
respective sexually oriented businesses.

In May 2003,  the City of Dallas  agreed to allow  Tempo  Tamers to  continue to
operate The Million Dollar Saloon at its current  location  through the last day
of July 2009.  Mainstage  and Allen  Burch then  agreed with the City of Dallas,
Texas to  discontinue  the  respective  operations  of  Mainstage  and The Fare,
respectively,  as  sexually  oriented  business  in  January  and  March,  2004,
respectively.

The cessation of operations by Mainstage and Allen Burch  triggered the $500,000
payment clause to each entity as set forth in the May 2003 Settlement Agreement.
The aggregate $1,000,000 payment has been accrued in the accompanying  financial
statements and is being  amortized to operations over the 67 month term from the
triggering  event  date(s)  through the  mandatory  closing  date of The Million
Dollar Saloon in it's present "non-conforming location" on July 31, 2009.


NOTE L- Income Taxes

The  components  of income  tax  expense  (benefit)  for the nine  months  ended
September 30, 2004 and 2003, respectively, are as follows:

                                                     Nine months    Nine months
                                                       ended           ended
                                                   September 30,   September 30,
                                                        2004            2003
                                                   -------------   -------------
     Federal:
       Current                                     $     122,400   $      20,000
       Deferred                                             --              --
                                                   -------------   -------------
                                                         122,400          20,000
                                                   -------------   -------------
     State:
       Current                                              --              --
       Deferred                                             --              --
                                                   -------------   -------------
                                                            --              --
                                                   -------------   -------------

       Total                                       $     122,400   $      20,000
                                                   =============   =============




                                                                              14

<PAGE>
<TABLE>
<CAPTION>

                  Million Dollar Saloon, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements - Continued


NOTE L- Income Taxes - Continued

The Company's  income tax expense  (benefit) for the nine months ended September
30, 2004 and 2003, respectively,  differed from the statutory federal rate of 34
percent as follows:

                                                               Nine months     Nine months
                                                                  ended           ended
                                                              September 30,   September 30,
                                                                   2004            2003
                                                              -------------   -------------
     <S>                                                      <C>             <C>
     Statutory rate applied to earnings before income taxes   $     122,400   $      22,000
     Increase (decrease) in income taxes resulting from:
       State income taxes                                              --              --
       Deferred income taxes                                           --              --
       Effect of incremental tax brackets and the
         application of business tax credits                           --            (2,000)
                                                              -------------   -------------

     Income tax expense                                       $     122,400   $      55,000
                                                              =============   =============
</TABLE>

The  deferred  current  tax asset and  non-current  deferred  tax  liability  on
September  30,  2004 and  2003,  respectively,  balance  sheet  consists  of the
following:

                                                 September 30,    September 30,
                                                      2004             2003
                                                 -------------    -------------

     Non-current deferred tax liability          $    (281,062)   $    (288,916)
                                                 =============    =============

The  non-current  deferred  tax  liability  results  from the usage of statutory
accelerated tax depreciation and amortization methods.


NOTE M - Capital Stock Transactions

On  March  19,  1998,  the  Company  entered  into a  Stock  Purchase  Agreement
(Agreement)  with an unrelated  individual.  The  Agreement  contained a "second
closing"  clause,  as amended,  whereby the individual may acquire an additional
400,000 shares of restricted,  unregistered common stock at a price of $1.10 per
share on or before the close of business on October 18, 2004.  As of October 18,
2004,  the "second  closing"  portion of the Agreement  expired and no shares of
common stock were issued at any time pursuant to this clause.


NOTE N - Commitments

The rental  property  owned by Don,  Inc.  is subject to a lease with a separate
entity  controlled  by  Duncan  Burch,  an  officer,  director  and  controlling
shareholder  of the  Company.  This lease  expired  in August  2003 and is being
continued  on a  month-to-month  basis at the final  contractual  rental rate of
approximately  $8,500  per week.  The lessee has not  indicated  to the  Company
whether a new long-term lease will be negotiated on this property. The lessee is
also for normal  maintenance and repairs,  insurance and other direct  operating
expenses related to the property.



