-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H2bjwaG7vTe9m74TycRbrx9x3tmzGU8tV4MDXsRYL5S0xShh6TaHykDEZhly9K9E xcyLQgaF+T9fJ6eGZRHonw== 0001144204-03-004546.txt : 20030814 0001144204-03-004546.hdr.sgml : 20030814 20030814123944 ACCESSION NUMBER: 0001144204-03-004546 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCORES HOLDING CO INC CENTRAL INDEX KEY: 0000831489 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 870426358 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16665 FILM NUMBER: 03845082 BUSINESS ADDRESS: STREET 1: 150 EAST 58TH STREET STREET 2: SUITE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-421-8480 MAIL ADDRESS: STREET 1: 150 EAST 58TH STREET STREET 2: SUITE CITY: NEW YORK STATE: NY ZIP: 33304 FORMER COMPANY: FORMER CONFORMED NAME: INTERNET ADVISORY CORP DATE OF NAME CHANGE: 19980904 FORMER COMPANY: FORMER CONFORMED NAME: OLYMPUS MTM CORP DATE OF NAME CHANGE: 19970215 10QSB 1 scores_10q.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: JUNE 30, 2003 ------------------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the transition period from ________________ to __________________ COMMISSION FILE NUMBER 0-16665 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: 18,934,927 AS OF JULY 1, 2003 ------------------------------ Transitional Small Business Disclosure Format (check one). Yes ; No X --- --- 1 SCORES HOLDING COMPANY INC. JUNE 30, 2003 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.............................................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................14 Item 3. Controls and Procedures.........................................15 PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds.......................15 Item 6. Exhibits and Reports on Form 8-K................................16 2 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 June 30, 2003, 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 of Financial Condition and Results of Operations". 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 June 30, 2003 (unaudited) and December 31, 2002 .............................................5 Consolidated Statements of Operations for the three months and six months ended June 30, 2003 and June 30, 2002 (unaudited)...6 Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and June 30, 2002 (unaudited)....................7 Notes to Consolidated Financial Statements (unaudited)...............8 4 SCORES HOLDING COMPANY, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
June 30, December 31, 2003 2002 ----------------------------------------- (unaudited) (audited) ASSETS CURRENT ASSETS: Cash $ 5,020 28,118 Notes Receivable - current portion -related party 80,000 - Prepaid Expenses 45,500 15,112 - - Interest Receivable 28,635 1,348 ---------------------- ----------------- Total Current Assets 159,155 44,578 FURNITURE AND EQUIPMENT, NET 26,263 724,151 INTANGIBLE ASSETS, NET 511,680 986,102 FINANCE COSTS, NET 108,208 121,458 NOTES RECEIVABLE - long term - related party 1,556,263 - REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS - 9,814 OTHER ASSETS: Security Deposits - 1,007,507 ---------------------- ----------------- $ 2,361,569 $ 2,893,610 ====================== ================= LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 252,995 $ 603,280 Prepetition payables - 10,007 Related party payable 85,834 220,517 Notes Payable 712,980 782,850 Convertible Debentures, Net of Discount 329,928 509,928 ---------------------- ----------------- Total Current Liabilities 1,381,737 2,126,582 LONG TERM DEBT 152,804 143,750 STOCKHOLDERS' DEFICIENCY Preferred stock, $.0001 par value, 10,000,000 shares authorized, -0- issued and outstanding - - Common stock, $.001 par value; 500,000,000 shares authorized, 18,934,927 and 21,374,285 issued and outstanding, respectively 18,935 22,374 Additional paid-in capital 4,653,639 3,791,010 Accumulated deficit (3,845,546) (3,190,106) ---------------------- ----------------- Total Stockholder's deficiency 827,028 623,278 ---------------------- ----------------- $ 2,361,569 $ 2,893,610 ====================== =================
5 SCORES HOLDING COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, Three Months Ended June 30, ------------------------------------- -------------------------------- 2003 2002 2003 2002 ----------------- ----------------- -------------- --------------- (unaudited) (unaudited) (unaudited) (unaudited) NET SALES $ 805,745 $ 56,250 $ 288,473 $ 6,250 COST OF GOODS SOLD 461,922 - 231,027 - -------------- ----------------- ------------ --------------- GROSS PROFIT 343,823 56,250 57,446 6,250 GENERAL AND ADMINISTRATIVE EXPENSES 1,005,531 925,613 423,130 711,001 -------------- ----------------- ------------ --------------- NET INCOME (LOSS) FROM OPERATIONS (661,708) (869,363) (365,684) (704,751) OTHER INCOME 13,140 4,140 INTEREST INCOME (EXPENSE ) (6,872) 674 8,743 337 -------------- ----------------- ------------ --------------- NET INCOME (LOSS) BEFORE INCOME TAXES (655,440) (868,689) (352,801) (704,414) PROVISION FOR INCOME TAXES - - -------------- ----------------- ------------ --------------- NET INCOME (LOSS) (655,440) (868,689) (352,801) (704,414) ============== ================= ============ =============== NET LOSS PER SHARE $ (0.04) $ (0.05) (0.02) (0.04) ============== ================= ============ =============== WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 17,127,496 15,826,343 17,127,496 15,826,343 ============== ================= ============ ===============
