UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended June 30, 2008
Or
o
TRANSITION
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period from ____________ to ________________
Commission
file number 000-16665
SCORES
HOLDING COMPANY, INC.
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(Exact
name of small business issuer as specified in its
charter)
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Utah
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87-0426358
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(State
or other jurisdiction of
incorporation or
organization)
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(IRS
Employer
Identification No.)
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533-535
West 27
th
Street, New York, NY 10001
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(Address
of principal executive offices)
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(212)
868-4900
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(Registrant’s
telephone number, including area
code)
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Indicate
whether the issuer (1) has filed all reports required to be filed by Section
13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
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Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting company
þ
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(Do
not check if a smaller
Reporting
company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2). Yes
o
No
x
As
of
August 15, 2008 there were 165,186,124 shares of the issuer’s common stock, par
value $0.001, issued and outstanding.
SCORES
HOLDING COMPANY, INC.
JUNE
30, 2008 QUARTERLY REPORT ON FORM 10-Q
TABLE
OF CONTENTS
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PAGE
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Special
Note Regarding Forward Looking Information
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3
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PART
I - FINANCIAL INFORMATION
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Item
1.
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Financial
Statements
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4
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Item
4T
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Controls
and Procedures
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21
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PART
II - OTHER INFORMATION
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Item
1.
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Legal
Proceedings
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22
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Item
6.
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Exhibits
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25
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except
for historical information, this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E
of the Securities Exchange Act of 1934. Such forward-looking statements involve
risks and uncertainties, including, among other things, statements regarding
our
business strategy, future revenues and anticipated costs and expenses. Such
forward-looking statements include, among others, those statements including
the
words “expects,” “anticipates,” “intends,” “believes” and similar language. Our
actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”. You
should carefully review the risks described in the documents we file from time
to time with the Securities and Exchange Commission (the “SEC”). You are
cautioned not to place undue reliance on the forward-looking statements, which
speak only as of the date of this report. We undertake no obligation to publicly
release any revisions to the forward-looking statements or reflect events or
circumstances after the date of this document.
PART
1 - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
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PAGE
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Consolidated
Balance Sheets as of June 30, 2008 (Unaudited) and
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December
31, 2007
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5
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Consolidated
Statements of Operations for the three and six months
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ended
June 30, 2008 and June 30, 2007 (Unaudited)
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6
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Consolidated
Statements of Cash Flows for the six months
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ended
June 30, 2008 and June 30, 2007 (Unaudited)
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7
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Notes
to Consolidated Financial Statements (Unaudited)
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8
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SCORES
HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
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June
30,
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December
31,
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2008
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2007
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(Unaudited)
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(Audited)
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ASSETS
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CURRENT
ASSETS:
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Cash
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$
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173
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$
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173
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Licensee
receivable - including affiliates - net
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16,612
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25,217
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Prepaid
expenses and other
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—
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1,123
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Inventory
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20,700
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20,700
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Total
current Assets
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37,485
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47,213
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INTANGIBLE
ASSETS, NET
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191,090
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220,950
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$
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228,575
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$
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268,163
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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CURRENT
LIABILITIES:
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Accounts
payable and accrued expenses
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$
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107,644
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$
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126,965
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Related
party payable
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15,800
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15,800
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Notes
payable - Current
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—
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20,000
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Due
to EMS - related party
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97,290
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44,978
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Total
Current Liabilities
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220,734
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207,743
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COMMITMENTS
& CONTINGENCIES
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—
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—
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STOCKHOLDERS'
EQUITY
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Preferred
stock, $.0001 par value, 10,000,000 shares authorized, -0- issued
and
outstanding
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—
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—
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Common
stock, $.001 par value; 500,000,000 shares authorized, 165,186,124
and
165,186,124 issued and outstanding, respectively
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165,186
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165,186
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Additional
paid-in capital
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5,998,117
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5,998,117
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Accumulated
deficit
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(6,155,462
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(6,102,883
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Total
stockholder's equity
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7,841
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60,420
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$
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228,575
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$
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268,163
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See
Notes
to the Consolidated Financial Statements
SCORES
HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
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Six
months ended June 30,
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Three
months ended June 30,
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2008
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2007
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2008
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2007
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(Unaudited)
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(Unaudited)
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(Unaudited)
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(Unaudited)
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REVENUES
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Royalty
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$
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123,456
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$
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255,123
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$
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35,079
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$
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100,919
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Merchandise
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3,428
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12,525
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482
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2,567
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Public
relations
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—
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6,000
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—
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3,000
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Total
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126,884
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273,648
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35,561
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106,486
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COST
OF MERCHANDISE SOLD
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1,090
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9,840
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373
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1,648
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GROSS
PROFIT
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125,794
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263,808
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35,188
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104,838
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GENERAL
AND ADMINISTRATIVE EXPENSES
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174,748
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480,236
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108,944
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238,107
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NET
(LOSS) FROM OPERATIONS
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(48,954
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(216,428
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(73,756
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(133,269
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NET
(LOSS) BEFORE INCOME TAXES
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(48,954
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(216,428
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(73,756
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(133,269
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PROVISION
FOR INCOME TAXES
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3,625
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—
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3,625
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—
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NET
(LOSS)
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$
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(52,579
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)
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$
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(216,428
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)
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$
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(77,380
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)
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$
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(133,269
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NET
(LOSS) PER SHARE -
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Basic
and Diluted
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$
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(0.00
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$
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(0.00
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$
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(0.00
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$
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(0.00
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)
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WEIGHTED
AVERAGE OF COMMON SHARES OUTSTANDING - Basic and diluted
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165,186,124
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165,186,124
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165,186,124
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165,186,124
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See
Notes
to the Consolidated Financial Statements
SCORES
HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
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Six
months ended June 30,
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2008
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2007
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(Unaudited)
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(Unaudited)
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
(Loss)
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$
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(52,579
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)
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$
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(216,428
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)
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Adjustments
to reconcile net loss to net cash provided by (used) in operating
activities:
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Depreciation
& Amortization
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29,860
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29,861
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Royalty
receivable
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8,605
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8,980
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Prepaid
expenses
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1,123
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67,849
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Inventory
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—
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461
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Security
deposits
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—
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(7,000
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)
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Due
to EMS
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52,313
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—
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Accounts
payable and accrued expenses
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(19,322
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)
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(74,207
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NET
CASH (USED IN) OPERATING ACTIVITIES
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20,000
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(190,484
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)
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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NET
CASH PROVIDED BY INVESTING ACTIVITIES
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—
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—
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Related
party payable
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—
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6,200
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Repayment
of notes payable
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(20,000
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)
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(46,875
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)
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NET
CASH (USED IN) FINANCING ACTIVITIES
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(
20,000
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)
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(40,675
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)
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NET
INCREASE (DECREASE) IN CASH
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—
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(231,159
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)
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CASH,
beginning of the period
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173
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231,332
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CASH,
end of the period
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$
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173
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$
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173
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Supplemental
disclosures of cash flow information:
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Cash
paid during the year for interest
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$
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—
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$
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—
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Cash
paid for income taxes
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3,625
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—
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Non
cash financing activities:
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None
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See
Notes
to the Consolidated Financial Statements
SCORES
HOLDING COMPANY INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1:
Basis of Presentation
The
accompanying unaudited consolidated financial statements of Scores Holding
Company Inc., formerly Internet Advisory Corporation (the "Company”) have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Regulation S-K. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals)
have
been included. The preparation of financial statements in conformity with
generally accepted accounting principles 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. Operating
results expected for the three and six months ended June 30, 2008 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2008. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB
for
the year ended December 31, 2007.
