SCORES HOLDING CO INC - Annual Report: 2008 (Form 10-K)
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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ANNUAL REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
Fiscal Year Ended: December 31, 2008
OR
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from _______________ to
_______________
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Commission
file number: 000-16665
SCORES
HOLDING COMPANY, INC.
(Exact
name of small business issuer as specified in its charter)
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Utah
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87-0426358
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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533-535
West 27th
Street
New
York, NY
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10001
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number: (212)
864-4900
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Securities
registered under Section 12(b) of the Exchange Act:
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None
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Name
of each Exchange on Which Registered:
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None
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Securities
registered under Section 12(g) of the Exchange Act:
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Common
Stock, $0.001 par value
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o No x
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Exchange Act. Yes o No x
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See the
definitions of the “large accelerated filer,” “accelerate 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 x
(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 of the Exchange Act).
Yes o No
x
As of March 31, 2009, there were
165,186,124 shares of the registrant's common stock, par value $0.001, issued
and outstanding. Of these, 76,285,914 shares are held by
non-affiliates of the registrant. The market value of securities held
by non-affiliates is $228,857, based on the closing price of $0.003 for the
registrant’s common stock on June 30, 2008. Shares of common stock
held by each officer and director and by each shareowner affiliated with a
director have been excluded from this calculation because such persons may be
deemed to be affiliates. This determination of officer or affiliate status is
not necessarily a conclusive determination for other purposes.
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Except
for historical information, this report contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 (the
“Exchange Act”). 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 the sections “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business”. 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 taking place after the date of this
document.
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. These clubs feature topless
female entertainers together with opportunities for watching sporting events,
celebrating business transactions and private parties. There are three such
clubs currently operating under the Scores name, in Baltimore, Chicago, and New
Orleans.
Our
trademarks and copyrights surrounding the Scores trade name are critical to the
success and potential growth of our business.
History
and Development of our Business
On March
31, 2003, pursuant to the Amended and Restated Master License Agreement (the
“MLA”) by and between us and our former affiliate, Entertainment Management
Services, Inc. ("EMS"), an entity owned by two of our former directors and
employees, we granted EMS an exclusive, worldwide renewable 20 year license in
our property to sublicense the Scores trade name to nightclubs (the “Licensing
Rights”). Under the MLA, EMS was required to pay us 100% of the
royalties EMS received from the formerly affiliated clubs (defined below) and
50% of the royalties received from non-affiliated clubs (the “Royalty
Rights”). These clubs had license agreements with EMS pursuant to
which they typically paid EMS approximately 4.99% of their gross revenues from
operations, including the sale of merchandise. We depended on these royalties to
operate our business and as our principal source of revenue.
On
January 27, 2009, (as further discussed below), we terminated the MLA with EMS
and EMS transferred to us all of the Licensing Rights and Royalty
Rights. Since termination of the MLA, our property is licensed
directly by us to the three remaining clubs that previously had been
sublicensing our property from EMS, and, thus, as of January 27, 2009, we are
receiving 100% of the royalty payments made by these clubs rather than the 50%
we were entitled to under the MLA.
We were
under common control with two previously existing nightclubs in New York, New
York (“Scores East” and “Scores West”) which were owned, respectively, by 333
East 60th Street,
Inc. (“333”), and Go West Entertainment, Inc. (“Go West”). EMS is also owned by
333. Through EMS, we had sublicense agreements with each of Scores
East and Scores West pursuant to which they were entitled to use the Scores
intellectual property. (Throughout this report, we refer to Scores East and
Scores West as our “formerly affiliated clubs.” All other clubs are
referred to as non-affiliated clubs or as licensees (or sublicensees, as
applicable), a term that may include the formerly affiliated clubs when the
context requires.)
Termination
of our Contract with EMS
On
January 27, 2009, following the execution of a transfer agreement dated December
9, 2008, the Company and EMS completed the transfer (the “Transfer”) from EMS to
us of all licensing and royalty rights originally granted to EMS under MLA1 and the MLA was
cancelled. Pursuant to the terms of the Assignment and Assumption
Agreement by and among EMS, 333 and us dated January 27, 2009 (the “Assignment
Agreement”), EMS assigned to us the Licensing Rights and the Royalty Rights
relating to the existing sublicensees, free and clear of any charges, liens or
other encumbrances. In consideration of these assignments, we credited 333 with
a $600,000 payment against a $1,220,475 unpaid royalty debt owed by 333 to us
(the “Debt”) and provided 333 with an acknowledgement that the Debt was
satisfied to the extent of the $600,000 payment. Additionally, as
part of the Transfer, we, EMS and 333 cancelled the MLA and terminated all of
the rights and obligations of the parties thereunder.
Change
in our Ownership
On
January 27, 2009, pursuant to a stock purchase agreement (the “SPA”), Mitchell’s
East LLC (“Buyer”), a New York limited liability company wholly owned by Robert
M. Gans, purchased an aggregate of 88,900,230 shares (the “Owned Shares”) of our
common stock beneficially owned by Richard Goldring and Elliot Osher
(collectively the “Share Sellers”), as well as any rights Harvey Osher (the
Share Sellers and Harvey Osher, together, the “Sellers”) may have in 13,886,059
shares of our common stock (the “Decedent Owned Shares”) currently held of
record by William Osher, deceased, and any rights the Sellers may have in an
additional 2,400,001 shares of our common stock (the “Expectancy Shares”)1. Under
the terms of the SPA, Harvey Osher is to deliver to the Buyer the Decedent Owned
Shares that he may receive and the Sellers are to deliver to the Buyer any
shares of the Company underlying the Expectancy Shares that any such Seller may
receive. Additionally, pursuant to the SPA, each of the
Sellers granted to Buyer
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1.
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As
further discussed in our Form 8-K filed with the Securities and Exchange
Commission (the “SEC”) on February 2,
2009.
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an
irrevocable proxy enabling Buyer to act as his proxy with respect to any
shares underlying the Decedent Owned Shares and the Expectancy Shares, as
applicable.
The Owned
Shares represent approximately fifty four percent (54%) of our outstanding
capital stock and the Owned Shares together with the Decedent Owned Shares
represent approximately sixty two percent (62%) of our outstanding capital
stock.
Nightclubs
Currently Licensing our Scores Brand
In 2003,
EMS licensed the use of the "Scores Chicago" name to Stone Park Entertainment,
Inc. for its club in Chicago, Illinois. Royalties payable to EMS were the
greater of $2,500 per week or 4.99% of the gross revenues (less $25,000 per
week) earned at that location. This nightclub accounted for 33% and 18% of our
total royalty revenues during 2008 and 2007, respectively.
In 2004,
EMS licensed the use of "Scores Baltimore" to Club 2000 Eastern Avenue, Inc. for
its nightclub in Baltimore, Maryland. Royalties payable to EMS were the greater
of $1,000 per week or 4.99% of gross revenues. This club accounted for 25% and
15% of our total royalty revenues in 2008 and 2007, respectively.
In April
2007, EMS licensed the use of the Scores brand name to Silver Bourbon, Inc. for
a night club in New Orleans, Louisiana. Royalties payable under this license are
capped at the greater of $4,000 per month or 4.99% of gross revenues. This club
commenced operations in April 2007 and accounted for 10% and 3% of our total
royalty revenues during 2008 and 2007, respectively.
The
agreement between us and EMS dated January 27, 2009, terminated the MLA and,
since that date, we have begun to retain 100% of the royalty payments received
from each of these clubs which percentage includes the 50% which was previously
retained by EMS under the MLA.
On
January 27, 2009, we entered into a licensing agreement with I.M. Operating LLC
(“IMO”) for the use of the Scores brand name. IMO is also owned by
Robert M. Gans. The address where IMO’s plans to open an adult
nightclub under the Scores trade name is the same as that of the former Scores
West nightclub, 533-535 West 27th Street, New York, NY (the “West 27th Street
Building”). Royalties payable to us under this license agreement have
been set at 3% of gross revenues. The West 27th Street
Building is owned by Westside Realty of New York, of which the majority owner is
Robert M. Gans. IMO has applied for and received a liquor
license for its proposed club and the club location is currently under
renovation. We believe this club will commence operations in April
2009.
Nightclubs
Formerly Licensing our Scores Brand
Scores
East was the first nightclub to sublicense our Scores brand through EMS. This
nightclub surrendered its liquor license in December 2008 and closed its
operations. Scores East accounted for 0% of our royalty revenue in
2008 and 2007. Our second sublicensed nightclub, Scores West, had its
liquor license revoked in 2008 and ceased operations. Scores West accounted for
0% of our royalty revenue in 2008 and 2007. On April 18, 2008, Go
West, the owner of Scores
West,
filed for chapter 11 bankruptcy. In 2008, we collected $14,788 and
$35,928 in cash from Scores East and Scores West,
respectively. (See Item 6. Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Bad Debt Expense.)
In
September 2004, EMS licensed our brand name to an adult nightclub in Lake
Geneva, Wisconsin. That agreement was terminated as of May 30,
2007. As of December 31, 2008, we were owed $16,892 of unpaid
royalties from that club, which amount we have reserved as a bad debt at
December 31, 2006.
In
January 2005, EMS licensed our Scores brand name to a former affiliate2, SMG Entertainment, Inc.
(“SMG”), for SMG’s nightclub in North Miami, Florida. SMG terminated
its agreement with EMS in December 2006 after it filed for
bankruptcy. As of December 31, 2008, we were owed by EMS $16,661 of
unpaid royalties from SMG. We reserved this amount as a bad debt as
of December 31, 2006.
In July
2005, EMS licensed our Scores brand name to D.I. Food and Beverage (“DIF&B”)
for DIF&B’s nightclub in Las Vegas, Nevada. Under this EMS sublicense
agreement, DIF&B paid EMS $9,000 per week in royalties and $1,500 per month
in related fees. This club accounted for 29% and 58% of our total
royalty revenues in 2008 and 2007, respectively. Following notice to
EMS, DIF&B canceled its sublicense with EMS effective May 6, 2008. DIF&B
failed to make its final royalty payments to EMS and we and EMS have begun legal
action against EMS to collect our fees due and related damages, as more fully
discussed below.
In
November 2005, EMS licensed the Scores brand name for a nightclub in
Philadelphia, Pennsylvania. The ownership of that club did not receive local
zoning approval and has opted to abandon its plans to open the
club. In November 2006, EMS licensed the Scores brand name for a
nightclub in Los Angeles, California. The ownership of that club could not
obtain a liquor license and has opted to abandon its plans to open the
club.
Scoreslive.com
On
January 24, 2006, we entered into a licensing agreement with AYA International,
Inc. (“AYA”) granting AYA the right to use our trademarks in connection with its
online video chat website, “Scoreslive.com.” EMS was not a party to
this license agreement. Our agreement with AYA provides for royalty
payments to be made directly to us at the rate of 4.99% of weekly gross revenues
from all revenue sources within the AYA website. The license continues for as
long as the website is operational. Scoreslive.com debuted in January 2007.
Because the Scoreslive website is still in the development stage, it has
accounted for a minimal amount of our total royalty revenues to
date.
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2.
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Richard
Goldring owns, indirectly, 90% of
SMG.
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Obligation
to Richard Goldring
On
February 28, 2007, our then President, Chief Executive Officer, Director and
stockholder, Richard Goldring resigned from each of his positions, and
terminated his employment with us. Under the terms of his employment
agreement dated March 31, 2003, we are obligated to pay Mr. Goldring a $1
million termination fee. Because of our lack of cash and other business related
reasons, we have not paid Mr. Goldring this fee. We were negotiating
a settlement with Mr. Goldring but we did not reach an agreement with him on the
amount and terms of payment to be made to him and these negotiations are
currently on hold.
Competition
The adult
nightclub entertainment business is highly competitive with respect to price,
service, location and professionalism of its entertainment. Sublicensed clubs
will compete with many locally-owned adult nightclubs. It is our belief,
however, that only a few of these nightclubs have names that enjoy recognition
and status that equal or approach that of Scores. For example, there are
approximately 25 adult entertainment cabaret night clubs located in New York
City and approximately six located in Manhattan. We believe that only three of
these other venues in Manhattan, Ricks Cabaret, Hustler and Penthouse, directly
competed with our formerly affiliated clubs. Of the 25, these three provided the
most comparable adult entertainment experience to that of our formerly
affiliated clubs. We expect this competitive analysis to remain the same with
respect to the new Scores club that will open in New York in the near
future. Other locales where our Scores’ licensed clubs are situated
have their own competitive environments.
We
believe that the combination of our name recognition and our distinctive
entertainment environment allows our licensed clubs to effectively compete
within the industry, although we cannot assure you that this will prove to be
the case. The ability of our licensed clubs to compete and succeed will also
depend upon their ability to employ and retain top quality entertainers and
employees. Competition for adult entertainers is intense. The failure of a
Scores’ licensed club to retain quality entertainers or superior restaurant and
bar employees could have a material adverse impact on the ability of such club
to compete within the industry.
