10QSB 1 v043975_10qsb.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2006 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ________________ to __________________ Commission file number 000-16665 Scores Holding Company Inc. --------------------------- (Exact name of small business issuer as specified in its charter) Utah 87-0426358 ------ ------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 533-535 West 27th St., New York, NY 10001 ----------------------------------------- (Address of principal executive offices) (212) 868-4900 -------------- (Issuer's telephone number) (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date: 88,383,880 May 18, 2006 Transitional Small Business Disclosure Format (check one). Yes [_] No [X] Scores Holding Company Inc. March 31, 2006 Quarterly Report on Form 10-QSB Table of Contents Page Special Note Regarding Forward Looking Statements..............................3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements..................................................8 Item 2. Management's Discussion and Analysis or Plan of Operation............11 Item 3. Controls and Procedures..............................................12 PART II - OTHER INFORMATION Item 1. Legal Proceedings....................................................13 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........13 Item 6. Exhibits.............................................................14 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS To the extent that the information presented in this Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006 discusses financial projections, information or expectations about our products or markets, or otherwise makes statements about future events, such statements are forward-looking. We are making these forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These risks and uncertainties are described, among other places in this Quarterly Report, in "Management's Discussion and Analysis or Plan of Operation". In addition, we disclaim any obligations to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report. When considering such forward-looking statements, you should keep in mind the risks referenced above and the other cautionary statements in this Quarterly Report. 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Page ---- Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005..................................5 Consolidated Statements of Operations for the three months ended March 31, 2006 and March 31, 2005 (unaudited)...................................................6 Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and March 31, 2005 (unaudited)...................................................7 Notes to Consolidated Financial Statements (unaudited)........................................................8 4 SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
March 31, December 31, 2006 2005 ------------ ------------ (unaudited) (audited) ASSETS CURRENT ASSETS: Cash $ 24,252 $ 31,185 Notes Receivable - current portion -related party 1,089,650 1,030,476 Licensee Receivable - including affiliates 1,346,168 1,244,888 Prepaid expenses 42,984 39,648 Inventory 40,694 31,715 ------------ ------------ Total current Assets 2,543,748 2,377,912 FURNITURE AND EQUIPMENT, NET 6,263 8,763 INTANGIBLE ASSETS, NET 134,500 140,750 NOTES RECEIVABLE - long term - related party 776,105 830,894 ------------ ------------ $ 3,460,616 $ 3,358,319 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 242,159 $ 323,407 Related party payable 10,500 11,000 Notes Payable 0 28,965 Convertible Debentures, Net of Discount 110,450 123,300 ------------ ------------ Total Current Liabilities 363,109 486,672 COMMITMENTS & CONTINGENCIES -- -- STOCKHOLDERS' EQUITY Preferred stock, $.0001 par value, 10,000,000 shares authorized, -0- issued and outsatanding -- -- Common stock, $.001 par value; 500,000,000 shares authorized, 88,383,880 and 78,642,188 issued and outstanding, respectively 88,384 78,642 Additional paid-in capital 5,878,698 5,875,310 Accumulated deficit (2,869,575) (3,082,305) ------------ ------------ Total stockholder's equity 3,130,976 2,871,647 ------------ ------------ $ 3,460,616 $ 3,358,319 ============ ============