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                                                                              15

<PAGE>
<TABLE>
<CAPTION>

                  Million Dollar Saloon, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements - Continued


NOTE O - Segment Information

The  Company  operates  with a  centralized  management  structure  and  has two
identifiable  operating segments:  an adult entertainment  lounge and restaurant
located in Dallas, Texas and commercial rental real estate located in Dallas and
Tarrant  Counties,  Texas.  All  revenues  are  generated  operations  in  these
geographic  areas. As of September 30, 2004 and 2003,  respectively,  all rental
revenues  are  derived  from  entities   controlled  by  a  Company  controlling
shareholder,  officer  and  director.  Approximately  18.2  and  13.8%  of total
revenues  for  Calendar  2003 and 2002,  respectively,  were  derived from these
related parties.

                                         Restaurant         Rental          General and
                                          facility        real estate      administrative        Total
                                       --------------    --------------    --------------    --------------
<S>                                    <C>               <C>               <C>               <C>
Nine months ended September 30, 2004
------------------------------------
   Revenue from external customers     $    2,855,558    $         --      $         --      $    2,855,558
   Revenue from related parties                  --             339,113              --             339,113
   Revenue (expenses) from/to
     intercompany sources - net              (180,000)          (60,000)          120,000              --
   Interest income                               --                --               3,234             3,234
   Interest expense                              --                --             108,617           108,617
   Depreciation and amortization               21,041            44,256           134,250           199,547
   Income tax expense (benefit)                55,500           111,600           (44,700)          122,400
   Segment assets                           1,389,813           929,244         3,586,245         5,905,302
   Fixed asset expenditures                      --                --                --                --

Nine months ended September 30, 2003
------------------------------------
   Revenue from external customers     $    2,541,912    $         --      $         --      $    2,541,912
   Revenue from related parties                  --             442,959              --             442,959
   Revenue (expenses) from/to
     intercompany sources                    (180,000)         (326,000)          506,000              --
   Interest income                               --                 893            11,747            12,640
   Interest expense                              --                --             110,106           110,106
   Depreciation and amortization               23,785            56,004              --              68,042
   Income tax expense (benefit)                (8,100)           22,000             6,100            20,000
   Segment assets                             423,078         1,868,171         2,956,226         5,247,475
   Fixed asset expenditures                     8,788              --           2,649,786         2,658,574
</TABLE>



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                                                                              16

<PAGE>

Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations

(8)  Caution Regarding Forward-Looking Information

Certain  statements  contained  in  this  annual  filing,   including,   without
limitation, statements containing the words "believes", "anticipates", "expects"
and  words  of  similar  import,  constitute  forward-looking  statements.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results,  performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

Such factors include, among others, the following:  international,  national and
local general economic and market conditions:  demographic  changes; the ability
of the Company to sustain,  manage or  forecast  its growth;  the ability of the
Company to successfully make and integrate acquisitions;  raw material costs and
availability;  new product  development and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of significant customers
or suppliers;  fluctuations  and  difficulty in forecasting  operating  results;
changes in business strategy or development  plans;  business  disruptions;  the
ability  to attract  and  retain  qualified  personnel;  the  ability to protect
technology; and other factors referenced in this and previous filings.

Given  these  uncertainties,  readers  of this Form  10-QSB  and  investors  are
cautioned not to place undue reliance on such  forward-looking  statements.  The
Company  disclaims  any  obligation  to update any such  factors or to  publicly
announce the result of any  revisions to any of the  forward-looking  statements
contained herein to reflect future events or developments.

(9)  Results of Operations

Nine months ended  September 30, 2004 as compared to Nine months ended September
30, 2003

Bar and restaurant sales increased by approximately  $314,000 (or 12.34)% in the
nine  months  ended   September  30,  2004.  Bar  and   restaurant   sales  were
approximately  $2,856,000  for the  nine  months  ended  September  30,  2004 as
compared to approximately $2,542,000 in the comparable period of 2003.

