U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For Fiscal Year Ended: December 31, 2009
OR
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from _______________ to _______________ |
| Commission file number: | 000─16665 |
| SCORES HOLDING COMPANY, INC. |
| (Exact name of small business issuer as specified in its charter) |
| Utah | 87-0426358 | |
(State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
533-535 West 27th Street | ||
| New York, NY | 10001 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number:(212) 864-4900
| Securities registered under Section 12(b) of the Exchange Act: | None | |
| Name of each Exchange on Which Registered: | None | |
| Securities registered under Section 12(g) of the Exchange Act: | Common Stock, $0.001 par value | |
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 | Accelerated Filer | |
Non-Accelerated Filer | Smaller reporting companyx | |
| (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).
As of March 31, 2010,October 4, 2012, there were 165,186,124 shares of the registrant's common stock, par value $0.001, issued and outstanding.
On June 30, 2009, 2011,the last business day of the registrant’s most recently completed second fiscal quarter, 76,285,894 shares of its common stock, $0.001 par value per share (its only class of voting or non-voting common equity) were held by non-affiliates of the registrant. The market value of those shares was $1,907,147,$2,136,005, based on the last sale price of $.025$0.028 per share of the common stock on that date.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.
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
TABLE OF CONTENTS
| Item Number and Caption | Page | |||
| Forward-Looking Statements | 3 | |||
| PART I | 3 | |||
| 1. | Business | 3 | ||
| 1A. | Risk Factors | 8 | ||
| 2. | Properties | 8 | ||
| 3. | Legal Proceedings | 9 | ||
| 4. | Submission Of Matters To A Vote Of Security Holders | |||
| PART II | 11 | |||
| 5. | Market For Common Equity And Related Stockholder Matters | 11 | ||
| 6. | Selected Financial Data | 12 | ||
| 7. | Management’s Discussion And Analysis Of Financial Condition And Results Of Operations | 13 | ||
| 8. | Financial Statements And Supplemental Data | 17 | ||
| 9. | Changes In And Disagreements With Accountants On Accounting And Financial Disclosure | 17 | ||
| 9A.[T] | Controls And Procedures | 17 | ||
| 9B. | Other Information | 19 | ||
| PART III | 19 | |||
| 10. | Directors, Executive Officers And Corporate Governance | 19 | ||
| 11. | Executive Compensation | 21 | ||
| 12. | Security Ownership Of Certain Beneficial Owners And Management | 22 | ||
| 13. | Certain Relationships And Related Transactions, And Director Independence | 23 | ||
| 14. | Item 14. Principal Accountant Fees And Services | 25 | ||
| PART IV | 27 | |||
| Exhibits and Financial Statement Schedules | 27 | |||
| Item Number and Caption | Page | ||
| Forward-Looking Statements | 3 | ||
| PART I | 3 | ||
| 1. | Business | 3 | |
| 1A. | Risk Factors | 8 | |
| 1B | Unresolved Staff Comments | 8 | |
| 2. | Properties | 9 | |
| 3. | Legal Proceedings | 9 | |
| 4. | Mine Safety Disclosures | 11 | |
| PART II | 11 | ||
| 5. | Market For Common Equity And Related Stockholder Matters | 11 | |
| 6. | Selected Financial Data | 12 | |
| 7. | Management’s Discussion And Analysis Of Financial Condition And Results Of Operations | 12 | |
| 7A. | Quantitative and Qualitative Disclosures About Market Risk | 15 | |
| 8. | Financial Statements And Supplemental Data | 15 | |
| 9. | Changes In And Disagreements With Accountants On Accounting And Financial Disclosure | 15 | |
| 9A. | Controls And Procedures | 16 | |
| 9B. | Other Information | 17 | |
| PART III | 18 | ||
| 10. | Directors, Executive Officers And Corporate Governance | 18 | |
| 11. | Executive Compensation | 20 | |
| 12. | Security Ownership Of Certain Beneficial Owners And Management | 21 | |
| 13. | Certain Relationships And Related Transactions, And Director Independence | 22 | |
| 14. | Principal Accountant Fees And Services | 22 | |
| PART IV | 23 | ||
| 15. | Exhibits and Financial Statement Schedules | 23 | |
Forward-Looking Statements
Except for historical information, this report contains forward-looking statements. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in 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.
PART I
ITEM 1. BUSINESS
Overview
Scores Holding Company, Inc. (“Scores,” the “Company,” “we,” “us” or “our”) was incorporated in Utah on September 21, 1981 under the name AdonisInternet Energy, Inc. Since 2003, we have been in the business of licensing the “Scores” trademarks and other intellectual property to gentlemen’s nightclubs with adult entertainment in the United States. These clubs feature topless female entertainers together with opportunities for watching sporting events and corporate and private parties. There are fourfive such clubs currently operating under the Scores name, in New York City, Baltimore, Chicago, Tampa and New Orleans.
Our trademarks and copyrights surrounding the Scores trade name are critical to the success and potential growth of our business. Our trademarks are held by our wholly owned subsidiary, Scores Licensing Corp. (“SLC”).
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.
Until January 27, 2009, 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 with the exception of our newly opened club in New York, Scores New York (see discussion below), 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.)
On January 27, 2009, Mitchell’s East LLC, wholly owned by Robert M. Gans, acquired a majority interest in our outstanding capital stock1.stock. Mr. Gans is the majority owner of I.M. Operating LLC (“IMO”). IMO has a licensing agreement with us and has commenced operations in New York, New York under the club name Scores New York. (Throughout this report, we refer to Scores New York as our “affiliated club”)
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 the estate of William Osher, deceased, and any rights the Sellers may have in an additional 2,400,001 shares of our common stock (the “Expectancy Shares”). 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 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.
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Changes in our Management
On August 6, 2010, we appointed Robert M. Gans as our President and Chief Executive Officer and as a member of our Board of Directors. Robert Gans and Martin Gans, one of our existing Board members, are brothers. Also on August 6, 2010, we appointed Howard Rosenbluth as our Treasurer and Chief Financial Officer. Mr. Rosenbluth is also a director.
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 under this license are the greater of $2,500 per week or 4.99% of the the Chicago club’s gross revenues (less $25,000 per week) earned at that location. The Chicago club accounted for 23%18% and 33%21% of our total royalty revenues during 20092011 and 2008,2010, 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 under this license are the greater of $1,000 per week or 4.99% of gross revenues. The Baltimore club accounted for 27%23% and 25%26% of our total royalty revenues in 20092011 and 2008,2010, 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 “Score New Orleans”. Royalties payable under this license are capped at the greater of $4,000 per month or 4.99% of gross revenues. The New Orleans club accounted for 10%9% and 12% of our total royalty revenues during each of 20092011 and 2008.
The Assignment Agreement between us and EMS dated January 27, 2009, terminated the MLA and, since that date, we have begun to retainretained 100% of the royalty payments received from each of these three clubs. This percentage includes the 50% which was previously retained by EMS under the MLA.
On January 27, 2009, we entered into a licensing agreement with IMO for the use of the Scores brand name “Scores New York”.York.” IMO is owned in the majority by Robert M. Gans who is also our majority shareholder. The address where IMO’s new club is located is the same address 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 of Scores New York. Scores New York commenced operations in May 2009 and has accounted for 40%29% of our total royalty revenue during 2009. 2011 and 30% of our total royalty revenue during 2010.The West 27th Street Building is owned by Westside Realty of New York (“WSR”). Robert M. Gans is the majority owner of WSR.
On September 30, 2010, we entered into a licensing agreement with Tampa Food & Entertainment, Inc. Upon signing the contract, we received a non-refundable fee. For the next twelve months we will receive a flat fee of per month with an advance payment to be made at the signing of the contract. After the first nightclubtwelve months, royalties payable to sublicense our Scores brand through EMS. This nightclub surrendered its liquorus under this license in December 2008 and closed its operations. Scores East accounted for 0%will be capped at the greater of our royalty revenue in 2008 and 2009. 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 2009. 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.)
| 5 |
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 piloted in January 2007. Because the Scoreslive.com website is still in the development stage, it has accounted for a minimal amountnone of our total royalty revenues in 2009 and 2008.from inception through December 31, 2011. On December 21, 2009, AYA transferred all of its rights in Scoreslive.com and in its licensing agreement with us to Swan Media Group, Inc. (“SWG”SMG”), a newly formed New York corporation whose majority owner is Robert M. Gans.
