UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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: September 30, 2012

 

Or

 

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

 

For the transition period from         to  

 

Commission File Number: 000-16665

 

SCORES HOLDING COMPANY, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Utah		87-0426358
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

533-535 West 27th Street, New York, NY		10001
(Address of principal executive offices)		(Zip Code)

 

	212-864-4900
	(Registrant’s telephone number, including area code)

 

N/A

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

Indicate by check mark whether the registrant (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 (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  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No x

 

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer   ¨	Accelerated filer   ¨
Non-accelerated filer   ¨	Smaller reporting company   x
(Do not check if a smaller reporting company)

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

As of June 30, 2013, there were 165,186,124 shares of common stock, $0.001 par value per share, outstanding.

 

    

TABLE OF CONTENTS

 

	PART I-Financial Information
Item 1.	Financial Statements (unaudited)	F-1
	Condensed Consolidated Balance Sheets	F-1
	Condensed Consolidated Statements of Operations	F-2
	Condensed Consolidated Statements of Cash Flows	F-3
	Notes to Condensed Consolidated Financial Statements	F-4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5
Item 4.	Controls and Procedures	5
	PART II-Other Information
Item 1.	Legal Proceedings	5
Item 1A.	Risk Factors	6
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6
Item 3	Defaults Upon Senior Securities	6
Item 4	Mine Safety Disclosure	6
Item 5.	Other Information	6
Item 6.	Exhibits	6

  

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
		September 30,				December 31,
		2012				2011
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	36,720			$	8,930
Licensee  receivable - including affiliates- net			95,638				112,561
Prepaid expenses			13,724				7,324
Settlement receivable			130,227				125,444
Total Current Assets			276,309				254,259
Settlement receivable			195,974				294,251
Loan receivable			31,144				30,000
TOTAL ASSETS		$	503,427			$	578,510
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	51,428			$	82,956
Related party payable			256,144				284,366
Deferred revenue			-				105,140
Settlement payable			183,876				156,049
Total Current Liabilities			491,448				628,511
Settlement payable			236,127				354,540
Loan Payable			31,144				-
TOTAL LIABILITIES			758,719				983,051
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			6,050,617				6,028,117
Accumulated deficit			(6,471,095	)			(6,597,844	)
Total stockholder's Deficit			(255,292	)			(404,541	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	503,427			$	578,510

 

See notes to condensed consolidated financial statements.

 

 

 

SCORES HOLDING COMPANY, INC. AND SUBSIDIARY

CONDEDNSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2012				2011				2012				2011
REVENUES
Royalty Revenue		$	181,774			$	204,748			$	513,873			$	469,537
Total Revenue			181,774				204,748				513,873				469,537
EXPENSES
General and Administrative Expenses			112,856				208,083				403,898				537,207
NET INCOME (LOSS) FROM OPERATIONS			68,918				(3,335	)			109,975				(67,670	)
OTHER INCOME/(EXPENSE)
Interest Income/(Expense), net			(1,078	)			-				(3,226	)			-
Licensee Forfieture Income			-				-				20,000				-
TOTAL OTHER INCOME			(1,078	)			0				16,774				0
NET INCOME (LOSS) BEFORE INCOME TAXES			67,840				(3,335	)			126,749				(67,670	)
PROVISION FOR INCOME TAXES			-				-				-				-
NET INCOME (LOSS)		$	67,840			$	(3,335	)		$	126,749			$	(67,670	)
NET INCOME (LOSS) PER SHARE-Basic and Diluted			0.000				(0.000	)			0.001				(0.000	)
WEIGHTED AVERAGE OF COMMOM SHARES OUTSTANDING-Basic and Diluted			165,186,124				165,186,124				165,186,124				165,186,124

 

See notes to condensed consolidated financial statements.