The increase  over the  comparable  period from the  preceding  year is directly
attributable to overall fluctuations in visitor traffic to the Dallas-Ft.  Worth
Metroplex during the first quarter of Calendar 2004 and the effects of shifts in
economic  and  ethnic  populations  in the  immediate  geographical  area of the
Company's location.

In May 2003,  the City of Dallas  agreed to allow  Tempo  Tamers to  continue to
operate The Million Dollar Saloon at its current  location  through the last day
of July 2009.  While the Company's  facility  holds a valid  "sexually  oriented
business" license issued by the City of Dallas, Texas; the City of Dallas, Texas
continues  to pursue  vigorous  enforcement  of its Sexually  Oriented  Business
Ordinance.  This  Ordinance  restricts the attire and dancing  activities at the
Company's  Million  Dollar  Saloon,  and other local adult  cabarets,  which has
resulted in  unpredictable  fluctuations  in patron  attendance at the Company's
facilities.

The Company's  operating  location,  when  originally  built,  was in one of the
dynamic retail and entertainment  corridors within the City of Dallas, Texas. At
the current  time,  the  expansion of the City into other  geographic  areas has
contributed to a diversification  of retail and  entertainment  districts within
the City.  These newer areas have received  better  reception from the patronage
traffic than the Company's current location which has suffered from City neglect
in infrastructure  maintenance,  the introduction of economically depressed foot
traffic as a result of available mass transit facilities and a shift in economic
and ethnic population in the immediate vicinity of the Company's club.

While the City of Dallas'  efforts  against  the  Company's  principal  business
activity,  the lack of  efforts  by the City of Dallas to  maintain  a degree of
economic and ethnic  diversity  and  prosperity in the vicinity of the Company's
facility may contribute to further revenue deterioration in future periods.

Management's  continues  to direct it's  efforts  towards  customer  service and
increasing sales through effective marketing and advertising methods to maintain
and increase its bar and restaurant patronage and comply with current regulatory
conditions and environment.

                                                                              17

<PAGE>

The Company's rental income declined by approximately  $104,000 to approximately
$339,000 for the first nine months of 2004 as compared to approximately $443,000
in the same period of Calendar  2003.  All of the leases  were/are with entities
controlled by Duncan Burch, one of the Company's  controlling  shareholders.  On
January 30, 2001, the Company's Board of Directors  approved an amendment to the
lease  agreement  covering  the  property  owned by  Corporation  Lex, a Company
subsidiary.  The amendment  provided that  effective  January 1, 2001,  the base
rental was reduced  from $4,750 per week to $1,000 per week.  Additionally,  the
amended lease provided that the Company,  as landlord,  shall receive 10% of the
gross revenues  generated from the business located at the property,  less State
Liquor and State Sales Taxes,  payable quarterly,  with a minimum weekly payment
of $1,000  which will be credited  against the  quarterly  percentage  rent due.
During  Calendar  2003 and 2002,  approximately  $31,000  and  $52,000  of lease
payments were received by the Company for this property.

In March 2004, the Company received the required  supporting  documentation from
the lessee to validate the  percentage  rents due for Calendar  2002 and through
July 31, 2003.  This  previously  unprovided  information  caused a  significant
upward  revision of our estimate for amounts due for percentage rent in Calendar
2002,  which  was  recognized  as a 4th  quarter  2003  event  in our  financial
statements,  given the events discussed in subsequent paragraphs. As of July 31,
2003, the lessee owed percentage rent as follows:

                        Year ended
                       December 31,           Amount due
                       ------------           ----------
                           2001               $   42,952
                           2002                   98,000
                           2003                  107,513
                                              ----------
                                              $  248,465

In December  2003,  the Company's  Board of Directors  accepted  notice from the
lessee,  an  entity  controlled  by  Duncan  Burch,  an  officer,  director  and
controlling  shareholder,  that the percentage rent due to the Company would not
be paid. Accordingly,  the Company recognized a charge to operations on December
31, 2003 of approximately  $248,465 as bad debt expense from uncollectible trade
accounts receivable.