Burhill LLC
On August 5, 2010, we entered into a license agreement (the “License Agreement”) with Burhill LLC (the “Licensee”) pursuant to which the Licensee will license the Scores trademarks and create, distribute, advertise and promote programming content in all forms of media using the Scores trademarks and conducting business under the name “Scores.” The Licensee has agreed to pay us a non-refundable royalty equal to five percent (5%) of the revenues of the Licensee earned in connection with the Licensee’s use of the Scores trademarks, net of actual local sales taxes paid and including any and all licensing fees charged to third parties for the use of the programming content owned and/or distributed by the Licensee. The Licensee is wholly owned by Robert M. Gans, our President and Chief Executive Officer and owner of Mitchell’s East LLC, our majority stockholder. This arrangement with Burhill LLC was terminated in July 2011.
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 equal to the Scores brand. For example, there are approximately twenty five (25) adult entertainment cabaret night clubs within the five boroughs of New York City; approximately six upscale located in the borough of Manhattan. We believe only three (Ricks Cabaret, Hustler and Penthouse) provide the most competitive adult entertainment experience to that of our brand and our New York affiliate. Other localities where our “Scores” brand is licensed have similar competitive environments.
We believe the combination of our name recognition and our distinctive entertainment environment allows our licensees to effectively compete within the industry, although we cannot assure anyone that this will prove to be the case. The success of our licensees depends upon their ability to retain quality entertainers, employees and to provide customer service to their customers. The inability to sustain quality entertainers, employees and customer service could have a material or adverse impact on the ability of our licensees to compete within the industry.
Competition among online adult entertainment providers is intense in respect to both content and subscribers’ capital. SWG’sSMG’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 SWG.SMG. The Internet is highly competitive, and Scoreslive.com will compete for visitors, subscribers, shoppers and advertisers. We believe that the primary competitive factors affecting SWG’sSMG’s Internet operations include brand recognition, the quality of content and products, pricing, ease of use and sales and marketing efforts. We believe that SWGSMG 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) employeetwo (2) employees, who isare not covered by any collective bargaining agreement. We believe that our relationship with our current employeeemployees 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.
We cannot offer any assurance that our licensees will obtain liquor licenses or that, once obtained, they will maintain their liquor licenses or be able to assign or transfer them if necessary. A license to sell alcoholic beverages in many cases requires annual renewal and may be revoked or suspended for cause, including any regulatory violation by the nightclub operating the license or its employees. Royalties for our business could decrease, if one or more of our licensees fails to maintain its liquor license.
"Cabaret" Licenses
Although not a requirement, our licensees typically request a cabaret license in connection with the operation of their nightclubs. Cabaret licenses are not a requirement in all states; however, some states mandate that such licenses be obtained prior to the operation of an adult nightclub. For example, one of our formerly affiliated licensees’,licensees was granted a cabaret license for a nightclub by the City of New York’s’ Department of Consumer Affairs (the "DCA"). In response, the DCA determined that zoning requirements and that the building qualified for operations in accordance with the codes and standards for a nightclub. We believe our licensees comply with all regulatory laws regarding cabaret or an adult entertainment license; however, there is no assurance that any of their licenses will remain effective or that they could be assigned or transferred if necessary. If one or more of our licensees failed to maintain a required license, this could have a material or adverse effect on our cash flow and profitability.
Zoning Restrictions
Adult entertainment establishments must comply with local zoning restrictions which can be stringent. For example, zoning regulations in the City of New York mandate that an adult entertainment business operates in an area zoned as residential, or in areas that are commercially zoned, and devotes 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 make any assurances 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 or more of our licensees, this could have a material or adverse effect on our cash flow and profitability.
ITEM 1A. RISK FACTORS.
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide disclosure under this Item 1A.
ITEM 1B. Unresolved Staff Comments
Not applicable.
ITEM 2. PROPERTIES.
As of July 1, 2008, WSR, the owner of the West 27th Street Building, became the new lessor of our 700 square feet office occupancy.occupancy at that location. On April 1, 2009, the monthly rent, which includes overhead cost, was reduced from $5,000 to $2,500.
ITEM 3. LEGAL PROCEEDINGS.
On January 14,March 22, 2010, Russell Whelchel, and on March 16, 2011, Charles Braden, who performed work as hair and makeup stylists at the Scores New York nightclub located at 536 West 28th Street, New York, NY, each filed a civil lawsuit against us in the S.D.N.Y. seeking to recover under federal and New York labor laws minimum wages, unlawful deductions, misappropriated gratuities and other wages, with interest, for the period of their “employment” with Scores New York. Joseph Bovine filed a similar action against us in November 2011. Although we disputed that we were an employer of the plaintiffs and denied all allegations, we settled these matters pursuant to a settlement and release agreement dated February 21, 2012. These matters were settled out of court.
In mid-March 2010, we were named by Nichole Hughes in a complaint filed with the Supreme CourtSCNY. Ms. Hughes is suing us for an unspecified amount of the State of New York, County of New York (the “SCNY”)damages in connection with an alleged assaultunauthorized use of her image in our advertising materials. On June 20, 2010, we filed a pre-answer motion to dismiss the complaint, which was denied on December 17, 2010. We then filed an answer and affirmative defenses and a third party complaint against IMO, owner and operator of the plaintiff by an agent of our New York affiliated club.club where Ms. Hughes was employed. Plaintiff’s counsel has moved to be relieved and, once that motion is settled, we expect to file for summary judgment. We have not yet answered this complaint but will vigorously defend ourselves in this litigation and do not expect that the outcome will be material.
On September 5, 2008, Ruth Fowler, a former cocktail waitress at Scores West, filed a civil lawsuit against us in the Federal District Court for the Southern District of New York (the “Court”).S.D.N.Y. The plaintiff is seeking to recover damages for alleged illegal deductions takentake from her salary and monies due her and for sexual harassment under the New York City and New York State Human Rights Laws. On May 7, 2009, we filed a motion to dismiss the action against us but that motion was denied by the CourtS.D.N.Y. with possible leave to renew the motion at a future date after the completion of discovery proceedings. In the meanwhile, counsel for plaintiff filed an amended complaint on February 26, 2010 to add as additional parties to the action Go West and EMS. On March 1, 2010, we filed affirmative defenses and an amended response asserting cross-claims for judgment against both Go West and EMS. The case has been placedOn September 13, 2010, the SDNY denied plaintiff’s application for further discovery and on October 18, 2010, we filed a motion to dismiss, which was granted in the hands of a magistrate judge and we have served various discovery demands which have not been responded to as of yet by counsel for the plaintiff. Although the outcome of this action is uncertain, we believe that any outcome will not have a material effect on us, since the plaintiff was only employed by Scores West for less than four months.
In early March 2008, we received notice that DIF&B, owner of the Las Vegas club, would be canceling its sublicense with EMS effective on or before May 6, 2008. We were notified that DIF&B would be making final royalty payments to EMS totaling $60,000 at the rate of $10,000 per week starting the first week of March 2008. The Las Vegas club ceased operating and, as of December 31, 2008, EMS had received only one such $10,000 payment from DIF&B. EMS commenced an action against DIF&B and filed a complaint and affidavit of service with the SCNY, on July 23, 2008. DIF&B was required to file an answer by August 23, 2008, but did not do so. As a result, EMS filed an application for a default judgment and the SCNY appointed a referee to determine damages. The referee determined that damages in the amount of $216,000, with interest, should be paid to EMS and a default judgment totaling $230,557 was entered by the Clerk of the SCNY. We will attempt to collect on this judgment. We will be entitled to all monies so collected, pursuant to the Assignment Agreement with EMS and 333.
On December 11, 2007, Francis Vargas, a former cocktail waitress at Scores West located in New York, NY, filed a civil lawsuit against us and Go West in the SCNY, alleging violations of the New York State Human Rights Law, New York Executive Law, New York City Human Rights Law, and the New York City Administrative Code, based upon allegations of sexual discrimination and sexual harassment. The lawsuit further alleges that at all material times both we and Go West were employers of Ms. Vargas, the plaintiff. The law suit seeks unspecified compensatory damages for plaintiff’s alleged loss of past and future earnings and benefits, emotional distress, humiliation and loss of reputation. We dispute that we were an employer of the plaintiff and categorically deny all allegations of sexual discrimination and sexual harassment. We filed our verified answer in the Supreme Court of the State of New York on February 12, 2008 to contest and defend against these accusations and we are currently engaged in discovery. On April 18, 2008, co-defendant Go West filed for bankruptcy and the case was stayed. On July 23, 2009, the bankruptcy petition was dismissed and, as a result, the automatic stay has beenwas lifted.
