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: June 30, 2020
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 27th 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)
Securities registered pursuant to Section 12(b) of the
Act: None
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange
on which registered |
N/A |
|
N/A |
|
N/A |
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 x
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 x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer |
¨ |
Accelerated
filer |
¨ |
|
Non-accelerated
filer |
x |
Smaller
reporting company |
x |
|
Emerging
growth company |
¨ |
|
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange
Act. ¨
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date:
As of June 9, 2022 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, except as required by law.
PART I –FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
SCORES HOLDING COMPANY, INC.
AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
|
|
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,891 |
|
|
$ |
9,331 |
|
Trade receivables, net of allowance
of $0 and $0, respectively |
|
|
70,305 |
|
|
|
44,913 |
|
Prepaid expenses |
|
|
88,701 |
|
|
|
16,519 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
160,897 |
|
|
|
70,763 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
160,897 |
|
|
$ |
70,763 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts payable and accrued
expenses |
|
$ |
263,037 |
|
|
$ |
184,144 |
|
Accrued expenses, related party
|
|
|
7,500 |
|
|
|
7,500 |
|
Related party payable |
|
|
37,500 |
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
308,037 |
|
|
|
221,644 |
|
|
|
|
|
|
|
|
|
|
Related party loan payable - long
term |
|
|
352,581 |
|
|
|
345,611 |
|
Contract Liabilities |
|
|
208,200 |
|
|
|
180,200 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
868,818 |
|
|
|
747,455 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note
7) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value,
10,000,000 shares authorized, -0- share issued and
outstanding |
|
|
- |
|
|
|
- |
|
Common stock, $.001 par value;
500,000,000 shares authorized, 165,186,144 shares issued and
165,186,144 shares outstanding, respectively |
|
|
165,186 |
|
|
|
165,186 |
|
Additional paid-in
capital |
|
|
6,058,117 |
|
|
|
6,058,117 |
|
Accumulated deficit |
|
|
(6,931,224 |
) |
|
|
(6,899,995 |
) |
|
|
|
|
|
|
|
|
|
Total Stockholders'
Deficit |
|
|
(707,921 |
) |
|
|
(676,692 |
) |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT |
|
$ |
160,897 |
|
|
$ |
70,763 |
|
See
notes to the unaudited condensed consolidated financial
statements.
SCORES HOLDING COMPANY, INC.
AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty Revenue |
|
$ |
9,000 |
|
|
$ |
183,549 |
|
|
|
152,642 |
|
|
$ |
265,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
|
9,000 |
|
|
|
183,549 |
|
|
|
152,642 |
|
|
|
265,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
Expenses |
|
|
64,849 |
|
|
|
125,731 |
|
|
|
176,311 |
|
|
|
291,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME(LOSS) FROM
OPERATIONS |
|
|
(55,849 |
) |
|
|
57,818 |
|
|
|
(23,669 |
) |
|
|
(25,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation Settlement,
net |
|
|
- |
|
|
|
40,000 |
|
|
|
- |
|
|
|
85,000 |
|
Interest Expense, net |
|
|
(3,816 |
) |
|
|
(4,299 |
) |
|
|
(7,560 |
) |
|
|
(8,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER
INCOME/(EXPENSE) |
|
|
(3,816 |
) |
|
|
35,701 |
|
|
|
(7,560 |
) |
|
|
76,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME(LOSS) BEFORE INCOME
TAXES |
|
|
(59,665 |
) |
|
|
93,519 |
|
|
|
(31,229 |
) |
|
|
50,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAXES |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME/(LOSS) |
|
$ |
(59,665 |
) |
|
$ |
93,519 |
|
|
|
(31,229 |
) |
|
$ |
50,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME/(LOSS) PER SHARE-Basic and
Diluted |
|
|
(0.00 |
) |
|
|
0.00 |
|
|
|
(0.00 |
) |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING-Basic and Diluted |
|
|
165,186,144 |
|
|
|
165,186,144 |
|
|
|
165,186,144 |
|
|
|
165,186,144 |
|
See
notes to the unaudited condensed consolidated financial
statements.
SCORES
HOLDING COMPANY INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Net Income/(Loss) |
|
$ |
(31,229 |
) |
|
$ |
50,563 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net
income/(loss) to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
Recovery of bad debts |
|
|
(13,750 |
) |
|
|
(29,000 |
) |
|
|
|
|
|
|
|
|
|
Changes in operating assets and
liabilities: |
|
|
|
|
|
|
|
|
Trade receivable |
|
|
(11,642 |
) |
|
|
(11,177 |
) |
Prepaid expenses |
|
|
(72,182 |
) |
|
|
(26,489 |
) |
Accounts payable and accrued
expenses |
|
|
78,893 |
|
|
|
26,466 |
|
Accrued expenses, related
party |
|
|
30,000 |
|
|
|
7,500 |
|
Accrued interest, related
party |
|
|
6,970 |
|
|
|
8,076 |
|
Contract liabilities |
|
|
28,000 |
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING
ACTIVITIES |
|
|
15,060 |
|
|
|
28,439 |
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM INVESTING
ACTIVITES: |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
CASH FLOW FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from related
party |
|
|
- |
|
|
|
15,000 |
|
Payments to related party |
|
|
(22,500 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY/(USED IN)
FINANCING ACTIVITIES |
|
|
(22,500 |
) |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN
CASH |
|
|
(7,440 |
) |
|
|
43,439 |
|
Cash and cash equivalents - beginning
of period |
|
|
9,331 |
|
|
|
7,662 |
|
Cash and cash equivalents - end of
period |
|
$ |
1,891 |
|
|
$ |
51,101 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information: |
|
|
|
|
|
|
|
|
Cash paid during the period for
interest |
|
$ |
589 |
|
|
$ |
746 |
|
Cash paid for income
taxes |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows
from noncash investing and financing activities |
|
$ |
- |
|
|
$ |
- |
|
See
notes to the unaudited condensed consolidated financial
statements.
SCORES HOLDING COMPANY INC. AND
SUBSIDIARY
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S
DEFICIT
SIX
MONTHS ENDED JUNE 30, 2020 and 2019
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Paid in |
|
|
Accumulated |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
Balance as of December 31,
2018 |
|
|
165,186,144 |
|
|
$ |
165,186 |
|
|
$ |
6,058,117 |
|
|
$ |
(6,894,193 |
) |
|
$ |
(670,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(42,956 |
) |
|
|
(42,956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31,
2019 |
|
|
165,186,144 |
|
|
$ |
165,186 |
|
|
$ |
6,058,117 |
|
|
$ |
(6,937,149 |
) |
|
$ |
(713,846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
93,519 |
|
|
|
93,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30,
2019 |
|
|
165,186,144 |
|
|
$ |
165,186 |
|
|
$ |
6,058,117 |
|
|
$ |
(6,843,630 |
) |
|
$ |
(620,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2019 |
|
|
165,186,144 |
|
|
$ |
165,186 |
|
|
$ |
6,058,117 |
|
|
$ |
(6,899,995 |
) |
|
$ |
(676,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,436 |
|
|
|
28,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31,
2020 |
|
|
165,186,144 |
|
|
$ |
165,186 |
|
|
$ |
6,058,117 |
|
|
$ |
(6,871,559 |
) |
|
$ |
(648,256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,665 |
) |
|
|
(59,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30,
2020 |
|
|
165,186,144 |
|
|
$ |
165,186 |
|
|
$ |
6,058,117 |
|
|
$ |
(6,931,224 |
) |
|
$ |
(707,921 |
) |
See the notes to the unaudited
condensed consolidated financial statements.
SCORES HOLDING CO., Inc and
Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. Certain prior period amounts have been reclassified to
conform to the current period presentation. These reclassifications
have no impact on the reported results.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, 2019.
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 six months ended June 30, 2020 are not
necessarily indicative of the results to be expected for any other
interim period or for the year ending December 31, 2020.
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 nine clubs
operating under the Scores name. The duration and ultimate extent
of the closures of these clubs cannot be predicted at this time,
however the impact on such clubs' revenue could be material and
result in a significant decline in our royalty revenues.
Going Concern
As of June 30, 2020, the Company has cumulative losses
totaling $(6,931,224) and negative working capital of $147,140.
Because of these conditions, the Company will require additional
working capital to develop business operations. The Company intends
to raise additional working capital through the continued licensing
of its brand with its current and new operators. There are no
assurances that the Company will be able to achieve the level of
revenues adequate to generate sufficient cash flow from operations
to support the Company’s working capital requirements. To the
extent that funds generated from any future use of licensing are
insufficient, the Company will have to raise additional working
capital. No assurance can be given that additional financing will
be available, or if available, will be on terms acceptable to the
Company. If adequate working capital is not available, the Company
may not continue its operations.
These conditions raise substantial doubt about the Company’s
ability to continue as a going concern 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.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Revenue Recognition
Under ASC 606, revenue from the initiation fees are recognizable
when at a point in time (first month of the contract) and royalty
revenues are recognized over time for those contracts with probable
collections.