 

   

SCORES HOLDING COMPANY INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
		Nine Months Ended
		September 30,
		2012				2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)		$	126,749			$	(67,670	)
Adjustments to reconcile net loss to net cash provided by (used) in operating activities:
Amortization			-				88,725
Contributed services			22,500				-
Changes in assets and liabilities:
Licensee receivable			16,923				14,512
Prepaid expenses			(6,400	)			(7,424	)
Deferred revenue			(105,140	)			24,073
Accounts payable and accrued expenses			(31,528	)			(12,043	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			23,104				40,173
CASH FLOW FROM FINANCING ACTIVITIES:
Related party payables			(28,222	)			(27,495	)
Settlement receivable			93,494				-
Loan receivable			(1,144	)			-
Settlement payable			(90,586	)			-
Loan payable			31,144				-
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES			4,686				(27,495	)
NET INCREASE IN CASH			27,790				12,678
Cash and cash equivalents - beginning of year			8,930				23,748
Cash and cash equivalents - end of year		$	36,720			$	36,426
Supplemental disclosures of cash flow information:
Cash paid during the year for interest		$	12,076			$	492
Cash paid for income taxes		$	-			$	1,284

 

See notes to condensed consolidated financial statements.

 

 

Scores Holding Co., Inc. and Subsidiary

Notes To Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1. Organization

 

Basis for presentation

 

Scores Holding Company, Inc. and subsidiary (the “Company”) is a Utah corporation, formed in September 1981 and is located in New York, NY. Originally known as Adonis Energy, Inc., the Company adopted its current name in July 2002. The Company is a licensing company that exploits the “SCORES” name and trademark for franchising and other licensing options.

 

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

 

Our condensed consolidated financial statements include our accounts, as well as those of our wholly-owned subsidiary.  Certain prior period amounts have been reclassified to conform to the current period presentation. Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnote disclosures required by U.S. GAAP for complete financial statements.  The condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the condensed consolidated results of operations and financial position for the interim periods presented.  All such adjustments are of a normal recurring nature.  These unaudited condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The results of operations for the nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 31, 2012.

 

Note 2. Summary of Significant Accounting Principles

 

Going Concern

 

The Company has incurred cumulative losses totaling $(6,471,095), a working capital deficit of $(215,139) and net income of $126,749 for the nine months ended September 30, 2012.  Because of these conditions, the Company will require additional working capital to develop business operations. The Company intends to raise additional working capital through the continued licensing of its brand with its current and new operators and to take on operations in larger cities with greater demand for our product through acquisitions.   There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated from any future use of licensing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company.  If adequate working capital is not available, the Company may not continue 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.

 

Concentration of Credit Risk

 

The Company earned royalties and merchandise revenues from four licensees who are unrelated to management of the Company. During the nine months ended September 30, 2012, revenues earned from royalties from these unrelated licensees amounted to $358,010 and there was $109,638 due and outstanding as of September 30, 2012.  The Company’s related New York affiliate commenced operations in May 2009 and revenue amounted to $155,862 during the nine month 2012 period; there was $-0- due and outstanding as of September 30, 2012.

 

During the nine month 2012 and 2011 periods our Baltimore licensee accounted for 20% and 23% and our Chicago licensee accounted for 18% and 18% of our total revenues, respectively.   Our New Orleans licensee accounted for 18% and 19% and our Tampa licensee accounted for 13% and 12% of our total revenues for the nine month periods ended 2012 and 2011 respectively.  Our related New York licensee accounted for 30% and 28% of our total revenues for the nine month periods ended 2012 and 2011 respectively. The Company’s Swan Media Group, Inc., Scoreslive.com licensee website went live during 2011 and began accruing royalties in the second quarter 2012. The Scoreslive.com licensee accounts for 1% and 0% of our total revenues for the nine months ended 2012 and 2011 respectively.

 

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.

 

Principles of consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned 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.

 

Income (Loss) Per Share

 

Net income (loss) per share data for both the 2012 period and the 2011 period are based on net income (loss) available to common shareholders divided by the weighted average of the number of common shares outstanding.  Outstanding stock options are not part of this basis as the exercise price exceeds the tradable value of the underlying stock.