Note
2:
Summary of Significant Accounting Principles
Fair
Value of Financial Instruments
The
carrying amounts reported on the balance sheets for cash, accounts payable,
accrued expenses, licensee receivable and notes payable approximate fair value
based on the short-term maturity of these instruments
Inventory
Inventory
consists primarily of finished goods and is valued at the lower of cost or
market on a first-in first-out "FIFO" basis. In performing our cost valuation,
we consider the condition and salability of our inventory and may adjust the
valuation due to anticipated changes that may materially affect its
basis.
Concentration
of Credit Risk
During
the second quarter 2008 (the “current 2008 period”), the Company earned
royalties and merchandise revenues from sub-licensees of which, five (Chicago,
Las Vegas, Baltimore, AYA and New Orleans) are unrelated to former management
of
the Company. For the three months ended June 30, 2008, royalties earned from
these unrelated licensees amounted to $35,079 of which $16,612 is due and
outstanding as of June 30, 2008.
At
December 31, 2007, Scores East owed us $1,230,263 in unpaid royalties and Scores
West owed us $293,946. Scores West also borrowed $1,636,264 from the company,
issuing a 7% promissory note which is in default. At June 30, 2008, $1,867,310
(including $355,189 of accrued interest) remained due under the loan. Scores
West had its liquor license revoked by the State Liquor Authority and
subsequently filed for bankruptcy on April 18, 2008. Scores West discontinued
operations on April 22, 2008 and is currently closed.
A
reserve
for the entire $1,524,602 and $1,867,310 was provided for due to the unstable
financial conditions, bankruptcy, and government nuisance matters relating
to
Scores West and the NYSLA matter relating to Scores East. In addition, any
future cash received from these affiliates will result to a reversal of bad
debt
expense in the period collected. Also, until financial stability and collection
of these receivables can be reasonably assured by management, the Company has
suspended, for book purposes, all future recognition of royalties and interest
income due by these affiliates. The Company is currently conducting an
examination of the books and records of these affiliates.
During
the current period 2008, the Company, for reporting purposes did not report
revenues from affiliates due to provisions made on these royalties in the 2006
period.
New
Accounting Pronouncements
All
new
accounting pronouncements issued but not yet effective have been deemed to
be
not applicable to the Company, hence the adoption of these new accounting
pronouncements once effective is not expected to have any impact on the
Company.
Note
3 -
Related party Receivable
Go
West
Entertainment, Inc.
Since
2007, the Company has had a temporary month to month occupancy with Go West
Entertainment, Inc., “Go West”. The former President, Chief Executive Officer
and Director of the Company is also one of the two shareholders of Go West.
The
other shareholder of Go West is a former Secretary and Director of the Company.
The Company issues Go West a monthly credit of approximately $5,000 towards
its
outstanding royalty balance for its rent.
"Unwinding"
transaction and Master License Agreement
Immediately
after the closing of our transfer of Go West in 2003, we entered into a Master
License Agreement (the "Master License") with EMS. The Master License grants
to
EMS the exclusive worldwide license to use and to grant sublicenses to use
the
"SCORES" trademarks in connection with the ownership and operation of upscale,
adult-entertainment cabaret night clubs/restaurants and for the sale of
merchandise by such establishments. Merchandise must relate to the nightclub
that sells it, and may be sold at the nightclub, on an internet site maintained
by the nightclub, by mail order and by catalogue. The term of the Master License
is twenty year with the option to renew the Master License for six consecutive
five-year terms.
Under
the
Master License, EMS is required to pay the Company 100% (one hundred) percent
of
all royalties earned and received from clubs that are under common ownership
with us (affiliates) and 50% (fifty) percent of royalties earned and received
from those clubs which are not (non affiliates). Although the Master License
requires that EMS charge a royalty fee equal to 4.99% of a sub-licensee’s gross
revenues, the Company has agreed, however, that in certain situations, EMS
can
execute an agreement that may be less restrictive than the 4.99% minimum.
Pursuant
to the Master License, the EMS is obligated to remit 50% (percent) of all cash
collected from non affiliates to the Company. The Company owed approximately
$44,978 and $97,290 to EMS to help cover minor shortfalls in cash flow during
the December 31, 2007 and June 30, 2008 periods. We believe EMS, which is
affiliated by common ownership with Scores East and Scores West, will elect
to
have the amounts owed applied to either the Scores East or Scores West
outstanding royalty balance owed to the Company.