6 SCORES HOLDING COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2003 2002 ------------------ ---------------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (655,440) (868,689) Adjustments to reconcile net loss to net cash provided by (used) in operating activites: Depreciation & Amortization 500,172 6,500 Contributed services 455,000 - Common stock issued for services 242,387 - Returned shares for new debt terms (9,000) - Write off of intangible 9,814 - Converted debt - 15,000 Prepaid expenses (30,388) - Interest receivable (27,287) (674) Post petition accrued expenses - 41,276 Accounts payable and accrued expenses (349,482) 49,794 ------------------ ---------------- NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES 135,776 (756,793) ------------------ ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Transfers of capital expenditures 685,388 - Purchases of capital expenditures - (72,089) Note receivable (1,636,263) - Security deposits 1,007,507 (1,000,000) ------------------ ---------------- NET CASH USED IN INVESTING ACTIVITIES 56,632 (1,072,089) ------------------ ---------------- CASH PROVIDED BY FINANCING ACTIVITIES: Issuance of shares resulting from the acquisition (10,000) 10,000 Issuance of shares - 732 Additional paid in capital - 725,809 Recapitalization resulting from the acquisition - (119,649) Related party payable (134,683) - Proceeds from notes payable (60,816) - Prepetition long term debt (10,007) (5,464) Loan payable - related party 1,210,077 ------------------ ---------------- NET CASH PROVIDED BY FINANCING ACTIVITIES (215,506) 1,821,505 ------------------ ---------------- NET DECREASE IN CASH (23,098) (7,377) CASH, beginning of the period 28,118 18,626 ------------------ ---------------- CASH, end of the period $ 5,020 $ 11,249 ================== ================ Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 11,488 $ - Non cash financing activities: Common stock issued for services $ 242,387 $ - Common stock issued in connection with debenture conversion 180,000 - Contribution of services 455,000 -
7 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., (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 six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002. Per share data for the periods are based upon the weighted average number of shares of common stock outstanding during such periods, plus net additional shares issued upon exercise of options and warrants. Note 2: Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations, including a net loss of approximately $3.8 million cumulatively through June 30, 2003 and has a working capital deficiency as of June 30, 2003. These factors raise substantial doubt as to the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Note 3: Summary of Significant Accounting Principles Stock based compensation plans - We account for our stock-based compensation plans under Accounting Principles Board Opinion 25, (APB 25) Accounting for Stock Issued to Employees and the related interpretation, for which no compensation cost is recorded in the statement of operations for the estimated fair value of stock options issued with an exercise price equal to the fair value of the common stock on the date of grant. Statement of Financial Accounting Standards No. 123 (SFAS 123) Accounting for Stock-Based Compensation, as amended by Statement of Financial Accounting Standards No. 148 (SFAS 148) Accounting for Stock-Based Compensation - - Transition and Disclosure, requires that companies, which do not elect to account for stock-based compensation as prescribed by this statement, disclose the pro-forma effects on earnings and earnings per share as if SFAS 123 has been adopted. 8 If we applied the recognition provisions of SFAS 123 using the Black-Scholes option pricing model, the resulting pro-forma net income (loss) available to common shareholders, and pro-forma net income (loss) available to common shareholders per share would be as follows:
For the six months ended For the three months ended ------------------------ -------------------------- June 30, June 30, --------- -------- 2003 2002 2003 2002 ---- ---- ---- ---- Net loss available to common shareholders, as reported $(655,440) $ (868,689) $(352,801) $(704,414) Deduct: Stock-based compensation, net of tax - 195,606 - - - - ------- - - Net loss available to common shareholders, pro-forma $(655,440) $(1,064,295) $(352,801) $(704,414) ========== ============ ========== ========== Basic earnings per share: As reported - $ (.04) $ (.05) $ (.02) $ (.04) Pro-forma - $ (.04) $ (.07) $ (.02) $ (.04)
