SCRH Scores Holding Company Inc (CE)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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FORM 10-Q

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(Mark One)

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☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the quarterly period ended: September 30, 2021

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or

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

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For the transition period from            to           

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Commission File Number: 000-16665

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212-246-9090

(Registrant’s telephone number, including area code)

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N/A

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

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☐  No  ☒

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☐  No  ☒

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

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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.  ☐

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

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

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As of June 14, 2023 there were 165,186,144 shares of common stock, $0.001 par value per share, outstanding.

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TABLE OF CONTENTS

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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, among other things, 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, but are not limited to, those discussed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. 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.

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See notes to the unaudited condensed consolidated financial statements.

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See notes to the unaudited condensed consolidated financial statements.

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See notes to the unaudited condensed consolidated financial statements.

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See notes to the unaudited condensed consolidated financial statements.

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SCORES HOLDING CO., Inc and Subsidiary

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.

These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements of the Company include the accounts of Scores Licensing Corp. (“SLC”), its wholly-owned subsidiary.

The Company’s condensed consolidated financial statements include the Company’s accounts, as well as those of its wholly-owned subsidiary. The Company’s accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the condensed consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 31, 2021.

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Note 2.Summary of Significant Accounting Principles

COVID-19

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.

Upon management’s evaluation of relevant hospitality industry conditions and events known as of the date that these financial statements are issued it is their belief the financial effects of the Covid 19 pandemic will not have a substantial or long term effect on the financial viability of the adult entertainment industry. There will be operational changes to be certain but not a consequentially detrimental impact on the industry.

That said it should be noted all royalty paying licensees have reopened and are current. In addition, cash collections increased from $235,000 during 2020 to $249,000 and $794,000 during 2021 and 2022 respectively.

Although there are fewer licensees and some of the licensing fees have been re-negotiated management believes the worst of the effects the Covid 19 pandemic are over. The lifting of many, if not all, gathering restrictions imposed by local government has vastly improved the appeal of adult entertainment-oriented establishments. Consequently, the Company has seen a recent increase in the number of such establishments interested in utilizing the SCORES brand trademarks.

Going Concern

As of September 30, 2021, the Company had an accumulated deficit totaling $7,079,369 and working capital deficit of $522,566. Because of these conditions, the Company will require additional working capital to develop business operations. The Company intends

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SCORES HOLDING CO., Inc and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 within one year after the date the financials are issued. The unaudited condensed consolidated 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.

Revenue Recognition

Under ASC 606, revenue from the initiation fees are recognizable 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.

Concentration of Credit Risk

The Company earns royalty revenues from ten licensees.

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SCORES HOLDING CO., Inc and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

With regards to September 30, 2021, concentrations of sales from two licensees range from 40% to 58%, totaling 98%. There is one receivable from a licensee totaling 100%. There are no sales from licensees that are considered related parties. There are no receivables from these licensees that are considered related parties.

With regards to September 30, 2020, concentrations of sales from four licensees range from 19% to 29%, totaling 88%. There is one receivable from a licensee totaling 100%. There are no sales from licensees that are considered related parties. There are no receivables from these licensees that are considered related parties.

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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.

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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. At September30, 2021 and December 31, 2020, the uninsured balance amounted to $-0- and $-0-, respectively.

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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. As of September 30, 2021, there are no outstanding stock equivalents. Accordingly, the weighted average number of common shares outstanding for the periods ended September 30, 2021 and 2020, respectively, is the same for purposes of computing both basic and diluted net income per share for such periods.

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 identical 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 or quoted prices in active markets for similar assets or liabilities.

Level 3: Unobservable inputs are used when little or no market data is available including the Company’s own assumptions in determining the fair value. The fair value hierarchy gives the lowest priority to Level 3 inputs.

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SCORES HOLDING CO., Inc and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Recently Issued Accounting Standards Update

Credit loss

In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendment to the initial guidance: ASU 2018-19 (collectively, Topic 326). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact on the Company’s consolidated financial statements.

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Contract balances

The following table provides information about liabilities from contracts with customers:

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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.

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SCORES HOLDING CO., Inc and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The contract liabilities primarily relate to deferred revenue. Amounts billed in advance of performance obligations being satisfied are booked as deferred revenue.