 

Fair Value of Financial Instruments

 

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

 

New Accounting Pronouncements

 

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

 

Note 3. Related-Party Transactions

 

Transactions with Common ownership affiliates

 

On January 27, 2009, the Company entered into a licensing agreement with its affiliate through common ownership I.M. Operating LLC (“IMO”) for the use of the Scores brand name “Scores New York”.  Robert M. Gans is the majority owner of IMO and is also the Company’s majority shareholder.  IMO paid for various years of administrative costs related to accounting, business development, insurance and legal services for the Company, which a portion thereof in the amount of $186,144 and $236,866 remains a payable to this related party as of September 30, 2012 and December 31, 2011, respectively.  The Company also leases office space directly from Westside Realty of New York, Inc. (“WSR”), the owner of the West 27^th Street Building.  The majority owner of WSR is Robert M. Gans.  Between January 1, and March 31, 2009, the monthly rent including overhead was $5,000, since April 1, 2009, the monthly rent was reduced to $2,500 per month.  The Company owed WSR $70,000 and $47,500 in unpaid rents as of September 30, 2012 and December 31, 2011, respectively.

 

Note 4.   Intangible Assets

 

Trademark

 

In connection with the acquisition of SLC, the Company acquired the trademark to the name “SCORES”. This trademark had a net recorded value at September 30, 2012 of $ -0-. This trademark has been registered in the United States, Canada, Japan and the European Community. The trademark is being amortized by straight line methods over an estimated useful life of ten years. The Company’s trademark having an infinite useful life by its definition is being amortized over ten years due to the difficult New York legal environment for which the related showcase adult club is operating.  The Company recorded $ -0- and $88,725 of amortization expense, for the nine month periods ended September 30, 2012 and 2011, respectively. This intangible asset was fully amortized as of September 30, 2011.

 

Note 5. Licensees

 

The Company has five license agreements which were obtained between 2003 and 2010; Stone Park Entertainment Group, Inc. known as “Scores Chicago”, Club 2000 Eastern Avenue Inc. known as “Scores Baltimore”, Silver Bourbon, Inc., I.M Operating LLC known as “IMO” and Tampa Food and Entertainment Inc.

 

“IMO’s” members are our majority shareholder, Robert M. Gans, and Secretary and Board of Director, Howard Rosenbluth hence making “IMO” a related party. The building occupied by IMO is owned by Westside Realty of New York Inc., of which the majority owner is Robert M. Gans. The club accounted for 30% and 28% of our royalty revenues during the first nine months of 2012 and 2011, respectively.

 

Note 6. Settlement/Note Receivables

 

On September 26, 2011, the Company, Richard Goldring and Elliot Osher (Goldring and Osher were formerly two of the Company’s principal shareholders) (collectively the “Defendants”) and Sari Diaz et al. (the “Plaintiffs”) entered into a Court approved Joint Stipulation of Settlement and Release (the “Settlement Agreement”) relating to a purported class action and collective action on behalf of all tipped employees filed by Plaintiffs, pursuant to which Defendants agreed to make a settlement payment of $450,000 to resolve and settle awards to Plaintiffs and related Plaintiffs’ attorneys’ fees. Additionally, the Defendants agreed to pay the employer portion of payroll taxes on approximately $300,000 in distributions, approximately $15,600.

 

In a settlement payment agreement among the Company, Goldring and Osher, the Company agreed to advance all of the Defendants’ obligations under the Settlement Agreement and to pay $64,500 of Goldring’s and Osher’s legal fees to their designated attorney. In consideration for the Company’s payment of these obligations, Goldring and Osher agreed, jointly and severally, to pay the Company $440,000 plus interest at the rate of 5% per annum on the unpaid balance of such amount, in 40 equal monthly payments of $11,965 per month. To secure his obligations under this agreement, Goldring agreed to assign to the Company a portion of his interests in a promissory note dated September 14, 2009 in the principal amount of $2,400,000 made by a third party to Goldring (the “Note”) and to grant the Company a security interest in the Note, which will remain in effect until his obligations under this settlement payment agreement are paid in full. As of September 30, 2012, the settlement receivable is $326,201.