On March 30, 2007, we, along with several of our affiliates, were named in a suit in connection with an alleged assault by an employee of an affiliate and one of our stockholders and former officer and director. We have answered a third amended complaint and participatedcompleted discovery. This matter was settled for $8,500 on February 28, 2012 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 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.
There are no other material legal proceedings pending to which we or any of our property are subject, nor to our knowledge are any such proceedings threatened.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters
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 Pink OTC Markets Inc. 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, 2010 | .17 | .044 | ||||||
| June 30, 2010 | .081 | .05 | ||||||
| September 30, 2010 | .10 | .056 | ||||||
| December 31, 2010 | .07 | .06 | ||||||
| March 31, 2011 | .0035 | .0005 | ||||||
| June 30, 2011 | .025 | .0011 | ||||||
| September 30, 2011 | .035 | .019 | ||||||
| December 31, 2011 | .057 | .0125 | ||||||
| 11 |
| Quarter Ended | High Bid | Low Bid | ||||||
| March 31, 2008 | .008 | .0033 | ||||||
| June 30, 2008 | .01 | .003 | ||||||
| September 30, 2008 | .003 | .001 | ||||||
| December 31, 2008 | .0023 | .0011 | ||||||
| March 31, 2009 | .0035 | .0005 | ||||||
| June 30, 2009 | .025 | .0011 | ||||||
| September 30, 2009 | .035 | .019 | ||||||
| December 31, 2009 | .057 | .0125 | ||||||
| March 31, 2010 | .17 | .044 | ||||||
Holders
As of March 31, 2010,October 17, 2012, there were approximately 580[580] 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
On August 6, 2010, our Board of Directors and stockholders adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the issuance of both non-statutory and incentive stock options and other awards to acquire up to 20,000,000 shares of our common stock. If an incentive award granted under the 2010 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2010 Plan. As of December 31, 2011, we had not issued any shares and there are no outstanding grants under the 2008 Plan.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations:
For the year ended December 31, 20092011 (the “2009“2011 period”) compared to the year ended December 21, 20082010 (the “2008“2010 period”).
Revenues:
Revenues increased to $387,425$629,251 for the 20092011 period from $187,255$514,155 for the 20082010 period.This increase was primarily due to the following factors:factors; In May 2009,September 2010, our newly established New York affiliatedTampa club commenced operations and revenues from this club amounted to $154,747 $72,000during the 20092011 period and$43,000during the 2010 period. Our operations are dependent upon royalties from our New York affiliated club which, in 2009,2011, represented 40%29% of our total revenue. We license our brand to innovative and experienced operators who help sustain our brand by providing quality service to customers. We believe the combination of the club services provided by our existing operators and the opening of our newly established New York affiliatedTampa club contributed to the increase in 2009the 2011 and 2010 period revenues from our Chicago, Baltimore and New Orleans licensees. Revenues increased 41%5% to $87,320$112,168 in the 20092011 period from $62,118$106,987 in the 20082010 period for the Chicago club, 130%6% to $105,358$142,214 in the 20092011 period from $45,830$133,751 in the 20082010 period for the Baltimore club and 106%100% to $37,000$120,000 in the 20092011 period from $18,000$60,000 in the 20082010 period for the New Orleans club.
We recognize revenues as they are earned, not as they are collected.
Bad Debt Expense
As of December 31, 2009, Scores East and Scores West2011, our New Orleans licensees owed us (indirectly, through EMS) $615,476 and $184,768, respectively,$54,000 in accrued and unpaid royalties. We have decidedDuring the 2011 period, management agreed 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, 2009, $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. We have forgone interest on the Note since 2007.
Operating Expenses:
Operating expenses for the 20092011 period and the 20082010 period were $547,223$889,248 and $422,873$1,165,503 respectively. These expenses were directly related to the maintenance of the corporate entity and regulatory filing of periodic reports under the Securities Exchange Act of 1934 (the “Exchange Act”). To comply with the requirements of Sarbanes Oxley, we expect these regulatory costs to increase in future years. Virtually all or 24% of the decrease in operating expenses can be attributed to legal fees which decreased $141,803, largely attributed to the class action lawsuit initiated under the prior management of the Company (S.Diaz, et al. v. Scores Holding Company Inc.) and the recovery of $440,000 from prior ownership during the settlement of this case. Our business development and other executive administrative costs increased by $253,350changed modestly during the 20092011 period from the 20082010 period, and may continuebut is expected to increase in future periods due to expansion of our brand into emerging markets. The Company incurred approximately $19,000 of unforeseeable cost related to sales taxes during the 2009 period. Non-executive administrative costs related to accounting, legal, trade shows, rents and payroll taxes decreased by $216,000 during the 2009 period from the 2008 period. These reductions were the result of changes in management during the 2009 period over the 2008 period. Amortization expense increased $68,000 during the 2009 period from the 2008 period due to the repurchase from EMSOur current year amortization of the Licensing Rights and Royalty Rights underintangible assets of $88,725 will decrease next year to $ -0- as next year is the MLA.
Provision for Income Taxes:
The provision for state income taxes relates primarily to average assets and capital which were not impacted by net operating losses.
Net Income (Loss) (per share):
Our net lossincome for the 2009 period2011 year end was $(158,362)$183,627 or $(0.00)$.001 per share versus a net incomeloss of $131,122$(651,348) or $0.00$(.004) per share for the 2008 period.2010 year end. During the 20092011 period, our $200,000$115,096 increase in revenues was offset by costs primarily by the settlement of the S.Diaz, et al. v. Scores Holding Company Inc. and ongoing legal costs aggregating to $387,306 and secondarily related to business development, regulatory report preparation and filing, salaries, legal, amortization and taxes, which approximated to $358,000. The$471,942. This material change from net income to a net (loss) from the 20082010 period to the 20092011 period can also be attributed to 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 and the impairment loss in the amount of $281,216 during 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.
| 13 |
Liquidity and Capital Resources
At December 31, 2009,2011, we had $31,694$8,930 in cash and cash equivalents compared to $173$23,748 in cash and cash equivalents at December 31, 2008.
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 were obligated to pay Mr. Goldring a $1 million termination fee (the “Termination Fee”). Because of our lack of cash and other business related reasons, we did not pay Mr. Goldring the Termination Fee. On May 10, 2009 Mr. Goldring assigned his right, title and interest in and to the Termination Fee to Robert M. Gans. As further discussed below, we do not expect Mr. Gans to require from us payment of the Termination Fee.
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, 20092011 we had an accumulated deficit of $(6,130,123)$(6,597,844). As of December 31, 2009,2011, we had total current assets of $58,426$254,259 and total current liabilities of $230,674$628,511 or negative working capital of $(172,248)$(374,252). As of December 31, 2008,2010, we had total current assets of $14,018$117,821 and total current liabilities of $155,808$824,714 or negative working capital of $(141,790)$(706,893). The increase in the amount of negative working capital has been primarily attributable to the increase in our related party activity which significantly supportedand additional litigation related to our operations.settlement case. During the 20092011 period, the Company increaseddecreased its cash position due to prepayments in royalties made by our affiliated club in New York; however,additional litigation which was offset due to our lack of cash, our New York affiliated club covered many of our administrative cost related to regulatory filings and corporate maintenance, which caused our short term related party debt to exceed our current assets.
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.
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 20092011 period and the 20082010 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.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes. Professional judgment is required by management in estimating a provision for our deferred tax asset. Because the Company consistently incurred net losses in prior years, a valuation for the full deferred tax asset was recorded based on carry forwards of such net operating losses. This was 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.
ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk.
Not Aapplicable.
ITEM 8. FINANCIAL STATEMENTSFinancial Statements AND SUPPLEMENTAL DATA.
Our audited consolidated financial statements as of, and for the years ended, December 31, 20092011 and 20082010 are included beginning immediately following the signature page to this report. See Item 15 for a list of the financial statements included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A.[T] CONTROLS AND PROCEDURES.
