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EX-32.2 - SCORES HOLDING CO INCv223837_ex32-2.htm
EX-31.1 - SCORES HOLDING CO INCv223837_ex31-1.htm
EX-32.1 - SCORES HOLDING CO INCv223837_ex32-1.htm
EX-31.2 - SCORES HOLDING CO INCv223837_ex31-2.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
 
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

Or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ________________

Commission file number 000-16665

Scores Holding Company, Inc.
(Exact name of small business issuer as specified in its charter)
 
Utah
 
87-0426358
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer Identification No.)
 
533-535 West 27th Street, New York, NY 10001
(Address of principal executive offices)
 
(212) 868-4900
(Registrant’s telephone number, including area code)

Indicate whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o  No o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
 
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company þ
       
(Do not check if a smaller
 Reporting company)
   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2). Yes o  No x

As of May 23, 2011 there were 165,186,124 shares of the issuer’s common stock, par value $0.001, issued and outstanding.
 
 
 

 
 
SCORES HOLDING COMPANY, INC.
MARCH 31, 2011 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

   
Page
Statement Regarding Forward-Looking Information
 
3
     
Part I – Financial Information
   
           
 
Item 1
 
Financial Statements
 
4
           
 
Item 2
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
16
           
 
Item 3
 
Quantitative and Qualitative Disclosures About Market Risk
 
18
           
 
Item 4
 
Controls and Procedures
 
18
     
Part II – Other Information
   
           
 
Item 1
 
Legal Proceedings
 
20
           
 
Item 1A
 
Risk Factors
 
23
           
 
Item 2
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
23
           
 
Item 3
 
Defaults Upon Senior Securities
 
23
           
 
Item 4
 
(Removed and Reserved)
 
23
           
 
Item 5
 
Other Information
 
23
           
 
Item 6
 
Exhibits
 
24
     
Signatures
 
25
     
Certifications    
 
 
2

 
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for historical information, this report contains forward-looking statements.  Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses.  Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language.  Our actual results may differ significantly from those projected in the forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to, those discussed in “Management’s Discussion and Analysis”.  You should carefully review the risks described in the documents we file from time to time with the Securities and Exchange Commission.  You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
 
 
3

 
 
PART 1 – FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS 
 
    PAGE
Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010 (Audited)
 
5
     
Consolidated Statements of Operations for the three months Ended March 31, 2011 and 2010 (Unaudited)
 
6
     
Consolidated Statements of Cash Flows for the three months Ended March 31, 2011 and 2010 (Unaudited)
 
7
     
Notes to Consolidated Financial Statements (Unaudited)
 
8
 
 
4

 
 
SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
March 31,
   
December 31,
 
   
2011
   
2010
 
ASSETS
 
( Unaudited )
       
             
CURRENT ASSETS:
           
Cash
  $ 34,439     $ 23,748  
Licensee  receivable - including affiliates- net
    40,103       87,731  
Prepaid expenses
    5,559       6,342  
                 
Total Current Assets
    80,101       117,821  
                 
INTANGIBLE ASSETS,NET
    58,149       88,725  
                 
                 
TOTAL ASSETS
  $ 138,250     $ 206,546  
                 
LIABILITIES AND STOCKHOLDERS'EQUITY( DEFICIT)
               
                 
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
  $ 493,761     $ 502,353  
Related party payable
    286,861       304,361  
Deferred revenue
    7,691       18,000  
                 
Total Current Liabilities
    788,313       824,714  
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
Preferred stock, $.0001 par value, 10,000,000 shares authorized, -0- issued and outstanding
    -       -  
Common stock, $.001 par value; 500,000,000 shares authorized, 165,186,124 issued and 165,186,124 outstanding, respectively
    165,186       165,186  
Additional paid-in capital
    5,998,117       5,998,117  
Accumulated deficit
    (6,813,366 )     (6,781,471 )
                 
Total stockholder's equity (Deficit)
    (650,063 )     (618,168 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY ( DEFICIT)
  $ 138,250     $ 206,546  
 
See notes to consolidated financial statements
 
 
5

 
 
SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months Ended 
March 31,
 
   
2011
   
2010
 
REVENUES
           
Royalty Revenue
  $ 131,589     $ 107,451  
                 
EXPENSES
               
General and Administrative Expenses
    163,484       142,102  
                 
NET (LOSS) BEFORE INCOME TAXES
    (31,895 )     (34,651 )
                 
PROVISION FOR INCOME TAXES
    -       -  
                 
NET (LOSS)
  $ (31,895 )   $ (34,651 )
                 
NET (LOSS) PER SHARE-Basic and Diluted
  $ (0.00 )   $ (0.00 )
                 
WEIGHTED AVERAGE OF COMMOM SHARES OUTSTANDING-Basic and Diluted
    165,186,124       165,186,124  

See notes to consolidated financial statements
 
 
6

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Three Months Ended 
March 31,
 
   
2011
   
2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (31,895 )   $ (34,651 )
                 
