UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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x |
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For fiscal year ended: December 31, 2019
OR
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¨ |
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 registrant as specified in its charter) |
| Utah |
|
87-0426358 |
| (State or other jurisdiction of |
|
(I.R.S. Employer Identification |
| incorporation or organization) |
|
No.) |
| |
|
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| 533-535 West 27th Street |
|
|
| New York, NY |
|
10001 |
| (Address of principal executive |
|
(Zip Code) |
| offices) |
|
|
Registrant’s telephone number, including area code: (212)
246-9090
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class |
|
Trading
Symbol(s) |
|
Name of each exchange
on which registered |
| N/A |
|
N/A |
|
N/A |
Securities registered under Section 12(g) of the Exchange Act:
| Common Stock, $0.001 par value |
| (Title of class) |
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ¨ No x
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes ¨ No x
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large
accelerated filer ¨ |
Accelerated filer ¨ |
| Non-accelerated filer x |
Smaller reporting company x |
| |
Emerging growth company ¨ |
If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
On June 28, 2019, the last business day of the
registrant’s most recently completed second fiscal quarter, 76,285,914 shares of its common stock, $0.001 par value per share (its
only class of voting or non-voting common equity) were held by non-affiliates of the registrant. The market value of those shares was
$762,859.14, based on the last sale price of $.01 per share of the common stock on that date. Shares of common stock held by each officer
and director and by each shareowner affiliated with a director have been excluded from this calculation because such persons may be deemed
to be affiliates. This determination of officer or affiliate status is not necessarily a conclusive determination for other purposes.
As of February 15, 2022, there were
165,186,144 shares of the registrant's common stock, par value $0.001, issued and outstanding.
SCORES HOLDING COMPANY, INC.
Form 10-K
For the Fiscal Year Ended December 31, 2019
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
Except for historical information, this report
contains “forward-looking information” within the meaning of the Private Securities Litigation Reform Act of 1995, and Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended. Such forward-looking statements
involve risks and uncertainties, including, statements regarding our business strategy, future revenues and anticipated costs and expenses.
Such forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,”
“anticipates,” “intends,” “expects,” “projects,” “estimates,” “believes,”
“seeks,” “could,” “should,” the negative thereof or comparable terminology. Our actual results may
differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences
include, those discussed in the sections “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and “Business”. 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, except as required by law.
References to the terms “Scores,”
the “Company,” “we,” “us,” and “our” refer to Scores Holding Company, Inc. and all entities
owned by us, except where it is clear that the term means only the parent company.
PART I
ITEM 1. BUSINESS.
Overview
Scores Holding Company, Inc. was incorporated
in Utah on September 21, 1981 under the name Adonis Energy, Inc. We adopted our current name in July 2002. Since 2003, we have been in
the business of licensing the “Scores” trademarks and other intellectual property to fine gentlemen’s nightclubs with
adult entertainment in the United States. As of February 15, 2022 there are six such clubs operating under the Scores name, in Chicago,
Illinois; Tampa, Florida; Mooresville, North Carolina; Palm Springs, Florida; Las Vegas, Nevada and Huntsville, Alabama.
Our trademarks and copyrights surrounding the
Scores trade name are critical to the success and potential growth of our business. On December 9, 2013, the Company entered into a license
agreement with its subsidiary, Scores Licensing Corp. (“SLC”), granting SLC the exclusive right to use certain trademarks,
including the “Scores” stylized trademark, in connection with certain goods and services. The grant of license also includes
the right to issue sublicenses to third parties, subject to the approval of the Company. Pursuant to the agreement, SLC shall pay
to the Company a royalty, as determined by the Company, such as a percentage of net revenue or a flat fee, received in connection with
the provision of services and/or sale of goods using the trademarks. SLC may also pay a percentage, as determined by the Company,
of all royalties received by SLC under any sublicense agreements. SLC and any sublicensees are to adhere to quality standards as
set by the Company, and the Company has the right to inspect all facilities and approve all promotional and marketing materials as well
as any related packaging. The agreement has a one-year term with automatic one-year renewals, subject to either party’s election
to terminate the agreement at least thirty days prior to such renewal. The Company also has the right to terminate the agreement,
with immediate effect, upon the occurrence of certain events. The license is subject to any pre-existing license agreements as of
the date of the agreement. As of the date of this report, the license is still in full force and effect.
History and Development of our Business
On March 31, 2003, pursuant to the Amended and
Restated Master License Agreement (the “MLA”) by and between us and our former affiliate, Entertainment Management Services,
Inc. (“EMS”), an entity owned by two of our former directors and employees, we granted EMS an exclusive, worldwide renewable
20-year license in our property to sublicense the Scores trade name to nightclubs (the “Licensing Rights”). Under the MLA,
EMS was required to pay us 100% of the royalties EMS received from the formerly affiliated clubs (defined below) and 50% of the royalties
received from non-affiliated clubs (the “Royalty Rights”). These clubs had license agreements with EMS pursuant to which they
typically paid EMS approximately 4.99% of their gross revenues from operations, including the sale of merchandise. We depended on these
royalties to operate our business and as our principal source of revenue.
On January 27, 2009 (as further discussed below
under “Nightclubs Currently Licensing our Scores Brand”), we terminated the MLA with EMS and EMS transferred to us all of
the Licensing Rights and Royalty Rights. Since termination of the MLA, our intellectual property is licensed through its subsidiary, SLC,
to the three remaining clubs that previously had been sublicensing our intellectual property from EMS, and, thus, as of January 27, 2009,
we are receiving 100% of the royalty payments made by these clubs rather than the 50% we were entitled to under the MLA.
Until January 27, 2009, we were under common control
with two previously existing nightclubs in New York, New York (referenced herein as “Scores East” and “Scores West”)
which were owned, respectively, by 333 East 60th Street, Inc. (“333”), and Go West Entertainment, Inc. (“Go West”).
EMS is also owned by 333. Through EMS, we had sublicense agreements with each of Scores East and Scores West pursuant to which they were
entitled to use the Scores intellectual property. Throughout this report, we refer to Scores East and Scores West as our “formerly
affiliated clubs.”
As further discussed below under “Change
in our Ownership,” on January 27, 2009, Mitchell’s East LLC, wholly owned by Robert M. Gans, acquired a majority interest
in our outstanding capital stock. I.M. Operating LLC (“IMO”), which is partially owned by Robert M. Gans who is also our majority
shareholder, has signed a licensing agreement with the Company and commenced operations in New York of a new club (the “New York
Club”) under the Scores name in May 2009. Effective September 1, 2017, IMO no longer owned or operated the New York Club and terminated
its licensing agreement with the Company. IMO sold the New York Club to Club Azure LLC (“CA”) which is owned by Mark Yackow,
an unrelated party, and the sole owner (100%) of CA and former Chief Operating Officer of IMO.
Throughout this report, we refer to each of Scores
New York and Scores Atlantic City (as defined below) as our “affiliated club” because of the common ownership by Mr. Gans,
our Chief Executive Officer and Director. All of our clubs, with the exception of Scores New York and Scores Atlantic City (see discussion
below under “Nightclubs Currently Licensing our Scores Brand”), are referred to in this report as “non-affiliated clubs”
or as “licensees” (or “sublicensees,” as applicable), a term that may include the formerly affiliated clubs or
the New York Club or Scores Atlantic City when the context requires.
Change in our Ownership
On January 27, 2009, pursuant to a stock purchase
agreement (the “SPA”), Mitchell’s East LLC (“Buyer”), purchased an aggregate of 88,900,230 shares (the “Owned
Shares”) of our common stock beneficially owned by Richard Goldring and Elliot Osher (collectively the “Share Sellers”),
as well as any rights Harvey Osher (the Share Sellers and Harvey Osher, together, the “Sellers”) may have in 13,886,059 shares
of our common stock (the “Decedent Owned Shares”) currently held of record by the estate of William Osher, deceased, and any
rights the Sellers may have in an additional 2,400,001 shares of our common stock (the “Expectancy Shares”). Under
the terms of the SPA, Harvey Osher is to deliver to the Buyer the Decedent Owned Shares that he may receive, and the Sellers are to deliver
to the Buyer any shares of the Company underlying the Expectancy Shares that any such Seller may receive. Additionally, pursuant
to the SPA, each of the Sellers granted to Buyer an irrevocable proxy enabling Buyer to act as his proxy with respect to
any shares underlying the Decedent Owned Shares and the Expectancy Shares, as applicable.
The Owned Shares represent approximately fifty
four percent (54%) of our outstanding capital stock and the Owned Shares together with the Decedent Owned Shares represent approximately
sixty two percent (62%) of our outstanding capital stock.
As a result of the SPA, a change of control had
occurred. Robert M. Gans, our Chief Executive Officer and director, is the sole owner of Mitchell’s East LLC, currently beneficially
owned 53.8% shares of our common stock.
Changes in our Management
On August 6, 2010, we appointed Robert M. Gans
as our President and Chief Executive Officer and as a member of our Board of Directors. Robert M. Gans and Martin Gans, one of our existing
Board members, are brothers. Also on August 6, 2010, we appointed Howard Rosenbluth as our Treasurer and Chief Financial Officer. Mr.
Rosenbluth is also a director.
In May 2009, Stephen J. Sabbeth became our director
of acquisitions and licensing. He resigned as of August 5, 2021.
Nightclubs Currently Licensing our Scores Brand
Pursuant to the Assignment Agreement between us
and EMS dated January 27, 2009, payments due to EMS under existing licenses with non-affiliated clubs were assigned to us. Since this
Assignment Agreement, we have retained 100% of the royalty payments from each of these clubs.
In 2003, EMS licensed the use of the “Scores
Chicago” name to Stone Park Entertainment, Inc. for its club in Chicago, Illinois. The license is for a term of five years, with
five successive five year renewal terms. See “Item 3. Legal Proceedings” for information regarding our legal proceeding against
this licensee.
On September 30, 2010, we entered into a licensing
agreement with Tampa Food & Entertainment, Inc. for the use of the name “Scores Tampa.” Upon signing the contract,
we received a non-refundable fee. The license is for a term of five years, with five successive five year renewal terms. See “Item
3. Legal Proceedings” for information regarding our legal proceeding against this licensee.
On February 10, 2014, we (through our subsidiary
SLC) entered into a trademark license agreement with TWDDD, Inc., granting it an exclusive, non-transferable license for the use of certain
Scores trademarks in its night club/restaurant in Mooresville, North Carolina. The license is for a term of five years, with five successive
five year renewal terms. Pursuant to the written agreement, SLC also granted the licensee a non-exclusive, non-transferable license to
sell certain licensed products bearing our trademarks. As discussed in our Notes to the Consolidated Financial Statements because of the
tenuous nature of the gentlemen’s club industry in general and the resulting financial instability of this licensee in particular,
the Company follows ASC 606 and only recognizes revenue when the collection of revenue is considered probable.
Effective August 31, 2015, we (through our subsidiary
Scores Licensing Corp.) entered into a trademark license agreement with Palm Springs Grill LLC, granting it an exclusive, non-transferable
license for the use of certain Scores trademarks in its night club/restaurant in Palm Springs, Florida. The license is for a term of five
years, with five successive five year renewal terms. See “Item 3. Legal Proceedings” for information regarding our legal proceeding
against this licensee.
Effective December 2, 2016, we (through our subsidiary
Scores Licensing Corp.) entered into a trademark license agreement with Southern Highland Centerfolds Inc. granting it an exclusive, non-transferable
license for the use of certain Scores trademarks in its night club/restaurant in Las Vegas, Nevada. The license is for a term of five
years, with five successive five year renewal terms.
On March
5, 2020, we (through our subsidiary SLC) entered into a trademark license agreement with Cheetah Club LLC, granting it an exclusive, non-transferable
license for the use of certain Scores trademarks in its night club/restaurant in Huntsville, Alabama.. The license is for a term of five
years, with five successive five year renewal terms. Pursuant to the written agreement, SLC also granted the licensee a non-exclusive,
non-transferable license to sell certain licensed products bearing our trademarks. As discussed in our Notes to the Consolidated Financial
Statements because of the tenuous nature of the gentlemen’s club industry in general and the resulting financial instability of
this licensee in particular, the Company follows ASC 606 and only recognizes revenue when the collection of revenue is considered probable.
Recent Events
As
a result of the COVID-19 virus, during the first quarter of 2020 and ongoing, state and local governments have required all but certain
essential businesses to close, including all clubs operating under the Scores name. The duration and ultimate extent of the closures of
these clubs cannot be predicted at this time, however the impact on such clubs' revenue could be material and result in a significant
decline in our royalty revenues.
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 equal to the Scores brand. Other localities where our “Scores” brand is licensed have similar competitive environments.
We believe the combination of our name recognition
and our distinctive entertainment environment allows our licensees to effectively compete within the industry, although we cannot assure
anyone that this will prove to be the case. The success of our licensees depends upon their ability to retain quality entertainers, employees
and to provide customer service to their customers. The inability to sustain quality entertainers, employees and customer service could
have a material or adverse impact on the ability of our licensees to compete within the industry.
Employees
As of December 31, 2019, we had two full-time
employees. We have no part time employees or independent contractors.
Our employees are not represented by a labor organization
or covered by a collective bargaining agreement. We believe that we maintain a good working relationship with our employees and to date,
we have not experienced any significant labor disputes.
Intellectual Property
Our business is dependent on a combination of
trademarks, domain names, trade names, trade secrets and other proprietary rights in order to protect our intellectual property rights.
As of the date of this report, we have 15 registered trademarks in the United States.
Government Regulation
Our licensees 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 Licenses
Our licensees are subject to state and local licensing
regulation of the sale of alcoholic beverages. We expect licensees to obtain and maintain appropriate licenses allowing them to sell liquor,
beer and wine. Obtaining a liquor license may be a time consuming procedure. In New York, for example, a licensee must make an application
to the New York State Liquor Authority (the “NYSLA”) for a liquor license regarding its proposed nightclub. The NYSLA has
the authority, in its discretion, to issue or deny such a license request. The NYSLA 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, but can take
longer in certain circumstances. Other jurisdictions have their own procedures.
We cannot offer any assurance that our licensees
will obtain liquor licenses or that, once obtained, they will maintain their liquor licenses or be able to assign or transfer them if
necessary. A license to sell alcoholic beverages in many cases requires annual renewal and may be revoked or suspended for cause, including
any regulatory violation by the nightclub operating the license or its employees. Royalties for our business could decrease, if one or
more of our licensees fails to maintain its liquor license.
"Cabaret" Licenses
Although not a requirement, our licensees typically
request a cabaret license in connection with the operation of their nightclubs. Cabaret licenses are not a requirement in all states;
however, some states mandate that such licenses be obtained prior to the operation of an adult nightclub. For example, one of our formerly
affiliated clubs was granted a cabaret license for a nightclub by the City of New York’s Department of Consumer Affairs (the "DCA").
We believe our licensees comply with all regulatory laws regarding cabaret or an adult entertainment license; however, there is no assurance
that any of their licenses will remain effective or that they could be assigned or transferred if necessary. If one or more of our licensees
failed to maintain a required license, this could have a material or adverse effect on our cash flow and profitability.
Zoning Restrictions
Adult entertainment establishments must comply
with local zoning restrictions which can be stringent. For example, zoning regulations in the City of New York mandate that an adult entertainment
business operate in an area zoned as residential, or in areas that are commercially zoned, and devotes more than either 40% or more of
its space available to customers or 10,000 square feet for adult entertainment activities. Although we expect our licensees to operate
within "zoned" areas, we cannot make any assurances that local zoning regulations will remain constant, or that if changed,
our licensees will be able to continue operations under our Scores brand name trademark. If zoning regulations were to restrict the operations
of one or more of our licensees, this could have a material or adverse effect on our cash flow and profitability.
Trademarks
We hold trademark and/or service mark registrations
in the United States. Such registrations were granted on various dates and are subject to renewal on various dates. Some of these trademarks
are also registered in other jurisdictions outside of the United States. Applications have also been filed in the United States for other
trademarks and/or service marks incorporating the SCORES word trademark, as well as others.
Our trademarks and service marks provide significant
value to us and are an important factor in our business. We believe that our trademarks and service marks do not infringe the intellectual
property rights of any third parties.
Available Information
Our Internet website is www.scoresholding.com.
Information on our website should not be considered incorporated by reference into our filings with the SEC. Our Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a)
and 15(d) of the Exchange Act are available, free of charge, under the SEC filings tab of our website as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC. Additionally, the SEC maintains a website located at www.sec.gov
that contains the information we file or furnish electronically with the SEC.