The above stock-based employee compensation expense has been determined utilizing a fair value method, the Black-Scholes option-pricing model. We have recorded no compensation expense for stock options granted to employees during the three or six months ended June 30, 2003 and 2002. In accordance with SFAS 123, the fair value of each option grant has been estimated as of the date of the grant using the Blach-Scholes option pricing model with the following weighted average assumptions: For the Six months Ended June 30, 2003 2002 ---- ---- Risk free interest rate 1.9% 4.08% Expected life n/a 10.5 years Dividend rate 0.00% 0.00% Expected volatility 50% 75% Note 4: New Accounting Pronouncements In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities," an interpretation of Accounting Research Bulletin No. 51. FIN No. 46 requires that variable interest entities be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's residual returns or both. FIN No. 46 also requires disclosures about variable interest entities that companies are not required to consolidate but in which a company has a significant variable interest. The consolidation requirements of FIN No. 46 will apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements will apply to entities established prior to January 31, 2003 in the first fiscal year or interim period beginning after June 15, 2003. The disclosure requirements will apply in all financial statements issued after January 31, 2003. The adoption of the provisions of FIN No. 46 will not have a material effect on its results of operation or financial position. 9 Accounting for Financial Instruments - In May 2003, the FASB issued Statements of Financial Accounting Standards No. 150 ("SFAS No. 150") "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 established standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This SFAS is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of SFAS No.150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 will not affect the disclosures of the Company. Note 5: Equity Transactions In March 2003, the Company issued 551,006 shares of common stock in exchange for the conversion of $80,000 of debenture principal and $494 of interest. In March 2003, the Company issued 275,822 shares of common stock in connection with the advisory agreement with Maximum Ventures, Inc. and Jackson Steinhem, Inc. These shares were valued at $113,087 and expensed. In March 2003, the Company received 10,000,000 shares in connection with the unwinding agreement with GoWest, Inc. In March 2003, the Company issued 1,412,673 shares of common stock in accordance with the anti-dilution provisions in the unwinding agreement. In March 2003, the Company renegotiated the terms of certain debts to an individual, which resulted in 20,000 shares being returned to treasury. Such shares returned were recorded as other income at the market value $.45 per share or $9,000 upon entering into the new debt agreement. The salaries accrued pursuant to the employment agreements for the officers of $455,000 since July 2002, which have either been reduced or eliminated for the Go West divestiture have been recorded as a contribution to capital pursuant to Topic 5T of the staff accounting bulletins. These officers are also shareholders of the Company. In March 2003, following approval by our board of directors and stockholders holding a majority of our outstanding voting shares, we amended our articles of incorporation to increase our authorized capital stock from 50,000,000 shares of common stock, $.001 par value per share to 500,000,000 shares of common stock, $.001 par value per share and 10,000,000 shares of preferred stock,$.0001 par value per share. The shares of preferred stock shall be undesignated and maybe issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issuance and duly adopted by our board of directors. The board of directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any unissued series of preferred stock and to fix the number of shares of any series of preferred stock and the designation of any series of preferred stock. 10 In May and June of 2003, the Company issued 300,000 and 450,000 shares of common stock in exchange for legal services, respectively. The Company recorded $66,000 and $99,000 of legal expenses associated with the services rendered. In June of 2003, the Company issued 1,194,161 shares of common stock in exchange for the conversion of $100,000 of debenture principal and $309 of interest. In June 2003, the Company issued 3,396,940 shares of common stock in accordance with the anti-dilution provisions in the unwinding agreement. Note 6: Loan payable The Company borrowed another $100,000 from an individual, whom has already loaned funds to the Company. The total debt to this individual is $225,000 and is repayable over 36 months in equal installments commencing May 2003. The other individual whom is owed $200,000 renegotiated their debt terms to be payable $15,000 a week commencing March 10, 2003. This individual has forfeited their 20,000 shares and conversion terms of the debt as part of the new debt terms. Note 7: Go West unwinding transaction In consideration of all payments made by us on behalf of GoWest for the construction of the club, GoWest has given to us its Secured Promissory Note in the amount of $1,636,264. The principal of the Note is payable in sixty monthly installments