Adjustments to reconcile net loss to net cash provided by (used) in operating activities:
               
Amortization
    30,576       33,376  
Changes in assets and liabilities:
               
Licensee receivable
    47,629       (36,582 )
Prepaid expenses
    783       -  
Deferred revenue
    (10,309 )     -  
Accounts payable and accrued expenses
    (8,592 )     1,904  
NET CASH (USED) IN OPERATING ACTIVITIES
    28,191       (35,953 )
                 
CASH PROVIDED BY FINANCING ACTIVITIES:
               
Related party payables
    (17,500 )     28,783  
NET CASH PROVIDED BY FINANCING ACTIVITIES
    (17,500 )     28,783  
                 
NET (DECREASE) INCREASE IN CASH
    10,691       (7,170 )
Cash and cash equivalents - beginning of year
    23,748       31,694  
Cash and cash equivalents - end of year
  $ 34,439     $ 24,524  
                 
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the year for interest
  $ -     $ -  
Cash paid for income taxes
  $ 984     $ -  

See notes to the consolidated financial statements
 
 
7

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
(Unaudited)

Note 1. Organization

Basis for presentation

Scores Holding Company, Inc. and subsidiaries (the “Company”) is a Utah corporation, formed in September 1981 and is located in New York, NY. Formerly, Internet Advisory Corporation, the Company is a licensing company that exploits the “Scores” name and trademark for franchising and other licensing options.

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States. The consolidated financial statements of the Company include the accounts of Scores Licensing Corp.

Our consolidated financial statements include our accounts, as well as those of our wholly-owned subsidiaries.  Certain prior period amounts have been reclassified to conform to the current period presentation. Our accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnote disclosures required by U.S. GAAP for complete financial statements.  The consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods presented.  All such adjustments are of a normal recurring nature.  These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2010.

The preparation of financial statements in conformity with U.S. GAAP requires us 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.  The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 31, 2011.

Note 2. Summary of Significant Accounting Principles

 Going Concern

The Company has incurred cumulative losses totaling $(6,813,366), a working capital deficit of $(708,212) and a net operating loss of $(31,895) at March 31, 2011.  Because of these conditions, the Company will require additional working capital to develop business operations. The Company intends to raise additional working capital through the continued licensing of its brand with its current and new operators and to take on operations in larger cities with greater demand for our product through acquisitions.   There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated from any future use of licensing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company.   If adequate working capital is not available, the Company may not increase its operations.
 
 
8

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
(Unaudited)
 
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Concentration of Credit Risk

The Company earned royalties and merchandise revenues from five licensees who are unrelated to management of the Company. During the three months ended March 31, 2011, revenues earned from royalties from these unrelated licensees amounted to $90,175 and there was $40,103 due and outstanding as of March 31, 2011.  The Company’s New York affiliate commenced operations in May 2009 and revenue amounted to $41,413 during the three month 2011 period; there was $-0- due and outstanding as of March 31, 2011.

During the three month 2011 and 2010 periods our Baltimore licensees accounted for 26% and 27% and our Chicago licensee accounted for 17% and 25% of our total revenues, respectively.   Our New Orleans licensee accounted for 11% and 14% of our total revenues for the three month periods ended 2011 and 2010, respectively.  The Company’s AYA, Scoreslive.com licensee website is still in the development stage since 2007; it has accounted for -0- amount of our total royalty revenues to date.

Income (Loss) Per Share

Net income (loss) per share data for both the 2011 period and the 2010 period are based on net income (loss) available to common shareholders divided by the weighted average of the number of common shares outstanding.  Outstanding stock options are not part of this basis as they are anti-dilutive.

Fair Value of Financial Instruments

The Company follows the provisions of ASC 820-10, Fair Value Measurements, which defines fair values, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company’s financial instruments include cash, licensee receivable, prepaid expenses, accounts payable, accrued expenses and related party payable.  Due to the short term maturity of these financial instruments, the fair values were not materially different from their carrying values.
 
 
9

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
(Unaudited)
 
New Accounting Pronouncements

All newly issued but not yet effective accounting pronouncements have been deemed to either be irrelevant or immaterial to the operations and reporting disclosures of the Company.

Note 3.  Related-Party Transactions

Transactions with Common ownership affiliates

On January 27, 2009, the Company entered into a licensing agreement with its affiliate through common ownership I.M. Operating LLC (“IMO”) for the use of the Scores brand name “Scores New York”.  IMO is also owned by Robert M. Gans who is the Company’s majority shareholder.  IMO paid approximately $211,866 in administrative costs  related to accounting, business development, insurance and legal services for the Company as of March 31, 2011.  The Company also leases office space directly from Westside Realty of New York (WSR), the owner of the West 27th Street Building.  The majority owner of WSR is Robert M. Gans.  Between January 1, and March 31, 2009, the monthly rent including overhead was $5,000, since April 1, 2009, the monthly rent was reduced to $2,500 per month including overhead costs.  The Company owed WSR approximately $60,000 in unpaid rents as of March 31, 2011.  The combined total of such debts including approximately $14,995 owed to Mr. Robert M. Gans amounted to $286,861 and is recorded as related party payable.
 