ITEM 1A. RISK FACTORS.
We are a smaller reporting company as defined
by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
As of July 1, 2008, West Side Realty (“WSR”),
the owner of the West 27th Street Building, became the new lessor of our 700 square feet office occupancy at that location. Since April
1, 2009, the monthly rent, which includes overhead cost, has been $2,500. Robert M. Gans, the Company’s President, Chief Executive
Officer, and majority shareholder, is the majority owner (80%) of WSR. The Company owed WSR $7,500 and $7,500 in unpaid rents as of December
31, 2019 and December 31, 2018, respectively.
We believe that our facilities are suitable and
adequate for our present needs.
ITEM 3. LEGAL PROCEEDINGS.
On April 3, 2016, 50 individuals purporting to
be professional models and/or actresses collectively, the “Plaintiffs”) filed a civil suit in the United States District Court
for the Southern District of New York against the Company, I.M. Operating, LLC, The Executive Club, LLC, and Robert M. Gans, collectively
the (“Defendants”) alleging that images of Plaintiffs were used without their consent for commercial purposes on websites
and social media outlets to promote gentlemen’s clubs operated by the Defendants or licensees of the Defendants (the “Lawsuit”).
The Lawsuit further alleged that the unauthorized use of these images created, among other things, the false impression that these individuals
either worked at, or endorsed, one or more of such clubs. The Lawsuit asserted causes of action under Section 43 of the Lanham Act, 28
U.S.C. § 1125(a)(1), premised on a theory of false endorsement and/or association; New York Civil Rights Law §§ 50-51;
New York’s Deceptive Trade Practices Act, New York General Business Law § 349; as well as various common law torts, namely
defamation, negligence, conversion, unjust enrichment and quantum meruit. The Lawsuit sought unspecified compensatory damages, punitive
damages, as well as attorneys’ fees and costs. The Lawsuit also sought an injunction permanently enjoining the use of the individuals’
images to promote, via any medium, any of the clubs. On April 20, 2017, as a result of the claims asserted in the Lawsuit, the Company
filed a third-party complaint (the “Third-Party Complaint”) against certain licensees, namely CG Consulting, LLC; Anthony
Quaranta; High Five Management Group, Inc.; Club 2000 Eastern Avenue, Inc.; SCMD, LLC; David Baucom; Manhattan Fashion L.L.C.; Stone Park
Entertainment, Inc.; Silver Bourbon, Inc.; Tampa Food & Entertainment, Inc.; Fuun House Productions, L.L.C.; Norm A Properties, LLC;
Southeast Show Clubs, LLC; Michael Tomkovich; Palm Spring Grill LLC; Houston KP LLC; and Star Light Events LLC (collectively, “Third-Party
Defendants”) asserting causes of action for breach of contract, breach of warranty, contractual indemnification, common law indemnification,
contribution and breach of contract for failure to procure insurance. The Company maintained in the Third-Party Complaint, among other
things, that pursuant to the Third-Party Defendants’ respective license agreements, each of the Third-Party Defendants are expressly
obligated to indemnify, defend and hold the Company harmless in connection with the conduct giving rise to the claims asserted by Plaintiffs
in the Lawsuit. Third-Party Defendants Club 2000 Eastern Avenue, Inc., Fuun House Productions, L.L.C., and Norm A Properties, LLC (collectively
the “Defaulting Third-Party Defendants”) failed to respond to the Third-Party Complaint.
On January 5, 2017, the Court issued an Order
granting in part, and denying in part, Defendants’ motion to dismiss the Complaint. The Court dismissed Plaintiffs’ claims
sounding in negligence, conversion, unjust enrichment and quantum meruit. The remaining claims were not dismissed at that time. On August
4, 2018, the Court dismissed Plaintiffs’ claims against Defendants, including the Company, with prejudice, at Plaintiffs’
request following settlement with Defendants. During 2018, the Company paid $1,310,000 to Plaintiffs in connection with the settlement.
Between August 4, 2018 and October 9, 2018, the Court dismissed with prejudice the Company’s claims against the Third-Party Defendants,
other than the Defaulting Third-Party Defendants, at the Company’s request following settlement with those Third-Party Defendants.
The total amount of money paid to the Company by the settling Third-Party Defendants, and the Company’s insurance carrier, is $505,660,
paid thru September 30, 2019 and $90,000 received during the nine months ended September 30, 2019. Scores has obtained Default Orders
against Fuun House Productions, L.L.C. and Norm A Properties, LLC. The value of the Company’s claims against Fuun House Productions,
L.L.C. and Norm A Properties, LLC are all that remain to be determined in the action. The Company became aware during the week of December
17, 2018 that Fuun House Productions, L.L.C. has filed for bankruptcy protection.
On January 3, 2017, the Company, together with
its subsidiary SLC, filed an action against CJ NYC Inc. in the United States District Court for the Southern District of New York. Defendant
utilizes the “Scores” name and trademark in connection with its ownership and operation of an adult entertainment club in
Woodside, New York. In this action the Company sought damages for breach of contract in the amount of $85,000 and the issuance of a preliminary
and permanent injunction prohibiting the defendant from using the “Scores” name and trademark with respect to the Woodside,
New York club and all websites and social media sites controlled by Defendant. The defendant failed to appear and on February 27, 2017,
the Company filed a motion for judgment by default. The court heard the Company motion on April 5, 2017, and on May 25, 2017, the court
granted the Company's motion for a Judgment by default, granting a permanent injunction and awarding damages in the amount of $85,000
to SLC and $14,333 in damages and $530 in costs to the Company. All signage has been removed and the Company is attempting to collect
on the default judgment, but it believes that Defendant no longer has any assets, leaving the Company unable to collect on the default
judgment.
On January 31, 2017, the Company, together with
its subsidiary SLC, filed an action against Funn House Productions LLC in the United States District Court for the Southern District of
New York. Defendant utilizes the “Scores” name and trademark in connection with its ownership and operation of an adult entertainment
club in New Haven, Connecticut. In this action the Company sought damages for breach of contract in the amount of $45,000 and the issuance
of a preliminary and permanent injunction prohibiting the defendant from using the “Scores” name and trademark with respect
to the New Haven, Connecticut club and all websites and social media sites controlled by Defendant. The Defendant failed to appear and
on February 28, 2017, the Court granted Plaintiffs’ motion for a Judgment by default, granting a permanent injunction and awarding
damages in the amount of $60,000. The parties negotiated a settlement agreement, which included a payment schedule, but then Defendant
did not sign the proposed settlement agreement. The Company is attempting to collect on the default judgment, but it believes that Defendant
no longer has any assets, leaving the Company unable to collect on the default judgment.
On July 25, 2017, plaintiff Dislenia Munoz, who
formerly performed as an adult entertainer at Scores New York, owned in its entirety by I.M. Operating LLC, commenced a putative class
action lawsuit against the Company, IMO, Robert Gans and Mark Yackow in the Supreme Court of the State of New York, County of New York.
Plaintiff alleged that she and other similarly situated entertainers at Scores New York were misclassified as independent contractors,
that they should have been classified as employees, and as a result, the Defendants violated, among other things, applicable state wage
and hour laws. The Lawsuit sought unspecified compensatory damages, liquidated damages, as well as attorneys’ fees and costs. On
June 22, 2018, Plaintiff (1) amended her complaint in the Lawsuit to excise her class allegations, and (2) discontinued the Lawsuit, without
prejudice. Plaintiff has brought her claims in the Lawsuit in another forum against the Defendants, other than the Company, which is no
longer a subject of Plaintiff’s claims.
On
October 8, 2018, the Company was served with a Summons and Complaint in the action entitled Luisa Santos de Oliveira v. Scores Holding
Company, Inc.; Club Azure, LLC; Robert Gans; Mark S. Yackow; Howard Rosenbluth, Docket No. 1:18-cv-06769-GBD, in the United States District
Court of the Southern District. Plaintiff claims that the Defendants violated the minimum wage and overtime provisions of the Fair Labor
Standards Act (“FLSA”); violated the New York Minimum Wage Act and the overtime provisions of the New York State Labor Law
(“NYLL”); violated the Spread of Hours Wage Order of the New York Commissioner of Labor; violated the Notice and Recordkeeping
requirements of the NYLL; violated the wage statement provisions of the NYLL; recovery of equipment costs in violation of the FLSA and
NYLL; and unlawful deductions from tips in violation of the NYLL. Plaintiff brought this action as a class action and seeks certification
of this action as a collective action on behalf of herself and all other similarly situated employees and former employees of Defendants.
The Company has submitted an Answer to Plaintiff’s claims and the case is currently in the discovery phase. The Company, along
with the Co-defendants, intends to vigorously defend itself against the claims asserted against it in this lawsuit. The likelihood of
an unfavorable outcome is remote because the Company’s records show, inter alia, that the Plaintiff never worked more than 25 hours
per week. The case was assigned to a Magistrate Judge. There was a conference
on March 2, 2021 and a Scheduling Order was entered. On March 26, 2021, a Stipulation of Discontinuance was so-ordered
by the Federal Court, discontinuing all claims against the Company.
On October 10, 2018, attorney Neal S. Greenfield,
on behalf of the Company, filed an action against SCMD, LLC, in the Supreme Court of the State of New York, County of New York. Defendant
utilized the “Scores” name and trademark in connection with its ownership and operation of an adult entertainment club located
in Baltimore, Maryland and paid royalty fees to the Company up through and including July of 2017 but did not abandon its use of the
Scores name and trademarks until September of 2018. In this action, the Company sought damages for breach of contract in the amount of
$160,000. On December 5, 2018, the case was removed to the United States District Court for the Southern District of New York. On February
19, 2019, an Amended Complaint was filed. On March 8, 2019, Defendant’s counsel requested permission from the Court to submit a
motion to dismiss the Company’s amended complaint. The Court finally granted Defendant’s request on November 6, 2019 and
gave a briefing schedule. On November 12, 2019, I was substituted in as the Company’s counsel in place of attorney Neal S. Greenfield.
Defendant’s motion to dismiss was denied on August 14, 2020. In September of 2020, the parties settled this matter for $50,000,
of which $5,000 remains due and outstanding. SCMD, LLC has since been dissolved. We are still trying to collect the remaining $5,000
that is due to the Company, but we are not confident that we will be successful given that SCMD, LLC has been dissolved.
On September 14, 2018, attorney Neal S. Greenfield,
on behalf of the Company and its subsidiary Scores Licensing Corp. (“SLC”), filed an action against New 4125, LLC and Mike
Taraska in the Supreme Court of the State of New York, County of New York. Defendants utilized the “Scores” name and trademark
in connection with its ownership and operation of an adult entertainment club located in Phoenix, Arizona. In this action, the Company
sought damages for breach of contract in the amount of $47,500. Defendants filed an Answer to the Complaint but it was not submitted by
an attorney notwithstanding the fact that corporations must be represented by counsel. I was substituted as the Company’s attorney
in place of Neal S. Greenfield on November 14, 2019. A motion to vacate the Answer based on the fact that the corporate defendant is not
represented by counsel is pending.
On April 22, 2018, the Company together with its
subsidiary SLC filed a civil action in Supreme Court of New York, New York County against 1715 Northside Drive, Inc., the former licensee
of SCORES Atlanta. The action was settled and paid in full during the 3rd quarter 2018.
On May 4, 2018, attorney Neal S. Greenfield, on
behalf of the Company and its subsidiary SLC, filed an action against Bonkers Space Coast Inc. and Ken Fees, in the Supreme Court of the
State of New York, County of New York. Defendants utilized the “Scores” name and trademark in connection with its ownership
and operation of an adult entertainment club located in Manitowoc, Wisconsin. In this action, the Company sought damages for breach of
contract in the amount of $80,000. On July 16, 2019, I was substituted in as the Company’s attorney in place of attorney Neal S.
Greenfield. A motion for default judgment was granted on August 28, 2019 and a Judgment was entered on November 26, 2019. We filed the
judgment against real property located in Wisconsin and owned by the individual Defendant. The real property is valued at approximately
$97,000 but the Wisconsin Homestead Act allows the debtor to exempt as much as $75,000 of equity. There is also a prior mortgage and tax
lien totaling approximately $45,000. We have therefore ceased attempts to collect on the judgment because there is no remaining equity
left in the real property.
On April 20, 2018, the Company together with its
subsidiary SLC filed a civil action in Supreme Court of New York, New York County against The Cadillac Lounge LLC and Dick Shappy, the
former licensee of SCORES Rhode Island for unpaid royalty fees. The action was settled for $50,000 and has been paid in full during the
2nd quarter 2018.
On April 25, 2018, the Company together with its
subsidiary SLC filed a civil action in Supreme Court of New York, New York County against South East Show Clubs LLC and Michael Tomkovich,
the license of SCORES Jacksonville and SCORES Savannah, for unpaid royalties in the amount of $60,000. The action was settled and has
been paid in full during the 4th quarter of 2018.
On August 3, 2018, attorney Neal S. Greenfield, on behalf of the Company
and its subsidiary SLC, filed an action against Silver Bourbon, Inc. in the Supreme Court of the State of New York, County of New York.
Defendant utilized the “Scores” name and trademark in connection with its ownership and operation of an adult entertainment
club located in New Orleans, Louisiana. In this action, the Company seeks damages for breach of contract in the amount of $145,500. On
July 31, 2019, I was substituted as the Company’s attorney in place of attorney Neal S. Greenfield. The parties were in the process
of negotiating a settlement but then the club permanently closed after it lost its lease and was forced to close in March of 2020 due
to the global pandemic. We have therefore ceased all attempts to collect this debt.
On July 13, 2018 attorney Neal S. Greenfield,
on behalf of the Company and its subsidiary SLC, filed an action against Manhattan Fashions, LLC in the Supreme Court of the State of
New York, County of New York. Defendant utilized the “Scores” name and trademark in connection with its ownership and operation
of an adult entertainment club located in Harvey, Louisiana. In this action, the Company sought damages for breach of contract in the
amount of $84,000. Defendant did not appear, and On February 6, 2019, the Court granted the Company’s motion for default judgment.
The parties were in the process of negotiating a settlement agreement but then ceased all attempts to settle this matter after the club
was forced to permanently close in March of 2020 due to the global pandemic. We have therefore ceased all attempts to collect this debt.
On September 5, 2019, the Company together with
its subsidiary SLC filed a civil action in Supreme Court of New York, New York County against Scores Alabama. A cease and desist letter
was sent. The Company finally entered into a license agreement as of March 5, 2020 with Cheetah Club, LLC for a club located in Huntsville,
Alabama.
The Company had been in the process of negotiating a license agreement
with an adult entertainment club that started using the “Scores” name and trademark in connection with an adult entertainment
club located in Huntsville, Alabama without a proper licensing agreement in place. The Company’s subsidiary, SLC, ended up entering
into a license agreement in March of 2020
In July 2018, the Company entered into a confidential
settlement agreement (the “Settlement Agreement”) in the Voronina litigation, and in August 2018, the Court entered an order
dismissing the plaintiff’s claims against the Defendants with prejudice. Metropolitan, loaned the Company an aggregate of $770,000
to enable the Company to make the payments called for by the Agreement.
As previously reported, in February 2017, the
Company entered into settlement agreements (each, a “Royalty Settlement Agreement”) with Star Light, Swan, IMO and Robert
M. Gans. Robert M. Gans is the owner of a majority of the equity of each of aforementioned Licensees. Pursuant to the Royalty Settlement
Agreements, the Company forgave the repayment of a certain portion of unpaid, past-due royalties in return for the respective Licensees’
agreements to pay the remainder (the “Royalty Settlement Amount”) of the unpaid royalties, plus interest, to the Company.
The Royalty Settlement Amount for each Licensee was represented by a promissory note, and Robert M. Gans guaranteed the payment of each
Licensee’s obligations under the Settlement Agreement.
The Licensees did not remain current with respect
to their obligations under the Royalty Settlement Agreements, and the Company did not call upon Robert M. Gans to honor his guarantees.
The past due amounts under the Royalty Settlement Agreements aggregated $382,259 (the “Aggregate Royalty Amount”) as of December
1, 2018. As of such date, the Company, the Licensees, Metropolitan and Robert M. Gans entered into a Settlement and Offset Agreement (the
“Offset Agreement”) pursuant to which the Aggregate Royalty Amount was offset against the Voronina Amount, thereby reducing
the amount owed by the Company to Metropolitan to $408,546 (the “Net Voronina Amount”). The Net Voronina Amount is payable
pursuant to a promissory note (the “Voronina Note”), which bears simple interest at the rate of 4% per annum, in 86 consecutive
monthly installments of $5,000, and a final installment of $1,370, with the initial installment due and payable on January 1, 2022 (or
the first business day thereafter). The Company may prepay the Voronina Note at any time, in whole or in part without premium or penalty.