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Note 4.Related-Party Transactions

Transactions with Common ownership affiliates:

On January 27, 2009, the Company entered into a licensing agreement with its affiliate through common ownership I.M. Operating LLC (“IMO”) for the use of the Scores brand name “Scores New York”. Robert M. Gans is the majority owner (72%) of IMO and is also the Company’s majority shareholder and chief executive officer 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 September 30, 2021 and December 31, 2020, 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, an unrelated party, 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. On March 16th 2020 New York City Mayor Bill De Blasio ordered the closure of all New York City nightclubs, theaters, restaurants and concert venues in an effort to slow down the spread of Covid 19 and to protect ourselves against it. As a result of this closure order and effective March 17th 2020 the above business entity closed and has been closed since.

The Company 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. This lease was terminated on December 31, 2020. The Company incurred rent expense of $-0- and $22,500 for the periods ending September 30, 2021 and 2020, respectively. The Company owed WSR $30,000 and $30,000 in unpaid rents as of September 30, 2021 and December 31, 2020, respectively.

Effective January 1, 2013, the Company entered into a management services agreement with Metropolitan Lumber Hardware and Building Supplies, Inc. (“Metropolitan”) pursuant to which Metropolitan 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 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 to be provided under the agreement. In addition, Metropolitan 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. The Company incurred management fees of $45,000 for the periods ending September 30, 2021 and 2020. The Company owed $135,000 and $67,500 in unpaid management services as of September 30, 2021 and December 31, 2020, respectively.

The Company has accrued expenses of $7,500 due to Metropolitan. The Company owed $7,500 and $7,500 as of September 30, 2021 and December 31, 2020, respectively.

It should be noted as outlined below the results of two separate events and their subsequent settlement agreements were offset against one another resulting in a third settlement agreement.

First, effective February 28, 2017 (the “Effective Date”), the Company entered into separate Settlement Agreements (a “Royalty Settlement Agreement”) each with three licensees, IMO, Star Light and Swan (are sometimes referred to individually as a “Licensee” and collectively as the “Licensees”) controlled by Robert M. Gans, the Company’s President, Chief Executive Officer and a member of its Board of Directors. 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.

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SCORES HOLDING CO., Inc and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

IMO, Star Light and Swan owed the Company an aggregate of $255,406, $75,000, and $50,000 respectively in full settlement of unpaid royalties and other fees (the “Royalty Amount”). The settlement amounts were payable pursuant to promissory notes in monthly installments commencing March 1, 2017, and bears simple interest at the rate of 4% per year.

Robert M. Gans is a majority owner of the equity of each of the Licensees and 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.

Second, 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 (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”) and (the “Voronina Matter).

In July 2018, the Company entered into a confidential settlement agreement (the “Settlement Agreement”) in the Voronina litigation, and on August 4, 2018, the Court entered an order dismissing the plaintiff’s claims against the Defendants with prejudice and settled the Plaintiffs claims in the Voronina matter for $1,310,000 (the “Voronina Settlement Agreement”). 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, 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. On December 1, 2018, the balance due Metropolitan inclusive of interest was $781,399.00.

Third, the past due amounts including principal and interest under the Royalty Settlement Agreements were $382,259 as of December 1, 2018. On this date the Company entered into an agreement (the “Settlement and Offset Agreement”) to offset the Royalty Amount owed to the Company against the Voronina Amount owed to Metropolitan, thereby reducing the amount owed by the Company to Metropolitan to $399,139 (the “Net Voronina Amount”) pursuant to the terms of a Settlement and Offset Agreement made by and among the Company, Star Light, Swan, Metropolitan and Robert M. Gans. 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 February 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 March 28, 2022 the entire balance due of the Voronina Note in the amount of $373,068.40 was paid in full.

The total amounts due to the various related parties as of September 30, 2021 and December 31, 2020, was $543,127 and $464,692 respectively and the total amounts due to the Company from the various related parties as of September 30, 2021 and December 31, 2020, was $0 and $0, respectively.

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Note 5.Licensees

The Company has seven license agreements which were obtained between 2003 and 2021.

See Note 7 for litigation relating to a few of the Company’s license agreements.

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Note 6.Contract liabilities

License agreements sometimes include Initiation/Inception Fees. Please see Note 3 for a detailed discussion of this matter.

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Note 7.Commitments and Contingencies

The Company records $7,500 a month for services rendered by Metropolitan on behalf of the Company. The Company incurred management fees of $67,500 for the periods ending September 30, 2021 and 2020. Mr. Gans is the sole owner of Metropolitan.

