UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September
30, 2015
or
¨
TRANSITION REPORT PURSUANT TO 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
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
| 533-535 West 27 th Street, New York, NY |
|
10001 |
| (Address of principal executive offices) |
|
(Zip Code) |
| |
212-246-9090 |
|
| |
(Registrant’s telephone number, including area code) |
|
N/A
(Former Name, Former Address and Former
Fiscal Year, If Changed Since Last Report)
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 x
No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted 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 and post such files).
Yes
x No
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2
of the Exchange Act:
| Large accelerated filer ¨ |
Accelerated filer ¨ |
| |
|
| Non-accelerated filer ¨ |
Smaller reporting company x |
| (Do not check if a smaller reporting company) |
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date:
As of November 11, 2015 there were 165,186,144 shares of
common stock, $0.001 par value per share, outstanding.
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, 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.
PART I - FINANCIAL INFORMATION
SCORES HOLDING COMPANY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| | |
September 30, | | |
December 31, | |
| | |
2015 | | |
2014 | |
| | |
(unaudited) | | |
| |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT ASSETS: | |
| | | |
| | |
| Cash | |
$ | 265,641 | | |
$ | 127,253 | |
| Trade receivables - including affiliates, net | |
| 477,491 | | |
| 324,410 | |
| Prepaid expenses | |
| 19,765 | | |
| 11,268 | |
| Loan receivable, affiliate | |
| 201,806 | | |
| 34,844 | |
| Settlement receivable | |
| - | | |
| 23,781 | |
| | |
| | | |
| | |
| Total Current Assets | |
| 964,703 | | |
| 521,556 | |
| | |
| | | |
| | |
| TOTAL ASSETS | |
$ | 964,703 | | |
$ | 521,556 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT LIABILITIES: | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 46,119 | | |
$ | 105,254 | |
| Security deposit payable | |
| 75,000 | | |
| 37,500 | |
| Note payable related party | |
| - | | |
| 34,844 | |
| Related party payable | |
| 45,000 | | |
| - | |
| Accrued income taxes payable | |
| 76,566 | | |
| - | |
| Deferred revenues | |
| 60,000 | | |
| - | |
| Settlement payable due to related party | |
| - | | |
| 28,654 | |
| | |
| | | |
| | |
| Total Current Liabilities | |
| 302,685 | | |
| 206,252 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES | |
| 302,685 | | |
| 206,252 | |
| | |
| | | |
| | |
| Commitments and Contingencies (Note 8) | |
| - | | |
| - | |
| | |
| | | |
| | |
| STOCKHOLDERS' EQUITY | |
| | | |
| | |
| Preferred stock, $.0001 par value, 10,000,000 shares authorized, -0- issued and outstanding | |
| - | | |
| - | |
| Common stock, $.001 par value, 500,000,000 shares authorized, 165,186,144 issued and outstanding | |
| 165,186 | | |
| 165,186 | |
| Additional paid-in capital | |
| 6,058,117 | | |
| 6,058,117 | |
| Accumulated deficit | |
| (5,561,285 | ) | |
| (5,907,999 | ) |
| | |
| | | |
| | |
| Total stockholders' Equity | |
| 662,018 | | |
| 315,304 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 964,703 | | |
$ | 521,556 | |
See notes to the condensed consolidated
financial statements.
SCORES
HOLDING COMPANY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(Unaudited)
| | |
Three Months Ended | | |
Nine Months Ended | |
| | |
September 30, | | |
September 30, | |
| | |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| | |
| | |
| | |
| | |
| |
| REVENUES | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Royalty Revenue | |
$ | 250,466 | | |
$ | 225,393 | | |
$ | 864,733 | | |
$ | 596,151 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total Revenue | |
| 250,466 | | |
| 225,393 | | |
| 864,733 | | |
| 596,151 | |
| | |
| | | |
| | | |
| | | |
| | |
| EXPENSES | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| General and Administrative Expenses | |
| 125,867 | | |
| 110,444 | | |
| 442,758 | | |
| 344,778 | |
| | |
| | | |
| | | |
| | | |
| | |
| INCOME FROM OPERATIONS | |
| 124,599 | | |
| 114,949 | | |
| 421,975 | | |
| 251,373 | |
| | |
| | | |
| | | |
| | | |
| | |
| OTHER INCOME/(EXPENSE) | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Interest Income/(Expense), net | |
| 1,526 | | |
| (338 | ) | |
| 1,306 | | |
| (1,259 | ) |
| Settlement | |
| - | | |
| - | | |
| - | | |
| 97,161 | |
| | |
| | | |
| | | |
| | | |
| | |
| TOTAL OTHER INCOME/(EXPENSE) | |
| 1,526 | | |
| (338 | ) | |
| 1,306 | | |
| 95,902 | |
| | |
| | | |
| | | |
| | | |
| | |
| NET INCOME BEFORE INCOME TAXES | |
| 126,125 | | |
| 114,611 | | |
| 423,281 | | |
| 347,275 | |
| | |
| | | |
| | | |
| | | |
| | |
| PROVISION FOR INCOME TAXES | |
| 76,566 | | |
| - | | |
| 76,566 | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| NET INCOME | |
$ | 49,559 | | |
$ | 114,611 | | |
$ | 346,715 | | |
$ | 347,275 | |
| | |
| | | |
| | | |
| | | |
| | |
| NET INCOME PER SHARE-Basic and Diluted | |
| 0.000 | | |
| 0.001 | | |
| 0.002 | | |
| 0.002 | |
| | |
| | | |
| | | |
| | | |
| | |
| WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING-Basic and Diluted | |
| 165,186,144 | | |
| 165,186,124 | | |
| 165,186,144 | | |
| 165,186,124 | |
See notes to the condensed consolidated
financial statements.
