UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-KSB
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(Mark one)

[X]  Annual Report Under Section 13 or 15(d) of The  Securities  Exchange Act of
     1934

       For the fiscal year ended December 31, 2005

[ ]  Transition Report Under Section 13 or 15(d) of The Securities  Exchange Act
     of 1934

       For the transition period from ______________ to _____________

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                         Commission File Number: 0-27006

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

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

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


                           (Issuer's telephone number)


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     Securities register ed under Section 12 (b) of the Exchange Act - None

        Securities registered under Section 12(g) of the Exchange Act: -
                        Common Stock - $0.001 par value

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Check  whether  the issuer  has (1) filed all  reports  required  to be files by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period 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]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes [ ] No [X]


The  issuer's  revenues  for the  fiscal  year  ended  December  31,  2005  were
$3,113,980.

The  aggregate  market  value of voting and  non-voting  common  equity  held by
non-affiliates  as of  July  7,  2008  was  approximately  $321,208  based  upon
1,606,038  shares  held by  non-affiliates  and as of July 7, 2008 and a closing
market  price of $0.20 per share as  reported  on  www.bigcharts.com  on July 7,
2008.

As of August 18, 2008,  there were  5,731,778  shares of Common Stock issued and
outstanding.

Transitional Small Business Disclosure Format : Yes [ ] No [X]




                                       1
<PAGE>



                           Million Dollar Saloon, Inc.

                                Index to Contents

                                                                     Page Number
                                                                     -----------
Part I

Item 1   Description of Business                                               3
Item 2   Description of Property                                              13
Item 3   Legal Proceedings                                                    13
Item 4   Submission of Matters to a Vote of Security Holders                  13

Part II

Item 5   Market for Company's Common Equity, Related Stockholders Matters
           and Small Business Issuer Purchases of Equity Securities           13
Item 6   Management's Discussion and Analysis or Plan of Operation            15
Item 7   Financial Statements                                                F-1
Item 8   Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosures                         17
Item 8A    Controls and Procedures                                            17
Item 8B    Other Information                                                  17

Part III

Item 9     Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act               17
Item 10    Executive Compensation                                             19
Item 11    Security Ownership of Certain Beneficial Owners and Management
              and Related Stockholder Matters                                 19
Item 12    Certain Relationships, Related Transactions and
              Director Independence                                           19
Item 13    Exhibits and Reports on 8-K                                        19
Item 14    Principal Accountant Fees and Services                             19

Signatures                                                                    20









                                       2
<PAGE>

                  Caution Regarding Forward-Looking Information

Certain statements contained in this Form 10-KSB, 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-KSB  and  investors  are
cautioned not to place undue reliance on such  forward-looking  statements.  The
Company  disclaims  any  obligation  to update any such  factors or to  publicly
announce the result of any  revisions to any of the  forward-looking  statements
contained  herein whether to reflect new  information,  future results,  events,
developments or otherwise.

                                     PART I

Item 1 - Description of Business

General

Million Dollar Saloon Inc. (the  "Company") was  incorporated  under the laws of
the State of Nevada on  September  28,  1987.  The Company  provides  management
support and conducts its business operations through its wholly-owned  operating
subsidiaries:  Furrh,  Inc., Tempo Tamers,  Inc., Don, Inc. and Corporation Lex.
The Company  owns and  operates an adult  cabaret in Dallas,  Texas and owns one
other commercial properties located in the Dallas-Fort Worth Metroplex.

Furrh, Inc.  ("Furrh") was incorporated  under the laws of the State of Texas on
February 25, 1974.  Furrh  provides  management  services to Tempo Tamers,  Inc.
("Tempo"), its wholly-owned subsidiary. Tempo was incorporated under the laws of
the  State  of  Texas  on July 3,  1978.  Tempo  operates  the  Company's  adult
entertainment lounge and restaurant facility, located in Dallas, Texas under the
registered trademark and trade name "Million Dollar Saloon(R)."

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

Corporation Lex ("Lex") was incorporated under the laws of the State of Texas on
November  30,  1984.  Lex owned  commercial  rental  property  located in Dallas
County, Texas through February 2008.

The Company's  principal offices are located at 6848 Greenville Avenue,  Dallas,
Texas  75231,  and its  telephone  number is (214)  691-6757.  Unless  otherwise
indicated,  the  "Company"  refers  to the  Company,  each  of its  wholly-owned
subsidiaries and Tempo. The Company's common stock is traded on the OTC Bulletin
Board under the symbol "MLDS".

The Company is based in Dallas,  Texas and  currently  conducts  business in two
distinct  areas: o Owning and operating an adult cabaret.  o Owning and managing
commercial real estate.

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.

Purchase of Real Estate

On February 14, 2003, the Company purchased 6.695 acres of undeveloped  property
located in Dallas,  Texas.  The  purchase  price was  approximately  $2,650,312,
including closing expenses of approximately  $53,599.  The Company paid $493,072


                                       3
<PAGE>

cash, which included a $140,000 unsecured,  non-interest  bearing advance to the
Company from Duncan Burch,  a controlling  shareholder,  officer and director of
the Company, and issued to the seller a one-year note in the principal amount of
$2,156,713  with 8% annual  interest.  The payment of the note is secured with a
lien  against  the  property  granted  to the note  holder by the  Company.  The
interest  on the note is  payable  monthly  (approximately  $14,678  per  month)
beginning April 1, 2003 with the principal amount due and payable on February 1,
2004.

In January  2004,  the  Company  obtained  permanent  long-term  financing  from
Citizens National Bank,  Waxahachie,  Texas, and used the proceeds to pay off in
full the  original  note  payable to the  seller.  The term loan had an original
balance of $2,000,000 and initially bore interest at 6.5% for the first year and
then adjusts to 1% above the  published  prime rate.  The interest  rate adjusts
every 12 months  commencing  January 29, 2005. The note required initial monthly
principal and interest payments of $17,426.  As this is a variable interest rate
note, the payments may change after the 12th payment and every  succeeding  12th
payment thereafter. The note matures on January 29, 2019. The note is secured by
the underlying land and the separate  personal guaranty of Duncan Burch and Nick
Mehmeti, each a Company officer, director and controlling shareholder.

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

Adult Cabaret

   General - The Company,  through  Tempo,  owns and  operates an adult  cabaret
   under the name "The Million  Dollar  Saloon,"  which is its primary  business
   operation.  The  Million  Dollar  Saloon  opened in 1982  with the  intent of
   establishing a sophisticated  entertainment environment focused on attracting
   a professional  clientele. To enhance the club's appeal to its target market,
   the Million  Dollar  Saloon offers  restaurant  and  first-class  bar service
   conducive to attracting  businessmen  and out-of-town  convention  clientele.
   Although the Company,  in February  2003,  purchased 6.6 acres of undeveloped
   land in Dallas,  Texas, the Company has not determined  whether the land will
   be developed as an adult cabaret or for other purposes. Other than the recent
   purchase of the Dallas,  Texas property,  no specific locations for potential
   additional Million Dollar Saloons have been identified.

   In  conjunction  with an October 2002  Settlement  Agreement with the City of
   Dallas,  Texas, the Company entered into  negotiations  between the Company's
   wholly-owned subsidiary,  Tempo Tamers, Inc., Mainstage, Inc. (Mainstage), an
   entity controlled by Nick Mehmeti, the Company's President,  which operated a
   non-conforming  adult  cabaret  located in Dallas,  Texas,  called P.T.'s and
   Allen-Burch,  Inc.  (Allen  Burch),  an entity  controlled by Duncan Burch, a
   Company officer and significant shareholder,  also operating a non-conforming
   adult  cabaret  known as The  Fare.  These  negotiations  were  initiated  to
   determine which of these non-conforming  entities would continue operating in
   a  "non-conforming  location".  In May 2003, these three  affiliated  parties
   granted the exclusive  right to negotiate  with the City of Dallas,  Texas to
   Tempo  Tamers,  Inc. for the  continuance  of the  operations  of the Million
   Dollar Saloon as a sexually oriented business in a "non-conforming location."
   This  Settlement  Agreement  provided  that,  in the  event  that the City of
   Dallas,  Texas  granted  The Million  Dollar  Saloon the  exclusive  right to
   continue  operating as an adult cabaret in a "non-conforming  location" for a
   six (6) year period,  Tempo Tamers would pay $500,000  each to Mainstage  and
   Allen  Burch  and  Mainstage  and  Allen-Burch  would  each  discontinue  the
   operation of their respective sexually oriented businesses.  In May 2003, the
   City of Dallas  agreed to allow  Tempo  Tamers to  continue  to  operate  The
   Million  Dollar Saloon at its current  location  through the last day of July
   2009. Mainstage and Allen Burch then agreed with the City of Dallas, Texas to
   discontinue   the   respective   operations   of  Mainstage   and  The  Fare,
   respectively,  as sexually  oriented  business  in January  and March,  2004,
   respectively.  The  cessation  of  operations  by  Mainstage  and Allen Burch
   triggered the $500,000  payment clause to each entity as set forth in the May
   2003 Settlement Agreement.  The aggregate $1,000,000 payment has been accrued
   in the Company's  financial  statements and is being  amortized to operations
   over  the 67 month  term  from  the  triggering  event  date(s)  through  the
   mandatory  closing  date  of  The  Million  Dollar  Saloon  in  it's  present
   "non-conforming location" on July 31, 2009.

   To reiterate,  in conjunction with an October 2002 Settlement  Agreement with
   the City of Dallas,  Texas,  the  Company's  adult  entertainment  lounge and
   restaurant, Million Dollar Saloon, may operate in its present "non-conforming
   location" with a mandatory closing date of July 31, 2009.

   Female  Entertainment  - The  entertainers  at the Million Dollar Saloon must
   follow  management's  policy  of high  personal  appearance  and  personality
   standards.  A  performer's  physical  appearance  and her  ability to present
   herself  attractively  and to converse  intelligently  with customers is very


                                       4
<PAGE>

   important  to  management.  Management  insists  that the  performers  at The
   Million Dollar Saloon be  experienced  dancers.  The performers  dance on the
   main stage or on small stages  throughout the club. While their  performances
   include  topless  dancing,  management  insists that  performers wear elegant
   attire  when not  dancing,  as opposed to being  scantily  dressed as in many
   other  adult  cabarets.  Management  never  allows  full  nudity in the club.
   Management  provides  performers  with  guidelines  for the  manner of dress,
   hairstyle,  makeup and  general  demeanor.  The  guidelines  are  intended to
   maintain a high standard of professionalism among the performers and maintain
   a  pleasant,   congenial  demeanor.   Further,   management   evaluates  each
   performer's appearance and performance on a nightly basis and advises them if
   their dress, makeup, hairstyle,  general appearance or demeanor does not meet
   the Company's  standards.  Though these  policies have the effect of limiting
   the number of  performers  who are  permitted to dance at the Million  Dollar
   Saloon,  the  Company  believes  that its  policy of  maintaining  these high
   standards  is in the best  interest of the Company and its  long-term  market
   position.

   Compliance Policies - The Company's management has policies in place intended
   to ensure that its business is carried on in conformity with local, state and
   federal laws. In  particular,  the Company's  management has a "no tolerance"
   policy as to  illegal  drug use in or around  the  premises.  Posters  placed
   throughout  the nightclub  reinforce  this policy as do periodic  unannounced
   searches of the entertainer's lockers. Entertainers and waitresses who arrive
   for work are not  allowed to leave the  premises  without the  permission  of
   management.  Once an entertainer does leave the premises,  she is not allowed
   to return to work until the next day.  Management  continually  monitors  the
   behavior of  entertainers,  waitresses  and  customers  to ensure that proper
   standards of behavior are observed.

   Management  also reviews all credit card  charges made by customers  while at
   the Million Dollar  Saloon.  Specifically,  the Company's  policy is that all
   credit card charges must be approved,  in writing,  by management  before any
   charges are accepted.  Club supervisory  personnel review various credit card
   charges,  including  those  purchasing  "house"  money or charges  with total
   charges  above an in-house  floor limit as a control to ensure  collection of
   the  charges and to  minimize  challenges  and or  chargebacks  initiated  by
   patrons after leaving the premises.

   Food and Drink - The Company believes a key to the success of a premier adult
   cabaret is a quality,  first-class bar and restaurant operation to complement
   its adult entertainment. The Company's restaurant operation is a full service
   operation  with a full-scale  lunch and dinner menu service  offering hot and
   cold  appetizers,  salads,  seafood,  steak and other  entrees.  A variety of
   premier  wines  are  offered  to  compliment  a  customer's  lunch or  dinner
   selection.  The Company employs a full-time  Service Manager who is in charge
   of recruiting  and training a  professional  waitress staff and ensuring that
   each customer receives prompt and courteous service.

   Controls  -  Operational  and  accounting   controls  are  essential  to  the
   successful  management of a cash  intensive  nightclub and bar business.  The
   Company uses a  combination  of  nightclub-oriented  accounting  software and
   physical  inventory control  mechanisms  intended to maintain a high level of
   integrity in its accounting  practices.  Computers play a significant role in
   capturing and analyzing a variety of information to provide  management  with
   the information  necessary to efficiently  monitor and control the nightclub.
   Management  controls,  restricts and supervises  carefully all personnel with
   cash handling  responsibilities.  Management  personnel reconcile deposits of
   cash and credit card  receipts  to produce a detailed  daily  income  report.
   Daily  computer  reports  alert  management  of any  variances  from expected
   financial results based on historical norms.

   Atmosphere - We believe that the Million  Dollar Saloon  maintains an elegant
   atmosphere  through its Mediterranean  decor theme and other customer related
   amenities.  We believe the furniture and  furnishings  in the Million  Dollar
   Saloon  contribute  to  the  atmosphere  equivalent  to  that  of an  upscale
   restaurant.  The club  offers a  gourmet  menu,  two  cigar  humidors  and an
   extensive  champagne  and fine wine list.  The sound system  design  provides
   quality  high-energy  music levels that also permit easy conversation to take
   place. The Million Dollar Saloon also provides a state-of-the-art  light show
   and employs a sound and light engineer to upgrade,  monitor, and maintain its
   sound and light systems. Management regularly monitors the environment of the
   Million Dollar Saloon for appropriate music selection,  customer service, and
   upscale appearance, and ambience.

   "VIP" Area - To provide  service for the  upper-end  of the  business  market
   segment,  the Company  maintains a spacious VIP  mezzanine  encompassing  the
   entire  upstairs public area of the Million Dollar Saloon  facility.  The VIP
   area is opened to individuals who pay an increased daily admission  charge or
   purchase annual or lifetime memberships. The VIP area provides a higher level
   of luxury in its decor and more personalized  services. The VIP area consists
   of approximately  1,800 square feet for food and  entertainment  purposes and
   has a maximum occupancy of 100 persons. Catering to the upscale VIP customer,
   this area includes "The Champagne Room" accessible for an additional fee. The
   downstairs club and dining area consists of  approximately  4,500 square feet
   for entertainment  purposes and can accommodate a maximum of 250 persons. The



                                       5
<PAGE>

   lower level also offers "The Blue Room",  a private  entertainment  space for
   bachelor and other large group activities.

   Advertising and Promotion - The Company's marketing philosophy is to position
   the  Million  Dollar  Saloon as a premiere  adult  cabaret  providing  female
   entertainment in a sophisticated, discreet environment for its patrons. Hotel
   publications,  local radio, cable television,  newspapers,  billboards, and a
   variety of other  promotional  activities are regularly  employed so that the
   public recognizes the Million Dollar Saloon name.