Note 4.   Intangible Assets

Trademark

In connection with the acquisition of HEIR (also known as, Scores Licensing Company) as discussed above, the Company acquired the trademark to the name “SCORES”. This trademark had a net recorded value at March 31, 2011 of $58,149. This trademark has been registered in the United States, Canada, Japan, Mexico and the European Community. The trademark is being amortized by straight line methods over an estimated useful life of ten years. The Company’s trademark having an infinite useful life by its definition is being amortized over ten years due to the difficult New York legal environment for which the related showcase adult club is operating.  The Company recorded $30,576 and $33,376 of amortization expense, for the three month periods ended March 31, 2011 and 2010, respectively.
 
During the three months period ended March 31, 2011, the Company believed that the carrying amount of the “Scores” trademark was equal to its fair or net present value and, as a result, did not recognized any impairment loss.
 
 
10

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
(Unaudited)
 
Note 5.  Licensees

In 2003, we licensed the use of the "Scores Chicago" name to Stone Park Entertainment, Inc. for its club in Chicago, Illinois. Royalties payable to the Company are the greater of $2,500 per week or 4.99% of the gross revenues (less $25,000 per week) earned at that location. Chicago accounted for 17% and 25% of our total royalty revenues during the three month  periods of 2011 and 2010, respectively.  During the 2011 three month period, the Company collected $22,950 in royalties and is owed $16,409 in unpaid royalties.

In 2004, we licensed the use of "Scores Baltimore" to Club 2000 Eastern Avenue, Inc. for its nightclub in Baltimore, Maryland. Royalties payable to the Company are the greater of $1,000 per week or 4.99% of gross revenues. This club accounted for 26% and 27% of our total royalty revenues during the first three months of 2011 and 2010, respectively.  For the 2011 three month period, the Company collected $11,389 in royalties and is owed $11,389 in unpaid royalties.

In April 2007, we licensed the use of the Scores brand name to Silver Bourbon, Inc. for a night club in New Orleans, Louisiana. Royalties payable to the Company under this license are capped at the greater of $8,000 per month or 4.99% of gross revenues. This club commenced operations in April 2007 and accounted for 11% and 14% of our total royalty revenues during first three month periods of 2011 and 2010, respectively.  The Company is owed $9,000 in unpaid royalties offset by a $14,000 reserve.   For the 2011 three month period, the Company collected $35,000 in royalties and is owed $-0- net of the reserve.

On January 27, 2009, we entered into a licensing agreement with I.M. Operating LLC (“IMO”) for the use of the Scores brand name which our majority shareholder (Robert M. Gans) and Secretary and Board Director (Howard Rosenbluth) are members.  IMOs’ operations will be at the location of the former Scores West nightclub, 533-535 West 27th Street, New York, NY (the “West 27th Street Building”)., which is also owned by Westside Realty of New York, of which the majority owner is Robert M. Gans.  Royalties payable to the Company under this license agreement are 3% of gross revenues. IMO has a liquor license, renovated the club and commenced operations at the West 28th street location in May 2009.  For the first three months of the 2011, the Company collected $90,000 in royalties and is owed $-0- in unpaid royalties.

On September 30, 2010, the Company entered into a licensing agreement with Tampa Food & Entertainment, Inc.  Upon signing the contract, the Company received a non-refundable fee.  For the next twelve months the Company will receive a flat fee of $6,000 per month with an advance payment made at the signing of the contract.  After the first twelve months, royalties payable to the Company under this license will be capped at the greater of a certain dollar amount per month or a percentage of net revenues.
 
 
11

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
(Unaudited)
 
Note 6. Commitments and Contingencies

On March 22, 2010, Russell Whelchel, who performed work as a hair and makeup stylist at the Scores West nightclub located at 536 West 28th Street, New York, NY, filed a civil lawsuit against the Company in the S.D.N.Y.   The plaintiff subsequently amended the complaint on July 30, 2010.  The plaintiff is seeking to recover under federal and New York labor laws minimum wages, unlawful deductions, misappropriated gratuities and other wages for the period of his “employment” with Scores West between May 2009 and February 13, 2010.  Additionally, the plaintiff is seeking pre-judgment and post-judgment interest, liquidated damages and injunctive relief.  The Company disputes that it was an employer of the plaintiff; contends that the plaintiff was not an “employee” but rather an independent contractor of Scores West and denies all allegations seeking damages under federal and state wage and hour laws. The Company intends to vigorously defend against all claims in the plaintiff’s complaint.  The Company is currently engaged with the plaintiff in the exchange of discovery.