 

On December 29, 2011 the Company entered into a Promissory Note with Goldring for $30,000 plus interest at the rate of 5% per annum on the unpaid balance. To secure his obligations under this agreement, Goldring agreed to assign to the Company a portion of his interests in a promissory note dated September 14, 2009 in the principal amount of $2,400,000 made by a third party to Goldring (the “Note”) and to grant the Company a security interest in the Note, which will remain in effect until his obligations under this settlement payment agreement are paid in full. Three payments of $11,965 are due beginning March 2015. As of September 30, 2012, this promissory note balance is $31,144.

 

Note 7. Settlement/Note Payable

 

As discussed in the Note regarding the settlement receivable it should be noted that Mr. Gans (the Company’s Chief Executive Officer and majority stockholder) advanced $560,151 to settle the Sari Diaz et. al. litigation and fund the $30,000 loan to Mr. Goldring. As of September 30, 2012 $451,147 is outstanding.

 

Note 8. Commitments and Contingencies

 

The Company currently leases office space from the Westside Realty of New York which is owned and operated by Robert Gans our majority shareholder, for $2,500 a month.

 

On June 14, 2011, Christina Maldonado, a former front door receptionist/coat checker at Scores New York, located in New York NY filed a civil lawsuit against the Company and IMO alleging violations of Title V11 of the Civil Rights Act, New York State Human Rights Law, New York Executive Law, New York City Human Rights Law and the New York City Administrative Code, based on allegations of sexual discrimination and sexual harassment. The lawsuit further alleges that both the Company and IMO were her employers. The lawsuit seeks unspecified damages for alleged loss of past and future earnings and emotional distress and humiliation. The Company disputes that that it was an employer of the plaintiff and categorically denies all allegations of sexual discrimination and sexual harassment. The Company responded to the complaint and later filed an amended complaint and asserted a cross claim against IMO. The Company is vigorously defending itself in this litigation and does not expect that the outcome will be material.

 

On 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 28^th 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 an employer of the plaintiffs and denied all allegations, it settled these matters pursuant to a settlement and release agreement dated February 21, 2012. These matters were settled out of court and the Company was not required to make any payment pursuant to the terms of the settlement and release agreement.

 

 

In mid-March 2010, the Company was named by Nichole Hughes in a complaint filed with the SCNY. Ms Hughes sued the Company for an unspecified amount of damages in connection with an alleged unauthorized use of her image in the Company’s advertising materials. On June 20, 2010, the Company filed a pre-answer motion to dismiss the complaint, which was denied on December 17, 2010. The Company then filed an answer and affirmative defenses and a third party complaint against IMO, owner and operator of the club where Ms. Hughes was employed. Plaintiff’s counsel was granted leave by the court to withdraw from representation in January 2013. Plaintiff failed to appoint new counsel or further participate in the case and the case was dismissed on May 20, 2013.

 