The Offset Agreement also provides for the immediate termination of the Royalty Settlement Agreements and the related promissory notes
and guarantees.
On January 29, 2020,
an individual referred to as Jane Doe, the Plaintiff, filed a civil suit in in the Circuit Court of
the 13th Judicial Circuit, in the State of Florida, Hillsborough County, against the Company, its subsidiary,
Scores Licensing Corp. (“SLC”), and several other defendants. Plaintiff’s Complaint details the somber circumstances
surround the illegal actions of a non-party, who pled guilty to certain crimes against Plaintiff that were committed at a club known as
Scores Tampa. Plaintiff now seeks to hold the Company and its subsidiary, among other defendants, liable in connection with the
non-party’s illegal activity by asserting causes of action for negligence, vicarious liability and unjust enrichment. Initially,
prior counsel moved to dismiss Plaintiff’s Complaint in lieu of filing Answers. A motion to dismiss was submitted because
the Court lacks personal jurisdiction under Florida’s Long-Arm Statute and Due Process Requirements because neither the Company
or its subsidiary had minimum contacts with Florida; nor was their a benefited conferred upon them. The Court wrongfully denied
the motion to dismiss. The case is in the deposition stage of discovery. A motion for summary judgment will be submitted
because neither the Company or its subsidiary were involved in the day-to-day operations of Scores Tampa, or in fact involved in the operations
of Scores Tampa at all. Other than the Company licensing the Scores trademark and other intellectual property to Scores Tampa, pursuant
to a 2010 license agreement, neither the Company or its affiliate operated, conducted, engaged in, or managed Scores Tampa, making it
vicariously liable for the non-party’s criminal actions.
On July
15, 2019, plaintiff Jeremy Green, a former consultant to Swan Media Group, Inc (“SMG”), commenced an action in U.S. District
Court, Southern District of New York against Scores Holding Co., Inc., Scores Media Group LLC, Scores Digital Gaming LLC (“SDG”)
and individual defendants Robert Gans and Charilaos Yioves seeking to recover from all defendants under various theories of breach of
contract, unjust enrichment, promissory estoppels, fraudulent inducement and breach of implied duty of good faith and fair dealing.
By
Order dated March 18, 2020 the Court dismissed all the causes of action except for the breach of contract claim pertaining to Greene’s
consultancy agreement with SMG and the unjust enrichment claim relating to SDG. The parties have exchanged documents and information relating
to the remaining causes of acting and depositions are scheduled to be held in early May, 2021. The parties expect that fact discovery
will be conclude by February 15, 2022 and expert disclosures, if necessary, shall be completed by April 18, 2022. The Court has directed
the parties to appear for a final status conference on February 25, 2022. Prior to the status conference, Swan Media will request a pre-motion
conference and permission from the Court to file a dispositive motion.
Finally, in an action entitled Jessica Hall v. Scores Holding Company,
Inc., et al, filed in Federal Court, Southern District, the Plaintiff claims that, while she worked at a gentlemen’s club located
in New York, New York and commonly known as Scores NY, she was discriminated and retaliated against because of her race in violation of
both Federal and State law. A motion for default judgment was denied, and Plaintiff was recently granted permission to file and serve
an Amended Complaint. The likelihood of success on the merits is negligible because the Company, as simply the owner of the “Scores”
brand and trademarks, did not own, operate or otherwise control Scores NY or employ, manage, or otherwise control Plaintiff’s employment.
As of the date of this report, there are no other
material legal proceedings pending to which we or any of our property are subject, nor to our knowledge are any such proceedings threatened.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information.
Our common stock has been quoted on OTC Pink,
a marketplace under the OTC Markets Group (formerly known as Pink OTC Markets and Pink Sheets) under the symbol “SCRH” since
2004.
Currently we are a “Pink No Information”
company and a “stop” sign was placed on our Company. The Company may not be making material information publicly available.
Buying or selling a security on the basis of material nonpublic material information is prohibited under Section 10(b) of the Securities
Exchange Act of 1934 and Rules 10b-5 and 10b5-1 thereunder. Violators may be subject to civil and criminal penalties.
The OTC Markets is a quotation service that displays
real-time quotes, last-sale prices, and volume information in over-the-counter, or the OTC, equity securities, and may not necessarily
represent actual transactions.
On December 2, 2021, the closing price per share
of our Common Stock as quoted on the OTC Pink was $.001 per share.
Holders
As of February 14, 2022, there were 578 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
None.
Securities Authorized For Issuance under Equity
Compensation Plans
The following table sets forth information about
our equity compensation plans as of December 31, 2019.
| Plan category | |
Number of securities to
be issued upon
exercise of outstanding
options, warrants
and rights
(a) | | |
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) | | |
Number of securities
remaining available for
future issuance under equity
compensation plans (excluding
securities reflected in column (a))
(c) | |
| Equity compensation plans approved by security holders | |
| 0 | | |
$ | 0 | | |
| 0 | |
| Equity compensation plans not approved by security holders | |
| 0 | | |
$ | 0 | | |
| 0 | |
| Total | |
| 0 | | |
$ | 0 | | |
| 0 | |
| Quarter Ended | |
High Bid | | |
Low Bid | |
| March 31, 2018 | |
$ | .0184 | | |
$ | .002 | |
| June 30, 2018 | |
$ | .0125 | | |
$ | .004 | |
| September 30, 2018 | |
$ | .009 | | |
$ | .006 | |
| December 31, 2018 | |
$ | .008 | | |
$ | .002 | |
| March 31, 2019 | |
$ | .002 | | |
$ | .002 | |
| June 30, 2019 | |
$ | .002 | | |
$ | .002 | |
| September 30, 2019 | |
$ | .002 | | |
$ | .002 | |
| December 31, 2019 | |
$ | .008 | | |
$ | .002 | |
ITEM 6. SELECTED FINANCIAL DATA.
As a smaller reporting company, we are not required
to provide the information required by this Item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
The following is a discussion of the results of
operations for the year ended December 31, 2019 compared to the year ended December 31, 2018.
Revenues:
Revenues decreased to $583,530 for the year ended
December 31, 2019 from $703,833 for the year ended December 31, 2018.
Our licenses are structured such that we receive
royalty payments representing a percentage of revenues of the licensee, or structured with a flat monthly rate. The foregoing decrease
is a direct result of a decline in royalty revenues. This decrease is primarily due to the decrease in the number of licensing agreements
for 2018 from twelve agreements to ten agreements for 2019.
Other Income/(Expense)
Total other income increased to $117,359
for the year ended December 31, 2019 from total other expenses of $619,052 for the year ended December 31, 2018. Total other income for
the year ended December 31, 2019 included a $90,000 recovery of the $1,300,000 Litigation Settlement payment paid to us by various licensees,
interest expense of $16,441, and other income of $43,800 representing a recovery of royalty revenue previously written off as bad debt
and collected during 2019. Total other expense for 2018 included the net payment of $894,340 of the Litigation Settlement, $6,468 of interest
income, and other income of $268,820 representing a recovery of royalty revenue previously written off as bad debt and collected during
2018.
General and Administrative Expenses:
General and administrative expenses for the years
ended December 31, 2019 and 2018 were $706,691 and $755,576, respectively. Virtually all the decrease in operating expenses can be attributed
to the decrease in salary, legal and other expenses. Legal expenses, which are reflected in general and administrative expenses, attributable
to ongoing litigation amounted to $111,609 for 2019 and $185,909 for 2018.
Provision for Income Taxes
The provision for income taxes relates primarily
to the greater of average assets and capital taxable income. The average assets and capital are not impacted by net operating losses.
Net Income (Loss) per share:
Our net loss was $5,802 or ($.00) per share for
the year ended December 31, 2019 as compared to net loss was $670,795 or ($.00) per share for the year ended December 31, 2018. The decrease
in net loss for the year ended December 31, 2019, was primarily due to the litigation settlement. For an explanation of this change, refer
to the above discussion of revenues, other income, and general and administrative expenses.
Net income(loss) per share data for both
the years ended 2019 and 2018 is based on net income(loss) available to common shareholders divided by the weighted average of the number
of common shares outstanding.
Liquidity and Capital Resources
At December 31, 2019, we had $9,331 in cash and
cash equivalents compared to $7,662 in cash and cash equivalents at December 31, 2018.
Various conditions such as the decrease in revenue,
accumulated losses, significant debt, and the results of litigation raise substantial doubt about the Company’s ability to continue
as a going concern. The Company intends to raise additional working capital through the continued licensing of its brand with its current
and new operators. There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient
cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated from any future
use of licensing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional
financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available,
the Company may not continue its operations. The financial statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Cash:
At December 31, 2019, we had $9,331 in cash
and cash equivalents compared to $7,662 in cash and cash equivalents at December 31, 2018.
Operating Activities:
Net cash provided by operating activities
for the 2019 year was $101,528 and net cash used in operating activities for the 2018 year was $471,265. The increase in cash provided
by operating activities is related to the decrease in accrued expenses.
Financing Activities:
Net cash used in financing activities for the
2019 year was $99,859 and net cash provided by financing activities for the 2018 year was $445,470. The decrease in cash provided by financing
activities is related to $400,470 that was owed to Metropolitan Lumber Hardware and Building Supplies affiliate under the Offset Agreement
for the y2018 year.
As of December 31, 2019, we owed $7,500 in rent
to our Westside Realty affiliate and $37,500 to our Metropolitan Lumber Hardware and Building Supplies, Inc. affiliate. As of December
31, 2018, we owed $7,500 in rent to our Westside Realty affiliate and $67,500 to our Metropolitan Lumber Hardware and Building Supplies,
Inc. affiliate.
Future Capital Requirements:
We have incurred significant losses since
the inception of our business. Since our inception, we have been dependent on funding from private lenders and investors to conduct
operations. As of December 31, 2019, we had an accumulated deficit of $(6,899,995). As of December 31, 2019, we had total current
assets of $70,763 and total current liabilities of $221,644 or negative working capital of $150,881. As of December 31, 2018, we had
an accumulated deficit of $(6,894,193). As of December 31, 2018, we had total current assets of $73,576 and total current
liabilities of $231,496 or negative working capital of $157,920. The decrease in the amount of working capital has been primarily
attributable to the decrease in payables.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.
Our audited consolidated financial statements
as of, and for the years ended, December 31, 2019 and 2018 are included beginning immediately following the signature page to this report.
See Item 15 for a list of the financial statements included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Management’s Report on Disclosure
Controls and Procedures
Under the supervision and with the participation
of our senior management, consisting of Robert M. Gans, our chief executive officer, and Howard Rosenbluth, our chief financial officer,
we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”).
Based on this evaluation, our chief executive officer and chief financial officer concluded, as of the Evaluation Date, that as a result
of certain deficiencies in our internal over financial reporting identified below, our disclosure controls and procedures were not effective
to ensure that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports
(i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated
and communicated to our management, including our chief executive officer and chief financial officer and secretary, as appropriate, to
allow timely decisions regarding required disclosure
(b) Management’s Annual Report on Internal
Control over Financial Reporting.
Management of Scores Holding Company, Inc. is
responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)).
Our internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes of accounting principles generally accepted in the United States. In evaluating the effectiveness of
our internal control over financial reporting, management used the criteria set forth in the framework in Internal Control—Integrated
Framework and the Internal Control over Financial Reporting – Guidance for Smaller Public Companies both issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this evaluation, management concluded
that, as of December 31, 2019 our internal controls over financial reporting were not effective for the following reasons:
| |
· |
We did not maintain effective controls to timely generate information for use in the financial reporting close process. |
| |
· |
We did not maintain effective controls over the review of journal entries and account reconciliations to ensure that these entries and reconciliations were correct. |
| |
· |
A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. Based on its evaluation of internal control over financial reporting management determined that the control deficiencies identified above should be considered material weaknesses in our internal control over financial reporting. |
Our management, including our chief executive
officer and our chief financial officer, do not expect that our disclosure controls or our internal control over financial reporting will
prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud
will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with policies or procedures.
This annual report does not include an attestation
report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not
subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s
report in this annual report.
As set forth below, management has taken or will
take steps to remediate the control deficiencies identified above. Notwithstanding the control deficiencies described above, we have performed
additional analyses and other procedures to enable management to conclude that our consolidated financial statements included in this
Form 10-K fairly present, in all material respects, our financial condition and results of operations as of and for the year ended December
31, 2019.
Management's Remediation Plan
In response to the deficiencies discussed
above, we plan to continue efforts already underway to improve internal control over financial reporting, which include creating formal
policies and procedures governing our financial statement close process, and control in the preparation, documentation, and review of
journal entries and account reconciliations.
Management and our Board of Directors will continue
to monitor these remedial measures and the effectiveness of our internal controls and procedures. Other than as described above, there
were no changes in our internal control over financial reporting during the year ended December 31, 2019 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
(c) Changes in Internal Control over Financial
Reporting.
Other than as discussed above, there were no changes
in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the last fiscal
quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE.
Executive Officers and Directors
The following table sets forth certain information,
as of December 3, 2021, with respect to our directors and executive officers.
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 until the next annual meeting of the Board of Directors, until their successors are elected or appointed and qualified, or until
their prior resignation or removal.
| Name |
|
Positions Held |
|
Age |
|
Date of Election
or Appointment as Director |
| Robert M. Gans |
|
President, Chief Executive Officer and Director |
|
78 |
|
August 6, 2010 |
| Martin Gans |
|
Director |
|
85 |
|
June 23, 2009 |
| Howard Rosenbluth |
|
Treasurer, Chief Financial Officer, Secretary and Director |
|
75 |
|
April 21, 2009 |
| Stephen J. Sabbeth |
|
Director of Acquisitions and Licensing – Resigned effective 8/5/21 |
|
73 |
|
May 2009 |
The following is a brief account of the business
experience during the past five years or more of our directors and executive officers.
Robert M. Gans. Mr. Gans has been
our President, Chief Executive Officer and director since August 6, 2010. For the past forty-three years Robert M. Gans has owned
and operated companies in the building materials business, as well as gentlemen’s clubs, restaurants, and several commercial and
residential real estate properties. Mr. Gans has either been the President, Managing Member, or sole owner of all the companies
in which he has been involved, including The Executive Club LLC, a company operating in the Gentlemen’s Club industry. None of the
companies was or is a public company. The Board concluded that Mr. Gans should serve as a director of the Company because of his
extensive experience in the management and operation of gentlemen’s clubs.
Martin Gans. Martin Gans, who
became a director on June 23, 2009, has been retired since 2002. Prior to his retirement, Mr. Gans held managerial positions
with The Nassau County Board of Elections, from 1994 to 2002, and with the Metropolitan New York hospitals, from 1990 to 1994. Mr. Gans
has a MBA in Health Care Administration from George Washington University and a Bachelor’s degree in Economics from Hunter College.
Mr. Gans served in the United States Army where he reached the rank of SP4. The Board concluded that Mr. Gans should serve as a director
of the Company because of his managerial experience and the knowledge and experience he has attained through his service as a director
of the Company.
Howard Rosenbluth. Mr. Rosenbluth
has been our Treasurer, Chief Financial Officer and Secretary since August 6, 2010, and our director since April 21, 2009. Over the past
five years, Mr. Rosenbluth has been an executive officer overseeing the financial operations for Metropolitan Lumber Hardware and Building
Supplies, Inc., and The Executive Club LLC, a company operating in the Gentlemen’s club industry. Mr. Rosenbluth received an
MBA in Finance in 1975 from the University of Connecticut and has owned a consulting firm, a manufacturing company and a restaurant and
has worked in public accounting and consulting for more than 35 years. The Board concluded that Mr. Rosenbluth should serve as a
director of the Company because of his financial literacy and expertise, as well as his extensive experience in the management and operation
of gentlemen’s clubs.
Stephen J. Sabbeth. (Resigned effective
August 5, 2021.) Mr. Sabbeth has served as a consultant to us as our Director of Acquisitions and Licensing since May 2009. Mr. Sabbeth
became an executive officer during 2015. His services to us includes leading the expansion of our licensing efforts throughout the U.S.
and the Caribbean. As well, he assisted us in initiating and implementing gift card and guest loyalty systems for our licensees (which
services he also provided to other entities in the hospitality industry). Over the past 9 years Mr. Sabbeth has provided management, marketing
and administrative consulting services to various organizations requiring assistance from a seasoned and experienced professional. His
clients principally have consisted of businesses involved in the restaurant, nightclub, adult entertainment, website, lumber and building
supplies and intellectual property rights industries. Mr. Sabbeth has assisted his consulting clients with the creation and organization
of Human Resource departments and ancillary employment related manuals and documentation. In addition, he has analyzed industry trends
and customer preferences in the adult entertainment industry and assisted his clients in determining how best to allocate marketing and
advertising resources. Mr. Sabbeth attended Hofstra University.