On March 16, 2010, Charles Braden, who claims he performed work as a hair and makeup stylist at the Scores New York nightclub located at 536 West 28th Street, New York, NY, filed a civil lawsuit against the Company in the S.D.N.Y.   The plaintiff is seeking to recover under federal and New York labor laws minimum wages, unlawful deductions, misappropriated gratuities and other wages for the period of his “employment” with “Scores New York” between approximately January 2005 and September 2010.  Additionally, the plaintiff is seeking pre-judgment and post-judgment interest, liquidated damages, reasonable attorneys’ fees and costs of the action and other relief as the S.D.N.Y. deems just and reasonable.  The Company disputes that it was an employer of the plaintiff, contends that the plaintiff was not an “employee” but rather an independent contractor of Scores West and denies all allegations seeking damages under federal and state wage and hour laws. The Company intends to vigorously defend against all claims in the plaintiff’s complaint.

In mid-March 2010, the Company was named by Nicole Hughes in a complaint filed with the SCNY.  Ms Hughes is suing the Company for an unspecified amount of damages in connection with an alleged unauthorized use of her image in the Company’s advertising materials.  On June 20, 2010, the Company filed a pre-answer motion to dismiss the complaint, which was denied on December 17, 2010.  The Company then filed an answer and affirmative defenses and a third party complaint against IMO, owner and operator of the club where Ms. Hughes was employed.  The case is now in discovery. The Company will vigorously defend itself in this litigation and does not expect that the outcome will be material.

On January 14, 2010, the Company was named in a complaint filed with the SCNY in connection with an alleged assault on the plaintiff by an agent of the Company’s New York affiliated club. The Company filed a motion to dismiss this complaint and, on December 15, 2010, the plaintiff stipulated to discontinue the case against the Company.
 
 
12

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
(Unaudited)
 
On June 23, 2009, the Company filed a complaint with the SCNY against Silver Bourbon, Inc., its licensee in New Orleans and operator of Scores New Orleans, for breach of contract.  At the time of the filing, Silber Bourbon, Inc. owed the Company $70,000 in unpaid royalties.  We have settled this matter with Silver Bourban, Inc. and the court action has been discontinued.

On September 5, 2008, Ruth Fowler, a former cocktail waitress at Scores West, filed a civil lawsuit against the Company in the Federal District Court for the Southern District of New York (the “Court”).  The plaintiff is seeking to recover damages for alleged illegal deductions take from her salary and monies due her and for sexual harassment under the New York City and New York State Human Rights Laws.  On May 7, 2009, the Company filed a motion to dismiss the action against it but that motion was denied by the Court with possible leave to renew the motion at a future date after the completion of discovery proceedings.  In the meanwhile, counsel for plaintiff filed an amended complaint on February 26, 2010 to add as additional parties to the action Go West and EMS.  On March 1, 2010, the Company filed affirmative defenses and an amended response asserting cross-claims for judgment against both Go West and EMS. On September 13, 2010, the SDNY denied plaintiff’s application for further discovery and on October 18, 2010, the Company filed a motion to dismiss, which has yet to be decided on.  Although the outcome of this action is uncertain, the Company believes that any outcome will not have a material effect on it, since the plaintiff was only employed by Scores West for less than four months.

In early March 2008, the Company received notice that DIF&B, owner of the Las Vegas club, would be canceling its sublicense with EMS effective on or before May 6, 2008. The Company was notified that DIF&B would be making final royalty payments to EMS totaling $60,000 at the rate of $10,000 per week starting the first week of March 2008. The Las Vegas club ceased operating and, as of December 31, 2008, EMS had received only one such $10,000 payment from DIF&B. EMS commenced an action against DIF&B and filed a complaint and affidavit of service with the SCNY, on July 23, 2008. DIF&B was required to file an answer by August 23, 2008, but did not do so. As a result, EMS filed an application for a default judgment and the SCNY appointed a referee to determine damages. The referee determined that damages in the amount of $216,000, with interest, should be paid to EMS and a default judgment totaling $230,557 was entered by the Clerk of the SCNY.  The Company will attempt to collect on this judgment.  The Company will be entitled to all monies so collected, pursuant to the Assignment Agreement with EMS and 333.

On December 11, 2007, Francis Vargas, a former cocktail waitress at Scores West located in New York, NY, filed a civil lawsuit against the Company and Go West in the SCNY, alleging violations of the New York State Human Rights Law, New York Executive Law, New York City Human Rights Law, and the New York City Administrative Code, based upon allegations of sexual discrimination and sexual harassment. The lawsuit further alleges that at all material times both the Company and Go West were employers of Ms. Vargas, the plaintiff. The law suit seeks unspecified compensatory damages for plaintiff’s alleged loss of past and future earnings and benefits, emotional distress, humiliation and loss of reputation. The Company disputes that it was an employer of the plaintiff and categorically denies all allegations of sexual discrimination and sexual harassment. The Company filed its verified answer in the Supreme Court of the State of New York on February 12, 2008 to contest and defend against these accusations and it is currently engaged in discovery. On April 18, 2008, co-defendant Go West filed for bankruptcy and the case was stayed.  On July 23, 2009, the bankruptcy petition was dismissed and, as a result, the automatic stay was lifted. The Company subsequently filed an amended response asserting cross-claims for judgment against both Go West and EMS and recently filed a motion to compel discovery which was approved.  The Company is currently preparing for the plaintiff’s deposition and a compliance conference which are scheduled for the end of April.
 