commencing on November 1, 2003 and ending on October 1, 2008. The first twelve monthly installments are $10,000 each. The next forty-eight installments of principal are $31,289 each. Interest at the rate of 7% per annum will accrue on the unpaid balance of principal until maturity. Interest payments are due monthly with each installment of principal commencing November 1, 2003. The Note is secured by Go West's leased interest in its New York nightclub. Employment Agreement Effective March 31, 2003, the employment agreement with the CEO was amended to provide an annual salary of $104,000. All other terms will remain in effect. GoWest will pay our accrued obligation of unpaid salary to Mr. Goldring pursuant to the aforementioned unwinding transaction. License Agreement Effective July 1, 2002, we entered into an Intellectual Property Assignment Agreement with Scores Entertainment, Inc. ("Assignor") under which Assignor agreed to assign and transfer to the Company all of its rights to Diamond Dollars program and system, including its trademark rights to the Diamond Dollar name. In consideration for the assignment, the Company will issue to the Assignor 700,000 restricted shares of its common stock ("Shares") and the Company issued a five-year warrant to purchase 350,000 restricted shares of its common stock at an exercise price of $3.50 per share ("Warrant") and has agreed to pay to Assignor 25% of all revenues generated from the licensing of the use of the Dollar Diamond Rights until November 2003 ("Royalty Fee"). The Company has yet to issue the Shares but expect to do so shortly. 11 In connection with the "unwinding" transaction, we amended our Assignment Agreement regarding Diamond Dollars Rights with Assignor effective March 31, 2003. Under the amendment, Assignor retains the common stock and warrants that were issued to it, and license fees are no longer paid for revenues generated by the Diamond Dollars program at Scores Showroom. Assignor also entered into a Sublicense Agreement with EMS. This Sublicense authorizes Assignor to use the "SCORES" brand name at its Scores Showroom nightclub. Assignor will pay royalties to EMS equal to 4.99% of the gross revenues earned by Assignor at Scores Showroom. All of these royalties will be paid by EMS to us under the Master License Agreement. The term of the Sublicense continues as long as Scores Showroom continues in operation. Master License Agreement Immediately after the closing of our transfer of Go West, we entered into a Master License Agreement (the "Master License") with Entertainment Management Systems, Inc. ("EMS"). The Master License grants to EMS the exclusive worldwide license to use and to grant sublicenses to use the "SCORES" trademarks in connection with the ownership and operation of upscale, adult-entertainment cabaret night clubs/restaurants and for the sale of merchandise by such establishments. Merchandise must relate to the nightclub that sells it, and may be sold at the nightclub, on an internet site maintained by the nightclub, by mail order and by catalogue. The term of the Master License is twenty years. EMS has the option to renew the Master License for six consecutive five-year terms. We will receive royalties equal to 4.99% of the gross revenues of all sublicensed clubs that are controlled by EMS. We will also receive royalties generated by sublicensing use of the SCORES name to adult entertainment nightclubs that are not controlled by EMS. If this "Go West unwinding transaction" had occurred on January 1, 2003, the pro-forma Net sales would have been $291,398 lower or $514,347 and the pro-forma general and administrative expenses would have been $308,822 lower or $696,709. The pro-forma net loss would be $638,016, if the Go West transaction had occurred on January 1, 2003. 12 Note 8: Commitments and Contingencies Advisory Agreement In March 2003, we entered into an Advisory Agreement with Maximum Ventures Inc. and Jackson Steinem, Inc. (collectively the Advisor). Under this Agreement, the Advisor will serve as our business advisor with respect to financings, strategic planning, mergers and acquisitions, and business development. The services will be rendered on a non-exclusive basis for a two (2) year period, which is renewable upon written agreement for additional six-month periods. We have agreed to pay the Advisor an Advisory Fee consisting of (i) 976,364 shares of our common stock (each such transfer of shares being an "Advisory Fee") upon execution of the Agreement, (ii) an Advisory Fee upon full conversion of our outstanding 1% Convertible Debenture due July 30, 2007 issued to a private investor, (iii) an Advisory Fee upon completion of a financing introduced by Advisor for at least one million five hundred thousand dollars ($1,500,000), (iv) an Advisory Fee if the Advisor arranges financing of a South Florida adult entertainment club plus 10% of the common stock of the corporation that operates such club, (v) a cash fee equal to 6% of any debt financing and 10% of any equity financing arranged by Advisor and (vi) a fee equal to 10% of all cash and securities received by us from a merger or acquisition with any candidate introduced by Advisor. The Agreement also provides for a return of up to 10% of the total Advisor Fee if certain transactions do not occur and a termination fee if we elect not to proceed with certain transactions arranged by Advisor of 25% of the fees Advisor would have earned had any of the transactions proceeded. Adam S. Gottbetter, the owner of Jackson Steinem, is a member of Kaplan Gottbetter & Levenson, our attorneys. The common stock issued under this advisory agreement as of June 30, 2003 was 275,822 shares, which was valued at $113,087, the fair market value of such stock on the issue date. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For the three-month periods ended June 30, 2003 and June 30, 2002, we had revenue of $288,473 and $6,250, respectively. For the six-month periods ended June 30, 2003 and June 30, 2002, we had revenue of $805,745 and $56,250 respectively. The increase in revenue was due to the revenues generated from sales of the Diamond Dollar rights in the independently owned Scores Showroom pursuant to the assignment agreement between us. Our cost of goods sold for the three-month periods ended June 30, 2003 and June 30, 2002 was $231,027 and $0, respectively. Our cost of goods sold was $461,922 for the six-month period ended June 30, 2003 and $0 for the six-month period ended June 30, 2002. The increase in cost of goods sold was due to the costs associated with the diamond dollars program. We incurred general and administrative expenses of $423,130 and $711,001 for the three-month periods ended June 30, 2003 and June 30, 2002, respectively. The decrease in general and administrative expenses was primarily attributable to legal, consulting, rent and salary expenses that the Company is no longer responsible for due to the unwinding agreement involving our former subsidiary, GoWest Entertainment. We incurred general and administrative expenses of $1,005,531 for the six-months ended June 30, 2003 and $925,613 for the six-months ended June 30, 2002. For the three-month periods ended June 30, 2003 and June 30, 2002, we had interest income of $8,743 and $337 respectively. The increase in interest income was due to the note due from GoWest Entertainment issued under the unwinding agreement. For the six-months ended June 30, 2003 we had interest expense of $6,872 compared to interest income of $674 for the six-months ended June 30, 2002. The increase in interest expense was due to expenses incurred in financing activities undertaken by us relating to the issuance of debentures and notes payable. For the three-months ended June 30, 2003 and June 30, 2002, we had a net loss of $352,801 or $.02 per share and $704,414, or $.04 per share, respectively. For the six-months ended June 30, 2003, we had a net loss of $655,440 or approximately $.04 per share as compared to a net loss of $868,689 or $.05 per share, for the six-months ended June 30, 2002. We recognize revenues as they are earned, not necessarily as they are collected. Direct costs such as hosting expense, design cost, server expense and Diamond Dollar expense was classified as cost of goods 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 June 30, 2003 we had an accumulated deficit of $3,845,546. As of June 30, 2003, we had total current assets of $159,155 and total current liabilities of $1,381,737 or negative working capital of $1,222,582. At December 31, 2002, we had total current assets of $44,578 and total current liabilities of $2,126,582 or negative working capital of $2,082,004. We currently have no material commitments. The increase in the amount of our negative working capital is primarily attributable to 14 payables incurred in connection with payment of the rent on our leased property, including payables due to related parties. 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. OUR SUBLICENSEES Scores Entertainment, Inc. Entertainment Management Systems, Inc. ("EMS"), our licensee, entered into a Sublicense Agreement with Scores Entertainment, Inc. ("SEI") to use the "SCORES" brand name at its SCORES SHOWROOM nightclub and pays royalties to EMS equal to 4.99% of the gross revenues earned at SCORES SHOWROOM. All of these royalties are paid by EMS to us under the Master License Agreement. The term of the Sublicense continues as long as SCORES SHOWROOM continues in operation. SEI recently signed a new five-year lease, with an additional five year option, for "SCORES SHOWROOM" its adult nightclub located in New York City on East 60th Street. Based solely upon an unaudited SEI management review, estimates show that for the eight months ending May 31, 2003, SCORES SHOWROOM will generate approximately $20 million in gross revenues for 2003 of which 4.99%, which is estimated to be in excess of $1 million for 2003, will be paid to us in licensing fees. Scores Chicago Scores Chicago is scheduled to commence operations on September 9, 2003. EMS entered into a Sublicense Agreement to use the "SCORES" brand name at the Scores Chicago nightclub and pays royalties to EMS equal to 4.99% of the gross revenues earned at Scores Chicago. All of these royalties are paid by EMS to us under the Master License Agreement. The term of the Sublicense continues as long as Scores Chicago continues in operation. Scores West Go West Entertainment, Inc. continues Scores West construction, and believes the Scores West location will be open and operational on December 1, 2003. Scores West will similarly pay a 4.99% licensing fee to EMS that will be paid to SCOH under the Master License Agreement. ITEM 3. CONTROLS AND PROCEDURES Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of a date within 90 days prior to the filing of this report. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our controls and procedures are effective in providing reasonable assurance that the information required to be disclosed in this report is accurate and complete and has been recorded, processed, summarized and reported within the time period required for the filing of this report. Subsequent to the date of this evaluation, 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. PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS RECENT SALES OF UNREGISTERED SECURITIES On August 13, 2002, we issued our 1% $1,000,000 convertible debenture due August 6, 2007 (the "First Debenture"). The First Debenture is convertible into unrestricted shares of our common stock pursuant to Rule 504 under the Securities Act of 1933, as amended. The per share conversion price for the First Debenture in effect on any conversion date is the lesser of (a) $1.15 or sixty-five percent (65%) of the average of the closing bid prices per share of our common stock during the five (5) trading days immediately preceding August 13, 2002 or (b) fifty percent (50%) of the average of the three (3) lowest closing bid prices per share of our common stock during the forty (40) trading days immediately preceding the date on which the holder of the First Debenture provides a notice of conversion. On June 23, 2003, the holder of the First Debenture converted $50,000 of principal due on the First Debenture at a conversion price of $.084 per share into 595,238 shares of our common stock. On June 29, 2003, the holder of the First Debenture converted an additional $50,000 15 of principal and $309.58 of related interest at a conversion price of $.084 per share into 598,923 shares of common stock. As of June 30, 2003, we issued 2,456,908 shares of restricted common stock to Richard Goldring, our Chief Executive Officer, President and Director, 470,016 shares of restricted common stock to Elliot Osher, our Secretary and Director, and 470,016 shares of restricted common stock to William Osher, our Vice President and Director. These shares were issued to Goldring and the Oshers pursuant to the "antidilution" 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 99.1 Certificate of Chief Executive Officer 99.2 Certificate of Chief Financial Officer (b) Reports on Form 8-K 16 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: August 14, 2003 By: /s/ Richard Goldring ---------------------------------- Richard Goldring President, Chief Executive Officer 17 CERTIFICATIONS I, Richard Goldring, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Scores Holding Company, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made know to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the quarterly period covered by this report based on our evaluation; c) Disclosed in this quarterly report any change in the issuer's internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 14, 2003 /s/ Richard Goldring ------------------------------------ Name: Richard Goldring Title: Principal Executive Officer 18 CERTIFICATIONS I, David Silverman, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Scores Holding Company, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made know to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the quarterly period covered by this report based on our evaluation; (c) Disclosed in this quarterly report any change in the issuer's internal control over financial reporting that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 14, 2003 /s/ David Silverman ----------------------------------------- Name: David Silverman Title: Principal Financial Officer 19 EX-99.1 3 scores_ex99-1.txt EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Scores Holding Company, Inc.. (the "Company") on Form 10-QSB for the quarter ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard Goldring, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that; (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. /s/ Richard Goldring - -------------------------------- Name: Richard Goldring Title: Chief Executive Officer Date: August 14, 2003 EX-99.2 4 scores_ex99-2.txt EXHIBIT 99.2 CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Scores Holding Company, Inc.. (the "Company") on Form 10-QSB for the quarter ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David Silverman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respect, the financial condition and result of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. /s/ David Silverman - ---------------------------------- Name: David Silverman Title: Chief Financial Officer Date: August 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----