SCORES HOLDING COMPANY INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
| | |
Nine Months Ended | |
| | |
September 30, | |
| | |
2015 | | |
2014 | |
| | |
| | |
| |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
| Net Income | |
$ | 346,715 | | |
$ | 347,275 | |
| | |
| | | |
| | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
| | |
| | | |
| | |
| Changes in assets and liabilities: | |
| | | |
| | |
| Licensee receivable | |
| (153,081 | ) | |
| (72,509 | ) |
| Prepaid expenses | |
| (8,497 | ) | |
| (8,202 | ) |
| Security deposit payable | |
| 37,500 | | |
| 25,000 | |
| Accounts payable and accrued expenses | |
| (59,136 | ) | |
| (39,699 | ) |
| Accrued income tax payable | |
| 76,566 | | |
| - | |
| Deferred revenues | |
| 60,000 | | |
| - | |
| | |
| | | |
| | |
| NET CASH PROVIDED BY OPERATING ACTIVITIES | |
| 300,067 | | |
| 251,865 | |
| | |
| | | |
| | |
| CASH FLOW FROM INVESTING ACTIVITES: | |
| | | |
| | |
| Loan receivable, affiliate | |
| (201,806 | ) | |
| - | |
| | |
| | | |
| | |
| NET CASH USED IN INVESTING ACTIVITIES | |
| (201,806 | ) | |
| - | |
| | |
| | | |
| | |
| CASH FLOW FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| Related party payables | |
| 45,000 | | |
| (128,775 | ) |
| Settlement receivable | |
| 23,781 | | |
| 103,305 | |
| Loan receivable | |
| 34,844 | | |
| (1,264 | ) |
| Settlement payable | |
| (28,654 | ) | |
| (131,826 | ) |
| Loan payable | |
| (34,844 | ) | |
| 1,264 | |
| | |
| | | |
| | |
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| 40,127 | | |
| (157,296 | ) |
| | |
| | | |
| | |
| NET INCREASE/(DECREASE) IN CASH | |
| 138,388 | | |
| 94,569 | |
| Cash and cash equivalents - beginning of year | |
| 127,253 | | |
| 4,522 | |
| Cash and cash equivalents - end of year | |
$ | 265,641 | | |
$ | 99,091 | |
| | |
| | | |
| | |
| Supplemental disclosures of cash flow information: | |
| | | |
| | |
| Cash paid during the year for interest | |
$ | 1,232 | | |
$ | 12,125 | |
| Cash paid for income taxes | |
$ | 1,276 | | |
$ | 1,139 | |
See notes to condensed consolidated
financial statements.
SCORES HOLDING COMPANY and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
Note 1. Organization
BASIS OF PRESENTATION
Scores Holding Company, Inc. and subsidiary (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 exploits the “SCORES” name and
trademark for licensing options.
The condensed 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”).
Our condensed consolidated financial statements
include our accounts, as well as those of our wholly-owned subsidiary. Certain prior period amounts have been reclassified
to conform to the current period presentation. Our accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States (“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
our Annual Report on Form 10-K for the year ended December 31, 2014.
The preparation of financial statements
in conformity with U.S. GAAP requires us 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 nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for any other
interim period or for the year ending December 31, 2015.
Note 2. Summary of Significant Accounting
Principles
Concentration of Credit Risk
The Company earns predominately royalty revenues and to a lesser
extent merchandise sales from 12 licensees.
With regards to 2015, concentrations of sales from 4 licensees
range from 12% to 14%, totaling 51%. There are receivables from 3 licensees ranging from 21% to 25% on these licensees for 2015
totaling 71%. There are receivables from 3 licensees considered related parties of 21%, 25% and 25%.
With regards to 2014, concentrations of sales from 5
licensees range from 13% to 18%, totaling 79%. There are receivables from 4 licensees ranging from 11% to 41% on these
licensees for 2014 totaling 75%. Included in these amounts for 2014 were sales from 1 licensee considered a related party
representing 13% of sales. There are receivables from 3 licensees considered related parties of 11%, 12% and 41%.
Revenue Recognition
The Company records revenues earned as
royalties under its license agreements as they are earned over the term of the license agreements. 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.
If a license agreement is terminated then the remaining unearned balance of the deferred revenues are recorded as earned if applicable.
The
Company records revenues from its license initiation fees paid in advance on a straight line basis over the term of the license
agreements. Royalty revenue is recognized when earned as licensing services are provided to licensees. Accordingly, royalty payments
received in advance are deferred until earned. If a license agreement is terminated then the remaining unearned balance of any
deferred revenues are recorded as earned if applicable.
As
a result of the tenuous nature of the gentlemen’s club industry in general and the resulting financial instability of several
of our new licensees the Company has implemented a policy of recognizing revenue for these specific entities as it is received
rather than when it is earned. Once our relationship with them has been more firmly established and payments have been made regularly
and on time we will report these revenues when earned.
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. Inter-company items and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid
temporary cash investments, with a maturity of three months or less when purchased, to be cash equivalents. There are times when
cash may exceed $250,000, the FDIC insured limit.
Income per Share
Net income per share data for both the
nine-month periods ending September 30, 2015 and 2014 are based on net income available to common shareholders divided
by the weighted average of the number of common shares outstanding. As of September 30, 2015, there are no outstanding stock
equivalents.
Fair Value of Financial Instruments
The carrying value of cash, trade receivables,
prepaid expenses, other receivables 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.