The
Company applied $22,534 ($7,534 in cash and $15,000 in credit towards rent)
to
the Go West receivable which was reversed from bad debt expense, and received
$7,288 in cash from Scores East during the quarter ending June 30, 2008.
At
June
30, 2008, included in net royalty receivable are $1,222,975 and $231,818 due
from Scores East and West, which both are partially owned and operated by a
former President and Chief Executive Officer and another former officer of
the
Company. Such receivables from Scores West and Scores East have been fully
reserved. Any future cash received from these affiliates will result to a
reversal of bad debt in the period collected. Also, unless financial stability
and collection of these receivables can be reasonably assured by management,
the
Company will continue to suspend, for book purposes, all future recognition
of
royalties and interest income due by these affiliates. The Company is currently
conducting an examination of the books and records of these
affiliates.
Note
4 -
Sub-licensees
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. To date,
EMS
has received only one such $10,000 payment from DIF&B and is pursuing its
available remedies. EMS commenced an action against DIF&B and filed a
complaint and affidavit of service with the courts in Nevada on July 23, 2008.
DIF&B is required to file an answer by August 23, 2008. The complaint filed
by EMS claims breach of contract and seeks damages in the amount of $150,000.
We
may not receive all royalties due from EMS with respect to the Las Vegas club
sublicense if EMS is not able to collect all payments due from DIF&B. The
Las Vegas club accounted for 0% and 59% of our total royalty revenues in the
second quarter of 2008 and 2007, respectively.
During
the current period 2008, the Company, for reporting purposes did not report
revenues from our Las Vegas sub licensee.
Note
5 -
Commitments and Contingencies
As
a
result of the settlement agreement entered into in September 2006 between the
Company and affiliated parties and Scores Entertainment Inc. (“SEI”) and Irving
Bilzinsky (“Bilzinsky”) the Company is obligated to pay Bilzinsky, as sole
shareholder of SEI, $175,000 in 18 monthly installments, which commenced on
September 24, 2006, of $9,375 for each of the first 8 months and $10,000 for
each of the remaining 10 months. This amount is included in notes payable.
As of
June 30, 2008, the note has been fully paid.
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. As of August 15, 2008, the Las Vegas club is still operating but
EMS
has 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
courts in Nevada on July 23, 2008. DIF&B is required to file an answer by
August 23, 2008. The complaint filed by EMS claims breach of contract and seeks
damages in the amount of $150,000.
On
December 11, 2007, Francis Vargas, a former cocktail waitress at Scores West
located in New York, NY, filed a civil lawsuit against us and Go West in the
Supreme Court of the State of New York, County of New York, alleging violations
of the New York State Human Rights Law, New York Executive Law, New York City
Human Rights Law, and the New York City Administrative Code, based upon
allegations of sexual discrimination and sexual harassment. The lawsuit further
alleges that at all material times both we and Go West were employers of Ms.
Vargas, the plaintiff. The law suit seeks unspecified compensatory damages
for
plaintiff’s alleged loss of past and future earnings and benefits, emotional
distress, humiliation and loss of reputation. We dispute that we were an
employer of the plaintiff and categorically deny all allegations of sexual
discrimination and sexual harassment. We filed our verified answer in the
Supreme Court of the State of New York on February 12, 2008 to contest and
defend against these accusations and we are currently engaged in discovery.
On
April 18, 2008, co-defendant Go West filed for bankruptcy and the case is
currently stayed.
On
October 9, 2007, former Go West bartender Siri Diaz filed a purported class
action and collective action on behalf of all tipped employees against the
Company and other defendants alleging violations of federal and state wage/hour
laws (Siri Diaz et al. v. Scores Holding Company, Inc.; Go West Entertainment,
Inc. a/k/a Scores West Side; and Scores Entertainment, Inc., a/k/a Scores East
Side, Case No. 07 Civ. 8718 (Southern District of New York, Judge Richard M.
Berman)). On November 6, 2007, plaintiffs served an amended purported class
action and collective action complaint, naming dancers and servers as additional
plaintiffs and alleging the same violations of federal and state wage/hour
laws.
On or about February 21, 2008, plaintiffs served a second amended complaint
adding two additional party defendants, but limiting the action to persons
employed in the New York Scores’ clubs. The amended complaint alleges that we
and the other defendants are “an integrated enterprise” and that we jointly
employ the plaintiffs, subjecting all of the defendants to liability for the
alleged wage/hour violations. We dispute that we violated the federal and state
labor laws, and further dispute that the dancers are “employees” subject to the
federal and state wage and hour laws. We intend to vigorously contest the
claimed liability as well as the violations alleged.
On
April
18, 2008, co-defendant Go West filed for bankruptcy.
On
behalf
of ourselves and the other defendants we filed a motion to dismiss that portion
of the Complaint as asserted State law class action allegations; we also moved
to dismiss the claims of two of the named plaintiffs for failure to appear
for
depositions. At the same time plaintiffs moved for conditional certification
under the federal law for a class of the servers, bartenders and dancers; we
opposed that motion. On May 9, 2008, the Court issued its decision, denying
the
motion to dismiss and granting conditional certification for a class of servers,
cocktail waitresses, bartenders and dancers who have worked at Scores East
since
October 2004. The case is stayed as against Go West pursuant to the bankruptcy
law. The Court directed that notice be sent to all potential class members.
On
May 29, 2008, we filed an answer to plaintiffs’ second amended complaint.
Discovery into both the procedural and substantive issues is ongoing, with
a
deadline of December 31, 2008 for all remaining discovery.
On
March
30, 2007, we, along with several of our affiliates, were named in a suit in
connection with an alleged assault by an employee of an affiliate and one of
our
stockholders and former officer and director. We have recently answered a third
amended complaint and participated in a Preliminary Conference to establish
the
discovery schedule. Examinations before trial of the plaintiff have been
completed and have been scheduled for the defendants and must be completed
by
September 28, 2008. We will vigorously defend ourselves in this litigation
and
do not expect the outcome will be material.