Competition
among online adult entertainment providers is intense for both content and
viewer spending. AYA’s competition for its Scoreslive.com internet site varies
in both the type and quality of offerings, but consists primarily of other
premium pay services. The availability of, and price pressure from, more
explicit content on the Internet, frequently offered for free, also presents a
significant competitive challenge to AYA. The Internet is highly
competitive, and Scoreslive.com will compete for visitors, subscribers, shoppers
and advertisers. We believe that the primary competitive factors affecting AYA’s
Internet operations include brand recognition, the quality of content and
products, pricing, ease of use, and sales and marketing efforts. We believe that
AYA and Scoreslive.com have the advantage of leveraging the power of our Scores
brand across multiple media platforms.
Employees
At the
present time, we have one (1) employee who is not covered by any collective
bargaining agreement. We believe that our relationship with our current employee
is satisfactory.
Government
Regulation
Our
licensees are subject to a variety of governmental regulations depending upon
the laws of the jurisdictions in which they operate. The most significant
governmental regulations are described below.
Liquor
Licenses
Our
licensees are subject to state and local licensing regulation of the sale of
alcoholic beverages. We expect licensees to obtain and maintain appropriate
licenses allowing them to sell liquor, beer and wine. Obtaining a liquor license
may be a time consuming procedure. In New York, for example, a licensee must
make an application to the New York State Liquor Authority (the “NYSLA”) for a
liquor license regarding its proposed nightclub. The NYSLA has the authority, in
its discretion, to issue or deny such a license request. The NYSLA typically
requires local community board approval in connection with such grants. Approval
is usually granted or denied within 90-120 days from the initial application
date, but can take longer in certain circumstances. Other jurisdictions have
their own procedures.
Present
law in Los Angeles, California prohibits all adult entertainment cabaret venues
with topless dancing from obtaining liquor licenses.
The
liquor license for Scores West was suspended by the NYSLA in February 2007 and
revoked in March 2008. The New York Appellate Court for the County of
New York (the “Appellate Court”) confirmed the revocation in November
2008. Because of the common ownership between Scores West and Scores
East, the NYSLA began proceedings to revoke the liquor license of Scores
East. Scores East surrendered its liquor license in December 2008 and
that club is no longer operating. The termination of both the Scores West and
Scores East liquor licenses and the related closing of those clubs has had a
material adverse effect on our business.
We cannot
assure you that our licensees will obtain liquor licenses or that, once
obtained, they will be able to maintain their liquor licenses or assign or
transfer them if necessary. Licenses to sell alcoholic beverages must typically
be renewed annually and may be revoked or suspended for cause, including any
regulatory violation by the nightclub or its employees. If one of our current
licensees failed to maintain a liquor license, this would have a material
adverse effect on our business and that of the licensee.
"Cabaret"
Licenses
Our
licensees typically request, although it may not be a requirement, a cabaret
license in regards to the operations of their nightclubs. Although not a
requirement in all states, some mandate that
adult
entertainment licenses be obtained prior to the operation of an adult nightclub.
For example, one of our formerly affiliated clubs requested and was granted a
cabaret license for its nightclub by the City of New York’s’ Department of
Consumer Affairs (the "DCA"). In making its decision, the DCA determined that
the proposed use met all zoning requirements and that the building was fit to
operate the nightclub business in accordance with the codes and standards.
Although we expect our licensees to have cabaret or adult entertainment licenses
in place as may be required by local law, there is no assurance that any such
licenses will remain effective or that they could be assigned or transferred if
necessary. If one of our licensees failed to maintain a required license, this
would have a material adverse effect on our business.
Zoning
Restrictions
Adult
entertainment establishments must comply with local zoning restrictions and
these restrictions can often be stringent. One example of stringent zoning
regulations is that of New York City, which requires that an adult entertainment
business that operates in an area zoned as residential or in areas zoned
commercial that prohibits adult entertainment establishments not devote more
than either 40% or more of its space available to customers or 10,000 square
feet for adult entertainment activities. Although we expect our licensees to
operate within "zoned" areas, we cannot assure you that local zoning regulations
will remain constant, or that if changed, our licensees will be able to continue
operations under our Scores brand name trademark. If zoning regulations were to
restrict the operations of one of our licensees, this could have a material
adverse effect on our business.
Not
applicable.
In July
2007, we began to lease from Go West, on a temporary, month-to-month
basis, approximately 700 square feet of office space located at the West 27th Street
Building. As of July 1, 2008, we lease this space directly from
Westside Realty of New York, owner of the West 27th Street
Building. The majority owner of Westside Realty is Robert M.
Gans. We pay $5,000 per month, including overhead costs, for our
office space.
As of
July, 2007, we terminated our lease of approximately 500 square feet of office
space in White Plains, New York.
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
Supreme
Court of the State of New York, County of New York (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. This
amount must be confirmed by the SCNY in a final judgment. If such a
judgment is rendered by the SCNY, we will attempt to collect on the
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
Supreme Court of the State of New York, County of New York, 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 is
currently stayed.
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 alleges 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. 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. We intend to vigorously contest the
claimed liability as well as the violations alleged.
On April
18, 2008, co-defendant Go West filed for bankruptcy.
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. The case is stayed as against Go West pursuant to the bankruptcy law. The
Court directed that notice be sent to all potential class members. On May 29,
2008, we filed an answer to plaintiffs’ second amended complaint. Discovery into
both the procedural and substantive issues is ongoing, as are settlement
negotiations.
In
February 2007, the City of New York (the “City”) sought to close Scores West
claiming that it presented a public nuisance. The City alleged that this
nightclub was used for purposes of prostitution; the case was dismissed by the
City of New York and no charges were sought against Scores West or us. In
February, 2007, the New York State Liquor Authority (the “NYSLA”) began a review
of the license held by Scores West and issued an Emergency Summary Order of
Suspension of the Scores West liquor license on February 21, 2007. Go West, the
owner of Scores West, filed a pleading with the NYSLA on behalf of Scores West.
After a temporary adjournment and a series of hearings in front of an
administrative law judge, on February 4, 2008, this judge sustained all charges
against Scores West. A NYSLA hearing was held on March 6, 2008 and the NYSLA
revoked the Scores West Liquor license. On March 18, 2008, the New York State
Appellate Division, First Department (the “Appellate Court”) granted an interim
stay of the liquor license revocation pending a review by the full bench of the
Appellate Court. On April 15, 2008 the Appellate Court decided to deny a further
stay of the March 2008 revocation by the NYSLA of the Scores West liquor
license. Go West filed with the Appellate Court for a reconsideration of its
decision, which was denied. As a result of this outcome, Scores West has closed.
The Appellate Court decided to hear this case on the merits and, on October 3,
2008, found in favor of the NYSLA, upholding the NYSLA’s revocation of the
Scores West Liquor License. Go West subsequently filed a motion for re-argument
before the Appellate Court and/or leave to appeal to the New York Court of
Appeals. This further motion was withdrawn by Go West.
On April
18, 2008, Go West filed a voluntary petition for bankruptcy with the U.S.
Bankruptcy Court, Southern District of New York (the “Bankruptcy Court”), under
Chapter 11 of the U.S. Bankruptcy Code. This filing followed the April 15, 2008
Appellate Court decision to deny a further stay of the March 2008 revocation by
the NYSLA of the Scores West liquor license. As of the date hereof, an Official
Committee of Unsecured Creditors has not been formed nor has a Trustee or
Examiner been appointed in this case. Go West’s bankruptcy case is pending in
the Bankruptcy Court, Case No. 08-11420. The United States Trustee in this case
filed a motion seeking the dismissal or conversion of Go West’s Chapter 11 case
as Go West is no longer operating. That motion was granted by the Bankruptcy
Court and an order will be entered once Go West completes its stipulations with
the Internal Revenue Service (regarding the payment of unpaid federal taxes) and
the New York State Department of Taxation (regarding a payment plan for state
taxes due).
Scores
West has permanently lost its liquor license and has closed its
business. As a result, we are no longer able to receive royalty
revenues from Go West, owner of that club. In 2006, royalty revenues
from Scores West amounted to 31% of our royalties. We did not receive
any revenue from Scores West in 2008 or in 2007. Because Scores West
has closed, the ability of Go West to
make
payments under the Note (defined below) has been severely impaired. The Note is
currently in default. See Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Bad Debt Expense.
On May 2,
2008, the NYSLA gave notice of its pleading to 333, the owner of Scores East, in
connection with its proceeding to cancel or revoke the liquor license of Scores
East, based on its revocation of the Scores West liquor license. (Scores West
and Scores East were related by common ownership.) On July 2, 2008, the NYSLA
gave 333 a notice of hearing set for August 19, 2008. Based on the filing with
the NYSLA of a conditional no-contest plea, this hearing was
adjourned. 333 has since surrendered its liquor license for Scores
East and that club has permanently closed. Because of these
developments, we are no longer able to receive royalty revenues from Scores
East, which in 2006, amounted to 28% of our royalties. We did not
receive any revenue from Scores East in 2008 or in 2007.
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 recently answered a third
amended complaint and participated in a Preliminary Conference to establish the
discovery schedule. Examinations before trial of the parties have been completed
and non-party depositions are now being taken. The plaintiff has not yet
undergone the required physical examination. We will vigorously defend ourselves
in this litigation and do not expect that the outcome will be
material.
On
December 11, 2006, SMG, our former affiliate and owner of the club in North
Miami, Florida, filed for bankruptcy with the United States Bankruptcy Court for
the Southern District of New York. In connection therewith, it terminated its
license agreement with EMS whereby it was authorized to use our intellectual
property. At the time of its filing, SMG owed us $16,661 for unpaid merchandise,
which we subsequently reserved as bad debt. SMG emerged from bankruptcy in
September 2008 under a plan or reorganization pursuant to which all general,
unsecured debt was discharged, including the $16,661 owed to us.
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.
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.
In June
2005, we, together with several of our affiliates, commenced litigation
regarding title to certain of our intellectual property. In February 2006,
counterclaims were asserted and other persons brought third party complaints. In
September 2006, we and our affiliates reached a settlement resolving all claims
against us for a payment of $175,000 made in monthly installments. In return,
the other parties in the litigation disclaimed any right to our intellectual
property.
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.
No matter
was submitted during the fourth quarter of the fiscal year covered by this
report to a vote of security holders.
Market
Information.
Our
common stock has been quoted on the OTC Bulletin Board under the symbol “SCRH”
since 2004. The following table sets forth, for the fiscal quarters
indicated, the high and low closing bid prices per share of our common stock, as
derived from quotations provided by Bloomberg L.P. Such quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
|
Quarter Ended
|
High Bid
|
Low Bid
|
||||||
|
March
31, 2007
|
.027 | .01 | ||||||
|
June
30, 2007
|
.023 | .009 | ||||||
|
September
30, 2007
|
.011 | .005 | ||||||
|
December
31, 2007
|
.00981 | .004 | ||||||
|
March
31, 2008
|
.011 | .002 | ||||||
|
June
30, 2008
|
.01 | .003 | ||||||
|
September
30, 2008
|
.0045 | .001 | ||||||
|
December
31, 2008
|
.003 | .0011 | ||||||
Holders
As of
March 31, 2009, there were approximately 579 record holders of our common
stock.
Dividends
We have
never declared any cash dividends with respect to our common
stock. Future payment of dividends is within the discretion of our
board of directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors. Although there are no
material restrictions limiting, or that are likely to limit, our ability to pay
dividends on our common stock, we presently intend to retain future earnings, if
any, for use in our business and have no present intention to pay cash dividends
on our common stock.
Recent
Sales of Unregistered Securities
None.
Securities
Authorized For Issuance Under Equity Compensation Plans
None.
Not
applicable
Results
of Operations:
For the
year ended December 31, 2008 (the “2008 period”) compared to the year ended
December 21, 2007 (the “2007 period”).
Revenues:
Revenues
decreased 62% to $187,255 for the 2008 period from $487,542 for the 2007
period. This decrease was attributable primarily to the following
factors: The Las Vegas night club was sold in August 2008 and ceased
licensing the Scores brand name. As a result, revenues from that club
declined 80% to $54,000 in the 2008 period from $269,000 in the 2007
period. Additionally, the Chicago and Baltimore nightclubs
experienced decreases in revenues due to the present unstable economic
conditions - revenues decreased 27% to $62,118 in the 2008 period from $84,765
in the 2007 period for the Chicago club and 34% to $45,830 in the 2008 period
from $69,252 in the 2007 period for the Baltimore club. Revenues from
our New Orleans nightclub increased 13% in the 2008 period from the 2007
period. Our Lake Geneva, Wisconsin club ceased its operations in mid
2007. Revenues from the Lake Geneva club amounted to $0 and
$22,500 for the 2008 and 2007 periods, respectively.
During
the 2008 period, we did not record any royalty revenue from our formerly
affiliated clubs (see Bad Debt Expense below). Royalty
revenues for the 2008 period from our non-affiliate clubs in Las
Vegas, Chicago, Baltimore and New Orleans accounted for 29%, 33%, 25% and 10% of
those revenues, respectively.