Family Relationships
Robert M. Gans, our President, Chief Executive
Officer and director, is the brother of Martin Gans, our director.
Except for above, there are no other family relationships
between any of our directors or executive officers. There are no arrangements or understandings between our directors and directors and
any other person pursuant to which they were appointed as an officer and director of the Company.
Board of Directors
None of our directors receives any remuneration
for acting as such. Directors may, however, be reimbursed for their out-of-pocket 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 have been established to date. Accordingly, we do not have an audit committee or an audit committee financial expert.
Given the small size of the Company’s board
of directors and the limited number of independent directors over the Company’s history, the board has determined that it is appropriate
for the entire board of directors to act as its audit committee, which has resulted in the directors who are also executive officers serving
on its audit committee. Similarly, we do not have a nominating committee or a committee performing similar functions. We have not implemented
procedures by which our security holders may recommend board nominees to us but expect to do so in the future.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act requires our
executive officers and directors and persons who own more than 10% of a registered class of our equity securities (“Reporting Persons”),
to file with the SEC initial statements of beneficial ownership on Form 3, reports of changes in ownership on Form 4 and annual reports
concerning their ownership on Form 5. Executive officers, directors and greater than 10% stockholders are required by the SEC regulations
to furnish us with copies of all Section 16(a) reports they file.
Based solely on our review of copies of such reports
and representations from Reporting Persons, we believe that during the fiscal year ended December 31, 2019, the Reporting Persons timely
filed all such reports.
Director Independence
We are not subject to listing requirements of
any national securities exchange or inter-dealer quotation system which has requirements that a majority of the Board of Directors be
“independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of
“Independent Directors.”
Involvement in Certain Legal Proceedings
During the past ten years no current director,
executive officer, promoter or control person of the Company has been involved in the following:
(1) A petition under the Federal bankruptcy laws
or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for
the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of
such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of
such filing;
(2) Such person was convicted in a criminal proceeding
or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) Such person was the subject of any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining him from, or otherwise limiting, the following activities:
i. Acting as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other
person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii. Engaging in any type of
business practice; or
iii. Engaging in any activity
in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities
laws or Federal commodities laws;
(4) Such person was the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise
limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or
to be associated with persons engaged in any such activity;
(5) Such person was found by a court of competent
jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil
action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(6) Such person was found by a court of competent
jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment
in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7) Such person was the subject of, or a party
to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated,
relating to an alleged violation of:
i. Any Federal or State securities
or commodities law or regulation; or
ii. Any law or regulation
respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of
disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii. Any law or regulation
prohibiting mail or wire fraud or fraud in connection with any business entity; or
(8) Such person was the subject of, or a party
to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section
3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange
Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members
or persons associated with a member.
Code of Ethics
Due to the scope of our current operations, as
of December 2, 2021, we have not adopted a code of ethics for financial executives, which include our Chief Executive Officer, Chief Financial
Officer or persons performing similar functions. Our decision not to adopt such a code of ethics results from our having only a limited
number of officers and directors operating as 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 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning
the total compensation paid or accrued by us during the two fiscal years ended December 31, 2019 and 2018 to (i) all individuals
that served as our chief executive officer and our chief financial officer or acted in similar capacities for us at any time during the
fiscal years ended December 31, 2019 and 2018 and (ii) all individuals that served as executive officers of ours at any time during
the fiscal year ended December 31, 2019 and 2018 that received annual compensation during such fiscal years in excess of $100,000 (collectively,
the “named executive officers”).
Summary Compensation Table
| Name and Principal Position | |
Year | | |
Salary ($) | | |
Bonus ($) | | |
Stock
Awards
($) | | |
Option
Awards
($) | | |
Non-Equity
Incentive
Plan
Compensation
($) | | |
Nonqualified
Deferred
Compensation
Earnings
($) | | |
All Other
Compensation
($) | | |
Total
($) | |
Robert M. Gans,
Chief Executive Officer | |
| 2019 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| | |
| 2018 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Howard Rosenbluth,
Chief
Financial Officer | |
| 2019 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| | |
| 2018 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Stephen J. Sabbeth Director of
Acquisitions and Licensing | |
| 2019 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 130,000 | | |
| 130,000 | |
| | |
| 2018 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 130,000 | | |
| 130,000 | |
We have not issued any stock options or maintained
any stock option or other incentive plans other than our 2010 Plan, which was adopted by our board but never approved by our shareholders.
(See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
– Securities Authorized for Issuance Under Equity Compensation Plans” above.) We have no other plans in place and have never
maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement
including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution
plans and nonqualified deferred contribution plans.
Similarly, we have no contracts, agreements, plans
or arrangements, whether written or unwritten, that provide for payments to the named executive officers or any other persons following,
or in connection with, the resignation, retirement or other termination of a named executive officer, or a change in control of the Company
or a change in a named executive officer’s responsibilities following a change in control.
Effective January 1, 2013, we entered into a management
services agreement with Metropolitan Lumber, Hardware and Building Supplies, Inc., pursuant to which Metropolitan Lumber Hardware and
Building Supplies, Inc. provides management and other services to us, including the services of Robert M. Gans and Howard Rosenbluth to
act as executive officers of the Company. In consideration of the services, we pay Metropolitan Lumber Hardware and Building Supplies,
Inc. a fee in the amount of $30,000 per year. The agreement may be terminated by either party upon ten days’ written notice. Mr.
Gans is the sole owner of Metropolitan Lumber Hardware and Building Supplies, Inc. On May 5, 2015, we
entered into an amendment, effective as of January 1, 2015, to our management services agreement with Metropolitan Lumber,
Hardware and Building Supplies, Inc. Pursuant to the amendment, the fee we pay MLH for the management
and other services it provides to us was increased from $30,000 per year to $90,000 per year, payable quarterly in arrears. In addition,
the agreement as amended provides that MLH will be eligible for a discretionary cash bonus based on (i) MLH’s performance throughout
the relevant fiscal year (or portion thereof) of the Company; and (ii) the Company’s performance throughout such fiscal year (or
portion thereof). Effective January 1, 2017, the agreement was further amended to remove the requirement that the services of Robert
M. Gans be provided under the agreement. The Board of Directors is responsible for establishing and implementing performance goals and
a performance-based bonus plan, and the amount of the bonus, if any, will be determined by the Board in accordance with such plan.
The agreement as amended does not guarantee MLH a bonus for any year (or portion thereof). As of the date of this report,
the agreement as amended is still in full force and effect. For the year ended December 31, 2019 and 2018, the Company owed Metropolitan
Lumber Hardware and Building Supplies, Inc. $22,500 and $67,500 in unpaid management services, respectively.
Outstanding Equity Awards at 2019 Fiscal Year-End
For the year ended December 31, 2019, there were
no unexercised options, stock that has not vested or equity incentive plan awards held by any of the Company’s named executive officers.
Compensation of Directors
None of our directors receives any compensation
for serving as such, for serving on committees of the Board of Directors or for special assignments. During the fiscal years ended December
31, 2019 and 2018 there were no other arrangements between us and our directors that resulted in our making payments to any of our directors
for any services provided to us by them as directors. The following table shows compensation earned by each of our non-officer directors
for the year ended December 31, 2019.
| Name | |
Fees Earned or
Paid in
Cash
($) | | |
Stock
Awards
($) | | |
Option
Awards
($) | | |
Non-Equity
Incentive
Plan
Compensation
($) | | |
Nonqualified
Deferred
Compensation
Earnings
($) | | |
All Other
Compensation
($) | | |
Total
($) | |
| Martin Gans | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information with
respect to the beneficial ownership of our common stock known by us as of December 3, 2021 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 named executive officer and (iv) all
of our directors and executive officers as a group.
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. The addresses for our executive officers and directors are c/o Scores Holding Company, Inc., 533-535 West
27th Street, New York, NY 10001.
Name and Address
of Beneficial Owner | |
Title of Class | | |
Amount and Nature
of Beneficial
Ownership | | |
Percent of
Class (1) | |
| Robert M. Gans (2) | |
| Common Stock | | |
| 88,900,230 | (2) | |
| 53.8 | % |
| | |
| | | |
| | | |
| | |
| Howard Rosenbluth | |
| Common Stock | | |
| -0- | | |
| 0.0 | % |
| | |
| | | |
| | | |
| | |
| Martin Gans | |
| Common Stock | | |
| -0- | | |
| 0.0 | % |
| | |
| | | |
| | | |
| | |
| Stephen J. Sabbeth | |
| Common Stock | | |
| 2,000 | (3) | |
| * | |
| | |
| | | |
| | | |
| | |
| All directors and executive officers as a group (4 persons) | |
| Common Stock | | |
| 88,902,230 | (2) | |
| 53.8 | % |
| | |
| | | |
| | | |
| | |
Mitchell’s East LLC (2)
617 Eleventh Avenue
New York, NY 10036 | |
| Common Stock | | |
| 88,900,230 | (2) | |
| 53.8 | % |
| | |
| | | |
| | | |
| | |
Estate of William Osher (4)
2955 Shell Road
Brooklyn, NY | |
| Common Stock | | |
| 13,886,059 | (2) | |
| 8.4 | % |
| * |
| |
| Less than 1%. | | |
| | | |
| | |
| (1) |
Based upon 165,186,144 shares of Common Stock issued and outstanding as at December 2, 2021. |
| |
|
| (2) |
Robert M. Gans is the sole owner of Mitchell’s East LLC. The principal business address of Mr. Gans is 617 Eleventh Avenue, New York, NY 10036. Does not include 13,886,059 shares of Common Stock currently held of record by William Osher, deceased, of which Harvey Osher (“H. Osher”) claims title and which H. Osher has agreed to transfer to Mitchell’s East LLC pursuant to the Stock Purchase Agreement whereby Mr. Gans purchased any rights of H. Osher to such shares. |
| |
|
| (3) |
Mr. Sabbeth owns these shares directly. |
| |
|
| (4) |
William Osher passed away in August, 2007. H. Osher claims all right and title to and interest in these shares of Common Stock and has agreed to transfer them to Mitchell’s East LLC pursuant to the Stock Purchase Agreement. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
On January 24, 2006, the Company entered into
a licensing agreement with AYA International, Inc. (“AYA”) granting AYA the right to use the Company's trademarks in connection
with its online video chat website, “Scoreslive.com.” The agreement with AYA provides for royalty payments to be made directly
to the Company at the rate of 4.99% of weekly gross revenues from all revenue sources within the AYA website. On December 21, 2009, AYA
transferred all of its rights in Scoreslive.com and in its licensing agreement with the Company to Swan Media Group, Inc., (“Swan”)
a newly formed New York corporation whose majority owner (80%) is Robert M. Gans, who is also the majority shareholder and chief
executive officer of the Company. The Company is owed $0 and $0 in unpaid royalties and expenses as of December 31, 2019 and December
31, 2018, respectively.
On January 27, 2009, the Company entered
into a licensing agreement with its affiliate through common ownership I.M. Operating LLC (“IMO”) for the use of the Scores
brand name “Scores New York”. Robert M. Gans is the majority owner (72%) of IMO and is also the Company’s
majority shareholder, and Howard Rosenbluth, the Company’s Treasurer and a Director, owns 2%. IMO owes the Company a royalty receivable
of $0 and $0 as of December 31, 2019 and December 31, 2018 respectively.
On August 31, 2017, IMO entered into an
agreement to sell all of its assets to Club Azure LLC (“CA”). Effective September 1, 2017, IMO no longer operated Scores New
York and terminated its licensing agreement with the Company. Mark Yackow is the sole owner (100%) of CA and former Chief Operating Officer
of IMO. Effective September 1, 2017, the Company granted an exclusive, non-transferable license for the use of the “Scores New York”
to CA for its gentlemen’s club in New York City. Royalties under this license are payable at a rate of $5,000 per month, commencing
in September 2017, and the license is for a term of five years, with five successive five-year renewal terms.
The Company also leases office space directly
from Westside Realty of New York, Inc. (WSR), the owner of the West 27th Street Building. The majority owner
of WSR (80%) is Robert M. Gans. Since April 1, 2009, the monthly rent has been $2,500 per month including overhead costs. The
Company owed WSR $7,500 and $7,500 in unpaid rents as of December 31, 2019 and December 31, 2018, respectively.
Effective January 1, 2013, the Company entered
into a management services agreement with Metropolitan Lumber Hardware and Building Supplies, Inc., pursuant to which Metropolitan Lumber
Hardware and Building Supplies, Inc. provides management and other services to the Company, including the services of Robert M. Gans and
Howard Rosenbluth to act as executive officers of the Company. In consideration of the services, the Company paid Metropolitan Lumber
Hardware and Building Supplies, Inc. a fee in the amount of $30,000 per year. Effective May 5, 2015, the agreement was amended increasing
the annual fee to $90,000. Effective January 1, 2017, the agreement was further amended to remove the requirement that the services of
Robert M. Gans be provided under the agreement. In addition, Metropolitan Lumber Hardware and Building Supplies, Inc. shall be eligible
for a discretionary cash bonus. The agreement may be terminated by either party upon ten days written notice. Mr. Gans is the sole owner
of Metropolitan Lumber Hardware and Building Supplies, Inc. The Company owed $22,500 and $67,500 in unpaid management services as of December
31, 2019 and December 31, 2018, respectively.
The Company has accrued expenses of $7,500
due to Metropolitan Lumber Hardware and Building Supplies, Inc. The Company owed $7,500 and $18,949 as of December 31, 2019 and December
31, 2018, respectively.
Effective July 1, 2018, after being having
been closed from August 15, 2016 to June 28, 2018, the Company terminated the previous licensing agreement and granted an exclusive, non-transferable
license for the use of the “Scores Atlantic City” name to Star Light Events LLC (“Star Light”) for its gentlemen’s
club in Atlantic City, New Jersey. Royalties under this license are payable at the rate of $5,000 per month, commencing in July 2018,
and the license is for a term of five years, with five successive five-year renewal terms. Pursuant to the written agreement, the Company
also granted Star Light a non-exclusive, non-transferable license to sell certain licensed products bearing the Company's trademarks.
Starlight will purchase the licensed products from the Company or its affiliates at cost plus 25%. Robert M. Gans, the Company's President,
Chief Executive Officer and a director, is the majority owner (92.165%) of Star Light Events LLC and Howard Rosenbluth, the Company's
Secretary, Treasurer and a Director, owns 1%. Starlight owes the Company a royalty receivable of $0 and $0 as of December 31, 2019 and
December 31, 2018, respectively.
On December 9, 2013, the Company entered
into a license agreement with its subsidiary, SLC, granting SLC the exclusive right to use certain trademarks, including the “Scores”
stylized trademark, in connection with certain goods and services. The grant of license also includes the right to issue sublicenses
to third parties, subject to the approval of the Company. Pursuant to the agreement, SLC shall pay to the Company a royalty, as
determined by the Company, such as a percentage of net revenue or a flat fee, received in connection with the provision of services and/or
sale of goods using the trademarks. SLC may also pay a percentage, as determined by the Company, of all royalties received by SLC
under any sublicense agreements. SLC and any sublicensees are to adhere to quality standards as set by the Company, and the Company
has the right to inspect all facilities and approve all promotional and marketing materials as well as any related packaging. The
agreement has a one-year term with automatic one-year renewals, subject to either party’s election to terminate the agreement at
least thirty days prior to such renewal. The Company also has the right to terminate the agreement, with immediate effect, upon
the occurrence of certain events. The license is subject to any pre-existing license agreements as of the date of the agreement.
Effective February 28, 2017 (the “Effective
Date”), the Company entered into separate Settlement Agreements (each, a “Settlement Agreement”) with three licensees,
IMO, Star Light and Swan, controlled by Robert M. Gans, the Company's President, Chief Executive Officer and a member of its Board of
Directors.
As of the Effective Date, IMO owed the Company
an aggregate of $255,406 in unpaid royalties and other fees. Under its Settlement Agreement, IMO has agreed to pay the entire amount owed
to the Company, in full settlement of all claims the Company may have against it. The settlement amount is payable pursuant to a promissory
note in 22 consecutive monthly installments commencing March 1, 2017 and bears simple interest at the rate of 4% per year. Included as
an event of default under the note is a requirement that IMO remain current in its obligations to the Company under its license agreement
from and after the Effective Date. This obligation was satisfied under the terms of the
Offset Agreement as discussed further below.