In
February 2007, the City of New York (the “City”) sought to close Scores West
claiming that it presented a public nuisance. The City alleged that this
nightclub was used for purposes of prostitution; the case was dismissed by
the
City of New York and no charges were sought against Scores West or us. In
February, 2007, the New York State Liquor Authority (the “NYSLA”) began a review
of the license held by Scores West and issued an Emergency Summary Order of
Suspension of the Scores West liquor license on February 21, 2007. Go West,
the
owner of Scores West, filed a pleading with the NYSLA on behalf of Scores West.
After a temporary adjournment and a series of hearings in front of an
administrative law judge, on February 4, 2008, this judge sustained all charges
against Scores West. A NYSLA hearing was held on March 6, 2008 and the NYSLA
revoked the Scores West Liquor license. On March 18, 2008, the New York State
Appellate Division, First Department (the “Appellate Court”) granted an interim
stay of the liquor license revocation pending a review by the full bench of
the
Appellate Court. On April 15, 2008 the Appellate Court decided to deny a further
stay of the March 2008 revocation by the NYSLA of the Scores West liquor
license. Go West filed with the Appellate Court for a reconsideration of its
decision, which was denied. As a result of this outcome, Scores West has closed.
The Appellate Court has decided to hear this case on the merits and oral
arguments will be presented on September 3, 2008.
On
May 2,
2008, the NYSLA gave notice of its pleading to 333 East, the owner of Scores
East, in connection with its proceeding to cancel or revoke the liquor license
of Scores East, based on its revocation of the Scores West liquor license.
(Scores West and Scores East are related by common ownership.) On July 2, 2008,
the NYSLA gave 333 East a notice of hearing set for August 19, 2008. This
hearing has been adjourned and a new hearing date has not yet been set.
On
December 11, 2006, our affiliated club in North Miami, Florida, SMG
Entertainment, Inc. (“SMG”), filed for bankruptcy with the United States
Bankruptcy Court for the Southern District of New York. In connection therewith,
it terminated its license agreement with EMS whereby it was authorized to use
our intellectual property. At the time of its filing, SMG owed us $16,611 for
unpaid merchandise, which we subsequently reserved as bad debt.
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 resolves the DA's investigation
against Mr. Goldring and us. No charges were brought against us.
Pursuant
to a plea agreement between Richard Goldring and the District Attorney of the
County of New York, the District Attorney has extended the deadline for Mr.
Goldring to divest himself of a control ownership position in us until September
8, 2008. If Mr. Goldring were to attempt to sell his ownership position on
the
open market, it could depress the market price of our common stock.
In
June
2005, we, together with several of our affiliates, commenced litigation
regarding title to certain of our intellectual property. In February 2006,
counterclaims were asserted and other persons brought third party complaints.
In
September 2006, we and our affiliates reached a settlement resolving all claims
against us for a payment of $175,000 made in monthly installments. In return,
the other parties in the litigation disclaimed any right to our intellectual
property.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
We
were
incorporated in Utah on September 21, 1981 under the name Adonis Energy, Inc.
We
are now in the business of sublicensing the “Scores” trademarks and other
intellectual property to fine gentlemen’s nightclubs with adult entertainment in
the United States through our affiliate by common ownership, Entertainment
Management Services, Inc., an entity owned by two of our former directors and
employees ("EMS"), to whom we have given an exclusive, worldwide license to
the
“Scores” trademarks and the other related intellectual property. Pursuant to our
license with EMS, which has been amended and restated (the “EMS Agreement”), we
granted to EMS the right to sublicense the Scores trade name to nightclubs.
These clubs feature topless female entertainers together with opportunities
for
watching sporting events, celebrating business transactions and private parties.
There are four such clubs currently operating, one in New York City, and one
in
each of Baltimore, Chicago and New Orleans. Two additional clubs, in Los Angeles
and Philadelphia, have signed licensing agreements with EMS but have not yet
begun operations.
We
are
affiliated through common ownership with two nightclubs in New York, New York
(“Scores East” and “Scores West”) which are owned, respectively, by 333 East
60th Street, Inc. (“333 East”), and Go West Entertainment, Inc. (“Go West”).
Through EMS, we have sublicense agreements with each of these clubs pursuant
to
which they use the Scores intellectual property. Throughout this report, we
refer to Scores East and Scores West as our affiliated clubs. All
other clubs are referred to as non-affiliated clubs or as sublicensees, a term
that may include the affiliated clubs when the context requires. Due to the
revocation of its liquor license by the NYSLA (defined below), Scores West
is
currently closed. See Part II, Item 1 - Legal Proceedings below, for a further
discussion of this matter.
Three
and
six months ended June 30, 2008 compared to the three and six months ended June
30, 2007.
Results
of Operations
We
recognize revenues as they are earned, not as they are collected.
Three
Months Ended June 30, 2008 Compared
to
Three Months Ended June 30, 2007
Revenues:
Royalty
revenues decreased sixty six percent (66%) to $35,079 for the second quarter
of
2008 from $100,919 for the second quarter of 2007. This decrease was
attributable primarily to the following factors:
|
|
·
|
In
prior years, we retained 100 percent of all royalty revenues generated
by
all sublicensees; however, beginning with the first quarter of 2007,
fifty
percent (50%) of royalty revenues generated by non-affiliate clubs,
approximately $34,279 for the second quarter of 2008, were retained
by EMS
pursuant to the terms of EMS Agreement.
|
|
|
·
|
During
the second quarter of 2008, we recorded no royalty revenue from our
affiliated clubs (see Bad Debt Expense below). Royalty revenues for
the
second quarter of 2008 for the non-affiliate clubs in Chicago, Baltimore
and New Orleans accounted for 43%, 38%, and 17%, respectively. The
Los
Angeles club has not begun operations due to its inability to obtain
a
liquor license and the Philadelphia club has not begun operations
due to
zoning issues which have not yet been
resolved.
|
In
early
March 2008, we received notice that D.I. Food and Beverage of Las Vegas
(“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. As of August 15, 2008,
the Las Vegas club is still operating but EMS has received only one such $10,000
payment from DIF&B. EMS is pursuing its available remedies. (See Part II,
Item 1 below.) We may not receive all royalties due from EMS with respect to
the
Las Vegas club sublicense if EMS is not able to collect all payments due from
DIF&B and, to take this into account, the Company reserved approximately
$21,000 of unpaid royalties during the second quarter 2008. The Las Vegas club
accounted for 0% and 59% of our total royalty revenues in the second quarter
of
2008 and the second quarter of 2007, respectively.