The Company's license fee revenue is generated from royalties
earned through intellectual property licensing agreements which
permit the licensee to use the recognition and status of the Scores
brand in order to promote their businesses. Under ASC 606, revenue
is recognized throughout the life of the executed licensing
agreement. The Company measures revenue based on consideration
specified in a contract with a customer. Furthermore, the Company
recognizes revenue when it satisfies a performance obligation by
transferring control over the service to its customer.
A performance obligation is a promise in a contract to transfer a
distinct service to the customer. The transaction price of a
contract is allocated to each distinct performance obligation and
recognized as revenue when or as the customer receives the benefit
of the performance obligation. The Company's customers typically
receive the benefit of its services as they are performed.
Substantially all customer contracts provide that the Company is
compensated for services performed to date. Taxes assessed by a
governmental authority that are both imposed on and concurrent with
a specific revenue-producing transaction, that are collected by the
Company from a customer, are excluded from revenue.
Nature of goods and services
The following is a description of the Company's products and
services from which it generates revenue, as well as the nature,
timing of satisfaction of performance obligations, and significant
payment terms for each:
i. Licensing Revenue
Licensing fees represent the fees the Company receives from the
licensing of the Company's Scores trademark. The terms of the
royalties earned under these license agreements vary from a flat
monthly fee to a percentage of the revenues of the licensee on a
monthly basis. The licensing rights are transferred to the
Company's customers over time, and the Company recognizes licensing
revenue over time because the customer will simultaneously receive
and consume the benefit from the license as the performance
occurs.
ii. Stand-Ready for Consulting and Club Set-up Services
The Company offers an initial set-up and consultation to new clubs
in order to aid in the opening and operation. The services are
provided within the first month of any licensing agreements, and
sometimes are not requested by the licensee and therefore never
provided.
Concentration of Credit Risk
The Company earns royalty revenues from ten licensees.
With regards to June 30, 2020, concentrations of sales from
four licensees range from 11% to 41%, totaling 99%. There are
receivables from two 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 June 30, 2019, concentrations of sales from
five licensees range from 11% to 23%, totaling 78%. There are
receivables from three licensees ranging from 14% to 64%, totaling
96%. There are no sales from licensees that are considered related
parties. There are no receivables from these licensees that are
considered related parties.
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.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 June 30, 2020 and December 31,
2019, the uninsured balance amounted to $-0- and $-0-,
respectively.
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
June 30, 2020, there are no outstanding stock equivalents. .
Accordingly, the weighted average number of common shares
outstanding for the periods ended June 30, 2020 and 2019,
respectively, is the same for purposes of computing both basic and
diluted net income per share for such years.
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.
Recently Issued Accounting Standards Update
Leases
In March 2019, the FASB issued ASU No. 2019-01, Leases
(Topic 842): Codification Improvements. ASU 2019-01 aligns the
guidance for fair value of the underlying asset by lessors with
existing guidance in Topic 842. The ASU requires that the fair
value of the underlying asset at lease commencement is its cost
reflecting in volume or trade discounts that may apply. However, if
there has been a significant lapse of time between the date the
asset was acquired and the lease commencement date, the definition
of fair value as outlined in Topic 820 should be applied. In
addition, the ASU exempts both lessees and lessors from having to
provide certain interim disclosures in the fiscal year in which a
company adopts the new leases standard. The update is effective for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019. We have evaluated the
impact of this ASU on the Company’s consolidated financial
statements and there is no effect.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Credit loss
In June 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.
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. Disaggregation of Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by major
products/service lines, and timing of revenue recognition:
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
Major products/service lines |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing fees - royalty revenue |
|
$ |
9,000 |
|
|
$ |
183,549 |
|
|
$ |
152,642 |
|
|
$ |
265,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
9,000 |
|
|
$ |
183,549 |
|
|
$ |
152,642 |
|
|
$ |
265,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products transferred at a point in time |
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
- |
|
Products and services transferred over time |
|
|
9,000 |
|
|
|
183,549 |
|
|
|
152,642 |
|
|
|
265,847 |
|
|
|
$ |
9,000 |
|
|
$ |
183,549 |
|
|
$ |
152,642 |
|
|
$ |
265,847 |
|
Contract balances
The following table provides information about receivables and
liabilities from contracts with customers:
|
|
June 30,
2020 |
|
|
December 31,
2019 |
|
Assets |
|
|
|
|
|
|
|
|
Trade receivables, net |
|
$ |
70,305 |
|
|
$ |
44,913 |
|
Liabilities |
|
|
|
|
|
|
|
|
Contract liabilities |
|
$ |
208,200 |
|
|
$ |
180,200 |
|
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Contract liabilities |
|
June 30,
2020 |
|
|
December 31,
2019 |
|
Opening |
|
$ |
180,200 |
|
|
$ |
112,500 |
|
|
|
|
|
|
|
|
|
|
Addditions |
|
|
28,000 |
|
|
|
120,200 |
|
Transfer to revenue |
|
|
- |
|
|
|
52,500 |
|
|
|
|
|
|
|
|
|
|
Ending |
|
$ |
208,200 |
|
|
$ |
180,200 |
|
Contract receivables are recorded at the invoiced amount and do not
bear interest. Credit is extended based on the evaluation of a
customer’s financial condition and collateral is not required.
The contract liabilities primarily relate to deferred revenue.
Amounts billed in advance of performance obligations being
satisfied are booked as deferred revenue.
Practical Expedients and Exemptions
The Company did not apply any practical expedients during the
adoption of ASC 606.
Note 4. Related-Party Transactions
Transactions with Common ownership affiliates:
On January 24, 2006, the Company entered into a licensing
agreement with AYA International, Inc. (“AYA”) granting AYA
the right to use the Company's trademarks in connection with its
online video chat website, “Scoreslive.com.” The agreement with AYA
provides for royalty payments to be made directly to the Company at
the rate of 4.99% of weekly gross revenues from all revenue sources
within the AYA website. On December 21, 2009, AYA transferred
all of its rights in Scoreslive.com and in its licensing agreement
with the Company to Swan Media Group, Inc. (“Swan”), a newly
formed New York corporation whose majority owner (80%) is Robert M.
Gans, who is also the majority shareholder and chief executive
officer of the Company. The Company is owed $0 and $0 in unpaid
royalties and expenses as of June 30, 2020 and
December 31, 2019, 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 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
June 30, 2020 and December 31, 2019, 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. Royalties under this license are payable at a
rate of $5,000 per month, commencing in September 2017, and
the license is for a term of five years, with five successive
five-year renewal terms.
The Company also leases office space directly from Westside Realty
of New York, Inc. (WSR), the owner of the West 27th Street
Building. The majority owner of WSR (80%) is Robert M. Gans. Since
April 1, 2009, the monthly rent has been $2,500 per month
including overhead costs. The Company incurred rent expense of
$15,00 for the periods ending June 30, 2020 and 2019. The
Company owed WSR $15,000 and $7,500 in unpaid rents as of
June 30, 2020 and December 31, 2019, respectively.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 June 30, 2020 and 2019. The
Company owed $22,500 and $22,500 in unpaid management services as
of June 30, 2020 and December 31, 2019, respectively.
As of June 30, 2020, the Company has accrued expenses of
$7,500 due to Metropolitan. The balance was repaid at the end of
2021. The Company owed $7,500 and $7,500 as of June 30, 2020
and December 31, 2019, respectively.
Effective July 1, 2018, after the gentlemen’s club in New
Jersey had been closed from August 15, 2016 to June 28,
2018, the Company terminated the previous licensing agreement and
granted an exclusive, non-transferable license for the use of the
“Scores Atlantic City” name to Star Light Events LLC (“Star Light”)
for its gentlemen’s club in Atlantic City, New Jersey. Royalties
under this license are payable at the rate of $5,000 per month,
commencing in July 2018, and the license is for a term of five
years, with five successive five-year renewal terms. Pursuant to
the written agreement, the Company also granted Star Light a
non-exclusive, non-transferable license to sell certain licensed
products bearing the Company's trademarks. Star Light will purchase
the licensed products from the Company or its affiliates at cost
plus 25%. Robert M. Gans, the Company's President, Chief Executive
Officer and a Director, is the majority owner (92.165%) of Star
Light and Howard Rosenbluth, the Company's Secretary, Treasurer and
a Director, owns 1%. Star Light owes the Company a royalty
receivable of $0 and $0 as of June 30, 2020 and
December 31, 2019, respectively.