Future Expansion

The Company has not determined  evaluated or identified  any specific  locations
outside  of the  Dallas  market  or  conducted  any  efforts  related  to future
expansion,  but it believes,  based upon its experience,  that opportunities for
expansion exist primarily in metropolitan  areas in the Southwest United States.
The aforementioned  approximately 6.6 acre tract located in Dallas, Texas may be
suitable  for  relocation  of  the  club  subsequent  to the  expiration  of its
operating permit in July 2009; however,  these plans are subject to change based
on  municipal  changes in zoning,  neighboring  businesses  or  developments  or
societal  norms.  The Company may expand through the acquisition of sports bars,
casual  clubs and adult  cabarets  that may use the  trademark  "Million  Dollar
Saloon." In determining which cities may be suitable locations for expansion,  a
variety  of factors  will be  considered,  including,  but not  limited  to, the
current  regulatory  environment,  the  availability  of sites  located  in high
traffic  commercial  areas  suitable for conversion to the Million Dollar Saloon
style  cabarets or sports bars or casual  clubs,  potential  competition  in the
area, current market conditions and profitability of other adult cabarets in the
city. At the present time, the Company has no definitive  expansion,  relocation
or other plans for the operation of the existing facility after July 31, 2009 or
any other conceptual facility in the future.

Competition

The adult entertainment nightclub industry is highly competitive with respect to
price,  service,  location,  and the  professionalism of its entertainment.  The
Million Dollar Saloon competes with many locally-owned adult cabarets in Dallas,
Texas, certain of which may enjoy recognition that equals or exceeds that of the
Million  Dollar  Saloon and may be owned or controlled by either Duncan Burch or
Nick Mehmeti,  the Company's officers,  directors and controlling  shareholders.
While  there  may  be  local  governmental  restrictions  on the  location  of a
"sexually  oriented  business",  there are no  barriers  to entry into the adult
cabaret market.  There are in excess of 30 adult cabarets located in the Dallas,
Texas  metropolitan  area of which  several are in direct  competition  with the
Million  Dollar  Saloon.  Some of the  competitive  adult  cabarets are owned by
corporations controlled by or affiliated with Nick Mehmeti and Duncan Burch, who
are  officers  and  directors  of the  Company.  The Company  believes  that the
combination  of its existing name  recognition  and its  distinctive  and unique
entertainment  environment will allow the Company to effectively  compete within
this industry.

Governmental Regulations

The Company is subject to various  federal,  state and local laws  affecting its
business activities. In Texas, the authority to issue a permit to sell alcoholic
beverages is governed by the Texas Alcoholic Beverage Commission  ("TABC").  The
TABC has the authority,  in its discretion,  to issue appropriate  permits.  The
Company,  through a management  agreement  with Tempo Tamers  Beverage  Company,
Inc.,  an  affiliated  corporation,  operates its  business  under a Texas Mixed
Beverage Permit and Late Hours Permit (the "Permits"). These Permits are subject
to annual  renewal,  provided the Company and its  affiliated  corporation  have
complied  with all rules and  regulations  governing  the Permits.  Renewal of a
permit is subject to protest by a law  enforcement  agency or by a member of the
public. In case of protest,  the TABC may hold a hearing for interested  parties
to express  their views.  The TABC has the  authority  after such hearing not to
issue a renewal of the protested  alcoholic  beverage permit. The failure of the
Company to obtain a renewal of its Permits would have a material  adverse effect
upon the financial condition and prospects of the Company.

In 2008, the Texas Alcoholic Beverage  Commission  initiated a regulatory action
against Tempo Tamers Beverage  Company,  Inc. styled "Texas  Alcoholic  Beverage
Commission  v.  Tempo  Tamers  Beverage  Company  Inc."  This  Action  is  being
vigorously   contested  by  the  Company  and  the  potential  outcome  of  this
administrative   action  is  not  determinable  at  this  time.   Management  is
aggressively  defending  these  actions and no material  impact to the Company's
financial  condition is anticipated  at this time;  however,  a finding  against
Tempo Tamers Beverage Company, Inc. could have a significant  detrimental impact
on the operation of the Million Dollar Saloon.

Various groups have increasingly  advocated certain restrictions on "happy hour"
and other promotions  involving  alcoholic  beverages.  The Company believes its
entertainment value,  admittance charge beginning after normal "happy hours" and
its policies of not  discounting  drink prices are effective  tools in promoting
its business. The Company cannot predict whether additional  restrictions on the
promotion of sales of alcoholic  beverages will be adopted,  or if adopted,  the
effect of such restrictions on its business.


                                       6
<PAGE>
Beyond  various  regulatory   requirements   affecting  the  sale  of  alcoholic
beverages,  the location of an adult cabaret is subject to  restriction  by city
ordinance.  In Dallas, the Company is subject to "The Sexually Oriented Business
Ordinance" (the "Ordinance")  which contains  prohibitions on the location of an
adult  cabaret.  The  prohibitions  deal  generally  with distance from schools,
churches,  and other sexually oriented businesses and contain restrictions based
on the  percentage of residences  within the immediate  vicinity of the sexually
oriented  business.   The  granting  of  a  Sexually  Oriented  Business  Permit
("Business  Permit") is not subject to discretion;  the Business  Permit must be
granted if the proposed  operation  satisfies the requirements of the Ordinance.
The Company has held a Business Permit since passage of the city ordinance.  The
Business  Permit  is  valid  for a  period  of  one  year  and is  renewable  by
application of the permit holder subject to a hearing.

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

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

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

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

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

To reiterate,  in conjunction with an October 2002 Settlement Agreement with the
City of Dallas,  Texas, the Company's adult entertainment lounge and restaurant,
Million Dollar Saloon, may operate in its present "non-conforming location" with
a mandatory closing date of July 31, 2009.

Beginning  January 1, 2008,  the Million  Dollar Saloon became  subject to a new
state law requiring a $5 surcharge  for every club  visitor.  A lawsuit has been
filed by the Texas Entertainment Association,  an organization to which we are a
member,  alleging the fee amounts to be an unconstitutional  tax. This tax could
discourage certain potential customers from visiting the Million Dollar Saloon.

Employees

As of June 30, 2008, the Company had  approximately 25 full-time  employees,  of
which 8 were in management  positions,  including  corporate and  administrative
operations  and  17  were  engaged  in  food  and  beverage  service,  including
bartenders and waitresses.  The Company also employed 37 part-time employees who
were  engaged  in food and  beverage  service.  Contract  entertainers  numbered
approximately 134 working on both full and part time schedules,  as individually
determined by the contractor. None of the Company's employees are represented by
a union and the Company considers its employee relations to be good.

Insurance

The Company  maintains  insurance in amounts it considers  adequate for property
damage.

The Company does not maintain  personal  injury liquor  liability  insurance for
exposures or  potential  liabilities  that may be imposed  pursuant to the Texas
"Dram Shop"  statute or similar  "Dram Shop"  statutes or common law theories of
liability  in other  states.  The Texas  "Dram Shop"  statute  provides a person
injured  by  an  intoxicated  person  the  right  to  recover  damages  from  an
establishment  that wrongfully  served alcoholic  beverages to such person if it
was apparent to the server that the  individual  being sold,  served or provided
with an  alcoholic  beverage  was  obviously  intoxicated  to the extent that he
presented a clear danger to himself and others.


                                       7
<PAGE>
Commercial Real Estate

The  Company  owns a total  of four  (4)  properties  in the  Dallas-Fort  Worth
Metroplex.  One facility is Company operated, the Million Dollar Saloon, located
in Dallas,  Texas.  The second  property is owned by Don, Inc. and is located in
Fort Worth,  Texas.  This  property is leased to an entity  controlled by Duncan
Burch,  an officer and  director of the Company,  for the  operation of an adult
cabaret.  The third  property  is owned by  Corporation  Lex and is  located  in
Dallas, Texas. This property,  formerly a vacant free-standing  facility,  which
previously  housed an adult cabaret operated by another entity controlled by Mr.
Burch was sold by  Corporation  Lex on  February  5,  2008,  resulting  in a net
financial statemetn gain of approximately  $25,000. The fourth property consists
of 6.6 acres of undeveloped  real estate located in Dallas,  Texas.  The Company
has not determined the best and ultimate use of this undeveloped property.

The  Company-operated  Million  Dollar  Saloon is  located  in North  Dallas and
consists of a 9,750 square foot building located on an approximate 25,500 square
foot tract of land fronting a major traffic artery.

Management  believes  that  all of its  properties  are  adequately  covered  by
insurance.

Risk Factors

Certain of the  statements  contained  in this Annual  Report on Form 10-KSB are
forward looking statements that involve risks and uncertainties. Such statements
are  subject to  important  factors  that could cause  actual  results to differ
materially, including the following risk factors:

The operations of Million Dollar Saloon have a definitive closing date
----------------------------------------------------------------------

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.  This  requirement  will  have  a
significant negative impact on the Company's operations, revenues and earnings.

Our  officers  and  directors  are also our  largest  stockholder  and control a
--------------------------------------------------------------------------------
significant percentage of our common stock, the Company competes with businesses
--------------------------------------------------------------------------------
owned  by them  and  their  interests  may  conflict  with  those  of our  other
--------------------------------------------------------------------------------
stockholders.
-------------

As of the date of this filing, Nick Mehmeti, our Chief Executive Officer,  Chief
Financial  Officer and directors and Duncan Burch,  and Executive Vice President
and director,  in the aggregate,  beneficially owned approximately 59.48% of our
outstanding common stock. As a result,  these  stockholders  acting together are
able to exercise  significant  influence over most matters requiring approval by
our  stockholders,  including  the  election of  directors  and the  approval of
significant corporate  transactions.  Such a concentration of ownership may have
the effect of  delaying  or  preventing  a change in  control  of us,  including
transactions in which  stockholders  might otherwise receive a premium for their
shares over then current market prices.

Further, Nick Mehmeti and Duncan Burch, and/or entities under their control, own
and/or  operate  other  adult  cabarets,  restaurants  and  sports  bars  in the
Dallas-Fort  Worth  Metroplex.  Accordingly,  the  Company  is engaged in direct
competition  with the adult  cabarets  owned by  Messrs.  Mehmeti  and Burch for
customers and employment of female  entertainers.  Mr. Mehmeti's and Mr. Burch's
interests in these cabarets present  potential  conflicts of interest with those
of the Company and its  stockholders.  The Company believes that the combination
of its existing name  recognition and its  distinctive and unique  entertainment
allows it to effectively compete with these adult cabarets. However, the Company
is unable to ascertain  the effect,  if any,  that such  competition  has had on
revenues  or the  Company's  ability to  attract  and  retain  qualified  female
entertainers.

Adult Cabaret operations are subject to local economic conditions.
------------------------------------------------------------------

The adult entertainment, restaurant and bar industry is a volatile industry. The
industry tends to be sensitive to the general local economy. When local economic
conditions are prosperous, entertainment industry revenues increase, conversely,
when local economic conditions are unfavorable,  entertainment industry revenues
decline.  Customers  who frequent  adult  cabarets  generally  follow  trends in
personal preferences. The Company continuously monitors trends in its customers'
tastes and  entertainment  preferences so that, if necessary,  it can change its
operations and services to accommodate the changes in trends.

The Company's  operations are directly  attributable to overall  fluctuations in
visitor  traffic to the Dallas-Ft.  Worth Metroplex and the effects of shifts in
economic  and  ethnic  populations  in the  immediate  geographical  area of the
Company's  location.  While  the  Company's  facility  holds a  valid  "sexually


                                       8
<PAGE>
oriented  business"  license  issued by the City of Dallas,  Texas;  the City of
Dallas,  Texas continues to pursue  vigorous  random on-site  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.

Any of these factors, individually or in combination,  including any significant
decline in general  corporate  conditions  or the  domestic  economy that affect
consumer spending could have a material adverse effect on the Company's business
and financial condition.

Failure to maintain adequate financial controls could result in lost revenues.
------------------------------------------------------------------------------

A  significant  part of the  revenues  earned by the  Company  through its adult
nightclub  operations will be collected in cash by full and part-time employees.
Comprehensive  financial controls are required to minimize the potential loss of
revenue  through  theft or  misappropriation  of cash.  To the extent that these
controls are not  structured  or executed  properly,  significant  cash revenues
could be lost and the  profitability  of the  Company  could  be  impaired.  The
Company  believes  that  it has  implemented  sufficient  cash  controls  and is
utilizing a combination of accounting and physical  inventory control devices to
deter  theft and to  provide a high  level of  security  within  its  accounting
practices and procedures.

Under  current  rules,  we  will be  required  to  comply  with  certain  of the
provisions of Section 404 of the  Sarbanes-Oxley  Act of 2002 as of December 31,
2008.  Section 404 requires that we document and test our internal  control over
financial  reporting and issue  management's  assessment of our internal control
over financial reporting. We will be required to have our independent registered
public  accounting  firm  opine  on those  internal  controls  and  management's
assessment of those controls for our fiscal year ended December 31, 2009. During
the course of our ongoing  evaluation and  integration  of the internal  control
over financial reporting,  we may identify areas requiring  improvement,  and we
may have to design enhanced  processes and controls to address issues identified
through  this  review.   The  time  and  costs  necessary  to  comply  with  the
requirements of Section 404 of the Sarbanes-Oxley Act could be significant.

We cannot be certain at this time that we will be able to successfully  complete
the procedures,  certification  and  attestation  requirements of Section 404 or
that we or our  auditors  will not  identify  material  weaknesses  in  internal
control over financial reporting.  If we fail to comply with the requirements of
Section 404 or if we or our auditors identify and report such material weakness,
the accuracy and  timeliness of the filing of our annual and  quarterly  reports
may  be  materially  adversely  affected  and  could  cause  investors  to  lose
confidence in our reported  financial  information,  which could have a negative
effect on the  trading  price of our  common  stock.  In  addition,  a  material
weakness in the  effectiveness of our internal control over financial  reporting
could  result in an increased  chance of fraud and theft,  reduce our ability to
obtain  financing  and  require  additional  expenditures  to comply  with these
requirements,  each  of  which  could  have a  material  adverse  effect  on our
business, results of operations and financial condition.

There is significant competition within the adult cabaret industry.
-------------------------------------------------------------------

The adult cabaret  entertainment  business is highly competitive with respect to
price,  service,  location and the professionalism of entertainment and is often
affected by changes in consumer tastes, economic conditions, population, visitor
and convention attendance and local traffic patterns.  The Million Dollar Saloon
competes in Dallas with a number of locally-owned adult cabarets,  some of whose
names may enjoy  recognition  that equals or exceeds that of the Million  Dollar
Saloon. Although the Company believes that due to its strategic location it will
be able to compete successfully with other local adult cabarets, there can be no
assurance  that the  Company  will be able to  maintain  its high  level of name
recognition and prestige within the marketplace.  The Company's  success depends
on maintaining a high quality of female entertainers and waitresses. Competition
for female entertainers in the adult entertainment business is intense. The lack
of availability of quality, personable, attractive entertainers or the Company's
inability to attract and retain other key employees,  such as kitchen  personnel
and bartenders, could adversely affect the business of the Company.

The Company's commercial  properties are not subject to long-term leases; rental
--------------------------------------------------------------------------------
income in the future may decline.
---------------------------------

                                        9
<PAGE>
The property owned by Corporation  Lex has been vacant for several years and was
sold on February 5, 2008. The property owned by Don, Inc., located in Ft. Worth,
Texas,  is  currently  leased  by  an  entity  controlled  by  Mr.  Burch  on  a
month-to-month  basis.  Although the Company is seeking  lease terms that are at
least comparable to terms for similar properties in the geographic area in which
the properties  are located,  there can be no assurance that the Company will be
able to enter  into  long-term  leases  for  these  properties  that  will be as
favorable to the Company.  The  discontinuance  of the  month-to-month  lease or
failure  to  acquire a  long-term  lease  agreement  for the Fort  Worth,  Texas
location could have a material adverse effect on the revenues of the Company.