During
the second quarter of 2008, we did not report revenues with respect to our
Las
Vegas club sublicensee.
Merchandise
revenues decreased during the second quarter of 2008 to $482 from $2,567 during
the second quarter of 2007. This decrease was due to economic increases in
shipping costs which made our sublicensees purchase the Scores branded products
from local manufacturers without the shipping cost.
On
January 24, 2006, we licensed AYA International, Inc. (“AYA”) the right to use
our trademarks in connection with its online video chat website,
“Scoreslive.com”. In January 2007, AYA’s website began operations and, for the
second quarter of 2008, generated gross revenues of more than $5,000 per month
resulting in minimal royalties to us. We believe that the Scoreslive.com website
is still developmental and will continue to generate minimal revenues for us
during the rest of 2008.
General
and Administrative Expenses:
General
and administrative expenses decreased during the second quarter of 2008 to
$108,944 from $238,107 during the second quarter of 2007. Because 50 percent
of
our second quarter of 2008 revenues (approximately $34,279) was retained by
EMS
as a result of changes in conditions under the EMS Agreement, we reduced our
rent, salaries, legal and business development costs by approximately $84,000
in
the second quarter of 2008 from the second quarter of 2007. This figure
represents a 2008 period shift away from administrative expenses as we continue
our plans to reach alternative markets.
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 for the second quarter of 2008.
Net
(Loss):
Net
(Loss) was $(77,380) or $(0.00) per share for the second quarter of 2008
compared to a net loss of $(133,269) or $(0.00) per share for the second quarter
of 2007. This decrease for the second quarter of 2008 is a result of
administrative cost reductions made by the Company (rent, salaries, legal and
business development) of approximately $84,000 during the second quarter of
2008. The Company instituted these reductions as a result of the retention
by
EMS in accordance with the EMS Agreement of fifty percent (50%) of the royalties
from our non-affiliated clubs (approximately $34,279 in the second quarter
of
2008).
Net
(Loss) per share data for both the 2008 and 2007 periods is based on net income
available to common shareholders divided by the weighted average of the common
shares.
Six
Months Ended June 30, 2008 Compared
to
Six Months Ended June 30, 2007
Revenues:
Revenues
decreased fifty three percent (53%) to $123,456 for the six months ended June
30, 2008 from $255,123 for the second quarter of 2007. This decrease was
attributable primarily to the following factors:
|
|
·
|
In
prior years, we retained 100 percent of all royalty revenues generated
by
all sublicensees; however, beginning with the first quarter of 2007,
fifty
percent (50%) of royalty revenues generated by non-affiliate clubs,
approximately $120,523 for the six months ended June 30, 2008, were
retained by EMS pursuant to the terms of EMS Agreement.
|
|
|
·
|
During
the six months ended June 30, 2008, we recorded no royalty revenue
from
our affiliated sub licensees (see Bad Debt Expense below). Royalty
revenues for the six months ended June 30, 2008 for the non-affiliate
clubs in Las Vegas, Chicago, Baltimore and New Orleans accounted
for 44%,
23%, 21% and less than 10%, respectively. The Los Angeles club has
not
begun operations due to its inability to obtain a liquor license
and the
Philadelphia club has not begun operations due to zoning issues which
have
not yet been resolved.
|
As
discussed above, to date, EMS has received only one $10,000 payment from
DIF&B in connection with its closing of the Las Vegas club. The Las Vegas
club accounted for 44% and 59% of our total royalty revenues for the six months
ended June 30, 2008 and the six months ended June 30, 2007, respectively. During
the second quarter of 2008, we did not report revenues from our Las Vegas
sublicensee.
Merchandise
revenues decreased during the six months ended June 30, 2008 to $3,428 from
$12,525 during the six months ended June 30, 2007. This decrease was primarily
due to increases in shipping costs and our sublicensees’ purchasing our branded
products from local manufacturers at lower cost.
General
and Administrative Expenses:
General
and administrative expenses decreased during the six months ended June 30,
2008
to $174,748 from $480,236 during the six months ended June 30, 2007. Because
50
percent of our six months ended June 30, 2008 revenues (approximately $120,523)
were retained by EMS as a result of changes in conditions under the EMS
Agreement, we reduced our rent, salaries, legal and business development costs
by approximately $165,000 in the six months ended June 30, 2008 from the six
months ended June 30, 2007. This figure represents a six months ended June
30,
2008 shift away from administrative expenses as we continue with our plans
to
reach alterative markets.
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 for the six months ended June
30, 2008.
Net
(Loss):
Net
(Loss) was $(52,579) or $(0.00) per share for the six months ended June 30,
2008
compared to a Net (Loss) of $(216,428) or $(0.00) per share for the six months
ended June 30, 2007. This decrease for the six months ended June 30, 2008 is
a
result of administrative cost reductions made by the Company (rent, salaries,
legal and business development) of approximately $165,000 for the six months
ended June 30, 2008. The Company instituted these reductions as a result of
the
retention by EMS in accordance with the EMS Agreement of fifty percent (50%)
of
the royalties from our non-affiliated clubs (approximately $120,523 during
the
six months ended June 30, 2008).
Net
(Loss) per share data for both the six months ended June 30, 2008 and for the
six months ended June 30, 2007 is based on net income available to common
shareholders divided by the weighted average of the common shares.
