-----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, HJXfz4I7lLBDFJWJw9lwTasryI3etH61odgdrVPxb/fBnqocRzZf1UGR+Lp6PwSf L+elyUtP0Is6VH9EbNodrQ== 0001144204-06-021983.txt : 20060522 0001144204-06-021983.hdr.sgml : 20060522 20060522152640 ACCESSION NUMBER: 0001144204-06-021983 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060522 DATE AS OF CHANGE: 20060522 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCORES HOLDING CO INC CENTRAL INDEX KEY: 0000831489 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 870426358 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16665 FILM NUMBER: 06858349 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: 533-535 WEST 27TH STREET STREET 2: SUITE CITY: NEW YORK STATE: NY ZIP: 10001 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 10KSB 1 v043890_10ksb.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended: December 31, 2005 OR |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to ______________ Commission file number 000-16665 SCORES HOLDING COMPANY, INC. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Utah 87-0426358 ---------------------------- ------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 533-535 West 27th Street, New York 10001 ---------------------------------- ---------- (Address of principal executive offices) (Zip Code) Issuer's telephone number: (212) 868-4900 Securities registered under Section 12(b) of the Exchange Act: None Name of each Exchange on Which Registered: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value - -------------------------------------------------------------------------------- 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |X| State issuer's revenues for its most recent fiscal year. $1,568,890 State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of a specified date within the past 60 days: As of May 18, 2006 there were 30,471,990 issued and outstanding shares of our common stock, $.001 par value, held by non-affiliates. The aggregate value of the securities held by non-affiliates on May 18, 2006 was approximately $304,720 based on the average closing bid and asked price of our common stock on May 18,, 2006, which was $0.01 per share. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 88,383,990 shares of common stock, $.001 par value, as of May 18, 2006. Transitional Small Business Disclosure Format (check one): Yes |_| No |X| DOCUMENTS INCORPORATED BY REFERENCE None TABLE OF CONTENTS FORWARD-LOOKING STATEMENTS PART I ITEM 1. DESCRIPTION OF BUSINESS ITEM 2. DESCRIPTION OF PROPERTY ITEM 3. LEGAL PROCEEDINGS ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ITEM 7. FINANCIAL STATEMENTS ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 8A. CONTROLS AND PROCEDURES PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT ITEM 10. EXECUTIVE COMPENSATION ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 12. RELATED TRANSACTIONS ITEM 13. EXHIBITS ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 2 FORWARD-LOOKING STATEMENTS Except for historical information, this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words "expects", "anticipates", "intends", "believes" and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section "Management's Discussion and Analysis or Plan of Operation". You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances taking place after the date of this document. PART I ITEM 1. DESCRIPTION OF BUSINESS Business Development Scores Holding Company, Inc. (the "Company" or the "Registrant") was incorporated in the State of Utah on September 21, 1981 under the name Adonis Energy, Inc. ("Adonis"). Adonis was formed for the primary purpose of acquiring and investing in energy resources. On March 10, 1983, Adonis' name was changed to Olympus M.T.M. Corporation ("Olympus"). Olympus failed to achieve success in its business endeavors, and consequently, it ceased operations in or before April 1990. Thereafter, Olympus remained dormant until it succeeded to the business of The Internet Advisory Corporation, a Florida corporation ("TIAC-FL"), pursuant to an Agreement and Plan of Reorganization dated June 22, 1998. TIAC-FL had been incorporated on August 8, 1997 for the purpose of providing Internet access and Web design. Subsequent to the Agreement and Plan of Reorganization, we changed our name to The Internet Advisory Corporation. On December 30, 1999, we entered into a Reorganization Agreement (the "Reorganization Agreement") with Richard K. Goldring, the sole stockholder of Sunrise Web Development, Inc., a Florida corporation ("Sunrise"), under which we issued 800,000 shares of our common stock to Mr. Goldring and his designees in exchange for 100% of the outstanding voting securities of Sunrise. Pursuant to the Reorganization Agreement, Sunrise became a wholly-owned subsidiary of ours. Mr. Goldring owned approximately 10.7% of our outstanding common stock prior to the closing of the Reorganization Agreement and approximately 37.5% of our outstanding common stock following closing. On May 25, 2001, we voluntarily filed for protection under Chapter 11 of the US Bankruptcy Code with the US Bankruptcy Court for the Southern District of Florida (the "Bankruptcy Court"). On August 29, 2001, we filed a Plan of Reorganization and Disclosure Statement with the Bankruptcy Court. Under the Plan of Reorganization (the "Plan"), we complied with Section 1129 of the Bankruptcy Code as a good faith debtor seeking to reorganize our financial affairs during the term of the Plan in order to pay off or substantially reduce the principal due and owing to all allowed creditors from our ongoing operations. As part of the Plan, we expressly rejected all executory contracts and unexpired leases set forth in the Disclosure Statement except for the unexpired contract between us and a bandwidth provider. On November 14, 2001, the Bankruptcy Court entered an Order confirming our Plan. During the period we were in bankruptcy, we continued to provide comprehensive Internet services to our customers emphasizing the small and medium sized business market. On March 11, 2002, we entered into an Acquisition Agreement with Go West Entertainment Inc., a New York corporation ("Go West") and the shareholders of Go West (the "Go West Shareholders"). The Go West Shareholders were Richard Goldring, Elliot Osher and William Osher. Pursuant to the Acquisition Agreement, we acquired all of the issued and outstanding capital stock of Go West from the Go West Shareholders, making Go West our wholly owned subsidiary in exchange for 2,000,000 shares of our restricted common stock. 3 Go West was formed on May 11, 2001 to establish, own and operate upscale adult entertainment nightclubs. The principal assets of Go West were a twenty year lease (the "Lease") on a building at 533-535 West 27th Street, New York, NY at which Go West intended to open an adult entertainment nightclub commencing in or about late May 2003 under the name "Scores West" and a license agreement (the "HEIR License Agreement") with HEIR Holding Co., Inc. a Delaware corporation ("HEIR"), presently known as Scores Licensing Corp., granting Go West the right to use the "Scores" name in New York City for up to three adult entertainment nightclubs. Subsequent to this transaction, as discussed below, we also acquired HEIR. The HEIR License Agreement between HEIR and Go West dated August 15, 2001, as amended on March 3, 2002, granted to Go West the right and license to use certain Scores trademarks in New York City in connection with the operation of up to three adult entertainment topless dance clubs and the retail sale of commercial merchandise, including tee-shirts, sweatshirts, sweat pants, jackets, baseball hats, key rings and other similar merchandise, from each club location. All merchandise sold pursuant to the License Agreement must be purchased from HEIR at HEIR's then current wholesale prices. The License Agreement also provided for an annual royalty payment of $520,000 to be paid by Go West to HEIR. The term of the License Agreement continues until Go West ceases or discontinues the operation of Scores West. See the discussion below under "Go West "Unwinding" Transaction" for additional information on Go West. On July 9, 2002, we filed a Certificate of Amendment to our Certificate of Incorporation with the Utah Department of Commerce to change our name from The Internet Advisory Corporation to Scores Holding Company, Inc. The change in name was made to reflect the change in our business direction from an Internet service company to a company intending to engage in the adult entertainment nightclub industry. With regard to our entry into this new field, we planned to leverage the adult entertainment nightclub experience of our management in an owner/operator business model in which we intended to both own and manage clubs. Pursuant thereto, we engaged from time to time in negotiations to manage or takeover Scores Showroom, an independent nightclub owned by Scores Entertainment, Inc. As we shifted the focus of our business, we decided to discontinue our existing ISP business. On August 13, 2002, we completed a triangular merger with HEIR and Scores Acquisition Corp. ("SAC"), a Delaware corporation and our wholly owned subsidiary. The merger was based upon an August 7, 2002 Agreement and Plan of Merger among the parties. Pursuant to the merger (i) SAC was merged with and into HEIR; (ii) the HEIR shareholders exchanged all of their HEIR shares, constituting all of the issued and outstanding capital stock of HEIR, for an aggregate of 600,000 shares of our restricted common stock, making HEIR our wholly owned subsidiary; and (iii) HEIR, the surviving corporation in the merger, changed its name to Scores Licensing Corp. The HEIR shareholders were Richard Goldring, Elliot Osher and William Osher, each of whom was an affiliate of the Company. Scores Licensing Corp. was the owner of all of the intellectual property rights to the "SCORES" trademark, name and brand. The determination of the number of shares of our common stock to be exchanged for the HEIR shares was based upon the valuation given to HEIR's assets in an arms length transaction in which HEIR had previously acquired such assets. The shares were issued in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. Subsequent to this transaction, Scores Licensing Corp. transferred its intellectual property rights to the "SCORES" trademark, name and brand to us. Immediately, prior to the merger, HEIR completed a $1,000,000 financing transaction pursuant to Rule 504 of Regulation D of the General Rules and Regulations under the Securities Act of 1933 as amended pursuant to an August 7, 2002 Convertible Debenture Purchase Agreement (the "HEIR Purchase Agreement") between HEIR and an accredited Colorado investor (the "Investor"). In connection therewith, HEIR sold a 1% $1,000,000 convertible debenture due August 6, 2007 (the "HEIR Debenture") to the Investor. The unpaid principal amount of the HEIR Debenture was convertible into unrestricted shares of HEIR common stock to be held in escrow pending the repayment or conversion of the HEIR Debenture. Pursuant to the merger, we assumed all obligations of HEIR under the HEIR Debenture and issued the holder thereof our 1% $1,000,000 convertible debenture due August 6, 2007 (the "First Debenture") in exchange for the HEIR Convertible Debenture, which was then cancelled. The material terms of the First Debenture are identical to the terms of the HEIR Debenture, except that the unpaid principal amount of the First Debenture is convertible into unrestricted shares of our common stock (the "Common Shares"), rather than shares of HEIR common stock. 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 the escrow agent with a notice of conversion. The number of shares of our common stock issuable upon conversion is also subject to anti-dilution provisions. 4 Immediately prior to the merger, we also entered into a loan transaction with the Investor in which we borrowed the sum of $1,000,000, pursuant to a Loan Agreement and Promissory Note dated as of August 7, 2002 (collectively the "Loan Agreement"). The outstanding balance of the borrowed amount bears interest at the rate of 6% per annum, payable annually. This loan is not convertible into our common stock. The principal balance and unpaid interest are due on August 7, 2007. The Loan Agreement provided that if during the five year term of the loan at least 1,600,000 shares of our common stock are publicly traded, then we may, at our option, repay the remaining principal and interest on the loan by issuing to Investor a warrant to purchase 20,000 shares of our common stock at an exercise price equal to 75% of the average of the three lowest trading prices of our stock during the 40 day period immediately preceding the maturity date of the Loan Agreement. On December 16, 2003, we entered into a Loan Modification Agreement with the Investor pursuant to which the outstanding principal balance and accrued interest on the loan was discharged, and we issued to the Investor a warrant to acquire 20,000 shares of our common stock at an exercise price equal to 75% of the average of the three lowest trading prices of our stock during the 40 day period immediately preceding December 16, 2003. On August 13, 2002 we entered into a financing transaction in which we received a firm commitment from a private equity fund for the purchase of a $2,000,000 convertible debenture from us (the "Second Debenture"). Pursuant to the related Debenture Purchase Agreement dated August 13, 2002 (the "Debenture Purchase Agreement"), the equity fund will be provided with a termination warrant (the "Termination Warrant") entitling it to receive 100,000 restricted shares of our common stock at a price of $.05 per share, subject to adjustment based upon anti-dilution provisions contained therein, in the event that the financing transaction did not close as a result of our actions. Piggyback registration rights apply to the shares underlying the Termination Warrant. On November 14, 2002 we entered into a Modification Agreement (the "First Modification Agreement") which resulted in the Second Debenture not being issued and the termination of the parties' respective rights and obligations under the Second Debenture and the Debenture Purchase Agreement, other than our obligation to issue the Termination Warrant provided for in the Debenture Purchase Agreement. Under the First Modification Agreement, the Investor and we agreed to rescind the conversion of $75,000 of principal and related interest of the First Debenture made on October 23, 2002. This was done by adding $55,000 back to the principal amount of the First Debenture and by the Investor agreeing to return to us 109,369 of the Conversion Shares received from the October 23, 2002 conversion and now held by the Investor. The Investor sold a total of 38,000 of the Conversion Shares received from the October 