Management of Growth.
---------------------

For the Company to expand its business  operations,  it must continue to improve
and expand the expertise of its  personnel  and must  attract,  train and manage
qualified managers and employees to oversee and manage the expanded  operations.
The Company may elect to expand its existing  business  operations by opening or
acquiring  additional  adult  cabarets  in  metropolitan  areas  located  in the
Southwestern  United States. The opening of additional cabarets will subject the
Company to a variety of risks  associated  with rapidly  growing  companies.  In
particular,  the  Company's  growth  may  place  a  significant  strain  on  its
accounting  systems,   internal  controls,   and  oversight  of  its  day-to-day
operations.  Although  management intends to take sufficient measures to provide
that its internal  controls  remain  adequate to meet the demands of any growth,
there can be no  assurance  that its  systems,  controls  or  personnel  will be
sufficient  to meet these  demands.  Inadequacies  in these  areas  could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

We are subject to governmental regulation and must obtain permits related to the
--------------------------------------------------------------------------------
sale of alcoholic beverages and the operation of a sexually oriented business.
------------------------------------------------------------------------------

The Million  Dollar Saloon is subject to licensing  and  regulation by alcoholic
beverage  control,  health,  sanitation,  safety and fire agencies in the state,
county  and/or  municipality  where it is  located.  While the Company and Tempo
Tamers have historically obtained annual renewals of the TABC Permits and Dallas
Business Permit,  there can be no assurance that the Permits will continue to be
renewed.  The  temporary  or permanent  suspension  or  revocations  of the TABC
Permits or the Dallas  Business  Permit or the  inability  to obtain  permits in
potential  areas of  expansion  would  have a  material  adverse  effect  on the
revenues, financial condition and results of operations of the Company.

We  generally  have not  encountered  any material  difficulties  or failures in
obtaining and maintaining  the required  licenses and approvals that could delay
or prevent the opening of a new restaurant,  or impact the continuing operations
of an existing  restaurant.  Although we do not,  at this time,  anticipate  any
occurring  in the  future,  we  cannot  assure  you that we will not  experience
material difficulties or failures that could delay the opening of restaurants in
the future, or impact the continuing operations of an existing restaurant.

We are  further  subject to the Fair Labor  Standards  Act (which  governs  such
matters as minimum wages, overtime and other working conditions),  the Americans
with Disabilities Act, various family leave mandates and a variety of other laws
enacted,  or rules  and  regulations  promulgated  by  federal,  state and local
governmental  authorities  that govern these and other  employment  matters.  We
expect  increases in payroll  expenses as a result of federal and state mandated
increases  in the  minimum  wage.  In  addition,  our vendors may be affected by
higher  minimum  wage  standards,  which  may  increase  the  price of goods and
services they supply to us.

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.  Affiliated entities,  Mainstage,  Inc. and Allen Burch, Inc.,
(corporations  controlled by Nick Mehmeti and Duncan Burch,  respectively)  then
agreed with the City of Dallas,  Texas to discontinue the respective  operations
of their respective sexually oriented businesses in January and March, 2004. 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.

In 2008, the Texas Alcoholic Beverage  Commission  initiated a regulatory action
against Tempo Tamers Beverage  Company,  Inc. styled "Texas  Alcoholic  Beverage
Commission  v.  Tempo  Tamers  Beverage  Company  Inc."  This  Action  is  being
vigorously   contested  by  the  Company  and  the  potential  outcome  of  this
administrative   action  is  not  determinable  at  this  time.   Management  is
aggressively  defending  these  actions and no material  impact to the Company's
financial  condition is anticipated  at this time;  however,  a finding  against
Tempo Tamers Beverage Company, Inc. could have a significant  detrimental impact
on the operation of the Club.

                                       10
<PAGE>
We  may be  subject  to  liabilities  in  excess  of the  coverage  provided  by
--------------------------------------------------------------------------------
insurance.
----------

We maintain  insurance in amounts we consider  adequate for personal  injury and
property damage to which the business of the Company may be subject. The Company
does not maintain  personal injury liquor  liability  insurance for exposures or
potential  liabilities  that may be imposed  pursuant  to the Texas  "Dram Shop"
statute or similar "Dram Shop" statutes.  The Texas "Dram Shop" statute provides
a person injured by an intoxicated  person the right to recover  damages from an
establishment  that wrongfully  served alcoholic  beverages to such person if it
was apparent to the server that the  individual  being sold,  served or provided
with an  alcoholic  beverage  was  obviously  intoxicated  to the extent that he
presented  a clear  danger to himself  and  others.  There can be no  assurance,
however,  that uninsured  liabilities  may not arise which could have a material
adverse effect on the Company.

Limitations on protection of service marks.
-------------------------------------------

Rights of the Company to the trade name "Million  Dollar Saloon" were purchased.
There is no assurance that the Company will be able to protect its trade name to
deter misappropriation of its protected intellectual property rights. Litigation
may  be  necessary  in  the  future  to  protect  the   Company's   rights  from
infringement,  which may be costly and time consuming.  The loss of the right to
use the trade name "Million Dollar Saloon" would have a material  adverse effect
on the Company and its business operations.

Our Board of Directors may issue, without stockholder approval,  preferred stock
--------------------------------------------------------------------------------
with  dividend,  liquidation,  conversion,  voting or other  rights  which could
--------------------------------------------------------------------------------
adversely  affect the voting  power or other rights of the holders of our common
--------------------------------------------------------------------------------
stock.
------

Our  Certificate  of  Incorporation  authorizes  the issuance of up to 5,000,000
shares of preferred stock with designations,  rights and preferences  determined
from time to time by our Board of Directors. Accordingly, our Board of Directors
may  issue,  without  stockholder  approval,   preferred  stock  with  dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of our common stock.  As of the date
of this filing , there are no shares of preferred stock  outstanding.  If shares
of preferred stock are issued, such shares could affect the rights of holders of
our common stock.

Penny stock regulations may impose certain  restrictions on marketability of our
--------------------------------------------------------------------------------
securities.
-----------

The  trading  of our  common  stock is  subject  to rules  pertaining  to "penny
stocks." The SEC has adopted  regulations which generally define a "penny stock"
to be any equity  security  that has a market  price (as  defined)  of less than
$5.00 per share or an  exercise  price of less than $5.00 per share,  subject to
certain  exceptions.  As a result,  our  common  stock is  subject to rules that
impose additional sales practice  requirements on  broker-dealers  who sell such
securities to persons other than established clients and "accredited investors."
For transactions  covered by these rules, the broker-dealer  must make a special
suitability  determination for the purchase of such securities and have received
the  purchaser's  written  consent  to the  transaction  prior to the  purchase.
Additionally,  for any transaction  involving a penny stock,  unless exempt, the
rules  require the  delivery,  prior to the  transaction,  of a risk  disclosure
document  mandated  by  the  SEC  relating  to  the  penny  stock  market.   The
broker-dealer   must  also   disclose  the   commission   payable  to  both  the
broker-dealer  and the  registered  representative,  current  quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must  disclose  this  fact and the  broker-dealer's  presumed  control  over the
market.  Finally,  monthly  statements  must be  sent  disclosing  recent  price
information  for the penny  stock held in the  account  and  information  on the
limited  market in penny  stocks.  Consequently,  the  "penny  stock"  rules may
restrict  the ability of  broker-dealers  to sell shares of common stock and may
affect the ability of  investors  to sell such shares of our common stock in the
secondary  market  and the price at which  such  investors  can sell any of such
shares.

Investors  should be aware  that,  according  to the SEC,  the  market for penny
stocks has  suffered  in recent  years from  patterns  of fraud and abuse.  Such
patterns include:

--   control of the market for the security by one or a few broker-dealers  that
     are often related to the promoter or issuer
--   manipulation of prices through prearranged  matching of purchases and sales
     and false and misleading press releases
--   "boiler  room"   practices   involving  high  pressure  sales  tactics  and
     unrealistic price projections by inexperienced sales persons


                                       11
<PAGE>

--   excessive  and  undisclosed  bid-ask  differentials  and markups by selling
     broker-dealers
--   the   wholesale   dumping  of  the  same   securities   by  promoters   and
     broker-dealers after prices have been manipulated to a desired level, along
     with the  inevitable  collapse  of those  prices with  consequent  investor
     losses

Our  management  is aware of the abuses that have occurred  historically  in the
penny stock market.

We can give no assurances as to the market for our common stock.
----------------------------------------------------------------

Since 1996, our common stock has been quoted on the OTC Bulletin Board under the
symbol  "MLDS." There is a limited  market for our shares.  We cannot assure you
that an active  trading  market  will  develop,  or if it does,  that it will be
sustained.

We do not  currently  pay  dividends on our common  stock and do not  anticipate
--------------------------------------------------------------------------------
doing so in the future.
-----------------------

We have  paid  no cash  dividends  on our  common  stock,  and  there  can be no
assurance that we will achieve sufficient  earnings to pay cash dividends on our
common  stock in the  future.  We  intend  to retain  any  earnings  to fund our
operations.  Therefore,  we do not  anticipate  paying any cash dividends on our
common stock in the  foreseeable  future.  In addition,  the terms of our credit
agreement  prohibit  the payment of any  dividends  to the holders of our common
stock.

Our stock is thinly  traded,  so you may be unable to sell at or near ask prices
or at all.

The shares of our common stock are quoted on the OTC Bulletin  Board.  Shares of
our  common  stock  are  thinly-traded,  meaning  that  the  number  of  persons
interested  in  purchasing  our common shares at or near ask prices at any given
time may be relatively small or non-existent.  This situation is attributable to
a number of factors, including:

--   we are a small company that is relatively unknown to stock analysts,  stock
     brokers,  institutional  investors and others in the  investment  community
     that generate or influence sales volume; and

--   stock  analysts,   stock  brokers  and   institutional   investors  may  be
     risk-averse  and be reluctant to recommend the purchase of our shares until
     such time as we became more seasoned and viable.

As a consequence,  our stock price may not reflect an actual or perceived value.
Also,  there may be periods of several days or more when trading activity in our
shares is minimal or  non-existent,  as compared to a seasoned issuer that has a
large and  steady  volume  of  trading  activity  that  will  generally  support
continuous  sales  without an adverse  effect on share price.  A broader or more
active  public  trading  market  for our  common  shares  may not  develop or if
developed, may not be sustained. Due to these conditions, you may not be able to
sell your shares at or near ask prices or at all if you need money or  otherwise
desire to liquidate your shares.

Item 2 - Description of Property

The Company  maintains its corporate office at 6848 Greenville Avenue in Dallas,
Texas. The corporate office is comprised of approximately  2,700 square feet and
is subject to a monthly  rental  payment of  approximately  $3,600.  The Company
occupies the premises for its corporate offices on a month-to-month basis. Based
on current local market conditions and available  information,  management is of
the  belief  that it will be able to  relocate  to a  comparable  location  at a
comparable cost if necessary.

The Million  Dollar  Saloon is located in North  Dallas and  consists of a 9,750
square foot building located on an approximate  25,500 square foot tract of land
fronting a major traffic artery.

The Fort Worth,  Texas facility is owned by Don, Inc. and is leased to an entity
controlled  by Duncan  Burch,  an officer and director of the  Company,  for the
operation of an adult  cabaret.  The property is a stand-alone  structure and is
100% occupied with a single tenant.  The property is subject to a month-to-month
lease that requires the tenant to pay a weekly rental of $8,500.

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.
                                       12

<PAGE>
<TABLE>
<CAPTION>
However,  the Settlement Agreement did affect the usage of the property owned by
Corporation Lex located at 3021 Northwest Highway,  Dallas, Texas. In accordance
with the Settlement Agreement,  the lessee terminated the operation of the adult
cabaret  business  at the  Northwest  Highway  location  on July 31,  2003.  The
facility  has been  vacant  since that date and was sold by  Corporation  Lex on
February 5, 2008, resulting in a net gain of approximately $25,000.

The following is a summary of the terms,  conditions and operating parameters of
the referenced properties:
                                                                      Location/Address
                                                                      ----------------
                                                    3021 Northwest Highway    3601 State Highway 157
                                                         Dallas, Texas            Ft. Worth, Texas
                                                         -------------            ----------------
<S>                                                                               <C>
   Owner                                                Corporation Lex              Don, Inc.
   Square footage
     Building                                                8,550                     4,850
     Real estate tract                                      37,162                    60,398
   Mortgages                                                 None                      None
   Lease expiration                                         Vacant                month-to-month
   Scheduled rentals                                        Vacant                $8,500 per week
   Effective annual rental per square foot
     (Total lease term)                                      $-0-                     $91.13
   Gross book basis (including land)                      $1,206,829                 $160,447
   Net book basis (including land)                         $870,930                   $56,263
   Federal income tax basis (excluding land)               $335,901                   $18,418
   Depreciation method and life                           SL-19 years              ACRS-15 years
   Ad valorem tax rate per $100 of valuation

</TABLE>


Item 3 - Legal Proceedings

1) City of Dallas licensing

     In conjunction  with an October 2002 Settlement  Agreement with the City of
     Dallas,  Texas, the Company entered into negotiations between the Company's
     wholly-owned subsidiary,  Tempo Tamers, Inc., Mainstage,  Inc. (Mainstage),
     an entity  controlled  by Nick  Mehmeti,  the  Company's  President,  which
     operated a non-conforming  adult cabaret located in Dallas,  Texas,  called
     P.T.'s and Allen-Burch,  Inc. (Allen Burch), an entity controlled by Duncan
     Burch,  a Company  officer and  significant  shareholder,  also operating a
     non-conforming  adult cabaret known as The Fare.  These  negotiations  were
     initiated  to  determine  which  of  these  non-conforming  entities  would
     continue operating in a "non-conforming location". In May 2003, these three
     affiliated  parties  granted the exclusive right to negotiate with the City
     of  Dallas,  Texas  to  Tempo  Tamers,  Inc.  for  the  continuance  of the
     operations of the Million Dollar Saloon as a sexually  oriented business in
     a "non-conforming  location." This Settlement  Agreement  provided that, in
     the event that the City of Dallas,  Texas granted the Million Dollar Saloon
     the  exclusive  right  to  continue  operating  as an  adult  cabaret  in a
     "non-conforming location" for a six (6) year period, Tempo Tamers would pay
     $500,000 each to Mainstage  and Allen Burch and  Mainstage and  Allen-Burch
     would each discontinue the operation of their respective  sexually oriented
     businesses.  In May 2003,  the City of Dallas,  Texas agreed to allow Tempo
     Tamers to  continue to operate  the  Million  Dollar  Saloon at its current
     location through the last day of July 2009.  Mainstage and Allen Burch then
     agreed  with  the  City of  Dallas,  Texas to  discontinue  the  respective
     operations of Mainstage and The Fare,  respectively,  as sexually  oriented
     business  in January  and  March,  2004,  respectively.  The  cessation  of
     operations  by Mainstage  and Allen Burch  triggered  the $500,000  payment
     clause to each  entity as set forth in the May 2003  Settlement  Agreement.
     The aggregate  $1,000,000  payment was 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 Million  Dollar  Saloon 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  settlement  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.


                                       13
<PAGE>
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 Million Dollar Saloon  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 Dryer 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 Million  Dollar Saloon  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 Million Dollar Saloon.  The initial case was dismissed  against
     Million  Dollar  Saloon Inc.  when a  settlement  was  reached  between the
     Plaintiff  and  alleged  customer.  A new lawsuit  was  thereafter  refiled
     against Tempo Tamers Inc. and Tempo Tamers Beverage  Company Inc. This case
     is  scheduled  for a jury  trial to  commence  on August  11,  2008 and the
     ultimate  outcome  is  not   determinable  at  this  time.   Management  is
     aggressively  defending  these  actions  and  no  material  impact  to  the
     Company's financial condition is anticipated at this time.

6) Texas Alcoholic Beverage Commission v. Tempo Tamers Beverage Company Inc.

     This is Administrative  action brought by a state regulatory agency against
     a non subsidiary  corporation which provides Tempo Tamers, Inc. with liquor
     permitting and services for the Tempo Tamers,  Inc.'s  business  operations
     known as "Million Dollar Saloon".

     This Action is being vigorously  contested by the Company and the potential
     outcome of this  administrative  action is not  determinable  at this time.
     Management is  aggressively  defending these actions and no material impact
     to the Company's  financial condition is anticipated at this time; however,
     a  finding  against  Tempo  Tamers  Beverage  Company,  Inc.  could  have a
     significant detrimental impact on the operation of the Club.