On December 9, 2013, the Company entered into a license
agreement with its subsidiary, SLC, granting SLC the exclusive
right to use certain trademarks, including the “Scores” stylized
trademark, in connection with certain goods and services. The grant
of license also includes the right to issue sublicenses to third
parties, subject to the approval of the Company. Pursuant to the
agreement, SLC shall pay to the Company a royalty, as determined by
the Company, such as a percentage of net revenue or a flat fee,
received in connection with the provision of services and/or sale
of goods using the trademarks. SLC may also pay a percentage, as
determined by the Company, of all royalties received by SLC under
any sublicense agreements. SLC and any sublicensees are to adhere
to quality standards as set by the Company, and the Company has the
right to inspect all facilities and approve all promotional and
marketing materials as well as any related packaging. The agreement
has a one-year term with automatic one-year renewals, subject to
either party’s election to terminate the agreement at least thirty
days prior to such renewal. The Company also has the right to
terminate the agreement, with immediate effect, upon the occurrence
of certain events. The license is subject to any pre-existing
license agreements as of the date of the agreement.
Effective February 28, 2017 (the “Effective Date”), the
Company entered into separate Settlement Agreements (each, a
“Settlement Agreement”) with three licensees, IMO, Star Light
and Swan (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.
As of the Effective Date, IMO owed the Company an aggregate of
$255,406 in unpaid royalties and other fees. Under its Settlement
Agreement, IMO has agreed to pay the entire amount owed to the
Company, in full settlement of all claims the Company may have
against it. The settlement amount is payable pursuant to a
promissory note in 22 consecutive monthly installments commencing
March 1, 2017 and bears simple interest at the rate of 4% per
year. Included as an event of default under the note is a
requirement that IMO remain current in its obligations to the
Company under its license agreement from and after the Effective
Date. This obligation was satisfied under the terms of the Offset
Agreement as discussed further below.
As of the Effective Date, Star Light owed the Company an aggregate
of $250,000 in unpaid royalties and other fees. Star Light is
currently inactive and has no revenue. Under its Settlement
Agreement, Star Light has agreed to pay the Company $75,000, in
full settlement of all claims the Company may have against it. The
settlement amount is payable pursuant to a promissory note in 10
consecutive monthly installments commencing March 1, 2017 and
bears simple interest at the rate of 4% per year. This obligation
was satisfied under the terms of the Offset Agreement as discussed
further below.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of the Effective Date, Swan owed the Company an aggregate of
$166,000 in unpaid royalties and other fees. Swan is currently
unprofitable. Under its Settlement Agreement, Swan has agreed to
pay the Company $50,000, in full settlement of all claims the
Company may have against it. The settlement amount is payable
pursuant to a promissory note in 10 consecutive monthly
installments commencing March 1, 2017 and bears simple
interest at the rate of 4% per year. Included as an event of
default under the note is a requirement that Swan remain current in
its obligations to the Company under its license agreement from and
after the Effective Date. This obligation was satisfied under the
terms of the Offset Agreement as discussed further below.
On August 4, 2018, the Company settled the Plaintiffs (as
defined below) claims in the Voronina matter for $1,310,000. See
Note 7 for additional information. The Company had insufficient
liquid resources to enable it to make a portion of the settlement
payments called for by the Voronina Settlement Agreement.
Metropolitan, made loans to the Company in the aggregate amount of
$770,000 to enable the Company to make the payments under the
Voronina Settlement Agreement. In addition to the aforementioned
loan and as discussed further in Note 7, the Company filed a
third-party complaint against certain licensees. During the period
of August 16, 2018, thru July 19, 2019, the amount of
money paid to the Company by settling with Third-Party Defendants
and the Company’s insurance carrier was $505,660.
The Company previously entered into the three Royalty Settlement
Agreements noted above where Robert M. Gans is a majority owner of
the equity of each of the Licensees. Robert M. Gans guaranteed the
payment of each Licensee’s obligations under each of the 3
Settlement Documents. The Licensees were not current with respect
to their obligations under the Settlement Documents and the Company
did not call upon Mr. Gans to honor his Guaranties.
The past due amounts under the Royalty Settlement Agreements were
$382,259 as of December 1, 2018. On this date the Company
entered into an agreement to offset the Royalty Amount against the
Voronina Amount, thereby reducing the amount owed by the Company to
Metropolitan to $399,139 pursuant to the terms of a certain
Settlement and Offset Agreement made by and among the Company, Star
Light, Swan, Metropolitan and Robert M. Gans.
The Licensees did not remain current with respect to their
obligations under the Royalty Settlement Agreements, and the
Company did not call upon Robert M. Gans to honor his guarantees.
The past due amounts under the Royalty Settlement Agreements
aggregated $382,259 (the “Aggregate Royalty Amount”) as of
December 1, 2018. As of such date, the Company, the Licensees,
Metropolitan and Robert M. Gans entered into a Settlement and
Offset Agreement (the “Offset Agreement”) pursuant to which the
Aggregate Royalty Amount was offset against the Voronina Amount,
thereby reducing the amount owed by the Company to Metropolitan to
$404,488 (the “Net Voronina Amount”). The Net Voronina Amount is
payable pursuant to a promissory note (the “Voronina Note”), which
bears simple interest at the rate of 4% per annum, in 86
consecutive monthly installments of $5,000, and a final installment
of $1,370, with the initial installment due and payable on
January 1, 2019 (or the first business day thereafter). The
Company may prepay the Voronina Note at any time, in whole or in
part without premium or penalty. The Offset Agreement also provides
for the immediate termination of the Royalty Settlement Agreements
and the related promissory notes and guarantees.
The total amounts due to the various related parties as of
June 30, 2020, and December 31, 2019, was $352,581 and
$383,111 respectively and the total amounts due to the Company from
the various related parties as of June 30, 2020, and
December 31, 2019, was $0 and $0, respectively.
Note 5. Licensees
As of June 30, 2020, the Company has ten license agreements
which were obtained between 2003 and 2020.
On March 18, 2016, the Company (through its subsidiary SLC.)
entered into a Trademark License (the “Trademark License”) with
Michael Blutrich, an unrelated party. The Trademark License grants
Mr. Blutrich the non-exclusive use of the Company’s registered
trademarks, related logos and other intellectual property in
connection with the development, production, and distribution of a
potential scripted television series, mini-series, or movie of the
week (the “Series”). Under the Trademark License, the Company will
receive three percent of all fees, contingent compensation and
other consideration that Mr. Blutrich receives in connection
with the Series. Mr. Blutrich is permitted to assign the
Trademark License without consideration to third-parties. The term
of the Trademark License is for one year, which term may and has
been extended through December 31, 2020. Effective
March 18, 2016, the Company and Mr. Blutrich entered into
an addendum to the Trademark License, extending the license to a
book about Scores.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
See Note 7 for litigation relating to a few of the Company’s
license agreements.
IMO’s members are the Company's majority shareholder, Robert M.
Gans (72%), and Secretary and Director, Howard Rosenbluth (2%)
hence making IMO a related party. The building occupied by IMO is
owned by Westside Realty of New York Inc., of which the majority
owner is Robert M. Gans (80%). IMO accounted for 0% and 0% of the
Company's royalty revenues for the six months ended June 30,
2020 and 2019, respectively. Mr. Gans is also the majority
owner (80%) of Swan, which accounted for 0% and 0% of the Company
royalty revenues for the six months ended June 30, 2020 and
2019, respectively. Mr. Gans is also the majority owner
(92.165%) of Star Light, which accounted for 0% and 0% of the
Company's royalty revenues for the six months ended June 30,
2020 and 2019, respectively.
Note 6. Contract liabilities
License agreements sometimes include Initiation/Inception Fees.
Please see Note 3 for a detailed discussion of this matter.
Note 7. Commitments and Contingencies
The Company records $7,500 a month as rent, overhead, and services
due to Metropolitan for services rendered by the management of the
Company. The Company incurred management fees of $45,000 for the
periods ending June 30, 2020 and 2019. Mr. Gans is the
sole owner of Metropolitan.
The Company currently leases office space from the Westside Realty
of New York which is owned and operated by Robert Gans, the
Company's majority shareholder, for $2,500 a month. The Company
incurred rent expense of $15,000 for the periods ending
June 30, 2020 and 2019.