23, 2002 conversion in the open market, and the Investor retained the proceeds of these sales. We agreed that we would prepay the outstanding balance of the Loan Agreement of $1,000,000 and the outstanding balance of the First Debenture of $830,000 owed to the Investor by making total payments of $2,470,000 as follows: one payment of $470,000 on November 15, 2002, and four payments of $500,000 each on December 15, 2002, February 15, 2003, March 15, 2003 and March 31, 2003. The payment of $470,000 would be applied to the debts as follows: $200,000 would reduce the principal amount of the Loan Agreement; $70,000 would be applied to interest and as a premium on the Loan Agreement; $150,000 would reduce the principal amount of the First Debenture; and, $50,000 would be applied to interest and as a premium on the First Debenture. Each of the $500,000 payments would be applied to the debts as follows: $200,000 would reduce the principal amount of the Loan Agreement; $70,000 would be applied to interest and as a premium on the Loan Agreement; $170,000 would reduce the principal amount of the First Debenture; and, $60,000 would be applied to interest and as a premium on the First Debenture. There is a grace period of 5 business days following the due date of each of these payments. In the event of a default, the Investor may exercise all of the remedies available to it under the terms of the Loan Agreement, the First Debenture and the Debenture Purchase Agreement. We agreed with the equity fund to the immediate delivery of the Termination Warrant with its piggyback registration rights to the equity fund, and it agreed to exercise the Termination Warrant immediately upon its receipt. This exercise resulted in the issuance of 100,000 shares of our Common Stock for the exercise price of $5,000. The Common Stock issuable under the Termination Warrant was delivered into escrow to be released to the equity fund in five equal monthly distributions of 20,000 shares each, commencing one year after the date of the Modification Agreement. Except for this agreement concerning the Termination Warrant, the equity fund and we agreed to the termination of all of our respective rights and obligations under the Debenture Purchase Agreement and the Second Debenture, without any further performance or consideration required of the fund or us. 5 Under the First Modification Agreement, the Investor agreed to place into escrow 48,200 shares of our common stock held by it until June 30, 2003. Prior to the release of these shares of our common stock, we may exercise the right to purchase the shares at a price equal to 70% of the average market value of a share of our common stock during the 5 days prior to the scheduled release from escrow. Under the First Modification Agreement, the Investor agreed not to convert any principal amount of the First Debenture, provided that we do not default under any of our obligations under the Loan Agreement, First Debenture, HEIR Purchase Agreement or the First Modification Agreement. We also agreed under the First Modification Agreement to grant to the private equity fund a right of first refusal for one year in the event that we proposed to license the use of the Scores or related trademarks in Japan. The private equity fund has the right to obtain such a license during this one year period on the same terms that we propose to grant such a license to any third party. Effective July 1, 2002, we entered into an Intellectual Property Assignment Agreement (the "Assignment Agreement") with Scores Entertainment, Inc. ("Assignor") under which Assignor agreed to assign and transfer to us all of Assignor's rights to the Diamond Dollars program and system, including its trademark rights to the Diamond Dollar name (the "Diamond Dollar Rights"). The Diamond Dollars program involves the sale of proprietary certificates that may be used at any Scores club to purchase food, drinks and entertainment. In consideration for the assignment and transfer to us of the Diamond Dollar Rights, we agreed to (i) issue to Assignor 140,000 restricted shares of our common stock (the "Shares"), (ii) issue to Assignor a warrant to acquire 70,000 shares of our common stock at an exercise price of $17.50 per share, with an expiration date of June 30, 2007, and (iii) pay to Assignor 25% of all revenues generated from our licensing of the use of the Dollar Diamond Rights at Assignor's Scores Showroom club until the date of termination of Assignor's lease of the Scores Showroom club in November 2003. The shares and warrants were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. On February 25, 2003, Scores entered into a Second Modification of Loan and Convertible Debenture Purchase Agreements and Related Transaction Documents (the "Second Modification Agreement") with the Investor. Under the First Modification Agreement, we agreed to prepay an aggregate of $1,830,000 principal amount of convertible debenture and nonconvertible debt held by the Investor by making periodic payments totaling $2,470,000. We had paid an aggregate of $970,000 of these periodic payments as of the date of the Second Modification Agreement. Under the terms of the Second Modification Agreement, the principal amount of the convertible debenture becomes $555,000 and the principal amount of the nonconvertible debt becomes $555,000. Both the convertible debenture and nonconvertible debt are due on August 7, 2007. The per share conversion price of the convertible debt 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 the common stock during the forty (40) trading days immediately preceding the date on which the Investor gives a notice of conversion. Between September 9, 2002 and November 3, 2003, the Investor converted the entire principal amount and accrued interest on the First Debenture into an aggregate amount of 2,885,753 shares of our common stock. The First Modification Agreement also provided that the Investor agreed to exercise a warrant to acquire 100,000 shares of Registrant's common stock for the aggregate exercise price of $5,000, with the shares to be held in escrow until November 14, 2003. Under the terms of the Second Modification Agreement, these shares were released to the Investor. These shares are restricted shares under the Securities Act of 1933. The Investor has "piggyback" registration rights in the event that we file a registration statement with the Securities and Exchange Commission. Under the First Modification Agreement, the Investor agreed to place 48,200 unrestricted shares of Registrant's common stock into escrow until their release on June 30, 2003. We had the option to purchase these shares at a price equal to seventy percent (70%) of their market price as of the release date. Under the Second Modification Agreement, these shares were released to the Investor and our option was terminated. In October 2002, we entered into a Marketing Services Compensation Agreement with 3rd Millennium Management to pay for marketing services. We agreed to pay for the services with the issuance of 12,000 shares of our common stock in June 2002 and by issuing 10,000 additional shares of common stock. We also issued a five year warrant to acquire 59,999 shares of common stock at an exercise price of $3.75 per share. The shares and warrants were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended. 6 On November 7, 2002, December 15, 2002 and January 7, 2003, we borrowed $100,000, $25,000 and $100,000 respectively, from private lenders. Interest of 10% per annum is payable on the outstanding balance of principal commencing April 1, 2003. Thereafter, principal and interest are payable monthly over a three year period. On October 2002, we borrowed $200,000 from a private lender. This loan is repayable in fourteen weekly installments commencing on March 10, 2003. The first thirteen installments are $15,000 each. The last installment is $5,000. The loan does not bear interest. This loan has been paid and retired. 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) 55,164 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 Gottbetter & Partners, LLP, our attorneys. On August 23, 2004, SCRH Acquisition Corp., our wholly-owned subsidiary, merged with Aciem Management, Inc., a company formed to provide operational support to owners of adult entertainment clubs. Prior to the Merger, Aciem entered into a Convertible Debenture Purchase Agreement, dated August 12, 2004, with HEM Mutual Assurance LLC and Highgate House LLC pursuant to which it sold and issued convertible debentures to HEM and Highgate in an aggregate principal amount of up to $500,000 in a private placement pursuant to Rule 504 of Regulation D under the Securities Act of 1933. Four debentures in the aggregate principal amount of $250,000, the initial debentures, were issued for gross proceeds of $250,000 in cash. Additionally, two debentures in the aggregate principal amount of $250,000 were issued in exchange for two promissory notes from HEM and Highgate in the principal amount of $250,000. We have not currently drawn funds from these two additional debentures. Each of the debentures has a maturity date of August 11, 2009, subject to earlier conversion or redemption pursuant to its terms, and bears interest at the rate of 1.5% per year, payable in cash or shares of common stock at the option of the holder of the debentures. As a result of the Merger, we have assumed the rights and obligations of Aciem in the private placement, including the gross proceeds raised through the sale of the debentures, the note issued by HEM and Highgate to Aciem and Aciem's obligations under the debentures and the Convertible Debenture Purchase Agreement. Further, in contemplation of the Merger, we entered into Amendment No. 1 to the Acquisition Agreement with Go West Entertainment, Inc., Richard Goldring, Elliot Osher and William Osher on August 12, 2004. The Amendment provides that we may issue more shares of our common stock without consideration to maintain William Osher's 8.8% share interest in us, Elliot Osher's 8.8% share interest in us and Richard Goldring's 46% share interest in us and provides protection to the ownership of our intellectual property assets. New Business Strategy and the Go West "Unwinding" Transaction In March 2003, we made a thorough evaluation of the development of our business. Based on this evaluation, we decided to implement a new business strategy. Our new business strategy included focusing our efforts to actively market the "SCORES" brand name in order to take full commercial advantage of the name and its recognition value. We will seek to generate revenue by granting licenses to use the "SCORES" brand name to adult entertainment nightclubs. We also shifted our focus to take advantage of merchandising opportunities as well as opportunities in other media outlets. 7 Management determined that potential investors perceived that we faced unknown and unnecessary risks in building, owning and operating an adult entertainment nightclub. The perceived risks include regulatory issues, zoning restrictions, construction issues and ongoing operating liabilities. Consequently, Management believed it was becoming increasingly difficult to obtain additional funding because of the perceived risks related to operating an adult nightclub under public ownership. Therefore, Management believes the best business strategy available is to license the "SCORES" brand name and engage in merchandising campaigns rather than to operate a nightclub. We entered into several transactions to implement our new strategic vision and business model. On March 31, 2003, we entered into an Acquisition Agreement with Go West, Richard Goldring, William Osher and Elliot Osher. The purpose of the Agreement was to "unwind" most of the transaction of March 11, 2002 in which we acquired Go West. We transferred 1,500,000 shares of Go West to Goldring and the Oshers (the "Purchasers"), which constituted all of Go West's outstanding equity securities. Each Purchaser received 500,000 shares of Go West. The Purchasers transferred back to us the consideration they received when they sold Go West to us consisting of 2,000,000 shares of our common stock. These shares will be cancelled or held as treasury shares. The Agreement also includes an "antidilution" provision under which, in the event we issue shares of our common stock for any purpose, the Purchasers will be issued that number of additional shares of our common stock necessary for them to maintain collectively a holding of 63.6% of our outstanding common stock. This percentage is equal to the holdings of the Purchasers as of December 31, 2002, after giving effect to the Go West transaction. This provision for additional shares is effective for eighteen months from the date of the Acquisition Agreement. Goldring will be issued shares necessary for him to maintain a 46% interest and each of the Oshers will be issued shares necessary to maintain an 8.8% interest. The transaction was approved by the board of directors of Go West and Scores. As a result of this transaction, we have divested our interest in the Scores West adult nightclub. In consideration for all payments made by us on behalf of Go West for the construction of the club, Go West has given to us its Secured Promissory Note (the "Note") for $1,636,264. The principal of the Note is payable in sixty monthly installments commencing with November 1, 2003 and ending on October 1, 2008. The first twelve monthly installments of principal are $10,000 each. The next forty-eight installments of principal are $31,589 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 with November 1, 2003. The Note is secured by Go West's leased interest in its New York nightclub. 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. EMS then entered into a Sublicense Agreement with Go West. This Sublicense authorizes GO West to use the "SCORES" brand name at its adult nightclub on the West Side of Manhattan, New York ("Scores West"). Go West pays royalties to EMS equal to 4.99% of the gross revenues earned by Go West at Scores West. 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 West continues in operation. 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. 