As of the Effective Date, Starlight owed
the Company an aggregate of $250,000 in unpaid royalties and other fees. Starlight is currently inactive and has no revenue. Under its
Settlement Agreement, Starlight has agreed to pay the Company $75,000, in full settlement of all claims the Company may have against it.
The settlement amount is payable pursuant to a promissory note in 10 consecutive monthly installments commencing March 1, 2017 and bears
simple interest at the rate of 4% per year. This obligation was satisfied under the terms of
the Offset Agreement as discussed further below.
As of the Effective Date, Swan owed the
Company an aggregate of $166,000 in unpaid royalties and other fees. Swan is currently unprofitable. Under its Settlement Agreement, Swan
has agreed to pay the Company $50,000, in full settlement of all claims the Company may have against it. The settlement amount is payable
pursuant to a promissory note in 10 consecutive monthly installments commencing March 1, 2017 and bears simple interest at the rate of
4% per year. Included as an event of default under the note is a requirement that Swan remain current in its obligations to the Company
under its license agreement from and after the Effective Date. This obligation was satisfied
under the terms of the Offset Agreement as discussed further below.
On August 4, 2018, the Company settled the
Plaintiffs claims in the Voronina matter for $1,310,000. See Note 7 for additional information. The Company had insufficient liquid resources
to enable it to make a portion of the settlement payments called for by the Voronina Settlement Agreement. Metropolitan Lumber, Hardware
and Building Supplies, Inc., a company wholly owned by Robert M. Gans, the Chief Executive Officer and a director of the Company, made
loans to the Company in the aggregate amount of $770,000 to enable the Company to make the payments under the Voronina Settlement Agreement. In
addition to the aforementioned loan and as discussed further in Note 7, the Company filed a third-party complaint against certain licensees.
The amount of money paid to the Company by settling with Third-Party Defendants and the Company’s insurance carrier was $505,660.
The Company previously entered into the
3 Royalty Settlement Agreements noted above where Robert M. Gans is a majority owner of the equity of each of the Licensees. Robert M.
Gans guaranteed the payment of each Licensee’s obligations under each of the 3 Settlement Documents. The Licensees were not current
with respect to their obligations under the Settlement Documents and the Company did not call upon Mr. Gans to honor his Guaranties.
The past due amounts under the Royalty Settlement
Agreements were $382,259.68 as of December 1, 2018. On this date the Company entered into an agreement to offset the Royalty Amount against
the Voronina Amount, thereby reducing the amount owed by the Company to Metropolitan to $399,139 pursuant to the terms of a certain Settlement
and Offset Agreement made by and among the Company, Star Light, Swan, Metropolitan and Robert M. Gans.
The Licensees did not remain current with respect
to their obligations under the Royalty Settlement Agreements, and the Company did not call upon Robert M. Gans to honor his guarantees.
The past due amounts under the Royalty Settlement Agreements aggregated $382,259 (the “Aggregate Royalty Amount”) as of December
1, 2018. As of such date, the Company, the Licensees, Metropolitan and Robert M. Gans entered into a Settlement and Offset Agreement (the
“Offset Agreement”) pursuant to which the Aggregate Royalty Amount was offset against the Voronina Amount, thereby reducing
the amount owed by the Company to Metropolitan to $408,546 (the “Net Voronina Amount”). The Net Voronina Amount is payable
pursuant to a promissory note (the “Voronina Note”), which bears simple interest at the rate of 4% per annum, in 86 consecutive
monthly installments of $5,000, and a final installment of $1,370, with the initial installment due and payable on January 1, 2022 (or
the first business day thereafter). The Company may prepay the Voronina Note at any time, in whole or in part without premium or penalty.
The Offset Agreement also provides for the immediate termination of the Royalty Settlement Agreements and the related promissory notes
and guarantees.
It should be noted as of this date of this report
that Club Azure and Starlight Events LLC have closed as of on March 16, 2020. Swan Media has ceased all operations as of December 31,
2020.
The total amounts due to the various related
parties as of December 31, 2019 and December 31, 2018 was $383,111 and $494,419 respectively and the total amounts due to the Company
from the various related parties as of December 31, 2019 and December 31, 2018 was $0 and $0 respectively.
Director Independence
Our Board of Directors has considered the independence
of its directors in reference to the definition of “independent director” established by the Nasdaq Marketplace Rule 5605(a)(2).
In doing so, the Board has reviewed all commercial and other relationships of each director in making its determination as to the independence
of its directors. After such review, the Board has determined that none of our directors qualifies as independent under the requirements
of the Nasdaq listing standards.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees
The aggregate fees billed to us by RBSM LLP, our
independent registered public accounting firm, for services rendered during the fiscal years ended December 31, 2019 and 2018 are set
forth in the table below:
| Fee Category | |
Fiscal year
ended
December 31, 2019 | | |
Fiscal year
ended
December 31, 2018 | |
| Audit Fees (1) | |
$ | 40,000 | | |
$ | 40,000 | |
| Audit-Related Fees (2) | |
| — | | |
| — | |
| Tax Fees (3) | |
$ | 5,000 | | |
$ | 5,000 | |
| All Other Fees (4) | |
| — | | |
| — | |
| Total Fees | |
$ | 45,000 | | |
$ | 45,000 | |
| (1) |
Audit fees consists of fees incurred for professional services rendered for the audit of annual consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements. |
| (2) |
Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit fees.” |
| |
|
| (3) |
Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice. |
| |
|
| (4) |
All other fees consist of fees billed for all other services. |
Audit Committee’s Pre-Approval Practice.
Inasmuch as we do not have an audit committee,
our Board of Directors performs the functions of an audit committee. Section 10A(i) of the Exchange Act prohibits our auditors from performing
audit services for us as well as any services not considered to be “audit services” unless such services are pre-approved
by the Board of Directors (in lieu of the audit committee) or unless the services meet certain de-minimis standards.
All audit services were approved by our Board
of Directors.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Financial Statement Schedules.
The consolidated financial statements of Scores
Holding Company, Inc. are listed on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.
All financial statement schedules are omitted
because they are not applicable, or the required information is shown in the financial statements or notes thereto.
Exhibits.
The following Exhibits are being filed with this
Annual Report on Form 10-K:
Exhibit
No |
|
SEC Report
Reference
Number |
|
Description |
| 3.1 |
|
3(i) |
|
Certificate of Incorporation of Scores Holding Company, Inc. (1) |
| |
|
|
|
|
| 3.2 |
|
3(ii) |
|
By-Laws of Scores Holding Company, Inc. (2) |
| |
|
|
|
|
| 10.1 |
|
10.38 |
|
Sublicense Agreement, dated January 24, 2006, between the Registrant and AYA Entertainment, Inc. (4) |
| |
|
|
|
|
| 10.2 |
|
10.47 |
|
License Agreement, dated January 27, 2009, between the Registrant and I.M. Operating LLC (6) |
| |
|
|
|
|
| 10.3 |
|
10.4 |
|
Form of Director and Officer Indemnification Agreement (7) |
| |
|
|
|
|
| 10.4 |
|
10.15 |
|
Stock Purchase Agreement, dated January 27, 2009, among Elliot Osher, Harvey Osher, Richard Goldring and Mitchell’s East LLC (1) |
| |
|
|
|
|
| 10.5 |
|
10.18 |
|
Management Services Agreement, effective January 1, 2013, between Scores Holding Company, Inc. and Metropolitan Lumber, Hardware and Building Supplies, Inc. (1) |
| |
|
|
|
|
| 10.6 |
|
10.4 |
|
Amendment to Management Services Agreement, effective January 1, 2015, between Scores Holding Company, Inc. and Metropolitan Lumber, Hardware and Building Supplies, Inc. (9) |
| |
|
|
|
|
| 10.7 |
|
10.10.1 |
|
Second Amendment to Management Services Agreement, effective January 1, 2017, between Scores Holding Company, Inc. and Metropolitan Lumber, Hardware and Building Supplies, Inc. (10) |
| |
|
|
|
|
| 10.8 |
|
10.1 |
|
License Agreement between Scores Holding Company, Inc. and Scores Licensing Corp. (8) |
| |
|
|
|
|
| 10.9 |
|
10.2 |
|
Trademark License Agreement between Scores Licensing Corp. and Star Light Events LLC (8) |
| |
|
|
|
|
| 10.10 |
|
10.13 |
|
Settlement Agreement, dated as of February 28, 2017, by and among Scores Holding Company, Inc., I.M. Operating LLC and Robert M. Gans (10) |
Exhibit
No |
|
SEC Report
Reference
Number |
|
Description |
| 10.11 |
|
10.14 |
|
Settlement Agreement, dated as of February 28, 2017, by and among Scores Holding Company, Inc., Swan Media Group, Inc. and Robert M. Gans (10) |
| |
|
|
|
|
| 10.12 |
|
10.15 |
|
Settlement Agreement, dated as of February 28, 2017, by and among Scores Holding Company, Inc., Star Light Events LLC and Robert M. Gans (10) |
| |
|
|
|
|
| 10.13 |
|
10.16 |
|
Promissory Note, dated February 28, 2017, from Star Light Events LLC to Scores Holding Company, Inc., with attached Personal Guaranty of Robert M. Gans (10) |
| |
|
|
|
|
| 10.14 |
|
10.17 |
|
Promissory Note, dated February 28, 2017, from Swan Media Group, Inc. to Scores Holding Company, Inc., with attached Personal Guaranty of Robert M. Gans (10) |
| |
|
|
|
|
| 10.15 |
|
10.18 |
|
Promissory Note, dated February 28, 2017, from I.M. Operating LLC to Scores Holding Company, Inc., with attached Personal Guaranty of Robert M. Gans (10) |
| |
|
|
|
|
| 10.16 |
|
10.1 |
|
Settlement and Offset Agreement, effective as of December 1, 2018, by and among Scores Holding Company, Inc., Star Light Events LLC, Swan Media Group, Inc., I.M. Operating LLC, Metropolitan Lumber, Hardware and Building Supplies, Inc. and Robert M. Gans.(11) |
| |
|
|
|
|
| 21 |
|
21 |
|
List of Subsidiaries (10) |
| |
|
|
|
|
| 31.1 |
|
* |
|
Certification of Principal Executive Officer pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
* |
Filed herewith. |
| (1) |
Filed with the Securities and Exchange Commission on November 14, 2013 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, which exhibit is incorporated herein by reference. |
| (2) |
Filed with the Securities and Exchange Commission on April 4, 1997 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-KSB for the year ended November 30, 1996, which exhibit is incorporated herein by reference. |
| |
|
|
| (3) |
Filed with the Securities and Exchange Commission on April 23, 2003 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2002, which exhibit is incorporated herein by reference. |
| (4) |
Filed with the Securities and Exchange Commission on May 17, 2007 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2006, which exhibit is incorporated herein by reference. |
| (5) |
Filed with the Securities and Exchange Commission on February 2, 2009 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated February 2, 2009, which exhibit is incorporated herein by reference. |
| (6) |
Filed with the Securities and Exchange Commission on April 15, 2009 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, which exhibit is incorporated herein by reference. |
| (7) |
Filed with the Securities and Exchange Commission on August 13, 2010 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated August 5, 2010, which exhibit is incorporated herein by reference. |
| (8) |
Filed with the Securities and Exchange Commission on December 27, 2013 as an exhibit, numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, which exhibit is incorporated herein by reference. |
| (9) |
Filed with the Securities and Exchange Commission on May 12, 2015 as an exhibit, numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, which exhibit is incorporated herein by reference. |
| (10) |
Filed with the Securities and Exchange Commission on April 10, 2017 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016, which exhibit is incorporated herein by reference. |
| (11) |
Filed with the Securities and Exchange Commission on May 2, 2019 as an exhibit, numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 which exhibit is incorporated herein by reference. |
ITEM 16. FORM 10-K SUMMARY.
None.
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
| Date: February 22, 2022 |
SCORES HOLDING COMPANY, INC. |
| |
|
| |
By: |
/s/ Robert M. Gans |
| |
|
Robert M. Gans |
| |
|
Chief Executive Officer |
| |
|
(Principal Executive Officer) |
| |
|
|
| |
By: |
/s/ Howard Rosenbluth |
| |
|
Howard Rosenbluth |
| |
|
Chief Financial Officer |
| |
|
(Principal Financial Officer) |
Pursuant to the requirements
of the Securities Exchange Act of 1934, 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/ Robert M. Gans |
|
President, Chief Executive Officer (Principal Executive Officer), Director |
|
February
22, 2022 |
| Robert M. Gans |
|
|
|
|
| |
|
|
|
|
| /s/ Howard Rosenbluth |
|
Chief Financial Officer (Principal Financial Officer), Director |
|
February
22, 2022 |
| Howard Rosenbluth |
|
|
|
|
| |
|
|
|
|
| /s/ Martin Gans |
|
Director |
|
February
22, 2022 |
| Martin Gans |
|
|
|
|
INDEX TO FINANCIAL STATEMENTS
Report of Independent
Registered Public Accounting Firm
The Stockholders and the Board of Directors of
Scores Holding Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets of Scores Holding Company, Inc. (the “company”) as of December 31, 2019 and 2018, and the
related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the two years ended
December 31, 2019 and 2018, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years ended December
31, 2019 and 2018, in conformity with U.S. generally accepted accounting principles.
The Company’s Ability to Continue as
a Going Concern
The accompanying financial statements have been
prepared assuming that the company will continue as a going concern. As discussed in Note 2 to the financial statements, the company has
suffered recurring losses from operations, will require additional capital to fund its current operating plan, and has stated that substantial
doubt exists about the company’s ability to continue as a going concern. Management’s plans regarding these matters are also
described in Note 2. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this
uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the company’s management. Our responsibility is to express an opinion on the company’s financial statements based on our
audits. We are a public accounting firm registered with the Public company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RBSM LLP
We have served as the company’s auditor since 2012.
New York NY
February 22, 2022
SCORES HOLDING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
| | |
December 31, | | |
December 31, | |
| | |
2019 | | |
2018 | |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT ASSETS: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 9,331 | | |
$ | 7,662 | |
| Trade receivables - including
affiliates, net of allowance of $0 and $43,800, respectively | |
| 44,913 | | |
| 52,017 | |
| Prepaid expenses | |
| 16,519 | | |
| 13,897 | |
| | |
| | | |
| | |
| Total Current Assets | |
| 70,763 | | |
| 73,576 | |
| | |
| | | |
| | |
| TOTAL ASSETS | |
$ | 70,763 | | |
$ | 73,576 | |
| | |
| | | |
| | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT LIABILITIES: | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 184,144 | | |
$ | 137,547 | |
| Accrued expenses, related | |
| 7,500 | | |
| 18,949 | |
| Related party payable | |
| 30,000 | | |
| 75,000 | |
| | |
| | | |
| | |
| Total Current Liabilities | |
| 221,644 | | |
| 231,496 | |
| | |
| | | |
| | |
| Related party loan payable - long term | |
| 345,611 | | |
| 400,470 | |
| Deferred revenue - long term | |
| 180,200 | | |
| 112,500 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES | |
| 747,455 | | |
| 744,466 | |
| | |
| | | |
| | |
| Commitments and Contingencies (Note 7) | |
| - | | |
| - | |
| | |
| | | |
| | |
| STOCKHOLDERS' (DEFICIT) | |
| | | |
| | |
| Preferred stock, $.0001 par value, 10,000,000
shares authorized, -0- issued and outstanding | |
| - | | |
| - | |
| Common stock, $.001 par value; 500,000,000 shares authorized,
165,186,144 issued and 165,186,144 outstanding, respectively | |
| 165,186 | | |
| 165,186 | |
| Additional paid-in capital | |
| 6,058,117 | | |
| 6,058,117 | |
| Accumulated deficit | |
| (6,899,995 | ) | |
| (6,894,193 | ) |
| | |
| | | |
| | |
| Total Stockholders' (Deficit) | |
| (676,692 | ) | |
| (670,890 | ) |
| | |
| | | |
| | |
| TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) | |
$ | 70,763 | | |
$ | 73,576 | |
See notes to the consolidated financial statements.