On April 3, 2016, 50 individuals purporting to be professional
models and/or actresses collectively, the “Plaintiffs”) filed a
civil suit in the United States District Court for the Southern
District of New York against the Company, I.M. Operating, LLC,
The Executive Club, LLC, and Robert M. Gans, collectively the
(“Defendants”) alleging that images of Plaintiffs were used without
their consent for commercial purposes on websites and social media
outlets to promote gentlemen’s clubs operated by the Defendants or
licensees of the Defendants (the “Lawsuit”). The Lawsuit further
alleged that the unauthorized use of these images created, among
other things, the false impression that these individuals either
worked at, or endorsed, one or more of such clubs. The Lawsuit
asserted causes of action under Section 43 of the Lanham Act,
28 U.S.C. § 1125(a)(1), premised on a theory of false endorsement
and/or association; New York Civil Rights Law §§ 50-51; New York’s
Deceptive Trade Practices Act, New York General Business Law § 349;
as well as various common law torts, namely defamation, negligence,
conversion, unjust enrichment and quantum meruit. The Lawsuit
sought unspecified compensatory damages, punitive damages, as well
as attorneys’ fees and costs. The Lawsuit also sought an injunction
permanently enjoining the use of the individuals’ images to
promote, via any medium, any of the clubs. On April 20, 2017,
as a result of the claims asserted in the Lawsuit, the Company
filed a third-party complaint (the “Third-Party Complaint”) against
certain licensees, namely CG Consulting, LLC; Anthony Quaranta;
High Five Management Group, Inc.; Club 2000 Eastern
Avenue, Inc.; SCMD, LLC; David Baucom; Manhattan Fashion
L.L.C.; Stone Park Entertainment, Inc.; Silver
Bourbon, Inc.; Tampa Food & Entertainment, Inc.;
Fuun House Productions, L.L.C.; Norm A Properties, LLC; Southeast
Show Clubs, LLC; Michael Tomkovich; Palm Spring Grill LLC; Houston
KP LLC; and Star Light Events LLC (collectively, “Third-Party
Defendants”) asserting causes of action for breach of contract,
breach of warranty, contractual indemnification, common law
indemnification, contribution and breach of contract for failure to
procure insurance. The Company maintained in the Third-Party
Complaint, among other things, that pursuant to the Third-Party
Defendants’ respective license agreements, each of the Third-Party
Defendants are expressly obligated to indemnify, defend and hold
the Company harmless in connection with the conduct giving rise to
the claims asserted by Plaintiffs in the Lawsuit. Third-Party
Defendants Club 2000 Eastern Avenue, Inc., Fuun House
Productions, L.L.C., and Norm A Properties, LLC (collectively the
“Defaulting Third-Party Defendants”) failed to respond to the
Third-Party Complaint.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On January 5, 2017, the Court issued an Order granting in
part, and denying in part, Defendants’ motion to dismiss the
Complaint. The Court dismissed Plaintiffs’ claims sounding in
negligence, conversion, unjust enrichment and quantum meruit. The
remaining claims were not dismissed at that time. On August 4,
2018, the Court dismissed Plaintiffs’ claims against Defendants,
including the Company, with prejudice, at Plaintiffs’ request
following settlement with Defendants. During 2018, the Company paid
$1,310,000 to Plaintiffs in connection with the settlement. Between
August 4, 2018 and October 9, 2018, the Court dismissed
with prejudice the Company’s claims against the Third-Party
Defendants, other than the Defaulting Third-Party Defendants, at
the Company’s request following settlement with those Third-Party
Defendants. The total amount of money paid to the Company by the
settling Third-Party Defendants, and the Company’s insurance
carrier, is $505,660, paid thru September 30, 2019 and $90,000
received during the nine months ended September 30, 2019.
Scores has obtained Default Orders against Fuun House Productions,
L.L.C. and Norm A Properties, LLC. The value of the Company’s
claims against Fuun House Productions, L.L.C. and Norm A
Properties, LLC are all that remain to be determined in the action.
The Company became aware during the week of December 17, 2018
that Fuun House Productions, L.L.C. has filed for bankruptcy
protection.
On January 3, 2017, the Company, together with its subsidiary
SLC, filed an action against CJ NYC Inc. in the United States
District Court for the Southern District of New York. Defendant
utilizes the “Scores” name and trademark in connection with its
ownership and operation of an adult entertainment club in Woodside,
New York. In this action the Company sought damages for breach of
contract in the amount of $85,000 and the issuance of a preliminary
and permanent injunction prohibiting the defendant from using the
“Scores” name and trademark with respect to the Woodside, New York
club and all websites and social media sites controlled by
Defendant. The defendant failed to appear and on February 27,
2017, the Company filed a motion for judgment by default. The court
heard the Company motion on April 5, 2017, and on May 25,
2017, the court granted the Company's motion for a Judgment by
default, granting a permanent injunction and awarding damages in
the amount of $85,000 to SLC and $14,333 in damages and $530 in
costs to the Company. All signage has been removed and the Company
is attempting to collect on the default judgment, but it believes
that Defendant no longer has any assets, leaving the Company unable
to collect on the default judgment.
On January 31, 2017, the Company, together with its subsidiary
SLC, filed an action against Funn House Productions LLC in the
United States District Court for the Southern District of New York.
Defendant utilizes the “Scores” name and trademark in connection
with its ownership and operation of an adult entertainment club in
New Haven, Connecticut. In this action the Company sought damages
for breach of contract in the amount of $45,000 and the issuance of
a preliminary and permanent injunction prohibiting the defendant
from using the “Scores” name and trademark with respect to the New
Haven, Connecticut club and all websites and social media sites
controlled by Defendant. The Defendant failed to appear and on
February 28, 2017, the Court granted Plaintiffs’ motion for a
Judgment by default, granting a permanent injunction and awarding
damages in the amount of $60,000. The parties negotiated a
settlement agreement, which included a payment schedule, but then
Defendant did not sign the proposed settlement agreement. The
Company is attempting to collect on the default judgment, but it
believes that Defendant no longer has any assets, leaving the
Company unable to collect on the default judgment.
On July 25, 2017, plaintiff Dislenia Munoz, who formerly
performed as an adult entertainer at Scores New York, owned in its
entirety by I.M. Operating LLC, commenced a putative class action
lawsuit against the Company, IMO, Robert Gans and Mark Yackow
in the Supreme Court of the State of New York, County of New York.
Plaintiff alleged that she and other similarly situated
entertainers at Scores New York were misclassified as independent
contractors, that they should have been classified as employees,
and as a result, the Defendants violated, among other things,
applicable state wage and hour laws. The Lawsuit sought unspecified
compensatory damages, liquidated damages, as well as attorneys’
fees and costs. On June 22, 2018, Plaintiff (1) amended
her complaint in the Lawsuit to excise her class allegations, and
(2) discontinued the Lawsuit, without prejudice. Plaintiff has
brought her claims in the Lawsuit in another forum against the
Defendants, other than the Company, which is no longer a subject of
Plaintiff’s claims.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On October 8, 2018, the Company was served with a Summons and
Complaint in the action entitled Luisa Santos de Oliveira v. Scores
Holding Company, Inc.; Club Azure, LLC; Robert Gans; Mark S.
Yackow; Howard Rosenbluth, Docket No. 1:18-cv-06769-GBD, in
the United States District Court of the Southern District.
Plaintiff claims that the Defendants violated the minimum wage and
overtime provisions of the Fair Labor Standards Act (“FLSA”);
violated the New York Minimum Wage Act and the overtime provisions
of the New York State Labor Law (“NYLL”); violated the Spread of
Hours Wage Order of the New York Commissioner of Labor; violated
the Notice and Recordkeeping requirements of the NYLL; violated the
wage statement provisions of the NYLL; recovery of equipment costs
in violation of the FLSA and NYLL; and unlawful deductions from
tips in violation of the NYLL. Plaintiff brought this action as a
class action and seeks certification of this action as a collective
action on behalf of herself and all other similarly situated
employees and former employees of Defendants. The Company has
submitted an Answer to Plaintiff’s claims and the case is currently
in the discovery phase. The Company, along with the Co-defendants,
intends to vigorously defend itself against the claims asserted
against it in this lawsuit. The likelihood of an unfavorable
outcome is remote because the Company’s records show, inter alia,
that the Plaintiff never worked more than 25 hours per
week. The case was assigned to a Magistrate Judge. There
was a conference on March 2, 2021 and a Scheduling Order was
entered. On March 26, 2021, a Stipulation of
Discontinuance was so-ordered by the Federal Court, discontinuing
all claims against the Company.
On October 10, 2018, the Company, filed an action against
SCMD, LLC, in the Supreme Court of the State of New York, County of
New York. Defendant utilized the “Scores” name and trademark in
connection with its ownership and operation of an adult
entertainment club located in Baltimore, Maryland and paid royalty
fees to the Company up through and including July of 2017 but
did not abandon its use of the Scores name and trademarks until
September of 2018. In this action, the Company sought damages
for breach of contract in the amount of $160,000. On
December 5, 2018, the case was removed to the United States
District Court for the Southern District of New York. On
February 19, 2019, an Amended Complaint was filed. On
March 8, 2019, Defendant’s counsel requested permission from
the Court to submit a motion to dismiss the Company’s amended
complaint. The Court finally granted Defendant’s request on
November 6, 2019 and gave a briefing schedule. Defendant’s
motion to dismiss was denied on August 14, 2020. In
September of 2020, the parties settled this matter for
$50,000, of which $5,000 remains due and outstanding. SCMD, LLC has
since been dissolved. We are still trying to collect the remaining
$5,000 that is due to the Company, but we are not confident that we
will be successful given that SCMD, LLC has been dissolved.