New Accounting Pronouncements
In June 2014, FASB issued Accounting Standards
Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. The update gives entities a
single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide
goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or
services, would supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance
throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic
605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The update removes inconsistencies and weaknesses
in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users
of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition
practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements
by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period. This updated guidance is not expected to have
a material impact on our results of operations, cash flows or financial condition.
In
August 2015, FASB issued Accounting Standards Update (“ASU”) No.2015-14, “Revenue
from Contracts with Customers (Topic 606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09
for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should
apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting
periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December
15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update
2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods
beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting
period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities
also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim
reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first
applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any
impact on our results of operations, cash flows or financial condition.
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. 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 our 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 us to Swan Media Group, Inc.,
a 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 $119,740 and $111,279 in unpaid royalties and expenses as of September 30, 2015 and
December 31, 2014, 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 $120,646 and $59,935 as of September 30, 2015 and December 31, 2014, respectively.
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 $0 in unpaid rents as of September 30, 2015 and December 31, 2014, 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 pays 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). 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). The Company
owed Metropolitan Lumber Hardware and Building Supplies, Inc. $37,500 and $0 in unpaid management services as of September 30,
2015 and December 31, 2014, respectively.
Effective December 9, 2013, we 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 $10,000 per month, commencing in April 2014, and the license is for a term of five years, with five successive five year renewal
terms. Pursuant to the written agreement, we also granted Star Light a non-exclusive, non-transferable license to sell certain
licensed products bearing our trademarks. Starlight will purchase the licensed products from us or our affiliates at our cost plus
25%. Robert M. Gans, our President, Chief Executive Officer and a director, is the majority owner (92.165%) of Star Light Events
LLC and Howard Rosenbluth, our Secretary, Treasurer and a Director, owns 1%. Starlight owes the Company a royalty receivable of
$100,000 and $60,000 as of September 30, 2015 and December 31, 2014, 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.
On
July 27, 2015 the Company entered into a ninety day renewable note receivable with Metropolitan Lumber Hardware and Building
Supplies, Inc., which is solely owned by Robert M. Gans, the Company’s majority shareholder. The Company loaned
Metropolitan Lumber Hardware and Building Supplies, Inc. $200,000 with 5% interest due October 27, 2015. The Company is owed
$201,806 as of September 30, 2015. The loan was renewed, and thereafter the principal plus accrued interest of $2,750 was
paid on November 4, 2015.
The total amounts due to the various related
parties as of September 30, 2015 and December 31, 2014 was $45,000 and $0 respectively and the total amounts due to the Company
from the various related parties as of September 30, 2015 and December 31, 2014 was $542,192 and $231,214, respectively.
Note 4. Intangible Assets
Trademark
The Company has been in the business of
licensing the “Scores” trademarks and other intellectual property to gentlemen’s nightclubs with adult entertainment
in the United States. In connection with the acquisition of Scores Licensing Company (“SLC”) during 2002, the Company
acquired the trademark to the name "SCORES". Through 2008 the trademark had accumulated a gross recorded value of $878,318
which was derived from the initial purchase of HEIR Holding Co., Inc. (subsequently renamed SLC) for $250,000, $175,000 as a result
of a settlement agreement entered into in September 2006 between the Company and now former affiliated parties and Scores Entertainment
Inc. ("SEI") and Irving Bilzinsky and $453,318 as a result of our purchase of the royalty rights and licensing rights
under the Master License Agreement from a former affiliate Entertainment Management Services, Inc. in December 2008. This trademark
has been registered in the United States, Canada, Japan, Mexico and the European Community. The Company's trademark having an infinite
useful life by its definition is being amortized over ten years due to the difficult New York legal environment for which the related
showcase adult club is operating. As of September 30, 2015 and December 31, 2014 the cost of the trademark has been fully amortized
and or partially impaired in the prior years.
Note 5. Licensees
The
Company has 20 license agreements which were obtained between 2003 and 2015; Stone Park Entertainment Group, Inc. known as
“Scores Chicago”, Club 2000 Eastern Avenue Inc. known as “Scores Baltimore”, Silver Bourbon, Inc., I.M
Operating LLC known as “IMO”, Tampa Food and Entertainment Inc., Norm A Properties, LLC, Swan Media Group, Inc. (formerly
AYA International, Inc.), South East Clubs (which includes Savannah and Jacksonville), Starlight Events LLC known as “Scores
Atlantic City”, Scores Licensing Corp known as “SLC”, Houston KP LLC, Parallax Management Corporation known as
“Scores Gary”, Manhattan Fashion, L.L.C. known as “Scores Harvey”, TWDDD, Inc. known as “Scores Mooresville”,
Greenville, South Carolina; Columbus, Ohio; Providence, Rhode Island; New Haven, Connecticut and Palm Springs, Florida.
See Note 8 for litigation relating to a few of these clubs.
“IMO’s” members are our
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 7% and 13% of our royalty revenues for the first nine months of 2015 and 2014, respectively.
Mr. Gans is also the majority owner (80%) of Swan Media Group, Inc., which accounted for 1% and 6% of our royalty revenues for
the first nine months of 2015 and 2014, respectively. Mr. Gans is also the majority owner (92.165%) of Scores Atlantic City, which
accounted for 10% and 10% of our royalty revenue for the first nine months of 2015 and 2014, respectively.
Note 6. Settlement/Note Receivables
On September 26, 2011, the Company, Richard
Goldring and Elliot Osher (Goldring and Osher were formerly two of the Company’s principal shareholders) (collectively the
“Defendants”) and Sari Diaz et al. (the “Plaintiffs”) entered into a Court approved Joint Stipulation of
Settlement and Release (the “Settlement Agreement”) relating to a purported class action and collective action on behalf
of all tipped employees filed by Plaintiffs, pursuant to which Defendants agreed to make a settlement payment of $450,000 to resolve
and settle awards to Plaintiffs and related Plaintiffs’ attorneys’ fees. Additionally, the Defendants agreed to pay
the employer portion of payroll taxes on approximately $300,000 in distributions, approximately $15,600.