From  time-to-time,  in the ordinary course of business,  the Company has become
and may become party to other lawsuits. The outcome of this litigation, existing
or future, if any, is not determinable at this time.  Management is aggressively
defending any current  actions and  anticipates  aggressively  defending  future
actions, if any.

Item 4 - Submission of Matters to a Vote of Security Holders
The Company has not conducted any meetings of shareholders  during the preceding
quarter or periods subsequent thereto.


                                       14
<PAGE>

                                     PART II

Item 5 - Market for Company's  Common Equity,  Related  Stockholder  Matters and
Small Business Issuer Purchases of Equity Securities

Transfer Agent

Our independent stock transfer agent is Securities Transfer  Corporation.  Their
address is 2591 Dallas Parkway,  Suite 102, Frisco, TX 75034. Their phone number
is (469) 633-0101 and their fax number is (469) 633-0088.


Market for Trading

As of June 30,  2008,  the  Company  had  approximately  824  holders of record,
exclusive of shares held in "street name", of its Common Stock and had 5,731,778
issued and outstanding shares of Common Stock.

The  Company's  Common  Stock has been  quoted on The OTC  Bulletin  Board under
symbol  "MLDS"  since  January  29,  1996.  The  following  table sets forth the
quarterly  average  high and low  closing  bid  prices  per share for the Common
Stock:
                                                   High                 Low
                                                   ----                 ---
Fiscal year ended December 31, 2003
   Quarter ended March 31, 2003                   $0.25               $0.11
   Quarter ended June 30, 2003                     0.25                0.11
   Quarter ended September 30, 2003                0.29                0.12
   Quarter ended December 31, 2003                 0.28                0.12

Fiscal year ended December 31, 2004
   Quarter ended March 31, 2004                   $0.15               $0.12
   Quarter ended June 30, 2004                     0.24                0.10
   Quarter ended September 30, 2004                0.24                0.12
   Quarter ended December 30, 2004                 0.25                0.13

Fiscal year ended December 31, 2005
   Quarter ended March 31, 2005                   $0.39               $0.15
   Quarter ended June 30, 2005                     0.22                0.07
   Quarter ended September 30, 2005                0.19                0.09
   Quarter ended December 31, 2005                 0.17                0.13

Fiscal year ending December 31, 2006
   Quarter ended March 31, 2006                   $0.20               $0.15
   Quarter ended June 30, 2006                     0.30                0.16
   Quarter ended September 30, 2006                0.20                0.15
   Quarter ended December 31, 2006                 0.25                0.15

Fiscal year ended December 31, 2007
   Quarter ended March 31, 2007                   $0.23               $0.19
   Quarter ended June 30, 2007                     0.25                0.19
   Quarter ended September 30, 2007                0.25                0.19
   Quarter ended December 31, 2007                 0.25                0.19

Fiscal year ended December 31, 2008
   Quarter ended March 31, 2008                   $0.28               $0.19
   Quarter ended June 30, 2008                     0.25                0.20

The  source  for the  high  and low  closing  bids  quotations  is the  National
Quotation Bureau, Inc. and does not reflect inter-dealer prices, such quotations
are without retail  mark-ups,  mark-downs or commissions,  and may not represent


                                       15
<PAGE>
actual  transactions  and have not been adjusted for stock  dividends or splits.
The reported  closing  price of the Company's  common  stock,  based on the last
reported trade on July 7, 2008 was $0.20 per share.

Common Stock
------------

The  Company's  Articles  of  Incorporation  authorize  the  issuance  of  up to
50,000,000 shares of $0.001 par value Common Stock. Each record holder of Common
Stock  is  entitled  to one vote for each  share  held on all  matters  properly
submitted  to the  stockholders  for  their  vote.  The  Company's  Articles  of
Incorporation do not permit for cumulative voting for the election of directors.

Holders of outstanding  shares of Common Stock are entitled to such dividends as
may be  declared  from time to time by the  Board of  Directors  out of  legally
available funds; and, in the event of liquidation,  dissolution or winding up of
the affairs of the Company,  holders are entitled to receive,  ratably,  the net
assets of the Company  available to stockholders  after  distribution is made to
the  preferred  stockholders,  if  any,  who are  given  preferred  rights  upon
liquidation.  Holders of outstanding  shares of Common Stock have no preemptive,
conversion or redemption  rights.  All of the issued and  outstanding  shares of
Common Stock are,  and all  unissued  shares when offered and sold will be, duly
authorized,  validly issued, fully paid, and non-assessable.  To the extent that
additional  shares of the  Company's  Common  Stock  are  issued,  the  relative
interests of then existing stockholders may be diluted.

Recent issuances of Unregistered Securities
-------------------------------------------

None

Dividend policy
---------------

No  dividends  have been paid in the most recent  fiscal year and the  Company's
Board of Directors  does not  anticipate  paying  dividends  in the  foreseeable
future.  It is the  current  policy to retain all  earnings,  if any, to support
current operations.


Item 6 - Management's Discussion and Analysis or Plan of Operation

The following  discussion and analysis  should be read in  conjunction  with the
financial  statements and related notes included elsewhere in this annual report
on Form 10-KSB. This discussion contains  forward-looking  statements reflecting
our  current  expectations,  estimates  and  assumptions  concerning  events and
financial  trends  that may  affect our future  operating  results or  financial
position.  Actual  results and the timing of events may differ  materially  from
those contained in these forward-looking  statements due to a number of factors,
including those  discussed in the sections  entitled "Risk Factors" and "Caution
Regarding Forward-Looking Information" appearing elsewhere in this annual report
on Form 10-KSB.

Critical Accounting Policies and Estimates
------------------------------------------

Our discussion and analysis of our financial condition and results of operations
are based upon consolidated  financial  statements,  which have been prepared in
accordance with accounting principles generally accepted in the United States of
America,  or GAAP. The preparation of these  consolidated  financial  statements
requires us to make estimates and judgments that affect the reported  amounts of
assets, liabilities,  revenues and expenses. We have identified certain of these
policies as being of  particular  importance  to the  portrayal of our financial
position  and  results  of  operations  and which  require  the  application  of
significant judgment by our management. We analyze our estimates including those
related to marketable  securities,  accounts  receivable,  revenue  recognition,
inventory, and income taxes, and base our estimates on historical experience and
various  other   assumptions   that  we  believe  to  be  reasonable  under  the
circumstances.  Actual results may differ from these  estimates  under different
assumptions or conditions. We believe the following critical accounting policies
affect our more  significant  judgments and estimates used in the preparation of
our consolidated financial statements:

Marketable Securities
---------------------

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


                                       16
<PAGE>

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

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

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

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

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

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

Accounts Receivable and Revenue Recognition
-------------------------------------------

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

     Since  December  31,  2000,  all  rental  property   lessors  are  entities
     controlled by a Company controlling shareholder,  officer and director. All
     lease  rental  payments are due in advance on the first day of the week for
     that week.  All revenue  sources  are  located  either in Dallas or Tarrant
     County, Texas.

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

Inventory
---------

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

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.

Year ended December 31, 2005 as compared to Year ended December 31, 2004
------------------------------------------------------------------------

Bar and restaurant sales decreased by  approximately  $(687,000) (or -20.45%) in
the year ended December 31, 2005. Bar and  restaurant  sales were  approximately
$2,672,000  for the year ended  December  31, 2005 as compared to  approximately
$3,359,000 for 2004.

The decrease over the  comparable  period from the  preceding  year is generally
attributable to 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.  The Company
has  experienced  continually  deteriorating  revenue  volumes  over  the past 4
calendar  quarters  and  management  is unable to  predict  if these  trends are
expected to continue into 2006 or reverse themselves.

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


                                       17
<PAGE>

business" license issued by the City of Dallas, Texas; the City of Dallas, Texas
continues  to pursue  vigorous  enforcement  of its Sexually  Oriented  Business
Ordinance.  This  Ordinance  restricts the attire and dancing  activities at the
Company's  Million  Dollar  Saloon,  and other local adult  cabarets,  which has
resulted in  unpredictable  fluctuations  in patron  attendance at the Company's
facilities.

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

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

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

The Company's rental income declined by  approximately  $14,000 to approximately
$442,000  for the year ended  December  31, 2005 as  compared  to  approximately
$456,000 for Calendar 2004. 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  during  the
quarter ended September 30, 2004. 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  $25,000.  Accordingly,  management  did not and has not
provided a loss or impairment of the recorded  carrying  value as of the date of
the accompanying financial statements.

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 to approximately  $1,190,000 for the year ended December
31, 2005 as compared to  approximately  $1,887,000  for the 2004.  Gross  profit
percentages improved to approximately 61.78% (approximately  $1,923,000) for the
year ended December 31, 2005 versus 50.54% (approximately  $1,928,000) for 2004.
Fluctuations in the Company's gross profit percentages react to and parallel the
key  areas  of  management  focus  for  cost  of  sales  expenditure  control  -
principally  personnel staffing levels and food and beverage costs. These areas,
specifically cost controls over purchasing,  inventory  management protocols and
labor  management,  are  continuously  monitored to maintain the Company's gross
profit percentages.

General and administrative  expenses were approximately  $1,633,000 for the year
ended  December 31, 2005 as compared to  approximately  $1,858,000 for 2004. The
decrease was  attributable  lower  operating costs and lower legal expenses as a
result of ongoing  litigation and issues related to the City of Dallas  Sexually
Oriented Business Ordinance which were incurred prior years 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.

Due to the 2005  impact  of an  approximate  $415,000  lawsuit  settlement,  the
Company  experienced  net income (loss)  before  income taxes was  approximately
$(117,000) for the year ended December 31, 2005 versus approximately $74,000 for
2004.   After-tax  net  income  decreased  by   approximately   $(197,000)  from


                                       18
<PAGE>

approximately  $74,000  for  year  ended  December  31,  2004  to  approximately
$(123,000)   for  2005..   The  Company   experienced   earnings  per  share  of
approximately  $(0.02) and $0.01 per share for each of the years ended  December
31, 2005 and 2004, 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.

Liquidity

As  of  December  31,  2005  and  2004,  the  Company  has  working  capital  of
approximately   $(522,000)  and  $(719,000).   The  Company  achieved   positive
(negative)  cash flows from  operations of  approximately  $573,000 for the 2005
versus approximately $418,000 for 2004.

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  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.

Capital Resources

On February 14, 2003, the Company purchased 6.695 acres of undeveloped  property
located in Dallas,  Texas.  The  purchase  price was  approximately  $2,650,312,
including closing expenses of approximately  $53,599.  The Company paid $493,072
cash,  inclusive of a $140,000 loan to the Company from Duncan Burch, an officer
and  director of the  Company,  and issued to the seller a one-year  note in the
principal  amount of $2,156,713 with 8% annual  interest.  This debt was paid in
full with proceeds of the $2,000,000  long-term  mortgage note refinancing.  The
Company paid  approximately  $153,800  during  Calendar  2003 and  approximately
$14,700 during Calendar 2004 to service this initial short-term debt.

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

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

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


                                       19
<PAGE>

Accounting Pronouncements

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


Item 7 - Index to Financial Statements

The required financial statements begin on page F-1 of this document.


Item 8 -  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosures

Resignation of S. W. Hatfield, CPA's
------------------------------------

On October 8, 2004,  the Board of  Directors  of  Million  Dollar  Saloon,  Inc.
(Company) was notified by it's auditors, S. W. Hatfield, CPA (SWHCPA) of Dallas,
Texas  that,  due to the partner  rotation  rules and  regulations  of the U. S.
Securities and Exchange  Commission and Sarbanes-Oxley Act of 2002, SWHCPA would
resign  effective  upon the Company's  filing of the Form 10-QSB for the quarter
ended September 30, 2004.

The Company's Board of Directors accepted the resignation of SWHCPA.

No accountant's report on the financial statements for either of the years ended
December  31, 2003 and 2002  contained  an adverse  opinion or a  disclaimer  of
opinion  or  was  qualified  or  modified  as to  uncertainty,  audit  scope  or
accounting principles, except for a going concern opinion expressing substantial
doubt about the ability of the Company to continue as a going concern.

During the Company's  two most recent fiscal years (ended  December 31, 2003 and
2002) and from  January 1, 2004  through  the date of the filing of the Form 8-K
reporting this event,  there were no disagreements  with SWHCPA on any matter of
accounting principles or practices,  financial disclosure,  or auditing scope or
procedure.   There   were  no   reportable   events,   as   described   in  Item
304(a)(1)(iv)(B)  of Regulation S-B, during the Company's two most recent fiscal
years  (ended  December  31, 2003 and 2002) and from January 1, 2004 through the
date of the Form 8-K reporting this event.

Engagement of Blanchfield, Meyer, Kober & Rizzo, LLP
----------------------------------------------------

On December 1, 2005, the Company's Board of Directors approved the engagement of
Blanchfield, Meyer, Kober & Rizzo, LLP of Hauppauge, NY (BMK&R) as the Company's
new  registered  independent  public  accounting  firm to  audit  the  Company's
financial  statements  for the year  ended  December  31,  2004  and  subsequent
periods.  Pursuant to SEC Release 34-42266, BMK&R will also review the Company's
financial statements to be reported in Quarterly Reports on Form 10-QSB.

The Company  did not  consult  with BMK&R at any time prior to December 1, 2005,
including the Company's two most recent fiscal years ended December 31, 2003 and
2002, and the subsequent  interim periods through the date of this Report,  with
respect to the application of accounting principles to a specified  transaction,
either  completed  or  proposed,  or the type of  audit  opinion  that  might be
rendered  on the  Company's  financial  statements,  or  any  other  matters  or
reportable events set forth in Item 304(a)(2)(I) and (ii) of Regulation S-B.

Item 8A - Controls and Procedures

Disclosure  Controls and Procedures.  Our management,  under the supervision and
with  the  participation  of our  Chief  Executive  Officer  ("CEO")  and  Chief
Financial  Officer  ("CFO"),  has evaluated the  effectiveness of our disclosure
controls  and  procedures  as  defined  in Rules  13a-15  promulgated  under the
Securities  Exchange Act of 1934, as amended (the "Exchange Act"), as of the end
of the period covered by this Annual Report.  Based on such evaluation,  our CEO
and CFO have concluded  that, as of the end of the period covered by this Annual
Report,  our  disclosure  controls  and  procedures  are  effective.  Disclosure
controls and  procedures  are controls  and  procedures  designed to ensure that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded,  processed,  summarized  and reported  within the time
periods  specified  in the  SEC's  rules  and forms  and  include  controls  and
procedures  designed to ensure that  information  we are required to disclose in
such reports is accumulated and communicated to management,  including our Chief
Executive  Officer and Chief Financial  Officer,  as appropriate to allow timely
decisions regarding required disclosure.


                                       20
<PAGE>

Management's  Annual  Report  on  Internal  Control  over  Financial  Reporting.
Management is responsible for  establishing  and maintaining  adequate  internal
control over financial  reporting,  as such term is defined in Rule 13a-15(f) of
the Exchange Act.

Internal control over financial reporting is defined under the Exchange Act as a
process  designed by, or under the  supervision of, our CEO and CFO and effected
by our board of directors, management and other personnel, to provide reasonable
assurance  regarding the reliability of financial  reporting and the preparation
of financial  statements  for external  purposes in  accordance  with  generally
accepted accounting principles and includes those policies and procedures that:

--   Pertain to the maintenance of records that in reasonable  detail accurately
     and fairly reflect the transactions and dispositions of our assets;

--   Provide reasonable assurance that transactions are recorded as necessary to
     permit  preparation  of financial  statements in accordance  with generally
     accepted accounting principles,  and that our receipts and expenditures are
     being made only in accordance  with  authorizations  of our  management and
     directors; and

--   Provide reasonable  assurance  regarding  prevention or timely detection of
     unauthorized acquisition,  use or disposition of our assets that could have
     a material effect on the financial statements.