(a) Management’s Annual Report on Internal Control over Financial Reporting. 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,Robert M. Gans, our acting chief executive officer and chief financial officer, and Howard Rosenbluth, our Secretary,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 and secretary concluded, as of the Evaluation Date, that our disclosure controls and procedures were not sufficiently effective to ensure 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 acting chief executive officer and chief financial officer and secretary, as appropriate to allow timely decisions regarding required disclosure. In particular, we concluded that internal control weaknesses in our accounting policies and procedures relating to our segregation of duties were material weaknesses.
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, management used the criteria set forth in the framework in Internal Control—Integrated Framework and the Internal Control over Financial Reporting – Guidance for Smaller Public Companies both issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. Our management has identified the following material weaknesses.
| 1. | As of December 31, |
| 2. | As of December 31, |
Based on this evaluation and the material weaknesses identified, management concluded that, as of December 31, 20092011 our internal controls over financial reporting were not effective, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.
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 with respect to financial statement preparation and presentation.
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) Management’s Report on Disclosure Controls and Procedures
The Company’s management has identified what it believes are deficiencies in the Company’s disclosure controls and procedures. The deficiencies in the Company’s disclosure controls and procedures resulted in failures to timely file periodic reports within the time periods specified in the SEC's rules and forms.
The deficiencies in our disclosure controls and procedures included (i) lack of segregation of duties and (ii) lack of sufficient resources to ensure that information required to be disclosed by the Company in the reports that the Company files or submits to the SEC are recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms.
The Company intends to take corrective action to ensure that information required to be disclosed by the Company pursuant to the reports that the Company files or submits to the SEC is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(c) 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.ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS ANDDirectors, Executive Officers and CORPORATE GOVERNANCE.
Executive Officers and Directors
The following table sets forth certain information, as of March 31, 2010,October 17, 2012, with respect to our directors and executive officers.
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 | |||
| Robert M. Gans | President, Chief Executive Officer and Director | 68 | August 6, 2010 | |||
| Martin Gans | Director | June 23, 2009 | ||||
| Howard Rosenbluth | Treasurer, Chief Financial Officer, Secretary and Director | April 21, 2009 | ||||
The following is a brief account of the business experience during the past five years or more of our directors and executive officer.
Robert M. Gans: For the past forty two years Robert M. Gans has owned and operated companies in the building materials business, as well as gentlemens' clubs, restaurants, and several commercial and residential real estate properties. Mr. Gans has either been the President, Managing Member, or sole owner of all of the companies in which he has been involved. None of the companies was or is a public company.
Martin Gans: Martin Gans has been retired since 2002. Prior to his retirement, Mr. Gans held managerial positions with The Nassau County Board of Elections, from 1994 to 2002, and with the Metropolitan New York hospitals, from 1990 to 1994. Mr. Gans has a MBA in Health Care Administration from George Washington University and a Bachelor’s degree in Economics from Hunter College. Mr. Gans served in the United States Army where he reached the rank of SP4.
Robert Gans and Martin Gans are brothers.
Howard Rosenbluth: Over the past five years, Mr. Rosenbluth has been an executive officer overseeing the financial operations for Metropolitan Lumber Hardware and Building Supplies, Inc., and The Executive Club LLC, a company operating in the Gentlemen’s' club industry. Mr. Rosenbluth received an MBA in Finance in 1975 from the University of Connecticut and has owned a consulting firm, a manufacturing company and a restaurant and has worked in public accounting and consulting for more than 35 years.
Board of Directors
None of our directors receives any remuneration for acting as such. Directors may, however, be reimbursed for their out-of-pocket 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 hashave been established 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, 2009, two2011, none of our directors Howard Rosenbluth and Martin Gans, failed to file a required report on Form 3, 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 of Directors comprised of a majority of “Independent Directors.”
Code of Ethics
Due to the scope of our current operations, as of December 31, 2009,2011, 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.
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the total compensation paid or accrued by us during the two fiscal years ended December 31, 20092011 to (i) all individuals that served as our chief executive officer and our chief financial officer or acted in a similar capacitycapacities for us at any time during the fiscal year ended December 31, 20092011 and (ii) all individuals that served as executive officers of ours at any time during the fiscal year ended December 31, 20092011 that received annual compensation during the fiscal year ended December 31, 20092011 in excess of $100,000.
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation ($) | Change in Pension Value and Non- qualified Deferred Compensation Earnings Compensation ($) | All Other ($) | Total ($) | |||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||
| Curtis Smith, | 2009 | 105,731 | 0 | 0 | 0 | 0 | 0 | 0 | 105,731 | |||||||||||||||||||||||||
Acting Chief | 2008 | 79,015 | 0 | 0 | 0 | 0 | 0 | 0 | 79,015 | |||||||||||||||||||||||||
| Executive Officer, | ||||||||||||||||||||||||||||||||||
Chief Financial Officer (1) | ||||||||||||||||||||||||||||||||||
| Change | ||||||||||||||||||||||||||||||||||||
| in | ||||||||||||||||||||||||||||||||||||
| Pension | ||||||||||||||||||||||||||||||||||||
| Value | ||||||||||||||||||||||||||||||||||||
| and Non- | ||||||||||||||||||||||||||||||||||||
| qualified | ||||||||||||||||||||||||||||||||||||
| Non-Equity | Deferred | |||||||||||||||||||||||||||||||||||
| Incentive | Compen- | |||||||||||||||||||||||||||||||||||
| Stock | Option | Plan | sation | All Other | ||||||||||||||||||||||||||||||||
| Name and | Bonus | Awards | Awards | Compen- | Earnings | Compensation | ||||||||||||||||||||||||||||||
| Principal Position | Year | Salary ($) | ($) | ($) | ($) | sation ($) | ($) | ($) | Total ($) | |||||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
| Robert M. Gans, | 2011 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Chief Executive Officer (1) | 2010 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Howard Rosenbluth, | 2011 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Chief Financial Officer | 2010 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| (1) |
We have not issued any stock options or maintained any stock option or other incentive plans sinceother than our inception.2010 Plan. (See “Item 5. Market for Common Equity and Related Stockholder Matters – Securities Authorized for Issuance Under Equity Compensation Plans” above.) We have no other 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 receives 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, 20092011 and 20082010 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.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to the beneficial ownership of our common stock known by us as of March 31, 2010October 17, 2012 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) | |||||||
| Robert M. Gans (2) | Common Stock | 88,900,230 | 53.8 | % | ||||||
| Howard Rosenbluth | Common Stock | - 0 - | 0.0 | % | ||||||
| Martin Gans | Common Stock | - 0 - | 0.0 | % | ||||||
| All directors and executive officers as a group (3 persons) | Common Stock | 88,900,230 | 53.8 | % | ||||||
| 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 | % | ||||||
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% | ||||
| Howard Rosenbluth | Common Stock | - 0 - | 0.0% | ||||
| Martin Gans | 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 Brooklyn, NY 11224 | Common Stock | 13,886,059 | 8.4% |
| (1) | Based upon 165,186,124 shares of Common Stock issued and outstanding as at |
| (2) | Robert M. Gans is the sole owner of |
| (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
On August 6, 2010, our Board of Directors and stockholders adopted the 2010 Plan. The 2010 Plan provides for the issuance of both non-statutory and incentive stock options and other awards to acquire up to 20,000,000 shares of our common stock. As of December 31, 2011, we had not presently maintainissued any equity compensation plansshares and have not maintained any such plans since our inception.
item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,Certain Relationships and Related Transactions, AND DIRECTOR INDEPENDENCE.
Executive Offices
As of July 1, 2008, WSR, majority owned by Robert M. Gans, became the owner of the West 27th Street Building, andbecame the new lessor of our landlord. Beginning700 square feet office occupancy at that location. On April 1, 2009, ourthe monthly rent, which includes overhead cost, was reduced from $5,000 to $2,500, on a month to month basis, including overhead costs.