Bad
Debt Expense
During
the fourth quarter 2006, the Company made significant provisions for bad debts
in the amount of $3,391,126 applicable to amounts owed us by the respective
owners of Scores East and Scores West. As of June 30, 2008, Scores East and
Scores West owed us (indirectly, through EMS) $1,222,975 and $231,818,
respectively, in accrued and unpaid royalties. The owners of both of these
affiliated clubs have informed us that their ability to make payments on the
amounts owed is impaired due to increased legal costs incurred during
investigations by the City (defined below) and the NYSLA, together with revenue
shortfalls. Due to the revocation of its liquor license by the NYSLA, Scores
West is currently closed and has filed for Chapter 11 bankruptcy. We have
concluded that if Go West’s continuing appeal efforts fail to reverse the NYSLA
revocation of the Scores West liquor license, we will not be able to collect
from Scores West any of the royalties currently owed to us. Additionally, Scores
East’s ability to pay us royalties would be negatively impacted if the NYSLA is
successful in its proceedings (begun in May 2, 2008) to revoke that club’s
liquor license due to the common ownership of both of these clubs. See Part
II,
Item 1 - Legal Proceedings below, for a further discussion of this matter.
In
connection with our divestiture of stock of Go West and its construction of
Scores West, we loaned Go West $1,636,264 in return for a note (the “Note”)
secured by Go West’s leasehold interest on a building at 533-535 West 27th
Street, New York, New York. The Note bears interest at 7% and is scheduled
for
maturity on October 1, 2008. Go West is currently in default under the Note,
and
as of June 30, 2008 owed us $1,867,310 which includes accrued interest of
$355,189. As of June 30, 2008, we continued to carry the $1,867,310 of this
amount as an impaired note for the six months ended June 30, 2008, we have
forgone accruing any interest on the Note.
Any
cash
received from these clubs (Scores East and Scores West) is applied as a reversal
of the bad debt expense when received. For the six months ended June 30, 2008,
we applied approximately $62,128 ($30,000 rent credit and $32,128 in cash)
towards the Scores West and $7,288 in cash towards the Scores East outstanding
royalty balances. A reverse of bad debt expense was made to reflect these
amounts. We did not collect any cash on the Note during the second quarter
of
2008 and the six months ended June 30, 2008. We have temporarily suspended
the
recognition of royalties due from Scores West and Scores East and interest
earned on the Note until financial stability of these clubs can be reasonably
assured.
Currently,
we are undertaking an examination of the books and records of Scores West and
Scores East to assist us in measuring our ability to collect on all outstanding
royalties due and on the Note.
Liquidity
and Capital Resources
Cash:
At
June
30, 2008, we had $173 in cash and cash equivalents compared to $173 in cash
and
cash equivalents at June 30, 2007.
Contractual
Commitments:
On
February 28, 2007, our then President, Chief Executive Officer and Director,
Richard Goldring resigned from each of those positions, and terminated his
employment with us under an employment agreement, dated April 16, 2003. The
terms of such agreement provided that if Mr. Goldring terminated his employment
without cause (which he did), we would become obligated to pay him $1 million.
We had $173 in cash available at June 30, 2008. Given our lack of available
cash
to make such payment, we are currently in negotiations with Mr. Goldring
regarding the terms of our payment to him.
In
2006,
we reserved a bad debt expense of approximately $3.4 million in recognition
of
the impaired ability of Go West and 333 East 60th Street, Inc. to pay royalties
due us with respect to the Scores West and Scores East clubs, and Go West's
impaired ability to make payments under the Note. See Part I, Item 2 - Bad
Debt
Expense.
Operating
Activities
:
Net
cash
provided by operating activities for the six months ended June 30, 2008 and
June
30, 2007 was $20,000 and ($190,484), respectively. The increase in cash provided
by operating activities for the six months ended June 30, 2008 compared to
the
same period last year primarily reflects the reduction in spending due to the
fifty (50) percent retention of cash received from non affiliated sublicensees
by EMS.
Scores
West accounted for 0% of our net cash provided by operating activities during
both the six months ended June 30, 2008 and the six months ended June 30, 2007.
In March 2008, the NYSLA revoked the Scores West liquor license, the Appellate
Court did not extend its interim stay of that revocation and the club has
closed. (See Part II, Item 1 - Legal Proceedings.) As of June 30, 2008, Scores
West owed us $231,818 in unpaid royalties. If Scores West loses its liquor
license permanently and remains closed, it will not be able to pay us any
royalty income.
Our
other
affiliated club, Scores East, accounted for 0% of our net cash provided by
operating activities in both the six months ended June 30, 2008 and the six
months ended June 30, 2007. At June 30, 2008, Scores East owed us $1,222,975
in
royalties. We did not receive any royalty payments from Scores East in the
six
months ended June 30, 2008. If Scores West loses its liquor license permanently
and remains closed, most likely, due to common ownership of these two clubs,
Scores East will also lose its liquor license and would not be able to pay
us
any royalty income.
Financing
Activities:
As
discussed above, we loaned Go West $1,636,264 in return for the Note. We did
not
receive any interest payments on the Note during the six months ended June
30,
2008. If Scores West remains closed permanently, it will not be able to make
any
payments to us under the Note.
Future
Capital Requirements:
We
have
incurred losses since the inception of our business. Since our inception, we
have been dependent on acquisitions and funding from private lenders and
investors to conduct operations. As of June 30, 2008 we had an accumulated
deficit of $(6,155,462). As of June 30, 2008, we had total current assets of
$37,485 and total current liabilities of $220,734 or negative working capital
of
$(183,249). As of June 30, 2007, we had total current assets of $47,213 and
total current liabilities of $207,743 or negative working capital of $(160,530).
The decrease in the amount of our working capital was primarily attributable
to
our inability to collect on the outstanding receivables due from our Score
East
and Scores West affiliates due to the City proceedings and the pending NYSLA
matters with Scores West and Scores East and the 50 percent retention of cash
received from non affiliated clubs by EMS.
Due
to
the revocation of its liquor license by the NYSLA, Scores West is currently
closed. If Go West’s continuing appeal efforts fail to reverse the NYSLA
revocation of the Scores West liquor license and, if the Score East license
is
revoked as a result of the NYSLA’s proceedings against Scores East due to the
common ownership of both of these clubs, operations at Scores East will, most
likely, terminate as well and cash from these clubs to extinguish the
receivables balance will not be available for payment to us. Given our lack
of
cash, we were able to control our outstanding debt during the second quarter
of
2008 and the six months ended June 30, 2008 by continuing to maintain
significant reductions in our administrative costs.