Because of its inherent  limitation,  internal control over financial  reporting
may not prevent or detect misstatements. Also, projections of any evaluations of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies and procedures may deteriorate. Accordingly, even an effective
system of internal control over financial reporting will provide only reasonable
assurance with respect to financial statement preparation.

Our  management,  with  the  participation  of our CEO and  CFO,  evaluated  the
effectiveness of the Company's  internal control over financial  reporting as of
December 31, 2004. In making this  assessment,  our management used the criteria
set  forth  by  the  Committee  of  Sponsoring  Organizations  of  the  Treadway
Commission in Internal Control - Integrated Framework.  Based on this evaluation
and those criteria,  our management,  with the participation of our CEO and CFO,
concluded  that, as of December 31, 2004,  our internal  control over  financial
reporting was effective.

This  Annual  Report does not include an  attestation  report of our  registered
public accounting firm regarding our internal control over financial  reporting.
Management's  report was not subject to  attestation  by our  registered  public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this Annual Report.

Changes in Internal  Control over Financial  Reporting.  There have not been any
changes in our internal control over financial reporting (as defined in Exchange
Act Rules  13a-15(f))  that occurred  during the quarter ended December 31, 2005
that have materially  affected,  or are reasonably likely to materially  affect,
our internal control over financial reporting.

Item 8B - Other Information

None

                                    PART III

Item  9  -  Directors,   Executive  Officers,  Promoters  and  Control  Persons;
Compliance with Section 16(a) of the Exchange Act

The  following  table sets forth  certain  information  about the  directors and
executive  officers of the  Company.  All  directors  of the Company hold office
until the next annual meeting of  shareholders  or until their  successors  have
been elected and qualified. Executive officers of the Company are elected by the
Board of  Directors  to hold  office  until  the  annual  meeting  of  directors
following  the  annual  meeting  of  shareholders  or  until  their   respective
successors  are duly  elected and  qualified  or their  earlier  resignation  or
removal.

                     Name             Age                     Position
                     ----             ---                     --------

                Nick Mehmeti          50             President, Chief Executive
                                                      Officer, Chief Financial
                                                        Officer and Director
                Duncan Burch          50              Executive Vice President


                                       21
<PAGE>

                                                            and Director
                Dewanna Ross          52                 Secretary/Treasurer


Nick Mehmeti - Mr.Mehmeti has served as the Company's President, Chief Executive
Officer and a director since January 2000 and as the Company's  Chief  Financial
Officer since March 2, 2001.  Mr.  Mehmeti,  his  affiliates  and his affiliated
companies  have  owned  and  operated  restaurants  and  adult  cabarets  in the
Dallas-Fort  Worth Metroplex for more than 15 years.  Mr. Mehmeti will devote as
much of his time as is  necessary  to  perform  his duties as  President,  Chief
Executive Officer, Chief Financial Officer and a director of the Company.

Duncan Burch - Mr. Burch has served as the Company's  Executive  Vice  President
and a director since January 2000. Mr. Burch,  his affiliates and his affiliated
companies  have  owned  and  operated  restaurants  and  adult  cabarets  in the
Dallas-Fort  Worth  Metroplex  for at least the past ten years.  Mr.  Burch will
devote as much of his time as is  necessary  to perform his duties as an officer
and a director of the Company.

Dewanna Ross - Ms. Ross has served in various  positions  with the Company since
1995. Ms. Ross served as a director of the Company from 1995 until January 2002.
She served as  President  and Chief  Executive  Officer of the Company from July
1999 to January  2000.  She served as Vice  President  of  Operations  and Chief
Operating  Officer of the Company from January 19, 2000 to January 10, 2002. She
currently serves as  Secretary-Treasurer of the Company. Ms. Ross is responsible
for the  development  of the  corporate  procedures,  including  the  hiring and
training of  corporate  staff and the  day-to-day  operations  of the  Company's
Million Dollar Saloon.  Ms. Ross has also served as an officer and operator of a
private club and as an officer of other  businesses.  Ms. Ross has a Bachelor of
Arts degree from the University of Texas at Dallas.

Board of Directors and Committees

We are managed under the  direction of our board of  directors.  The size of our
board  of  directors  is set at  three  members,  and we  currently  have  three
directors,  all of whom are  employees  of the  Company.  During the fiscal year
ended December 31, 2003,  the Board held one meeting,  its annual  meeting.  The
Company  does not have a standing  audit  committee,  compensation  committee or
nomimating  committee  or any  other  committee.  The  Company  does not have an
independent audit committee financial expert, as defined in Item 407(d)(5).  The
Company  currently  does not pay a  director  fee for  attending  scheduled  and
special meetings of the Board of Directors.  The Company pays expenses of all of
its directors in attending meetings.

Identifying and Evaluating Nominees for Directors

Our board of directors does not have a standing nominating committee. The entire
board of directors  participates in the consideration of director nominees.  Our
board of  directors  does not  consider it  necessary  to establish a nominating
committee  because  our  board  of  directors  is  relatively  small in size and
believes it can operate more effectively in concert.  Further, because there has
not been turnover on our board of directors,  there has been no need to nominate
new directors.  In the event that vacancies are anticipated or otherwise  arise,
our board of directors will consider various potential candidates.  Our board of
directors anticipates that it would utilize a variety of methods for identifying
and  evaluating  nominees for director.  Candidates may come to the attention of
our board of directors through current board members, professional search firms,
stockholders or other persons. These candidates would be evaluated at regular or
special  meetings of our board of directors  and may be  considered at any point
during the year.

Our board of  directors  will  consider  stockholder  nominations  for  director
candidates  upon written  submission  of such  recommendation  to our  corporate
secretary  along with,  among other  things,  the nominee's  qualifications  and
certain biographical  information  regarding the nominee, such nominee's written
consent  to serving as a  director  if elected  and being  named in any proxy or
information  statement  and  certain  information  regarding  the  status of the
stockholder  submitting the  recommendation,  all in the manner  required by our
amended and restated bylaws and the applicable rules and regulations promulgated
under the Securities Exchange Act of 1934, as amended. Following verification of
the stockholder status of persons proposing candidates,  recommendations will be
aggregated and considered by our board of directors at a regularly  scheduled or
special  meeting.  If any materials are provided by a stockholder  in connection
with the nomination of a director candidate, such materials will be forwarded to
our board of directors.

Communications with the Board

Individuals may communicate  with the Company's Board of Directors or individual
directors  by writing to the  Company's  Secretary  at 6848  Greenville  Avenue,
Dallas,  Texas  7231.  The  Secretary  will review all such  correspondence  and
forward  to the Board of  Directors  a summary  of all such  correspondence  and
copies of all correspondence  that, in the opinion of the Secretary,  relates to
the functions of the Board or committees thereof or that he otherwise determines


                                       22
<PAGE>

requires their attention.  Directors may review a log of all such correspondence
received by the Company and request  copies.  Concerns  relating to  accounting,
internal   control  over  financial   reporting  or  auditing  matters  will  be
immediately  brought to the  attention of the Board of Directors  and handled in
accordance with its procedures established with respect to such matters.

Code of Ethics

The Company's  Board of Directors have adopted a Code of Ethics which applies to
its Chief  Executive  Officer  and Chief  Financial  Officer,  which is filed as
Exhibit 14.1 to this Form  10-KSB.  A copy of the code of ethics is available in
print  without  charge to any  person  who sends a request  to the office of the
Secretary of the Company at 6848 Greenville Avenue, Dallas, Texas 75231.

Indemnification of Officers and Directors.

The  Company's  By-Laws  provide  for the  indemnification  of  its,  directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses  incurred by them in any litigation to which they become
a party  arising  from their  association  with or  activities  on behalf of the
Company.  The Company will also bear the expenses of such  litigation for any of
its directors,  officers,  employees,  or agents,  upon such persons  promise to
repay the Company  therefor if it is ultimately  determined that any such person
shall not have been entitled to  indemnification.  This  indemnification  policy
could result in substantial  expenditures by the Company, which it may be unable
to recoup.

Director Independence and Conflicts of Interest

None of our directors  are  independent  directors  under NASDAQ or AMEX general
independence  rules  and  under  the  independence  rules  applicable  to  audit
committees,  nominating  committees  and  compensation  committees.  Non  of our
directors  are  "non-employee  directors"  as defined by Rule 16b-3  promulgated
under the Securities Exchange Act of 1934, as amended, or "outside directors" as
defined by Section 162(m) of the Internal Revenue Code.

None of the officers of the Company will devote of their  respective time to the
affairs of the Company  than is deemed  necessary by them.  Mr.  Mehmeti and Mr.
Burch have ownership  interests in other  business  ventures which are in direct
competition  with  the  Company.  These  business  interests  present  potential
conflicts of interest with those of the Company and its stockholders. There will
be occasions when the time requirements of the Company's  business conflict with
the demands of the officers'  other  business and  investment  activities.  Such
conflicts may require that the Company attempt to employ  additional  personnel.
There is no  assurance  that the  services of such  persons will be available or
that they can be obtained upon terms favorable to the Company.

The Company has adopted a policy under which any  consulting or finders fee that
may be paid to a third party for  consulting  services to assist  management  in
evaluating a prospective business opportunity would be paid in stock rather than
in cash, if deemed beneficial to the Company. Accordingly, the Company is unable
to  predict  whether,  or in what  amount,  such stock  issuance  might be made.
However, through the filing date of this report, no such shares have been issued
pursuant to arrangements of this nature.

Section 16(a) Beneficial Ownership Compliance

Section  16(a) of the Exchange Act requires the Company's  directors,  executive
officers and persons who own more than ten percent of a registered  class of the
Company's equity  securities  ("10%  holders"),  to file with the Securities and
Exchange  Commission  (the "SEC")  initial  reports of ownership  and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Directors,  officers and 10% holders are required by SEC  regulation  to furnish
the Company with copies of all of the Section 16(a) reports they file.

Based solely on a review of reports  furnished to the Company  during the fiscal
year ended  December  31,  2004 or written  representations  from the  Company's
directors and executive officers,  Mr. Mehmeti, Mr. Burch and Ms. Ross failed to
comply with the Section 16(a) filing  requirements  applicable to its directors,
officers and 10% holders for either year were complied with.


Item 10 - Executive Compensation

The following  summary  compensation  table sets forth the compensation  paid or
accrued by the Company to each of the Company's  executive officers for services
rendered to the Company  during the  Company's  fiscal years ended  December 31,
2004, 2003 and 2002.


                                       23
<PAGE>
<TABLE>
<CAPTION>

                                                                         Long-Term
                                                                        Compensation
                                         Annual Compensation                 Awards         Payouts
                                                      Other      Restricted   Securities                   All
                                        Salary/       Annual       Stock      Underlying      LTIP        Other
Name/Title                     Year      Bonus     Compensation    Awards    Options/SARs   Payouts   Compensation
----------                     ----    --------    ------------    ------    ------------   -------   ------------
<S>                                                                                                   <C>
Nick Mehmeti                   2005     $78,000        $-0-         $-0-         $-0-         $-0-        $-0-
Chief Executive Officer and    2004     $78,000        $-0-         $-0-         $-0-         $-0-        $-0-
Chief Financial Officer        2003    $131,000        $-0-         $-0-         $-0-         $-0-        $-0-

Duncan Burch                   2005     $78,000        $-0-         $-0-         $-0-         $-0-        $-0-
Executive Vice President       2004     $78,000        $-0-         $-0-         $-0-         $-0-        $-0-
                               2003    $131,000        $-0-         $-0-         $-0-         $-0-        $-0-

Dewanna Ross                   2005     $80,000        $-0-         $-0-         $-0-         $-0-        $-0-
Secretary/Treasurer            2004     $79,624        $-0-         $-0-         $-0-         $-0-        $-0-
                               2003     $84,000        $-0-         $-0-         $-0-         $-0-        $-0-

</TABLE>

Option Grants In Last Fiscal Year

There were no grants of stock  options to any officer or director of the Company
during the fiscal year ended December 31, 2005, 2004 or 2003.

Option Exercises And Holdings

The Company does not have a stock option plan.  Except as disclosed in "Security
Ownership of Certain Beneficial Owners and Management," no officer,  director or
employee of the  Company  holds any stock  options to purchase  shares of Common
Stock of the Company.

Committees of the Board of Directors and Director Compensation

There are no audit,  compensation or other  committees of the Board of Directors
of the Company.  The Company currently does not pay a director fee for attending
scheduled  and special  meetings  of the Board of  Directors.  The Company  pays
expenses of all of its directors in attending meetings.


Item 11 - Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of the filing date of this
Annual Report  relating to the beneficial  ownership (as defined by the rules of
the  Securities  and Exchange  Commission) of shares of Common Stock by (I) each
person who owns  beneficially  more than 5% of the outstanding  shares of Common
Stock,  (ii)  each  director  of the  Company,  (iii)  the  President  and Chief
Executive  Officer of the Company for the year ended December 31, 2004, and (iv)
each named executive officer of the Company,  and (v) all executive officers and
directors of the Company as a group.
                                                                    % of Class
                                                                   Beneficially
     Name and address                        Number of Shares        Owned (1)
     ----------------                        ----------------    ---------------

     Nick Mehmeti (2)                          1,675,787 (3)           29.24%
     Duncan Burch (2)                          1,675,787 (3)           29.24%
     The Irrevocable Equity Trust No. 1
         J. M. Tibbals, Trustee (4)                  451,558           7.88%
     Ronald A. Zlatniski (5)                         322,610           5.63%
     Dewanna Ross (2)                                4,000             0.70%

     All Officers and Directors
         as a Group                                  3,355,574         58.54%


(1)  Beneficial  ownership is determined in accordance  with the SEC's rules. In
     determining the percent of Common Stock owned by a person (a) the numerator
     is the number of shares of Common Stock  beneficially  owned by the person,
     including  shares the beneficial  ownership of which may be acquired within
     60 days  upon  the  exercise  of  options  or  warrants  or  conversion  of


                                       24
<PAGE>

     convertible  securities,  and (b) the  denominator  is the total of (i) the
     5,731,778  shares in the  aggregate  of Common  Stock on the filing date of
     this Annual Report and (ii) any shares of Common Stock which the person has
     the right to  acquire  within  60 days  upon the  exercise  of  options  or
     warrants or conversion of convertible securities. Neither the numerator nor
     the  denominator  includes  shares which may be issued upon the exercise of
     any  options  or  warrants  or  the  conversion  of any  other  convertible
     securities held by any other person

(2)  Mr. Mehmeti is the President,  Chief  Executive  Officer,  Chief  Financial
     Officer and a director of the Company and Mr. Burch is the  Executive  Vice
     President  and a  director  of the  Company.  Ms.  Ross  is  the  Corporate
     Secretary/Treasurer.  The mailing address for these  individuals is c/o the
     Company, 6848 Greenville Ave., Dallas, Texas 75231.

(3)  Excludes an expired  option to purchase  400,000 shares of the Common Stock
     of the Company for $440,000  ($1.10 per share)  which was jointly  owned by
     Messrs. Mehmeti and Burch and could have been exercised in whole or in part
     at any time through October 18, 2004 when such option expired.

(4)  The mailing  address  for The  Irrevocable  Equity  Trust No. 1 is c/o J.M.
     Tibbals, Arter & Hadden, 1717 Main Street, Suite 4100, Dallas, Texas 75201.

(5)  The mailing  address for Mr.  Zlatniski  is 1450 Raleigh  Road,  Suite 300,
     Chapel Hill, NC 27517.


Item  12  -  Certain   Relationships  and  Related   Transactions  and  Director
Independence

The Company  provides  management  support and conducts its business  operations
through its wholly-owned operating subsidiaries: Furrh, Inc., Tempo Tamers, Inc.
("Tempo  Tamers"),  Don, Inc. and Corporation Lex ("Lex").  The Company owns and
operates  an adult  cabaret  in  Dallas,  Texas and owns and  manages  two other
commercial properties located in the Dallas-Fort Worth Metroplex.