Director Independence
Our Board of Directors has considered the independence of its directors in reference to the definition of “independent director” established by the Nasdaq Marketplace Rule 5605(a)(2). In doing so, the Board has reviewed all commercial and other relationships of each director in making its determination as to the independence of its directors. After such review, the Board has determined that Mr. Rosenbluthnone of our directors qualifies as independent under the requirements of the Nasdaq listing standards.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
.The aggregate fees billed to us by our principal accountant for services rendered during the fiscal years ended December 31, 20092011 and 20082010 are set forth in the table below:
| Fee Category | Fiscal year ended December 31, 2009 | Fiscal year ended December 31, 2008 | ||||||
| Audit fees (1) | $ | 20,000 | $ | 20,000 | ||||
| Audit-related fees (2) | 12,000 | 12,000 | ||||||
| Tax fees (3) | 3,000 | 3,000 | ||||||
| All other fees (4) | - | - | ||||||
| Total fees | $ | 35,000 | $ | 35,000 | ||||
| Fee Category | Fiscal year ended December 31, 2011 | Fiscal year ended December 31, 2010 | ||||||
| Audit fees (1) | $ | 30,000 | $ | 30,000 | ||||
| Audit-related fees (2) | ||||||||
| Tax fees (3) | 3,000 | 3,000 | ||||||
| All other fees (4) | - | - | ||||||
| Total fees | $ | 33,000 | $ | 33,000 | ||||
| (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-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements. |
| (2) | Audit-related fees consist 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 consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice. |
| (4) | All other fees consist 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-minims standards.
All audit services were approved by our Board of Directors.
PART IV
item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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 | ||
| 10.1 | 10.20 | Stock Option Agreement dated October 22, 2002 between the Registrant and Richard Goldring (1) | ||
| 10.2 | 10.21 | Stock Option Agreement dated October 22, 2002 between the Registrant and Elda Auerback (1) | ||
| 10.3 | 10.28 | Sublicense Agreement, dated June 13, 2003, between Entertainment Management Services, Inc. and Stone Park Entertainment (2) | ||
| 10.4 | 10.29 | Sublicense Agreement, dated February 27, 2004, between Entertainment Management Services, Inc. and Club 2000 Eastern Avenue, Inc. (2) | ||
| 10.5 | 10.38 | Sublicense Agreement, dated January 24, 2006, between the Registrant and AYA Entertainment, Inc. (3) | ||
| 10.6 | 10.42 | Sublicense Agreement, dated April 2, 2007, between Entertainment Management Services, Inc. and Silver Bourbon, Inc. (3) | ||
| 10.7 | 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 (4) | ||
| 10.8 | 10.2 | Cancellation Agreement by and among the Registrant and EMS dated as of January 27, 2009 (4) | ||
| 10.9 | 10.3 | Assignment and Assumption Agreement by and among the Registrant, 333 and EMS dated as of January 27, 2009 (4) | ||
| 10.10 | 10.47 | License Agreement, dated January 27, 2009, between the Registrant and I.M. Operating LLC (5) | ||
| 10.11 | 10.1 | License Agreement by and between the Registrant and Burhill LLC (6) | ||
| 10.12 | 10.2 | Scores Holding Company, Inc. 2010 Stock Incentive Plan (6) | ||
| 10.13 | 10.3 | Form of Option Agreement for the 2010 Plan (6) | ||
| 10.14 | 10.4 | Form of Director and Officer Indemnification Agreement (6) | ||
| 21 | 21 | Subsidiary - As of December 31, 2010, we had one subsidiary: Scores Licensing Corp. |
| 31.1 | * | Certification of Principal Executive Officer pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31.2 | * | Certification of Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32.1 | * | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | ||
| 32.2 | * | Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | ||
| 101.INS | ** | XBRL INSTANCE DOCUMENT | ||
| 101.SCH | ** | XBRL TAXONOMY EXTENSION SCHEMA | ||
| 101.CAL | ** | XBRL TAXONOMY EXTENSION CALCULATION DATABSE | ||
| 101.DEF | ** | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | ||
| 101.LAB | ** | XBRL TAXONOMY EXTENSION LABEL LINKBASE | ||
| 101.PRE | ** | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
Exhibit No. | SEC Report Reference Number | Description | ||
| 10.1 | 10.20 | Stock Option Agreement dated October 22, 2002 between the Registrant and Richard Goldring (1) | ||
| 10.2 | 10.21 | Stock Option Agreement dated October 22, 2002 between the Registrant and Elda Auerback (1) | ||
| 10.3 | 10.28 | Sublicense Agreement, dated June 13, 2003, between Entertainment Management Services, Inc. and Stone Park Entertainment (2) |
Exhibit No. | SEC Report Reference Number | Description | ||
| 10.4 | 10.29 | Sublicense Agreement, dated February 27, 2004, between Entertainment Management Services, Inc. and Club 2000 Eastern Avenue, Inc. (2) | ||
10.5 | 10.38 | Sublicense Agreement, dated January 24, 2006, between the Registrant and AYA Entertainment, Inc. (3) | ||
| 10.6 | 10.42 | Sublicense Agreement, dated April 2, 2007, between Entertainment Management Services, Inc. and Silver Bourbon, Inc. (3) |
| 10.7 | 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 (4) | ||
| 10.8 | 10.2 | Cancellation Agreement by and among the Registrant and EMS dated as of January 27, 2009 (4) | ||
| 10.9 | 10.3 | Assignment and Assumption Agreement by and among the Registrant, 333 and EMS dated as of January 27, 2009 (4) | ||
| 10.10 | 10.47 | License Agreement, dated January 27, 2009, between the Registrant and I.M. Operating LLC (5) | ||
| 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 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. |
| (2) | 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. |
| (3) | 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. |
| (4) | Filed with the Securities and Exchange Commission on February 2, 2009 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated February 2, 2009, which exhibit is incorporated herein by reference. |
| (5) | Filed with the Securities and Exchange Commission on April 15, 2009 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, which exhibit is incorporated herein by reference. |
| (6) | Filed with the Securities and Exchange Commission on August 13, 2010 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated August 5, 2010, which exhibit is incorporated herein by reference. |
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:
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 athttp://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: October 23, 2012 | SCORES HOLDING COMPANY, INC. | ||
| By: | /s/Robert M. Gans | ||
| Robert M. Gans | |||
| Chief Executive Officer | |||
| By: | /s/ | Howard Rosenbluth | |
| Howard Rosenbluth | |||
| 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/ | Director | |||
/s/ Howard Rosenbluth | Director | |||
Howard Rosenbluth | ||||
/s/ Martin Gans | Director | |||
Martin Gans |
PART IV – FINANCIAL INFORMATION
Index to Consolidated Financial Statements
| Page | ||
| Report of Independent Registered Public Accounting | Firm | F-2 |
| Consolidated Balance Sheets as of December 31, | 2010 | F-3 |
| Consolidated Statements of Operations for the years ended December 31, | 2010 | F-4 |
| Consolidated Statement of Stockholders’ Equity (Deficit) for the years ended December 31, | 2010 | F-5 |
| Consolidated Statements of Cash Flows for the years ended December 31, | 2010 | F-6 |
| Notes to Consolidated Financial Statements | F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 subsidiariessubsidiary as of December 31, 20092011 and 20082010 and the related consolidated statements of operations, stockholders’ equity,deficit, and cash flows for each of the years ended December 31, 20092011 and 2008.2010. 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, 20092011 and 20082010 and the results of its operations, stockholders’ equitydeficit and cash flows for each of the years ended December 31, 20092011 and 2008,2010, 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, 2009.2011. 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
October 11, 2012
SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2009 | December 31, 2008 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 31,694 | $ | 173 | ||||
| Licensee receivable – including affiliates - net | 26,732 | 13,845 | ||||||
| Total Current Assets | 58,426 | 14,018 | ||||||
| INTANGIBLE ASSETS, NET | 205,428 | 333,332 | ||||||
| $ | 263,854 | $ | 347,350 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 22,091 | $ | 98,826 | ||||
| Bank overdraft | — | 20,982 | ||||||
| Related party payable | 208,583 | 36,000 | ||||||
| Total Current Liabilities | 230,674 | 155,808 | ||||||