On December 11, 2007, Francis Vargas, a former cocktail waitress at Scores West located in New York, NY, filed a civil lawsuit against the Company and Go West in the SCNY, alleging violations of the New York State Human Rights Law, New York Executive Law, New York City Human Rights Law, and the New York City Administrative Code, based upon allegations of sexual discrimination and sexual harassment. The lawsuit further alleges that at all material times both the Company and Go West were employers of Ms. Vargas, the plaintiff. The law suit seeks unspecified compensatory damages for plaintiff’s alleged loss of past and future earnings and benefits, emotional distress, humiliation and loss of reputation. The Company disputes that it was an employer of the plaintiff and categorically denies all allegations of sexual discrimination and sexual harassment. The Company filed its verified answer in the Supreme Court of the State of New York on February 12, 2008 to contest and defend against these accusations. On April 18, 2008, co-defendant Go West filed for bankruptcy and the case was stayed. On July 23, 2009, the bankruptcy petition was dismissed and, as a result, the automatic stay was lifted. The Company subsequently filed an amended response asserting cross-claims for judgment against both Go West and the Company’s former affiliate, Entertainment Management Services, Inc. ("EMS"), an entity owned by two of the Company’s former directors and employees. After engaging in discovery and other pre-trial activities the two sides agreed to a confidential settlement and the case has been dismissed. The settlement does not have a material outcome on the business of the Company.

 

On March 30, 2007, the Company, along with several of its affiliates, was named in a suit in connection with an alleged assault by an employee of an affiliate and one of the Company’s stockholders and former officer and director. This matter was settled for $8,500 on February 28, 2012 in Kings County Supreme Court. This matter was settled out of court and the Company was not required to make any payment pursuant to the terms of the settlement and release agreement.

 

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

 

Note 9. SUBSEQUENT EVENTS

 

On June 14, 2013, Elizabeth Shiflett, a former cocktail waitress, filed a civil lawsuit against the Company in the S.D.N.Y. alleging violations of Title VII of the Civil Rights Act of 1964 (“Title VII”), as amended, the New York State Human Rights Law (“NYSHRL”) and the New York City Human Rights Law (“NYCHRL”) based upon allegations of sexual discrimination, creating a hostile work environment based upon plaintiff’s sex and race and unlawful retaliation against plaintiff. The lawsuit further alleges that at all material times the Company was the employer of the plaintiff. The lawsuit had been preceded by a Determination of the U.S. Equal Employment Opportunity Commission (the “EEOC”) on January 25, 2013 that there was reasonable cause to believe that the Company had violated Title VII as a result of the complained-of conduct. The lawsuit seeks a declaratory judgment that the practices complained of violated Title VII, the NYSHRL and the NYCHRL, an injunction enjoining the Company from engaging in future unlawful acts of discrimination, harassment and retaliation, unspecified compensatory damages for plaintiff’s alleged loss of past and future earnings, emotional distress, humiliation and loss of reputation, punitive damages as a result of the Company’s alleged disregard of plaintiff’s protected civil rights, and attorneys’ fees and costs. The Company disputes that it was an employer of the plaintiff and categorically denies all allegations of sexual discrimination, sexual and racial harassment and retaliation. The Company will vigorously defend itself in this litigation and does not expect that the outcome will be material.

 

On March 14, 2013 Miki Yamada, a former bartender at the Scores New York nightclub located at 536 West 28^th Street, New York, NY filed charges against the Company and IMO with the EEOC claiming violations of Title VII based upon alleged sexual harassment, discrimination based on gender and unlawful retaliation. Ms. Yamada also delivered a draft civil complaint to the Company containing similar allegations. Although the Company disputed the issues of liability and damages asserted by Ms. Yamada, the Company and the other respondents settled these matters for a payment of $90,000 to Ms. Yamada pursuant to a settlement and release agreement dated April 30, 2013. These matters were settled out of court.

  

Management evaluated subsequent events through the date of this filing and determined that no additional events have occurred that would require adjustment to or disclosure in the financial statements.

  

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Scores Holding Company, Inc. (‘Scores,” the “Company,” “we,” “us” or “our”) was incorporated in Utah on September 21, 1981 under the name Adonis Energy, Inc. We adopted our current name in July 2002. Since 2003, we have been in the business of licensing the “Scores” trademarks and other intellectual property to fine gentlemen’s nightclubs with adult entertainment in the United States.  There are five such clubs currently operating under the Scores name, in New York, Baltimore, Chicago, Tampa and New Orleans.