SCORES HOLDING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
| | |
Years Ended | |
| | |
December
31, | |
| | |
2019 | | |
2018 | |
| REVENUES | |
| | | |
| | |
| | |
| | | |
| | |
| Royalty
Revenue | |
$ | 583,530 | | |
$ | 703,833 | |
| | |
| | | |
| | |
| Total
Revenue | |
| 583,530 | | |
| 703,833 | |
| | |
| | | |
| | |
| EXPENSES | |
| | | |
| | |
| | |
| | | |
| | |
| General
and Administrative Expenses | |
| 706,691 | | |
| 755,576 | |
| | |
| | | |
| | |
| LOSS
FROM OPERATIONS | |
| (123,161 | ) | |
| (51,743 | ) |
| | |
| | | |
| | |
| OTHER INCOME/(EXPENSE) | |
| | | |
| | |
| | |
| | | |
| | |
| Litigation
Settlement,net | |
| 90,000 | | |
| (894,340 | ) |
| Interest
Income/(Expense), net | |
| (16,441 | ) | |
| 6,468 | |
| Other
Income | |
| 43,800 | | |
| 268,820 | |
| | |
| | | |
| | |
| TOTAL
OTHER INCOME/(EXPENSE) | |
| 117,359 | | |
| (619,052 | ) |
| | |
| | | |
| | |
| NET LOSS
BEFORE INCOME TAXES | |
| (5,802) | | |
| (670,795 | ) |
| | |
| | | |
| | |
| INCOME
TAXES | |
| - | | |
| - | |
| | |
| | | |
| | |
| NET LOSS | |
$ | (5,802) | | |
$ | (670,795 | ) |
| | |
| | | |
| | |
| NET LOSS PER SHARE-Basic and Diluted | |
| 0.00 | | |
| (0.00 | ) |
| | |
| | | |
| | |
| WEIGHTED
AVERAGE OF COMMON SHARES OUTSTANDING-Basic and Diluted | |
| 165,186,144 | | |
| 165,186,144 | |
See notes to the consolidated financial statements.
SCORES HOLDING COMPANY INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| | |
Years Ended | |
| | |
December
31, | |
| | |
2019 | | |
2018 | |
| CASH FLOWS FROM OPERATING
ACTIVITIES: | |
| | | |
| | |
| Net Loss | |
$ | (5,802 | ) | |
$ | (670,795 | ) |
| | |
| | | |
| | |
| Adjustments
to reconcile net income/(loss) to net cash provided by/(used in) operating activities: | |
| | | |
| | |
| Recovery
of bad debts | |
| (43,800 | ) | |
| (258,744 | ) |
| ASC 606
revenue recognition | |
| - | | |
| 71,000 | |
| | |
| | | |
| | |
| Changes
in assets and liabilities: | |
| | | |
| | |
| Licensee
receivable | |
| 50,904 | | |
| 280,670 | |
| Prepaid
expenses | |
| (2,622 | ) | |
| (1,350 | ) |
| Security
deposit payable | |
| - | | |
| (20,000 | ) |
| Accounts
payable and accrued expenses | |
| 46,597 | | |
| 62,097 | |
| Accrued
expenses, related party | |
| (11,449 | ) | |
| 3,107 | |
| Accrued
litigation settlement | |
| - | | |
| - | |
| Deferred
revenue | |
| 67,700 | | |
| 62,750 | |
| | |
| | | |
| | |
| NET CASH PROVIDED BY/(USED IN)
OPERATING ACTIVITIES | |
| 101,528 | | |
| (471,265 | ) |
| | |
| | | |
| | |
| CASH FLOW FROM FINANCING
ACTIVITIES: | |
| | | |
| | |
| Related
party payables | |
| (45,000 | ) | |
| 45,000 | |
| Proceeds
from related party | |
| (54,859 | ) | |
| 400,470 | |
| | |
| | | |
| | |
| NET CASH PROVIDED BY/(USED IN)
FINANCING ACTIVITIES | |
| (99,859 | ) | |
| 445,470 | |
| | |
| | | |
| | |
| NET INCREASE/(DECREASE)
IN CASH | |
| 1,669 | | |
| (25,795 | ) |
| Cash and cash equivalents -
beginning of year | |
| 7,662 | | |
| 33,457 | |
| Cash and cash equivalents -
end of year | |
$ | 9,331 | | |
$ | 7,662 | |
| | |
| | | |
| | |
| Supplemental disclosures of
cash flow information: | |
| | | |
| | |
| Cash paid
during the period for interest | |
$ | 1,300 | | |
$ | 1,113 | |
| Cash paid
for income taxes | |
$ | - | | |
$ | 6,922 | |
See notes to the consolidated financial statements.
SCORES HOLDING COMPANY
INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
YEAR
ENDED DECEMBER 31, 2018 AND DECEMBER 31, 2019
| | |
| | |
| | |
Additional | | |
| | |
Total | |
| | |
Common Stock | | |
Paid in | | |
Accumulated | | |
Stockholders | |
| | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| Balance as of December 31, 2017 | |
| 165,186,144 | | |
$ | 165,186 | | |
$ | 6,058,117 | | |
$ | (6,294,398 | ) | |
$ | (71,095 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| ASC 606 revenue recognition | |
| - | | |
| - | | |
| - | | |
| 71,000 | | |
| 71,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net Loss | |
| - | | |
| - | | |
| - | | |
| (670,795 | ) | |
| (670,795 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of December 31, 2018 | |
| 165,186,144 | | |
$ | 165,186 | | |
$ | 6,058,117 | | |
$ | (6,894,193 | ) | |
$ | (670,890 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net Loss | |
| - | | |
| - | | |
| - | | |
| (5,802 | ) | |
| (5,802 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance as of December 31, 2019 | |
| 165,186,144 | | |
$ | 165,186 | | |
$ | 6,058,117 | | |
$ | (6,899,995 | ) | |
$ | (676,692 | ) |
Note 1. Organization
BASIS OF PRESENTATION
Scores Holding Company, Inc. (the “Company”)
is a Utah corporation, formed in September 1981 and located in New York, NY. Originally incorporated as Adonis Energy, Inc., the Company
adopted its current name in July 2002. The Company is a licensing company that utilizes the “SCORES” name and trademark for
licensing options.
The consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles in the United States. The consolidated financial statements
of the Company include the accounts of Scores Licensing Corp. (“SLC”).
Note 2. Summary of Significant Accounting Principles
Going Concern
As of December 31, 2019, the Company has cumulative
losses totaling $(6,899,995) and negative working capital of $150,881. The Company had net loss of $5,802 for the year ended December
31, 2019. Because of these conditions, the Company will require additional working capital to develop business operations. The Company
intends to raise additional working capital through the continued licensing of its brand with its current and new operators. There are
no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations
to support the Company’s working capital requirements. To the extent that funds generated from any future use of licensing are insufficient,
the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if
available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not continue its
operations.
These conditions raise substantial doubt about
the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern.
Principles of consolidation
The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. Inter-company items and transactions have been eliminated in consolidation.
Reclassifications
The Company has made certain reclassifications
to prior period amounts to conform with the current year’s presentation.
Cash and cash equivalents
The Company considers all highly liquid temporary
cash investments, with a maturity of three months or less when purchased, to be cash equivalents. There are times when cash may exceed
$250,000, the FDIC insured limit.
Fair Value of Financial Instruments
The carrying value of cash and accrued expenses,
if applicable, approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were
also estimated to approximate fair value.
The Company utilizes the methods of fair value
measurement as described in ASC 820 to value its financial assets and liabilities. As defined in ASC 820, fair value is based on the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. In order to increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes
observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Quoted prices (unadjusted) in active
markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to
Level 1 inputs.
Level 2: Observable prices that are based
on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs are used when
little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Licensee receivable and reserves
Accounts deemed uncollectible are applied against
the allowance for doubtful accounts. Allowance for doubtful accounts as of December 31, 2019 and 2018 were $0 and $43,800 respectively.
In reviewing any delinquent royalty or note receivable, the Company considers many factors in estimating its reserve, including historical
data, experience, customer types, credit worthiness, financial distress and economic trends. From time to time, the Company may adjust
its assumptions for anticipated changes in any of above or other factors expected to affect collectability.
Stock Based Compensation
The Company accounts for the plans under the recognition
and measurement provisions of Accounting Standards Codification (ASC) Topic 718 Compensation – Stock Compensation. The
standard requires entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair
value of the award, and to recognize the cost over the period the employee is required to provide services for the award.
There were no stock options or warrants issued
during the years ended December 31, 2019 and 2018, hence the Company has recorded no compensation expense. If the Company were to issue
equity rights for compensation, then the Company would recognize compensation expense under Topic 718 over the requisite service period
using the Black-Scholes model for equity rights granted.
Income per Share
Under ASC 260-10-45, “Earnings Per Share”,
basic income (loss) per common share is computed by dividing the income (loss) applicable to common stockholders by the weighted average
number of common shares assumed to be outstanding during the period of computation. Diluted income (loss) per common share is computed
using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Accordingly,
the weighted average number of common shares outstanding for the periods ended December 31, 2019 and 2018, respectively, is the same for
purposes of computing both basic and diluted net income per share for such years. As of December 31, 2019, there are no outstanding stock
equivalents.
Concentration of Credit Risk
The Company earned royalty revenues from 13 licensees.
With regards to December 31, 2019, concentrations
of sales from 4 licensees range from 10% to 34%, totaling 82%. There are receivables from 2 licensees ranging from 22% to 73%, totaling
95%. There are no sales or receivables from these licensees that are considered related parties.
With regards to December 31, 2018, concentrations
of sales from 4 licensees range from 14% to 21%, totaling 71%. There are receivables from 3 licensees ranging from 14% to 46%, totaling
89%. Included in these amounts as of December 31, 2018 are sales from 1 licensee considered a related party. There are no receivables
from these licensees that are considered related parties.
Recently Issued Accounting Standards Update
Leases
In March 2019, the FASB issued ASU No. 2019-01,
Leases (Topic 842): Codification Improvements. ASU 2019-01 aligns the guidance for fair value of the underlying asset by lessors with
existing guidance in Topic 842. The ASU requires that the fair value of the underlying asset at lease commencement is its cost reflecting
in volume or trade discounts that may apply. However, if there has been a significant lapse of time between the date the asset was acquired
and the lease commencement date, the definition of fair value as outlined in Topic 820 should be applied. In addition, the ASU exempts
both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases
standard. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
We are still evaluating the impact of this ASU on the Company’s consolidated financial statements.
All new accounting pronouncements issued but not
yet effective or adopted have been deemed not to be relevant to us, hence are not expected to have any impact once adopted.
Note 3. Revenue Recognition
Effective January 1, 2018, the Company adopted
Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with Customers (“ASC 606”). ASC
606 was applied using the modified retrospective method. Accordingly, comparative periods have not been adjusted and continue to be reported
under FASB ASC Topic 605, Revenue Recognition (“ASC 605”). There was a cumulative effect of $71,000 to be recognized as an
adjustment to opening retained earnings at January 1, 2018 related to deferred revenue booked from initiation fees that were received
in prior years of $49,750 that would have been recognized at a point in time and revenues that would be recognized on the accrual basis
in the prior years based on collection probability assessment of $21,250. Under ASC 605, initiation fee revenue was to be deferred and
recognized over the life of the contract while most royalty revenues were recognized as collected. However, under ASC 606, revenue from
the initiation fees are recognizable when at a point in time (first month of the contract) and royalty revenues are recognized over time
for those contracts with probable collections.
The Company's license fee revenue is generated
from royalties earned through intellectual property licensing agreements which permit the licensee to use the recognition and status of
the Scores brand in order to promote their businesses. Under ASC 606, revenue is recognized throughout the life of the executed licensing
agreement. The Company measures revenue based on consideration specified in a contract with a customer. Furthermore, the Company recognizes
revenue when it satisfies a performance obligation by transferring control over the service to its customer.
A performance obligation is a promise in a contract
to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation
and recognized as revenue when or as the customer receives the benefit of the performance obligation. The Company's customers typically
receive the benefit of its services as they are performed. Substantially all customer contracts provide that the Company is compensated
for services performed to date. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing
transaction, that are collected by the Company from a customer, are excluded from revenue.
Nature of goods and services
The following is a description of the Company's
products and services from which it generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant
payment terms for each:
i. Licensing Revenue
Licensing fees represent the fees the Company
receives from the licensing of the Company's Scores trademark. The terms of the royalties earned under these license agreements vary from
a flat monthly fee to a percentage of the revenues of the licensee on a monthly basis. The licensing rights are transferred to the Company's
customers over time, and the Company recognizes licensing revenue over time because the customer will simultaneously receive and consume
the benefit from the license as the performance occurs.
ii. Stand-Ready for Consulting and Club Set-up
Services
The Company offers an initial set-up and consultation
to new clubs in order to aid in the opening and operation. The services are provided within the first month of any licensing agreements,
and sometimes are not requested by the licensee and therefore never provided at all.
Disaggregation of revenue
In the following table, revenue is disaggregated
by major products/service lines, and timing of revenue recognition:
| | |
For the Years Ended
December 31, | |
| | |
2019 | | |
2018 | |
| Major products/service lines | |
| | | |
| | |
| Licensing fees - royalty revenue | |
$ | 583,530 | | |
$ | 703,833 | |
| Initiation fees | |
| 0 | | |
| 0 | |
| Total Revenue | |
$ | 583,530 | | |
$ | 703,833 | |
| | |
| | | |
| | |
| Timing of revenue recognition | |
| | | |
| | |
| Products transferred at a point in time | |
$ | 0 | | |
$ | 0 | |
| Products and services transferred over time | |
| 583,530 | | |
| 703,833 | |
| | |
$ | 583,530 | | |
$ | 703,833 | |
Contract balances
The following table provides information about
receivables, assets, and liabilities from contracts with customers:
| | |
December 31,
2019 | | |
December 31,
2018 | |
| Assets | |
| | | |
| | |
| Trade receivables - including affiliates, net | |
$ | 44,913 | | |
$ | 52,017 | |
| Liabilities | |
| | | |
| | |
| Deferred revenue | |
$ | 0 | | |
$ | 0 | |
| Deferred revenue - long term | |
$ | 180,200 | | |
$ | 112,500 | |
Contract receivables are recorded at the invoiced
amount and do not bear interest. Credit is extended based on the evaluation of a customer’s financial condition and collateral is
not required.
The contract liabilities primarily relate to deferred
revenue.
Practical Expedients and Exemptions
The Company did not apply any practical expedients
during the adoption of ASC 606.
Note 4. Related-Party Transactions
Transactions with Common ownership affiliates:
On January 24, 2006, the Company entered into
a licensing agreement with AYA International, Inc. (“AYA”) granting AYA the right to use the Company's trademarks in connection
with its online video chat website, “Scoreslive.com.” The agreement with AYA provides for royalty payments to be made directly
to the Company at the rate of 4.99% of weekly gross revenues from all revenue sources within the AYA website. On December 21, 2009, AYA
transferred all of its rights in Scoreslive.com and in its licensing agreement with the Company to Swan Media Group, Inc., (“Swan”)
a newly formed New York corporation whose majority owner (80%) is Robert M. Gans, who is also the majority shareholder and chief
executive officer of the Company. The Company is owed $0 and $0 in unpaid royalties and expenses as of December 31, 2019 and December
31, 2018, respectively.
On January 27, 2009, the Company entered
into a licensing agreement with its affiliate through common ownership I.M. Operating LLC (“IMO”) for the use of the Scores
brand name “Scores New York”. Robert M. Gans is the majority owner (72%) of IMO and is also the Company’s
majority shareholder, and Howard Rosenbluth, the Company’s Treasurer and a Director, owns 2%. IMO owes the Company a royalty receivable
of $0 and $0 as of December 31, 2019 and December 31, 2018 respectively.
On August 31, 2017, IMO entered into an agreement
to sell all of its assets to Club Azure LLC (“CA”). Effective September 1, 2017, IMO no longer operated Scores New York and
terminated its licensing agreement with the Company. Mark Yackow is the sole owner (100%) of CA and former Chief Operating Officer of
IMO. Effective September 1, 2017, the Company granted an exclusive, non-transferable license for the use of the “Scores New York”
to CA for its gentlemen’s club in New York City. Royalties under this license are payable at a rate of $5,000 per month, commencing
in September 2017, and the license is for a term of five years, with five successive five-year renewal terms.
The Company also leases office space directly
from Westside Realty of New York, Inc. (WSR), the owner of the West 27th Street Building. The majority owner
of WSR (80%) is Robert M. Gans. Since April 1, 2009, the monthly rent has been $2,500 per month including overhead costs. The
Company owed WSR $7,500 and $7,500 in unpaid rents as of December 31, 2019 and December 31, 2018, respectively.