5 SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended March 31, 2006 2005 --------------- --------------- (unaudited) (unaudited) REVENUES Royalty revenue $ 440,126 $ 305,866 Merchandise revenue 16,447 25,955 Public relations revenue 3,000 -- --------------- --------------- Total 459,573 331,821 COST OF MERCHANDISE SOLD 13,158 26,582 --------------- --------------- GROSS PROFIT 446,415 305,239 GENERAL AND ADMINISTRATIVE EXPENSES 260,988 226,676 --------------- --------------- NET INCOME FROM OPERATIONS 185,427 78,563 INTEREST INCOME/EXPENSE NET 27,304 22,838 --------------- --------------- NET INCOME BEFORE INCOME TAXES 212,731 101,401 PROVISION FOR INCOME TAXES 0 5,000 --------------- --------------- NET INCOME $ 212,731 $ 96,401 =============== =============== NET INCOME PER SHARE - Basic and Diluted $ 0 $ 0 =============== =============== WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING - Basic and diluted 85,462,370 36,996,168 =============== =============== 6 SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March31, ------------ ------------ 2006 2005 ------------ ------------ (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 212,731 $ 96,401 Adjustments to reconcile net loss to net cash provided by (used) in operating activites: Depreciation & Amortization 8,750 8,750 Prepaid expenses (3,336) (128,554) Licensee receivable 101,280 -- Inventory (8,979) -- Interest receivable (27,585) (27,585) Accounts payable and accrued expenses (80,969) 75,838 ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (668) 24,850 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Cash collected on notes receivable 23,200 -- ------------ ------------ NET CASH PROVIDED BY INVESTING ACTIVITIES 23,200 -- ------------ ------------ CASH PROVIDED BY FINANCING ACTIVITIES: Related party payable (500) 900 Repayment of notes payable (28,965) (25,750) ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES (29,465) (24,850) ------------ ------------ NET DECREASE IN CASH (6,933) -- CASH, beginning of the period 31,185 173 ------------ ------------ CASH, end of the period $ 24,252 $ 173 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 280 $ 3,290 Cash paid during the year for taxes -- 5,905 Non cash financing activities: Common stock issued in connection with debenture conversion $ 12,850 $ 4,782
7 Scores Holding Company Inc. and Subsidiaries Notes To Consolidated Financial Statements (Unaudited) PART I. FINANCIAL INFORMATION Item 1. Financial Statements Note 1: Basis of Presentation 1. 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-QSB and Regulation S-B. 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 months ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. 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, 2005. Note 2: Summary of Significant Accounting Principles Stock based compensation plans - We previously accounted for stock-based compensation issued to our employees under Accounting Principles Board Opinion 25, (APB 25). Accordingly, no compensation costs for stock options issued to employees, which was measured as the excess, if any, of the fair value of our common stock at the date of grant over the exercise price of the options. The pro forma net earnings per share amounts as if the fair value method had been used would have been presented for the three months ended March 31, 2005, in accordance with the Company's adoption of SFAS 123(R), if the Company had issued any such options during the quarter. For purposes of the following disclosures during the transition period of the adoption of SFAS 123(R), the weighted average fair value of options has been estimated on the date of grant using the Black-Scholes options pricing model. The Company did not issue any options or warrants in each of the quarters ended, presented, hence there was no compensation costs to record for the quarter ended March 31, 2006 or to present on a pro forma basis for the quarter ended March 31, 2005. 8 Concentration of Credit Risk Currently, the Company earns royalties and merchandise revenues from seven Licensees in which, four (Chicago, Las Vegas and Ft. Lauderdale and Baltimore) are unrelated from management of the Company. During the quarter, revenues earned from royalties and merchandise sales from these unrelated licensees amounted to $167,098, which there is $46,091 due and outstanding as of March 31, 2006. Revenues from royalties and merchandise sales from the three related licensees based in New York and Florida was $289,475, which there was $1,300,077 due and outstanding as of March 31, 2006. Note 3: Equity Transactions On January 27, 2006, the Company issued 3,841,700 shares of common stock in exchange for the conversion of $12,850 of debenture principal and $281 of interest, respectively. On January 27, 2006, the Company issued 5,900,000 shares of common stock in accordance with the anti-dilution provisions in the unwinding agreement. Note 4: New Accounting Pronouncements FASB 155 - Accounting for Certain Hybrid Financial Instruments In February 2006, the FASB issued FASB Statement No. 155, which is an amendment of FASB Statements No. 133 and 140. This Statement; a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, b) clarifies which interest-only strip and principal-only strip are not subject to the requirements of Statement 133, c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, e) amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for financial statements for fiscal years beginning after September 15, 2006. Earlier adoption of this Statement is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued any financial statements for that fiscal year. Management believes this Statement will have no impact