At the  present  time,  this  property is vacant and has been listed with a real
estate  brokerage  firm for either sale or lease.  Accordingly,  Management  has
reclassified the net carrying value,  approximately  $871,000,  to "Property and
equipment held for sale" in the accompanying  financial  statements at September
30,  2004.  At  this  time,  based  on the  property's  location  and  competing
properties in the same geographic area,  management is unable,  at this time, to
determine if any loss or impairment of this carrying value will occur.

Our rental real  estate  owned by Don,  Inc.  is also  subject to a lease with a
separate entity controlled by Duncan Burch, an officer, director and controlling
shareholder  of the  Company.  This lease  expired  in August  2003 and is being
continued  on a  month-to-month  basis at the final  contractual  rental rate of
approximately $8,500 per week..The Company has been advised that the tenant does
not intend to renew the Fort Worth lease with the current  terms.  Instead,  the
tenant has  requested to  renegotiate  the lease  terms.  As of the date of this
filing, no formal lease has been negotiated.  There can be no assurance that the
Company will be able to obtain terms similar to the current lease or that tenant
will agree to the terms of a new lease.

Although the Company is seeking  either an outright  sale or long-term  lease on
these  properties,  respectively,  that are at  least  comparable  to terms  for
similar  properties  in the  geographic  area,  there is no  assurance  that the
Company will be able to renew its lease with the entity  controlled by Mr. Burch
or any other  unaffiliated  third-party,  or if  renewed,  that the terms of the
lease will be as  favorable  to the  Company as it could have  obtained  from an
unaffiliated  party.  The  failure of the  Company to obtain a  long-term  lease
agreement with Mr. Burch, or other third parties, with terms at least comparable
to the existing lease  arrangements  will have a material  adverse effect on the
revenues of the Company.

Cost of sales  increased to  approximately  $1,605,000 for the nine months ended
September  30, 2004 as compared to  approximately  $1,466,000  for the same nine
month period of 2003. Gross profit  percentages  remain  relatively  constant at
50.23%  (approximately  $1,590,000) for the nine months ended September 30, 2004
versus 50.89% (approximately $1,519,000) for the nine months ended September 30,
2003.  Fluctuations  in the  Company's  gross  profit  percentages  react to and
parallel the key areas of management focus for cost of sales expenditure control
-  principally  personnel  staffing  levels and food and beverage  costs.  These
areas,   specifically  cost  controls  over  purchasing,   inventory  management
protocols  and labor  management,  are  continuously  monitored  to maintain the
Company's gross profit percentages.

                                                                              18

<PAGE>

General and administrative  expenses were  approximately  $925,000 for the first
nine months ended September 30, 2004 as compared to approximately $1,275,000 for
the comparable  nine month period of 2003. The decrease was  attributable to the
lack of professional  fees for  investigation of possible  business  acquisition
targets  and  increased  legal  expenses as a result of ongoing  litigation  and
issues related to the City of Dallas Sexually Oriented Business  Ordinance which
were  incurred  during  2003 and did not recur in the  current  operating  year.
Further,  the Company's  executive  compensation,  which increased  dramatically
during 2002, has stabilized and current  expenditure  levels are  anticipated to
remain stable into the foreseeable  future. The Company  anticipates  relatively
constant expenditure levels for general operating expenses in future periods and
management  continues  to monitor  its  expenditure  levels to  achieve  optimum
financial results.

Net income  before  income taxes was  approximately  $360,000 for the first nine
months ended September 30, 2004 versus approximately  $85,000 for the first nine
months ended September 30, 2002. After-tax net income decreased by approximately
$172,000 from  approximately  $65,000 for the first nine months ended  September
30, 2003 to  approximately  $237,000 for the same period in Calendar  2004.  The
Company  experienced  earnings  per share of  approximately  $0.04 and $0.01 per
share for each of the respective nine month periods ended September 30, 2004 and
2003, respectively.