In
January 2007, AYA’s website, Scoreslive.com, began a developmental test launch
of its operations and, for the 2007 and 2008 periods, generated gross revenues
of more than $5,000 per month resulting in minimal royalties to
us. We believe that the Scoreslive.com website will remain in
development mode during 2009, continuing to generate minimal revenues for
us.
We
recognize revenues as they are earned, not as they are collected.
Bad Debt Expense
As of
December 31, 2008, Scores East and Scores West owed us (indirectly, through EMS)
$615,476 and $184,768, respectively, in accrued and unpaid
royalties. We have decided to write off these amounts based on the
NYSLA’s revocation of the Scores West liquor license and the subsequent
permanent closing of that club and the related Scores East surrender of its
liquor license and the permanent closing of that club. Additionally,
in connection with Go West’s construction of the Scores West club, we loaned Go
West $1,636,264 in exchange for a promissory note from Go West (the
“Note”). The Note has not been repaid and, as of December 31, 2008,
$1,867,310 (including accrued interest) remained due under the Note. As of
December 31, 2006, we reserved the entire $1,867,310, of the Note plus interest,
as a bad debt expense. As of the 2007 period, we began forgoing
interest on the Note.
Any cash
received from the owners of our formerly affiliated clubs (Scores East and
Scores West) has been applied as a reversal of the bad debt expense when
received. In 2008, we reversed bad debt expense in the amount of
$35,928 for cash collected from Scores West and $614,788 for cash collected from
Scores East. This later amount included $14,788 in cash
and
$600,000
deemed paid to EMS (owner of Scores East) in consideration of our repurchase
from EMS of all Licensing Rights and Royalty Rights under the MLA.
Operating
Expenses:
Operating
expenses decreased during the 2008 period to $422,873 from $773,025 during the
2007 period. Because of the termination in 2008 of the sublicense
between EMS and DIF&B, owner of the Las Vegas club, and the significant
reduction in royalties received from our other licensees, we had to reduce our
administrative costs significantly to match the related short fall in our
revenue for the year. Our revenues from the Las Vegas club as a
percentage of our total royalty revenues decreased to 29% in the 2008 period
from 58% in the 2007 period and, as a result, we reduced our rent, salaries,
legal, public relations and business development costs by approximately $350,000
in the 2008 period from the 2007 period.
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 next operating losses.
Net
Income (Loss) (per share):
Our net
income for the 2008 period was $131,122 or $0.00 per share versus a net (loss)
of $(356,429) or $(0.00) per share for the 2007 period. This change
from a net (loss) to a net income from the 2007 period to the 2008 period can be
attributed, primarily, to the reduction by $350,000 in our administrative costs
in the 2008 period, as a result of our decrease in revenue from the Las Vegas
club, and the reversal of bad debt for Scores East in the amount of $600,000, as
a result of our repurchase from EMS of rights under the
MLA. Additionally, as a result of our belief that the carrying
amount of the Scores trademark exceeded its fair or net present value for the
2008 period, we recognized and recorded an impairment loss in the amount of
$281,216 for the 2008 period. We based this impairment loss on the
various adverse implications resulting from the permanent closing of the Scores
East and Scores West clubs.
Net
income per share data for both the 2008 and 2007 periods is based on net income
available to common shareholders divided by the weighted average of the common
shares outstanding.
Liquidity
and Capital Resources
At
December 31, 2008, we had $173 in cash and cash equivalents compared to $173 in
cash and cash equivalents at December 31, 2007.
On
February 28, 2007, our then President, Chief Executive Officer, Director and
majority stockholder, Richard Goldring resigned from each of his positions, and
terminated his employment with us. Under the terms of his employment
agreement dated March 31, 2003, we are obligated to pay Mr. Goldring a $1
million termination fee. Because of our lack of cash and other business related
reasons, we have not paid Mr. Goldring this fee We were negotiating
a
settlement
with Mr. Goldring but we did not reach an agreement with him on the amount and
terms of payment to be made to him and these negotiations are currently on
hold.
In 2006,
we reserved a bad debt expense of approximately $3.4 million in recognition of
the impaired ability of Go West and 333 to pay royalties due us with respect to
Scores West and Scores East, respectively, and of Go West to make payments to us
under the Note. See - Bad Debt Expense.
Scores
West accounted for 0% of our royalty revenue in both 2008 and
2007. As of December 31, 2008, Scores West owed us $184,768 in unpaid
royalties that will not be paid because that club lost its liquor license and
has permanently closed.
In
connection with our divestiture of stock of Go West, we loaned Go West
$1,636,264 in return for the Note secured by Go West’s leasehold interest on the
West 27th Street Building. The Note bore interest at 7% and was scheduled for
maturity on October 1, 2008. Go West is currently in default under the Note, and
as at December 31, 2008 owed us $1,867,310 which includes accrued interest of
$355,189. We did not receive any interest payments on the Note during the 2008
period. Since April 18, 2008, Scores West has been in bankruptcy and
its ability to make payments under the Note has ceased.
Scores
East, accounted for 0% of our royalty revenue in both 2008 and 2007
respectively. As of December 31, 2008, Scores East owed us $615,476 in
royalties. This balance is net of (i) approximately $14,788 in cash
received from Scores East and applied against royalty payments due and (ii)
$600,000 in credits that were offset against royalties due from Scores
East. This offset was the result of our purchase of the Royalty
Rights and Licensing Rights under the MLA from EMS. During the 2008
period, we retained approximately $146,682 in cash royalties received directly
from our Chicago non-affiliated club but due to EMS under the terms of the
MLA. We retained that amount rather than remitting it to EMS to
help cover our shortfalls in cash flow. As a result of the Transfer and the
related Assignment Agreement, we applied the $146,682 against the outstanding
royalties we owed to EMS as of December 31, 2008.
We have
incurred losses since the inception of our business. Since our inception, we
have been dependent on funding from private lenders and investors to conduct
operations. As of December 31, 2008 we had an accumulated deficit of
$(5,971,761). As of December 31, 2008, we had total current assets of $14,018
and total current liabilities of $155,808 or negative working capital of
$(141,790). As of December 31, 2007, we had total current assets of $47,213 and
total current liabilities of $207,743 or negative working capital of $(160,530).
The increase in the amount of our working capital has been primarily
attributable to our inability to collect on the outstanding receivables due from
our formerly affiliated clubs, Score East and Scores West. As of
December 31, 2008, both of these clubs have permanently closed and cash to
extinguish the outstanding royalties due from these clubs will not be available
for payment to us from them or their owners, 333 and Go West,
respectively. Given our lack of cash, we were able to control our
outstanding debt during the 2008 period by making significant reductions in our
administrative costs.
We
presently do not have any available credit, bank financing or other external
sources of liquidity to fund our operations. We will need to obtain
additional capital in order to meet our working needs and to continue to execute
our business plan, build our operations and become profitable. In order to
obtain capital, we may need to sell additional shares of our Common Stock or
debt securities, or borrow funds from private or institutional lenders. Because
of recent problems in the credit markets, steep stock market declines, financial
institution failures and government bail-outs, there can be no assurance that we
will be successful in obtaining additional funding in amounts or on terms
acceptable to us, if at all. If we are unable to raise additional
funding as necessary, we may have to suspend our operations temporarily or cease
operations entirely.
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 also 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. Our future
liquidity and capital requirements will depend upon numerous factors, including
the success of our adult entertainment licensing business.
Compliance
with Sarbanes-Oxley
The
amount of royalties owed to us from our formerly affiliated nightclubs, Scores
East and Scores West, and including our formerly affiliated nightclub in North
Miami, Florida, during 2008 totaled $816,905. The amount owed at December 31,
2007 was $1,467,226. Cash received as partial payment on these receivables
during the 2008 period and the 2007 period totaled $50,715 and $73,250,
respectively. We received no payments of principal or interest on the Note
during these periods.
As we and
our formerly affiliated clubs and the North Miami club were under common control
until January 27, 2009, we are mindful that those royalties’ receivables could
have taken on the appearance of prohibited loans under Section 402 of the
Sarbanes-Oxley Act of 2002. We do not believe, however, that these receivables
were prohibited loans as we exercised our best commercial efforts to reduce the
amount due under these receivables.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure on contingent assets
and liabilities at the date of our financial at the date of our financial
statements. Actual results may differ from these estimates under different
assumptions and conditions.
Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and potentially result in materially different
results under different assumptions and conditions. We believe that our critical
accounting policies are limited to those described below. For a detailed
discussion on the application of these and other accounting policies see note 2
to our consolidated financial statements.
Revenue
Recognition
Revenues
for the 2008 period and the 2007 period were derived predominately from
royalties. We apply judgment to ensure that the criteria for recognizing
revenues are consistently applied and achieved for all recognized sales
transactions.
Long-Lived
Assets (including Tangible and Intangible Assets)
We
acquired the “Scores” trademark to market and conduct a global business
strategy. Such costs affected the amount of future period amortization expense
and impairment expense that we incur and record as cost of sales. The
determination of the value of such intangible assets requires management to make
estimates and assumptions that affect our consolidated financial statements. We
assess potential impairment to the intangible and tangible assets on a quarterly
basis or when evidence, events or changes in circumstances indicate that the
carrying amount of an asset may not be recovered. Our judgments regarding the
existence of impairment indicators and future cash flows related to these assets
are based on operational performance of our business, market conditions and
other factors. Future events could cause us conclude that impairment indicators
exist and that other tangible or intangible assets is impaired.
Accounting
for Income Taxes
As part
of the process of preparing our consolidated financial statements we are
required to estimate our income taxes. Management judgment is required in
determining our provision of our deferred tax asset. We recorded a valuation for
the full deferred tax asset from our net operating losses carried forward due to
the Company not demonstrating any consistent profitable operations. In the event
that the actual results differ from these estimates or we adjust these estimates
in future periods we may need to adjust such valuation recorded.
Our
audited consolidated financial statements as of, and for the years ended,
December 31, 2008 and 2007 are included beginning immediately following the
signature page to this report. See Item 15 for a list of the
financial statements included herein.
Not
applicable.
(a) Management’s Annual Report on
Internal Control Over Financial Reporting. The management of Scores
Holding Company, Inc. is responsible for establishing and maintaining an
adequate system of internal control over financial reporting (as defined in
Exchange Act Rule 13a-15(f)). Under the supervision and with the
participation of our senior management, consisting of Curtis Smith, our acting
chief executive officer and chief financial officer, we conducted an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
as of the end of the period covered by this report (the “Evaluation Date”).
Based on this evaluation, our acting chief executive officer and chief financial
officer concluded, as of the Evaluation Date, that our disclosure controls and
procedures are effective such that the information relating to us required to be
disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms, and (ii) is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required
disclosure.
Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Therefore, even those systems determined to
be effective can provide only reasonable assurance of achieving their control
objectives. In evaluating the effectiveness of our internal control
over financial reporting, our management used the criteria set forth by
Generally Accepted Accounting Principles (GAAP). Based on this
evaluation, our management concluded that, as of December 31, 2008, our internal
control over financial reporting was not effective based on those criteria. The following material
weaknesses were identified from our evaluation:
Due to
the small size and limited financial resources, the Company’s CFO and Acting CEO
has been the only individual involved in the accounting and financial reporting
functions for the Company. As a result, there is no segregation of duties
within the accounting function, leaving all aspects of financial reporting and
physical control of cash in the hands of the same individual. Usually,
this lack of segregation of duties represents a material weakness; however, to
remedy the matter, the Company retained accounting personnel who perform high
end monthly accounting services. The CFO and members of the Board examine
and approve all cash transactions and make inquiries to variances with respects
to our new accounting personnel. We will continue to
periodically review our disclosure controls and procedures and internal control
over financial reporting and make modifications from time to time considered
necessary or desirable.
This
annual report does not include an attestation report of our registered public
accounting firm regarding 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.
(b) Changes in Internal Control over
Financial Reporting. There were no changes in our internal control over
financial reporting that occurred during the last fiscal quarter of the period
covered by this report that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.
On April
14th
2008, Elda Auerbach resigned from our Board of Directors. Ms.
Auerbach’s esignation did not result from any disagreement between her and
us.
Executive
Officers and Directors
The
following table sets forth certain information, as of April 13, 2009, with
respect to our sole director and executive officer.
Directors
serve until the next annual meeting of the stockholders; until their successors
are elected or appointed and qualified, or until their prior resignation or
removal. Officers serve for such terms as determined by our board of
directors. Each officer holds office until such officer’s successor
is elected or appointed and qualified or until such officer’s earlier
resignation or removal. No family relationships exist between any of
our present directors and officers.
|
Name
|
Positions Held
|
Age
|
Date
of Election or Appointment as Director
|
|||
|
Curtis
R. Smith
|
Chief
Financial Officer, Acting Chief Executive Officer and
Director
|
40
|
September
26, 2006
|
|||
The
following is a brief account of the business experience during the past five
years or more of our sole directors and executive officer.