Tempo Tamers owns and operates an adult  cabaret at 6826  Greenville,  Avenue in
Dallas,  Texas operates  under the registered  trademark and trade name "Million
Dollar  Saloon  (R)." The 6826  Greenville  Avenue  location is, and has been, a
"non-conforming  location" under the Dallas Sexually Oriented Business Ordinance
since 1986 due to the fact that 6826 Greenville Avenue is within 1,000 feet of a
residentially  zoned  property.  Various  other  sexually  oriented  businesses,
including those owned or controlled by entities owned by Duncan Burch, Executive
Vice  President and a director of the Company,  and/or Nick Mehmeti,  President,
Chief Executive Officer,  Chief Financial Officer and a Director of the Company,
were likewise in  "non-conforming  locations." While many of these locations had
previously  been successful in obtaining  locational  exemptions from the Dallas
Sexually Oriented Business Ordinance so as to allow their continued operation as
sexually oriented  businesses,  the City of Dallas recently proposed legislation
to  eliminate  the  possibility  of a  locational  exemption.  Despite  years of
intensive and expensive litigation funded primarily by entities owned by Messrs.
Burch and Mehmeti,  the City of Dallas is moving toward  closure of all sexually
oriented  businesses in "non-conforming  locations."  Accordingly,  the Company,
through  Tempo  Tamers,  and other  similarly  situated  operators  of  sexually
oriented  businesses  entered  into  settlement  negotiations  with  the City of
Dallas.  During  those  negotiations,  it  became  the view of the  Company  and
operators of other sexually oriented  businesses in  "non-conforming  locations"
that the City  would  allow one such  sexually  oriented  business  to remain in
business in a "non-conforming  location" for a limited period of time, if all of
the other sexually oriented businesses  operating in "non-conforming  locations"
ceased operations.

In October,  2002,  entities  controlled  by Mr. Burch entered into a settlement
agreement with the City of Dallas which provides for the closure of the sexually
oriented  businesses known as Chicas Locas, which is operated by an affiliate of
Mr.  Burch,  and Baby Dolls Saloon which is also operated by an affiliate of Mr.
Burch.  Chicas Locas is the tenant of the Company's  property located at 3021 W.
Northwest  Highway  in  Dallas,   Texas.  Nick  Mehmeti,  the  Company  and  its
subsidiary,  Corporation Lex, the record owner of the 3021 W. Northwest Highway,
signed the settlement  agreement for limited  purposes.  In accordance  with the
settlement agreement and an agreement reached between Corporation Lex and Chicas
Locas,  Chicas Locas agreed to terminate the lease and the Company agreed not to
allow  the  operation  of an adult  cabaret  business  at its 3021 W.  Northwest
Highway  property  after July 31, 2003.  Chicas  Locas ended its  month-to-month
lease  arrangements  with the Company  regarding the 3021 W.  Northwest  Highway
property and vacated the premises  effective  July 31,  2003.  During 2002,  the
Company  received $52,000 in lease payments for this property from Chicas Locas.
Chicas  Locas owed  approximately  $69,000 at December  31, 2002 and $137,000 at
July 31, 2003 on the lease for accrued, unpaid rent for this property.  Pursuant
to their  agreement,  Corporation Lex agreed to forego the accrued,  unpaid rent
from  the  3021  W.  Northwest  Highway  property.   The  Company  is  currently
considering various other uses for this property, including leasing the property
to a non-sexually oriented business or selling the property to a third party.

Thereafter,   negotiations   began   between   Mainstage,   Inc.   d/b/a  P.T.'s
("Mainstage"),   an  entity   controlled  by  Nick  Mehmeti  which   operated  a
non-conforming adult cabaret called P.T.'s,  Allen-Burch,  Inc. ("Allen Burch"),
an entity  controlled by Duncan Burch operating a  non-conforming  adult cabaret
known as The Fare,  and Tempo  Tamers  regarding  which of these  non-conforming


                                       25
<PAGE>

entities would negotiate with the City of Dallas to become the sexually oriented
business to continue  operating in a  "non-conforming  location."  Pursuant to a
settlement  agreement  entered into in May 2003,  Tempo Tamers,  Mainstage,  and
Allen Burch,  Tempo Tamers was granted the exclusive right to negotiate with the
City of Dallas to continue to operate  the Million  Dollar  Saloon as a sexually
oriented  business in a  "non-conforming  location."  The  settlement  agreement
provided  that, in the event that the city granted the Million Dollar Saloon the
exclusive right to continue  operating as an adult cabaret in a  "non-conforming
location" for a six (6) year period,  Tempo Tamers would pay $500,000 to each of
P.T.'s and Allen  Burch,  and they  would  each  discontinue  the  operation  of
sexually  oriented  businesses.  In May 2003, the City of Dallas agreed to allow
Tempo  Tamers to continue to operate  The Million  Dollar  Saloon at its current
location  until July  2009.  Mainstage  and Allen  Burch  agreed to  discontinue
operations of P.T.'s and The Fare,  respectively,  as sexually oriented business
in January and March, 2004.

To reiterate,  in conjunction with an October 2002 Settlement Agreement with the
City of Dallas,  Texas, the Company's adult entertainment lounge and restaurant,
Million Dollar Saloon, may operate in its present "non-conforming location" with
a mandatory closing date of July 31, 2009.

On February 14, 2003, the Company purchased 6.695 acres of undeveloped  property
located in Dallas,  Texas.  Although  the  Company  has not yet  determined  the
ultimate  usage of the land,  the  Company  knows that it will be  necessary  to
relocate  the  Million  Dollar  Saloon in 2009 if the  facility  is to remain in
business.  The  Company  may elect to use a portion of this new land to relocate
the Million Dollar  Saloon,  subject to zoning and permit  restrictions,  and/or
sell or lease any remaining properties to third parties.


Item 13 - Exhibits and Reports on Form 8-K

Exhibits

2.1    Stock Purchase  Agreement dated August 23, 1995 by and between Art Beroff
       and Bjorn Heyerdahl (*)
2.2    Stock  Purchase  Agreement  dated  August 23, 1995 by and between  Joseph
       MacDonald, Goodheart Ventures, Inc., and Bjorn Heyerdahl. (*)
2.3    Stock  Purchase  Agreement  dated  September 7, 1995 by and among Million
       Dollar Saloon, Inc.,  Goodheart Ventures,  Inc., and certain individuals.
       (*)
2.4    Addendum and Modification to Stock Purchase Agreement dated September 19,
       1995, by and among Million Dollar Saloon, Inc., Goodheart Ventures, Inc.,
       and certain individuals. (*)
2.5    Stock  Exchange  Agreement  dated  September 7, 1995 by and among Million
       Dollar Saloon, Inc., Goodheart Ventures,  Inc., and J.M. Tibbals, Trustee
       for Irrevocable Equity Trust No. 1. (*)
2.6    Addendum and Modification to Stock Exchange Agreement dated September 19,
       1995, by and among Million Dollar Saloon, Inc., Goodheart Ventures, Inc.,
       and J.M. Tibbals, Trustee for Irrevocable Equity Trust No. 1. (*)
2.7    Agreement and Plan of Merger dated October 5, 1995 by and between Million
       Dollar Saloon, Inc., a Texas corporation, and Goodheart Ventures, Inc., a
       Nevada corporation. (*)
2.8    Addendum and  Modification  to Stock Purchase  Agreement made and entered
       into the 7th day of September  1995 by and among Million  Dollar  Saloon,
       Inc., Goodheart Ventures, Inc., and certain individuals dated October 31,
       1995. (**)
3(I)   Articles of Incorporation of The Company, as amended to date. (*)
3(ii)  Bylaws of the Company. (*)
3(iii) Amended and Restated Bylaws of the Company effective July 9, 1999 (**)
4.1    Specimen Common Stock Certificate. (*)
10.1   Leases of Properties. (*)
10.2   Promissory  Note for  $750,000  with Abrams  Centre  National  Bank dated
       September 22, 1995. (*)
10.3   Modification   of  Lease   Agreement   dated  January  31,  2001  between
       Corporation Lex and MD II Entertainment, Inc. (***)
10.4   Promissory  Note dated  February 14, 2003 (the  "Note") in the  principal
       amount of  $2,156,713.50  payable  by the  Company to One  Stemmons  Land
       Limited  Partnership  with  interest  at 8% per annum,  interest  payable
       monthly,  with a single principal  payment due and payable on February 1,
       2004. (+)
10.5   Deed of Trust,  dated February 14, 2003, signed by the Company granting a
       security  interest  in 6.6 acres of  undeveloped  real  estate in Dallas,
       Texas to secure payment of the Note. (+)
10.6   Special Warranty Deed with Vendor's Lien dated February 14, 2002 relating
       to 6.6 acres of real estate located in Dallas, Texas. (+)
10.7   Promissory  Note,  dated  January 29, 2004,  in the  principal  amount of
       $2,000,000   payable  by  the  Company  to  Citizens   National  Bank  in
       Waxahachie, Texas. (o)
10.8   Deed of Trust,  dated January 29, 2004,  signed by the Company granting a
       security  interest  in 6.6 acres of  undeveloped  real  estate in Dallas,
       Texas, to secure payment of the note payable to Citizens National Bank in
       Waxahachie, Texas (o)


                                       26
<PAGE>

14.1   Code of Ethics (z)
21.1   Subsidiaries of the Company. (*)
31.1   Certification  pursuant  to Section 302 of  Sarbanes-Oxley  Act of 2002 -
       Chief Executive and Financial Officer.
32.1   Certification  pursuant  to Section 906 of  Sarbanes-Oxley  Act of 2002 -
       Chief Executive and Financial Officer.

* Incorporated by reference to the Company's Form 10-SB filed December 26, 1995.
** Incorporated  by reference to the Company's  Annual Report on Form 10-KSB for
the fiscal year ended  December 31, 1999. ***  Incorporated  by reference to the
Company's  Annual  Report on Form 10-KSB for the fiscal year ended  December 31,
2001. + Incorporated by reference to the Company's  Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2002. o Incorporated  by reference to the
Company's  Annual  Report on Form 10-KSB for the fiscal year ended  December 31,
2003. z Incorporated by reference to the Company's  Annual report on Form 10-KSB
for the fiscal year ended December 31, 2004.


Reports on Form 8-K
-------------------

   None


Item 14 - Principal Accountant Fees and Services

The Company paid or accrued the  following  fees in each of the prior two fiscal
years to it's  principal  accountant,  S. W. Hatfield,  CPA of Dallas,  Texas or
Blanchfield, Kober & Company, PC of Hauppauge, NY:

                                 Year ended        Year ended
                                December 31,      December 31,
                                   2005              2004
                                 -------           -------
1.          Audit fees           $11,000           $15,000
2.          Audit-related fees      --                --
3.          Tax fees                --                --
4.          All other fees          --                --
                                 -------           -------

   Totals                        $11,000           $15,000
                                 =======           =======

The Company has no formal audit committee. However, as defined in Sarbanes-Oxley
Act of 2002,  the entire  Board of  Directors  is the  Company's  defacto  audit
committee.

In discharging its oversight  responsibility as to the audit process,  the Board
obtained from the independent auditors a formal written statement describing all
relationships  between  the  auditors  and the  Company  that  might bear on the
auditors'  independence as required by Independence Standards Board Standard No.
1,  "Independence  Discussions with Audit  Committees." The Board discussed with
the  auditors  any   relationships   that  may  impact  their   objectivity  and
independence,  including fees for non-audit services, and satisfied itself as to
the  auditors'  independence.  The Board also  discussed  with  management,  the
internal  auditors and the independent  auditors the quality and adequacy of the
Company's  internal controls.  The Board reviewed with the independent  auditors
their management letter on internal controls, if one was issued by the Company's
auditors.

The Board  discussed  and  reviewed  with the  independent  auditors all matters
required to be discussed by auditing standards  generally accepted in the United
States of America,  including those described in Statement on Auditing Standards
No. 61, as amended, "Communication with Audit Committees".

The Board reviewed the audited consolidated  financial statements of the Company
as of and for the year ended December 31, 2004 and 2003, with management and the
independent  auditors.  Management has the sole ultimate  responsibility for the
preparation of the Company's financial  statements and the independent  auditors
have the responsibility for their examination of those statements.

Based  on the  above-mentioned  review  and  discussions  with  the  independent
auditors and management,  the Board of Directors  approved the Company's audited
consolidated  financial  statements and recommended that they be included in its


                                       27
<PAGE>

Annual  Report on Form 10-KSB for the year ended  December 31, 2004,  for filing
with the Securities and Exchange Commission.

The Company's principal accountant, S. W. Hatfield, CPA or Blanchfield,  Kober &
Company,  P. C.,  did not  engage  any other  persons  or firms  other  than the
principal accountant's full-time, permanent employees.



                (Remainder of this page left blank intentionally)



          (Financial statements follow on the next page, beginning F-1)
































                                       28
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----

Report of Registered Independent Public Accounting Firm                      F-2

Consolidated Financial Statements

   Consolidated Balance Sheets
      as of December 31, 2005 and 2004                                       F-3

   Consolidated Statements of Operations and Comprehensive Income (Loss)
      for the years ended December 31, 2005 and 2004                         F-4

   Consolidated Statements of Changes in Shareholders' Equity
      for the years ended December 31, 2005 and 2004                         F-5

   Consolidated Statements of Cash Flows
      for the years ended December 31, 2005 and 2004                         F-6

   Notes to Consolidated Financial Statements                                F-7




















                                      F-1
<PAGE>

                 Letterhead of Blanchfield, Kober & Company, LLP
                 -----------------------------------------------


             REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------



Board of Directors and Shareholders
Million Dollar Saloon, Inc.

We have audited the  consolidated  balance sheet of Million Dollar Saloon,  Inc.
and Subsidiaries (a Nevada corporation and Texas corporations,  respectively) as
of December 31, 2005 and 2004 and the related consolidated  statements of income
and comprehensive  income,  changes in shareholders'  equity, and cash flows for
each of the  years  ended  December  31,  2005  and  2004,  respectively.  These
consolidated   financial   statements  are  the   responsibility   of  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial statements are free of material  misstatement.  An audit also includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.

The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting.  Our audit included consideration
of internal  control over  financial  reporting as a basis for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting. Accordingly, we express no such opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Million
Dollar Saloon,  Inc. and  Subsidiaries  as of December 31, 2005 and 2004 and the
results  of its  operations  and its  cash  flows  for each of the  years  ended
December 31, 2005 and 2004, respectively,  in conformity with generally accepted
accounting principles generally accepted in the United States of America.