 

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

 

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

 

Results of Operations

 

Three Months Ended September 30, 2012 (“the 2012 three month period”) Compared to Three Months Ended September 30, 2011 (“the 2011 three month period”).

 

Revenues:

 

Revenues decreased to $181,774 for the 2012 three month period from $204,748 for the 2011 three month period.  

 

Revenues from the New York Club increased 7% to $50,370 as compared to $47,240 for the 2012 and 2011 three month periods, respectively.  Revenues from our Chicago nightclub increased five percent (5%) to $33,298 for the 2012 three month period from $31,567 from the 2011 three month period, while revenues from our Baltimore club increased two percent (2%) to $36,589 for the 2012 three month period from $35,942 for the 2011 three month period and revenues from our New Orleans club decreased fifty percent (50%) to $30,000 for the 2012 three month period from $60,000 for the 2011 three month period. Revenue from our Tampa club remained the same at $30,000 for the 2012 and 2011 three month period. Revenue from our Scoreslive.com licensee increased one hundred percent (100%) to $1,517 for the 2012 three month period from $0 for the 2011 three month period.  

 

General and Administrative Expenses:

 

General and administrative expenses decreased during the 2012 three month period to $112,856 from $208,083 during the 2011 three month period.  Costs related to administrative expenses decreased approximately by $95,227 from 2012 to 2011.  Legal expenses attributable to ongoing litigation amounted to $26,250 for the three month period ended September 30, 2012 and $65,611 for the three month period ended September 30, 2011 and amortization expense of the trademark from $0 for the three month period ended September 30, 2012 and $24,233 for the three month period ended September 30, 2011.

 

Provision for Income Taxes

 

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

 

Net Income/(Loss):

 

Our net income was $67,840 or $0.000 per share for the 2012 three month period compared to a net (loss) of $(3,335) or $(0.000) per share for the 2011 three month period.  The decrease in operating loss for the 2012 three month period was a result of a decrease of general and administrative expenses during the three month period.

 

Net income/(loss) per share data for both the 2012 three month period and the 2011 three month period is based on net income/(loss) available to common shareholders divided by the weighted average of the number of common shares outstanding.

 

 

Nine Months Ended September 30, 2012 (“the 2012 nine month period”) Compared to Nine Months Ended September 30, 2011 (“the 2011 nine month period”).

 

Revenues:

 

Revenues increased to $513,873 for the 2012 nine month period from $469,537 for the 2011 nine month period.  

 

Revenues from the New York Club increased 19% to $155,862 as compared to $130,938 for the 2012 and 2011 nine month periods, respectively.  Revenues from our Chicago nightclub increased six percent (6%) to $90,063 for the 2012 nine month period from $85,179 from the 2011 nine month period, while revenues from our Baltimore club decreased four percent (4%) to $104,924 for the 2012 nine month period from $109,422 for the 2011 nine month period and revenues from our New Orleans club remained the same at $90,000 for the 2012 and 2011 nine month period. Revenue from our Tampa club increased twenty-two percent (22%) to $66,000 for the 2012 nine month period from $54,000 for the 2011 nine month period. Revenue from our Scoreslive.com licensee increased one hundred percent (100%) to $7,023 for the 2012 the nine month period from $0 for the 2011 nine month period.

 

General and Administrative Expenses:

 

General and administrative expenses decreased during the 2012 nine month period to $403,898 from $537,207 during the 2011 nine month period.  Costs related to administrative expenses decreased approximately by $133,309 from 2012 to 2011.  This decrease in cost was largely attributable to a decrease in legal expenditures.  Legal expenses attributable to ongoing litigation amounted from $116,982 in the 2012 nine month period to $173,323 during the 2011 nine month period and amortization expense of the trademark from $-0- for the nine month period ended September 30, 2012 and $88,725 for the nine month period ended September 30, 2011. 