| 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 | (6,130,123 | ) | (5,971,761 | ) | ||||
| Total Stockholders’ equity | 33,180 | 191,542 | ||||||
| $ | 263,854 | $ | 347,350 | |||||
| December 31, | December 31, | |||||||
| 2011 | 2010 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 8,930 | $ | 23,748 | ||||
| Licensee receivable - including affiliates- net | 112,561 | 87,731 | ||||||
| Prepaid expenses | 7,324 | 6,342 | ||||||
| Settlement receivable | 125,444 | - | ||||||
| Total Current Assets | 254,259 | 117,821 | ||||||
| NONCURRENT ASSETS: | ||||||||
| Settlement receivable | 294,251 | - | ||||||
| Loan receivable | 30,000 | - | ||||||
| Total Noncurrent Assets | 324,251 | - | ||||||
| INTANGIBLE ASSETS, NET | - | 88,725 | ||||||
| TOTAL ASSETS | $ | 578,510 | $ | 206,546 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 82,956 | $ | 502,353 | ||||
| Related party payable | 284,366 | 304,361 | ||||||
| Deferred revenue | 105,140 | 18,000 | ||||||
| Settlement payable | 156,049 | - | ||||||
| Total Current Liabilities | 628,511 | 824,714 | ||||||
| NONCURRENT LIABILITIES: | ||||||||
| Settlement payable | 354,540 | - | ||||||
| TOTAL LIABILITIES | 983,051 | 824,714 | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred stock, $.0001 par value, 10,000,000 shares authorized, -0- issued and outsatanding | - | - | ||||||
| Common stock, $.001 par value; 500,000,000 shares authorized, 165,186,124 issued and 165,186,124 outstanding, respectively | 165,186 | 165,186 | ||||||
| Additional paid-in capital | 6,028,117 | 5,998,117 | ||||||
| Accumulated deficit | (6,597,844 | ) | (6,781,471 | ) | ||||
| Total stockholder's deficit | (404,541 | ) | (618,168 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 578,510 | $ | 206,546 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, | ||||||||
| 2009 | 2008 | |||||||
| REVENUE | ||||||||
| Royalty | $ | 387,425 | $ | 186,880 | ||||
| Merchandise | — | 375 | ||||||
| Total | 387,425 | 187,255 | ||||||
| COST OF MERCHANDISE SOLD | — | 21,559 | ||||||
| GROSS PROFIT | 387,425 | 165,696 | ||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | 547,223 | 422,873 | ||||||
| LOSS ON IMPAIRMENT OF INTANGIBLE | — | 281,216 | ||||||
| DEBT FORGIVENESS – (RELATED PARTY) | (6,000 | ) | — | |||||
| DEBT FORGIVENESS – (UNRELATED PARTY) | (25,436 | ) | — | |||||
| BAD DEBT EXPENSE (RECOVERY) | 30,000 | (669,515 | ) | |||||
| INCOME (LOSS) FROM OPERATIONS | (158,362 | ) | 131,122 | |||||
| INCOME (LOSS) BEFORE INCOME TAXES | (158,362 | ) | 131,122 | |||||
| PROVISION FOR INCOME TAXES | — | — | ||||||
| NET INCOME (LOSS) | $ | (158,362 | ) | $ | 131,122 | |||
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 | ||||||
| Year Ended December 31, | ||||||||
| 2011 | 2010 | |||||||
| REVENUES | ||||||||
| Royalty Revenue | $ | 629,251 | $ | 514,155 | ||||
| Interest Income | 3,624 | - | ||||||
| Total Revenue | 632,875 | 514,155 | ||||||
| EXPENSES | ||||||||
| General and Administrative Expenses | 889,248 | 1,165,503 | ||||||
| Gain on Settlement | (440,000 | ) | - | |||||
| NET INCOME (LOSS) FROM OPERATIONS | 183,627 | (651,348 | ) | |||||
| NET INCOME (LOSS) BEFORE INCOME TAXES | 183,627 | (651,348 | ) | |||||
| PROVISION FOR INCOME TAXES | - | - | ||||||
| NET INCOME (LOSS) | $ | 183,627 | $ | (651,348 | ) | |||
| NET INCOME (LOSS) PER SHARE-Basic and Diluted | 0.001 | (0.004 | ) | |||||
| WEIGHTED AVERAGE OF COMMOM SHARES OUTSTANDING-Basic and Diluted | 165,186,124 | 165,186,124 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| Common Stock | Additional Paid in | Accumulated | Total Stockholders | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| 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 | ||||||||||||||
| Net loss | (158,362 | ) | (158,362 | ) | ||||||||||||||||
| Balance as of December 31, 2009 | 165,186,124 | $ | 165,186 | $ | 5,998,117 | $ | (6,130,123 | ) | $ | 33,180 | ||||||||||
SCORES HOLDING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2011 and 2010
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid in | Accumulated | Stockholders | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) Equity | ||||||||||||||||
| Balance as of December 31, 2009 | 165,186,124 | $ | 165,186 | $ | 5,998,117 | $ | (6,130,123 | ) | $ | 33,180 | ||||||||||
| Net loss | (651,348 | ) | (651,348 | ) | ||||||||||||||||
| Balance as of December 31, 2010 | 165,186,124 | 165,186 | 5,998,117 | (6,781,471 | ) | (618,168 | ) | |||||||||||||
| Capital Contribution | 30,000 | 30,000 | ||||||||||||||||||
| Net Income | 183,627 | 183,627 | ||||||||||||||||||
| Balance as of December 31, 2011 | 165,186,124 | $ | 165,186 | $ | 6,028,117 | $ | (6,597,844 | ) | $ | (404,541 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSSTATEMENTS OF CASH FLOWS
December 31, 2009 | December 31, 2008 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | (158,362 | ) | $ | 131,122 | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used) in operating activities: | ||||||||
| Amortization | 127,904 | 59,720 | ||||||
| Loss on impairment of intangible | — | 281,216 | ||||||
| Bad debt expense (recovery) | 30,000 | (453,318 | ) | |||||
| Debt forgiveness | (31,436 | ) | — | |||||
| Changes in Assets and Liabilities: | ||||||||
| Licensee receivable | (42,887 | ) | 11,372 | |||||
| Prepaid expenses | — | 1,123 | ||||||
| Inventory | — | 20,700 | ||||||
| Due to EMS | (44,978 | ) | ||||||
| Accounts payable and accrued expenses | (51,299 | ) | (24,139 | ) | ||||
| NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES | (126,080 | ) | (17,182 | ) | ||||
| CASH PROVIDED BY FINANCING ACTIVITIES: | ||||||||
| Related party payable | 178,583 | 16,200 | ||||||
| Repayment of notes payable | — | (20,000 | ) | |||||
| Bank overdraft | (20,982 | ) | 20,982 | |||||
| NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES | 157,601 | 17,182 | ||||||
| NET INCREASE IN CASH | 31,521 | — | ||||||
| Cash and cash equivalents, beginning of the year | 173 | 173 | ||||||
| Cash and cash equivalents, end of the year | $ | 31,694 | $ | 173 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the year for interest | $ | — | $ | — | ||||
| Cash paid during the year for taxes | $ | — | $ | 3,625 | ||||
| Year Ended December 31, | ||||||||
| 2011 | 2010 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (Loss) | $ | 183,627 | $ | (651,348 | ) | |||
| Adjustments to reconcile net loss to net cash provided by (used) in operating activities: | ||||||||
| Amortization | 88,725 | 116,703 | ||||||
| Contributed services | 30,000 | - | ||||||
| Changes in assets and liabilities: | ||||||||
| Licensee receivable | (24,830 | ) | (60,999 | ) | ||||
| Prepaid expenses | (982 | ) | (6,342 | ) | ||||
| Deferred revenue | 87,140 | 18,000 | ||||||
| Accounts payable and accrued expenses | (419,397 | ) | 480,262 | |||||
| Settlement receivable | (125,444 | ) | - | |||||
| Settlement payable | 156,049 | - | ||||||
| NET CASH (USED) IN OPERATING ACTIVITIES | (25,112 | ) | (103,724 | ) | ||||
| CASH PROVIDED BY FINANCING ACTIVITIES: | ||||||||
| Related party payables | (19,995 | ) | 95,778 | |||||
| Settlement receivable | (294,251 | ) | - | |||||
| Loan receivable | (30,000 | ) | - | |||||
| Settlement payable | 354,540 | - | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 10,294 | 95,778 | ||||||
| NET DECREASE IN CASH | (14,818 | ) | (7,946 | ) | ||||
| Cash and cash equivalents - beginning of year | 23,748 | 31,694 | ||||||
| Cash and cash equivalents - end of year | $ | 8,930 | $ | 23,748 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the year for interest | $ | - | $ | - | ||||
| Cash paid for income taxes | $ | 2,296 | $ | 809 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
SCORES HOLDING COMPANY INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 2009
Note 1. Organization
Scores Holding Company, Inc. and subsidiariessubsidiary (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
The Company has incurred cumulative losses totaling $(6,130,123),$(6,597,844) a working capital deficit of $(172,248)$(374,252) and a net operating lossincome of ($158,362)$183,627 at December 31, 2009.2011. Because of these conditions, the Company will require additional working capital to develop business operations. The Company intends to raise additional working capital through the continued licensing of 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 the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated from any future use of licensing, are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not increase its operations.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.subsidiary. 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 when cash may exceed $250,000, the FDIC insured limit.