 
13

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
(Unaudited)
 
On October 9, 2007, former Go West bartender Siri Diaz filed a purported class action and collective action on behalf of all tipped employees against the Company and other defendants alleging violations of federal and state wage/hour laws (Siri Diaz et al. v. Scores Holding Company, Inc.; Go West Entertainment, Inc. a/k/a Scores West Side; and Scores Entertainment, Inc., a/k/a Scores East Side, Case No. 07 Civ. 8718 (Southern District of New York (the “Court”), Judge Richard M. Berman)). On November 6, 2007, plaintiffs served an amended purported class action and collective action complaint, naming dancers and servers as additional plaintiffs and alleging the same violations of federal and state wage/hour laws. On or about February 21, 2008, plaintiffs served a second amended complaint adding two additional party defendants, but limiting the action to persons employed in the New York Scores’ clubs. The amended complaint alleged that the Company and the other defendants were “an integrated enterprise” and that the Company jointly employed the plaintiffs, subjecting all of the defendants to liability for the alleged wage/hour violations. On behalf of the Company and the other defendants the Company filed a motion to dismiss that portion of the Complaint that asserted State law class action allegations; the Company also moved to dismiss the claims of two of the named plaintiffs for failure to appear for depositions. At the same time plaintiffs moved for conditional certification under the federal law for a class of the servers, bartenders and dancers; the Company opposed that motion. On May 9, 2008, the Court issued its decision, denying the motion to dismiss and granting conditional certification for a class of servers, cocktail waitresses, bartenders and dancers who have worked at Scores East since October 2004.  On May 29, 2008, the Company filed an answer to plaintiff's’ second amended complaint.  On or about September 5, 2009, plaintiffs served their third amended complaint adding in two individual defendants who are alleged to be employers under the state and federal wage claims.  The Company disputes that it is a proper defendant in this action and it disputes that it violated the federal and state labor laws, and further disputes that the dancers are “employees” subject to the federal and state wage and hour laws. The Company has recorded a $450,000 estimate to settle this lawsuit, as the legal fees defending the Company’s position during the year has amounted to approximately $80,000.

On March 30, 2007, the Company, along with several of its affiliates, were named in a suit in connection with an alleged assault by an employee of an affiliate and one of the Company’s stockholders and former officer and director.  The Company has answered a third amended complaint and completed discovery.  The Company has filed a note of issue with the court and is waiting for a court date on which the trial will begin. The Company will vigorously defend itself in this litigation and does not expect that the outcome will be material.
 
 
14

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS
(Unaudited)
 
There are no other material legal proceedings pending to which the Company or any of its property is subject, nor to our knowledge are any such proceedings threatened.

Note 7. SUBSEQUENT EVENTS

We have evaluated the subsequent events for disclosure purposes.

 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Scores Holding Company, Inc. (‘Scores,” the “Company,” “we,” “us” or “our”) was incorporated in Utah on September 21, 1981 under the name Adonis Energy, Inc. Since 2003, we have been in the business of licensing the “Scores” trademarks and other intellectual property to fine gentlemen’s nightclubs with adult entertainment in the United States.  There are five such clubs currently operating under the Scores name, in New York, Baltimore, Chicago, and New Orleans.

On January 27, 2009, Mitchell’s East LLC, wholly owned by Robert M. Gans, acquired a majority interest in our outstanding capital stock.  I.M. Operating LLC (“IMO”), which is partially owned by Robert M. Gans who is also our majority shareholder, has signed a licensing agreement with us and commenced operations in New York of a new club (the “New York Club”) under the Scores name in May 2009.   Throughout this report, we refer to the New York Club as our affiliate, because of the common ownership by Mr. Gans. All other clubs are referred to as non-affiliated clubs or as licensees, a term that may include the New York Club when the context requires.

On August 6, 2010, we appointed Robert M. Gans as our President and Chief Executive Officer and as a member of our Board.  Robert Gans and Martin Gans, one of our existing Board members, are brothers.  Also on August 6, 2010, we appointed Howard Rosenbluth as our Treasurer and Chief Financial Officer.

Results of Operations

Three Months Ended March 31, 2011 (“the 2011 three month period”) Compared to Three Months Ended March 31, 2010 (“the 2010 three month period”).

Revenues:

Revenues increased to $131,589 for the 2011 three month period from $107,451 for the 2010 three month period.  The increase was due principally to the receipt of  from a new licensee in the amount of $18,000.  This royalty agreement commenced September 30, 2010.