8 Prior to entering into the Master License, EMS was inactive. Immediately after the closing of our transfer of Go West to the Purchasers, Richard Goldring and William Osher entered into an Acquisition Agreement with EMS. Both Richard Goldring and William Osher exchanged the 2,500,000 shares of common stock of Go West they received from us under the Acquisition Agreement with EMS in return for 50 shares each of EMS common stock. As a result, EMS owned 66.7% and Elliot Osher owns 33.3% of Go West's outstanding common stock. Richard Goldring and William Osher each owned 50% of EMS's outstanding common stock. On April 7, 2003 the EMS Acquisition Agreement was cancelled. EMS transferred 2,500,000 shares of Go West to Mr. Richard Goldring and 2,500,000 shares of Go West to William Osher. Go West transferred 50 shares of EMS to Mr. Goldring and 50 shares of EMS to William Osher. Richard Goldring, our President, Chief Executive Officer, and Director, is the President and Chief Executive Officer of Go West. Our Employment Agreement with Mr. Goldring dated July 1, 2002 was amended to provide for an annual salary of $104,000. All other terms of the Employment Agreement remain in effect. Mr. Goldring entered into an Employment Agreement with Go West. Our accrued obligation of unpaid salary to Mr. Goldring will be paid by Go West. Elliot Osher's employment with us was terminated in connection with the Go West "unwinding" transaction and he became an employee of Go West. Mr. Osher retained his offices as our Secretary and Director. Our accrued obligation of unpaid salary to Mr. Osher will be paid by Go West. William Osher's employment with us was terminated in connection with the Go West "unwinding" transaction. Our accrued obligation of unpaid salary to Mr. Osher will be paid by Go West. 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. On December 30, 2003, following approval by our board of directors, the Company effected a 5:1 reverse stock split. All share amounts described in this report have been adjusted to reflect this reverse stock split. General From June 1998 through March 2002 we were a full service Internet company. Web hosting, web designing co-location, and e-commerce constituted our primary services. Our services were designed to enable our customers to capitalize on the latest Web-based technologies quickly and cost effectively without the burden and expense of building, managing and maintaining the infrastructure required to support their desired applications. We owned and operated a national network, providing high capacity, reliable Internet data transmission, connecting our customers to the Internet. On July 10, 2002 we transferred our data center assets located at 2455 East Sunrise Blvd., Fort Lauderdale, Florida 33304 to Worldwide Connect, Inc. (WCI), a Nevada corporation, pursuant to an installment sale arrangement between us, WCI, and Lonnie Divine, the principal of WCI. The assets consisted of bay routers and computer hardware equipment previously utilized by us in our Internet operations. In connection with the sale, WCI agreed to make 24 monthly installment payments to us in the aggregate amount of $200,000 to be followed by a nominal payment of $100 to complete the purchase. The value of the assets was determined through arms length negotiations between the parties. The sale of the data center assets concluded our Internet-related business and allowed us to devote all of our resources to our proposed adult entertainment business utilizing the Scores brand name. The obligation of WCI to pay the purchase price to us was paid off with a lump sum payment of $85,000 received in December 2002. The lease respecting the data center premises has been assigned directly to WCI and we have no further liability under that lease. We incurred losses since the inception of our Internet business. Although we had net income during the fiscal year ended December 31, 2001 of $176,728 for financial accounting purposes, this gain was due solely to discharges of debt attributable to our Chapter 11 bankruptcy proceeding. 9 Licensed "SCORES" Brand Name Adult Entertainment Nightclubs Our principal business consists of granting 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. To further this end, we entered into the Master License with EMS and depend upon our relationship with EMS. 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. Pursuant to the terms of the Master License, EMS has granted sublicenses to eleven nightclubs to use the "SCORES" trademark. Our Sublicensed Nightclubs There are currently eleven nightclubs that have sublicensed with EMS to use the "SCORES" name. Under the EMS Master License Agreement, EMS pays, and will continue to pay, all of the royalties from the sublicensed clubs to us. We depend upon the revenue from these sublicensed nightclubs in the operation of our business. Our first sublicensed nightclub was "Scores Showroom", an adult entertainment nightclub that we hope serves as the model for our other sublicensed nightclubs. Our directors, Richard Goldring and Elliot Osher, are presently serving as operations managers at "Scores Showroom". We receive royalties equal to 4.99% of the gross revenues from Scores Showroom. Scores Showroom, through its corporate owner, 333 E. 60th Street, Inc., entered into a new sublease for its nightclub at 333 E. 60th Street, New York, New York on October 1, 2003. The sublease is for an initial term of five years, and grants an additional five-year renewal option. The new lease ensures the availability of the premises for the presently intended continued operation of our most prominent sublicensee, the original Scores Showroom, for a minimum of nine years. In June 2003, the Company's Master Licensee, EMS, entered into a Sublicense Agreement with Stone Park Entertainment, Inc. This Sublicense authorizes Stone Park Entertainment to use the "SCORES CHICAGO" brand name at its adult nightclub located at 4003 Lake Street, Stone Park, Illinois. Stone Park Entertainment pays royalties to EMS equal to approximately 4.99% of the gross revenues earned at that location. On March 16, 2004, another sublicensed club opened for business. Under the sublicense agreement executed by Go West Entertainment, Inc., SCORES WEST pays 4.99% of its gross revenues to EMS. On February 27, 2004, the Company's Master Licensee, EMS, entered into a Sublicense Agreement with CLUB 2000 EASTERN AVENUE, INC. This Sublicense authorizes CLUB 2000 to use the "SCORES BALTIMORE" brand name at its adult nightclub located at 2000 Eastern Avenue, Baltimore, Maryland. Upon the opening of Scores Baltimore, CLUB 2000 will pay royalties to EMS equal to 4.99% of the gross revenues earned at that location, or $1,000 a week, whichever is greater. On July 27, 2004, EMS entered into a Sublicense Agreement with DBD Management, Inc. ("DBD"). The sublicense granted under that agreement authorizes DBD to use the "SCORES" brand name at its adult nightclub in Ft. Lauderdale, Florida ("Scores Ft. Lauderdale"). DBD pays royalties to EMS equal to 4.99% of the gross revenues above $250,000 earned by DBD at Scores Ft. Lauderdale with a minimum payment per month, starting on February 14, 2005, of $4,000. All of these royalties are paid by EMS to us under the Master License Agreement. The term of the sublicense continues for ten years unless DBD serves written notice within six months of the termination of the agreement to extend the sublicense for another ten years. In 2004, EMS entered into a Sublicense Agreement with SMG Entertainment, Inc. ("SMG"). The sublicense granted under that agreement authorizes SMG to use the "SCORES" brand name at its adult nightclub in Miami, Florida ("Scores Miami"). SMG pays royalties to EMS equal to 4.99% of the gross revenues above $1,500,000 earned by DBD at Scores Miami. All of these royalties are paid by EMS to us under the Master License Agreement. The term of the sublicense continues for three years and is automatically renewed for additional three-year terms unless it is terminated in accordance with its terms. EMS has entered into similar sublicensing agreements with an additional five clubs. Although some of the terms differ slightly, notably by the gross revenue amount at which royalties must be paid and the amount of minimum monthly payments if any, the amount of the royalties to be paid remains constant at 4.99%. 10 Competition The adult nightclub entertainment business is highly competitive with respect to price, service, location and professionalism of its entertainment. Sublicensed clubs will compete with many locally-owned adult nightclubs. It is our belief, however, that only a few of these nightclubs have names that enjoy recognition and status that equal or approach that of Scores. Although there are restrictions on the location of a so-called "sexually oriented business", there are no barriers to entry into the adult cabaret entertainment market. For example, there are approximately 25 adult-entertainment cabaret night clubs located in New York City and approximately six located in Manhattan. We believe that only three of these other adult-entertainment cabaret night clubs in Manhattan directly compete with us. We believe that the combination of our name recognition, zoning advantages and our distinctive entertainment environment allows the sublicensed clubs to effectively compete within the industry, although we cannot assure you that this will prove to be the case. The ability of sublicensed clubs to compete and succeed will also depend upon their ability to employ and retain top quality female entertainers and bar and restaurant employees. Competition for adult entertainers is intense. The failure of sublicensed clubs to retain quality female entertainers or superior restaurant and bar employees could have a material adverse impact on the ability of sublicensed clubs to compete. Government Regulation Our sublicensees are subject to a variety of governmental regulations depending upon the laws of the jurisdictions in which they operate. The most significant governmental regulations are described below. Liquor License Our sublicensees are subject to state and local licensing regulation of the sale of alcoholic beverages. We expect sublicensees to obtain and maintain appropriate licenses allowing it to sell liquor, beer and wine. Obtaining a liquor license may be a timely procedure. In New York, for example, sublicensees make an application to the State Liquor Authority (the "SLA") for a liquor license regarding their nightclub. The SLA has the authority, in its discretion, to issue or deny such a license request. The SLA typically requires local community board approval in connection with such grants. Approval is usually granted or denied within 90-120 days from the initial application date. We cannot assure you that our sublicense will all obtain liquor licenses or that, once obtained, that they will be able to maintain their liquor licenses or assign or transfer them if necessary. Licenses to sell alcoholic beverages must be renewed annually and may be revoked or suspended at any time for cause, including any violation by our sublicensees or their employees. If one of our sublicensees failed to maintain its liquor license, it would significantly reduce the revenue of that sublicensee. "Cabaret" Licenses Sublicensees typically request a "cabaret" license regarding their nightclub. In some instances "adult entertainment" licenses are required. An example of the procedure to obtain a cabaret license is that which Scores West underwent. Scores West requested and was granted a cabaret license regarding its nightclub by the New York City Department of Consumer Affairs (the "DCA"). The DCA used objective criteria in its determination to issue such a license request after determining that the proposed use met zoning requirements and the building housing the business met building standards. Although we expect sublicensees to have "cabaret" or "adult entertainment" licenses in place, we cannot assure you that this will be the case or that licenses can be assigned or transferred if necessary. Zoning Restrictions Adult entertainment establishments must comply with local zoning restrictions, and these restrictions can often be stringent. One example of stringent zoning regulations is New York City, which requires that an adult entertainment businesses that operates in an area zoned as residential or in areas zoned commercial that prohibit adult entertainment establishments not devote more than either 40% or more of its space available to customers or 10,000 square feet of space to an adult use. On March 26, 2001, the Mayor of New York City announced proposed amendments to the zoning regulations seeking to further restrict businesses located within areas not zoned for adult entertainment establishments that presently provide adult entertainment in compliance with the present regulations. If enacted, these proposed amendments could affect operations at Scores Showroom. Although we expect sublicensees to already be operating within "zoned" areas, we cannot assure you that local zoning regulations will remain constant, or if they are changed, that a sublicensee will be able to continue operations. 11 Employees At the present time, we have three employees, including Richard Goldring, our Chairman, Chief Executive Officer and President. All of our employees are full-time employees. ITEM 2. DESCRIPTION OF PROPERTY On July 1, 2004, we entered into a sublease agreement with Go West to rent approximately 2,400 square feet of office space at 533-535 West 27th Street, New York, N.Y., on a month-to-month basis until such sublease is terminated with thirty days' notice. We pay Go West $20,000 per month for the use of this space. We believe that our office space is adequate for our current and planned activities. ITEM 3. LEGAL PROCEEDINGS On or about June 25, 2004, the New York District Attorney's office served our former independent accountants with a subpoena in connection with proceedings of the Grand Jury of the County of New York. Additionally, on or about October 15, 2004 and in July 2005, the New York District Attorney served us with five subpoenas also in connection with proceedings of the Grand Jury of the County of New York, State of New York. Based on the subpoenas, it appears that the Grand Jury is conducting an investigation into unspecified matters concerning our business and affairs. The subpoenas directed us and our former independent accountant to produce records in our possession concerning our business operations. To date, we have not been charged with any violations or crimes. In May 2005, the staff of the Securities and Exchange Commission (the "SEC") served us with a subpoena for the production of documents. The documents requested relate to individuals and entities connected to the HEIR and SAC merger and related financing and the Aciem Management, Inc. and SCRH Acquisition Corp. merger and related financing. We intend to cooperate with the SEC in its investigation. On March 31, 2006, Richard K. Goldring, president, chief executive and financial officer, 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. There are no other material legal proceedings pending to which we or any of our property is subject, nor to our knowledge are any such proceedings threatened. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this report. 12 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information. As of December 31, 2005, our common stock is quoted on the OTC Bulletin Board of the National Association of Securities Dealers, Inc. (the "NASD") under the symbol "SCRH". The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices per share of our common stock, as derived from quotations provided by Pink Sheets, LLC. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Quarter Ended High Bid Low Bid ------------- -------- ------- March 31, 2004 $ .71 $ .18 June 30, 2004 $ .43 $ .165 September 30, 2004 $ .18 $ .045 December 31, 2004 $ .07 $ .02 March 31, 2005 $ .02 $ .019 June 30, 2005 $ .013 $ .013 September 30, 2005 $ .013 $ .013 December 31, 2005 $ .009 $ .007 On May 18, 2006, our closing bid price was $.01 per share. Holders As of May 18, 2006, there were approximately 576 record holders of our common stock. Dividends We have never declared any cash dividends with respect to our common stock. Future payment of dividends is within the discretion of our board of directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock, we presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock. Recent Sales of Unregistered Securities Our former subsidiary, HEIR Holding Co., Inc. ("HEIR") completed a $1,000,000 financing transaction pursuant to Rule 504 of Regulation D of the General Rules and Regulations under the Securities Act of 1933 as amended pursuant to an August 7, 2002 Convertible Debenture Purchase Agreement between HEIR and an accredited Colorado investor (the "Investor"). In connection therewith, HEIR sold a 1% $1,000,000 convertible debenture due August 6, 2007 (the "First Debenture"). On February 25, 2003, pursuant to the Second Modification Agreement, the principal amount due under the First Debenture became $550,000. Between September 9, 2002 and November 3, 2003, the Investor converted the entire principal amount and accrued interest on the First Debenture into an aggregate amount of 2,885,753 shares of our common stock. 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. We paid the Advisor an Advisory Fee consisting of 55,164 shares of our common stock upon execution of the Agreement. The shares were issued in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. 13 On March 31, 2003, we entered into an Acquisition Agreement with Go West, Richard Goldring, William Osher and Elliot Osher (the "Purchasers"). The Agreement has an "antidilution" provision under which, in the event we issue shares of our common stock for any purpose, the Purchasers will be issued that number of additional shares of our common stock necessary for them to maintain collectively a holding of 63.6% of our outstanding common stock. This provision for additional shares was effective for eighteen months from the date of the Acquisition Agreement. Goldring was issued shares necessary for him to maintain a 46% interest and each of the Oshers was issued shares necessary to maintain an 8.8% interest. During 2003, Goldring was issued an aggregate of 3,604,203 shares of our common stock and each of the Oshers was issued an aggregate of 689,444 shares of our common stock pursuant to the anitdilution provision. During 2004, Goldring was issued an aggregate of 2,729,786 shares of our common stock and each of the Oshers was issued an aggregate of 522,144 shares of our common stock pursuant to the anitdilution provision. During 2005, Goldring was issued an aggregate of 28,973,127 shares of our common stock and each of the Oshers was issued on an aggregate of 5,507,436 shares of common stock pursuant to the antidilution provision. The number of share issued under the anti-dilution provisions in each of 2004 and 2005 does not represent the number of shares that the Company was obligate to issue in such years. The Company issued in 2005 9,433,399 of the shares that it was obligated to issue in 2004. The shares were issued in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. As a result of the Merger of our subsidiary Scores Acquisition Corp. and Aciem Management, Inc., we undertook the obligations of Aciem with respect to debentures that they issued pursuant to Rule 504 of Regulation D of the Securities Act. $89,800 in principal amount of the initial debentures are now convertible into unrestricted shares of our common stock at a conversion price that is the lesser of US$0.10 or 100% of the average of the closing bid price for five trading days immediately prior to closing or 50% of the average for the three lowest closing bid prices in the forty days immediately preceding conversion. $160,200 in principal amount of the Debentures is now convertible into unrestricted shares of our Common Stock at a conversion price $0.01 per share. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS On March 31, 2003, we entered into a transaction with Go West and its shareholders whose purpose was to "unwind" most of the transaction effected by the Acquisition Agreement. In this transaction, we divested our self of the Go West stock and our interest in the Scores West nightclub located on Manhattan's west side. We converted our business strategy into one that emphasized licensing revenues from the licensing of the "SCORES" brand name. We continued receiving licensing revenues from "Scores Showroom" and commenced receiving licensing revenues from "Scores Chicago" in June 2003 Our financial statements as of and for the year ended December 31, 2003 reflects this divesture of assets and the commencement of our new strategy emphasizing licensing activities. RESULTS OF OPERATIONS: FOR THE YEAR ENDED DECEMBER 31, 2005 (THE "2005 PERIOD") COMPARED TO THE YEAR ENDED DECEMBER 21, 2004 (THE "2004 PERIOD"). REVENUES: REVENUES INCREASED 17% TO $1,568,890 FOR THE 2005 PERIOD FROM $1,338,629 FOR THE 2004 PERIOD. THE INCREASE WAS ATTRIBUTABLE PRIMARILY TO ROYALTIES EARNED FROM THE ADDITION OF TWO NEW SUB-LICENSEES IN LAS VEGAS AND FT. LAUDERDALE IN 2005 WHICH ACCOUNTED FOR APPROXIMATELY 8% AND 3% OF TOTAL REVENUES FOR THE 2005 PERIOD. ROYALTIES FOR THE "MARQUEE", 333 EAST SIDE SUB-LICENSEE, WHICH ACCOUNTS FOR APPROXIMATELY 46% OF TOTAL REVENUE FOR THE 2005 PERIOD DECLINED BY 16%, A DECREASE THAT WAS PARTIALLY OFFSET BY AN INCREASE IN REVENUES OF APPROXIMATELY 72% AT OUR WESTSIDE SUB-LICENSEE. OPERATING EXPENSES: OPERATING EXPENSES FOR THE 2005 PERIOD AND THE 2004 PERIOD ENDED WERE $1,223,932 AND $1,102,218 RESPECTIVELY. DURING THE 2005 PERIOD WE INCURRED $368,000 OF ADDITIONAL COST WHICH RELATES TO PUBLIC RELATION, BUSINESS DEVELOPMENT, RENT, SALARIES, TRAVEL AND OTHER COST THAT RELATES TO THE INCLUSION OF OUR FOUR NEWLY SUB-LICENSE AGREEMENTS. IN ADDITION, THERE WAS A SUB-LICENSEE WRITE DOWN RESERVE THAT AMOUNTED TO $51,000. DURING THE 2004 PERIOD, WE INCURRED ADDITIONAL COSTS THAT WERE RELATED TO INTEREST AND FINANCING FEES FOR DEBT CONVERSIONS AND CONSULTING WHICH AMOUNTED TO $348,000. INTEREST INCOME (EXPENSE) - NET: INTEREST INCOME IS PRESENTED NET OF INTEREST EXPENSE FOR THE 2005 PERIOD AND THE 2004, PERIOD RESPECTIVELY. INTEREST INCOME IS ACCRUED AND AMOUNTED TO $110,340 AND $111,038 FOR THE 2005 PERIOD AND THE 2004 PERIOD, 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. 14 INTEREST EXPENSE IS DUE PRIMARILY FROM THE ISSUANCE OF LONG-TERM DEBENTURES AND NOTES PAYABLE. INTEREST EXPENSE DECREASED TO $8,000 FOR THE 2005 PERIOD FROM $264,000 FOR THE 2004 PERIOD. THIS DECREASE WAS DUE PRIMARILY TO A BENEFICIAL CONVERSION CHARGE OF $250,000 THAT RELATES TO THE CONVERSION OF DEBT IN CONNECTION WITH THE UNWINDING AGREEMENT TO EQUITY DURING IN THE THIRD QUARTER SEPTEMBER 30, 2004. PROVISION FOR INCOME TAXES: ALTHOUGH WE HAD NET PROFITS DURING THE 2005 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 $319,202 OR $0.01 PER SHARE FOR THE 2005 PERIOD VERSUS A NET LOSS OF $112,000 OR $(.01) PER SHARE FOR THE 2004 PERIOD. THE INCREASE WAS DUE PRIMARILY TO THE ADDITIONAL REVENUE EARNED DURING THE 2005 PERIOD FROM THE TWO NEWLY SUB-LICENSEE AGREEMENTS THAT AMOUNTS TO $195,000. NET INCOME PER SHARE DATA FOR BOTH THE 2005 AND 2004 PERIOD IS BASED ON NET INCOME AVAILABLE TO COMMON SHAREHOLDERS DIVIDED BY THE WEIGHTED AVERAGE OF THE COMMON SHARES. 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 December 31, 2005 we had an accumulated deficit of $3,082,305,. As of December 31, 2005, we had total current assets of $2,377,912 and total current liabilities of $486,672 or positive 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. As of December 31, 2004, we had total current assets of $1,670,449 and total current liabilities of $573,273 or working capital of $1,097,176. The increase in the amount of our working capital is primarily attributable to the increase in our royalty receivable from our sub-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. CRITICAL ACCOUNTING POLICIES The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure on contingent assets and liabilities at the date of our financial at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies see note 2 to our consolidated financial statements. 15 Revenue Recognition Revenues for the 2005 period and the 2004 period were derived predominately from licensing fees. We apply judgment to ensure that the criteria for recognizing revenues are consistently applied and achieved for all recognized sales transactions. Long-Lived Assets (including Tangible and Intangible Assets) We acquired the "Scores" trademark to market and conduct a global business strategy. Such costs affected the amount of future period amortization expense and impairment expense that we incur and record as cost of sales. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements. We assess potential impairment to the intangible and tangible assets on a quarterly basis or when evidence, events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. Our judgments regarding the existence of impairment indicators and future cash flows related to these assets are based on operational performance of our business, market conditions and other factors. Future events could cause us conclude that impairment indicators exist and that other tangible or intangible assets is impaired. Beneficial conversion features of debt issuances We have issued convertible debt with conversion terms into common stock. The conversion terms are subject to valuations pursuant to EITF 98-5 and EITF 00-27, whereby the intrinsic value of such conversion terms into common stock is to be recorded as a form of interest expense over the term of the debt, while considering the conversion terms themselves. The calculated intrinsic value of the conversion terms are limited to the total proceeds obtained in the financing. Accounting for Income Taxes As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes. Management judgment is required in determining our provision of our deferred tax asset. We recorded a valuation for the full deferred tax asset from our net operating losses carried forward due to the Company not demonstrating any consistent profitable operations. In the event that the actual results differ from these estimates or we adjust these estimates in future periods we may need to adjust such valuation recorded. 16 ITEM 7. FINANCIAL STATEMENTS The financial statements and supplementary data are included beginning immediately following the signature page to this report. 17 Index to Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm...................... 19 Consolidated Balance Sheet................................................... 20 Consolidated Statements of Operations........................................ 21 Consolidated Statements of Stockholders' Equity.............................. 22 Consolidated Statements of Cash Flows.........................................23 Notes to the Consolidated Financial Statements......................... 24 to 32 18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders Scores Holding Company, Inc. and subsidiaries We have audited the accompanying consolidated balance sheet of Scores Holding Company, Inc. and subsidiaries as of December 31, 2005, and the related consolidated statement of operations, stockholders' equity and cash flows for each of the years then ended December 31, 2005 and 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Scores Holding Company, Inc. as of December 31, 2005 and the results of its operations and its cash flows for each of the years then ended December 31, 2005 and 2004 in conformity with accounting principles generally accepted in the United States. /s/ Sherb & Co., LLP Certified Public Accountants New York, New York May 16, 2006 19 SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 2005 ------------ ASSETS CURRENT ASSETS: Cash $ 31,185 Notes Receivable - current portion -related party 1,030,476 Licensee receivable - including affiliates 1,244,888 Inventory 31,715 Prepaid expenses 39,648 ------------ Total Current Assets 2,377,912 FURNITURE AND EQUIPMENT, NET 8,763 INTANGIBLE ASSETS, NET 140,750 NOTES RECEIVABLE - long term - related party 830,894 ------------ $ 3,358,319 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 323,407 Notes Payable 28,965 Related party payable 11,000 Convertible Debentures, Net of Discount 123,300 ------------ Total Current Liabilities 486,672 COMMITMENTS & CONTINGENCIES -- STOCKHOLDERS' EQUITY Preferred stock, $.0001 par value, 10,000,000 shares authorized, -0- issued and outstanding -- Common stock, $.001 par value; 500,000,000 shares authorized, 78,642,180 issued and outstanding, respectively 78,642 Additional paid-in capital 5,875,310 Accumulated deficit (3,082,305) ------------ Total Stockholder's equity 2,871,647 ------------ $ 3,358,319 ============ See notes to consolidated financial statements. 20 SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, --------------------------- 2005 2004 ------------ ------------ REVENUE Royalty Revenue $ 1,413,235 $ 1,239,693 Merchandise Revenue 152,655 98,936 Public relations revenue 3,000 ------------ ------------ Total 1,568,890 1,338,629 COST OF MERCHANDISE SOLD 120,729 194,846 ------------ ------------ GROSS PROFIT 1,448,161 1,143,783 GENERAL AND ADMINISTRATIVE EXPENSES 1,223,932 1,102,218 ------------ ------------ NET INCOME FROM OPERATIONS 224,229 41,565 INTEREST INCOME (EXPENSE) 101,973 (153,162) ------------ ------------ NET INCOME (LOSS) BEFORE INCOME TAXES 326,202 (111,597) PROVISION FOR INCOME TAXES 7,000 -- ------------ ------------ NET INCOME (LOSS) $ 319,202 $ (111,597) ============ ============ NET INCOME (LOSS) PER SHARE BASIC and DILUTED $ 0.01 $ (0.01) ============ ============ WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING - BASIC and DILUTED 50,600,317 15,279,643 ============ ============ See notes to consolidated financial statements. 21 SCORES HOLDING COMPANY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Stockholders Common Stock Additional Total ---------------------------- Paid in Accumulated (Deficit) Shares Amount Capital Deficit Equity ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 2003 $ 10,109,574 $ 10,110 $ 5,102,756 $ (3,289,910) $ 1,822,956 ------------ ------------ ------------ ------------ ------------ Issuance of shares for services 3,160,000 3,160 290,840 -- 294,000 Issuance of shares according to the anti-dilution agreement 13,207,474 13,207 (13,207) -- -- Conversion of debentures 4,398,998 4,399 61,210 -- 65,609 Beneficial Conversion - Debentures -- -- 250,000 -- 250,000 Net loss (111,597) (111,597) ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 2004 $ 30,876,046 $ 30,877 $ 5,691,598 $ (3,401,507) 2,320,968 ============ ============ ============ ============ ============ Conversion of debentures 6,036,534 6,036 55,584 61,620 Issuance of shares according to the anti-dilution agreement 30,374,600 30,375 (30,375) -- Issuance of shares for services 11,355,000 11,355 158,503 169,858 Net income -- -- -- 319,202 319,202 ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 2005 $ 78,642,180 $ 78,642 5,875,310 (3,082,305) 2,871,647 ============ ============ ============ ============ ============