In a settlement payment agreement among
the Company, Goldring and Osher, the Company agreed to advance all of the Defendants’ obligations under the Settlement Agreement
and to pay $64,500 of Goldring’s and Osher’s legal fees to their designated attorney. In consideration for the Company’s
payment of these obligations, Goldring and Osher agreed, jointly and severally, to pay the Company $440,000 plus interest at the
rate of 5% per annum on the unpaid balance of such amount, in 40 equal monthly payments of $11,965 per month. To secure his obligations
under this agreement, Goldring agreed to assign to the Company a portion of his interests in a promissory note dated September
14, 2009 in the principal amount of $2,400,000 made by a third party to Goldring (the “Note”) and to grant the Company
a security interest in the Note, which will remain in effect until his obligations under this settlement payment agreement are
paid in full. As of September 30, 2015 and December 31, 2014 the settlement receivable balance is $0 and $23,781, respectively.
On December 29, 2011 the Company entered
into a Promissory Note with Goldring for $30,000 plus interest at the rate of 5% per annum on the unpaid balance. To secure his
obligations under this agreement, Goldring agreed to assign to the Company a portion of his interests in a promissory note dated
September 14, 2009 in the principal amount of $2,400,000 made by a third party to Goldring (the “Note”) and to grant
the Company a security interest in the Note, which will remain in effect until his obligations under this settlement payment agreement
are paid in full. As of September 30, 2015 and December 31, 2014, this promissory note balance is $0 and $34,844, respectively.
Note 7. Settlement/Note Payable
As discussed in Note 6 regarding the settlement
receivable it should be noted that Mr. Gans (the Company’s Chief Executive Officer and majority stockholder) advanced $560,151
to settle the Sari Diaz et. al. litigation and fund the $30,000 loan to Mr. Goldring. As of September 30, 2015 and December 31,
2014, $0 and $28,654 is outstanding, respectively.
Note 8. 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. A discretionary $90,000 cash bonus
has been disbursed to Metropolitan Lumber Hardware Building Supplies, Inc. for services rendered pursuant to the management services
agreement for the nine-month period ended September 30, 2015.
The Company currently leases office space
from the Westside Realty of New York which is owned and operated by Robert Gans our majority shareholder, for $2,500 a month.
On June 14, 2011, Christina Maldonado,
a former front door receptionist/coat checker at Scores New York, located in New York NY filed a civil lawsuit against the Company
and IMO alleging violations of Title VII of the Civil Rights Act, New York State Human Rights Law, New York Executive Law, New
York City Human Rights Law and the New York City Administrative Code, based on allegations of sexual discrimination and sexual
harassment. The lawsuit further alleged that both the Company and IMO were her employers. The lawsuit sought unspecified damages
for alleged loss of past and future earnings and emotional distress and humiliation. The Company disputed that that it was an employer
of the plaintiff and categorically denied all allegations of sexual discrimination and sexual harassment. The Company responded
to the complaint and later filed an amended complaint and asserted a cross claim against IMO. The parties settled the litigation
with no liability on the Company’s part, and a stipulation of discontinuance was filed on April 22, 2015.
On June 14, 2013, Elizabeth Shiflett, a
former cocktail waitress, filed a civil lawsuit against the Company in the S.D.N.Y. alleging violations of Title VII of the Civil
Rights Act of 1964 (“Title VII”), as amended, the New York State Human Rights Law (“NYSHRL”) and the New
York City Human Rights Law (“NYCHRL”) based upon allegations of sexual discrimination, creating a hostile work environment
based upon plaintiff’s sex and race and unlawful retaliation against plaintiff. The lawsuit further alleges that at all material
times the Company was the employer of the plaintiff. The lawsuit had been preceded by a Determination of the U.S. Equal Employment
Opportunity Commission (the “EEOC”) on January 25, 2013 that there was reasonable cause to believe that the Company
had violated Title VII as a result of the complained-of conduct. The lawsuit seeks a declaratory judgment that the practices complained
of violated Title VII, the NYSHRL and the NYCHRL, an injunction enjoining the Company from engaging in future unlawful acts of
discrimination, harassment and retaliation, unspecified compensatory damages for plaintiff’s alleged loss of past and future
earnings, emotional distress, humiliation and loss of reputation, punitive damages as a result of the Company’s alleged disregard
of plaintiff’s protected civil rights, and attorneys’ fees and costs. The Company disputes that it was an employer
of the plaintiff and categorically denies all allegations of sexual discrimination, sexual and racial harassment and retaliation.
In an order dated April 10, 2014, the Court dismissed all federal claims. In May 2014, Ms. Shiflett filed an appeal. On February
19, 2015 the United States Court of Appeals Second Circuit, upheld the order from April 2014 and all federal claims have been dismissed.
On or about March 7, 2014, Kiana Love,
a former entertainer and masseuse at The Penthouse Executive Club and Scores New York, both located in New York, NY, filed a civil
lawsuit in the SDNY against us, The Executive Club, LLC, Go West Entertainment, Inc., Scores Entertainment, Inc., Entertainment
Management Services, Inc., 333 East 60th Street., Inc., I.M. Operating, LLC, Richard Goldring, Elliot Osher, Robert Gans and Mark
Yackow (collectively “Defendants”), alleging, for the time during which she performed as a masseuse, violations of
the state and federal wage and hour laws, including the New York Labor Law and Fair Labor Standards Act, based upon allegations
of failure to pay minimum wage, uniform related expenses, and allegations of improper wage deductions and tip misappropriation
as well as record keeping violations. The lawsuit further alleged that at all material times Defendants were employers of Ms. Love,
the plaintiff, while she performed massage services at Scores New York as well as The Penthouse Executive Club. The lawsuit
sought unspecified compensatory damages for plaintiff’s alleged loss of past wages and reimbursement of allegedly unlawful
deductions. Without any party admitting liability, the parties settled the referenced litigation for approximately $21,403.65.