Revenues from the New York Club amounted to $41,414 and $36,594 for the 2011 and 2010 three month periods, respectively.  Revenues from our Chicago nightclub decreased sixteen percent (17%) to $22,312 for the 2011 three month period from $27,745 from the 2010 three month period, while revenues from our Baltimore club increased twenty percent (22%) to $34,863 for the 2011 three month period from $28,612 for the 2010 three month period and revenues from our New Orleans club at $15,000 for both the 2011 three month period and the 2010 three month period.
 
 
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General and Administrative Expenses:

General and administrative expenses increased during the 2011 three month period to $163,484 from $142,102 during the 2010 three month period.  Costs related to administrative expenses increased approximately by $21,382 from 2011 to 2010

Provision for Income Taxes

 The provision for state income taxes relates primarily to the greater of average assets and capital taxable income. The average assets and capital are not impacted by net operating losses.

Net loss:

Our net (loss) was $(31,895) or $(0.00) per share for the 2011 three month period compared to a net (loss) of $(34,651) or $0.00 per share for the 2010 three month period.  The decrease in operating loss for the 2011 three month period was a result of a increase in royalty revenue during the three month period.

Net loss per share data for both the 2011 three month period and the 2010 three month period is based on net income available to common shareholders divided by the weighted average of the number of common shares outstanding.

Liquidity and Capital Resources

Cash:

At March 31, 2011, we had $34,439 in cash and cash equivalents compared to $23,748 in cash and cash equivalents at December 31, 2010.

Operating Activities:

Net cash provided by (used in) operating activities for the three months ended March 31, 2011 and March 31, 2010 was $28,191 and $(35,953) respectively. The increases in cash are related to decreases in licensee receivable, between the 2011 and 2010 periods.

Financing Activities:

During the 2011 and 2010 three month periods, our New York affiliate paid approximately $53,028 and $28,783, respectively, in cash for web development, insurance premiums and consulting services for the Company.  As of March 31, 2011, we owed $60,000 in rent to our Westside Realty affiliate and $211,866 to our New York affiliate.

Future Capital Requirements:

We have incurred losses since the inception of our business. Since our inception, we have been dependent on acquisitions and funding from private lenders and investors to conduct operations. As of March 31, 2011 we had an accumulated deficit of $(6,813,366), with total current assets of $80,101and total current liabilities of $788,313 or negative working capital of $(708,212). As of December 31, 2010, we had total current assets of $117,821 and total current liabilities of $824,714 or negative working capital of $(706,893).  Our accounts receivable and payables decreased during the 2011 three month period; the effect had no significant impact on our negative working capital.
 
 
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We will continue to evaluate possible acquisitions of or investments in businesses, products and technologies that are complimentary to ours. These may require the use of cash, which would require us to seek financing. We may sell equity or debt securities or seek credit facilities to fund acquisition-related or other business costs. Sales of equity or convertible debt securities would result in additional dilution to our stockholders. We may also need to raise additional funds in order to support more rapid expansion, develop new or enhanced services or products, respond to competitive pressures, or take advantage of unanticipated opportunities. Our future liquidity and capital requirements will depend upon numerous factors, including the success of our adult entertainment trademark licensing business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide disclosure under this Item 3.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our management, including our Chief Executive Officer and our Chief Financial Officer (who serves as our principal financial and accounting officer), has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, and as discussed in greater detail below, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective:

·  
to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and
 
 
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·  
to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our interim CEO and our Treasurer, to allow timely decisions regarding required disclosure.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes primarily due to limited financial accounting staff resources. The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with their review of our financial statements as of March 31, 2011.

Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
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PART II

ITEM 1. LEGAL PROCEEDINGS

On March 22, 2010, Russell Whelchel, who performed work as a hair and makeup stylist at the Scores West nightclub located at 536 West 28th Street, New York, NY, filed a civil lawsuit against us in the S.D.N.Y.   The plaintiff subsequently amended the complaint on July 30, 2010.  The plaintiff is seeking to recover under federal and New York labor laws minimum wages, unlawful deductions, misappropriated gratuities and other wages for the period of his “employment” with Scores West between May 2009 and February 13, 2010.  Additionally, the plaintiff is seeking pre-judgment and post-judgment interest, liquidated damages and injunctive relief.  We dispute that we were an employer of the plaintiff, we contend that the plaintiff was not an “employee” but rather an independent contractor of Scores West and we deny all allegations seeking damages under federal and state wage and hour laws. We intend to vigorously defend against all claims in the plaintiff’s complaint.  We are currently engaged with the plaintiff in the exchange of discovery.