Effective January 1, 2013, the Company entered
into a management services agreement with Metropolitan Lumber Hardware and Building Supplies, Inc., pursuant to which Metropolitan Lumber
Hardware and Building Supplies, Inc. provides management and other services to the Company, including the services of Robert M. Gans and
Howard Rosenbluth to act as executive officers of the Company. In consideration of the services, the Company paid Metropolitan Lumber
Hardware and Building Supplies, Inc. a fee in the amount of $30,000 per year. Effective May 5, 2015, the agreement was amended increasing
the annual fee to $90,000. Effective January 1, 2017, the agreement was further amended to remove the requirement that the services of
Robert M. Gans be provided under the agreement. In addition, Metropolitan Lumber Hardware and Building Supplies, Inc. shall be eligible
for a discretionary cash bonus. The agreement may be terminated by either party upon ten days written notice. Mr. Gans is the sole owner
of Metropolitan Lumber Hardware and Building Supplies, Inc. The Company owed $22,500 and $67,500 in unpaid management services as of December
31, 2019 and December 31, 2018, respectively.
The Company has accrued expenses of $7,500 due
to Metropolitan Lumber Hardware and Building Supplies, Inc. The Company owed $7,500 and $18,949 as of December 31, 2019 and December 31,
2018, respectively.
Effective July 1, 2018, after being having been
closed from August 15, 2016 to June 28, 2018, the Company terminated the previous licensing agreement and granted an exclusive, non-transferable
license for the use of the “Scores Atlantic City” name to Star Light Events LLC (“Star Light”) for its gentlemen’s
club in Atlantic City, New Jersey. Royalties under this license are payable at the rate of $5,000 per month, commencing in July 2018,
and the license is for a term of five years, with five successive five-year renewal terms. Pursuant to the written agreement, the Company
also granted Star Light a non-exclusive, non-transferable license to sell certain licensed products bearing the Company's trademarks.
Starlight will purchase the licensed products from the Company or its affiliates at cost plus 25%. Robert M. Gans, the Company's President,
Chief Executive Officer and a director, is the majority owner (92.165%) of Star Light Events LLC and Howard Rosenbluth, the Company's
Secretary, Treasurer and a Director, owns 1%. Starlight owes the Company a royalty receivable of $0 and $0 as of December 31, 2019 and
December 31, 2018, respectively.
On December 9, 2013, the Company entered into
a license agreement with its subsidiary, SLC, granting SLC the exclusive right to use certain trademarks, including the “Scores”
stylized trademark, in connection with certain goods and services. The grant of license also includes the right to issue sublicenses
to third parties, subject to the approval of the Company. Pursuant to the agreement, SLC shall pay to the Company a royalty, as
determined by the Company, such as a percentage of net revenue or a flat fee, received in connection with the provision of services and/or
sale of goods using the trademarks. SLC may also pay a percentage, as determined by the Company, of all royalties received by SLC
under any sublicense agreements. SLC and any sublicensees are to adhere to quality standards as set by the Company, and the Company
has the right to inspect all facilities and approve all promotional and marketing materials as well as any related packaging. The
agreement has a one-year term with automatic one-year renewals, subject to either party’s election to terminate the agreement at
least thirty days prior to such renewal. The Company also has the right to terminate the agreement, with immediate effect, upon
the occurrence of certain events. The license is subject to any pre-existing license agreements as of the date of the agreement.
Effective February 28, 2017 (the “Effective
Date”), the Company entered into separate Settlement Agreements (each, a “Settlement Agreement”) with three licensees,
IMO, Star Light and Swan, controlled by Robert M. Gans, the Company's President, Chief Executive Officer and a member of its Board of
Directors.
As of the Effective Date, IMO owed the Company
an aggregate of $255,406 in unpaid royalties and other fees. Under its Settlement Agreement, IMO has agreed to pay the entire amount owed
to the Company, in full settlement of all claims the Company may have against it. The settlement amount is payable pursuant to a promissory
note in 22 consecutive monthly installments commencing March 1, 2017, and bears simple interest at the rate of 4% per year. Included as
an event of default under the note is a requirement that IMO remain current in its obligations to the Company under its license agreement
from and after the Effective Date. This obligation was satisfied under the terms of the
Offset Agreement as discussed further below.
As of the Effective Date, Starlight owed the Company
an aggregate of $250,000 in unpaid royalties and other fees. Starlight is currently inactive and has no revenue. Under its Settlement
Agreement, Starlight has agreed to pay the Company $75,000, in full settlement of all claims the Company may have against it. The settlement
amount is payable pursuant to a promissory note in 10 consecutive monthly installments commencing March 1, 2017, and bears simple interest
at the rate of 4% per year. This obligation was satisfied under the terms of the Offset Agreement
as discussed further below.
As of the Effective Date, Swan owed the Company
an aggregate of $166,000 in unpaid royalties and other fees. Swan is currently unprofitable. Under its Settlement Agreement, Swan has
agreed to pay the Company $50,000, in full settlement of all claims the Company may have against it. The settlement amount is payable
pursuant to a promissory note in 10 consecutive monthly installments commencing March 1, 2017, and bears simple interest at the rate of
4% per year. Included as an event of default under the note is a requirement that Swan remain current in its obligations to the Company
under its license agreement from and after the Effective Date. This obligation was satisfied
under the terms of the Offset Agreement as discussed further below.
On August 4, 2018, the Company settled the Plaintiffs
claims in the Voronina matter for $1,310,000. See Note 7 for additional information. The Company had insufficient liquid resources to
enable it to make a portion of the settlement payments called for by the Voronina Settlement Agreement. Metropolitan Lumber, Hardware
and Building Supplies, Inc., a company wholly-owned by Robert M. Gans, the Chief Executive Officer and a director of the Company, made
loans to the Company in the aggregate amount of $770,000 to enable the Company to make the payments under the Voronina Settlement Agreement. In
addition to the aforementioned loan and as discussed further in Note 7, the Company filed a third party complaint against certain licensees.
The amount of money paid to the Company by settling with Third-Party Defendants and the Company’s insurance carrier was $505,660.
The Company previously entered into the 3 Royalty
Settlement Agreements noted above where Robert M. Gans is a majority owner of the equity of each of the Licensees. Robert M. Gans guaranteed
the payment of each Licensee’s obligations under each of the 3 Settlement Documents. The Licensees were not current with respect
to their obligations under the Settlement Documents and the Company did not call upon Mr. Gans to honor his guaranties.
The past due amounts under the Royalty Settlement
Agreements aggregated $382,259 (the “Aggregate Royalty Amount”) as of December 1, 2018. As of such date, the Company, the
Licensees, Metropolitan and Robert M. Gans entered into a Settlement and Offset Agreement (the “Offset Agreement”) pursuant
to which the Aggregate Royalty Amount was offset against the Voronina Amount, thereby reducing the amount owed by the Company to Metropolitan
to $408,546 (the “Net Voronina Amount”). The Net Voronina Amount is payable pursuant to a promissory note (the “Voronina
Note”), which bears simple interest at the rate of 4% per annum, in 86 consecutive monthly installments of $5,000, and a final installment
of $1,370, with the initial installment due and payable on January 1, 2022 (or the first business day thereafter). The Company may prepay
the Voronina Note at any time, in whole or in part without premium or penalty. The Offset Agreement also provides for the immediate termination
of the Royalty Settlement Agreements and the related promissory notes and guarantees.
The total amounts due to the various related parties
as of December 31, 2019 and December 31, 2018 was $383,111 and $494,419 respectively and the total amounts due to the Company from the
various related parties as of December 31, 2019 and December 31, 2018 was $0 and $0 respectively.
Note 5. Income Taxes
The Company accounts for income taxes in accordance
with ASC 740-10-25, “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
On December 22, 2017, the Tax Cuts and Jobs
Act (the TCJA), which significantly modified U.S. corporate income tax law, was signed into law by President Trump. The TCJA contains
significant changes to corporate income taxation, including but not limited to the reduction of the corporate income tax rate from a top
marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of earnings (except for certain
small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and generally eliminating
net operating loss carrybacks, allowing net operating losses to carryforward without expiration, one-time taxation of offshore earnings
at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important
exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying
or repealing many business deductions and credits (including changes to the orphan drug tax credit and changes to the deductibility of
research and experimental expenditures that will be effective in the future). Notwithstanding the reduction in the corporate income
tax rate, the overall impact of the new federal tax law is uncertain, including to what extent various states will conform to the newly
enacted federal tax law.
The Company has not recorded the necessary provisional
adjustments in the financial statements in accordance with its current understanding of the TCJA and guidance currently available
as of this filing, but is reviewing the TCJA’s potential ramifications.
The Company has net operating loss carryforwards of approximately $6,105,000
which expire in the years 2020 through 2039. Management has determined that it is more likely than not that the net operating loss carryforward
will not be fully utilized therefore a full valuation allowance has been provided. 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. We have determined the Company has lost cumulatively $1,413,000 of deferred
tax assets attributed to net operating loss carryforwards due to the change in ownership in 2008. The remaining $215,000 of deferred tax
assets can only be utilized up to $21,500 per year (relating to the IRC382, limitation) through 2028.
| |
|
2019 |
|
|
2018 |
|
| Deferred tax assets: |
|
|
|
|
|
|
|
|
| Net operating loss carryforward |
|
$ |
505,000 |
|
|
$ |
493,000 |
|
| Allowance for doubtful accounts |
|
|
0 |
|
|
|
14,000 |
|
| Revenue recognition |
|
|
66,0000 |
|
|
|
66,000 |
|
| Less valuation allowance |
|
|
(571,000 |
) |
|
|
(573,000 |
) |
| Net deferred tax asset |
|
$ |
- |
|
|
$ |
- |
|
The reconciliation of the Company’s effective
tax rate differs from the Federal income tax rate of 21% and 34% for the years ended December 31, 2019 and 2018, respectively as a result
of the following:
| |
|
2019 |
|
|
2018 |
|
| Tax (benefit) at statutory rate |
|
$ |
1,500 |
|
|
$ |
(141,000 |
) |
| State and local taxes, net of federal benefit |
|
|
500 |
|
|
|
(69,000 |
) |
| Permanent differences |
|
|
- |
|
|
|
- |
|
| Change in valuation allowance |
|
|
(2,000) |
|
|
|
210,000 |
|
| Tax due |
|
$ |
0 |
|
|
$ |
0 |
|
Federal and State/Local tax years remain open
by statute, generally three years. There are no open Statutory Federal or State/Local audits at December 31, 2019.
Note 6. Licensees
The Company has 13 license agreements which were
obtained between 2003 and 2019.
On March 18, 2016, the Company (through its subsidiary
Scores Licensing Corp.) entered into a Trademark License (the “Trademark License”) with Michael Blutrich. The Trademark License
grants Mr. Blutrich the non-exclusive use of the Company’s registered trademarks, related logos and other intellectual property
in connection with the development, production and distribution of a potential scripted television series, mini-series or movie of the
week (the “Series”). Under the Trademark License, the Company will receive three percent of all fees, contingent compensation
and other consideration that Mr. Blutrich receives in connection with the Series. Mr. Blutrich is permitted to assign the Trademark License
without consideration to third-parties. The term of the Trademark License is for one year, which term may and has been extended. Effective
March 18, 2016, the Company and Mr. Blutrich entered into an addendum to the Trademark License, extending the license to a book about
Scores.
See Note 9 for litigation relating to a few of
the Company’s license agreements.
IMO’s members are the Company's majority
shareholder, Robert M. Gans (72%), and Secretary and Director, Howard Rosenbluth (2%) hence making IMO a related party. The building occupied
by IMO is owned by Westside Realty of New York Inc., of which the majority owner is Robert M. Gans (80%). The club accounted for 00% and
0% of the Company's royalty revenues for the years ended December 31, 2019 and 2018, respectively. The Company recognized $139,405 in
royalty revenues under ASC 606 from IMO. Mr. Gans is also the majority owner (80%) of Swan, which accounted for 0% and 0% of the Company
royalty revenues for the years ended December 31, 2019 and 2018, respectively. Mr. Gans is also the majority owner (92.165%) of Starlight,
which accounted for 0% and 0% of the Company's royalty revenues for the years ended December 31, 2019 and 2018, respectively.
Note 7. Deferred Revenue
License agreements sometimes include Initiation/Inception
Fees. Please see Note 3 for a detailed discussion of this matter.
Note 8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of December
31, 2019 is comprised of professional fees of $62,547, accrued payroll and taxes of $139, legal fees of $96,633, insurance of $3,679,
filing fees of $15,421 marketing fees and expenses of $5,000 and miscellaneous accruals and payables of $725. Accounts payable and accrued
expenses as of December 31, 2018 is comprised of professional fees of $50,047, accrued payroll and taxes of $1,906, legal fees of $64,031,
insurance of $5,595, filing fees of $4,496, marketing fees and expenses of $4,337 and miscellaneous accruals and payables of $7,135.
Note 9. Commitments and Contingencies
The Company records $7,500 a month as rent, overhead,
and services due to Metropolitan Lumber Hardware Building Supplies, Inc. for services rendered by the management of the Company. Mr. Gans
is the sole owner of Metropolitan Lumber Hardware Building Supplies, Inc.
The Company currently leases office space from
the Westside Realty of New York which is owned and operated by Robert Gans the Company's majority shareholder, for $2,500 a month.
On April 3, 2016, 50 individuals purporting to
be professional models and/or actresses collectively, the “Plaintiffs”) filed a civil suit in the United States District Court
for the Southern District of New York against the Company, I.M. Operating, LLC, The Executive Club, LLC, and Robert M. Gans, collectively
the (“Defendants”) alleging that images of Plaintiffs were used without their consent for commercial purposes on websites
and social media outlets to promote gentlemen’s clubs operated by the Defendants or licensees of the Defendants (the “Lawsuit”).
The Lawsuit further alleged that the unauthorized use of these images created, among other things, the false impression that these individuals
either worked at, or endorsed, one or more of such clubs. The Lawsuit asserted causes of action under Section 43 of the Lanham Act, 28
U.S.C. § 1125(a)(1), premised on a theory of false endorsement and/or association; New York Civil Rights Law §§ 50-51;
New York’s Deceptive Trade Practices Act, New York General Business Law § 349; as well as various common law torts, namely
defamation, negligence, conversion, unjust enrichment and quantum meruit. The Lawsuit sought unspecified compensatory damages, punitive
damages, as well as attorneys’ fees and costs. The Lawsuit also sought an injunction permanently enjoining the use of the individuals’
images to promote, via any medium, any of the clubs. On April 20, 2017, as a result of the claims asserted in the Lawsuit, the Company
filed a third-party complaint (the “Third-Party Complaint”) against certain licensees, namely CG Consulting, LLC; Anthony
Quaranta; High Five Management Group, Inc.; Club 2000 Eastern Avenue, Inc.; SCMD, LLC; David Baucom; Manhattan Fashion L.L.C.; Stone Park
Entertainment, Inc.; Silver Bourbon, Inc.; Tampa Food & Entertainment, Inc.; Fuun House Productions, L.L.C.; Norm A Properties, LLC;
Southeast Show Clubs, LLC; Michael Tomkovich; Palm Spring Grill LLC; Houston KP LLC; and Star Light Events LLC (collectively, “Third-Party
Defendants”) asserting causes of action for breach of contract, breach of warranty, contractual indemnification, common law indemnification,
contribution and breach of contract for failure to procure insurance. The Company maintained in the Third-Party Complaint, among other
things, that pursuant to the Third-Party Defendants’ respective license agreements, each of the Third-Party Defendants are expressly
obligated to indemnify, defend and hold the Company harmless in connection with the conduct giving rise to the claims asserted by Plaintiffs
in the Lawsuit. Third-Party Defendants Club 2000 Eastern Avenue, Inc., Fuun House Productions, L.L.C., and Norm A Properties, LLC (collectively
the “Defaulting Third-Party Defendants”) failed to respond to the Third-Party Complaint.
On January 5, 2017, the Court issued an Order
granting in part, and denying in part, Defendants’ motion to dismiss the Complaint. The Court dismissed Plaintiffs’ claims
sounding in negligence, conversion, unjust enrichment and quantum meruit. The remaining claims were not dismissed at that time. On August
4, 2018, the Court dismissed Plaintiffs’ claims against Defendants, including the Company, with prejudice, at Plaintiffs’
request following settlement with Defendants. During 2018, the Company paid $1,310,000 to Plaintiffs in connection with the settlement.