The settlement was approved by the Court on April 13, 2015 and the case has been marked closed.
On February 13, 2015 we, together with
our subsidiary SLC, filed an action against Southeast Show Clubs, LLC and Michael Tomkovich in the Supreme Court of the State of
New York for the County of New York. Defendants had utilized the “Scores” name and trademark in connection with their
ownership and operation of adult entertainment clubs in Jacksonville and Palm Beach, Florida and in Savannah, Georgia. In this
action we sought damages for breach of contract in the amount of $900,000 plus interest, damages due to defamation and tortious
interference in connection with the use of the “Scores” trademark in the amount of $500,000, issuance of a permanent
injunction prohibiting defendants from using the “Scores” name and trademark with respect to the adult entertainment
clubs they operate in Jacksonville and Palm Beach, Florida and Savannah, Georgia and all websites controlled by defendants, and
an accounting by defendants of all merchandise items sold by them containing the “Scores” trademark. As of April 17,
2015 the parties settled this matter. Pursuant to the settlement, defendants agreed to pay us $150,000, payable in 13 installments.
The first installment of $50,000 was paid upon finalization of the settlement, with 12 subsequent monthly payments of $8,333.33
commencing on May 1, 2015. The defendants also executed consents to the entry of a permanent injunction against them prohibiting
their continued use of the name and trademark “Scores” at their clubs if either or both of the defendants default in
their obligations under the settlement. In connection with the settlement, the parties entered into an amendment of the July 18,
2013 License Agreement between them. The amendment, among other things, (i) removes the Palm Beach club from the license agreement,
(ii) provides that the license agreement shall only apply to the Jacksonville and Savannah nightclubs, (iii) requires the licensees
to pay us a fixed royalty of $5,000 per month for each club, commencing May 1, 2015, and (iv) requires that the Savannah nightclub
and any related websites utilize the name “Scores Presents.” As of September 30, 2015 the defendants remain in compliance
with this settlement.
On February 19, 2015 we, together with
our subsidiary SLC, filed an action against Norm A Properties LLC in the Supreme Court of the State of New York for the County
of New York. Defendant utilizes the “Scores” name and trademark in connection with its ownership and operation of and
adult entertainment club in Detroit, Michigan. In this action we sought damages for breach of contract in the amount of $110,000
plus interest, and the issuance of a permanent injunction prohibiting defendant from using the “Scores” name and trademark
with respect to the Detroit club and all websites controlled by defendant. The defendant failed to appear and on August 31, 2015,
the court entered a judgment in favor of the Company (which order was amended on October 17, 2015), awarding a total of $117,646.92
to the Company. In addition, the court ordered defendant to render an accounting to the Company and enjoined the defendant from
using the “Scores” name and trademarks. The Company is currently seeking to enforce the judgment in Detroit, Michigan.
There are no other material legal proceedings
pending to which the Company or any of its property is subject, nor to our knowledge are any such proceedings threatened.
Note 9. SUBSEQUENT EVENTS
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.
| Item 2. | Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Overview
Scores Holding Company,
Inc. (“Scores,” the “Company,” “we,” “us” or “our”) 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. There are eleven such clubs currently operating under the
Scores name, in New York City, Atlantic City, Baltimore, Chicago, Tampa, New Orleans, Savannah, Jacksonville, Houston, Harvey,
LA and Gary, IN. A club in Detroit, Michigan is operating but is in default and breach of contract. Clubs in Mooresville, North
Carolina, Greenville, South Carolina, Columbus, Ohio, Providence, Rhode Island, Palm Springs, Florida and New Haven, Connecticut
are not yet operating.
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 us and commenced operations in New York of a new club (the “New York Club”) under the Scores
name in May 2009. Throughout this report, we refer to the New York Club as our affiliate, because of the common
ownership by Mr. Gans. All other clubs are referred to as non-affiliated clubs or as licensees, a term that may include the New
York Club when the context requires.
On August 6, 2010,
we appointed Robert M. Gans as our President and Chief Executive Officer and as a member of our Board. Robert 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.
Results of Operations
Three Months Ended
September 30, 2015 (“the 2015 three-month period”) Compared to Three Months Ended September 30, 2014 (“the 2014
three-month period”).
Revenues:
Revenues increased
to $250,466 for the 2015 three-month period from $225,393 for the 2014 three-month period.
Revenues from the New
York Club increased six percent (6%) to $21,665 as compared to $20,384 for the 2015 and 2014 three-month periods, respectively. Revenues
from our Chicago nightclub decreased one percent (1%) to $44,475 for the 2015 three-month period from $44,936 from the 2014 three-month
period, while revenues from our Baltimore club increased twelve percent (12%) to $40,379 for the 2015 three-month period from $36,073
for the 2014 three-month period and revenues from our New Orleans club remained the same at $30,000 for the 2015 and 2014 three-month
period. Revenue from our Tampa club remained the same at $30,000 for the 2015 and 2014 three-month period. Revenue from our Scoreslive.com
licensee decreased seventy-two percent (72%) to $2,551 for the 2015 three-month period from $9,000 for the 2014 three-month period.