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SCORES HOLDING CO., Inc and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company ceased leasing office space on December 31, 2020 from the Westside Realty Inc. of New York was owned and operated by Robert Gans, the Company’s majority shareholder, for $2,500 a month. The Company incurred rent expense of $-0- and $22,500 for the periods ending September 30, 2021 and 2020.

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 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, Robert Gans, Mark S. Yackow and Howard Rosenbluth. Pending Court approval on May 12, 2023, a Stipulation of Voluntary Dismissal Without Prejudice was signed discontinuing all claims against Club Azure LLC.

On September 14, 2018, the Company and its subsidiary 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. All “Scores” signage has been removed and although the Company was attempting to collect it believes the Defendant no longer has any assets, leaving the Company unable to collect. As a result, we have 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. They agreed to pay the arrears and then cease using the Scores brand by March 31, 2023. On April 11, 2023, the Company agreed to terminate the licensing agreement and settle this matter for $45,000.00.

It should be noted as outlined below the results of two separate events and their subsequent settlement agreements were offset against one another resulting in a third settlement agreement.

First, effective February 28, 2017 (the “Effective Date”), the Company entered into separate Settlement Agreements (a “Royalty Settlement Agreement”) each with three licensees, IMO, Star Light and Swan (are sometimes referred to individually as a “Licensee” and collectively as the “Licensees”) controlled by Robert M. Gans, the Company’s President, Chief Executive Officer and a member of its Board of Directors. 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.

IMO, Star Light and Swan owed the Company an aggregate of $255,406, $75,000, and $50,000 respectively in full settlement of unpaid royalties and other fees (the “Royalty Amount”). The settlement amounts were payable pursuant to promissory notes in monthly installments commencing March 1, 2017, and bears simple interest at the rate of 4% per year.

Robert M. Gans is a majority owner of the equity of each of the Licensees and 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.

Second, 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 (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”) and (the “Voronina Matter).

In July 2018, the Company entered into a confidential settlement agreement (the “Settlement Agreement”) in the Voronina litigation, and on August 4, 2018, the Court entered an order dismissing the plaintiff’s claims against the Defendants with prejudice and settled the

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SCORES HOLDING CO., Inc and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Plaintiffs claims in the Voronina matter for $1,310,000 (the “Voronina Settlement Agreement”). 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, 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. On December 1, 2018, the balance due Metropolitan inclusive of interest was $781,399.00.

Third, the past due amounts including principal and interest under the Royalty Settlement Agreements were $382,259 as of December 1, 2018. On this date the Company entered into an agreement (the “Settlement and Offset Agreement”) to offset the Royalty Amount owed to the Company against the Voronina Amount owed to Metropolitan, thereby reducing the amount owed by the Company to Metropolitan to $399,139 (the “Net Voronina Amount”) pursuant to the terms of a Settlement and Offset Agreement made by and among the Company, Star Light, Swan, Metropolitan and Robert M. Gans. 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 February 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 March 28, 2022 the entire balance due of the Voronina Note in the amount of $373,068.40 was paid in full.

On January 29, 2020, an individual referred to as Jane Doe, the Plaintiff, filed a civil suit in in the Circuit Court of the 13^th 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 nor its subsidiary had minimum contacts with Florida; nor was there a benefited conferred upon them.

The Court denied the motion to dismiss. The Company and SLC then filed Amended Answers and Affirmative Defenses denying all allegations of the complaints against them. All paper discovery has been completed and depositions have been taken. The parties are attending a court ordered non-binding arbitration on May 30, 2023. The Company and SLC recently requested that Plaintiff set forth a demand to settle this matter prior to the non-binding arbitration. If the parties cannot reach a favorable settlement agreement, a trial is set for July 24, 2023, with a pretrial conference set for July 18, 2023.

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.

On October 6, 2022 to avoid expense, inconvenience, and uncertainty of further litigation, the Company has agreed to settle this matter for $10,000. Greene will receive the settlement sum in two payments of $5,000 each. The first settlement payment will be made upon execution of the settlement agreement and the second payment will be due thirty days after the first payment.

On April 17, 2021, in an action entitled Jessica Hall v. Scores Holding Company, Inc., et al, filed in Federal Court, Southern District of New York, the Plaintiff claims that, while she worked at an adult entertainment 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 granted permission to file and serve an Amended Complaint. Accordingly, on February 4, 2022, a First Amendment Complaint was filed. On March 4, 2022, an Answer to the First Amendment Complaint was filed on behalf of the Company asserting, inter alia, that Plaintiff’s Amended Complaint should be dismissed in its’ entirety 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.