On September 14, 2018, the Company and its subsidiary Scores
Licensing Corp. (“SLC”), filed an action against New 4125, LLC and
Mike Taraska in the Supreme Court of the State of New York, County
of New York. Defendants utilized the “Scores” name and trademark in
connection with its ownership and operation of an adult
entertainment club located in Phoenix, Arizona. In this action, the
Company sought damages for breach of contract in the amount of
$47,500. Defendants filed an Answer to the Complaint but it was not
submitted by an attorney notwithstanding the fact that corporations
must be represented by counsel. A motion to vacate the Answer based
on the fact that the corporate defendant is not represented by
counsel is pending.
On April 22, 2018, the Company together with its subsidiary
SLC filed a civil action in Supreme Court of New York, New York
County against 1715 Northside Drive, Inc., the former licensee
of SCORES Atlanta. The action was settled and paid in full during
the 3rd quarter 2018.
On May 4, 2018, we together with our subsidiary SLC filed a
civil action in Supreme Court of New York, New York County against
Bonkers Space Coast Inc. and Ken Fees, the former licensee of the
SCORES Green Bay, for unpaid royalties in the amount of $80,000.
The Defendants have not appeared and Plaintiffs have filed a motion
for judgment by default. A motion for default judgement was granted
and judgement was entered on November 26, 2019. The Company
has found real property owned by the Defendant and we are in the
process of attaching same. We filed an exemplified copy of the
default judgment with the State Court in Wisconsin, to collect
licensing fees. A judgment was docketed on June 12, 2020 in
Manitowoc County, WI for $82,330.34. The real property is
valued at approximately $97,000 but the Wisconsin Homestead Act
allows the debtor to exempt as much as $75,000 of equity. There is
also a prior mortgage and tax lien totaling approximately $45,000.
We have therefore ceased attempts to collect on the judgment
because there is no remaining equity left in the real property.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On April 20, 2018, the Company together with its subsidiary
SLC filed a civil action in Supreme Court of New York, New York
County against The Cadillac Lounge LLC and Dick Shappy, the former
licensee of SCORES Rhode Island for unpaid royalty fees. The action
was settled for $50,000 and has been paid in full during the 2nd
quarter 2018.
On April 25, 2018, the Company together with its subsidiary
SLC filed a civil action in Supreme Court of New York, New York
County against South East Show Clubs LLC and Michael Tomkovich, the
license of SCORES Jacksonville and SCORES Savannah, for unpaid
royalties in the amount of $60,000. The action was settled and has
been paid in full during the 4th quarter of 2018.
On August 3, 2018, the Company and its subsidiary SLC, filed
an action against Silver Bourbon, Inc. in the Supreme Court of
the State of New York, County of New York. Defendant utilized the
“Scores” name and trademark in connection with its ownership and
operation of an adult entertainment club located in New Orleans,
Louisiana. In this action, the Company seeks damages for breach of
contract in the amount of $145,500. The parties were in the process
of negotiating a settlement but then the club permanently closed
after it lost its lease and was forced to close in March of
2020 due to the global pandemic. We have therefore ceased all
attempts to collect this debt.
On July 13, 2018, the Company and its subsidiary SLC, filed an
action against Manhattan Fashions, LLC in the Supreme Court of the
State of New York, County of New York. Defendant utilized the
“Scores” name and trademark in connection with its ownership and
operation of an adult entertainment club located in Harvey,
Louisiana. In this action, the Company sought damages for breach of
contract in the amount of $84,000. Defendant did not appear, and On
February 6, 2019, the Court granted the Company’s motion for
default judgment. The parties were in the process of negotiating a
settlement agreement but then ceased all attempts to settle this
matter after the club was forced to permanently close in
March of 2020 due to the global pandemic. We have therefore
ceased all attempts to collect this debt.
On September 5, 2019, the Company together with its subsidiary
SLC filed a civil action in Supreme Court of New York, New York
County against Scores Alabama. A cease and desist letter was sent.
The Company finally entered into a license agreement as of
March 5, 2020 with Cheetah Club, LLC for a club located in
Huntsville, Alabama.
The Company had been in the process of negotiating a license
agreement with an adult entertainment club that started using the
“Scores” name and trademark in connection with an adult
entertainment club located in Huntsville, Alabama without a proper
licensing agreement in place. The Company’s subsidiary, SLC, ended
up entering into a license agreement in March of 2020.
In July 2018, the Company entered into a confidential
settlement agreement (the “Settlement Agreement”) in the Voronina
litigation, and in August 2018, the Court entered an order
dismissing the plaintiff’s claims against the Defendants with
prejudice. Metropolitan, loaned the Company an aggregate of
$770,000 to enable the Company to make the payments called for by
the Agreement.
As previously reported, in February 2017, the Company entered
into settlement agreements (each, a “Royalty Settlement Agreement”)
with Star Light, Swan, IMO and Robert M. Gans. Robert M. Gans
is the owner of a majority of the equity of each of aforementioned
Licensees. Pursuant to the Royalty Settlement Agreements, the
Company forgave the repayment of a certain portion of unpaid,
past-due royalties in return for the respective Licensees’
agreements to pay the remainder (the “Royalty Settlement Amount”)
of the unpaid royalties, plus interest, to the Company. The Royalty
Settlement Amount for each Licensee was represented by a promissory
note, and Robert M. Gans guaranteed the payment of each Licensee’s
obligations under the Settlement Agreement.
The Licensees did not remain current with respect to their
obligations under the Royalty Settlement Agreements, and the
Company did not call upon Robert M. Gans to honor his guarantees.
The past due amounts under the Royalty Settlement Agreements
aggregated $382,259 (the “Aggregate Royalty Amount”) as of
December 1, 2018. As of such date, the Company, the Licensees,
Metropolitan and Robert M. Gans entered into a Settlement and
Offset Agreement (the “Offset Agreement”) pursuant to which the
Aggregate Royalty Amount was offset against the Voronina Amount,
thereby reducing the amount owed by the Company to Metropolitan to
$408,546 (the “Net Voronina Amount”). The Net Voronina Amount is
payable pursuant to a promissory note (the “Voronina Note”), which
bears simple interest at the rate of 4% per annum, in 86
consecutive monthly installments of $5,000, and a final installment
of $1,370, with the initial installment due and payable on
January 1, 2022 (or the first business day thereafter). The
Company may prepay the Voronina Note at any time, in whole or in
part without premium or penalty. The Offset Agreement also provides
for the immediate termination of the Royalty Settlement Agreements
and the related promissory notes and guarantees.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On
January 29, 2020, an individual referred to as Jane Doe, the
Plaintiff, filed a civil suit in in the Circuit Court
of the 13th Judicial Circuit, in the State of
Florida, Hillsborough County, against the Company, its
subsidiary, Scores Licensing Corp. (“SLC”), and several other
defendants. Plaintiff’s Complaint details the somber
circumstances surround the illegal actions of a non-party, who pled
guilty to certain crimes against Plaintiff that were committed at a
club known as Scores Tampa. Plaintiff now seeks to hold the
Company and its subsidiary, among other defendants, liable in
connection with the non-party’s illegal activity by asserting
causes of action for negligence, vicarious liability and unjust
enrichment. Initially, prior counsel moved to dismiss
Plaintiff’s Complaint in lieu of filing Answers. A motion to
dismiss was submitted because the Court lacks personal jurisdiction
under Florida’s Long-Arm Statute and Due Process Requirements
because neither the Company or its subsidiary had minimum contacts
with Florida; nor was their a benefited conferred upon them.
The Court wrongfully denied the motion to dismiss. The
case is in the deposition stage of discovery. A motion for
summary judgment will be submitted because neither the Company or
its subsidiary were involved in the day-to-day operations of Scores
Tampa, or in fact involved in the operations of Scores Tampa at
all. Other than the Company licensing the Scores trademark
and other intellectual property to Scores Tampa, pursuant to a 2010
license agreement, neither the Company or its affiliate operated,
conducted, engaged in, or managed Scores Tampa, making it
vicariously liable for the non-party’s criminal actions.
On July 15, 2019, plaintiff Jeremy Green, a former consultant
to Swan Media Group, Inc (“SMG”), commenced an action in U.S.
District Court, Southern District of New York against Scores
Holding Co., Inc., Scores Media Group LLC, Scores Digital
Gaming LLC (“SDG”) and individual defendants Robert Gans and
Charilaos Yioves seeking to recover from all defendants under
various theories of breach of contract, unjust enrichment,
promissory estoppels, fraudulent inducement and breach of implied
duty of good faith and fair dealing.
By Order dated March 18, 2020, the Court dismissed all the
causes of action except for the breach of contract claim pertaining
to Greene’s consultancy agreement with SMG (First Cause of Action)
and the unjust enrichment claim relating to ScoresCasino.com
(Second Cause of Action). The parties have exchange documents and
information relating to the remaining causes of action and
depositions were held in April, July, August and November,
2021. The parties do not expect expert disclosures will be
necessary as neither side sees the need for it.
On March 4, 2022, the parties appeared before Judge Stanton
for a status conference where the parties discussed a briefing
schedule for summary judgment motions and the potential for trial
on certain issues.
On April 17, 2021, in an action entitled Jessica Hall v.