We
will
continue to evaluate possible acquisitions of or investments in businesses,
products and technologies that are complimentary to ours. These may require
the
use of cash, which would require us to seek financing. We may sell equity or
debt securities or seek credit facilities to fund acquisition-related or other
business costs. Sales of equity or convertible debt securities would result
in
additional dilution to our stockholders. We may also need to raise additional
funds in order to support more rapid expansion, develop new or enhanced services
or products, respond to competitive pressures, or take advantage of
unanticipated opportunities. Our future liquidity and capital requirements
will
depend upon numerous factors, including the success of our adult entertainment
trademark licensing business.
ITEM
4T. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
.
We
maintain “disclosure controls and procedures” as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating
our disclosure controls and procedures, our management recognized that
disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of
disclosure controls and procedures are met. Additionally, in designing
disclosure controls and procedures, our management necessarily was required
to
apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures is also based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed
in
achieving its stated goals under all potential future conditions.
Our
management, including our Chief Executive Officer and our Treasurer who serves
as our principal financial and accounting officer, have evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based on such evaluation, and as discussed in
greater detail below, our Chief Executive Officer and Treasurer have concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were not effective:
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to
give reasonable assurance that the information required to be disclosed
by
us in reports that we file under the Securities Exchange Act of 1934
is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms, and
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·
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to
ensure that information required to be disclosed in the reports that
we
file or submit under the Securities Exchange Act of 1934 is accumulated
and communicated to our management, including our CEO and our Treasurer,
to allow timely decisions regarding required disclosure.
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During
the analysis of our internal controls at December 31, 2007 in connection with
our implementation of Section 404 of the Sarbanes-Oxley Act of 2002, we
identified a number of controls, the adoption of which are material to our
internal control environment and critical to providing reasonable assurance
that
any potential errors could be detected. Our analysis identified control
deficiencies related to our recordation of inventory, accounts payable, notes
payable/debentures, prepaid expenses and unique or one time or first time
transactions. While we have taken certain remedial steps during the six months
ended June 30, 2008 to correct these control deficiencies, we have an inadequate
number personnel with the requisite expertise in generally accepted accounting
principles to ensure the proper application thereof. Due to the nature of these
material weaknesses in our internal control over financial reporting, there
is
more than a remote likelihood that misstatements which could be material to
our
annual or interim financial statements could occur that would not be prevented
or detected.
Changes
in Internal Control over Financial Reporting
.
There
have been no changes in our internal control over financial reporting during
our
last fiscal quarter that have materially affected, or are reasonably likely
to
materially affect, our internal control over financial reporting.
PART
II
ITEM
1. LEGAL PROCEEDINGS
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. As of August 15, 2008, the Las Vegas club is still operating but
EMS
has 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
courts in Nevada on July 23, 2008. DIF&B is required to file an answer by
August 23, 2008. The complaint filed by EMS claims breach of contract and seeks
damages in the amount of $150,000.
On
December 11, 2007, Francis Vargas, a former cocktail waitress at Scores West
located in New York, NY, filed a civil lawsuit against us and Go West in the
Supreme Court of the State of New York, County of New York, alleging violations
of the New York State Human Rights Law, New York Executive Law, New York City
Human Rights Law, and the New York City Administrative Code, based upon
allegations of sexual discrimination and sexual harassment. The lawsuit further
alleges that at all material times both we and Go West were employers of Ms.
Vargas, the plaintiff. The law suit seeks unspecified compensatory damages
for
plaintiff’s alleged loss of past and future earnings and benefits, emotional
distress, humiliation and loss of reputation. We dispute that we were an
employer of the plaintiff and categorically deny all allegations of sexual
discrimination and sexual harassment. We filed our verified answer in the
Supreme Court of the State of New York on February 12, 2008 to contest and
defend against these accusations and we are currently engaged in discovery.
On
April 18, 2008, co-defendant Go West filed for bankruptcy and the case is
currently stayed.
On
October 9, 2007, former Go West bartender Siri Diaz filed a purported class
action and collective action on behalf of all tipped employees against us and
other defendants alleging violations of federal and state wage/hour laws
(
Siri
Diaz et al. v. Scores Holding Company, Inc.; Go West Entertainment, Inc. a/k/a
Scores West Side; and Scores Entertainment, Inc., a/k/a Scores East
Side
,
Case
No. 07 Civ. 8718 (Southern District of New York (the “Court”), Judge Richard M.
Berman)). On November 6, 2007, plaintiffs served an amended purported class
action and collective action complaint, naming dancers and servers as additional
plaintiffs and alleging the same violations of federal and state wage/hour
laws.
On or about February 21, 2008, plaintiffs served a second amended complaint
adding two additional party defendants, but limiting the action to persons
employed in the New York Scores’ clubs. The amended complaint alleges that we
and the other defendants are “an integrated enterprise” and that we jointly
employ the plaintiffs, subjecting all of the defendants to liability for the
alleged wage/hour violations. We dispute that we violated the federal and state
labor laws, and further dispute that the dancers are “employees” subject to the
federal and state wage and hour laws. We intend to vigorously contest the
claimed liability as well as the violations alleged.
On
April
18, 2008, co-defendant Go West filed for bankruptcy.
On
behalf
of ourselves and the other defendants we filed a motion to dismiss that portion
of the Complaint as asserted State law class action allegations; we also moved
to dismiss the claims of two of the named plaintiffs for failure to appear
for
depositions. At the same time plaintiffs moved for conditional certification
under the federal law for a class of the servers, bartenders and dancers; we
opposed that motion. On May 9, 2008, the Court issued its decision, denying
the
motion to dismiss and granting conditional certification for a class of servers,
cocktail waitresses, bartenders and dancers who have worked at Scores East
since
October 2004. The case is stayed as against Go West pursuant to the bankruptcy
law. The Court directed that notice be sent to all potential class members.