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SCORES HOLDING CO., Inc and Subsidiary

Notes to Condensed Consolidated Financial Statements

(Unaudited)

After paper discovery was completed, a motion for summary judgment was fully submitted on behalf of the Company on June 24, 2022 seeking dismissal of all claims against the Company. Pending the Court’s decision, the parties conducted additional paper discovery and took depositions.

The Court finally rendered its’ decision on March 31, 2023. The Court denied the Company’s motion for summary judgment without prejudice because, when the motion was filed, the Plaintiff had not been afforded the opportunity to take any depositions.

Pursuant to a Court order issued on March 8, 2023, the Plaintiff produced her tax returns and filed a letter indicating she does not intend to serve any non-party subpoenas and they therefore will not be participating in a settlement conference with the Court in July. In the interim, the parties are attempting to settle this matter on their own. If the parties cannot reach a favorable settlement agreement, then another motion for summary judgment will be submitted on behalf of the Company. It is expected that the Company’s second motion for summary judgment will be granted given that both the documents and deposition testimony clearly show that the Company did not manage or otherwise control Plaintiff’s employment.

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

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Summary of Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2021 from our critical accounting policies and estimates disclosed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K.

Results of Operations

Three Months Ended September 30, 2021 (“the 2021 three-month period”) Compared to Three Months Ended September 30, 2020 (“the 2020 three-month period”).

Revenues:

Revenues decreased to $62,000 for the 2021 three-month period from $62,300 for the 2020 three-month period. Revenues remained relatively flat.

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.

Other Expense

Total other expense decreased to $(4,049) for the 2021 three-month period from $(4,297) from the 2020 three-month period. Total other expense for the 2021 three month-period and 2020 three month-period included interest expense of $4,049 and $4,297, respectively.

General and Administrative Expenses:

General and administrative expenses decreased slightly during the 2021 and 2020 three-month period to $65,461 from $75,941, respectively. Virtually all of the decrease in operating expenses can be attributed to the decrease in salary and other expenses. Legal expenses, which are reflected in general and administrative expenses, attributable to ongoing litigation amounted to $10,951 for 2021 and $9,368 for 2020.

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 Loss:

Our net loss ($7,510) or ($0.00) per share for the 2021 three-month period as compared to our net loss was ($17,938) or ($0.00) per share for the 2020 three-month period. This decrease in our net loss was primarily due to COVID.

Net loss per share data for both the 2021 three-month period and the 2020 three-month period is based on net income available to common shareholders divided by the weighted average of the number of common shares outstanding.

Nine Months Ended September 30, 2021 (“the 2021 Nine-month period”) Compared to Nine Months Ended September 30, 2020 (“the 2020 Nine-month period”).

Revenues:

Revenues decreased to $182,001 for the 2021 nine-month period from $214,942 for the 2020 nine-month period. Revenues decreased due to COVID causing shutdowns.

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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.

Other Expense

Total other expense increased to $(12,009) for the 2021 nine-month period from $(11,857) from the 2020 nine-month period. Total other expense for the 2021 nine month-period and 2020 nine month-period included interest expense of $12,009 and $11,857 respectively.

General and Administrative Expenses:

General and administrative expenses increased during the 2021 and 2020 nine-month period to $257,701 from $252,252, respectively. Virtually all the increase in operating expenses can be attributed to the reopening after the COVID shutdown. Legal expenses, which are reflected in general and administrative expenses, attributable to ongoing litigation amounted to $55,801 for 2021 and $28,285 for 2020.

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 Loss:

Our net loss ($87,709) or ($0.00) per share for the 2021 nine-month period as compared to our net loss was ($49,167) or ($0.00) per share for the 2020 nine-month period. This increase in our net loss was primarily due to the reopening from COVID.

Net loss per share data for both the 2021 nine-month period and the 2020 nine-month period is based on net loss available to common shareholders divided by the weighted average of the number of common shares outstanding.

Liquidity and Capital Resources

Going Concern:

Various conditions such as the accumulated losses, working capital deficit, significant debt, and the results of litigation raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated 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 September 30, 2021, we had $74,522 in cash and cash equivalents compared to $21,143 in cash and cash equivalents at December 31, 2020.