Scores Holding Company, Inc., et al, filed in Federal Court,
Southern District, the Plaintiff claims that, while she worked at a
gentlemen’s club located in New York, New York and commonly known
as Scores NY, she was discriminated and retaliated against because
of her race in violation of both Federal and State law. A motion
for default judgment was denied, and Plaintiff was recently granted
permission to file and serve an Amended Complaint. 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 March 18, 2022 the Defendants filed A
First Demand for Interrogatories Upon the Defendant. We have made
demands for discovery from the Plaintiff and motioned for summary
judgement seeking dismissal of all claims, which is pending. The
likelihood of success on the merits is negligible because the
Company, as simply the owner of the “Scores” brand and trademarks,
did not own, operate or otherwise control Scores NY or employ,
manage, or otherwise control Plaintiff’s employment during the
period October 23, 2009 until June 18, 2019.
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.
SCORES HOLDING CO., Inc and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8. SUBSEQUENT EVENTS
Please see Note 7 for events concerning legal matters.
Management evaluated subsequent events through the date of this
filing and determined that no additional events have occurred that
would require adjustment to or disclosure in the unaudited
condensed consolidated 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. As of June 30, 2020, there are nine such clubs
operating under the Scores name, in New York, New York;
Chicago, Illinois; Tampa, Florida; New Orleans, Louisiana;
Mooresville, North Carolina; Palm Springs, Florida, Las Vegas,
Nevada, and Huntsville Alabama.
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. Effective September 1, 2017, IMO no longer
owned or operated the New York Club and terminated its licensing
agreement with the Company. IMO sold the New York Club to Club
Azure LLC (“CA”) which was owned by Mark Yackow who is the sole
owner (100%) of CA and former Chief Operating Officer of IMO.
Mr. Yackow passed away on October 12, 2020. Effective
September 1, 2017, the Company granted an exclusive,
non-transferable license for the use of the “Scores New York” to CA
for the New York Club.
Impact of COVID-19
As a result of the COVID-19 virus, during the first and second
quarter of 2020, state and local governments have required all but
certain essential businesses to close, including all eight clubs
operating under the Scores name. The duration and ultimate extent
of the closures of these clubs cannot be predicted at this time,
however the impact on such clubs' revenue could be material and
result in a significant decline in our royalty revenues.
Summary of Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting
policies and estimates during the six months ended June 30,
2020 from our critical accounting policies and estimates disclosed
under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in our 2019 Form 10-K.
Results of Operations
Three
Months Ended June 30, 2020 (“the 2020 three-month period”)
Compared to Three Months Ended June 30,
2019 (“the 2019 three-month period”).
Revenues:
Revenues decreased to $9,000 for the 2020 three-month period from
$183,549 for the 2019 three-month period. Revenues decreased due to
COVID causing shutdowns.
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 Income (Expense)
Total other income (expense) decreased to $(3,816) for the 2020
three-month period from $35,701 from the 2019 three-month period.
Total other income (expense) for the 2020 three month-period
included interest expense of $3,816. Total other income for the
2019 three month-period included a $40,000 recovery of the
$1,300,000 Litigation Settlement payment paid to us by various
licensees, net of interest expense of $4,299.
General and Administrative Expenses:
General and administrative expenses decreased during the 2020
three-month period to $64,849 from $125,731 during the 2019
three-month period, which can be attributed to the decrease in
salary and other expenses along with a decrease in legal expenses.
Legal expenses, which are reflected in general and administrative
expenses, attributable to ongoing litigation amounted to $5,773 for
the 2020 three-month period and $27,335 for the 2019 three-month
period.
Provision for Income Taxes
The provision for income taxes relates primarily to the greater of
average assets and capital taxable income. The average assets and
capital are not impacted by net operating losses.
Net Income (Loss):
Our net loss ($59,665) or ($0.00) per share for the 2020
three-month period as compared to our net income was $93,519 or
$0.00 per share for the 2019 three-month period. This increase in
our net loss was primarily due COVID.
Net income(loss) per share data for both the 2020 three-month
period and the 2019 three-month period is based on net income
available to common shareholders divided by the weighted average of
the number of common shares outstanding.
Six
Months Ended June 30, 2020 (“the 2020 six-month period”)
Compared to Six Months Ended June 30, 2019
(“the 2019 six-month period”).
Revenues:
Revenues decreased to $152,642 for the 2020 six-month period from
$265,847 for the 2019 six-month period. Revenues decreased due to
COVID.
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 Income (Expense)
Total other income (expense) decreased to $(7,560) for the 2020
six-month period from $76,177 from the 2019 six-month period. Total
other income (expense) for the 2020 six month-period included
interest expense of $7,560. Total other income for the 2019 six
month-period included a $85,000 recovery of the $1,300,000
Litigation Settlement payment paid to us by various licensees, net
of interest expense of $8,823.
General and Administrative Expenses:
General and administrative expenses decreased during the 2020
six-month period to $176,311 from $291,461 during the 2019
six-month period, which can be attributed to COVID along with the
decrease in salary and other expenses along with a decrease in
legal expenses. Legal expenses, which are reflected in general and
administrative expenses, attributable to ongoing litigation
amounted to $18,917 for the 2020 six-month period and $27,355 for
the 2019 six-month period.
Provision for Income Taxes
The provision for income taxes relates primarily to the greater of
average assets and capital taxable income. The average assets and
capital are not impacted by net operating losses.
Net Income (Loss):
Our net loss ($31,229) or ($0.00) per share for the 2020 six-month
period as compared to our net income was $50,563 or $0.00 per share
for the 2019 six-month period. This increase in our net loss was
primarily due COVID.
Net income per share data for both the 2020 six-month period and
the 2019 six-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
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 June 30, 2020, we had $1,891 in cash and cash equivalents
compared to $9,331 in cash and cash equivalents at
December 31, 2019.
Operating Activities:
Net cash provided by operating activities for the 2020 six month
period was $15,060 and net cash used by operating activities for
the 2019 six-month period was $28,439. The decrease in cash
provided by operating activities is related to COVID.
Financing Activities:
Net cash used by financing activities for the 2020 six-month period
was $22,500 and net cash provided by financing activities for the
2019 six-month period was $15,000.
As of June 30, 2020 and December 31, 2019, we owed
$15,000 and $7,500, respectively in rent to our Westside Realty
affiliate. As of June 30, 2020 and December 31, 2019, we
owed to our Metropolitan Lumber Hardware and Building
Supplies, Inc. affiliate $22,500 and $22,500 respectively for
management fees and $352,581 and $345,611, respectively for a loan
advanced to the Company to assist in paying litigation costs.
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
June 30, 2020, we had an accumulated deficit of $(6,931,224).
As of June 30, 2020, we had total current assets of $160,897
and total current liabilities of $308,037 or negative working
capital of $147,140. As of December 31, 2019, we had total
current assets of $70,763 and total current liabilities of $221,644
or negative working capital of $150,881. The decrease in the amount
of negative working capital has been primarily attributable to the
increase in cash from previous non-paying clubs, along with a
decrease in liabilities.
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
June 30, 2020.
Impact of inflation and seasonality
We do not anticipate any changes due to inflation and/or
seasonality.
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
June 30, 2020, 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 not
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.
Management concluded that our disclosure controls and procedures
were not effective as of June 30, 2020 because of the
deficiencies in our internal control over financial reporting
relating to the effectiveness and timeliness of our financial
statement review process, including policies and procedures
governing our financial statement close process, and control in the
preparation, documentation, and review of journal entries and
account reconciliations
A deficiency in internal control over financial reporting exists
when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned
functions, to prevent or detect misstatements on a timely basis. A
material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of the company's annual or interim financial statements will not be
prevented or detected on a timely basis. The control deficiencies
as of June 30, 2020, and subsequent reports should be
considered material weaknesses in our internal control over
financial reporting.
As set forth below, management has taken or will take steps to
remediate the control deficiencies identified above.
Notwithstanding the control deficiencies described above, we have
performed additional analyses and other procedures to enable
management to conclude that our condensed consolidated financial
statements included in this Form 10-Q fairly present, in all
material respects, our financial condition and results of
operations as of and for the six-month period ended June 30,
2020.
Management's Remediation Plan
In response to the deficiencies discussed above, we plan to
continue efforts already underway to improve internal control over
financial reporting, which include creating formal policies and
procedures governing our financial statement close process, and
control in the preparation, documentation, and review of journal
entries and account reconciliations.