See notes to consolidated financial statements. 22 SCORES HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 2005 2004 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net INCOME (LOSS) $ 319,202 $ (111,597) Adjustments to reconcile net loss to net cash provided by (used) in operating activities: Depreciation &Amortization 35,000 35,000 Valuation of beneficial conversion -- 250,000 Common stock and warrants issued for services 170,177 294,000 Licensee receivable (273,625) -- Prepaid expenses (39,648) (692,278) Inventory (31,715) 12,555 Interest receivable (110,340) (111,038) Accounts payable and accrued expenses 43,383 87,074 ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 112,434 (236,284) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash collected on Notes receivable 22,000 40,000 ---------- ---------- NET CASH PROVIDED BY INVESTING ACTIVITIES 22,000 40,000 ---------- ---------- CASH PROVIDED BY FINANCING ACTIVITIES: Issuance of Debentures -- 250,000 Related party payable (17,760) 12,460 Repayment of notes payable (85,662) (66,012) ---------- ---------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (103,422) 196,488 ---------- ---------- NET (DECREASE) INCREASE IN CASH 31,012 164 CASH, beginning of the year 173 9 ---------- ---------- CASH, end of the year $ 31,185 $ 173 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 8,316 $ 13,852 Cash paid during the year for taxes 5,905 7,155 Non cash financing activities: Common stock issued for services $ 170,177 $ 290,840 Common stock issued in connection with debenture conversion 61,620 65,400 Beneficial conversion -- 250,000 See notes to consolidated financial statements. 23 SCORES HOLDING COMPANY, INC. and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TWO YEARS ENDED DECEMBER 31, 2005 Note 1. Organization Scores Holding Company, Inc. and subsidiaries (the "Company") is a Utah corporation, formed in August 1997 and is located in New York, NY. Formerly, Internet Advisory Corporation, the Company is a licensing company that intends to exploit the "Scores" name and trademark for franchising and other licensing options. The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States. The consolidated financial statements of the Company include the accounts of Scores Licensing Corp. Note 2 Summary of Significant Accounting Principles Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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. Inventory Inventory consist primarily of finished goods and is valued at the lower of cost or market on a first-in first-out "FIFO" basis. In performing our cost valuation, we consider the condition and salability of our inventory and may adjust the valuation due to anticipated changes that may materially affect its basis. Leasehold Improvements and Equipment Leasehold improvements and equipment are stated at cost. Maintenance and repairs are charged to expenses as incurred. Depreciation is provided for over the estimated useful lives of the individual assets using straight-line methods. Accounting for Long-Lived Assets The Company reviews long-lived assets, certain identifiable assets and any goodwill related to those assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. At December 31, 2005, the Company believes that there has been no impairment of long-lived assets. Fair Value of Financial Instruments The carrying amounts reported in the balance sheet for cash, accounts payable, accrued expenses, notes receivable and notes payable approximate fair value, based on the short-term maturity of these instruments. Royalty Receivable and Reserves The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts that best reflects an estimated of the amounts that will not be collected. In addition to reviewing any delinquent royalty receivable, we consider many factors in estimating our reserve, including historical data, experience, customer types, credit worthiness and economic trends. From time to time, we may adjust our assumptions for anticipated changes in any of these or other factors expected to affect collectibility. A reserve as of December 31, 2005 of $50,773 was recorded. Shipping and Handling Costs The shipping and handling costs are included in cost of sales in the accompanying consolidated statement of income for all periods presented. 24 Advertising Costs The costs of advertising are expensed as incurred. The advertising expenses for the years ended December 31, 2005 and 2004 are $73,502 and $33,226, respectively. Stock Based Compensation 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. The Company accounts for non-employee stock transactions in accordance with SFAS No. 123 and EITF 96-18. 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 year ended December 31, - -------------------------------------------------------------------------------- 2005 2004 ---- ---- - -------------------------------------------------------------------------------- Net Income (loss) available to common shareholders, as reported $ 319,202 $ (111,597) - -------------------------------------------------------------------------------- Deduct: Stock-based compensation, net of tax - - - - - -------------------------------------------------------------------------------- Net loss available to common shareholders, pro-forma $ 319,202 $ (111,597) ========== =========== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Basic earnings per share: - -------------------------------------------------------------------------------- As reported - $ .01 $ ( .01) - -------------------------------------------------------------------------------- Pro-forma - $ .01 $ (.01) - -------------------------------------------------------------------------------- The above stock-based employee compensation expense has been determined utilizing a fair value method, the Black-Scholes option-pricing model, although there were no stock options issued during the above We have recorded no compensation expense for stock options granted to employees during the year ended December 31, 2005 and 2004. In accordance with SFAS 123, the fair value of each option grant has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: 25 - ------------------------------------------------------------------------------- For the year ended December 31, - ------------------------------------------------------------------------------- 2005 2004 ---- ---- - ------------------------------------------------------------------------------- Risk free interest rate 4.38% 3.75% - ------------------------------------------------------------------------------- Expected life 7.5 years 8.5 years - ------------------------------------------------------------------------------- Dividend rate 0.00% 0.00% - ------------------------------------------------------------------------------- Expected volatility 100% 100% - ------------------------------------------------------------------------------- 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. Income Taxes The Company utilizes the liability method of accounting for income taxes as set forth in SFAS 109, "Accounting for Income Taxes." Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company has a net operating loss carryforward of approximately $3,700,000, which expire in the years 2015 through 2022. The related deferred tax asset of approximately $1,236,000 has been offset by a valuation allowance. The Company's net operating loss carryforwards have been limited, pursuant to the Internal Revenue Code Section 382, as to the utilization of such net operating loss carryforwards due to changes in ownership of the Company over the years. - -------------------------------------------------------------------------------- 2005 2004 ---- ---- - -------------------------------------------------------------------------------- Deferred tax assets: - -------------------------------------------------------------------------------- Net operating loss carryforward $ 1,200,000 $ 1,345,000 - -------------------------------------------------------------------------------- Less valuation allowance (1,200,000) (1,345,000) - -------------------------------------------------------------------------------- Net deferred tax asset $ -- $ -- - -------------------------------------------------------------------------------- 26 The reconciliation of the Company's effective tax rate differs from the Federal income tax rate of 34% for the years ended December 31, 2005 and 2004, as a result of the following: - -------------------------------------------------------------------------------- 2005 2004 ---- ---- - -------------------------------------------------------------------------------- Tax (benefit) at statutory rate $ 109,000 $ (38,000) - -------------------------------------------------------------------------------- Non deductible expenses - equity 36,000 -- - -------------------------------------------------------------------------------- Temporary timing differences (575,000) - -------------------------------------------------------------------------------- Permanent timing differences - -------------------------------------------------------------------------------- Sale of subsidiary -- 575,000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Change in valuation allowance (145,000) 38,000 - -------------------------------------------------------------------------------- $ -- $ -- - -------------------------------------------------------------------------------- Loss Per Share The Company has adopted SFAS 128, "Earnings per Share." Loss per common share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method. Common stock equivalents (common stock warrants) were not included in the computation of loss per share for the periods presented because their inclusion is anti-dilutive. At December 31, 2005, there were stock options to purchase 85,000 common stock shares. Accounting Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk 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 year, revenues earned from royalties and merchandise sales from these unrelated licensees amounted to $342,442, which there is $148,419 due and outstanding as of December 31, 2005. Revenues from royalties and merchandise sales from the three related licensees based in New York and Florida was $1,091,644, which there was $1,096,469 due and outstanding as of December 31, 2005. New Accounting Pronouncements FASB 154 - Accounting Changes and Error Corrections In May 2005, the FASB issued FASB Statement No. 154, which replaces APB Opinion No.20 and FASB No. 3. This Statement provides guidance on the reporting of accounting changes and error corrections. It established, unless impracticable retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements to a newly adopted accounting principle. The Statement also provides guidance when the retrospective application for reporting of a change in accounting principle is impracticable. The reporting of a correction of an error by restating previously issued financial statements is also addressed by this Statement. This Statement is effective for financial statements for fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on the financial statements of the Company once adopted. 27 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 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. In November 2004, the FASB issued FASB Statement No. 151, which revised ARB No.43, relating to inventory costs. This revision is to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This Statement requires that these items be recognized as a current period charge regardless of whether they meet the criterion specified in ARB 43. In addition, this Statement requires the allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on the financial statements of the Company once adopted. FASB 152 - Accounting for Real Estate Time-Sharing Transactions In December 2004, the FASB issued FASB Statement No. 152, which amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real-estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes this Statement will have no impact on the financial statements of the Company once adopted. FASB 153 - Exchanges of Nonmonetary Assets In December 2004, the FASB issued FASB Statement No. 153. This Statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on the financial statements of the Company once adopted. FASB 123 (revised 2004) - Share-Based Payments In December 2004, the FASB issued a revision to FASB Statement No. 123, Accounting for Stock Based Compensation. This Statement supersedes APB Opinion I think this should be supercedes No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership Plans. 