Revenues from our Atlantic City nightclub licensee remained the same at $30,000 for the 2015 and 2014 three-month period. Revenues
from our Harvey Club increased one hundred percent (100%) to $15,000 as royalties commenced in the fourth quarter of 2014. Revenues
from our Gary, Indiana Club increased one hundred percent (100%) to $8,000, as royalties commenced in the first quarter of 2015.
Revenues from our Savannah Club remained the same at $15,000 for the 2015 and 2014 three-month period. Revenues from our Jacksonville
Club increased fifty percent (50%) to $15,000 for the 2015 three-month period from $10,000 from the 2014 three-month period. Since
our licenses are mostly structured such that we receive a percentage of revenues from our licensees, the foregoing increase or
decreases are a direct result of revenues at the licensee level.
General and Administrative
Expenses:
General and administrative
expenses increased during the 2015 three-month period to $125,867 from $110,444 during the 2014 three-month period. General
and administrative expenses increased approximately by $15,423 from 2015 to 2014, which can be attributed mainly to the increase
in management services of $22,500 through the management services agreement along with the decrease in legal fees. Legal
expenses attributable to ongoing litigation amounted to $16,580 for the three-month period ended September 30, 2015 and $30,038
for the three-month period ended September 30, 2014.
Provision for Income
Taxes:
The provision for income
taxes for the three month period is $76,566.
Net Income:
Our net
income was $49,559 or $0.000 per share for the 2015 three-month period compared to net income of $114,611 or $0.001 per share
for the 2014 three-month period. The decrease in net income for the 2015 three-month period from the 2014 three-month
period was in part a result of the recording of the necessary tax accrual.
Net income per share
data for both the 2015 three-month period and the 2014 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, 2015 (“the 2015 nine month period”) Compared to Nine Months Ended September 30, 2014 (“the
2014 nine-month period”).
Revenues:
Revenues increased
to $864,733 for the 2015 nine-month period from $596,151 for the 2014 nine-month period.
Revenues from the New
York Club decreased twenty-three percent (23%) to $60,937 as compared to $78,846 for the 2015 and 2014 nine-month periods, respectively. Revenues
from our Chicago nightclub increased eleven percent (11%) to $122,239 for the 2015 nine-month period from $110,250 for the 2014
nine-month period, while revenues from our Baltimore club increased two percent (2%) to $110,200 for the 2015 nine-month period
from $108,415 for the 2014 nine-month period and revenues from our New Orleans club remained the same at $90,000 for the 2015 and
2014 nine-month period. Revenue from our Tampa club remained the same at $90,000 for 2015 and 2014 nine month periods. Revenue from
our Scoreslive.com licensee decreased seventy-five percent (75%) to $8,461 for the 2015 nine-month period from $33,640 for the
2014 nine-month period. Revenues from our Atlantic City nightclub licensee increased fifty percent (50%) to $90,000 for the 2015
nine-month period from $60,000 for the 2014 nine-month period. Revenues from our Houston Club increased one hundred percent (100%)
to $33,500 for the 2015 nine-month period, as royalties commenced in the fourth quarter of 2014. Revenues from our Harvey Club
increased one hundred percent (100%) to $45,000 for the 2015 nine-month period, as royalties commenced in the fourth quarter 2014.
Revenues from our Gary, Indiana Club increased one hundred percent (100%) to $16,000, for the 2015 nine-month period, as royalties
commenced in the first quarter of 2015. Revenues from our Savannah Club increased five hundred sixty-seven percent (567%) to $100,000
for the 2015 nine-month period, from $15,000 for the 2014 nine-month period, as the Club has started to pay royalties including
past due royalties. Revenues from our Jacksonville Club increased nine hundred percent (900%) to $100,000 for the 2015 nine-month
period, from $10,000 for the 2014 nine-month period as the Club has started to pay royalties including past due royalties. Since
our licenses are mostly structured such that we receive a percentage of revenues from our licensees, the foregoing increase or
decreases are a direct result of revenues at the licensee level.
General and Administrative
Expenses:
General
and administrative expenses increased during the 2015 nine-month period to $442,758 from $344,778 during the 2014
nine-month period. General and administrative expenses increased approximately by $97,980 from the 2014 nine-month
period to the 2015 nine-month period, which increase can largely be attributed to the discretionary bonus to the management
services of $90,000. Legal expenses attributable to ongoing litigation amounted to $38,871 in the 2015
nine-month period, compared to $121,866 in the 2014 nine-month period.
Provision for Income
Taxes:
The provision for income
taxes is $76,566.
Net Income:
Our net income was
$346,715 or $0.002 per share for the 2015 nine-month period compared to a net income of $347,275 or $0.002 per share for the 2014
nine-month period. Net income per share data for both the 2015 nine-month period and the 2014 nine-month period is
based on net income available to common shareholders divided by the weighted average of the number of common shares outstanding.
Liquidity and Capital
Resources
Cash:
At September 30, 2015,
we had $265,641 in cash and cash equivalents compared to $127,253 in cash and cash equivalents at December 31, 2014.
Operating Activities:
Net cash provided by
operating activities for the nine months ended September 30, 2015 was $300,067 and net cash provided by operating activities for
the nine months ended September 30, 2014 was $251,865. The net increase in cash for the nine months ended September 30, 2015 was
$138,388 compared to a net increase in cash of $94,569 for the comparable 2014 period. The increase in cash is related to the collection
of past due royalties received in April and May 2015.
Financing Activities:
As of September 30,
2015, we owed $7,500 in rent to our Westside Realty affiliate and $37,500 to our Metropolitan Lumber Hardware and Building Supplies,
Inc. affiliate.