Mr. Smith
has served as our Chief Financial Officer (CFO) since September 2006. Mr. Smith
has been our Acting Chief Executive Officer since June 2007. Mr.
Smith has worked in public accounting for over 10 years and has a background in
performing SEC audits and assisting in mergers and acquisitions for many public
companies. Prior to serving as our CFO, he served as our controller for a year.
He has served many years working with various public accounting firms performing
high level audits of many public companies and offers a variety of solid SEC
experience within the licensing industry. Mr. Smith earned his Bachelors degree
in Science from Syracuse University and has been licensed as a public accountant
since 1996.
Board
of Directors
None of
our directors receive any remuneration for acting as such. Directors
may however be reimbursed their expenses, if any, for attendance at meetings of
the Board of Directors. Our Board of Directors may designate from
among its members an executive committee and one or more other
committees. No such committees have been appointed to
date. Accordingly, we do not have an audit committee or an audit
committee financial expert. Similarly we do not have a nominating
committee or a committee performing similar functions. We have not
implemented procedures by which our security holders may recommend board
nominees to us but expect to do so in the future.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our executive officers and directors and
persons who own more than 10% of a registered class of our equity securities, to
file with the SEC initial statements of beneficial ownership on Form 3, reports
of changes in ownership on Form 4 and annual reports concerning their ownership
on Form 5. Executive officers, directors and greater than 10% stockholders are
required by the SEC regulations to furnish us with copies of all Section 16(a)
reports they file.
To the
best of our knowledge, during the fiscal year ended December 31, 2008, none of
our officers or directors failed to file a required report in a timely
manner.
Director
Independence
We are
not subject to listing requirements of any national securities exchange or
inter-dealer quotation system which has requirements that a majority of the
board of directors be “independent” and, as a result, we are not at this time
required to have our Board comprised of a majority of “Independent
Directors.” Our current director who is also our sole officer is not
independent.
Code
of Ethics
Due to
the scope of our current operations, as of December 31, 2008, we have not
adopted a code of ethics for financial executives, which include our principal
executive officer, Chief Financial Officer or persons performing similar
functions. Our decision to not adopt such a code of ethics results from our
having only a limited number of officers and directors operating as management.
We believe that as a result of the limited interaction which occurs having such
a small management structure eliminates the current need for such a
code.
The
following table sets forth information concerning the total compensation paid or
accrued by us during the two fiscal years ended December 31, 2008 to
(i) all individuals that served as our
chief
executive officer or acted in a similar capacity for us at any time during the
fiscal year ended December 31, 2008 and (ii) all individuals that served as
executive officers of ours at any time during the fiscal year ended December 31,
2008 that received annual compensation during the fiscal year ended December 31,
2008 in excess of $100,000.
Summary
Compensation Table
|
Name
and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan Compen-sation ($)
|
Change
in Pension Value and Non-qualified Deferred Compen-sation Earnings
($)
|
All
Other Compensation ($)
|
Total
($)
|
|||||||||||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||
|
Curtis
Smith
|
2008
|
79,015 | 0 | 0 | 0 | 0 | 0 | 0 | 79,015 | |||||||||||||||||||||||||
| Acting Chief Executive Officer |
2007
|
120,000 | 0 | 0 | 0 | 0 | 0 | 0 | 120,000 | |||||||||||||||||||||||||
| Chief Financial Officer (1) | ||||||||||||||||||||||||||||||||||
|
(1)
|
Curtis
Smith became our Chief Financial Officer on September 26, 2006 and Acting
Chief Executive Officer on June 25,
2007.
|
The terms
of Mr. Smith’s employment agreement with us are contractor based and are
reviewed every year subject to Board approval.
In
October 2002, we granted non-incentive stock options to two of our then officers
and employees exercisable for 85,000 shares of our Common Stock at an exercise
price of $2.80 per share.
To
present, we have not maintained any stock option or other incentive plans since
our inception. We have no plans in place and have never maintained
any plans that provide for the payment of retirement benefits or benefits that
will be paid primarily following retirement including, but not limited to, tax
qualified deferred benefit plans, supplemental executive retirement plans,
tax-qualified deferred contribution plans and nonqualified deferred contribution
plans. Similarly, we have no contracts, agreements, plans or
arrangements, whether written or unwritten, that provide for payments to the
named executive officers or any other persons following, or in connection with
the resignation, retirement or other termination of a named executive officer,
or a change in control of us or a change in a named executive officer’s
responsibilities following a change in control.
Compensation
of Directors
None of
our directors receive any compensation for serving as such, for serving on
committees of the board of directors or for special
assignments. During the fiscal years ended December 31, 2008 and
2007 there were no other arrangements between us and our directors that resulted
in our making payments to any of our directors for any services provided to us
by them as directors.
The
following table sets forth information with respect to the beneficial ownership
of our common stock known by us as of March 31, 2009 by
· each
person or entity known by us to be the beneficial owner of more than 5% of our
common stock,
· each
of our directors,
· each
of our executive officers, and
· all
of our directors and executive officers as a group.
The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on such date and all shares of our common stock issuable to such holder in the
event of exercise of outstanding options, warrants, rights or conversion
privileges owned by such person at said date which are exercisable within
60 days of such date. Except as otherwise indicated, the persons
listed below have sole voting and investment power with respect to all shares of
our common stock owned by them, except to the extent such power may be shared
with a spouse. The addresses for our executive officers and directors are c/o
Scores Holding Company, Inc., 533-535 West 27th Street,
New York, NY 10001.
|
Name
and Address
of Beneficial Owner
|
Title of Class |
Amount
and Nature
of
Beneficial Ownership
|
Percent
of
Class (1)
|
|||||||
| Curtis Smith | Common Stock | - 0 - | 0.0 | % | ||||||
| Elda Auerbach | Common Stock | - 0 - | 0.0 | % | ||||||
|
All
directors and executive officers as a group (2 persons)
|
Common
Stock
|
- 0 - | 0.0 | % | ||||||
|
Mitchell’s
East LLC (2)
617
Eleventh Avenue
New
York, NY 10036
|
Common
Stock
|
88,900,230 | 53.8 | % | ||||||
|
Estate
of William Osher (3)
2955
Shell Road
Broklyn,
NY
|
Common
Stock
|
13,886,059 | 8.4 | % | ||||||
|
(1)
|
Based
upon 165,186,124 shares of Common Stock issued and outstanding as at March
31, 2009.
|
|
(2)
|
Robert
M. Gans is the sole owner of Mitchells East LLC. The principal
business address of Mr. Gans is 617 Eleventh Avenue, New York, NY
10036. Does not include 13,886,059 shares of Common Stock
currently held of record by William Osher, deceased, of which Harvey Osher
(“H. Osher”) claims title and which. H. Osher has agreed to transfer to
Mitchell’s East LLC pursuant to the
SPA.
|
|
(3)
|
William
Osher passed away in August, 2007. H. Osher claims all right
and title to and interest in these shares of Common Stock and has agreed
to transfer them to Mitchell’s East LLC pursuant to the Stock Purchase
Agreement.
|
Changes
in Control
Not
Applicable.
Securities
Authorized for Issuance Under Equity Compensation Plans
We do not
presently maintain any equity compensation plans and have not maintained any
such plans since our inception.
Richard
Goldring owned approximately 46% of our outstanding common stock until January
27, 2009 when he sold all of his shares to Buyer pursuant to the SPA. He
resigned as our President, Chief Executive Officer and director on February 28,
2007. Elliot Osher owned approximately 8.8% of our common stock until
January 27, 2009 when he sold all of his shares to Buyer pursuant to the
SPA. The estate of William Osher currently owns
approximately 8.8% of our common stock. Harvey Osher claims
ownership of those Decedent Owned Shares and, pursuant to the SPA, has agreed to
transfer them to Buyer (as discussed above).
Agreement
with EMS
EMS is
one third owned by each of Richard Goldring, Elliot Osher and Harvey Osher. On
March 13, 2003, we entered into the MLA with EMS. Under the MLA, EMS
was required to pay us 100% of the royalties received from the formerly
affiliated clubs and 50% of the royalties received from non-affiliated
clubs. The MLA had been amended in late 2006 to add a provision which
stated that so long as a shareholder, officer or director of EMS served at the
same time as an officer or director of ours, EMS would pay us 100% of the
royalties it received from non-affiliated clubs. The revised MLA stated that
this provision had always been the intention and practice of the parties.
On February 28, 2007, this condition ceased to be fulfilled as Richard Goldring
resigned as our President, Chief Executive Officer and Director and, as a
result, as of that date our receipt of royalties generated from non-affiliated
clubs reverted to the 50% level.
Transactions
with 333
333, the
owner and operator of Scores East, is two thirds owned by Richard Goldring and
one third owned by Elliot Osher. Both Richard Goldring and Elliot Osher were our
stockholders until January 27, 2009. Richard Goldring was our
President, Chief Executive Officer and director until his resignation on
February 28, 2007. On October 1, 2003, EMS sublicensed our Scores trade name to
333 for the Scores East club. Royalties earned during the 2008 period
and the 2007 period were foregone by us due to matters resulting in the Scores
East surrender of its liquor license and related the closing of the Scores East
club. Royalties owed to us by EMS relating to the Scores East
sublicense at December 31, 2008 and December 31, 2007 were $615,478 and
$1,230,263, respectively.
During
the 2008 period, we retained approximately $146,682 in cash royalties received
from our Chicago non-affiliated club. Pursuant to the MLA, we were
obligated to remit this amount to EMS but we retained it to help cover our
shortfalls in cash flow. As a result of the Transfer and related Assignment
Agreement, we applied the $146,682 against the outstanding royalties balance we
owed to EMS as of December 31, 2008.
Transactions
with Go West
Two
thirds of Go West is owned by Richard Goldring and one third by Elliot
Osher.
On March
11, 2002, we entered into an acquisition agreement with Go West whereby it
became our wholly owned subsidiary in exchange for common stock paid to its
then stockholders, Richard Goldring, William Osher and Elliot Osher. On
March 31, 2003, we engaged in a series of transactions designed to reverse this
acquisition (the “Unwinding”). We transferred all of the capital stock of Go
West to its former shareholders, who returned our stock to us. Immediately
thereafter, Richard Goldring and William Osher entered into an agreement with
EMS whereby they each exchanged their shares of Go West for shares of EMS
(the “EMS Acquisition Agreement”). As a result, EMS owned 66.7% and
Elliot Osher owned 33.3% of Go West's outstanding common stock. Richard Goldring
and William Osher each owned 50% of EMS's outstanding common stock. On April 7,
2003 the EMS Acquisition Agreement was undone. EMS transferred 2,500,000 shares
of Go West to Mr. Richard Goldring and 2,500,000 shares of Go West to William
Osher.
Also, on
March 31, 2003, EMS sublicensed the Scores trade name to Go West for
its Scores West nightclub. Royalties earned during the 2008 period
and the 2007 period were foregone by management due to matters which led to the
revocation in 2008 of the Scores West liquor license by the
NYSLA. Royalties owned to us by EMS relating to the Scores West
sublicense at December 31, 2006 and December 31, 2007 were $184,768 and
$220,302, respectively.
Obligations
to Richard Goldring
On
February 28, 2007, our then President, Chief Executive Officer, Director and
majority stockholder, Richard Goldring resigned from each of his positions, and
terminated his employment
with us. Under the terms of his employment agreement dated March 31,
2003, we are obligated to pay Mr. Goldring a $1 million termination fee. Because
of our lack of cash and other business related reasons, we have not paid Mr.
Goldring this fee We were negotiating a settlement with Mr. Goldring
but we did not reach an agreement with him on the amount and terms of payment to
be made to him and these negotiations are currently on hold.
Executive
Offices
Beginning
July 1, 2004, we leased 2,400 square feet of office space in New York, New York,
from Go West for our executive offices, paying $20,000 per month and offsetting
this amount against royalties owed to us by Go West. On March 1, 2007, we
terminated this lease. As of July 2007, we began to apply a monthly
credit of $5,000 to the outstanding royalties owed to us by Go West relating to
our occupancy, including overhead costs, on a temporary,
month-to-month basis, of approximately 700 square feet of office space
located at the West 27th Street
Building.
As of
July 1, 2008, we lease our 700 square feet of office space from Westside Realty
of New York, owner of the West 27th Street
Building. The majority owner of Westside Realty is Robert M. Gans who
purchased the stock of Westside Realty from Richard Goldring
and Elliot Osher. We pay $5,000 on a month to month basis,
including overhead costs, for this office space.