                                           /s/ Blanchfield, Kober & Company, LLP
                                           -------------------------------------
                                               BLANCHFIELD, KOBER & COMPANY, LLP
Hauppauge, New York
July 8, 2008






                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2005 and 2004

                                                      December 31,   December 31,
                                                          2005           2004
                                                      -----------    -----------
<S>                                                   <C>            <C>
                                     ASSETS
                                     ------
Current Assets
   Cash on hand and in bank                           $   930,177    $   499,083
   Marketable securities                                   51,394         49,537
   Accounts receivable - trade and other                    8,500          8,500
   Prepaid Federal income taxes receivable                  8,625         36,324
   Inventory                                               25,385         21,156
   Prepaid expenses                                           946          1,963
                                                      -----------    -----------

     Total current assets                               1,025,027        616,563
                                                      -----------    -----------


Property and Equipment - At Cost
   Buildings and related improvements                   1,526,424      1,473,356
   Furniture and equipment                                451,093        451,093
                                                      -----------    -----------
                                                        1,977,517      1,924,449
   Less accumulated depreciation                       (1,445,711)    (1,367,323)
                                                      -----------    -----------
                                                          531,806        557,126
   Land                                                   210,000        210,000
                                                      -----------    -----------

     Net property and equipment                           741,806        767,128
                                                      -----------    -----------


Other Assets
   Land held for future development                     2,661,546      2,661,546
   Property and equipment held for sale                   870,930        870,930
   Operations agreement, net of accumulated
     amortization of approximately $348,335
     and$166,475, respectively                            651,665        833,525
   Loan costs, net of accumulated amortization
     of approximately $1,315 and $629, respectively         8,974          9,660
   Security deposits and other                              1,725          1,725
                                                      -----------    -----------

     Total other assets                                 4,194,840      4,377,386
                                                      -----------    -----------


Total Assets                                          $ 5,961,673    $ 5,761,075
                                                      ===========    ===========



                                  - Continued -

              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                      F-3
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS - CONTINUED
                           December 31, 2005 and 2004

                                                                   December 31,     December 31,
                                                                       2005             2004
                                                                    ----------       ----------
                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
Current Liabilities
   Current maturities of long-term mortgage note payable            $   92,082       $   86,478
   Current maturities of long-term lawsuit settlement payable          121,330             --
   Accounts payable - trade                                             44,050           38,467
   Accrued liabilities                                                  75,942           77,079
   Contract payable to affiliated entities                           1,000,000        1,000 000
   Accrued interest payable to affiliated entities                     213,333          133,333
                                                                    ----------       ----------

     Total current liabilities                                       1,546,737        1,335,357
                                                                    ----------       ----------

Long-Term Liabilities
   Long-term mortgage note payable, net of current maturities        1,746,373        1,838,431
   Long-term lawsuit settlement payable                                226,017             --
   Deferred tax liability                                              243,618          264,877
                                                                    ----------       ----------

     Total liabilities                                               3,762,745        3,438,665
                                                                    ----------       ----------


Commitments and Contingencies


Shareholders' Equity Preferred stock - $0.001 par value.
     5,000,000 shares authorized.
     None issued and outstanding                                          --               --
   Common stock - $0.001 par value.
     50,000,000 shares authorized.
     5,731,778 shares issued and outstanding, respectively.              5,732            5,732
   Retained earnings                                                 2,193,196        2,316,678
                                                                    ----------       ----------

     Total shareholders' equity                                      2,198,928        2,322,410
                                                                    ----------       ----------


Total Liabilities and Shareholders' Equity                          $5,961,673       $5,761,075
                                                                    ==========       ==========



              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                      F-4
<PAGE>



                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
                     Years ended December 31, 2005 and 2004


                                                      Year ended     Year ended
                                                     December 31,   December 31,
                                                         2005           2004
                                                     -----------    -----------
Revenues
   Bar and restaurant sales                          $ 2,671,980    $ 3,359,444
   Rental income from related parties                    442,000        456,113
                                                     -----------    -----------
     Total revenues                                    3,113,980      3,815,557
                                                     -----------    -----------

Cost of Sales - Bar and Restaurant Operations
   Direct labor                                          662,791      1,227,175
   Purchases                                             567,359        660,162
                                                     -----------    -----------
     Total cost of sales                               1,190,150      1,887,337
                                                     -----------    -----------

Gross Profit                                           1,923,830      1,928,220
                                                     -----------    -----------

Operating Expenses
   Salaries, wages and related expenses                  442,325        609,685
   Consulting, legal and other professional fees         115,452         36,123
   Rental expenses, principally taxes                    113,305        142,205
   Interest expense                                      208,053        264,789
   Other operating expenses                              494,080        585,081
   Depreciation and amortization                         260,247        252,331
                                                     -----------    -----------
       Total operating expenses                        1,633,462      1,890,214
                                                     -----------    -----------

Income (Loss) from Operations                            290,368         38,006

Other Income (Expenses)
   Interest income and other                               7,768          2,574
   Lawsuit settlement                                   (415,026)          --
   Unrealized gain (loss) on marketable securities          (151)         1,081
                                                     -----------    -----------

Income (Loss) before Income Taxes                       (117,041)        41,661

Provision for Income Taxes
   Currently (payable) refundable                        (27,699)       (19,913)
   Deferred (expense) benefit                             21,258         16,184
                                                     -----------    -----------

Net Income (Loss)                                       (123,482)        37,932

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

Comprehensive Income (Loss)                          $  (123,481)   $    37,932
                                                     ===========    ===========



              The accompanying notes are an integral part of these
                       consolidated financial statements.




                                      F-5
<PAGE>



                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                     Years ended December 31, 2005 and 2004



                                             Common Stock                                     Total
                                             ------------                 Retained        shareholders'
                                      # shares           Amount           earnings           equity
                                    -----------       -----------       -----------        -----------

Balances at January 1, 2004           5,731,778       $     5,732       $ 2,278,746        $ 2,284,478

Net income for the year                    --                --              37,932             37,932
                                    -----------       -----------       -----------        -----------


Balances at December 31, 2004        5,731, 778             5,732         2,316,678          2,322,410

Net loss for the year                      --                --            (123,482)          (123,482)
                                    -----------       -----------       -----------        -----------

Balances at December 31, 2005         5,731,778       $     5,732       $ 2,193,196        $ 2,198,928
                                    ===========       ===========       ===========        ===========














              The accompanying notes are an integral part of these
                       consolidated financial statements.



                                      F-6
<PAGE>



                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years ended December 31, 2005 and 2004


                                                                   Year ended         Year ended
                                                                  December 31,       December 31,
                                                                      2005               2004
                                                                  -----------        -----------
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                              $  (123,482)       $    37,932
   Adjustments to reconcile net income to net cash
     provided by operating activities
       Depreciation and amortization                                  260,933            252,959
       Bad debt expense                                                  --                 --
       Unrealized (gain) loss on marketable securities                   (151)            (1,081)
       Deferred income taxes                                          (21,258)           (16,184)
       (Increase) decrease in
         Accounts receivable - trade                                     --                 --
         Federal income taxes receivable                               27,699            108,676
         Inventory                                                     (4,229)             4,196
Prepaid expenses and other                                              1,017              1,577
       Increase (decrease) in
         Accounts payable and other accrued liabilities                 4,446            (96,266)
         Lawsuit settlement payable                                   347,347               --
         Accrued interest payable to affiliated entities               80,000            133,333
         Deferred revenues                                               --               (6,500)
         Accrued federal income taxes payable                            --                 --
                                                                  -----------        -----------
     Net cash provided by (used in) operating activities              572,624            418,642
                                                                  -----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Cash paid for land held for future development                        --              (11,760)
   Cash received from sale of marketable securities                    (2,008)           341,463
   Purchase of marketable securities                                     --                 --
   Purchases of property and equipment                                (53,068)              --
                                                                  -----------        -----------
     Net cash provided by (used in) investing activities              (55,076)           329,703
                                                                  -----------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Principal paid on long-term mortgage note payable                  (86,454)          (231,805)
   Cash paid to acquire long-term mortgage note payable                  --              (10,288)
   Cash received (paid) on note payable to officer                       --             (140,000)
                                                                  -----------        -----------
     Net cash provided by (used in) financing activities              (86,454)          (382,093)
                                                                  -----------        -----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      431,094            366,252
Cash and cash equivalents at beginning of year                        499,083            132,831
                                                                  -----------        -----------

Cash and cash equivalents at end of year                          $   930,177        $   499,083
                                                                  ===========        ===========

SUPPLEMENTAL DISCLOSURES OF
   INTEREST AND INCOME TAXES PAID
     Interest paid                                                $   207,367        $   130,828
                                                                  ===========        ===========
     Income taxes paid                                            $      --          $    88,763
                                                                  ===========        ===========

SUPPLEMENTAL DISCLOSURES OF
   NON-CASH INVESTING AND FINANCING ACTIVITIES
     Accrued operating agreement payable to affiliated entities   $      --          $ 1,000,000
                                                                  ===========        ===========
     Reclassification of Property and Equipment to
       Property and Equipment held for Sale                       $      --          $   870,930
                                                                  ===========        ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-7
<PAGE>


                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2005 and 2004



NOTE A - Background and Organization

Million Dollar Saloon,  Inc. (MDS) was incorporated  under the laws of the State
of Nevada on September 28, 1987. MDS is a holding company  providing  management
support to its operating  subsidiaries:  Furrh,  Inc., Tempo Tamers,  Inc., Don,
Inc. and Corporation Lex.

Furrh,  Inc.  (Furrh) was  incorporated  under the laws of the State of Texas on
February 25, 1974. Furrh provides  management services to Tempo Tamers, Inc, its
wholly-owned subsidiary.  Tempo Tamers, Inc. (Tempo), was incorporated under the
laws  of  the  State  of  Texas  on  July  3,  1978.  Tempo  operates  an  adult
entertainment  lounge and restaurant facility,  located in Dallas,  Texas, under
the  registered  trademark  and  trade  name  "Million  Dollar  Saloon(R)".   In
conjunction  with an October 2002 Settlement  Agreement with the City of Dallas,
Texas, the Company's adult entertainment  lounge and restaurant,  Million Dollar
Saloon,  may operate in its present  "non-conforming  location" with a mandatory
closing date of July 31, 2009.

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

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


NOTE B - Preparation of Financial Statements

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

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

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

These  financial  statements  reflect  the books and  records of Million  Dollar
Saloon, Inc., Furrh, Inc., Tempo Tamers, Inc., Corporation Lex and Don, Inc. for
the years  ended  December  31,  2005 and 2004,  respectively.  All  significant
intercompany transactions have been eliminated in combination.  The consolidated
entities are referred to as Company.





                (Remainder of this page left blank intentionally)



                                      F-8
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004



NOTE C - Summary of Significant Accounting Policies

1)   Cash and Cash Equivalents
     -------------------------

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

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

2)   Marketable Securities
     ---------------------

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

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

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

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

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

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

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

3)   Accounts Receivable and Revenue Recognition
     -------------------------------------------

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

     Since  December  31,  2000,  all  rental  property   lessors  are  entities
     controlled by a Company controlling shareholder,  officer and director. All
     lease  rental  payments are due in advance on the first day of the week for
     that week.  All revenue  sources  are  located  either in Dallas or Tarrant
     County, Texas.


                                      F-9
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


NOTE C - Summary of Significant Accounting Policies - Continued

(3)  Accounts Receivable and Revenue Recognition - continued
     -------------------------------------------------------

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

(4)  Inventory
     ---------

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

(5)  Property and Equipment
     ----------------------

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

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

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

8.   Earnings per share
     ------------------

     Basic  earnings  (loss) per share is computed  by  dividing  the net income
     (loss) available to common shareholders by the  weighted-average  number of
     common shares  outstanding  during the respective  period  presented in our
     accompanying financial statements.  Fully diluted earnings (loss) per share
     is  computed  similar  to basic  income  (loss) per share  except  that the
     denominator is increased to include the number of common stock  equivalents
     (primarily outstanding options and warrants).

     Common  stock  equivalents  represent  the  dilutive  effect of the assumed
     exercise of the outstanding stock options and warrants,  using the treasury
     stock method, at either the beginning of the respective period presented or
     the date of  issuance,  whichever  is later,  and only if the common  stock
     equivalents  are  considered  dilutive  based upon the Company's net income
     (loss) position at the calculation date.

     At December 31, 2005 and 2004, and subsequent  thereto,  the Company has no
     outstanding stock warrants,  options or convertible  securities which could
     be considered as dilutive for purposes of the loss per share calculation.


                                      F-10
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


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 2004,  approximately
$6,500 of lease payments was 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. 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 lessee had ceased operations, had no continuing assets and
all  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.


                                      F-11
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


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.  This lease has  converted  to a  month-to-month
basis.

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,  bears  interest  at  8.0%  per  annum  and is  being  amortized  to
operations over the 67 month term from the triggering  event date(s) through the
mandatory   closing  date  of  The  Million   Dollar   Saloon  in  it's  present
"non-conforming  location"  on July 31,  2009.  As of  December  31,  2004,  the
$1,000,000 aggregate payable and corresponding interest payable of approximately
$133,333 has been accrued in the accompanying financial statements.

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.


                                      F-12
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


NOTE E - Fair Value of Financial Instruments - Continued

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


NOTE F - Concentrations of Credit Risk

The  Company  maintains  its cash  accounts  in various  financial  institutions
subject  to  insurance   coverage  issued  by  the  Federal  Deposit   Insurance
Corporation  (FDIC).  Under FDIC rules,  the Company  and its  subsidiaries  are
entitled to aggregate  coverage of $100,000 per account type per separate  legal
entity per financial  institution.  During the years ended December 31, 2005 and
2004, respectively, the various operating companies maintained deposits in these
financial  institutions  with credit risk  exposures in excess of statutory FDIC
coverage.  The  Company  has  incurred  no  losses  during  2005 and  2004,  and
subsequent thereto, as a result of any of these unsecured situations.


NOTE G - Marketable Securities

Marketable  securities  as of December 31, 2005 and 2004 consist  entirely of an
investment in a money market instrument-based mutual funds and are summarized as
follows:
                                                         Available     Held to
                                        Trading          for sale     Maturity
                                        -------          --------     --------
December 31, 2005
-----------------
   Aggregate fair value                 $51,394          $   -        $   -
   Gross unrealized holding gain        $   151          $   -        $   -
   Gross unrealized holding losses      $     -          $   -        $   -
   Amortized cost basis                 $51,243          $   -        $   -

December 31, 2004
-----------------
   Aggregate fair value                 $49,537          $   -        $   -
   Gross unrealized holding gains       $ 1,081          $   -        $   -
   Gross unrealized holding losses      $     -          $   -        $   -
   Amortized cost basis                 $48,456          $   -        $   -

The net unrealized  holding gains or (losses) on trading  securities  which have
been included in the statement of operations were  approximately $151 and $1,081
for the each of the respective years ended December 31, 2005 and 2004.

NOTE H - Property and Equipment

Property and equipment consists of the following at December 31, 2005 and 2004:

                                     December 31,   December 31,
                                         2005           2004      Estimated life
                                     -----------    -----------   --------------
Buildings and related improvements   $ 1,526,424    $ 1,473,356    15-40 years
Furniture and equipment                  451,093        451,093     5-10 years
                                     -----------    -----------
                                       1,977,517      1,924,449
Less accumulated depreciation         (1,445,711)    (1,367,323)
                                     -----------    -----------
                                         531,806        557,126
Land                                     210,000        210,000
                                     -----------    -----------
Net property and equipment           $   741,806    $   767,126
                                     ===========    ===========



                                      F-13
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


NOTE H - Property and Equipment - Continued

Depreciation  expense  for the  years  ended  December  31,  2005  and  2004 was
approximately $78,387 and $85,856, respectively.


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

On February 14, 2003, the Company purchased 6.695 acres of undeveloped  property
located in Dallas,  Texas.  The  purchase  price was  approximately  $2,650,312,
including closing expenses of approximately  $53,599.  The Company paid $493,072
cash,  inclusive of a $140,000 loan to the Company from Duncan Burch, an officer
and  director of the  Company,  and issued to the seller a one-year  note in the
principal amount of $2,156,713 with 8% annual interest.  The payment of the note
is secured with a lien  against the  property  granted to the note holder by the
Company. The interest on the note is payable monthly  (approximately $14,678 per
month)  beginning  April 1, 2003 with the  principal  amount due and  payable on
February 1, 2004. This debt was refinanced on January 29, 2004 and paid in full.

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

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

As of December 31, 2005 and 2004,  respectively,  the Company owed approximately
$1,838,455 and $1,924,909 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
                                             -----------         ----------
                                                2006             $   92,082
                                                2007                 96,931
                                                2008                103,203
                                                2009                111,918
                                              2010-2014             678,465
                                              2015-2019             755,856
                                                                 ----------
                                                Total            $1,838,455




                                      F-14
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


NOTE J - Property and Equipment held for Sale

During the 3rd  quarter of Calendar  2004,  Company  management  listed the real
estate and other significant  assets owned by Corporation Lex for sale through a
commercial real estate  brokerage firm and  reclassified the net carrying values
at  the  listing  date  to  "Property  and  Equipment  held  for  Sale"  in  the
accompanying financial statements.