Management and our Board of Directors will continue to monitor
these remedial measures and the effectiveness of our internal
controls and procedures. Other than as described above, there were
no changes in our internal control over financial reporting during
the quarter ended June 30, 2020 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 April 3, 2016, 50 individuals purporting to be professional
models and/or actresses collectively, the “Plaintiffs”) filed a
civil suit in the United States District Court for the Southern
District of New York against the Company, I.M. Operating, LLC,
The Executive Club, LLC, and Robert M. Gans, collectively the
(“Defendants”) alleging that images of Plaintiffs were used without
their consent for commercial purposes on websites and social media
outlets to promote gentlemen’s clubs operated by the Defendants or
licensees of the Defendants (the “Lawsuit”). The Lawsuit further
alleged that the unauthorized use of these images created, among
other things, the false impression that these individuals either
worked at, or endorsed, one or more of such clubs. The Lawsuit
asserted causes of action under Section 43 of the Lanham Act,
28 U.S.C. § 1125(a)(1), premised on a theory of false endorsement
and/or association; New York Civil Rights Law §§ 50-51; New York’s
Deceptive Trade Practices Act, New York General Business Law § 349;
as well as various common law torts, namely defamation, negligence,
conversion, unjust enrichment and quantum meruit. The Lawsuit
sought unspecified compensatory damages, punitive damages, as well
as attorneys’ fees and costs. The Lawsuit also sought an injunction
permanently enjoining the use of the individuals’ images to
promote, via any medium, any of the clubs. On April 20, 2017,
as a result of the claims asserted in the Lawsuit, the Company
filed a third-party complaint (the “Third-Party Complaint”) against
certain licensees, namely CG Consulting, LLC; Anthony Quaranta;
High Five Management Group, Inc.; Club 2000 Eastern
Avenue, Inc.; SCMD, LLC; David Baucom; Manhattan Fashion
L.L.C.; Stone Park Entertainment, Inc.; Silver
Bourbon, Inc.; Tampa Food & Entertainment, Inc.;
Fuun House Productions, L.L.C.; Norm A Properties, LLC; Southeast
Show Clubs, LLC; Michael Tomkovich; Palm Spring Grill LLC; Houston
KP LLC; and Star Light Events LLC (collectively, “Third-Party
Defendants”) asserting causes of action for breach of contract,
breach of warranty, contractual indemnification, common law
indemnification, contribution and breach of contract for failure to
procure insurance. The Company maintained in the Third-Party
Complaint, among other things, that pursuant to the Third-Party
Defendants’ respective license agreements, each of the Third-Party
Defendants are expressly obligated to indemnify, defend and hold
the Company harmless in connection with the conduct giving rise to
the claims asserted by Plaintiffs in the Lawsuit. Third-Party
Defendants Club 2000 Eastern Avenue, Inc., Fuun House
Productions, L.L.C., and Norm A Properties, LLC (collectively the
“Defaulting Third-Party Defendants”) failed to respond to the
Third-Party Complaint.
On January 5, 2017, the Court issued an Order granting in
part, and denying in part, Defendants’ motion to dismiss the
Complaint. The Court dismissed Plaintiffs’ claims sounding in
negligence, conversion, unjust enrichment and quantum meruit. The
remaining claims were not dismissed at that time. On August 4,
2018, the Court dismissed Plaintiffs’ claims against Defendants,
including the Company, with prejudice, at Plaintiffs’ request
following settlement with Defendants. During 2018, the Company paid
$1,310,000 to Plaintiffs in connection with the settlement. Between
August 4, 2018 and October 9, 2018, the Court dismissed
with prejudice the Company’s claims against the Third-Party
Defendants, other than the Defaulting Third-Party Defendants, at
the Company’s request following settlement with those Third-Party
Defendants. The total amount of money paid to the Company by the
settling Third-Party Defendants, and the Company’s insurance
carrier, is $505,660, paid thru September 30, 2019 and $90,000
received during the nine months ended September 30, 2019.
Scores has obtained Default Orders against Fuun House Productions,
L.L.C. and Norm A Properties, LLC. The value of the Company’s
claims against Fuun House Productions, L.L.C. and Norm A
Properties, LLC are all that remain to be determined in the action.
The Company became aware during the week of December 17, 2018
that Fuun House Productions, L.L.C. has filed for bankruptcy
protection.
On January 3, 2017, the Company, together with its subsidiary
SLC, filed an action against CJ NYC Inc. in the United States
District Court for the Southern District of New York. Defendant
utilizes the “Scores” name and trademark in connection with its
ownership and operation of an adult entertainment club in Woodside,
New York. In this action the Company sought damages for breach of
contract in the amount of $85,000 and the issuance of a preliminary
and permanent injunction prohibiting the defendant from using the
“Scores” name and trademark with respect to the Woodside, New York
club and all websites and social media sites controlled by
Defendant. The defendant failed to appear and on February 27,
2017, the Company filed a motion for judgment by default. The court
heard the Company motion on April 5, 2017, and on May 25,
2017, the court granted the Company's motion for a Judgment by
default, granting a permanent injunction and awarding damages in
the amount of $85,000 to SLC and $14,333 in damages and $530 in
costs to the Company. All signage has been removed and the Company
is attempting to collect on the default judgment, but it believes
that Defendant no longer has any assets, leaving the Company unable
to collect on the default judgment.
On January 31, 2017, the Company, together with its subsidiary
SLC, filed an action against Funn House Productions LLC in the
United States District Court for the Southern District of New York.
Defendant utilizes the “Scores” name and trademark in connection
with its ownership and operation of an adult entertainment club in
New Haven, Connecticut. In this action the Company sought damages
for breach of contract in the amount of $45,000 and the issuance of
a preliminary and permanent injunction prohibiting the defendant
from using the “Scores” name and trademark with respect to the New
Haven, Connecticut club and all websites and social media sites
controlled by Defendant. The Defendant failed to appear and on
February 28, 2017, the Court granted Plaintiffs’ motion for a
Judgment by default, granting a permanent injunction and awarding
damages in the amount of $60,000. The parties negotiated a
settlement agreement, which included a payment schedule, but then
Defendant did not sign the proposed settlement agreement. The
Company is attempting to collect on the default judgment, but it
believes that Defendant no longer has any assets, leaving the
Company unable to collect on the default judgment.
On July 25, 2017, plaintiff Dislenia Munoz, who formerly
performed as an adult entertainer at Scores New York, owned in its
entirety by I.M. Operating LLC, commenced a putative class action
lawsuit against the Company, IMO, Robert Gans and Mark Yackow
in the Supreme Court of the State of New York, County of New York.
Plaintiff alleged that she and other similarly situated
entertainers at Scores New York were misclassified as independent
contractors, that they should have been classified as employees,
and as a result, the Defendants violated, among other things,
applicable state wage and hour laws. The Lawsuit sought unspecified
compensatory damages, liquidated damages, as well as attorneys’
fees and costs. On June 22, 2018, Plaintiff (1) amended
her complaint in the Lawsuit to excise her class allegations, and
(2) discontinued the Lawsuit, without prejudice. Plaintiff has
brought her claims in the Lawsuit in another forum against the
Defendants, other than the Company, which is no longer a subject of
Plaintiff’s claims.
On October 8, 2018, the Company was served with a Summons and
Complaint in the action entitled Luisa Santos de Oliveira v. Scores
Holding Company, Inc.; Club Azure, LLC; Robert Gans; Mark S.
Yackow; Howard Rosenbluth, Docket No. 1:18-cv-06769-GBD, in
the United States District Court of the Southern District.
Plaintiff claims that the Defendants violated the minimum wage and
overtime provisions of the Fair Labor Standards Act (“FLSA”);
violated the New York Minimum Wage Act and the overtime provisions
of the New York State Labor Law (“NYLL”); violated the Spread of
Hours Wage Order of the New York Commissioner of Labor; violated
the Notice and Recordkeeping requirements of the NYLL; violated the
wage statement provisions of the NYLL; recovery of equipment costs
in violation of the FLSA and NYLL; and unlawful deductions from
tips in violation of the NYLL. Plaintiff brought this action as a
class action and seeks certification of this action as a collective
action on behalf of herself and all other similarly situated
employees and former employees of Defendants. The Company has
submitted an Answer to Plaintiff’s claims and the case is currently
in the discovery phase. The Company, along with the Co-defendants,
intends to vigorously defend itself against the claims asserted
against it in this lawsuit. The likelihood of an unfavorable
outcome is remote because the Company’s records show, inter alia,
that the Plaintiff never worked more than 25 hours per
week. The case was assigned to a Magistrate Judge. There
was a conference on March 2, 2021 and a Scheduling Order was
entered. On March 26, 2021, a Stipulation of
Discontinuance was so-ordered by the Federal Court, discontinuing
all claims against the Company.
On October 10, 2018, the Company, filed an action against
SCMD, LLC, in the Supreme Court of the State of New York, County of
New York. Defendant utilized the “Scores” name and trademark in
connection with its ownership and operation of an adult
entertainment club located in Baltimore, Maryland and paid royalty
fees to the Company up through and including July of 2017 but
did not abandon its use of the Scores name and trademarks until
September of 2018. In this action, the Company sought damages
for breach of contract in the amount of $160,000. On
December 5, 2018, the case was removed to the United States
District Court for the Southern District of New York. On
February 19, 2019, an Amended Complaint was filed. On
March 8, 2019, Defendant’s counsel requested permission from
the Court to submit a motion to dismiss the Company’s amended
complaint. The Court finally granted Defendant’s request on
November 6, 2019 and gave a briefing schedule. Defendant’s
motion to dismiss was denied on August 14, 2020. In
September of 2020, the parties settled this matter for
$50,000, of which $5,000 remains due and outstanding. SCMD, LLC has
since been dissolved. We are still trying to collect the remaining
$5,000 that is due to the Company, but we are not confident that we
will be successful given that SCMD, LLC has been dissolved.