Go
West Construction Loan
In
consideration of payments made by us on behalf of Go West for construction of
Scores West, on March 31, 2003, Go West issued to us the Note. The
Note was a five year promissory note for $1,636,264.08 which bore simple
interest at a rate of 7% per year and was scheduled for maturity on October 1,
2008. Go West is in default under the Note. As of December 31, 2008, Go West
owed us $1,867,310 under the Note, which includes $355,189 in accrued and unpaid
interest. During the 2008 period and the 2007 period, $0 and $0 were paid in
principal and interest on the Note, respectively. At the time, Go West’s primary
asset was a 20-year lease on the West 27th Street
Building where it built its nightclub, Scores West. The Note
was secured by Go West’s leasehold interest in the West 27th Street
Building. Go West has since relinquished its leasehold in the West 27th Street
Building to Westside Realty of New York and we do not expect to collect on the
Loan.
Audit
Fees.
The
aggregate fees billed to us by our principal accountant for services rendered
during the fiscal years ended December 31, 2008 and 2007 are set forth in the
table below:
|
Fee
Category
|
Fiscal
year ended December 31, 2008
|
Fiscal
year ended December 31, 2007
|
||||||
|
Audit
fees (1)
|
$ | 20,000 | $ | 25,000 | ||||
|
Audit-related
fees (2)
|
12,000 | 15,000 | ||||||
|
Tax
fees (3)
|
3,000 | 4,000 | ||||||
|
All
other fees (4)
|
— | — | ||||||
|
Total
fees
|
$ | 35,000 | $ | 44,000 | ||||
|
(1)
|
Audit
fees consists of fees incurred for professional services rendered for the
audit of consolidated financial statements, for reviews of our interim
consolidated financial statements included in our quarterly reports on
Form 10-QSB and for services that are normally provided in connection with
statutory or regulatory filings or
engagements.
|
|
(2)
|
Audit-related
fees consists of fees billed for professional services that are reasonably
related to the performance of the audit or review of our consolidated
financial statements, but are not reported under “Audit
fees.”
|
|
(3)
|
Tax
fees consists of fees billed for professional services relating to tax
compliance, tax planning, and tax
advice.
|
|
(4)
|
All
other fees consists of fees billed for all other
services.
|
Audit Committee’s
Pre-Approval Practice.
Inasmuch
as we do not have an audit committee, our board of directors performs the
functions of an audit committee. Section 10A(i) of the Exchange
prohibits our auditors from performing audit services for us as well as any
services not considered to be “audit services” unless such services are
pre-approved by the board of directors (in lieu of the audit committee) or
unless the services meet certain de minimis standards.
All audit
services were approved by our Board of Directors.
Financial
Statement Schedules
The
consolidated financial statements of Scores Holding Company, Inc. are listed on
the Index to Financial Statements on this annual report on Form 10-K beginning
on page F-1.
All
financial statement schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Exhibits
The
following Exhibits are being filed with this Annual Report on Form
10-K:
|
Exhibit
No.
|
SEC
Report
Reference
Number
|
Description
|
||
|
2.1
|
2
|
Agreement
and Plan of Reorganization dated June 22, 1998 between Olympus M.T.M.
Corporation and The Internet Advisory Corporation (1)
|
||
|
2.2
|
10
|
Reorganization
Agreement dated December 30, 1999 between The Internet Advisory
Corporation and Richard Goldring (2)
|
||
|
2.3
|
99
|
Plan
of Reorganization and Disclosure Statement dated November 14, 2001 filed
in Bankruptcy Court (3)
|
||
|
2.4
|
2.1
|
Acquisition
Agreement dated March 11, 2002 among the Registrant Go West Entertainment,
Inc., Richard Goldring, William Osher, and Elliott Osher
(4)
|
||
|
2.5
|
2.1
|
Agreement
and Plan of Merger dated August 7, 2002 among HEIR Holding Company, Inc.,
Scores Acquisition Corp. and the Registrant (5)
|
||
|
2.6
|
2.1
|
Acquisition
Agreement, dated March 31, 2003 among the Registrant, Go West
Entertainment, Inc., Richard Goldring, William Osher, and Elliott Osher
(6)
|
||
|
2.7
|
2.1
|
Agreement
and Plan of Merger, dated August 12, 2004, among the
Registrant, SCRH Acquisition Corp. and Aciem Management, Inc
(7)
|
||
|
2.8
|
2.2
|
Amendment
No. 1 to Acquisition Agreement, dated August 12, 2004, among the
Registrant, Go West Entertainment, Inc., Richard Goldring, William Osher,
and Elliott Osher (7)
|
|
Exhibit
No.
|
SEC
Report
Reference
Number
|
Description
|
||
|
10.1
|
|
License Agreement
between HEIR Holding Company, Inc. and Go West Entertainment,
Inc.*
|
||
|
10.2
|
Amendment to License
Agreement dated August 15, 2001*
|
|||
|
10.3
|
10.1
|
Convertible
Debenture Purchase Agreement dated August 7, 2002 between HEIR Holding
Company, Inc. and HEM Mutual Assurance Fund, Ltd (8)
|
||
|
10.4
|
10.1
|
$1,000,000
Convertible Debenture Issued to HEM Mutual Assurance Fund, Ltd by HEIR
Holding Company, Inc. (8)
|
||
|
10.5
|
10.3
|
Loan
Agreement and Promissory Note dated August 7, 2002 between the Registrant
and HEM Mutual Assurance Fund, Ltd (8)
|
||
|
10.6
|
10.3
|
Promissory
Note dated August 7, 2002 issued to HEM Mutual Assurance Fund, Ltd by the
Registrant (8)
|
||
|
10.7
|
10.2
|
Convertible
Debenture Purchase Agreement dated August 7, 2002 between the Registrant
and HEM Mutual Assurance, LLC (8)
|
||
|
10.8
|
10.2
|
Termination
Warrant dated August 7, 2002 issued to HEM Mutual Assurance, LLC by the
Registrant, dated March 31, 2003 (8)
|
||
|
10.9
|
10.2
|
Special
Registration Rights Agreement dated August 7, 2002 between the Registrant
and HEM Mutual Assurance, LLC (8)
|
||
|
10.10
|
10.2
|
Modification
of Loan and Convertible Debenture Purchase Agreements and Related
Transaction Documents dated November 14, 2002 among the Registrant, HEM
Mutual Assurance Fund, Ltd and HEM Mutual Assurance, LLC.
(9)
|
||
|
10.11
|
10.3
|
Intellectual
Property Assignment Agreement dated July 1, 2002 between the Registrant
and Scores Entertainment, Inc. (9)
|
||
|
10.12
|
10.4
|
Warrant
dated July 1, 2002 to Purchase 70,000 Shares of Common Stock of the
Registrant(9)
|
||
|
10.13
|
10.1
|
Second
Modification of Loan and Convertible Debenture Purchase Agreements and
Related Transaction Documents, dated February 25, 2003, among the
Registrant, HEM Mutual Assurance Fund, Ltd and HEM Mutual Assurance,
LLC.(10)
|
||
|
10.14
|
10.1
|
Collateral
Loan Agreement dated April 1, 2002 between the Registrant and
Interauditing, Srl (11)
|
|
Exhibit
No.
|
SEC
Report
Reference
Number
|
Description
|
||
|
10.15
|
10.18
|
Advisory
Agreement dated March 2003 among Maximum Ventures, Inc., Jackson Steinem,
Inc. and the Registrant (12)
|
||
|
10.16
|
10.1
|
Employment
Agreement dated July 1, 2002 between the Registrant and Richard Goldring
(9)
|
||
|
10.17
|
10.20
|
Stock
Option Agreement dated October 22, 2002 between the Registrant and Richard
Goldring (12)
|
||
|
10.18
|
10.21
|
Stock
Option Agreement dated October 22, 2002 between the Registrant and Elda
Auerback (12)
|
||
|
10.19
|
|
Promissory Note for
$250,000 issued by the Registrant to Arnold Feldman
*
|
||
|
10.20
|
10.1
|
Secured
Promissory Note issued by Go West Entertainment, Inc. to the Registrant
(6)
|
||
|
10.21
|
10.2
|
Master
License Agreement, dated March 31, 2003 between the Registrant and
Entertainment Management Services, Inc. (6)
|
||
|
10.22
|
10.3
|
Sublicense
Agreement, dated March 31, 2003, between Entertainment Management
Services, Inc. and Go West Entertainment, Inc. (6)
|
||
|
10.23
|
10.4
|
Employment
Agreement, dated March 31, 2003, between the Registrant and Richard
Goldring (6)
|
||
|
10.24
|
10.5
|
Amendment
to Intellectual Property Agreement, dated March 31, 2003, between the
Registrant and Scores Entertainment, Inc. (6)
|
||
|
10.25
|
10.28
|
Loan
Modification Agreement, dated December 16, 2003, between the Registrant
and HEM Mutual Assurance Fund Limited (13)
|
||
|
10.26
|
2.1
|
Agreement
and Plan of Merger, dated August 12, 2004, between the Registrant, SCRH
Acquisition Corp. and Aciem Management, Inc. (14)
|
||
|
10.27
|
10.32
|
Sublicense
Agreement, dated March 31, 2003, between Entertainment Management
Services, Inc. and Go West Entertainment, Inc. (15)
|
||
|
10.28
|
10.28
|
Sublicense
Agreement, dated June 13, 2003, between Entertainment Management Services,
Inc. and Stone Park Entertainment
(15)
|
|
Exhibit
No.
|
SEC
Report
Reference
Number
|
Description
|
||
|
10.29
|
10.29
|
Sublicense
Agreement, dated February 27, 2004, between Entertainment Management
Services, Inc. and Club 2000 Eastern Avenue, Inc. (15)
|
||
|
10.30
|
10.31
|
Sublicense
Agreement, dated July 27, 2004, between Entertainment Management Services,
Inc. and DBD Management, Inc. (15)
|
||
|
10.31
|
10.30
|
Sublicense
Agreement, dated January 3, 2005, between Entertainment Management
Services, Inc. and SMG Entertainment, Inc. (15)
|
||
|
10.32
|
|
Sublicense
Agreement, dated July 28, 2005, between Entertainment Management Services,
Inc. and DDII, LLC. (22)
|
||
|
10.33
|
10.33
|
Sublicense
Agreement, dated October 27, 2005, between the Registrant and D.I. Food
& Beverage of Las Vegas (16)
|
||
|
10.34
|
10.34
|
Sublicense
Agreement, dated November 16, 2005, between Entertainment Management
Services, Inc. and DDL of Los Angeles LLC (16)
|
||
|
10.35
|
10.35
|
Sublicense
Agreement, dated November 16, 2005, between Entertainment Management
Services, Inc. and Bash Entertainment, LLC (16)
|
||
|
10.36
|
10.1
|
Employment
Agreement, dated January 1, 2006, between the Registrant and Richard
Goldring (17)
|
||
|
10.37
|
10.1
|
Recission
Agreement, dated September 25, 2006, between the Registrant and Richard
Goldring (18)
|
||
|
10.38
|
10.38
|
Sublicense
Agreement, dated January 24, 2006, between the Registrant and AYA
Entertainment, Inc. (16)
|
||
|
10.39
|
10.1
|
Amended
and Restated Master License Agreement, dated November 13, 2006, between
the Registrant and Entertainment Services, Inc. (19)
|
||
|
10.40
|
10.1
|
Employment
Agreement, dated March 1, 2007, with Alex Amoriello
(20)
|
||
|
10.41
|
10.41
|
Lease,
dated March 6, 2007, between the Registrant and HQ Global Work Places
(16)
|
||
|
10.42
|
10.42
|
Sublicense
Agreement, dated April 2, 2007, between Entertainment Management Services,
Inc. and Silver Bourbon, Inc. (16)
|
|
Exhibit
No.
|
SEC
Report
Reference
Number
|
Description
|
||
|
10.43
|
10.43
|
Amendment
to Employment Agreement, dated May 7, 2007, between the Registrant and
Alex Amoriello (16)
|
||
|
10.44
|
10.1
|
Transfer
Agreement by and among the Registrant, 333 East 60th
Street Inc. (“333”) and Entertainment Management Services, Inc. (“EMS”)
dated as of December 9, 2008
|
||
|
10.45
|
10.2
|
Cancellation
Agreement by and among the Registrant and EMS dated as of January 27,
2009
|
||
|
10.46
|
10.3
|
Assignment
and Assumption Agreement by and among the Registrant, 333 and EMS dated as
of January 27, 2009
|
||
|
10.47
|
*
|
License
Agreement, dated January 27, 2009, between the Registrant and I.M.
Operating LLC
|
||
|
16
|
16.1
|
Letter,
dated February 28, 2005, from Radin, Glass &Co., LLP
(21)
|
||
|
21
|
21
|
Subsidiaries
- As of March 31, 2009, we had one subsidiary: Scores Licensing
Corp.
|
||
|
31.1/31.2
|
*
|
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
|
||
|
32.1/32.2
|
*
|
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**
|
||
* filed
herewith.