28 A nonpublic entity will measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of those instruments, except in certain circumstances. A public entity will initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. A nonpublic entity may elect to measure its liability awards at their intrinsic value through the date of settlement. The grant-date fair value of employee share options and similar instruments will be estimated using the option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). Excess tax benefits, as defined by this Statement, will be recognized as an addition to paid-in-capital. Cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows. The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in paid-in capital to which it can be offset. The notes to the financial statements of both public and nonpublic entities will disclose information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements. The effective date for public entities that do not file as small business issuers will be as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. For public entities that file as small business issuers and nonpublic entities the effective date will be as of the beginning of the first or annual reporting period that begins after December 15, 2005. Management intends to comply with this Statement at the scheduled effective date for the relevant financial statements of the Company. Management believes the effects of adopting this revision to FASB 123, will approximate recording those amounts currently reported as compensation herein on a pro-forma basis as allowed under FASB 123. Note 3. Furniture and Equipment At December 31, 2005, furniture and equipment consist of the following: 2005 --------------- Furniture & Equipment $ 50,000 Less: accumulated depreciation (41,237) --------------- $ 8,763 =============== Furniture and equipment are depreciated over 5 years. Depreciation expense for the year ended December 31, 2005 and 2004 was $10,000 and $10,000 respectively. Note 4. Related-Party Transactions a. Go West Entertainment, Inc. The Company entered into an office lease agreement with Go West Entertainment, Inc., "Go West". The President and sole Director of the Company is also one of the three shareholders of Go West. See Commitments & Contingencis for the terms of such lease. b. "Unwinding" transaction and Master License Agreement Immediately after the closing of our transfer of Go West in 2002, 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. In consideration of all payments made by us on behalf of Go West for the construction of the club, Go West 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. The balance of such note receivable as of December 31, 2005 including interest was $1,861,370. Management is working on re-negotiating such payments terms to be $11,000 per month with a balloon payment, while such note is technically in default. Management believes such note is adequately secured by leaseholds and the underlying lease, although subordinated to the underlying mortgage of such property. 29 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. Note 5. Intangible Assets a. Trademark In connection with the acquisition of HEIR, as discussed above, the Company acquired the trademark to the name "SCORES". This trademark had a recorded value of $250,000. This trademark has been registered in the United States, Canada, Japan, Mexico and the European Community. The trademark is being amortized by straight line method 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 $25,000 in 2005 and $25,000 of amortization expense, in 2004. Amortization of this intangible will continue at $25,000 a year over its useful life. Note 6. Notes Payable and Convertible Debenture a. Convertible Debenture a. On December 16, 2003 the Company entered into a "Loan Agreement Modification" whereby the remaining loan balance of $559,000 was forgiven for the issuance of 20,000 warrants with an exercise price of 75% of the three lowest closing bid prices per share of the Company's common stock during the forty trading days immediately preceding the date of the conversion for a term of three years. The 20,000 warrants were valued at $7,000 using the Black-Scholes method. The remaining balance of the $552,000 debt forgiven was allocated as a gain on the settlement of such debt net of the write off of the remaining $95,000 of related capitalized financing costs. b. The terms of the $230,000 convertible debentures "Debenture A", issued in August 2004, are as follows: - The debentures mature on August 11, 2009 and bear interest at 1.5% per annum and accrue until paid. - The debentures are convertible at the option of the holder into common stock at the lesser of (a) $0.10 or 100% of the average of the closing bid prices for the five trading days immediately prior to closing or (b) 50% of the average of the three lowest closing bid prices in the forty days immediately preceding the conversion date. - The Company may redeem the outstanding debentures at any time for 135% of the unconverted amount of the debenture plus accrued interest. The terms of the $20,000 convertible debenture "Second Debenture", issued in August 2004, are as follows: - The debenture can be converted into $.01 per share. The terms of the $250,000 contingent convertible debentures "Debenture B", issued in August 2004, are as follows: - The debentures mature on August 11, 2009 and bear interest at 1.5% per annum and accrue until paid. - The debentures are convertible at the option of the holder into common stock at the lesser of $0.125 or 50% of the average of the closing bid prices for the three trading days immediately prior to closing. - The Company may redeem the outstanding debentures at any time for 135% of the unconverted amount of the debenture plus accrued interest. The aforementioned convertible debentures contain certain anti-dilution provisions. A $250,000 valuation of the beneficial conversion features of the Debenture A and the Second Debenture has been recorded as interest expense. The valuation of such beneficial conversion rights has been limited to the $250,000 pursuant to the applicable EITF. No evaluation of the beneficial conversion terms of Debenture B has been performed since such monies have yet to be received. Pursuant to the terms of these debenture agreements approximately 60,000,000 shares of common stock has been placed in escrow as for the conversion of such debentures. There was $65,609 converted from such debentures, including interest accrued, during 2004 for the issuance of 4,398,998 shares of common stock. 30 During 2005, there was $61,300 of principal and accrued interest converted from such Debentures for the issuance of 6,036,534 shares of common stock. The terms of anti-dilution agreement with the major shareholders were extended as part of the execution of these debentures issued in August 2004. Note 7. Equity Transactions a. In March 2004, the Company issued 750,000 shares of common stock in exchange for $147,500 of consulting services. b. In April 2004, the Company issued 180,000 shares of common stock in exchange for $30,000 of legal services. c. In June 2004, the Company issued 100,000 shares of common stock in exchange for $9,750 of consulting services. d. In July 2004, the Company issued 330,000 shares of common stock in exchange for $33,000 of legal services. e. On August 12, 2004, the Company entered into a merger agreement with Aciem Management, Inc., a New York Corporation. ("ACMI") As a result of the merger, ACMI became a wholly-owned subsidiary of the Company and all outstanding shares of ACMI's capital stock held by its sole stockholder, a former officer, were converted into shares of the Company's common stock. ACMI is a private, development stage company formed to provide operational support to owners of adult entertainment clubs. ACMI had no operations to the date of the merger. ACMI had $250,000 in cash and $250,000 in debentures as of August 12, 2004. Prior to the merger, ACMI entered into a Convertible Debenture Purchase agreement dated August 12, 2004 with HEM Mutual Assurance LLC and Highgate House LLC, pursuant to which it sold and issued convertible debentures to HEM and Highgate in an aggregate principal amount of up to $500,000 in a private placement, only $250,000 was actually funded with cash. Indirectly, the managing member of Highgate, via another limited liability company, is a member of outside legal counsel to the Company. Four debentures in the aggregate principal amount of $250,000 were issued for gross proceeds of $250,000 in cash and two additional debentures in the aggregate principal amount of $250,000 were issued in exchange for two promissory notes from HEM and Highgate in the principal amount of $250,000. Such $250,000 of promissory notes have not been recorded as an asset as collectibility is not assured, in addition the $250,000 was due upon culminating the merger with the Company on August 12, 2004 and payable at the option of HEM and/or Highgate. The Company has yet to receive such monies as of March 17, 2005. As a result of the merger, the Company has assumed the rights and obligations of ACMI in the private placement, including the gross proceeds raised through the sale of the Debentures, the note issued by HEM and Highgate to ACMI, and ACMI's obligations under the Debentures and the Purchase Agreement. The $230,000 principal amount of the debentures is now convertible into unrestricted shares of common stock. $20,000 in principal amount of the initial debentures is now convertible into unrestricted shares of common stock at conversion price of $0.01 per share. The $250,000 contingent debenture, which such monies have yet to be received, may not be converted, does not accrue interest, and is not subject to repayment at maturity unless (i) HEM and Highgate elect to fund the contingent debenture; (ii) a sufficient number of shares of common stock are then held in escrow to cover at least 200% of the number of shares that would then be necessary to satisfy the full conversion of all then outstanding converted debentures; and (iii) the Note has been paid in full by HEM and Highgate. See Note 6(b) above for the conversion terms and beneficial conversion recorded. f. In September 2004, the Company issued 500,000 shares of common stock in exchange for $22,750 of consulting services. g. In September 2004, the Company issued 300,000 shares of common stock in exchange for $25,000 of legal services. h. In March 2004, June 2004, September 2004 and December 200, the Company issued 1,310,450, 489,224, 1,974,400 and 9,433,400 shares of common stock, respectively, in accordance with the anti-dilution provisions in the unwinding agreement or a total of 13,207,474 shares. i. In October 2004, the Company issued 1,000,000 shares of common stock in exchange for $26,000 of consulting services. 31 j. In October 2004, the Company issued 626,387, 626,413, 802,301 and 835,731 shares of common stock, respectively, in exchange for the conversion of $11,250, $11,250, $14,400 and $15,000 of debenture principal, respectively, and $25, $25, $41 and $43 of interest, respectively. k. In December 2004, the Company issued 804,340 and 703,826 shares of common stock, respectively, in exchange for the conversion of $7,200 and $6,300 of debenture principal, respectively, and $39 and $34 of interest, respectively. l. In January 2005, the Company issued 804,800, 804,833 and 805,063 shares of common stock, respectively, in exchange for the conversion of $7,200, $7,200 and $7,200 of debenture principal, respectively, and $44, $44 and $46 of interest, respectively. m. In February 2005, the Company issued 352,517 shares of common stock, respectively, in exchange for the conversion of $2,800 of debenture principal, respectively, and $20 of interest respectively. n. In March 2005, the Company issued 2,016,521 share of common stock, respectively, in exchange for the conversion of $14,400 of debenture principal, respectively, and $119 of interest respectively. o. In March 2005, September 2005 and December 2005, the Company issued 8,394,700, 17,379,900 and 4,600,000 shares of common stock, respectively, in accordance with the anti-dilution provisions in the unwinding agreement or a total of 30,374,600 shares. p. In June 2005, the Company issued 2,300,000 shares of common stock in exchange for $46,000 of legal services. q. In August 2005, the Company issued 2,300,0000 shares of common stock in exchange for $31,050 of legal services. r. During September 2005, the Company issued 4,115,000 shares of common stock in exchange for $66,408 of legal services. s. During September 2005, the Company issued 1,252,800 shares of common stock in exchange for the conversion of $22,500 of debenture principal, respectively, and $50 of interest respectively. t. During November 2005, the Company issued 2,640,000 shares of common stock in exchange for $26,400 of legal services. Note 8. Stock Option The Company accounts for its stock options under APB Opinion No. 25, "Accounting for Stock Issued to Employees", under which no compensation expense is recognized. The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation", for disclosure purposes; accordingly, in addition compensation expense is recognized in the results of operations for options granted at below fair market value as required by APB Opinion No. 25. 32 Stock option activity for the two years ended December 31, 2005 is summarized as follows: Weighted Average Shares Exercise Price --------------- --------------- Outstanding at December 31, 2003 85,000 $ 2.80 --------------- --------------- Granted -- -- Exercised -- -- Expired or cancelled -- -- --------------- --------------- Outstanding at December 31, 2004 85,000 $ 2.80 =============== =============== Granted -- -- Exercised -- -- Expired or cancelled -- -- --------------- --------------- Outstanding at December 31, 2005 85,000 $ 2.80 =============== =============== Note 9. Commitments & Contingencies The Company reduced the office space being leased pursuant to the terms of the Plan. Future lease commitments are as follows: 2006 $240,000 2007 $240,000 2008 $240,000 2009 $240,000 Rent expense for the year ended December 31, 2005 and 2004 was $240,000 and $120,000 respectively. In connection with the unwinding agreement, the Company was not responsible for the rent expense in connection with the West side club after March 31, 2003. In June 2004, the Company signed a lease with Go West Entertainment for office space located at 533-535 West 27th Street, New York, NY. 33 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. As noted in our Current Report on Form 8-K, filed March 1, 2005, we dismissed our former independent accountants and appointed Sherb & Co., LLP as our independent accountants. During our fiscal years ended December 31, 2005 and 2004, we had no disagreements with our former accountants in any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of our former accountant, would have caused them to make reference to the subject matter of the disagreements in connection with their reports on our financial statements for those years. As noted in our Current Report on Form 8-K, filed July 17, 2005, David Silverman resigned as the Company's Treasurer and Chief Financial Officer. There was no disagreement with the Company on any matter relating to the Company's operations, policies or practices that led to his resignation. The Company has commenced a search for his replacement. ITEM 8A. 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, our principal executive officer and principal financial officer have concluded that the our 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. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Executive Officers and Directors Directors serve until the next annual meeting of the stockholders, until their successors are elected or appointed and qualified or until their prior resignation or removal. Officers serve for such terms as determined by our board of directors. Each officer holds office until such officer's successor is elected or appointed and qualified or until such officer's earlier resignation or removal. No family relationships exist between any of our present directors and officers. The following table sets forth certain information, as of May 18, 2006, with respect to our directors and executive officers.