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  144,
"Accounting  for the Impairment or Disposal of Long-Lived  Assets",  the Company
follows the policy of  evaluating  all  qualifying  assets as of the end of each
reporting  quarter.  As of December 31, 2004,  management has determined that no
impairment  of the carrying  value of property and  equipment  held for sale was
necessary.

This  property  was sold on February 5, 2008 for net  proceeds of  approximately
$896,000,  resulting in a recognized  gain at the date of sale of  approximately
$25,000.


NOTE K - Operations Agreement
             Contract Payable to Affiliated Entities

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

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

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

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

The cessation of operations by Mainstage and Allen Burch  triggered the $500,000
payment clause to each entity as set forth in the May 2003 Settlement Agreement.
The aggregate $1,000,000 payment has been accrued in the accompanying  financial
statements,  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.




                (Remainder of this page left blank intentionally)





                                      F-15
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004



NOTE L - Income Taxes

The components of income tax expense  (benefit) for the years ended December 31,
2005 and 2004, respectively, are as follows:


                       Year ended       Year ended
                      December 31,     December 31,
                          2005             2004
                       --------         --------
     Federal:
       Current         $ 27,699         $ 19,913
       Deferred         (21,258)         (16,184)
                       --------         --------
                          6,441            3,729
                       --------         --------
     State:
       Current             --               --
       Deferred            --               --
                       --------         --------
                           --               --
                       --------         --------
       Total           $  6,441         $  3,729
                       ========         ========

The Company's income tax expense (benefit) for the years ended December 31, 2005
and 2004,  respectively,  differed from the statutory federal rate of 34 percent
as follows:
                                                        Year ended   Year ended
                                                       December 31, December 31,
                                                           2005         2004
                                                        --------     --------

Statutory rate applied to earnings before income taxes  $(40,000)    $ 14,200
Increase (decrease) in income taxes resulting from:
  State income taxes                                        --           --
  Deferred income taxes                                  (21,258)     (16,184)
  Effect of incremental tax brackets and the
    application of business tax credits                   61,258        5,713
                                                        --------     --------

Income tax expense                                      $  6,441     $  3,729
                                                        ========     ========

The  deferred  current  tax asset and  non-current  deferred  tax  liability  on
December  31,  2005  and  2004,  respectively,  balance  sheet  consists  of the
following:
                                               December 31,      December 31,
                                                   2005              2004
                                                ---------         ---------
         Non-current deferred tax liability     $(243,618)        $(264,877)
                                                =========         =========

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


NOTE M - Capital Stock Transactions

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


                                      F-16
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


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.


NOTE O - Litigation

1) City of Dallas licensing

     In conjunction  with an October 2002 Settlement  Agreement with the City of
     Dallas,  Texas, the Company entered into negotiations between the Company's
     wholly-owned subsidiary,  Tempo Tamers, Inc., Mainstage,  Inc. (Mainstage),
     an entity  controlled  by Nick  Mehmeti,  the  Company's  President,  which
     operated a non-conforming  adult cabaret located in Dallas,  Texas,  called
     P.T.'s and Allen-Burch,  Inc. (Allen Burch), an entity controlled by Duncan
     Burch,  a Company  officer and  significant  shareholder,  also operating a
     non-conforming  adult cabaret known as The Fare.  These  negotiations  were
     initiated  to  determine  which  of  these  non-conforming  entities  would
     continue operating in a "non-conforming location". In May 2003, these three
     affiliated  parties  granted the exclusive right to negotiate with the City
     of  Dallas,  Texas  to  Tempo  Tamers,  Inc.  for  the  continuance  of the
     operations of The Million Dollar Saloon as a sexually  oriented business in
     a "non-conforming  location." This Settlement  Agreement  provided that, in
     the event that the City of Dallas,  Texas granted The Million Dollar Saloon
     the  exclusive  right  to  continue  operating  as an  adult  cabaret  in a
     "non-conforming location" for a six (6) year period, Tempo Tamers would pay
     $500,000 each to Mainstage  and Allen Burch and  Mainstage and  Allen-Burch
     would each discontinue the operation of their respective  sexually oriented
     businesses.  In May 2003,  the City of Dallas,  Texas agreed to allow Tempo
     Tamers to  continue to operate  The  Million  Dollar  Saloon at its current
     location through the last day of July 2009.  Mainstage and Allen Burch then
     agreed  with  the  City of  Dallas,  Texas to  discontinue  the  respective
     operations of Mainstage and The Fare,  respectively,  as sexually  oriented
     business  in January  and  March,  2004,  respectively.  The  cessation  of
     operations  by Mainstage  and Allen Burch  triggered  the $500,000  payment
     clause to each  entity as set forth in the May 2003  Settlement  Agreement.
     The  aggregate  $1,000,000  payment  has  been  accrued  in  the  Company's
     financial statements and is being amortized to operations over the 67 month
     term from the triggering  event date(s) through the mandatory  closing date
     of The Million Dollar Saloon in it's present  "non-conforming  location" on
     July 31, 2009.

2) "John Doe I" v. Tempo Tamers Beverage Company, Inc. dba Million Dollar Saloon
   and Christopher  John Thornton,  Dallas County Texas District Court Cause No.
   05-02015;  filed February 24, 2005 and settled on October 20, 2005. Plaintiff
   "Doe I" filed a wrongful death/survivor claim under Section 2.02 of the Texas
   Alcoholic  Beverage Code (dram shop). The suit alleged that a customer of the
   Company's  Tempo Tamers,  Inc.  subsidiary (dba Million Dollar Saloon) (Club)
   was  served  in  violation  of  Section  2.02  resulting  in a motor  vehicle
   collision causing the wrongful death of "Doe I's" spouse. While the Company's
   wholly-owned  subsidiary  denied  all  allegations;  the case was  settled on
   October 20, 2005 under a sealed confidentiality agreement. The settlement was
   for the gross sum of $460,000  to be paid as follows:  $50,000 on the signing
   of the settlement documents,  $50,000 on or about January 13, 2006 and $7,500
   per month  starting  on  November  1,  2005  through  October  1,  2009.  The
   settlement is  non-interest  bearing and, per the  requirements  of generally
   accepted  accounting  principles,  has been  discounted  at the Prime Rate of
   6.75% to yield a net  settlement  of  approximately  $415,026,  exclusive  of
   imputed interest.  The entire discounted settlement was charged to operations
   on the October 2005 settlement date.


                                      F-17
<PAGE>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


NOTE O - Litigation - Continued

3)   "John Doe II" v. Tempo  Tamers,  Inc.  dba Million  Dollar  Saloon;  Dallas
     County Texas 44th District Court Cause No. 04-09918-A;  filed September 24,
     2004.  Clarendon  American  Insurance  Company v. Tempo  Tamers,  Inc.  dba
     Million  Dollar  Saloon;  Dallas County Texas 44th District Court Cause No.
     06-11838; filed November 17, 2006.

     This is a suit for  damages/loss of consortium  brought by Plaintiffs under
     Section 2.02 of the Texas Alcoholic Beverage Code. The Plaintiff claimed he
     was served by Club  employees in  violation of Section 2.02  resulting in a
     motorcycle  accident  whereby he  sustained  head  injuries and has medical
     bills  over  $300,000.00.  The  Plaintiff  further  asserted  to have no or
     diminished capacity to continue his professional profession.  The Company's
     wholly-owned   subsidiary,   Tempo  Tamers,  Inc.,  vigorously  denied  the
     allegations  and asserted that the Plaintiff's  accident was primarily,  if
     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 Dryer litigation.

     In 2007, the Company, without an admission of liability, settled all claims
     in a confidential settlement agreement whereby Tempo Tamers, Inc. agreed to
     reimburse Clarendon $25,000 of the monies Clarendon paid to Plaintiffs,  in
     five (5)  monthly  installments  of $5,000  each,  with the  first  monthly
     installment  to be paid on November 1, 2007 and the last  installment to be
     paid on March 1, 2008. Thereafter,  Tempo Tamers, Inc. agreed to pay Doe II
     and Doe II's  counsel  the total sum of  $75,000,  to be paid in 15 monthly
     installments  of $5,000  each,  commencing  on April 1, 2008 with the final
     installment  to be paid on July 1, 2009. The effect and settlement of these
     actions was charged to operations on the November 2007 settlement date.

4) Cody Staus and Kelly Nowlin v. Million  Dollar Saloon Inc. dba Million Dollar
   Saloon;  Dallas County Texas District Court Cause No.; 05-04622-K,  filed May
   10, 2005. This case was brought by Plaintiffs  Staus and Nowlin claiming they
   were assaulted by employees/security of Million Dollar Saloon and seek actual
   and punitive  damages.  This matter was settled in June 2006 for an aggregate
   $10,000 cash to all  Plaintiffs  and charged to operations at the  settlement
   date.

5) Beatrice Hunter v. Tempo Tamers, Inc. and Tempo Tamers Beverage Company Cause
   # 06-12954 in the116th Judicial District Court for Dallas County Texas, filed
   December 28, 2006.

     This case was originally brought by a person injured in a car accident with
     an  alleged  customer  of the Club  against  Million  Dollar  Saloon,  Inc.
     alleging a variety of causes of action  including  violations under Section
     2.02 of the Texas Alcoholic Beverage Code, negligence, gross negligence and
     other  allegations.  Million  Dollar Saloon,  Inc.  claimed that it was not
     liable as it did not operate the Club and claimed that Section 2.02 was the
     only valid  cause of action  and  injuries  were due to the  conduct of the
     driver of the  woman's  car to an extent to bar any  recovery  against  the
     club.  The initial case was dismissed  against  Million  Dollar Saloon Inc.
     when a settlement was reached between the Plaintiff and alleged customer. A
     new lawsuit was  thereafter  refiled  against  Tempo  Tamers Inc. and Tempo
     Tamers  Beverage  Company Inc.  This case is scheduled  for a jury trial to
     commence on August 11, 2008 and the ultimate outcome is not determinable at
     this time.  Management  is  aggressively  defending  these  actions  and no
     material impact to the Company's financial condition is anticipated at this
     time.

6) Texas Alcoholic Beverage Commission v. Tempo Tamers Beverage Company Inc.

     This is Administrative  action brought by a state regulatory agency against
     a non subsidiary  corporation which provides Tempo Tamers, Inc. with liquor
     permitting and services for the Tempo Tamers,  Inc.'s  business  operations
     known as "Million Dollar Saloon".


                                      F-18
<PAGE>
<TABLE>
<CAPTION>

                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


NOTE O - Litigation - Continued

6) Texas Alcoholic  Beverage  Commission v. Tempo Tamers Beverage Company Inc. -
continued

     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 P - Segment Information

The  Company  operates  with a  centralized  management  structure  and  has two
identifiable  operating segments:  an adult entertainment  lounge and restaurant
located in Dallas, Texas and commercial rental real estate located in Dallas and
Tarrant  Counties,  Texas.  All  revenues  are  generated  operations  in  these
geographic  areas.  As of December 31, 2005 and 2004,  respectively,  all rental
revenues are derived  from  entities  controlled  by Duncan  Burch,  an officer,
director and  controlling  shareholder.  Approximately  12.0% and 18.2% of total
revenues  for 2005 and 2004,  respectively,  were  derived  from  these  related
parties.

A summary of the Company's operating segments is as follows:

                                          Restaurant           Rental           General and
                                           facility          real estate      administrative         Total
                                           --------          -----------      --------------         -----
<S>                                                                                                   <C>

Year ended December 31, 2005
----------------------------
   Revenue from external customers       $ 2,671,980        $      --          $      --          $ 2,671,980
   Revenue from related parties                 --              442,000               --              442,000
   Revenue (expenses) from/to
     intercompany sources                     (6,127)          (203,072)           209,199               --
   Interest income                               164              3,349              4,255              7,768
   Interest expense                           84,821               --              123,232            208,053
   Depreciation and amortization             255,904              4,343                686            260,933
   Income tax expense (benefit)              (11,946)            88,121            (82,616)            (6,441)
   Segment assets                            286,825          2,301,269          3,373,579          5,961,673
   Fixed asset expenditures                   53,068               --                 --               53,068

Year ended December 31, 2004
----------------------------
   Revenue from external customers       $ 2,671,980        $      --          $      --          $ 2,671,980
   Revenue from related parties                 --              442,000               --              442,000
   Revenue (expenses) from/to
     intercompany sources                     (6,127)          (203,072)           209,199               --
   Interest income                               164              3,349              4,255              7,768
   Interest expense                           84,821               --              123,232            208,053
   Depreciation and amortization             255,904              4,343                686            260,933
   Income tax expense (benefit)              (11,946)            88,121            (82,616)            (6,441)
   Segment assets                            286,825          2,301,269          3,373,579          5,961,673
   Fixed asset expenditures                   53,068               --                 --               53,068

</TABLE>



                                      F-19
<PAGE>
<TABLE>
<CAPTION>



                  MILLION DOLLAR SALOON, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2005 and 2004


NOTE Q- Selected Financial Data (Unaudited)

The following is a summary of the quarterly  results of operations for the years
ended December 31, 2006 and 2005, respectively.


                             Quarter ended       Quarter ended      Quarter ended       Quarter ended        Year ended
                                March 31,           June 30,        September 30,        December 31,        December 31,
                              -----------         -----------        -----------         -----------         -----------
<S>                                                                                                          <C>

Calendar 2005
   Restaurant sales           $   826,068         $   740,128        $   697,822         $   407,962         $ 2,671,980
   Rental income -
     Related party            $   110,500         $   110,500        $   110,500         $   110,500         $   442,000
   Gross profit               $   582,136         $   473,574        $   431,413         $   436,707         $ 1,923,830
   Net earnings after
     provision for
     income taxes             $  (113,572)        $    40,655        $   (56,214)        $     5,649         $  (123,482)
   Basic and fully diluted
     earnings per share       $     (0.02)        $      0.01        $     (0.01)               --           $     (0.02)
   Weighted average
     number of shares
     issued and outstanding     5,731,788           5,731,788          5,731,788           5,731,788           5,731,788

Calendar 2004
   Restaurant sales           $ 1,046,488         $   951,986        $   857,084         $   503,886         $ 3,359,444
   Rental income -
     Related party            $   126,613         $   110,500        $   102,000         $   117,000         $   456,113
   Gross profit               $   626,446         $   554,856        $   408,527         $   338,391         $ 1,928,220
   Net earnings after
     provision for
     income taxes             $   251,980         $    76,767        $   (91,172)        $  (199,643)        $    37,932
   Basic and fully diluted
     earnings per share       $      0.04         $      0.01        $     (0.02)        $     (0.03)        $      0.01
   Weighted average
     number of shares
     issued and outstanding     5,731,788           5,731,788          5,731,788           5,731,788           5,731,788


</TABLE>

                (Remainder of this page left blank intentionally)







                                      F-20
<PAGE>


                                   SIGNATURES

In accord with Section 13 or 15(d) of the  Securities  Act of 1933,  as amended,
the Company  caused  this report to be signed on its behalf by the  undersigned,
thereto duly authorized.

                                                     Million Dollar Saloon, Inc.

Dated: August 18, 2008                          By:      /s/ Nick Mehmeti
       ---------------                             -----------------------------
                                                                    Nick Mehmeti
                                              Chairman, Chief Executive Officer,
                                            Chief Financial Officer and Director


In accordance with the Securities Exchange Act of 1934, as amended,  this report
has been signed below by the  following  persons on behalf of the Company and in
the capacities and on the date as indicated.


Dated: August 18, 2008                          By:      /s/ Nick Mehmeti
       ---------------                             -----------------------------
                                                                    Nick Mehmeti
                                              Chairman, Chief Executive Officer,
                                            Chief Financial Officer and Director


Dated: August 18, 2008                          By:      /s/ Duncan Burch
       ---------------                             -----------------------------
                                                                   Duncan Burch
                                                       Executive Vice President
                                                                   and Director


Dated: August 18, 2008                           By:      /s/ Dewanna Ross
       ---------------                              ----------------------------
                                                                   Dewanna Ross
                                                        Secretary and Treasurer












                                      F-21