As  a  general  rule,  the  Company's   adult  cabaret   operations   experience
unpredictable  fluctuations  as a result of the overall  discretionary  spending
habits  related to the U. S.  economy,  visitation  levels  related to  tourism,
convention and business travel levels and impacts related to the City of Dallas'
various enforcement actions and on-premises  monitoring of entertainer  conduct.
Management  makes it's best efforts to timely adjust its  expenditure  levels to
these events as they occur in order to maintain profitability.

(3)  Liquidity

As of September 30, 2004,  December 31, 2003 and September 30, 2003, the Company
has  working  capital of  approximately  ($534,000),  $347,000  (exclusive  of a
short-term  note  payable  which was  refinanced  in January  2004) and $612,000
(exclusive of a short-term  note payable which was  refinanced in January 2004).
The  Company  achieved  positive   (negative)  cash  flows  from  operations  of
approximately  $438,000  for the first nine months of 2004 versus  approximately
$(228,000) for the first nine months of Calendar 2003.

The  deterioration  of the Company's  working capital is directly related to the
cash  expended and future debt service  requirements  to acquire land for future
development  and  for  Calendar  2003  expenditures  related  to  the  abandoned
acquisition  efforts on  facilities  owned and/or  controlled  by the  Company's
controlling  shareholders;  Duncan  Burch and Nick  Mehmeti.  Additionally,  the
Company incurred a liability of approximately  $1,000,000 ($500,000 each) to two
entities controlled by the Company's controlling shareholders,  Nick Mehmeti and
Duncan Burch  related to the securing of an operating  license for the Company's
Million Dollar Saloon operation in a "non-conforming  location" through July 31,
2009.

Future  operating  liquidity and debt service are expected to be sustained  from
continuing operations. Additionally,  management is of the opinion that there is
additional   potential   availability  of  incremental  mortgage  debt  and  the
opportunity  for the sale of  additional  common stock  through  either  private
placements or secondary public offerings.

On January 29, 2004, the Company refinanced the initial acquisition debt related
to land held for  future  development.  The new  permanent  long-term  financing
retired the entire  initial  short-term  $2,156,713  note payable  issued at the
initial closing. The new note is for a principal balance of $2,000,000 and bears
interest  at 6.50% for the first  year and then  adjusts  to 1.0% above the Wall
Street Journal published prime rate, rounded to the nearest 0.125%. The interest
rate adjusts  every 12th month,  commencing  on January 29,  2005.  The new note
requires   payments  of  principal  and  accrued   interest  in  the  amount  of
approximately  $17,426  monthly,  commencing  on February 29, 2004. As this is a
variable  interest rate note, the payments may change after the 12th payment and
after every  succeeding 12th payment.  The new note matures on January 29, 2019.
The  long-term  note is secured by  underlying  land and the  separate  personal
guaranty  of  each  of  the  Company's   officers,   directors  and  controlling
shareholders; Duncan Burch and Nick Mehmeti.

(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,


                                                                              19

<PAGE>

including closing expenses of approximately  $53,599.  The Company paid $493,072
cash,  inclusive of a $140,000 loan to the Company from Duncan Burch, an officer
and  director of the  Company,  and issued to the seller a one-year  note in the
principal  amount of $2,156,713 with 8% annual  interest.  This debt was paid in
full with proceeds of the $2,000,000  long-term  mortgage note refinancing.  The
Company paid  approximately  $153,800  during  Calendar  2003 and  approximately
$14,700 during Calendar 2004 to service this initial short-term debt.