Date of Election or Appointment Name Positions Held Age as Director - ---- -------------- --- ----------- Richard K. Goldring President, Chief Executive Officer, Director 37 December 2000 Elliot Osher (1) Secretary, Director 46 September 2002
(1) Mr. Osher resigned as our Secretary and Director on March 27, 2006 34 The following is a brief account of the business experience during the past five years or more of our director and executive officer. Mr. Goldring has served as an executive officer and director of ours since December 2000. Since 1994 Mr. Goldring has worked for Scores Entertainment, Inc., first as an accountant before being promoted to his current position of operations manager for "Scores Showroom" located on East 60th Street in Manhattan in 1999. He has served as an executive officer and a director of Go West Entertainment Inc. since its inception in May 2001. Mr. Goldring is also a director, president and chief executive officer of Entertainment Management Systems, Inc. ("EMS"), the licensee of the "Scores" trademarks. Mr. Goldring earned a degree in accounting from Brooklyn College in 1992. Board of Directors Our directors receive no remuneration for acting as such. Directors may however be reimbursed their expenses, if any, for attendance at meetings of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees. No such committees, including an audit committee, have been appointed to date. As a result, we have not designated any director as an "audit committee financial expert", as that term is defined in the rules of the Securities and Exchange Commission. Compliance with Section 16(a) of the Exchange Act Based solely on a review of Forms 3 and 4, and amendments thereto furnished to the Company under Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934 during the most recent fiscal year, and Form 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, the Directors and Officers of the Company were not in timely compliance with the reporting requirements under Section 16(a) of the Securities Exchange Act of 1934. All required Forms 3, 4 and 5 have been filed as of the date of this Report. Code of Ethics Due to the scope of our current operations, as of December 31, 2005, we have not adopted a Code of Ethics for financial executives, which include our principal executive officer, principal financial officer or persons performing similar functions. Our decision to not adopt such a code of ethics results from our having only a limited number of officers and directors operating as our management. We believe that as a result of the limited interaction which occurs having such a small management structure eliminates the current need for such a code. ITEM 10. EXECUTIVE COMPENSATION The following table sets forth information concerning the total compensation paid or accrued by us during the three fiscal years ended December 31, 2005 to (i) all individuals that served as our chief executive officer or acted in a similar capacity for us at any time during the fiscal year ended December 31, 2005 and (ii) all individuals that served as executive officers of ours at any time during the fiscal year ended December 31, 2005 that received annual compensation during the fiscal year ended December 31, 2005 in excess of $100,000. Summary Compensation Table
Annual Compensation Long-Term Compensation ------------------- ---------------------- Fiscal Year Ended Restricted Name and December Other Options/ Stock LTIP All Other Principal Position 31, Salary Bonus Compensation SARs Awards Payouts Compensation ----------- -------- -------- ------------ -------- ---------- -------- ------------ Richard K. Goldring, 2005 $104,000 $ 16,000 -- -- -- -- -- Chief Executive 2004 $104,000 0 0 0 0 0 0 Officer, President 2003 $ 78,000 0 0 80,000(1) 0 0 0 ----------- -------- -------- ------------ -------- ---------- -------- ------------
35 Option/SAR Grants In Last Fiscal Year (Individual Grants)
Number of Securities Underlying Percent of Total Exercise or Options/SARs Granted Options/SARs Granted to EBase Price Name (#) Employees in Fiscal Year (per share) Date of Grant Expiration Date - --------------------------------------------------------------------------------------------------------------------------- Richard Goldring None - - - -
Stock Option Plans The named executive did not participate in any of our stock option plans during the fiscal year ended December 31, 2005. Stock Appreciation Rights The named executive did not receive any stock appreciation rights from us during the fiscal year ended December 31, 2005. Aggregated Option/SAR Exercises and Fiscal Year End Option/SAR Values The named executive did not exercise any stock options or stock appreciation rights from us during the fiscal year ended December 31, 2005. Long Term Incentive Plan Awards We made no long-term incentive plan awards to the named executive officer during the fiscal year ended December 31, 2005. Employment Contracts, Termination of Employment and Change-in-Control Arrangements Effective July 1, 2002, we entered into a ten-year employment agreement with Richard Goldring our president and chief executive officer. This agreement was in effect until March 31, 2003. The agreement provides for Mr. Goldring to assume primary responsibility for our licensing program. The agreement provided for an initial annual salary of $260,000 which was to increase to $520,000 upon the opening of the Scores West Club as well as other benefits including, but not limited to, travel, automobile and living allowances, bonus eligibility and the right to participate in pension, health, and any other benefit programs which we may institute in the future. We are required by the agreement to obtain and maintain death and disability insurance on Mr. Goldring throughout the term of this agreement in the minimum amount of $5,000,000. The insurance has not yet been obtained by us. We are required by the agreement to apply the insurance proceed to the repurchase of Mr. Goldring's stock in our company following his death or disability, at a 20% discount from market. In the event the discounted value of such stock as at the date of death or disability is less than $1,000,000 Mr. Goldring or his estate, as the case may be, is entitled to receive $1,000,000 of the insurance proceeds. We may terminate the agreement for cause, following the effectiveness of which, Mr. Goldring's right to further compensation under the agreement shall cease. If the agreement is terminated by Mr. Goldring for good reason, or by us without cause, however, Mr. Goldring shall be entitled to receive all remaining base salary then due him under the agreement plus any previously unreimbursed travel, living or car expenses. He shall be further entitled to assume the related death and disability policy. Mr. Goldring may also terminate the agreement without good reason, following the effectiveness of which, his right to further compensation under the agreement shall cease. Notwithstanding the foregoing, in the event Mr. Goldring terminates the agreement without good reason more than three years and less than seven years after July 1, 2002, we shall be obligated to pay Mr. Goldring a $1,000,000 termination fee. Our Employment Agreement with Mr. Goldring was amended effective March 31, 2003 in connection with the Go West "unwinding" transaction to provide for an annual salary of $104,000. All other terms of the Employment Agreement remain in effect. Effective October 1, 2002 we entered into an employment agreement with Elliot Osher our Secretary, director of club operations and director. This agreement was in effect until March 31, 2003, when it was terminated in connection with the Go West "unwinding" transaction. The agreement provided for an initial annual salary of $260,000 which was to increase to $520,000 upon the opening of the Club as well as other benefits including, but not limited to, travel, automobile and living allowances, bonus eligibility and the right to participate in pension, health, and any other benefit programs which we may institute in the future. Our Employment Agreement with Mr. Osher was terminated effective March 31, 2003. Our accrued obligation of unpaid salary to Mr. Osher will be paid by Go West. Mr. Osher resigned as our Secretary and Director on March 27, 2006. 36 Compensation of Directors Our directors receive no compensation for serving as such, for serving on committees of the board of directors or for special assignments. During the fiscal year ended December 31, 2005, there were no other arrangements between us and our directors that resulted in our making payments to any of our directors for any services provided to us by them as directors. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information with respect to the beneficial ownership of our common stock known by us as of March 24, 2005 by (i) each person or entity known by us to be the beneficial owner of more than 5% of our common stock, (ii) each of our directors, (iii) each of our executive officers and (iv) all of our directors and executive officers as a group. Except as otherwise indicated, the percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on such date and all shares of our common stock issuable to such holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by such person at said date which are exercisable within 60 days of such date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent such power may be shared with a spouse. Name and Address Shares of Common Stock Percentage of Beneficial Owner Beneficially Owned Ownership (1) ------------------- ------------------ ------------- Richard K. Goldring 41,107,894(2) 46.5% 5 Fox Chase Drive Watchung, NJ 07060 Elliot Osher (3) 8,401,938 9.5% 54 Prospect Avenue White Plains, NY 10606 William Osher 8,401,938 9.5% 2955 Shell Road Brooklyn, NY 11224 All directors and executive officers 41,107,894(2) 46.5% as a group (1 person) (1) Based upon 88,383,990 shares issued and outstanding as of May 18, 2006. (2) Includes 1,600 shares owned by Irina Goldring, the wife of Richard Goldring. (3) Elliot Osher resigned as our director on March 27, 2006. Changes in Control Not Applicable. ITEM 12. RELATED TRANSACTIONS On March 31, 2003, we entered into an Acquisition Agreement with Go West, Richard Goldring, William Osher and Elliot Osher. The purpose of the Agreement was to "unwind" the transaction of March 11, 2002 in which we acquired Go West. We transferred 1,500,000 shares of Go West to Goldring and the Oshers (the "Purchasers"), which constituted all of Go West's outstanding equity securities. The Purchasers transferred back to us the consideration they received when they sold Go West to us, that is 2,000,000 shares of our common stock. The Agreement also has an "antidilution" provision under which, in the event we issue shares of our common stock for any purpose, the Purchasers will be issued that number of additional shares of our common stock necessary for them to maintain collectively a holding of 64.6% of our outstanding common stock. This provision for additional shares is effective for eighteen months years from the date of the Agreement. Goldring will be issued shares necessary for him to maintain a 46% interest and each of the Oshers will be issued shares necessary to maintain an 8.8% interest. The shares were issued in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. 37 On July 1, 2004, we entered into a Sublease Agreement with Go West for the use of 2,400 square feet of office space at 522-535 West 27th Street, New York, New York. The Go West shareholders are Richard Goldring, Elliot Osher and William Osher. For the use of the space, we pay Go West $20,000 on a month-to-month basis that either party can terminate with thirty days' notice. On December 31, 2004 and 2005, we had royalty receivables of $971,263 and $1,244,888, respectively, the majority of which was due from 333 E. 60th Street, Inc. as of December 31, 2004 and as of December 31, 2005 the majority of which was due from 333 E. 60th Street, Inc., Go West, Inc and SMG Entertainment, Inc. As 333 E. 60th Street, Inc., Go West, Inc and SMG Entertainment, Inc. are under common control with us, we are mindful that those royalties receivable may take on the appearance of a prohibited loan under Section 402 of the Sarbanes-Oxley Act of 2002. We do not believe, however, that this is a prohibited loan as we are seeking to reduce the amount due under this receivable. The royalty receivable increased from these entities under common control by approximately $200,000 during the year 2005, while an additional $900,000 in revenues was in fact received from these entities during 2005. Cash flows from these entities under common control during 2004 and 2005 common control was utilized to fund the purchase, expansion and or start up costs relating to the Go West, Inc. club in New York City, NY and SMG Entertainment, Inc,. in Miami, FL, as well as the professional fees associated with the investigation by the New York District Attorneys office, which ended in April 2006. See discussion in Legal Proceeding (Item 3) for additional details on the settlement with the New York District Attorney. We believe, since there are no new clubs being opened by management and related affiliates, the cessation of the New York District Attorneys investigation and a pending sale of the Miami club, there should be a significant reduction in the outstanding royalty receivable during fiscal 2006. ITEM 13. EXHIBITS Exhibits The following Exhibits are being filed with this Annual Report on Form 10-KSB: - -------------------------------------------------------------------------------- Exhibit Number Item - -------------------------------------------------------------------------------- 2.1 Agreement and Plan of Reorganization between Olympus M.T.M. Corporation and The Internet Advisory Corporation* - -------------------------------------------------------------------------------- 2.2 Reorganization Agreement between The Internet Advisory Corporation and Richard Goldring* - -------------------------------------------------------------------------------- 2.3 Plan of Reorganization and Disclosure Statement filed in Bankruptcy Court* - -------------------------------------------------------------------------------- 2.4 Acquisition Agreement among Scores Holding Company, Inc., Go West Entertainment, Inc. and its Shareholders* - -------------------------------------------------------------------------------- 2.5 Agreement and Plan of Merger among HEIR Holding Company, Inc., Scores Acquisition Corp. and Scores Holding Company, Inc.* - -------------------------------------------------------------------------------- 2.6 Acquisition Agreement among Scores Holding Company, Inc., Go West Entertainment, Inc. and its Shareholders (the "Unwinding" Transaction)* - -------------------------------------------------------------------------------- 10.1 License Agreement between HEIR Holding Company, Inc. and Go West Entertainment, Inc.* - -------------------------------------------------------------------------------- 10.2 Amendment to License Agreement dated August 15, 2001* - -------------------------------------------------------------------------------- 10.3 Convertible Debenture Purchase Agreement between HEIR Holding Company, Inc. and HEM Mutual Assurance Fund, Ltd * - -------------------------------------------------------------------------------- 10.4 $1,000,000 Convertible Debenture Issued to HEM Mutual Assurance Fund, Ltd by HEIR Holding Company, Inc.* - -------------------------------------------------------------------------------- 10.5 Loan Agreement and Promissory Note between Scores Holding Company, Inc. and HEM Mutual Assurance Fund, Ltd* - -------------------------------------------------------------------------------- 10.6 Promissory Note Issued to HEM Mutual Assurance Fund, Ltd by Scores Holding Company, Inc.* - -------------------------------------------------------------------------------- 10.7 Convertible Debenture Purchase Agreement between Scores Holding Company, Inc. and HEM Mutual Assurance, LLC* - -------------------------------------------------------------------------------- 10.8 Termination Warrant Issued to HEM Mutual Assurance, LLC by Scores Holding Company, Inc.