Between August 4, 2018 and October 9, 2018, the Court dismissed with prejudice the Company’s claims against the Third-Party Defendants,
other than the Defaulting Third-Party Defendants, at the Company’s request following settlement with those Third-Party Defendants.
The total amount of money paid to the Company by the settling Third-Party Defendants, and the Company’s insurance carrier, is $505,660,
paid thru September 30, 2019 and $90,000 received during the nine months ended September 30, 2019. Scores has obtained Default Orders
against Fuun House Productions, L.L.C. and Norm A Properties, LLC. The value of the Company’s claims against Fuun House Productions,
L.L.C. and Norm A Properties, LLC are all that remain to be determined in the action. The Company became aware during the week of December
17, 2018 that Fuun House Productions, L.L.C. has filed for bankruptcy protection.
On January 3, 2017, the Company, together with
its subsidiary SLC, filed an action against CJ NYC Inc. in the United States District Court for the Southern District of New York. Defendant
utilizes the “Scores” name and trademark in connection with its ownership and operation of an adult entertainment club in
Woodside, New York. In this action the Company sought damages for breach of contract in the amount of $85,000 and the issuance of a preliminary
and permanent injunction prohibiting the defendant from using the “Scores” name and trademark with respect to the Woodside,
New York club and all websites and social media sites controlled by Defendant. The defendant failed to appear and on February 27, 2017,
the Company filed a motion for judgment by default. The court heard the Company motion on April 5, 2017, and on May 25, 2017, the court
granted the Company's motion for a Judgment by default, granting a permanent injunction and awarding damages in the amount of $85,000
to SLC and $14,333 in damages and $530 in costs to the Company. All signage has been removed and the Company is attempting to collect
on the default judgment, but it believes that Defendant no longer has any assets, leaving the Company unable to collect on the default
judgment.
On January 31, 2017, the Company, together with
its subsidiary SLC, filed an action against Funn House Productions LLC in the United States District Court for the Southern District of
New York. Defendant utilizes the “Scores” name and trademark in connection with its ownership and operation of an adult entertainment
club in New Haven, Connecticut. In this action the Company sought damages for breach of contract in the amount of $45,000 and the issuance
of a preliminary and permanent injunction prohibiting the defendant from using the “Scores” name and trademark with respect
to the New Haven, Connecticut club and all websites and social media sites controlled by Defendant. The Defendant failed to appear and
on February 28, 2017, the Court granted Plaintiffs’ motion for a Judgment by default, granting a permanent injunction and awarding
damages in the amount of $60,000. The parties negotiated a settlement agreement, which included a payment schedule, but then Defendant
did not sign the proposed settlement agreement. The Company is attempting to collect on the default judgment, but it believes that Defendant
no longer has any assets, leaving the Company unable to collect on the default judgment.
On July 25, 2017, plaintiff Dislenia Munoz, who
formerly performed as an adult entertainer at Scores New York, owned in its entirety by I.M. Operating LLC, commenced a putative class
action lawsuit against the Company, IMO, Robert Gans and Mark Yackow in the Supreme Court of the State of New York, County of New York.
Plaintiff alleged that she and other similarly situated entertainers at Scores New York were misclassified as independent contractors,
that they should have been classified as employees, and as a result, the Defendants violated, among other things, applicable state wage
and hour laws. The Lawsuit sought unspecified compensatory damages, liquidated damages, as well as attorneys’ fees and costs. On
June 22, 2018, Plaintiff (1) amended her complaint in the Lawsuit to excise her class allegations, and (2) discontinued the Lawsuit, without
prejudice. Plaintiff has brought her claims in the Lawsuit in another forum against the Defendants, other than the Company, which is no
longer a subject of Plaintiff’s claims.
On
October 8, 2018, the Company was served with a Summons and Complaint in the action entitled Luisa Santos de Oliveira v. Scores Holding
Company, Inc.; Club Azure, LLC; Robert Gans; Mark S. Yackow; Howard Rosenbluth, Docket No. 1:18-cv-06769-GBD, in the United States District
Court of the Southern District. Plaintiff claims that the Defendants violated the minimum wage and overtime provisions of the Fair Labor
Standards Act (“FLSA”); violated the New York Minimum Wage Act and the overtime provisions of the New York State Labor Law
(“NYLL”); violated the Spread of Hours Wage Order of the New York Commissioner of Labor; violated the Notice and Recordkeeping
requirements of the NYLL; violated the wage statement provisions of the NYLL; recovery of equipment costs in violation of the FLSA and
NYLL; and unlawful deductions from tips in violation of the NYLL. Plaintiff brought this action as a class action and seeks certification
of this action as a collective action on behalf of herself and all other similarly situated employees and former employees of Defendants.
The Company has submitted an Answer to Plaintiff’s claims and the case is currently in the discovery phase. The Company, along
with the Co-defendants, intends to vigorously defend itself against the claims asserted against it in this lawsuit. The likelihood of
an unfavorable outcome is remote because the Company’s records show, inter alia, that the Plaintiff never worked more than 25 hours
per week. The case was assigned to a Magistrate Judge. There was a conference
on March 2, 2021 and a Scheduling Order was entered. On March 26, 2021, a Stipulation of Discontinuance was so-ordered
by the Federal Court, discontinuing all claims against the Company.
On October 10, 2018, attorney Neal S. Greenfield, on behalf of the
Company, filed an action against SCMD, LLC, in the Supreme Court of the State of New York, County of New York. Defendant utilized the
“Scores” name and trademark in connection with its ownership and operation of an adult entertainment club located in Baltimore,
Maryland and paid royalty fees to the Company up through and including July of 2017 but did not abandon its use of the Scores name and
trademarks until September of 2018. In this action, the Company sought damages for breach of contract in the amount of $160,000. On December
5, 2018, the case was removed to the United States District Court for the Southern District of New York. On February 19, 2019, an Amended
Complaint was filed. On March 8, 2019, Defendant’s counsel requested permission from the Court to submit a motion to dismiss the
Company’s amended complaint. The Court finally granted Defendant’s request on November 6, 2019 and gave a briefing schedule.
On November 12, 2019, I was substituted in as the Company’s counsel in place of attorney Neal S. Greenfield. Defendant’s motion
to dismiss was denied on August 14, 2020. In September of 2020, the parties settled this matter for $50,000, of which $5,000 remains due
and outstanding. SCMD, LLC has since been dissolved. We are still trying to collect the remaining $5,000 that is due to the Company, but
we are not confident that we will be successful given that SCMD, LLC has been dissolved.
On September 14, 2018, attorney Neal S. Greenfield, on behalf of the
Company and its subsidiary Scores Licensing Corp. (“SLC”), filed an action against New 4125, LLC and Mike Taraska in the Supreme
Court of the State of New York, County of New York. Defendants utilized the “Scores” name and trademark in connection with
its ownership and operation of an adult entertainment club located in Phoenix, Arizona. In this action, the Company sought damages for
breach of contract in the amount of $47,500. Defendants filed an Answer to the Complaint but it was not submitted by an attorney notwithstanding
the fact that corporations must be represented by counsel. I was substituted as the Company’s attorney in place of Neal S. Greenfield
on November 14, 2019. A motion to vacate the Answer based on the fact that the corporate defendant is not represented by counsel is pending.
On April 22, 2018, the Company together with its
subsidiary SLC filed a civil action in Supreme Court of New York, New York County against 1715 Northside Drive, Inc., the former licensee
of SCORES Atlanta. The action was settled and paid in full during the 3rd quarter 2018.
On May 4, 2018, we together with our subsidiary
SLC filed a civil action in Supreme Court of New York, New York County against Bonkers Space Coast Inc. and Ken Fees, the former licensee
of the SCORES Green Bay, for unpaid royalties in the amount of $80,000. The Defendants have not appeared and Plaintiffs have filed a motion
for judgment by default. A motion for default judgement was granted and judgement was entered on November 26, 2019. The Company has found
real property owned by the Defendant and we are in the process of attaching same. We filed an exemplified copy of the default judgment
with the State Court in Wisconsin, to collect licensing fees. A judgment was docketed on June 12, 2020 in
Manitowoc County, WI for $82,330.34. We are in the process of foreclosing on the individual defendant’s
real property.
On April 20, 2018, the Company together with its
subsidiary SLC filed a civil action in Supreme Court of New York, New York County against The Cadillac Lounge LLC and Dick Shappy, the
former licensee of SCORES Rhode Island for unpaid royalty fees. The action was settled for $50,000 and has been paid in full during the
2nd quarter 2018.
On April 25, 2018, the Company together with its
subsidiary SLC filed a civil action in Supreme Court of New York, New York County against South East Show Clubs LLC and Michael Tomkovich,
the license of SCORES Jacksonville and SCORES Savannah, for unpaid royalties in the amount of $60,000. The action was settled and has
been paid in full during the 4th quarter of 2018.
On August 3, 2018, attorney
Neal S. Greenfield, on behalf of the Company and its subsidiary SLC, filed an action against Silver Bourbon, Inc. in the Supreme Court
of the State of New York, County of New York. Defendant utilized the “Scores” name and trademark in connection with its ownership
and operation of an adult entertainment club located in New Orleans, Louisiana. In this action, the Company seeks damages for breach of
contract in the amount of $145,500. On July 31, 2019, I was substituted as the Company’s attorney in place of attorney Neal S. Greenfield.
The parties were in the process of negotiating a settlement but then the club permanently closed after it lost its lease and was forced
to close in March of 2020 due to the global pandemic. We have therefore ceased all attempts to collect this debt.
On July 13, 2018 attorney Neal S. Greenfield, on behalf of the Company
and its subsidiary SLC, filed an action against Manhattan Fashions, LLC in the Supreme Court of the State of New York, County of New York.
Defendant utilized the “Scores” name and trademark in connection with its ownership and operation of an adult entertainment
club located in Harvey, Louisiana. In this action, the Company sought damages for breach of contract in the amount of $84,000. Defendant
did not appear, and On February 6, 2019, the Court granted the Company’s motion for default judgment. The parties were in the process
of negotiating a settlement agreement but then ceased all attempts to settle this matter after the club was forced to permanently close
in March of 2020 due to the global pandemic. We have therefore ceased all attempts to collect this debt.
On September 5, 2019, the Company together with
its subsidiary SLC filed a civil action in Supreme Court of New York, New York County against Scores Alabama. A cease and desist letter
was sent. The Company finally entered into a license agreement as of March 5, 2020 with Cheetah Club, LLC for a club located in Huntsville,
Alabama.
The Company had been in the process of negotiating a license agreement
with an adult entertainment club that started using the “Scores” name and trademark in connection with an adult entertainment
club located in Huntsville, Alabama without a proper licensing agreement in place. The Company’s subsidiary, SLC, ended up entering
into a license agreement in March of 2020.
In July 2018, the Company entered into a confidential
settlement agreement (the “Settlement Agreement”) in the Voronina litigation, and in August 2018, the Court entered an order
dismissing the plaintiff’s claims against the Defendants with prejudice. Metropolitan, loaned the Company an aggregate of $770,000
to enable the Company to make the payments called for by the Agreement.
As previously reported, in February 2017, the
Company entered into settlement agreements (each, a “Royalty Settlement Agreement”) with Star Light, Swan, IMO and Robert
M. Gans. Robert M. Gans is the owner of a majority of the equity of each of aforementioned Licensees. Pursuant to the Royalty Settlement
Agreements, the Company forgave the repayment of a certain portion of unpaid, past-due royalties in return for the respective Licensees’
agreements to pay the remainder (the “Royalty Settlement Amount”) of the unpaid royalties, plus interest, to the Company.
The Royalty Settlement Amount for each Licensee was represented by a promissory note, and Robert M. Gans guaranteed the payment of each
Licensee’s obligations under the Settlement Agreement.
The Licensees did not remain current with respect
to their obligations under the Royalty Settlement Agreements, and the Company did not call upon Robert M. Gans to honor his guarantees.
The past due amounts under the Royalty Settlement Agreements aggregated $382,259 (the “Aggregate Royalty Amount”) as of December
1, 2018. As of such date, the Company, the Licensees, Metropolitan and Robert M. Gans entered into a Settlement and Offset Agreement (the
“Offset Agreement”) pursuant to which the Aggregate Royalty Amount was offset against the Voronina Amount, thereby reducing
the amount owed by the Company to Metropolitan to $408,546 (the “Net Voronina Amount”). The Net Voronina Amount is payable
pursuant to a promissory note (the “Voronina Note”), which bears simple interest at the rate of 4% per annum, in 86 consecutive
monthly installments of $5,000, and a final installment of $1,370, with the initial installment due and payable on January 1, 2022 (or
the first business day thereafter). The Company may prepay the Voronina Note at any time, in whole or in part without premium or penalty.
The Offset Agreement also provides for the immediate termination of the Royalty Settlement Agreements and the related promissory notes
and guarantees.
On January 29, 2020,
an individual referred to as Jane Doe, the Plaintiff, filed a civil suit in in the Circuit Court of
the 13th Judicial Circuit, in the State of Florida, Hillsborough County, against the Company, its subsidiary,
Scores Licensing Corp. (“SLC”), and several other defendants. Plaintiff’s Complaint details the somber circumstances
surround the illegal actions of a non-party, who pled guilty to certain crimes against Plaintiff that were committed at a club known as
Scores Tampa. Plaintiff now seeks to hold the Company and its subsidiary, among other defendants, liable in connection with the
non-party’s illegal activity by asserting causes of action for negligence, vicarious liability and unjust enrichment. Initially,
prior counsel moved to dismiss Plaintiff’s Complaint in lieu of filing Answers. A motion to dismiss was submitted because
the Court lacks personal jurisdiction under Florida’s Long-Arm Statute and Due Process Requirements because neither the Company
or its subsidiary had minimum contacts with Florida; nor was their a benefited conferred upon them. The Court wrongfully denied
the motion to dismiss. The case is in the deposition stage of discovery. A motion for summary judgment will be submitted
because neither the Company or its subsidiary were involved in the day-to-day operations of Scores Tampa, or in fact involved in the operations
of Scores Tampa at all. Other than the Company licensing the Scores trademark and other intellectual property to Scores Tampa, pursuant
to a 2010 license agreement, neither the Company or its affiliate operated, conducted, engaged in, or managed Scores Tampa, making it
vicariously liable for the non-party’s criminal actions.
On July
15, 2019, plaintiff Jeremy Green, a former consultant to Swan Media Group, Inc (“SMG”), commenced an action in U.S. District
Court, Southern District of New York against Scores Holding Co., Inc., Scores Media Group LLC, Scores Digital Gaming LLC (“SDG”)
and individual defendants Robert Gans and Charilaos Yioves seeking to recover from all defendants under various theories of breach of
contract, unjust enrichment, promissory estoppels, fraudulent inducement and breach of implied duty of good faith and fair dealing.
By
Order dated March 18, 2020 the Court dismissed all the causes of action except for the breach of contract claim pertaining to Greene’s
consultancy agreement with SMG and the unjust enrichment claim relating to SDG. The parties have exchanged documents and information relating
to the remaining causes of acting and depositions are scheduled to be held in early May, 2021. . The parties expect that fact discovery
will be conclude by February 15, 2022 and expert disclosures, if necessary, shall be completed by April 18, 2022. The Court has directed
the parties to appear for a final status conference on February 25, 2022. Prior to the status conference, Swan Media will request a pre-motion
conference and permission from the Court to file a dispositive motion.
Finally, in an action entitled Jessica Hall v. Scores Holding Company,
Inc., et al, filed in Federal Court, Southern District, the Plaintiff claims that, while she worked at a gentlemen’s club located
in New York, New York and commonly known as Scores NY, she was discriminated and retaliated against because of her race in violation of
both Federal and State law. A motion for default judgment was denied, and Plaintiff was recently granted permission to file and serve
an Amended Complaint. The likelihood of success on the merits is negligible because the Company, as simply the owner of the “Scores”
brand and trademarks, did not own, operate or otherwise control Scores NY or employ, manage, or otherwise control Plaintiff’s employment.
There are no other material legal proceedings
pending to which we or any of our property are subject, nor to our knowledge are any such proceedings threatened.
Note 10. Subsequent Events
Please see Note 9 for events concerning legal
matters.
Management evaluated subsequent events through
the date of this filing and determined that no additional events have occurred that would require adjustment to or disclosure in the financial
statements.
As
a result of the COVID-19 virus, during the first quarter of 2020 and ongoing, state and local governments have required all but certain
essential businesses to close, including all clubs operating under the Scores name. The duration and ultimate extent of the closures of
these clubs cannot be predicted at this time, however the impact on such clubs' revenue could be material and result in a significant
decline in our royalty revenues.
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