** 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.
|
(1)
|
Filed
with the Securities and Exchange Commission on July 2, 1998 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form
8-K dated June 22, 1998, which exhibit is incorporated herein by
reference.
|
|
(2)
|
Filed
with the Securities and Exchange Commission on January 18, 2000 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated December 30, 1999, which exhibit is incorporated herein
by reference.
|
|
(3)
|
Filed
with the Securities and Exchange Commission on November 29, 2001 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated November 14, 2001, which exhibit is incorporated herein
by reference.
|
|
(4)
|
Filed
with the Securities and Exchange Commission on March 27, 2002 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated March 11, 2002, which exhibit is incorporated herein by
reference.
|
|
(5)
|
Filed
with the Securities and Exchange Commission on August 28, 2002 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated August 13, 2002, which exhibit is incorporated herein by
reference.
|
|
(6)
|
Filed
with the Securities and Exchange Commission on April 16, 2003 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated March 31, 2003, which exhibit is incorporated herein by
reference.
|
|
(7)
|
Filed
with the Securities and Exchange Commission on August 25, 2004 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated August 12, 2004, which exhibit is incorporated herein by
reference.
|
|
(8)
|
Filed
with the Securities and Exchange Commission on August 28, 2002 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated August 13, 2002, which exhibit is incorporated herein by
reference.
|
|
(9)
|
Filed
with the Securities and Exchange Commission on November 20, 2002 as an
exhibit, numbered as indicated above, to the Registrant’s Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2002, which exhibit is
incorporated herein by reference.
|
|
(10)
|
Filed
with the Securities and Exchange Commission on March 11, 2003 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated February 25, 2003, which exhibit is incorporated herein
by reference.
|
|
(11)
|
Filed
with the Securities and Exchange Commission on April 15, 2002 as an
exhibit, numbered as indicated above, to the Registrant’s Annual Report on
Form 10-KSB for the year ended December 31, 2001, which exhibit is
incorporated herein by reference.
|
|
(12)
|
Filed
with the Securities and Exchange Commission on April 23, 2003 as an
exhibit, numbered as indicated above, to the Registrant’s Annual Report on
Form 10-KSB for the year ended December 31, 2002, which exhibit is
incorporated herein by reference.
|
|
(13)
|
Filed
with the Securities and Exchange Commission on March 30, 2004 as an
exhibit, numbered as indicated above, to the Registrant’s Annual Report on
Form 10-KSB for the year ended December 31, 2003, which exhibit is
incorporated herein by reference.
|
|
(14)
|
Filed
with the Securities and Exchange Commission on August 25, 2004 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated August 12, 2004, which exhibit is incorporated herein by
reference.
|
|
(15)
|
Filed
with the Securities and Exchange Commission on April 15, 2005 as an
exhibit, numbered as indicated above, to the Registrant’s Annual Report on
Form 10-KSB for the year ended December 31, 2004, which exhibit is
incorporated herein by reference.
|
|
(16)
|
Filed
with the Securities and Exchange Commission on May 17, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Annual Report on Form
10-KSB for the year ended December 31, 2006, which exhibit is incorporated
herein by reference.
|
|
(17)
|
Filed
with the Securities and Exchange Commission on September 2, 2008 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K, which exhibit is incorporated herein by
reference
|
|
(18)
|
Filed with the
Securities and Exchange Commission on September 13, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form
8-K dated September 12, 2006, which exhibit is incorporated herein by
reference.
|
|
(19)
|
Filed with the
Securities and Exchange Commission on September 28, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Current Report on Form
8-K dated September 25, 2006, which exhibit is incorporated herein by
reference.
|
|
(20)
|
Filed with the
Securities and Exchange Commission on November 15, 2006 as an exhibit,
numbered as indicated above, to the Registrant’s Quarterly Report on Form
10-QSB for the quarter ended September 30, 2006, which exhibit is
incorporated herein by
reference.
|
|
(21)
|
Filed
with the Securities and Exchange Commission on March 8, 2007 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated February 28, 2007, which exhibit is incorporated herein
by reference.
|
|
(22)
|
Filed
with the Securities and Exchange Commission on February 28, 2005 as an
exhibit, numbered as indicated above, to the Registrant’s Current Report
on Form 8-K dated February 28, 2005, which exhibit is incorporated herein
by reference.
|
|
(23)
|
Filed
with the Securities and Exchange Commission on May 17, 2007 as an exhibit,
numbered as indicated above, to the Registrant’s Annual Report on Form
10-KSB for the year ended December 31, 2006, which exhibit is incorporated
herein by reference.
|
|
(24)
|
Included
in Exhibit 31.1.
|
|
(25)
|
Included
in Exhibit 32.1.
|
In
reviewing the agreements included or incorporated by reference as exhibits to
this Annual Report on Form 10-K, please remember that they are included to
provide you with information regarding their terms and are not intended to
provide any other factual or disclosure information about the Company or the
other parties to the agreements. The agreements may contain representations and
warranties by each of the parties to the
applicable
agreement. These representations and warranties have been made solely for the
benefit of the parties to the applicable agreement and:
|
•
|
should
not in all instances be treated as categorical statements of fact, but
rather as a way of allocating the risk to one of the parties if those
statements prove to be inaccurate;
|
|
•
|
have
been qualified by disclosures that were made to the other party in
connection with the negotiation of the applicable agreement, which
disclosures are not necessarily reflected in the
agreement;
|
|
•
|
may
apply standards of materiality in a way that is different from what may be
viewed as material to you or other investors;
and
|
|
•
|
were
made only as of the date of the applicable agreement or such other date or
dates as may be specified in the agreement and are subject to more recent
developments.
|
Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time. Additional
information about the Company may be found elsewhere in this Annual Report on
Form 10-K and the Company’s other public filings, which are available without
charge through the SEC’s website at http://www.sec.gov.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April
15, 2009
SCORES
HOLDING COMPANY, INC.
By: /s/ Curtis R. Smith
Curtis
R. Smith
Acting
Chief Executive Officer and Chief
Financial Officer
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
SIGNATURE
|
TITLE
|
DATE
|
||
|
/s/ Curtis R. Smith
|
Acting
Chief Executive Officer, Chief Financial and Accounting
Officer
|
April
15, 2009
|
||
| Curtis R. Smith | ||||
PART IV –
FINANCIAL INFORMATION
|
Index
to Consolidated Financial Statements
|
Page
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
To the
Board of Directors and Shareholders
Scores
Holding Company, Inc. and subsidiaries
We have
audited the accompanying consolidated balance sheets of Scores Holding Company,
Inc. and subsidiaries as of December 31, 2008 and 2007 and the related
consolidated statements of operations, stockholders’ deficit, and cash flows for
each of the years ended December 31, 2008 and 2007. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit 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 principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Scores Holding
Company, Inc. as of December 31, 2008 and 2007 and the results of its
operations, stockholders’ deficit and cash flows for each of the years ended
December 31, 2008 and 2007, in conformity with generally accepted accounting
principles in the United States.
The
accompanying financial statements have been prepared assuming that Scores
Holding Company, Inc. will continue as a going concern. As more fully described
in Note 2, the Company has a working capital deficit as of December 31,
2008. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments to reflect the possible effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ Sherb
& Co., LLP
Certified
Public Accountants
New York,
New York
April 9,
2009
|
December
31,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
|
$ | 173 | $ | 173 | ||||
|
Licensee
receivable – including affiliates – net
|
13,845 | 25,217 | ||||||
|
Prepaid
expenses
|
— | 1,123 | ||||||
|
Inventory
|
— | 20,700 | ||||||
|
Total
Current Assets
|
14,018 | 47,213 | ||||||
|
INTANGIBLE
ASSETS, NET
|
333,332 | 220,950 | ||||||
| $ | 347,350 | $ | 268,163 | |||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 128,826 | $ | 126,965 | ||||
|
Bank
overdraft
|
20,982 | — | ||||||
|
Notes
payable
|
— | 20,000 | ||||||
|
Due
to EMS – Related party
|
— | 44,978 | ||||||
|
Related
party payable
|
6,000 | 15,800 | ||||||
|
Total
Current Liabilities
|
155,808 | 207,743 | ||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
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
and 165,186,124 issued and
outstanding,respectively
|
165,186 | 165,186 | ||||||
|
Additional
paid-in capital
|
5,998,117 | 5,998,117 | ||||||
|
Accumulated
deficit
|
(5,971,761 | ) | (6,102,883 | ) | ||||
|
Total
Stockholders’ equity
|
191,542 | 60,420 | ||||||
| $ | 347,350 | 268,163 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
SCORES
HOLDING COMPANY, INC. AND SUBSIDIARIES
|
Year
Ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
REVENUE
|
||||||||
|
Royalty
|
$ | 186,880 | $ | 464,686 | ||||
|
Merchandise
|
375 | 14,856 | ||||||
|
Public
relations
|
— | 8,000 | ||||||
|
Total
|
187,255 | 487,542 | ||||||
|
COST
OF MERCHANDISE SOLD
|
21,559 | 54,054 | ||||||
|
GROSS
PROFIT
|
165,696 | 433,488 | ||||||
|
GENERAL
AND ADMINISTRATIVE EXPENSES
|
422,873 | 773,025 | ||||||
|
LOSS
ON IMPAIRMENT OF INTANGIBLE
|
281,216 | — | ||||||
|
BAD
DEBT EXPENSE (RECOVERY)
|
(669,515 | ) | 16,892 | |||||
|
INCOME
(LOSS) FROM OPERATIONS
|
131,122 | (356,429 | ) | |||||
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
131,122 | (356,429 | ) | |||||
|
PROVISION
FOR INCOME TAXES
|
— | — | ||||||
|
NET
INCOME (LOSS)
|
$ | 131,122 | $ | (356,429 | ) | |||
|
NET
INCOME (LOSS) PER SHARE
BASIC
and DILUTED
|
$ | 0.00 | $ | (0.00 | ) | |||
|
WEIGHTED
AVERAGE OF COMMON SHARES
OUTSTANDING
– BASIC and DILUTED
|
165,186,124 | 165,186,124 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
SCORES
HOLDING COMPANY, INC. AND SUBSIDIARIES
|
Additional
|
Total
|
|||||||||||||||||||
|
Common
Stock
|
Paid
in
|
Accu Accumulated
|
Stockholders
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
(Deficit)
Equity
|
||||||||||||||||
|
Balance
as of December 31, 2006
|
165,186,124 | $ | 165,186 | $ | 5,998,117 | $ | (5,746,455 | ) | $ | 416,848 | ||||||||||
|
Net
loss
|
(356,429 | ) | (356,429 | ) | ||||||||||||||||
|
Balance
as of December 31, 2007
|
165,186,124 | $ | 165,186 | $ | 5,998,117 | $ | (6,102,883 | ) | $ | 60,420 | ||||||||||
|
Net
income
|
131,122 | 131,122 | ||||||||||||||||||
|
Balance
as of December 31, 2008
|
165,186,124 | $ | 165,186 | $ | 5,998,117 | $ | (5,971,761 | ) | $ | 191,542 | ||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
SCORES
HOLDING COMPANY, INC. AND SUBSIDIARIES
|
Year
Ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income (loss)
|
$ | 131,122 | $ | (356,429 | ) | |||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used) in operating
activities:
|
||||||||
|
Amortization
|
59,720 | 59,720 | ||||||
|
Loss
on impairment of intangible
|
281,216 | — | ||||||
|
Bad
debt recovery
|
(453,318 | ) | — | |||||
|
Changes
in Assets and Liabilities
|
||||||||
|
Royalty
receivable
|
11,372 | 5,572 | ||||||
|
Prepaid
expenses
|
1,123 | 62,504 | ||||||
|
Inventory
|
20,700 | 48,090 | ||||||
|
Due
to EMS
|
(44,978 | ) | 44,978 | |||||
|
Accounts
payable and accrued expenses
|
1,861 | 15,705 | ||||||
|
NET
CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES
|
8,818 | (119,860 | ) | |||||
|
CASH
PROVIDED BY FINANCING ACTIVITIES:
|
||||||||
|
Related
party payable
|
(9,800 | ) | 6,200 | |||||
|
Repayment
of notes payable
|
(20,000 | ) | (117,500 | ) | ||||
|
Bank
overdraft
|
20,982 | — | ||||||
|
NET
CASH (USED) IN FINANCING ACTIVITIES
|
(8,818 | ) | (111,300 | ) | ||||
|
NET
(DECREASE) IN CASH
|
— | (231,159 | ) | |||||
|
Cash
and cash equivalents, beginning of the year
|
173 | 231,332 | ||||||
|
Cash
and cash equivalents, end of the year
|
$ | 173 | $ | 173 | ||||
|
Supplemental
disclosures of cash flow information:
|
||||||||
|
Cash
paid during the year for interest
|
$ | — | $ | — | ||||
|
Cash
paid during the year for taxes
|
$ | 3,625 | $ | 9,354 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
TWO YEARS
ENDED DECEMBER 31, 2008
Note
1. Organization
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.