On March 16, 2010, Charles Braden, who claims he performed work as a hair and makeup stylist at the Scores New York nightclub located at 536 West 28th Street, New York, NY, filed a civil lawsuit against us in the S.D.N.Y.   The plaintiff is seeking to recover under federal and New York labor laws minimum wages, unlawful deductions, misappropriated gratuities and other wages for the period of his “employment” with Scores New York between approximately January 2005 and September 2010.  Additionally, the plaintiff is seeking pre-judgment and post-judgment interest, liquidated damages, reasonable attorneys’ fees and costs of the action and other relief as the S.D.N.Y. deems just and reasonable.  We dispute that we were an employer of the plaintiff, we contend that the plaintiff was not an “employee” but rather an independent contractor of Scores West and we deny all allegations seeking damages under federal and state wage and hour laws. We intend to vigorously defend against all claims in the plaintiff’s complaint.

In mid March 2010, we were named by Nichole Hughes in a complaint filed with the SCNY.  Ms Hughes is suing us for an unspecified amount of damages in connection with an alleged unauthorized use of her image in our advertising materials.  On June 20, 2010, we filed a pre-answer motion to dismiss the complaint, which was denied on December 17, 2010.  We then filed an answer and affirmative defenses and a third party complaint against IMO, owner and operator of the club where Ms. Hughes was employed.  The case is now in discovery.  We will vigorously defend ourselves in this litigation and do not expect that the outcome will be material.

On January 14, 2010, we were named in a complaint filed with the SCNY in connection with an alleged assault on the plaintiff by an agent of our New York affiliated club. We filed a motion to dismiss this complaint and, on December 15, 2010, the plaintiff stipulated to discontinue the case against us.

On June 23, 2009, we filed a complaint with the SCNY against Silver Bourbon, Inc., our licensee in New Orleans and operator of Scores New Orleans, for breach of contract.  At the time of the filing, Silber Bourbon, Inc. owed us $70,000 in unpaid royalties.  We have settled this matter with Silver Bourbon, Inc. and the court action has been discontinued.
 
 
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On September 5, 2008, Ruth Fowler, a former cocktail waitress at Scores West, filed a civil lawsuit against us in the S.D.N.Y.  The plaintiff is seeking to recover damages for alleged illegal deductions take from her salary and monies due her and for sexual harassment under the New York City and New York State Human Rights Laws.  On May 7, 2009, we filed a motion to dismiss the action against us but that motion was denied by the S.D.N.Y. with possible leave to renew the motion at a future date after the completion of discovery proceedings.  In the meanwhile, counsel for plaintiff filed an amended complaint on February 26, 2010 to add as additional parties to the action Go West and EMS.  On March 1, 2010, we filed affirmative defenses and an amended response asserting cross-claims for judgment against both Go West and EMS. On September 13, 2010, the SDNY denied plaintiff’s application for further discovery and on October 18, 2010, we filed a motion to dismiss, which has yet to be decided on.  Although the outcome of this action is uncertain, we believe that any outcome will not have a material effect on us, since the plaintiff was only employed by Scores West for less than four months.

In early March 2008, we received notice that DIF&B, owner of the Las Vegas club, would be canceling its sublicense with EMS effective on or before May 6, 2008. We were notified that DIF&B would be making final royalty payments to EMS totaling $60,000 at the rate of $10,000 per week starting the first week of March 2008. The Las Vegas club ceased operating and, as of December 31, 2008, EMS had received only one such $10,000 payment from DIF&B. EMS commenced an action against DIF&B and filed a complaint and affidavit of service with the SCNY, on July 23, 2008. DIF&B was required to file an answer by August 23, 2008, but did not do so. As a result, EMS filed an application for a default judgment and the SCNY appointed a referee to determine damages. The referee determined that damages in the amount of $216,000, with interest, should be paid to EMS and a default judgment totaling $230,557 was entered by the Clerk of the SCNY.  We will attempt to collect on this judgment.  We will be entitled to all monies so collected, pursuant to the Assignment Agreement with EMS and 333.

On December 11, 2007, Francis Vargas, a former cocktail waitress at Scores West located in New York, NY, filed a civil lawsuit against us and Go West in the SCNY, alleging violations of the New York State Human Rights Law, New York Executive Law, New York City Human Rights Law, and the New York City Administrative Code, based upon allegations of sexual discrimination and sexual harassment. The lawsuit further alleges that at all material times both we and Go West were employers of Ms. Vargas, the plaintiff. The law suit seeks unspecified compensatory damages for plaintiff’s alleged loss of past and future earnings and benefits, emotional distress, humiliation and loss of reputation. We dispute that we were an employer of the plaintiff and categorically deny all allegations of sexual discrimination and sexual harassment. We filed our verified answer in the Supreme Court of the State of New York on February 12, 2008 to contest and defend against these accusations and we are currently engaged in discovery. On April 18, 2008, co-defendant Go West filed for bankruptcy and the case was stayed.  On July 23, 2009, the bankruptcy petition was dismissed and, as a result, the automatic stay was lifted.  We subsequently filed an amended response asserting cross-claims for judgment against both Go West and EMS and a motion to compel discovery.  We are currently preparing for the plaintiff’s deposition and a compliance conference which are scheduled for the end of April.
 