 

Provision for Income Taxes:

 

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

 

Net Income/(Loss):

 

Our net income was $126,749 or $0.001 per share for the 2012 nine month period compared to a net (loss) of $(67,670) or $(0.000) per share for the 2011 nine month period.  The decrease in operating loss for the 2012 nine month period was a result of an increase in royalty revenue during the nine month period.

 

Net income/(loss) per share data for both the 2012 nine month period and the 2011 nine month period is based on net income/(loss) available to common shareholders divided by the weighted average of the number of common shares outstanding.

 

Liquidity and Capital Resources

 

Cash:

 

At September 30, 2012, we had $36,720 in cash and cash equivalents compared to $8,930 in cash and cash equivalents at December 31, 2011.

 

Operating Activities:

 

Net cash provided by operating activities for the nine months ended September 30, 2012 and September 30, 2011 was $23,104 and $40,173 respectively. The increases in cash are related to decreases in the deferred revenue, between the 2012 and 2011 periods.

 

Financing Activities:

 

As of September 30, 2012, we owed $70,000 in rent to our Westside Realty affiliate and $186,144 to our New York affiliate.

 

Future Capital Requirements:

 

We have incurred losses since the inception of our business. Since our inception, we have been dependent on acquisitions and funding from private lenders and investors to conduct operations. As of September 30, 2012 we had an accumulated deficit of $(6,471,095), with total current assets of $276,309 and total current liabilities of $491,448 or negative working capital of $(215,139). As of December 31, 2011, we had total current assets of $254,259 and total current liabilities of $628,511 or negative working capital of $(374,252).    

 

We will continue to evaluate possible acquisitions of or investments in businesses, products and technologies that are complimentary to ours. These may require the use of cash, which would require us to seek financing. We may sell equity or debt securities or seek credit facilities to fund acquisition-related or other business costs. Sales of equity or convertible debt securities would result in additional dilution to our stockholders. We may also need to raise additional funds in order to support more rapid expansion, develop new or enhanced services or products, respond to competitive pressures, or take advantage of unanticipated opportunities. Our future liquidity and capital requirements will depend upon numerous factors, including the success of our adult entertainment trademark licensing business.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

This information has been omitted as the Company qualifies as a smaller reporting company.

 

Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Based on management’s evaluation (with the participation of our Chief Executive Officer (CEO) and Chief Accounting Officer), as of the end of the period covered by this report, our CEO and Chief Accounting Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are not effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 

 

(b) Changes in Internal Control over Financial Reporting

 

During the periods covered by this report, in order to remediate the material weaknesses in our internal control over financial reporting as described in our Annual Report on Form 10-K for our fiscal year ended December 31, 2011, we have taken numerous steps to address the underlying causes of the internal control deficiencies, primarily through the development and implementation of policies, improved processes and documented procedures and the hiring of additional accounting personnel with technical accounting experience. We continue to implement these controls and changes in order to address the material weakness identified in the audit of our financial statements for the year ended December 31, 2011.

 

There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - Other Information

 

Item 1. Legal Proceedings

 

On June 14, 2013, Elizabeth Shiflett, a former cocktail waitress, filed a civil lawsuit against us in the S.D.N.Y. alleging violations of Title VII of the Civil Rights Act of 1964 (“Title VII”), as amended, the New York State Human Rights Law (“NYSHRL”) and the New York City Human Rights Law (“NYCHRL”) based upon allegations of sexual discrimination, creating a hostile work environment based upon plaintiff’s sex and race and unlawful retaliation against plaintiff. The lawsuit further alleges that at all material times we were the employer of the plaintiff. The lawsuit had been preceded by a Determination of the U.S. Equal Employment Opportunity Commission (the “EEOC”) on January 25, 2013 that there was reasonable cause to believe that we had violated Title VII as a result of the complained-of conduct. The lawsuit seeks a declaratory judgment that the practices complained of violated Title VII, the NYSHRL and the NYCHRL, an injunction enjoining us from engaging in future unlawful acts of discrimination, harassment and retaliation, unspecified compensatory damages for plaintiff’s alleged loss of past and future earnings, emotional distress, humiliation and loss of reputation, punitive damages as a result of our alleged disregard of plaintiff’s protected civil rights, and attorneys’ fees and costs. We dispute that we were an employer of the plaintiff and categorically deny all allegations of sexual discrimination, sexual and racial harassment and retaliation. We will vigorously defend ourselves in this litigation and do not expect that the outcome will be material.