Operating Activities:

Net cash provided by operating activities for the 2021 nine-month period was $53,379 and net cash provided by operating activities for the 2020 nine-month period was $18,059. The increase is cash is related to the receipt of monies related to the collection of deferred revenue.

As of September 30, 2021 and December 31, 2020, we owed $30,000 and $30,000, respectively in rent to our Westside Realty affiliate. As of September 30, 2021 and December 31, 2020, we owed to our Metropolitan Lumber Hardware and Building Supplies, Inc. affiliate $135,000 and $67,500 respectively for management fees and $370,627 and $359,692, respectively for a loan advanced to the Company to assist in paying litigation costs.

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Financing Activities:

Net cash provided by financing activities for the 2021 nine-month period was $0 and net cash used in financing activities for the 2020 nine-month period was $0.

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 September 30, 2021, we had an accumulated deficit of $(7,079,369). As of September 30, 2021, we had total current assets of $242,939 and total current liabilities of $765,505 or working capital deficit of $522,566. As of December 31, 2020, we had total current assets of $99,981 and total current liabilities of $273,646 or working capital deficit of $173,665. The increase in the amount of working capital deficit has been primarily attributable to the increase in payables.

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

Statement of Forward-Looking Information

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are “forward-looking”, including statements contained in this report and other filings with the Securities and Exchange Commission, reports to the Company’s shareholders. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, “forecasts”, “may”, “should”, variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and contingencies that are difficult to predict. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf of the Company are qualified by the cautionary statements in this section. Many of the factors that will determine the Company’s future results are beyond the ability of management to control or predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements.

The forward-looking statements contained in this report include, but are not limited to, statements regarding (1) the Company’s ability to finance its future working capital.

The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

Recently Issued Accounting Pronouncements

See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2021.

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Impact of inflation and seasonality

We do not anticipate any changes due to inflation and/or seasonality.

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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.

Changes in Internal Control over Financial Reporting

Other than as described above, there were no changes in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the Company’s quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Requirements because neither the Company nor its subsidiary had minimum contacts with Florida; nor was their a benefited conferred upon them.

The Court denied the motion to dismiss. The Company and SLC then filed Amended Answers and Affirmative Defenses denying all allegations of the complaints against them. All paper discovery has been completed and depositions have been taken. The parties are attending a court ordered non-binding arbitration on May 30, 2023. The Company and SLC recently requested that Plaintiff set forth a demand to settle this matter prior to the non-binding arbitration. If the parties cannot reach a favorable settlement agreement, a trial is set for July 24, 2023, with a pretrial conference set for July 18, 2023.

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.

On October 6, 2022 to avoid expense, inconvenience, and uncertainty of further litigation, the Company has agreed to settle this matter for $10,000. Greene will receive the settlement sum in two payments of $5,000 each. The first settlement payment will be made upon execution of the settlement agreement and the second payment will be due thirty days after the first payment.

On April 17, 2021, in an action entitled Jessica Hall v. Scores Holding Company, Inc., et al, filed in Federal Court, Southern District of New York, the Plaintiff claims that, while she worked at an adult entertainment 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 granted permission to file and serve an Amended Complaint. Accordingly, on February 4, 2022, a First Amendment Complaint was filed. On March 4, 2022, an Answer to the First Amendment Complaint was filed on behalf of the Company asserting, inter alia, that Plaintiff’s Amended Complaint should be dismissed in its’ entirety 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.

After paper discovery was completed, a motion for summary judgment was fully submitted on behalf of the Company on June 24, 2022 seeking dismissal of all claims against the Company. Pending the Court’s decision, the parties conducted additional paper discovery and took depositions.

The Court finally rendered its’ decision on March 31, 2023. The Court denied the Company’s motion for summary judgment without prejudice because, when the motion was filed, the Plaintiff had not been afforded the opportunity to take any depositions.

Pursuant to a Court order issued on March 8, 2023, the Plaintiff produced her tax returns and filed a letter indicating she does not intend to serve any non-party subpoenas and they therefore will not be participating in a settlement conference with the Court in July. In the interim, the parties are attempting to settle this matter on their own. If the parties cannot reach a favorable settlement agreement, then another motion for summary judgment will be submitted on behalf of the Company. It is expected that the Company’s second motion for summary judgment will be granted given that both the documents and deposition testimony clearly show that the Company did not manage or otherwise control Plaintiff’s employment.

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

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