 
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On October 9, 2007, former Go West bartender Siri Diaz filed a purported class action and collective action on behalf of all tipped employees against us and other defendants alleging violations of federal and state wage/hour laws (Siri Diaz et al. v. Scores Holding Company, Inc.; Go West Entertainment, Inc. a/k/a Scores West Side; and Scores Entertainment, Inc., a/k/a Scores East Side, Case No. 07 Civ. 8718 (Southern District of New York (the “Court”), Judge Richard M. Berman)). On November 6, 2007, plaintiffs served an amended purported class action and collective action complaint, naming dancers and servers as additional plaintiffs and alleging the same violations of federal and state wage/hour laws. On or about February 21, 2008, plaintiffs served a second amended complaint adding two additional party defendants, but limiting the action to persons employed in the New York Scores’ clubs. The amended complaint alleged that we and the other defendants are “an integrated enterprise” and that we jointly employ the plaintiffs, subjecting all of the defendants to liability for the alleged wage/hour violations.  On behalf of ourselves and the other defendants we filed a motion to dismiss that portion of the Complaint that asserted State law class action allegations; we also moved to dismiss the claims of two of the named plaintiffs for failure to appear for depositions. At the same time plaintiffs moved for conditional certification under the federal law for a class of the servers, bartenders and dancers; we opposed that motion. On May 9, 2008, the Court issued its decision, denying the motion to dismiss and granting conditional certification for a class of servers, cocktail waitresses, bartenders and dancers who have worked at Scores East since October 2004.  On May 29, 2008, we filed an answer to plaintiff's’ second amended complaint.  On or about September 5, 2009, plaintiffs served their third amended complaint adding in two individual defendants who are alleged to be employers under the state and federal wage claims.  We dispute that we are a proper defendant in this action and we dispute that we violated the federal and state labor laws, and further dispute that the dancers are “employees” subject to the federal and state wage and hour laws.  Two of the defendants have been dismissed without prejudice and we have agreed upon a settlement amount of $450,000 that will be contributed among and between all of the remaining defendants. The settlement documents are currently in the process of being prepared.

On March 30, 2007, we, along with several of our affiliates, were named in a suit in connection with an alleged assault by an employee of an affiliate and one of our stockholders and former officer and director. We have answered a third amended complaint and completed discovery.  We have filed a note of issue with the court and are waiting for a court date on which the trial will begin.  We will vigorously defend ourselves in this litigation and do not expect that the outcome will be material.

On March 31, 2006, Richard K. Goldring, our former president, chief executive officer and principal shareholder pled guilty to one count of offering a False Instrument for Filing in the First Degree pursuant to a plea agreement with the District Attorney of the County of New York (the "DA"). In the event that within one year of the date of the entry of the guilty plea, Mr. Goldring resigns from all "control management positions" that he holds in publicly traded companies, including ours, and divests himself of all "control ownership positions" in publicly traded companies, including ours, and satisfies certain other conditions, the DA will recommend a sentence of probation. In this context, a “control management position” is a role, official or unofficial, by which he substantially directs the decisions of a company, and a “control ownership position” is a position in which he controls, directly or indirectly more than 9% of the voting stock or other securities of a company, or stock or securities that have the capability of being converted into voting stock or other securities of a company. The plea agreement resolved the DA's investigation against Mr. Goldring and us. No charges were brought against us.
 
 
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To comply with the plea agreement between Richard Goldring and the District Attorney of the County of New York, on September 4, 2008, Mr. Goldring transferred his 76,080,958 shares of our common stock (the “Goldring Shares”) to Ira Altchek as trustee (the “Trustee”). According to the terms of the Voting Trust Agreement by and between Mr. Goldring and the Trustee dated September 4, 2008, the Trustee had the right to exercise all rights and powers of a shareholder of the Company with respect to the Goldring Shares, including, without limitation, the sole and exclusive right to vote the Goldring Shares, while Mr. Goldring maintained the right to sell the Goldring Shares at any time. The Goldring Shares represented approximately forty six percent (46%) of the outstanding capital stock of the Company as of the December 31, 2008.  On January 27, 2009, Mr. Goldring sold all of the Goldring Shares in a private transaction with Buyer, as further discussed above.

There are no other material legal proceedings pending to which we or any of our property are subject, nor to our knowledge are any such proceedings threatened.

ITEM 1A. RISK FACTORS

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide disclosure under this Item 1A.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.
 
ITEM 5. OTHER INFORMATION

None.
 
 
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ITEM 6. EXHIBITS

(a) Exhibits.

Exhibit No.
 
Description
31.1
 
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2
 
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
32.2
 
Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
 

* This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
 
 
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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
SCORES HOLDING COMPANY, INC.
 
       
Dated:  May 23, 2011  
By:
/s/Robert M. Gans   
   
Robert M. Gans
 
   
Chief Executive Officer
 
 
 
By:
/s/Howard Rosenbluth   
   
Howard Rosenbluth
 
   
Principal Financial Officer
 
 
 
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