on the financial statements of the Company once adopted. FASB 156 - Accounting for Servicing of Financial Assets 9 In March 2006, the FASB issued FASB Statement No. 156, which amends FASB Statement No. 140. This Statement establishes, among other things, the accounting for all separately recognized servicing assets and servicing liabilities. This Statement amends Statement 140 to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. This Statement permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. An entity that uses derivative instruments to mitigate the risks inherent in servicing assets and servicing liabilities is required to account for those derivative instruments at fair value. Under this Statement, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. By electing that option, an entity may simplify its accounting because this Statement permits income statement recognition of the potential offsetting changes in fair value of those servicing assets and servicing liabilities and derivative instruments in the same accounting period. This Statement is effective for financial statements for fiscal years beginning after September 15, 2006. Earlier adoption of this Statement is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued any financial statements for that fiscal year. Management believes this Statement will have no impact on the financial statements of the Company once adopted. Note 5 - Related party Receivable The notes receivable amount current and long term portion, including accrued interest amounts to $1,865,755 such amount relates to a secured receivable from the Go West night club which is partially owned and operated by the CEO of the Company. Payments in the amount of $23,200 have been made on this outstanding balance through March 31, 2006; however, management is re-negotiating the payment terms and continues to pay $11K monthly of principle and interest, which is less than the required monthly payments due per the note and technically in default. Management believes such balance due is adequately secured by leaseholds and the underlying lease, although subordinated to the underlying mortgage of such property. The Company has not received any payments in royalties form the Go West night club during the three months ended March 31, 2006, although $60,000 of rent payments by the Company for the lease of office space from the Go West has been applied to the royalties earned from Go West. Included in the royalty receivable is $1,097,788 from the 333 night club, which is partially owned and operated by the CEO of the Company. The Company has not received any royalty payments during the three months ended March 31, 2006. In addition, the Company has agreed on a plan to pay an additional $20K per month towards the balance of the prior quarters' outstanding royalty receivable of which we received $50,000. There were no royalties due during the quarter ended March 31, 2006. Note 6 - Sub-licensees On March 15, 2006, Scores Baltimore "D/B/A Club 2000 Eastern Avenue, Inc." commenced its operations pursuant to an agreement made with Entertainment Management Services, Inc. on February 27, 2004. There are no royalties due during the quarter ended March 31, 2006. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION RESULTS OF OPERATIONS: REVENUES: Revenues increased 39 percent to $459,573 for the three months ended March 31, 2006 (the "2006 period") from $331,821 for the three months ended March 31, 2005 (the "2005 period"). The increase was primarily due to additional royalties earned from our newly acquired Las Vegas licensee which accounts for approximately 26 percent of our overall revenue in the 2006 period. Revenues from our Go West licensee increased 12 percent and revenues decreased 40 percent from our 333 East "Marquee" licensee. The decrease at the 333 East licensee was partially offset by an increase in admissions at our Go West licensee. OPERATING EXPENSES: Operating expenses for the 2006 and 2005 periods were $260,988 and $226,676 respectively. During the 2006 period we incurred $24,000 of additional variable cost that relates to public relations, business development, rent, salaries, travel and other cost that relates to the grand opening of our Baltimore licensee in February 2006 and the anticipated opening of our Philadelphia licensee by year end 2006. Other costs were legal fees during the 2006 period. INTEREST INCOME (EXPENSE) - NET: Interest income is presented net of interest expense for the 2006 period and 2005 period respectively. Interest income is accrued and amounted to $27,585 and $27,585 for the 2006 and 2005 period ended respectively. Interest income is due primarily in consideration of a secured promissory note issue from Go West based on an agreement in March 2003 to unwind our acquisition of Go West in March 2002. Interest expense is due primarily from the issuance of long-term debentures and notes payable. Interest expense decreased to $280 for the 2006 period from $4,747 for 2005 period. Provision for Income Taxes: Although the Company had net profits during the 2006 period, the provision for income taxes related primarily to average assets and capital which was not impacted by net operating losses. Net Income (per share): Net income was $212,731 or $0.00 per share for the 2006 period versus a net income of $96,401 or $0.00 per share for the 2005 period. The increase was due primarily to the additional royalty revenue earned during the 2006 period from the Las Vegas sub-licensee which amounted to approximately to $120,000. Net income per share data for both the 2006 and 2005 period is based on net income available to common shareholders divided by the weighted average of the common shares. 