On
May 29, 2008, we filed an answer to plaintiffs’ second amended complaint.
Discovery into both the procedural and substantive issues is ongoing, with
a
deadline of December 31, 2008 for all remaining discovery.
In
February 2007, the City of New York (the “City”) sought to close Scores West
claiming that it presented a public nuisance. The City alleged that this
nightclub was used for purposes of prostitution; the case was dismissed by
the
City of New York and no charges were sought against Scores West or us. In
February, 2007, the New York State Liquor Authority (the “NYSLA”) began a review
of the license held by Scores West and issued an Emergency Summary Order of
Suspension of the Scores West liquor license on February 21, 2007. Go West,
the
owner of Scores West, filed a pleading with the NYSLA on behalf of Scores West.
After a temporary adjournment and a series of hearings in front of an
administrative law judge, on February 4, 2008, this judge sustained all charges
against Scores West. A NYSLA hearing was held on March 6, 2008 and the NYSLA
revoked the Scores West Liquor license. On March 18, 2008, the New York State
Appellate Division, First Department (the “Appellate Court”) granted an interim
stay of the liquor license revocation pending a review by the full bench of
the
Appellate Court. On April 15, 2008 the Appellate Court decided to deny a further
stay of the March 2008 revocation by the NYSLA of the Scores West liquor
license. Go West filed with the Appellate Court for a reconsideration of its
decision, which was denied. As a result of this outcome, Scores West has closed.
The Appellate Court has decided to hear this case on the merits and oral
arguments will be presented on September 3, 2008. Go West will continue to
appeal the NYSLA's revocation of the Scores West liquor license.
On
April
18, 2008, Go West filed a voluntary petition for bankruptcy with the U.S.
Bankruptcy Court, Southern District of New York (the “Bankruptcy Court”), under
Chapter 11 of the U.S. Bankruptcy Code. This filing followed a decision the
April 15, 2008 Appellate Court decision to deny a further stay of the March
2008
revocation by the NYSLA of the Scores West liquor license. As of the date
hereof, an Official Committee of Unsecured Creditors has not been formed nor
has
a Trustee or Examiner been appointed in this case. Go West’s bankruptcy case is
pending in the Bankruptcy Court, Case No. 08-11420. The United States Trustee
in
this case has filed a motion seeking the dismissal or conversion of Go West’s
Chapter 11 case as Go West is no longer operating. The motion was scheduled
to
be heard before the Bankruptcy Court on July 22, 2008 however the hearings
on
the said motion was adjourned on consent of all parties and is scheduled to
be
heard on September 9, 2008.
If
Scores
West permanently loses its liquor license and closes its business, we would
no
longer be able to receive royalty revenues from that club, which in 2006,
amounted to 31% of our royalties. (We did not receive any revenue from Scores
West in 2007 or through the six months ended June 30, 2008.) Also, if Scores
West were to close, the ability of Go West to make payments under the Note
would
be severely impaired. The Note is currently in default. See Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Bad
Debt Expense.
On
May 2,
2008, the NYSLA gave notice of its pleading to 333 East, the owner of Scores
East, in connection with its proceeding to cancel or revoke the liquor license
of Scores East, based on its revocation of the Scores West liquor license.
(Scores West and Scores East are related by common ownership.) On July 2, 2008,
the NYSLA gave 333 East a notice of hearing set for August 19, 2008. This
hearing has been adjourned and a new hearing date has not yet been set. 333
East
will defend fully its right to maintain the Scores East liquor license. If
Scores East loses its liquor license and closes its business, we would no longer
be able to receive royalty revenues from that club, which in 2006, amounted
to
28% of our royalties. (We did not receive any revenue from Scores East in 2007
or in the six months ended June 30, 2008).
On
March
30, 2007, we, along with several of our affiliates, were named in a suit in
connection with an alleged assault by an employee of an affiliate and one of
our
stockholders and former officer and director. We have recently answered a third
amended complaint and participated in a Preliminary Conference to establish
the
discovery schedule. Examinations before trial of the plaintiff have been
completed and have been scheduled for the defendants and must be completed
by
September 28, 2008. We will vigorously defend ourselves in this litigation
and
do not expect the outcome will be material.
On
December 11, 2006, our affiliated club in North Miami, Florida, SMG
Entertainment, Inc. (“SMG”), filed for bankruptcy with the United States
Bankruptcy Court for the Southern District of New York. In connection therewith,
it terminated its license agreement with EMS whereby it was authorized to use
our intellectual property. At the time of its filing, SMG owed us $16,611 for
unpaid merchandise, which we subsequently reserved as bad debt.
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 resolves the DA's investigation
against Mr. Goldring and us. No charges were brought against us.
Pursuant
to a plea agreement between Richard Goldring and the District Attorney of the
County of New York, the District Attorney has extended the deadline for Mr.
Goldring to divest himself of a control ownership position in us until September
8, 2008. If Mr. Goldring were to attempt to sell his ownership position on
the
open market, it could depress the market price of our common stock.
In
June
2005, we, together with several of our affiliates, commenced litigation
regarding title to certain of our intellectual property. In February 2006,
counterclaims were asserted and other persons brought third party complaints.
In
September 2006, we and our affiliates reached a settlement resolving all claims
against us for a payment of $175,000 made in monthly installments. In return,
the other parties in the litigation disclaimed any right to our intellectual
property. Final payment on this settlement was made on June 1,
2008.
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
6. EXHIBITS
(a)
Exhibits.
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Exhibit
No.
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Description
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31.1/31.2
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Rule
13(a)-14(a)/15(d)-14(a) Certification of Principal Executive and
Principal
Financial Officer
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32.1/32.2
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Rule
1350 Certification of Chief Executive and Chief Financial Officer
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SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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SCORES
HOLDING
COMPANY, INC.
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Dated:
August 19, 2008
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By:
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/s/
Curtis Smith
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Curtis
Smith
Principal
Executive Officer
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Scores (CE) (USOTC:SCRH)
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