The property is undeveloped  and suitable for commercial  development.  Although
the  Company  has not  determined  the usage of the land,  the Company may use a
portion  of the land for an adult  cabaret  and sell the  remaining  undeveloped
property to a third party.  The  development  of the property will be subject to
the Company  obtaining a construction  loan. The Company does not currently know
the amount of the loan it will need to develop this  property or whether it will
be able to obtain a  sufficient  loan for  development  of the  property  or, if
obtained, whether the terms of the loan will be favorable to the Company.

The  Company  has also  remitted  approximately  $366,000  at the closing of the
permanent  long-term  financing  in  January  2004 for  closing  costs,  interim
interest, loan origination fees and other ancillary items.

The Company has identified no other significant  capital  requirements for 2004,
other than normal repair and  replacement  activity at the Company's  commercial
rental properties and the adult  entertainment  lounge and restaurant  facility.
Liquidity  requirements  mandated by future business expansions or acquisitions,
if any are specifically  identified or undertaken,  are not readily determinable
at this time as no substantive plans have been formulated by management.

The Company knows of no new accounting releases or pronouncements that will have
any impact upon the Company's financial statements upon adoption.


Item 3 - Controls and Procedures

As required by Rule 13a-15 under the Exchange  Act,  within the 90 days prior to
the filing date of this report,  the Company  carried out an  evaluation  of the
effectiveness of the design and operation of the Company's  disclosure  controls
and  procedures.  This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's President
and Chief Executive  Officer along with the Company's  Chief Financial  Officer.
Based upon that evaluation,  the Company's President and Chief Executive Officer
along with the Company's  Chief Financial  Officer  concluded that the Company's
disclosure controls and procedures are effective. There have been no significant
changes in the  Company's  internal  controls or in other  factors,  which could
significantly  affect  internal  controls  subsequent  to the date  the  Company
carried out its evaluation.

Disclosure  controls and procedures are controls and other  procedures  that are
designed to ensure that information  required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported,  within the time  periods  specified  in the  Securities  and Exchange
Commission's  rules and  forms.  Disclosure  controls  and  procedures  include,
without limitation,  controls and procedures designed to ensure that information
required to be  disclosed  in Company  reports  filed under the  Exchange Act is
accumulated  and  communicated  to  management,  including the  Company's  Chief
Executive  Officer and Chief Financial  Officer as appropriate,  to allow timely
decisions regarding required disclosure.


Part II - Other Information

Item 1 - Legal Proceedings

Case No.  3-00-CV-2500-H;  Adventure Plus, Inc.,  Millennium  Restaurant  Group,
Inc.,  D/B/A  Cabaret  Royale,  et al. v. City of Dallas,  Inc.;  United  States
District Court, Northern District of Texas, Dallas Division

     This is an action where the Company is contesting the  constitutionality of
     certain  provisions  of a Dallas  Municipal  Ordinance  which  impacts  its
     license to do business as an adult  cabaret.  The Company is of the opinion
     that it will prevail on its  constitutional  claims.  In August,  2001, the
     City amended the contested  provisions  of the  ordinance;  however,  there
     still remain certain constitutional infirmities,  and the Company is of the
     opinion that the ordinance remains subject to constitutional  challenge and
     will have no adverse impact on the Company's operations. In March 2004, the
     City agreed to further  amend  pertinent  portions of the  ordinance  in an
     attempt to resolve the  constitutional  infirmities.  The case has not been
     set for trial.

     The Company may from time to time be a party to various other legal actions
     arising  in  the  ordinary  course  of its  business.  The  Company  is not
     currently  involved  in any  such  actions  that it  believes  will  have a
     material   adverse  effect  on  its  results  of  operations  or  financial
     condition.


                                                                              20

<PAGE>

Item 2 - Unregistered Sales of Equity 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

     None

Item 6 - Exhibits

   Exhibits
     31.1   Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
     32.1   Certification 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: November 10, 2004                                   /s/ Nick Mehmeti
       -----------------                             ---------------------------
                                                                    Nick Mehmeti
                                                        Chief Executive Officer,
                                                     Chief Financial Officer and
                                                                    and Director









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