Future Capital Requirements:
We have incurred 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, 2015 we had an accumulated deficit of $(5,561,285). As of September 30, 2015, we had
total current assets of $964,703 and total current liabilities of $302,685 or working capital of $662,018. As of December 31, 2014,
we had total current assets of $521,556 and total current liabilities of $206,252 or working capital of $315,304. The increase
in the amount of working capital has been primarily attributable to the decrease in our related party payable.
We will continue to
evaluate possible acquisitions of or investments in businesses, products and technologies that are complimentary to ours. These
may require the use of cash, which would require us to seek financing. We may sell equity or debt securities or seek credit facilities
to fund acquisition-related or other business costs. Sales of equity or convertible debt securities would result in additional
dilution to our stockholders. We may also need to raise additional funds in order to support more rapid expansion, develop new
or enhanced services or products, respond to competitive pressures, or take advantage of unanticipated opportunities. Our future
liquidity and capital requirements will depend upon numerous factors, including the success of our adult entertainment trademark
licensing business.
Item 3. Quantitative
and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls
and Procedures
Based on management’s
evaluation (with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer), as of the end of the period
covered by this report, our CEO and Chief Financial Officer have concluded that our disclosure of controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are effective
to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules
and forms and is accumulated and communicated to management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control
over Financial Reporting
There were no changes
in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange
Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On June 14, 2013, Elizabeth
Shiflett, a former cocktail waitress, filed a civil lawsuit against us in the S.D.N.Y. alleging violations of Title VII of the
Civil Rights Act of 1964 (“Title VII”), as amended, the New York State Human Rights Law (“NYSHRL”) and
the New York City Human Rights Law (“NYCHRL”) based upon allegations of sexual discrimination, creating a hostile work
environment based upon plaintiff’s sex and race and unlawful retaliation against plaintiff. The lawsuit further alleges that
at all material times we were the employer of the plaintiff. The lawsuit had been preceded by a Determination of the U.S. Equal
Employment Opportunity Commission (the “EEOC”) on January 25, 2013 that there was reasonable cause to believe that
we had violated Title VII as a result of the complained-of conduct. The lawsuit seeks a declaratory judgment that the practices
complained of violated Title VII, the NYSHRL and the NYCHRL, an injunction enjoining us from engaging in future unlawful acts of
discrimination, harassment and retaliation, unspecified compensatory damages for plaintiff’s alleged loss of past and future
earnings, emotional distress, humiliation and loss of reputation, punitive damages as a result of our alleged disregard of plaintiff’s
protected civil rights, and attorneys’ fees and costs. We dispute that we were an employer of the plaintiff and categorically
deny all allegations of sexual discrimination, sexual and racial harassment and retaliation. In an order dated April 10, 2014,
the Court dismissed all federal claims. In May, 2014, Ms. Shiflett filed an appeal. On February 19, 2015, the United States Court
of Appeals for the Second Circuit upheld the order from April 2014 and all federal claims have been dismissed.
On June 14, 2011, Christina
Maldonado, a former front door receptionist/coat checker at Scores New York, located in New York, NY filed a civil lawsuit in Supreme
Court of the State of New York (the “SCNY”) against us and IMO alleging violations of Title VII of the Civil Rights
Act, NYSHRL, New York Executive Law, NYCHRL and the New York City Administrative Code, based on allegations of sexual discrimination
and sexual harassment. The lawsuit further alleged that both we and IMO were her employers. The lawsuit sought unspecified damages
for alleged loss of past and future earnings and emotional distress and humiliation. We disputed that that we were an employer
of the plaintiff and categorically denied all allegations of sexual discrimination and sexual harassment. We responded to the complaint
and later filed an amended complaint and asserted a cross claim against IMO. The parties settled the litigation with no liability
on our part, and a stipulation of discontinuance was filed on April 22, 2015.
On or about March 7,
2014, Kiana Love, a former entertainer and masseuse at The Penthouse Executive Club and Scores New York, both located in New York,
NY, filed a civil lawsuit in the SDNY against us, The Executive Club, LLC, Go West Entertainment, Inc., Scores Entertainment, Inc.,
Entertainment Management Services, Inc., 333 East 60th Street., Inc., I.M. Operating, LLC, Richard Goldring, Elliot Osher, Robert
Gans and Mark Yackow (collectively “Defendants”), alleging, for the time during which she performed as a masseuse,
violations of the state and federal wage and hour laws, including the New York Labor Law and Fair Labor Standards Act, based upon
allegations of failure to pay minimum wage, uniform related expenses, and allegations of improper wage deductions and tip misappropriation
as well as record keeping violations. The lawsuit further alleged that at all material times Defendants were employers of Ms. Love,
the plaintiff, while she performed massage services at Scores New York as well as The Penthouse Executive Club. The lawsuit
sought unspecified compensatory damages for plaintiff’s alleged loss of past wages and reimbursement of allegedly unlawful
deductions. Without any party admitting liability, the parties settled the referenced litigation for approximately $21,403.65.
The settlement was approved by the Court on April 13, 2015 and the case has been marked closed.