* 38 - -------------------------------------------------------------------------------- 10.9 Special Registration Rights Agreement between Scores Holding Company, Inc. and HEM Mutual Assurance, LLC * - -------------------------------------------------------------------------------- 10.10 Modification of Loan and Convertible Debenture Purchase Agreements and Related Transaction Documents among Scores Holding Company, Inc., HEM Mutual Assurance Fund, Ltd and HEM Mutual Assurance, LLC. * - -------------------------------------------------------------------------------- 10.11 Intellectual Property Assignment Agreement between Scores Holding Company, Inc. and Scores Entertainment, Inc. * - -------------------------------------------------------------------------------- 10.14 Warrant to Purchase 70,000 Shares of Common Stock of Scores Holding Company, Inc. * - -------------------------------------------------------------------------------- 10.15 Second Modification of Loan and Convertible Debenture Purchase Agreements and Related Transaction Documents among Scores Holding Company, Inc., HEM Mutual Assurance Fund, Ltd and HEM Mutual Assurance, LLC. * - -------------------------------------------------------------------------------- 10.16 Collateral Loan Agreement between Scores Holding Company, Inc. and Interauditing, Srl * - -------------------------------------------------------------------------------- 10.17 Advisory Agreement Among Maximum Ventures, Inc., Jackson Steinem, Inc. and Scores Holding Company, Inc.* - -------------------------------------------------------------------------------- 10.18 Employment Agreement Between Scores Holding Company, Inc. and Richard Goldring - -------------------------------------------------------------------------------- 10.19 Option Agreement Between Scores Holding Company, Inc. and Richard Goldring * - -------------------------------------------------------------------------------- 10.20 Option Agreement Between Scores Holding Company, Inc. and Elda Auerback * - -------------------------------------------------------------------------------- 10.21 Promissory Note for $250,000 Issued by Scores Holding Company, Inc. to Arnold Feldman * - -------------------------------------------------------------------------------- 10.22 Secured Promissory Note Issued by Go West Entertainment, Inc. to Scores Holding Company, Inc. * - -------------------------------------------------------------------------------- 10.23 Master License Agreement between Scores Holding Company, Inc. and Entertainment Management Systems, Inc. * - -------------------------------------------------------------------------------- 10.24 Revised Employment Agreement Between Scores Holding Company, Inc. and Richard Goldring * - -------------------------------------------------------------------------------- 10.25 Amendment to Intellectual Property Agreement between Scores Holding Company, Inc. and Scores Entertainment, Inc. * - -------------------------------------------------------------------------------- 10.26 Loan Modification Agreement between Scores Holding Company, Inc. and HEM Mutual Assurance Fund Limited * - -------------------------------------------------------------------------------- 10.27 Agreement and Plan of Merger, dated August 12, 2004, between SCRH Acquisition Corp. and Aciem Management, Inc. * - -------------------------------------------------------------------------------- 10.28 Sublicense Agreement, dated June 13, 2003, between Entertainment Management Services, Inc. and Stone Park Entertainment* - -------------------------------------------------------------------------------- 10.29 Sublicense Agreement, dated February 27, 2004, between Entertainment Management Services, Inc. and Club 2000 Eastern Avenue, Inc.* - -------------------------------------------------------------------------------- 10.30 Sublicense Agreement between Entertainment Management Services, Inc. and SMG Entertainment, Inc.* - -------------------------------------------------------------------------------- 10.31 Sublicense Agreement, dated July 27, 2004, between Entertainment Management Services, Inc. and DBD Management, Inc.* - -------------------------------------------------------------------------------- 10.32 Sublicense Agreement, dated March 31, 2003, between Entertainment Management Services, Inc. and Go West Entertainment, Inc.* - -------------------------------------------------------------------------------- 16 Letter, dated February 28, 2005, from Radin, Glass &Co., LLP* - -------------------------------------------------------------------------------- 21 Subsidiaries - As of March 24, 2005, we had three subsidiaries: Scores Licensing Corp., Scores Acquisition Corp. and Aciem Management, Inc. - -------------------------------------------------------------------------------- 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 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - -------------------------------------------------------------------------------- 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - -------------------------------------------------------------------------------- * Previously filed. 39 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (1) Audit Fees The aggregate fees billed for professional services rendered by Sherb & Co., LLP for the audit of the Registrant's annual financial statements and review of the financial statements included in the Registrant's Forms 10-QSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal years 2005 and 2004 were $12,500 and $10,000 respectively. (2) Audit Related Fees The aggregate fees billed for professional services rendered by Sherb & Co., LLP for audit related fees for fiscal years 2005 and 2004 were $0 and $0, respectively. (3) Tax Fees The aggregate fees billed for professional services rendered by Sherb & Co., LLP for the preparation of the registrant's tax returns, including tax planning for fiscal years 2005 and 2004 were $0 and $0, respectively. (4) All Other Fees No other fees were paid to Sherb & Co., LLP for fiscal years 2005 and 2004. (5) Audit Committee Policies and Procedures The Registrant does not have an audit committee. The Board of Directors of the Registrant approved all of the services rendered to the Registrant by Sherb & Company for fiscal year 2005 and 2004. (6) Audit Work Attributed to Persons Other than Sherb & Co., LLP's Full-time, Permanent Employees. Not applicable. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 19, 2006 SCORES HOLDING COMPANY INC. By: /s/ Richard K. Goldring ----------------------------- Richard K. Goldring Chairman, Chief Executive Officer, President and Director In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Richard K. Goldring -------------------------- Richard K. Goldring Chairman, President May 19, 2006 and Chief Executive Officer Board of Directors /s/ Richard K. Goldring ----------------------- Richard K. Goldring Director May 19, 2006 41 - -------------------------------------------------------------------------------- Exhibit Number Item - -------------------------------------------------------------------------------- 2.1 Agreement and Plan of Reorganization between Olympus M.T.M. Corporation and The Internet Advisory Corporation* - -------------------------------------------------------------------------------- 2.2 Reorganization Agreement between The Internet Advisory Corporation and Richard Goldring* - -------------------------------------------------------------------------------- 2.3 Plan of Reorganization and Disclosure Statement filed in Bankruptcy Court* - -------------------------------------------------------------------------------- 2.4 Acquisition Agreement among Scores Holding Company, Inc., Go West Entertainment, Inc. and its Shareholders* - -------------------------------------------------------------------------------- 2.5 Agreement and Plan of Merger among HEIR Holding Company, Inc., Scores Acquisition Corp. and Scores Holding Company, Inc.* - -------------------------------------------------------------------------------- 2.6 Acquisition Agreement among Scores Holding Company, Inc., Go West Entertainment, Inc. and its Shareholders (the "Unwinding" Transaction)* - -------------------------------------------------------------------------------- 10.1 License Agreement between HEIR Holding Company, Inc. and Go West Entertainment, Inc.* - -------------------------------------------------------------------------------- 10.2 Amendment to License Agreement dated August 15, 2001* - -------------------------------------------------------------------------------- 10.3 Convertible Debenture Purchase Agreement between HEIR Holding Company, Inc. and HEM Mutual Assurance Fund, Ltd * - -------------------------------------------------------------------------------- 10.4 $1,000,000 Convertible Debenture Issued to HEM Mutual Assurance Fund, Ltd by HEIR Holding Company, Inc.* - -------------------------------------------------------------------------------- 10.5 Loan Agreement and Promissory Note between Scores Holding Company, Inc. and HEM Mutual Assurance Fund, Ltd* - -------------------------------------------------------------------------------- 10.6 Promissory Note Issued to HEM Mutual Assurance Fund, Ltd by Scores Holding Company, Inc.* - -------------------------------------------------------------------------------- 10.7 Convertible Debenture Purchase Agreement between Scores Holding Company, Inc. and HEM Mutual Assurance, LLC* - -------------------------------------------------------------------------------- 10.8 Termination Warrant Issued to HEM Mutual Assurance, LLC by Scores Holding Company, Inc.* - -------------------------------------------------------------------------------- 10.9 Special Registration Rights Agreement between Scores Holding Company, Inc. and HEM Mutual Assurance, LLC * - -------------------------------------------------------------------------------- 10.10 Modification of Loan and Convertible Debenture Purchase Agreements and Related Transaction Documents among Scores Holding Company, Inc., HEM Mutual Assurance Fund, Ltd and HEM Mutual Assurance, LLC. * - -------------------------------------------------------------------------------- 10.11 Intellectual Property Assignment Agreement between Scores Holding Company, Inc. and Scores Entertainment, Inc. * - -------------------------------------------------------------------------------- 10.14 Warrant to Purchase 70,000 Shares of Common Stock of Scores Holding Company, Inc. * - -------------------------------------------------------------------------------- 10.15 Second Modification of Loan and Convertible Debenture Purchase Agreements and Related Transaction Documents among Scores Holding Company, Inc., HEM Mutual Assurance Fund, Ltd and HEM Mutual Assurance, LLC. * - -------------------------------------------------------------------------------- 10.16 Collateral Loan Agreement between Scores Holding Company, Inc. and Interauditing, Srl * - -------------------------------------------------------------------------------- 10.17 Advisory Agreement Among Maximum Ventures, Inc., Jackson Steinem, Inc. and Scores Holding Company, Inc.* - -------------------------------------------------------------------------------- 10.18 Employment Agreement Between Scores Holding Company, Inc. and Richard Goldring - -------------------------------------------------------------------------------- 10.19 Option Agreement Between Scores Holding Company, Inc. and Richard Goldring* - -------------------------------------------------------------------------------- 10.20 Option Agreement Between Scores Holding Company, Inc. and Elda Auerback * - -------------------------------------------------------------------------------- 10.21 Promissory Note for $250,000 Issued by Scores Holding Company, Inc. to Arnold Feldman * - -------------------------------------------------------------------------------- 10.22 Secured Promissory Note Issued by Go West Entertainment, Inc. to Scores Holding Company, Inc. * - -------------------------------------------------------------------------------- 10.23 Master License Agreement between Scores Holding Company, Inc. and Entertainment Management Systems, Inc. * - -------------------------------------------------------------------------------- 10.24 Revised Employment Agreement Between Scores Holding Company, Inc. and Richard Goldring * - -------------------------------------------------------------------------------- 10.25 Amendment to Intellectual Property Agreement between Scores Holding Company, Inc. and Scores Entertainment, Inc. * - -------------------------------------------------------------------------------- 10.26 Loan Modification Agreement between Scores Holding Company, Inc. and HEM Mutual Assurance Fund Limited * - -------------------------------------------------------------------------------- 10.27 Agreement and Plan of Merger, dated August 12, 2004, between SCRH Acquisition Corp. and Aciem Management, Inc. * - -------------------------------------------------------------------------------- 10.28 Sublicense Agreement, dated June 13, 2003, between Entertainment Management Services, Inc. and Stone Park Entertainment* - -------------------------------------------------------------------------------- 10.29 Sublicense Agreement, dated February 27, 2004, between Entertainment Management Services, Inc. and Club 2000 Eastern Avenue, Inc.* - -------------------------------------------------------------------------------- 42 10.30 Sublicense Agreement between Entertainment Management Services, Inc. and SMG Entertainment, Inc.* - -------------------------------------------------------------------------------- 10.31 Sublicense Agreement, dated July 27, 2004, between Entertainment Management Services, Inc. and DBD Management, Inc.* - -------------------------------------------------------------------------------- 10.32 Sublicense Agreement, dated March 31, 2003, between Entertainment Management Services, Inc. and Go West Entertainment, Inc.* - -------------------------------------------------------------------------------- 16 Letter, dated February 28, 2005, from Radin, Glass &Co., LLP* - -------------------------------------------------------------------------------- 21 Subsidiaries - As of March 24, 2005, we had three subsidiaries: Scores Licensing Corp., Scores Acquisition Corp. and Aciem Management, Inc. - -------------------------------------------------------------------------------- 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 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - -------------------------------------------------------------------------------- 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - -------------------------------------------------------------------------------- * Previously filed. 43 EX-31.1 2 v043890_ex31-1.txt Exhibit 31.1 CERTIFICATIONS I, Richard Goldring, certify that: 1. I have reviewed this annual report on Form 10-KSB of Scores Holding Company, Inc.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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-14(c) and 15d-14(c)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on our evaluation; c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual 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 of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal controls over financial reporting 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 control over financial reporting. Date: May 19, 2006 /s/ Richard Goldring - ------------------------------- Richard Goldring Chief Executive Officer 41 EX-31.2 3 v043890_ex31-2.txt Exhibit 31.2 CERTIFICATIONS I, Richard Goldring, performing similar functions to that of a principal financial officer of Scores Holding Company, Inc. (the "Company"), certify that: 1. I have reviewed this annual report on Form 10-KSB of the Company; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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-14(c) and 15d-14(c)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on our evaluation; c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual 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 of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal controls over financial reporting 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 control over financial reporting. Date: May 19, 2006 /s/ Richard Goldring - ------------------------------- Richard Goldring Chief Executive Officer, in his capacity as the acting Accounting Officer 42 EX-32.1 4 v043890_ex32-1.txt EXHIBIT 32.1 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 Annual Report of Scores Holding Company, Inc., Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2005 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 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. Date: May 19, 2006 /s/ Richard Goldring - ------------------------------ Richard Goldring Chief Executive Officer 43 EX-32.2 5 v043890_ex32-2.txt EXHIBIT 32.2 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 Annual Report of Scores Holding Company, Inc., Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard Goldring, performing similar functions to that of a principal 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. Date: May 19, 2006 /s/ Richard Goldring - ------------------------------- Richard Goldring Chief Executive Officer, in his capacity as the acting Accounting Officer 44 -----END PRIVACY-ENHANCED MESSAGE-----