 

On March 14, 2013 Miki Yamada, a former bartender at the Scores New York nightclub located at 536 West 28^th Street, New York, NY filed charges against us and IM Operating LLC (“IMO”) with the EEOC claiming violations of Title VII based upon alleged sexual harassment, discrimination based on gender and unlawful retaliation. Ms. Yamada also delivered a draft civil complaint to us containing similar allegations. Although we disputed the issues of liability and damages asserted by Ms. Yamada, we settled these matters for a payment of $90,000 to Ms. Yamada pursuant to a settlement and release agreement dated April 30, 2013. These matters were settled out of court.

 

On June 14, 2011, Christina Maldonado, a former front door receptionist/coat checker at Scores New York, located in New York NY filed a civil lawsuit against us and IMO alleging violations of Title V11 of the Civil Rights Act, New York State Human Rights Law, New York Executive Law, New York City Human Rights Law and the New York City Administrative Code, based on allegations of sexual discrimination and sexual harassment. The lawsuit further alleges that both us and IMO were her employers. The lawsuit seeks unspecified damages for alleged loss of past and future earnings and emotional distress and humiliation. We dispute that that we were an employer of the plaintiff and categorically deny all allegations of sexual discrimination and sexual harassment. We responded to the complaint and later filed an amended complaint and asserted a cross claim against IMO. We are vigorously defending ourselves in this litigation and do not expect that the outcome will be material.

 

 

On 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 28^th 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 and we were not required to make any payment pursuant to the terms of the settlement and release agreement.

 

In mid-March 2010, we were named by Nichole Hughes in a complaint filed with the SCNY. Ms Hughes sued us for an unspecified amount of damages in connection with an alleged unauthorized use of her image in our advertising materials. On June 20, 2010, we filed a pre-answer motion to dismiss the complaint, which was denied on December 17, 2010. We then filed an answer and affirmative defenses and a third party complaint against IMO, owner and operator of the club where Ms. Hughes was employed. Plaintiff’s counsel was granted leave by the court to withdraw from representation in January 2013. Plaintiff failed to appoint new counsel or further participate in the case and the case was dismissed on May 20, 2013.

 

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 us 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. On April 18, 2008, co-defendant Go West filed for bankruptcy and the case was stayed. On July 23, 2009, the bankruptcy petition was dismissed and, as a result, the automatic stay was lifted. We subsequently filed an amended response asserting cross-claims for judgment against both Go West and our former affiliate, Entertainment Management Services, Inc. ("EMS"), an entity owned by two of our former directors and employees. After engaging in discovery and other pre-trial activities the two sides agreed to a confidential settlement and the case has been dismissed. The settlement does not have a material outcome on us.

 

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. This matter was settled for $8,500 on February 28, 2012 in Kings County Supreme Court. This matter was settled out of court and we were not required to make any payment pursuant to the terms of the settlement and release agreement. 

 

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.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 

 

None

 

Item 3.  Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosure

 

None

 

Item 5. Other Information

 

None

 

Item 6.  Exhibits

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. (Filed herewith)
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. (Filed herewith)
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. (Filed herewith)
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. (Filed herewith)
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

   

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	SCORES HOLDING COMPANY, INC.
Date: July 8, 2013	By:	/s/ Robert M. Gans
		Robert M. Gans
		Chief Executive Officer and Director
		(Principal Executive Officer)
Date: July 8, 2013	By:	/s/ Howard Rosenbluth
		Howard Rosenbluth
		Chief Financial Officer
		(Principal Financial Officer)