SCORES HOLDING COMPANY INC. 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 did not record an impairment loss during the year ended DecemberSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 2009; however, the Company believed that the carrying amount of the “Scores” trademark exceeded 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 and Scores West clubs.
Fair Value of Financial Instruments
The Company follows the provisions of ASC 820-10,Fair Value Measurements which defines fair values, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company’sCompany's financial instruments include licensee receivable, accounts payable, accrued expenses and related party payable. Due to the short term maturityThe fair values of theseall financial instruments the fair values were not materially different from their carrying values
Licensee receivable and reserves
Accounts deemed uncollectible are applied against the allowance for doubtful accounts. Allowance for doubtful accounts had a balance of $14,000 and $2,745,084$14,000 for the December 31, 20092011 and 20082010 periods. In reviewing any delinquent royalty or note receivable, the Company considers many factors in estimating its reserve, including historical data, experience, customer types, credit worthiness, financial distress and economic trends. From time to time, the Company may adjust its assumptions for anticipated changes in any of above or other factors expected to affect collectability. The $14,000 outstanding reserve balance is related to our New Orleans licensee. During the 2009 and 2008 periods, cash collected from New Orleans amounted to $25,000 and $18,000 respectively.
Advertising Costs
The costs of advertising are expensed as incurred. The advertising expenses for the years ended December 31, 20092011 and 20082010 are $0 and $10,184$31,846 respectively.
Stock Based Compensation
The Company accounts for the plans under the recognition and measurement provisions of Accounting Standards Codification (ASC) Topic 718Compensation – Stock Compensation. The standard requires entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for the award.
There were no stock options or warrants issued during the above. Theyears ended December 31, 2011 and 2010, hence we have recorded no compensation expense. If the Company recognizeswere to issue equity rights for compensation, then the Company would recognize compensation expense under Topic 718 over the requisite service period using the Black-Scholes model. We have recorded no compensation expense modelfor stock options granted to employees during the year ended December 31, 2009 and 2008.
For the year ended December 31, | ||||||||
| 2009 | 2008 | |||||||
| Risk free interest rate | .47 | % | .37 | % | ||||
| Expected life | 3.5 years | 4.5 years | ||||||
| Dividend rate | 0.00 | % | 0.00 | % | ||||
| Expected volatility | 47 | % | 37 | % | ||||
Revenue recognition
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 SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 2011
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10-25, “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company has a net operating loss carryforward of approximately $6,105,000,$6,280,000, which expire in the years 2015 and 2029.2018 through 2031. The related deferred tax asset of approximately $2,700,000$2,780,000 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.
| 2009 | 2008 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward | $ | 2,700,000 | $ | 2,630,000 | ||||
| Receivable allowance | — | — | ||||||
| Less valuation allowance | (2,700,,000 | ) | (2,630,000 | ) | ||||
| Net deferred tax asset | $ | — | $ | — | ||||
| 2011 | 2010 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward | $ | 2,780,000 | $ | 2,710,000 | ||||
| Temporary – legal accrual | - | 200,000 | ||||||
| Less valuation allowance | (2,780,000 | ) | (2,910,000 | ) | ||||
| 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, 20092011 and 2008,2010, as a result of the following:
| 2009 | 2008 | |||||||
| Tax (benefit) at statutory rate | $ | (54,000 | ) | $ | 46,000 | |||
| State and local taxes | (16,000 | ) | 14,000 | |||||
| Permanent differences | — | (109,000 | ) | |||||
| Change in valuation allowance | (70,000 | ) | 49,000 | |||||
| Tax due | $ | — | $ | — | ||||
| 2011 | 2010 | |||||||
| Tax (benefit) at statutory rate | $ | 62,000 | $ | (221,000 | ) | |||
| State and local taxes | 19,000 | (67,000 | ) | |||||
| Permanent differences | 36,000 | 42,000 | ||||||
| Change in valuation allowance | (117,000 | ) | 246,000 | |||||
| Tax due | $ | - | $ | - | ||||
Loss per Share
Under ASC 260-10-45, “Earnings Per Share”, basic lossincome (loss) per common share is computed by dividing the lossincome (loss) applicable to common stockholders by the weighted average number of common shares assumed to be outstanding during the period of computation. Diluted lossincome (loss) per common share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. There were no common stock equivalents or potentially dilutive securities outstanding during the years ended December 31, 2009 and 2008, respectively. The 85,000 options are not included as their inclusion is anti-dilutive. Accordingly, the weighted average number of common shares outstanding for the years ended December 31, 20092011 and 2008,2010, respectively, is the same for purposes of computing both basic and diluted net income per share for such years.
SCORES HOLDING COMPANY INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 2009
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.
Concentration of Credit Risk
The Company earned royalties and merchandise revenues from fourfive licensees who are unrelated from management of the Company. During the December 31, 20092011 period, revenues earned from royalties and merchandise sales from these unrelated licensees amounted to $232,678$629,251 and there was $21,986$112,561 due and outstanding as of December 31, 2009.2011. The Company’s New York affiliate commenced operations in May 2009 and revenue amounted to $154,747$182,870 during the 20092011 period. The Company’s Baltimore club hadrevenues increase 6% to $142,214 in the 2011 period from $133,751 in the 2010 period and Chicago licensees’ revenues increased 130%by 5% to $105,358$112,168 in the 20092011 period from $45,830$106,987 in the 2008 period for Baltimore and 41% to $87,320 in the 2009 period from $62,118 in the 2008 period Chicago.2010 period. In addition, revenues from the Company’s New Orleans nightclub increased 106%100% to $37,000$120,000 in the 20092011 period from $18,000$60,000 in the 2008. 2010.The Company’s AYA,SMG, 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.
New Accounting Pronouncements
All newly issued but not yet effective accounting pronouncements have been deemed to either be irrelevant or immaterial to the operations and reporting disclosures of the Company.
Note 3. Related-Party Transactions
Transactions with Common ownership affiliates
SCORES HOLDING COMPANY INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 2009
On January 27, 2009, the Company entered into a licensing agreement with its affiliate through common ownership I.M. Operating LLC (“IMO”) for the use of the Scores brand name “Scores New York”. IMO is also owned by Robert M. Gans who is the Company’s majority shareholder. During the 2009 year,years since IMO paid approximately $146,083 infor various administrative costcosts related to accounting, business development, insurance and legal services for the Company.Company, which a portion thereof in the amount of $236,866 remains a payable to this related party. The Companyalso leases office space directly from Westside Realty of New York (WSR), the owner of the West 27thStreet Building. The majority owner of WSR is Robert M. Gans. Between January 1, and March 31, 2009, the monthly rent including overhead was $5,000. Since April 1, 2009, the monthly rent was reduced to $2,500 per month including overhead costs. The Company owed WSR approximately $62,500$47,500 and $52,500 in unpaid rents as of December 31, 2009.2011 and 2010, respectively.
The total amounts due to the various related parties as of December 31, 2011 and 2010 was $284,366 and $304,361, respectively.
A capital contribution has been recorded for personnel services rendered the majority shareholder in the amount of $30,000 for the year 2011.
Note 4. Intangible Assets
Trademark
In connection with the acquisition of HEIR (also known as, Scores Licensing Company)Company (“SLC”) as discussed above, the Company acquired the trademark to the name “SCORES”"SCORES". This trademark had a gross recorded value at December 31, 2008 of $878,318 which was derived fromhad been increased for the initial purchase from HEIRSLC 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 beinghas been completely amortized by straight line method over an estimated useful life of ten years. The Company’sCompany'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 $127,904$88,725 in 20092011 and $59,720$91,703 of amortization expense, in 2008. 2010. As of December 31, 2011 the cost of the trademanrk has been fully amortized.
The Company estimates that amortization expense will be approximately $122,000 per year over the next two years before being completely amortized.