Note
2. Summary of Significant Accounting Principles
BASIS OF
PRESENTATION - Going Concern
Scores
Holding Company, Inc. and Subsidiaries (“SCRH”) has incurred cumulative losses
totaling $(5,971,761) through December 31, 2008 and has a working capital
deficit of $(141,790) at December 31, 2008. Because of these
conditions, SCRH will require additional working capital to develop business
operations. SCRH intends to raise additional working capital through the
continued licensing of the 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 SCRH will be able to
achieve the level of revenues adequate to generate sufficient cash flow from
operations to support SCRHs’ working capital requirements. To the extent that
funds generated from any future use of licensing, are insufficient, SCH 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 SCRH. If adequate working capital is not
available SCRH may not increase its operations.
These
conditions raise substantial doubt about SCRHs’ 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 SCRHs’ be unable to
continue as a going concern.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. Inter-company items and transactions have been
eliminated in consolidation
Cash and
cash equivalents
The
Company considers all highly liquid temporary cash investments, with a maturity
of three months or less when purchased, to be cash equivalents. There
are times where cash may exceed $250,000, the FDIC insured limit.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
Inventory
Inventory
consists primarily of finished goods and is valued at the lower of cost or
market on a first-in first-out “FIFO” basis. In performing our cost
valuation, we consider the condition and salability of our inventory and may
adjust the valuation due to anticipated changes that may materially affect its
basis. Management believes that due to the lack of movement in our
inventory which has since become obsolete, was written down in the amount of
$20,700 and $0 for the periods ended December 31, 2008 and 2007
respectively.
Accounting
for Long-Lived Assets
The
Company reviews long-lived assets, certain identifiable assets and any goodwill
related to those assets for impairment whenever circumstances and situations
change such that there is an indication that the carrying amounts may not be
recoverable. The Company believes that the carrying amount of the Scores”
trademark exceeds its fair or net present value and has recognized an impairment
loss in the amount of $281,216 for the year ended December 31,
2008. This impairment was based on the various adverse chains of
events and circumstances regarding the loss of our Scores East “Marquee” and
Scores West clubs.
Fair
Value of Financial Instruments
The
carrying amounts reported in the balance sheet for cash, licensee receivable,
accounts payable, accrued expenses, and notes payable approximate fair value,
based on the short-term maturity of these instruments.
Royalty
and Notes receivable and reserves
Accounts
deemed uncollectible are applied against the allowance for doubtful
accounts. The balance of allowance for doubtful accounts had a
balance of $2,745,084 and $3,339,800 for the December 31, 2008 and 2007 periods.
In reviewing any delinquent royalty or note receivable, we consider many factors
in estimating our reserve, including historical data, experience, customer
types, credit worthiness, financial distress and economic trends. From time to
time, we may adjust our assumptions for anticipated changes in any of these or
other factors expected to affect collectibility. Subsequent to year
end 2006, we were informed through common ownership, that our former East and
Westside affiliates were undergoing financial distress and that the pending
matters with the State Liquor License Authority would have a material impact on
cash flow and operations. As a result, a collection for royalties and
notes receivable amounting to $1,540,870 and $1,867,310 were deemed impaired as
of December 31, 2006. Cash collected on these impaired royalties amounted to
$35,928 and $73,250 from Scores West and $14,788 and $0 from Scores
East for the period ended 2008 and 2007. During the 2008 period
the Company purchased the Master License from EMS for $600,000 and issued a
credit for $600,000 to Scores East which was applied as a reversal to bad debt
expense.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
Advertising
Costs
The costs
of advertising are expensed as incurred. The advertising expenses for the years
ended December 31, 2008 and 2007 are $10,184 and $16,731
respectively.
Stock
Based Compensation
We
account for the grant of stock options and restricted stock awards in accordance
with SFAS 123R, “Share-Based
Payment, an Amendment of FASB Statement No. 123” (“SFAS 123R”). SFAS 123R
requires companies to recognize in the statement of operations the grant-date
fair value of stock options and other equity based compensation.
There
were no stock options issued during the year. We have recorded no
compensation expense for stock options granted to employees during the year
ended December 31, 2008 and 2007.In accordance with SFAS 123, the fair value of
each option grant has been estimated as of the date of the grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Assumptions
utilized computing fair value under the Black Scholes model are as
follows:
|
For
the year ended
|
||||||||
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Risk
free interest rate
|
.37 | % | 3.34 | % | ||||
|
Expected
life
|
4.5
years
|
5.5
years
|
||||||
|
Dividend
rate
|
0.00 | % | 0.00 | % | ||||
|
Expected
volatility
|
.37 | % | 17 | % | ||||
The
Company records revenues from its license agreements on a straight line basis
over the term of the license agreements. If a license agreement is terminated
then the remaining unearned balance of the deferred revenues are recorded as
earned if applicable. Revenue is recognized when earned, as products are
completed and delivered or services are provided to customers.
Revenues
earned under its royalty agreements are recorded as they are
earned.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
Income
Taxes
The
Company utilizes the liability method of accounting for income taxes as set
forth in SFAS 109, “Accounting for Income Taxes.” Under the liability
method, deferred taxes are determined based on the difference between financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to
reverse. The Company has a net operating loss carryforward of
approximately $5,985,000, which expire in the years 2015 and
2018. The related deferred tax asset of approximately $2,650,000 has
been offset by a valuation allowance. The Company’s net operating
loss carryforwards may have been limited, pursuant to the Internal Revenue Code
Section 382, as to the utilization of such net operating loss carryforwards due
to changes in ownership of the Company over the years.
|
2008
|
2007
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforward
|
$ | 2,650,000 | $ | 1,130,000 | ||||
|
Receivable
allowance
|
— | 1,471,000 | ||||||
| Less valuation allowance | (2,650,000 | ) | (2,601,000 | ) | ||||
|
Net
deferred tax asset
|
$ | — | $ | — | ||||
The
reconciliation of the Company’s effective tax rate differs from the Federal
income tax rate of 34% for the years ended December 31, 2008 and 2007, as a
result of the following:
|
2008
|
2007
|
|||||||
|
Tax
(benefit) at statutory rate
|
$ | 46,000 | $ | (112,000 | ) | |||
|
State
and local taxes
|
14,000 | (34,000 | ) | |||||
|
Permanent
differences
|
(109,000 | ) | — | |||||
|
Change
in valuation allowance
|
49,000 | 146,000 | ||||||
|
Tax
due
|
$ | — | $ | — | ||||
Loss Per
Share
The
Company has adopted SFAS 128, "Earnings per Share." Loss per common share is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share are computed using weighted average number of common shares plus
dilutive common share equivalents outstanding during the period using the
treasury stock method. Common stock equivalents (common stock warrants) in the
amount of 85,000 options were not included in the computation of loss per share
for the periods presented because their inclusion is anti-dilutive.
Accounting
Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles
generally accepted in the
United States 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.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
Concentration
of Credit Risk
The
Company earned royalties and merchandise revenues from four licensees who are
unrelated from management of the Company. During the December 31, 2008 period
end, revenues earned from royalties and merchandise sales from these unrelated
licensees amounted to $187,255 and there is $13,845 due and outstanding as of
December 31, 2008. Our Baltimore and Chicago licensees account for
the majority or our revenues; in 2008 Baltimore and Chicago accounted for 25%
and 33% and in 2007 they accounted for 15% and 18%, respectively. Our
AYA, Scoreslive.com licensee website is still in the development stage since
2007, it has accounted for a minimal amount of our total royalty revenues to
date for the 2008 period.
New
Accounting Pronouncements
In
December 2007, the FASB issued Statement No. 141 (revised 2007), “Business
Combinations” (“FAS 141”) and Statement No. 160, “Non-controlling Interests in
Consolidated Financial Statements” (“FAS 160”). FAS No. 141 (revised 2007)
requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed and any non-controlling interest in the acquiree at their
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. This standard also requires the fair value
measurement of certain other assets and liabilities related to the acquisition
such as contingencies. FAS 141 (revised 2007) applies prospectively to business
combinations and is effective for fiscal years beginning on or after December
15, 2008.
FAS 160
require that a non-controlling interest in a subsidiary be reported as equity in
the consolidated financial statements. Consolidated net income should include
the net income for both the parent and the non-controlling interest with
disclosure of both amounts on the consolidated statement of income. The
calculation of earnings per share will continue to be based on income amounts
attributable to the parent. The presentation provisions of FAS 160 are to be
applied retrospectively, and FAS 160 is effective for fiscal years beginning on
or after December 15, 2008. We are currently evaluating the impact that FAS 160
will have on our consolidated financial statements.
In
February 2008, the FASB issued FSP 157-2, “Partial Deferral of the Effective
Date of Statement 157” (“FSP 157-2”). FSP 157-2 delays the effective date
of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually) to fiscal years beginning after
November 15, 2008. We are currently evaluating the impact of FSP 157-2 on
nonfinancial assets and nonfinancial liabilities, but do not expect the adoption
to have a material impact on our consolidated financial statements.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
In March
2008, the FASB issued FAS 161, “Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133” (“FAS 161”). FAS 161
require disclosures of the fair values of derivative instruments and their gains
and losses in a tabular format. FAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of gains and losses on derivative instruments and disclosures
about credit-risk-related contingent features in derivative agreements. FAS 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. We are currently evaluating the
impact of FAS 161, but do not expect the adoption to have a material impact on
our consolidated financial statements.
In May
2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement).” The FSP will require us to
allocate the liability and equity components of the convertible debt and reflect
our non-convertible debt borrowing rate for the interest component of the
convertible debt. The FSP will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and will be applied
retrospectively to all periods presented. Upon the retrospective implementation
of this FSP, we will record an unamortized debt discount of approximately $32.6
million, which will be amortized over a period of six years from the date our
convertible debt was issued. This will result in recording additional annual
interest expense of approximately $5.3 million pre-tax (or approximately $3.4
million after-tax, which approximates $0.04 per share).
In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”).
EITF 07-5 provides that an entity should use a two step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument’s contingent exercise and
the instruments settlement provisions. EITF 07-5 clarifies the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. The implementation of EITF 07-5 will not have
a material impact on our consolidated financial statements.
In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active.” This FSP applies to financial assets within the scope of accounting
pronouncements that require or permit fair value measurements in accordance with
SFAS 157. This FSP clarifies the application of SFAS 157 in determining the fair
values of assets or liabilities in a market that is not active. This FSP is
effective upon issuance, including prior periods for which financial statements
have not been issued. The adoption of this FSP did not have a material impact on
our consolidated financial statements.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
Note
3. Related-Party Transactions
a. On
January 27, 2009 which became effective on December 9, 2008, the Company and
Entertainment Management Services, Inc. (“EMS”) completed the closing (the
“Closing”) of the transfer from EMS to the Company of all licensing and royalty
rights granted to EMS by the Company under that certain Amended and Restated
Master License Agreement by and between EMS and the Company (the
“MLA”). Under the MLA, the Company had granted EMS the exclusive
worldwide license for twenty years plus six five-year renewals at the option of
EMS to sublicense the Company’s trademarks and related properties (the
“Licensing Rights”). Additionally, under the MLA, EMS was entitled to
receive 50% of the licensing fees paid by various non-affiliated nightclubs (the
Existing Sublicensees”) to EMS (the “EMS Royalty Rights”).
EMS is
owned by 333 East 60th Street
Inc. (“333”) and 333 is owned by the Share Sellers who are Richard Goldring and
Elliot Osher.
At the
Closing and pursuant to the terms of the transfer agreement by and between the
Company and EMS dated December 9, 2008, EMS assigned to the Company the
Licensing Rights and the EMS Royalty Rights relating to the Existing
Sublicensees, free and clear of any charges, liens or other encumbrances. In
consideration of these assignments, the Company credited 333 with a $600,000
payment against a $1,220,475 debt owed by 333 to the Company (the “Debt”) and
provided 333 with an acknowledgement that the Debt was satisfied to the extent
of the $600,000 payment. As of December 31, 2008, the remaining
balance was written off. Additionally, at the Closing, EMS and the
Company executed a cancellation and mutual release agreement canceling the MLA
and terminating all of the rights and obligations of the parties
thereunder.
b. Go
West Entertainment, Inc.
During
2008 and 2007, the Company had a temporary month to month occupancy with Go West
Entertainment, Inc., “Go West”. The former President, Chief Executive
Officer Director of the Company is also one of the two shareholders of Go
West.
c.
"Unwinding" transaction and Master License Agreement
Immediately
after the closing of our transfer of Go West in 2002, we entered into a Master
License Agreement (the "Master License") with Entertainment Management Services,
Inc. ("EMS"). The Master License grants to EMS the exclusive worldwide license
to use and to grant sublicenses to use the "SCORES" trademarks in connection
with the ownership and operation of upscale, adult-entertainment cabaret night
clubs/restaurants and for the sale of merchandise by such establishments.