11 We recognize revenues as they are earned, not necessarily as they are collected. Cost of goods sold relates to the merchandise sold. General and administrative expenses include accounting, advertising, contract labor, bank charges, depreciation, entertainment, equipment rental, insurance, legal, supplies, payroll taxes, postage, professional fees, rent, telephone and travel. LIQUIDITY AND CAPITAL RESOURCES We have incurred losses since the inception of our business. Since our inception, we have been dependent on acquisitions and funding from private lenders and investors to conduct operations. As of March 31, 2006 we had an accumulated deficit of $(2,369,575). As of March 31, 2006, we had total current assets of $2,543,748 and total current liabilities of $363,109 or working capital of $2,180,639. At December 31, 2005, we had total current assets of $2,377,912 and total current liabilities of $486,672 or working capital of $1,891,240. Such working capital amount may decrease upon renegotiating the amounts due from the Go West note receivable by a significant amount of up to $900,000 as such amount would be reclassed to the long term portion. The increase in current assets is due to the royalty receivable due from the licensees and the increase in the loan payments due from Go West Entertainment within the next 12 months. We currently have no material commitments. The increase in the amount of our working capital is primarily attributable to legal, consulting, rent and salary expenses that the Company is no longer responsible for due to the unwinding of Go West Entertainment and the steady flow of income from our licensees. 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 licensing business. ITEM 3. CONTROLS AND PROCEDURES Our principal executive officer and principal financial officer, whom is the sole officer and director of the Company, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, the Company's principal executive officer and principal financial officer, whom is the sole officer and director of the Company, has concluded that the Company's controls and procedures are effective in providing reasonable assurance that the information required to be disclosed in this report has been recorded, processed, summarized and reported as of the end of the period covered by this report. During the period covered by this report, there have not been any significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect our internal controls. 12 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On March 31, 2006, Richard K. Goldring, president, chief executive officer, acting principal financial officer and our principal shareholder, entered a plea of 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" he holds in publicly traded companies, including us, and divests himself of all "control ownership positions" in publicly traded companies, including us, and satisfies other conditions, the DA will recommend a sentence of probation. The plea agreement resolves the DA's investigation against Mr. Goldring and us. No charges were brought against us. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS RECENT SALES OF UNREGISTERED SECURITIES On January 27, 2006, the Company issued 5,900,000 shares of common stock in accordance with the anti-dilution provisions in the unwinding agreement. These shares were issued to Goldring and the Oshers pursuant to the "anti-dilution" provisions of the Acquisition Agreement dated March 31, 2003, among Go West Entertainment, Inc., Goldring, the Oshers' and us. Goldring and the Oshers' did not pay to us any consideration for these shares. The shares were issued under the exemption from registration provided in section 4(2) of the Securities Act of 1933. 13 ITEM 6. EXHIBITS (a) Exhibits 31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer 31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial Officer 32.1 Section 1350 Certification of Chief Executive Officer 32.2 Section 1350 Certification of Chief Financial Officer (b) Reports on Form 8-K 14 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. Scores Holding Company Inc. Dated: May 22, 2006 By: /s/ Richard Goldring ---------------------------- Richard Goldring President, Chief Executive Officer