Note 5. Accounts Payable and Accrued Expenses
Accounts payables and accrued expenses as a result, did not recognized any impairment loss; however, during the 2008 period, the Company believed the carrying amountof December 31, 2011 is comprised of miscellaneous accruals and payables of $82,956. Accounts Payable and accrued expenses as of December 31, 2010 is comprised of $450,000 for estimated settlement costs attributed to one of the Trademark exceeded its fair or net present valuelawsuits discussed hereafter, professional fees $18,000 and recognized an impairment lossmiscellaneous accruals and payables of $281,216. This loss was based on the various adverse chains of events and circumstances regarding the closing of our East and Westside affiliated clubs which management believes these conditions may have had an adverse impact on our brand and non-affiliate licensee operations.$34,353.
| F-11 |
SCORES HOLDING COMPANY INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 2009
Stock option plan:The below options are unsubscribed and were granted to our former President, CEO, Director and Secretary in consideration with their employment with the Company. These options were granted by the Board for the optionee to purchase shares of our common stock. These stock options are not “incentive stock options” under Section 422 of the Internal Revenue Code of 1986. The granted options fully vested upon issuance on October 22, 2002 and expire on March 31, 2013.
Stock option activity for the two years ended December 31, 20092011 is summarized as follows:
| Shares | Weighted Average Exercise Price | |||||||
| Outstanding at December 31, 2007 | 85,000 | $ | 2.80 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Expired or cancelled | - | - | ||||||
| Outstanding at December 31, 2008 | 85,000 | 2.80 | ||||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Expired or cancelled | - | - | ||||||
| Outstanding at December 31, 2009 | 85,000 | $ | 2.80 | |||||
| Weighted | ||||||||
| Average | ||||||||
| Shares | Exercise Price | |||||||
| Outstanding at December 31, 2009 | 85,000 | $ | 2.80 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Expired or cancelled | - | - | ||||||
| Outstanding at December 31, 2010 | 85,000 | 2.80 | ||||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Expired or cancelled | - | - | ||||||
| Outstanding at December 31, 2011 | 85,000 | $ | 2.80 | |||||
Weighted-average exercise price of outstanding options $2.80.
All such options are vested and exercisable
The intrinsic value of a stock option/SSAR is the amount by which the market value of the underlying stock exceeds the exercise price of the options/SSAR. The intrinsic value of the options/SSAR exercised in the fiscal years endedas of December 31, 20092011 and 20082010 was $0 and $0 respectively.
Note 7. Commitments and Contingencies
Rent expense for the year ended December 31, 20092011 and 20082010 was $32,500$30,000 and $56,000$30,000 respectively.
SCORES HOLDING COMPANY INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 2011
The Company sub-leased approximately 2,400 square feet ofcurrently leases office space from Go West, for $20,000 on a temporary, month-to-month basis. The building is located at 533-535 West 27th Street, New York, NY. On July 1, 2008 the Company canceled its monthly sub-lease with Go West and leased the same premises for $5,000 per month including overhead costs, with Westside Realty of New York which as of January 27, 2009 is owned and operated by Robert Gans our majority shareholder. shareholder, for $2,500 a month.
On April 1, 2009, our monthly rent including overhead costMarch 22, 2010, Russell Whelchel, and on March 16, 2011, Charles Braden, who performed work as hair and makeup stylists at the Scores New York nightclub located at 536 West 28th Street, New York, NY, each filed a civil lawsuit against the Company in the S.D.N.Y. seeking to recover under federal and New York labor laws minimum wages, unlawful deductions, misappropriated gratuities and other wages, with interest, for the period of their “employment” with Scores New York. Joseph Bovine filed a similar action against the Company in November 2011. Although the Company disputed that it was reduced from $5,000an employer of the plaintiffs and denied all allegations, it settled these matters pursuant to $2,500.
In mid-March 2010, the Company was named by Nichole Hughes in a complaint filed with the Supreme CourtSCNY. Ms Hughes is suing the Company for an unspecified amount of the State of New York, County of New York (the “SCNY”)damages in connection with an alleged assaultunauthorized use of her image in the Company’s advertising materials. On June 20, 2010, the Company filed a pre-answer motion to dismiss the complaint, which was denied on the plaintiff byDecember 17, 2010. The Company then filed an agentanswer and affirmative defenses and a third party complaint against IMO, owner and operator of the Company’s New York affiliated club.club where Ms. Hughes was employed. Plaintiff’s counsel has moved to be relieved and, once that motion is settled, the Company expects to file for summary judgment. The Company has not yet answered this complaint but will vigorously defend itself in this litigation and does not expect that the outcome will be material.
On September 5, 2008, Ruth Fowler, a former cocktail waitress at Scores West, filed a civil lawsuit against the Company in the Federal District Court for the Southern District of New York (the “Court”). The plaintiff is seeking to recover damages for alleged illegal deductions take from her salary and monies due her and for sexual harassment under the New York City and New York State Human Rights Laws. On May 7, 2009, the Company filed a motion to dismiss the action against it but that motion was denied by the Court with possible leave to renew the motion at a future date after the completion of discovery proceedings. In the meanwhile, counsel for plaintiff filed an amended complaint on February 26, 2010 to add as additional parties to the action Go West and EMS. On March 1, 2010, the Company filed affirmative defenses and an amended response asserting cross-claims for judgment against both Go West and EMS. The case has been placed inOn September 13, 2010, the hands of a magistrate judgeSDNY denied plaintiff’s application for further discovery and on October 18, 2010, the Company has served various discovery demandsfiled a motion to dismiss, which have not been responded to as of yet by counsel for the plaintiff. Although the outcome of this action is uncertain, the Company believes that any outcome will not have a material effect on it, since the plaintiff was only employed by Scores West for less than four months.
In early March 2008, the Company received notice that DIF&B, owner of the Las Vegas club, would be canceling its sublicense with EMS effective on or before May 6, 2008. We wereThe Company was notified that DIF&B would be making final royalty payments to EMS totaling $60,000 at the rate of $10,000 per week starting the first week of March 2008. The Las Vegas club ceased operating and, as of December 31, 2008, EMS had received only one such $10,000 payment from DIF&B. EMS commenced an action against DIF&B and filed a complaint and affidavit of service with the SCNY, on July 23, 2008. DIF&B was required to file an answer by August 23, 2008, but did not do so. As a result, EMS filed an application for a default judgment and the SCNY appointed a referee to determine damages. The referee determined that damages in the amount of $216,000, with interest, should be paid to EMS and a default judgment totaling $230,557 was entered by the Clerk of the SCNY. The Company will attempt to collect on the judgment andthis judgment. The Company will be entitled to all monies so collected, pursuant to the Assignment Agreement with EMS and 333.
SCORES HOLDING COMPANY INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 2011
On December 11, 2007, Francis Vargas, a former cocktail waitress at Scores West located in New York, NY, filed a civil lawsuit against usthe Company and Go West in the SCNY, alleging violations of the New York State Human Rights Law, New York Executive Law, New York City Human Rights Law, and the New York City Administrative Code, based upon allegations of sexual discrimination and sexual harassment. The lawsuit further alleges that at all material times both wethe Company and Go West were employers of Ms. Vargas, the plaintiff. The law suit seeks unspecified compensatory damages for plaintiff’s alleged loss of past and future earnings and benefits, emotional distress, humiliation and loss of reputation. We disputeThe Company disputes that we wereit was an employer of the plaintiff and categorically denydenies all allegations of sexual discrimination and sexual harassment. WeThe Company filed ourits 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 areit is currently engaged in discovery. On April 18, 2008, co-defendant Go West filed for bankruptcy and the case was stayed. On July 23, 2009, the bankruptcy petition was dismissedand,dismissed and, as a result, the automatic stay has beenwas lifted.
On March 30, 2007, we,the Company, along with several of ourits affiliates, were named in a suit in connection with an alleged assault by an employee of an affiliate and one of ourthe Company’s stockholders and former officer and director. We have recently answered a third amended complaint and participatedThis matter was settled for $8,500 on February 28, 2012 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.
There are no other material legal proceedings pending to which wethe Company or any of ourits property areis subject, nor to our knowledge are any such proceedings threatened.
Note 8. SUBSEQUENT EVENTS
We have evaluated for disclosure purposes, the subsequent events through April 13, 2010.events.
| F-14 |