On February 13, 2015
we, together with our subsidiary SLC, filed an action against Southeast Show Clubs, LLC and Michael Tomkovich in the SCNY. Defendants
had utilized the “Scores” name and trademark in connection with their ownership and operation of adult entertainment
clubs in Jacksonville and Palm Beach, Florida and in Savannah, Georgia. In this action we sought damages for breach of contract
in the amount of $900,000 plus interest, damages due to defamation and tortious interference in connection with the use of the
“Scores” trademark in the amount of $500,000, issuance of a permanent injunction prohibiting defendants from using
the “Scores” name and trademark with respect to the adult entertainment clubs they operate in Jacksonville and Palm
Beach, Florida and Savannah, Georgia and all websites controlled by defendants, and an accounting by defendants of all merchandise
items sold by them containing the “Scores” trademark. As of April 17, 2015 the parties settled this matter. Pursuant
to the settlement, defendants agreed to pay us $150,000, payable in 13 installments. The first installment of $50,000 was paid
upon finalization of the settlement, with 12 subsequent monthly payments of $8,333.33 commencing on May 1, 2015. The defendants
also executed consents to the entry of a permanent injunction against them prohibiting their continued use of the name and trademark
“Scores” at their clubs if either or both of the defendants default in their obligations under the settlement. In connection
with the settlement, the parties entered into an amendment of the July 18, 2013 License Agreement between them. The amendment,
among other things, (i) removes the Palm Beach club from the license agreement, (ii) provides that the license agreement shall
only apply to the Jacksonville and Savannah nightclubs, (iii) requires the licensees to pay us a fixed royalty of $5,000 per month
for each club, commencing May 1, 2015, and (iv) requires that the Savannah nightclub and any related websites utilize the name
“Scores Presents.” As of September 30, 2015 the defendants remain in compliance with this settlement.
On February 19, 2015 we, together with our subsidiary SLC, filed
an action against Norm A Properties LLC in the SCNY. Defendant utilizes the “Scores” name and trademark in connection
with its ownership and operation of an adult entertainment club in Detroit, Michigan. In this action we sought damages for breach
of contract in the amount of $110,000 plus interest, and the issuance of a permanent injunction prohibiting defendant from using
the “Scores” name and trademark with respect to the Detroit club and all websites controlled by defendant. The defendant
failed to appear and on August 31, 2015, the court entered a judgment (which order was amended on October 17, 2015), awarding a
total of $117,646.92 to the Company. In addition, the court ordered defendant to render an accounting to the Company and enjoined
the defendant from using the “Scores” name and trademarks. The Company is currently seeking to enforce the judgment
in Detroit, Michigan.
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 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior
Securities.
None.
Item 4. Mine Safety Disclosure.
Not applicable.
Item 5. Other Information.
Effective July 24,
2015, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with Funn House Productions
LLC, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in
New Haven, Connecticut. The license is for a term of five years, with five successive five year renewal terms. The license agreement
provides for fixed royalties at the rate of $5,000 per month for the first year of the agreement, increasing to $10,000 per month
thereafter. As of September 30, 2015, this club is not yet operating.
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. The license agreement
provides for a $20,000 initial fee for the first six months of operation of the night club (beginning on October 1st)
and $40,000 as prepayment of a fixed royalty fee of $5,000 per month for April 1, 2016 through November 30, 2016. Thereafter, licensee
will pay a fixed royalty of $5,000 per month until April 1, 2017, increasing to $10,000 per month thereafter. As of September 30, 2015, this club is not yet operating.
Item 6. Exhibits.
| Exhibit No. |
|
Description |
| 31.1 |
|
*Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. |
| 31.2 |
|
*Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. |
| 32.1 |
|
*Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
| 32.2 |
|
*Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
| 101.INS |
|
*XBRL Instance Document |
| 101.SCH |
|
*XBRL Taxonomy Schema Document |
| 101.CAL |
|
*XBRL Taxonomy Calculation Linkbase Document |
| 101.DEF |
|
*XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB |
|
*Taxonomy Extension Label Linkbase Document |
| 101.PRE |
|
*XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements 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.
| |
SCORES HOLDING COMPANY, INC. |
| |
|
|
| Date: November 13, 2015 |
By: |
/s/ Robert M. Gans |
| |
|
Robert M. Gans |
| |
|
Chief Executive Officer and Director |
| |
|
(Principal Executive Officer) |
| |
|
|
| Date: November 13, 2015 |
By: |
/s/ Howard Rosenbluth |
| |
|
Howard Rosenbluth |
| |
|
Chief Financial Officer |
| |
|
(Principal Financial Officer) |
Exhibit 31.1
I, Robert M. Gans, certify that:
| 1. | I
have reviewed this Form 10-Q of Scores Holding Company, Inc.; |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report; |
| 4. | The
registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any
fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s
internal control over financial reporting. |
| Date: November 13, 2015 |
|
| |
/s/ Robert M. Gans |
| |
Robert M. Gans
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
I, Howard Rosenbluth, certify that:
| 1. | I
have reviewed this Form 10-Q of Scores Holding Company, Inc.; |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report; |
| 4. | The
registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 13, 2015 |
|
| |
/s/ Howard Rosenbluth |
| |
Howard Rosenbluth
Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with this Quarterly Report
of Scores Company Holding, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2015, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert M. Gans, Chief Executive
Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
| |
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
|
|
| |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company |
| Date: November 13, 2015 |
|
| |
/s/ Robert M. Gans |
| |
Robert M. Gans |
| |
Chief Executive Officer (Principal Executive Officer) |
A signed original of this written statement, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of
this written statement, has been provided to Scores Holding Company, Inc., and will be retained by Scores Holding Company, Inc.,
and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with this Quarterly Report
of Scores Holding Company, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2015, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Howard Rosenbluth, Chief Financial
Officer and Principal Accounting Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| |
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
|
|
| |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 13, 2015 |
|
| |
/s/ Howard Rosenbluth |
| |
Howard Rosenbluth |
| |
Chief Financial Officer (Principal Financial Officer) |
A signed original of this written statement, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of
this written statement, has been provided to Scores Holding Company, Inc., and will be retained by Scores Holding Company, Inc.,
and furnished to the Securities and Exchange Commission or its staff upon request.
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