Merchandise must relate to the nightclub that sells it, and may be sold at the
nightclub, on an internet site maintained by the nightclub, by mail order and by
catalogue. The term of the Master License is twenty years. EMS has the option to
renew the Master License for six consecutive five-year terms. We will receive
royalties equal to 4.99% of the gross revenues of all sublicensed clubs that are
controlled by EMS. We will also receive royalties generated by sublicensing use
of the SCORES name to adult entertainment nightclubs that are not controlled by
EMS.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
In
consideration of all payments made by us on behalf of Go West for the
construction of the club, Go West has given to us its Secured Promissory Note in
the amount of $1,636,264. The principal of the Note is payable in sixty monthly
installments commencing on November 1, 2003 and ending on October 1, 2008. The
first twelve monthly installments are $10,000 each. The next forty-eight
installments of principal are $31,289 each. Interest at the rate of 7% per annum
will accrue on the unpaid balance of principal until maturity. Interest payments
are due monthly with each installment of principal commencing November 1, 2003.
The Note is secured by Go West's leased interest in its New York nightclub.
Interest receivable of $355,188 was due at December 31, 2008. Due to
the matter regarding the State liquor Authority and our affiliate Go West as
discussed in Note 7 below. Legal Proceedings, The Company believes that
collection of the $1,867,310 which includes accrued interest of $355,189
balances have been impaired and hence, reserved for the full amount outstanding
of $1,867,310 as of December 31, 2008.
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 gross recorded value at December 31, 2008 of
$878,318 which was derived from the initial purchase from HEIR for $250,000,
$175,000 of trademark as a result of the settlement agreement entered into in
September 2006 between the Company and affiliated parties and Scores
Entertainment Inc. ("SEI") and Irving Bilzinsky ("Bilzinsky") and $453,318 from
the result of our purchase of the Royalty Rights and Licensing Rights under the
MLA from EMS in December
2008. This trademark has been registered in the United States,
Canada, Japan, Mexico and the European Community. The trademark is being
amortized by straight line method 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 $59,720 in 2008 and $59,720 of amortization expense, in
2007. The Company estimates that amortization expense will be
approximately $50,000 per year over the next five years.
The
Company believes that the carrying amount of the Scores” trademark exceeds its
fair or net present value and has recognized an impairment loss in the amount of
$281,216 for the year ended December 31, 2008. This impairment was
based on the various adverse chains of events and circumstances regarding the
closing of our Scores East “Marquee” and Scores West clubs which management
believes may have materially impacted our brand.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
Note
5. Notes Payable
As a
result of the settlement agreement entered into in September 2006 between the
Company and affiliated parties and Scores Entertainment Inc. ("SEI") and Irving
Bilzinsky ("Bilzinsky"), the Company is obligated to pay Bilzinsky, as sole
shareholder of SEI, $175,000 in 18 monthly installments, which commenced on
September 24, 2006, of $9,375 for each of the first 8 months and $10,000 for
each of the remaining 10 months. As of December 31, 2008 the Company
paid the remaining $20,000 due on the settlement.
Note
6. Stock Option
Stock-Based
Compensation Describe the option plan
In 2002, two former employees were granted stock options by the
Board which expire on March 31, 2013.
Stock
option activity for the two years ended December 31, 2008 is summarized as
follows:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Shares
|
Exercise
Price
|
|||||||
|
Outstanding
at December 31, 2006
|
85,000 | $ | 2.80 | |||||
|
Granted
|
— | — | ||||||
|
Exercised
|
— | — | ||||||
|
Expired
or cancelled
|
— | — | ||||||
|
Outstanding
at December 31, 2007
|
85,000 | $ | 2.80 | |||||
|
Granted
|
— | — | ||||||
|
Exercised
|
— | — | ||||||
|
Expired
or cancelled
|
— | — | ||||||
|
Outstanding
at December 31, 2008
|
85,000 | $ | 2.80 | |||||
All such
options are vested and exercisable
The weighted average remaining contractual life and weighted average price
of options outstanding at December 31, 2008 for selected exercise price ranges,
are follows:
|
Range
of
Exercise
prices
|
Number
of options
outstanding
|
Weighted
Average remaining
contractual
life
|
Weighted
Average exercise price
|
Options
Exercisable
|
Weighted
average exercise price of options exercisable
|
|||||||||||||||||
| $ | 2.80 | 80,000 | 4.75 | $ | 2.80 | 80,000 | $ | 2.80 | ||||||||||||||
| 2.80 | 5,000 | 4.75 | 2.80 | 5,000 | 2.80 | |||||||||||||||||
| $ | 2.80 | 85,000 | 4.75 | $ | 2.80 | 85,000 | $ | 2.80 | ||||||||||||||
The aggregate intrinsic value of the Company's outstanding and exercisable
options at December 31, 2008 and 2007 was $0 and $0, respectively.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
Note
7. Commitments and Contingencies
Rent
expense for the year ended December 31, 2008 and 2007 was $56,000 and $101,163
respectively. In June 2007, the Company voluntarily terminated its one year
lease agreement with HQ Global services, Inc. to occupy an office in White
Plains and a satellite office on Park Ave in New York. Security
deposits in the amount of $7,000 were offset by the July and August rents in
2007.
In July
2007, we occupied office space from Go West, on a temporary, month-to-month
basis, approximately 700 square feet of office space located at 533-535 West
27th Street, New York, NY. On July 1, 2008 we cancelled our occupancy
with Go West and currently pay $5,000 per month, including overhead costs, for
this office space with Westside Realty of New York which is owned and operated
by Bob Gans.
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
Supreme Court of the State of New York, County of New York (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. This amount must be confirmed by the SCNY in a final
judgment. If such a judgment is rendered by the SCNY, we will attempt
to collect on the 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
Supreme Court of the State of New York, County of New York, 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 is
currently stayed.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
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 alleges 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. 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. We intend to vigorously contest the
claimed liability as well as the violations alleged.
On April
18, 2008, co-defendant Go West filed for bankruptcy.
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. The case is stayed as against Go West pursuant to the bankruptcy
law. The Court directed that notice be sent to all potential class members. On
May 29, 2008, we filed an answer to plaintiffs’ second amended complaint.
Discovery into both the procedural and substantive issues is ongoing, as are
settlement negotiations.
In
February 2007, the City of New York (the “City”) sought to close Scores West
claiming that it presented a public nuisance. The City alleged that this
nightclub was used for purposes of prostitution; the case was dismissed by the
City of New York and no charges were sought against Scores West or us. In
February, 2007, the New York State Liquor Authority (the “NYSLA”) began a review
of the license held by Scores West and issued an Emergency Summary Order of
Suspension of the Scores West liquor license on February 21, 2007. Go West, the
owner of Scores West, filed a pleading with the NYSLA on behalf of Scores West.
After a temporary adjournment and a series of hearings in front of an
administrative law judge, on February 4, 2008, this judge sustained all charges
against Scores West. A NYSLA hearing was held on March 6, 2008 and the NYSLA
revoked the Scores West Liquor license. On March 18, 2008, the New York State
Appellate Division, First Department (the “Appellate Court”) granted an interim
stay of the liquor license revocation pending a review by the full bench of the
Appellate Court. On April 15, 2008 the Appellate Court decided to deny a further
stay of the March 2008 revocation by the NYSLA of the Scores West liquor
license. Go West filed with the Appellate Court for a reconsideration of its
decision, which was denied. As a result of this outcome, Scores West has closed.
The Appellate Court decided to hear this case on the merits and, on October 3,
2008, found in favor
of the NYSLA, upholding the NYSLA’s revocation of the Scores West Liquor
License. Go West subsequently filed a motion for re-argument before the
Appellate Court and/or leave to appeal to the New York Court of
Appeals. This further motion was withdrawn by Go West.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
On April
18, 2008, Go West filed a voluntary petition for bankruptcy with the U.S.
Bankruptcy Court, Southern District of New York (the “Bankruptcy Court”), under
Chapter 11 of the U.S. Bankruptcy Code. This filing followed the April 15, 2008
Appellate Court decision to deny a further stay of the March 2008 revocation by
the NYSLA of the Scores West liquor license. [As of the date hereof, an Official
Committee of Unsecured Creditors has not been formed nor has a Trustee or
Examiner been appointed in this case. Go West’s bankruptcy case is pending in
the Bankruptcy Court, Case No. 08-11420. The United States Trustee in this case
filed a motion seeking the dismissal or conversion of Go West’s Chapter 11 case
as Go West is no longer operating. That motion was granted by the Bankruptcy
Court and an order will be entered once Go West completes its stipulations with
the Internal Revenue Service (regarding the payment of unpaid federal taxes) and
the New York State Department of Taxation (regarding a payment plan for state
taxes due).
Scores
West has permanently lost its liquor license and has closed its
business. As a result, we are no longer able to receive royalty
revenues from Go West, owner of that club. In 2006, royalty revenues
from Scores West amounted to 31% of our royalties. We did not receive
any revenue from Scores West in 2008 or in 2007. Because Scores West
has closed, the ability of Go West to make payments under the Note (defined
below) has been severely impaired. The Note is currently in
default.
On May 2,
2008, the NYSLA gave notice of its pleading to 333, the owner of Scores East, in
connection with its proceeding to cancel or revoke the liquor license of Scores
East, based on its revocation of the Scores West liquor license. (Scores West
and Scores East were related by common ownership.) On July 2, 2008, the NYSLA
gave 333 a notice of hearing set for August 19, 2008. Based on the filing with
the NYSLA of a conditional no-contest plea, this hearing was
adjourned. 333 has since surrendered its liquor license for Scores
East and that club has permanently closed. Because of these
developments, we are no longer able to receive royalty revenues from Scores
East, which in 2006, amounted to 28% of our royalties. We did not
receive any revenue from Scores East in 2008 or in 2007.
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 recently answered a third
amended complaint and participated in a Preliminary Conference to establish the
discovery schedule. Examinations before trial of the parties have been completed
and non-party depositions are now being taken. The plaintiff has not yet
undergone the required physical examination. We will vigorously defend ourselves
in this litigation and do not expect that the outcome will be
material.
On
December 11, 2006, SMG, our former affiliate and owner of the club in North
Miami, Florida, filed for bankruptcy with the United States Bankruptcy Court for
the Southern District of New York. In connection therewith, it terminated its
license agreement with EMS whereby it was authorized to use our
intellectual property. At the time of its filing, SMG owed us $16,661 for unpaid
merchandise, which we subsequently reserved as bad debt. SMG emerged from
bankruptcy in September 2008 under a plan or reorganization pursuant to which
all general, unsecured debt was discharged, including the $16,661 owed to
us.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
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.
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.
In June
2005, we, together with several of our affiliates, commenced litigation
regarding title to certain of our intellectual property. In February 2006,
counterclaims were asserted and other persons brought third party complaints. In
September 2006, we and our affiliates reached a settlement resolving all claims
against us for a payment of $175,000 made in monthly installments. In return,
the other parties in the litigation disclaimed any right to our intellectual
property.
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.
SCORES
HOLDING COMPANY, INC. and SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS
ENDED DECEMBER 31, 2008
Note
8. SUBSEQUENT EVENTS
Pursuant
to a Stock Purchase Agreement, dated as of January 27, 2009, Mitchell’s East LLC
(“Buyer”),
a New York limited liability company wholly owned by Robert M. Gans, purchased
an aggregate of 88,900,230 shares (the “Owned Shares”) of common stock of Scores
Holding Company, Inc. (the “Company”) beneficially owned by Richard
Goldring1
and Elliot Osher (collectively the “Share Sellers”), as well as any rights
Harvey Osher (the Share Sellers and Harvey Osher, together, the “Sellers”) may
have in 13,886,059 shares of the Company’s common stock (the “Decedent Owned
Shares”) currently held of record by William Osher, deceased, and any rights the
Sellers may have in an additional 2,400,001 shares of the common stock of the
Company (the “Expectancy Shares”). Under the terms of the Stock
Purchase Agreement, Harvey Osher is to deliver to the Buyer the Decedent Owned
Shares that he may receive and the Sellers are to deliver to the Buyer any
shares of the Company underlying the Expectancy Shares that any such Seller may
receive. Additionally, pursuant to the Stock Purchase
Agreement, each of the Sellers granted to Buyer an irrevocable proxy
enabling Buyer to act as his proxy with respect to any shares underlying
the Decedent Owned Shares and the Expectancy Shares, as applicable.
The
aggregate purchase price for all such shares and interests in the Company was
$400,000. The source of funds for such acquisition was working
capital of Mitchell’s East LLC.
The Owned
Shares represent approximately fifty four percent (54%) of the outstanding
capital stock of the Company and the Owned Shares together with the Decedent
Owned Shares represent approximately sixty two percent (62%) of the outstanding
capital stock of the Company,
On
January 27, 2009, we entered into a licensing agreement with I.M. Operating LLC
(“IMO”)for the use of the Scores brand name with I.M. Operating LLC (“IMO”) The
address for 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 Robert M.
Gans. . Royalties payable to us under this license have
been set at 3% of gross revenues. The West 27th Street
Building is owned by Westside Realty of New York, of which the majority owner is
Robert M. Gans. IMO has applied for and received a liquor
license and is currently renovating the club. We believe the club
will commence operations in April 2009.
On April
14th
2008, Elda Auerbach resigned from our Board of Directors. Ms.
Auerbach’s esignation did not result from any disagreement between her and the
Company.
F-20