On September 14, 2018, the Company and its subsidiary Scores
Licensing Corp. (“SLC”), filed an action against New 4125, LLC and
Mike Taraska in the Supreme Court of the State of New York, County
of New York. Defendants utilized the “Scores” name and trademark in
connection with its ownership and operation of an adult
entertainment club located in Phoenix, Arizona. In this action, the
Company sought damages for breach of contract in the amount of
$47,500. Defendants filed an Answer to the Complaint but it was not
submitted by an attorney notwithstanding the fact that corporations
must be represented by counsel. A motion to vacate the Answer based
on the fact that the corporate defendant is not represented by
counsel is pending.
On April 22, 2018, the Company together with its subsidiary
SLC filed a civil action in Supreme Court of New York, New York
County against 1715 Northside Drive, Inc., the former licensee
of SCORES Atlanta. The action was settled and paid in full during
the 3rd quarter 2018.
On May 4, 2018, we together with our subsidiary SLC filed a
civil action in Supreme Court of New York, New York County against
Bonkers Space Coast Inc. and Ken Fees, the former licensee of the
SCORES Green Bay, for unpaid royalties in the amount of $80,000.
The Defendants have not appeared and Plaintiffs have filed a motion
for judgment by default. A motion for default judgement was granted
and judgement was entered on November 26, 2019. The Company
has found real property owned by the Defendant and we are in the
process of attaching same. We filed an exemplified copy of the
default judgment with the State Court in Wisconsin, to collect
licensing fees. A judgment was docketed on June 12, 2020 in
Manitowoc County, WI for $82,330.34. The real property is valued at
approximately $97,000 but the Wisconsin Homestead Act allows the
debtor to exempt as much as $75,000 of equity. There is also a
prior mortgage and tax lien totaling approximately $45,000. We have
therefore ceased attempts to collect on the judgment because there
is no remaining equity left in the real property.
On April 20, 2018, the Company together with its subsidiary
SLC filed a civil action in Supreme Court of New York, New York
County against The Cadillac Lounge LLC and Dick Shappy, the former
licensee of SCORES Rhode Island for unpaid royalty fees. The action
was settled for $50,000 and has been paid in full during the 2nd
quarter 2018.
On April 25, 2018, the Company together with its subsidiary
SLC filed a civil action in Supreme Court of New York, New York
County against South East Show Clubs LLC and Michael Tomkovich, the
license of SCORES Jacksonville and SCORES Savannah, for unpaid
royalties in the amount of $60,000. The action was settled and has
been paid in full during the 4th quarter of 2018.
On August 3, 2018, the Company and its subsidiary SLC, filed
an action against Silver Bourbon, Inc. in the Supreme Court of
the State of New York, County of New York. Defendant utilized the
“Scores” name and trademark in connection with its ownership and
operation of an adult entertainment club located in New Orleans,
Louisiana. In this action, the Company seeks damages for breach of
contract in the amount of $145,500. The parties were in the process
of negotiating a settlement but then the club permanently closed
after it lost its lease and was forced to close in March of
2020 due to the global pandemic. We have therefore ceased all
attempts to collect this debt.
On July 13, 2018, Company and its subsidiary SLC, filed an
action against Manhattan Fashions, LLC in the Supreme Court of the
State of New York, County of New York. Defendant utilized the
“Scores” name and trademark in connection with its ownership and
operation of an adult entertainment club located in Harvey,
Louisiana. In this action, the Company sought damages for breach of
contract in the amount of $84,000. Defendant did not appear, and On
February 6, 2019, the Court granted the Company’s motion for
default judgment. The parties were in the process of negotiating a
settlement agreement but then ceased all attempts to settle this
matter after the club was forced to permanently close in
March of 2020 due to the global pandemic. We have therefore
ceased
On September 5, 2019, the Company together with its subsidiary
SLC filed a civil action in Supreme Court of New York, New York
County against Scores Alabama. A cease and desist letter was sent.
The Company finally entered into a license agreement as of
March 5, 2020 with Cheetah Club, LLC for a club located in
Huntsville, Alabama.
The Company had been in the process of negotiating a license
agreement with an adult entertainment club that started using the
“Scores” name and trademark in connection with an adult
entertainment club located in Huntsville, Alabama without a proper
licensing agreement in place. The Company’s subsidiary, SLC, ended
up entering into a license agreement in March of 2020.
In July 2018, the Company entered into a confidential
settlement agreement (the “Settlement Agreement”) in the Voronina
litigation, and in August 2018, the Court entered an order
dismissing the plaintiff’s claims against the Defendants with
prejudice. Metropolitan, loaned the Company an aggregate of
$770,000 to enable the Company to make the payments called for by
the Agreement.
As previously reported, in February 2017, the Company entered
into settlement agreements (each, a “Royalty Settlement Agreement”)
with Star Light, Swan, IMO and Robert M. Gans. Robert M. Gans
is the owner of a majority of the equity of each of aforementioned
Licensees. Pursuant to the Royalty Settlement Agreements, the
Company forgave the repayment of a certain portion of unpaid,
past-due royalties in return for the respective Licensees’
agreements to pay the remainder (the “Royalty Settlement Amount”)
of the unpaid royalties, plus interest, to the Company. The Royalty
Settlement Amount for each Licensee was represented by a promissory
note, and Robert M. Gans guaranteed the payment of each Licensee’s
obligations under the Settlement Agreement.
The Licensees did not remain current with respect to their
obligations under the Royalty Settlement Agreements, and the
Company did not call upon Robert M. Gans to honor his guarantees.
The past due amounts under the Royalty Settlement Agreements
aggregated $382,259 (the “Aggregate Royalty Amount”) as of
December 1, 2018. As of such date, the Company, the Licensees,
Metropolitan and Robert M. Gans entered into a Settlement and
Offset Agreement (the “Offset Agreement”) pursuant to which the
Aggregate Royalty Amount was offset against the Voronina Amount,
thereby reducing the amount owed by the Company to Metropolitan to
$408,546 (the “Net Voronina Amount”). The Net Voronina Amount is
payable pursuant to a promissory note (the “Voronina Note”), which
bears simple interest at the rate of 4% per annum, in 86
consecutive monthly installments of $5,000, and a final installment
of $1,370, with the initial installment due and payable on
January 1, 2022 (or the first business day thereafter). The
Company may prepay the Voronina Note at any time, in whole or in
part without premium or penalty. The Offset Agreement also provides
for the immediate termination of the Royalty Settlement Agreements
and the related promissory notes and guarantees.
On
January 29, 2020, an individual referred to as Jane Doe, the
Plaintiff, filed a civil suit in in the Circuit Court
of the 13th Judicial Circuit, in the State of
Florida, Hillsborough County, against the Company, its
subsidiary, Scores Licensing Corp. (“SLC”), and several other
defendants. Plaintiff’s Complaint details the somber
circumstances surround the illegal actions of a non-party, who pled
guilty to certain crimes against Plaintiff that were committed at a
club known as Scores Tampa. Plaintiff now seeks to hold the
Company and its subsidiary, among other defendants, liable in
connection with the non-party’s illegal activity by asserting
causes of action for negligence, vicarious liability and unjust
enrichment. Initially, prior counsel moved to dismiss
Plaintiff’s Complaint in lieu of filing Answers. A motion to
dismiss was submitted because the Court lacks personal jurisdiction
under Florida’s Long-Arm Statute and Due Process Requirements
because neither the Company or its subsidiary had minimum contacts
with Florida; nor was their a benefited conferred upon them.
The Court wrongfully denied the motion to dismiss. The
case is in the deposition stage of discovery. A motion for
summary judgment will be submitted because neither the Company or
its subsidiary were involved in the day-to-day operations of Scores
Tampa, or in fact involved in the operations of Scores Tampa at
all. Other than the Company licensing the Scores trademark
and other intellectual property to Scores Tampa, pursuant to a 2010
license agreement, neither the Company or its affiliate operated,
conducted, engaged in, or managed Scores Tampa, making it
vicariously liable for the non-party’s criminal actions.
On July 15, 2019, plaintiff Jeremy Green, a former consultant
to Swan Media Group, Inc (“SMG”), commenced an action in U.S.
District Court, Southern District of New York against Scores
Holding Co., Inc., Scores Media Group LLC, Scores Digital
Gaming LLC (“SDG”) and individual defendants Robert Gans and
Charilaos Yioves seeking to recover from all defendants under
various theories of breach of contract, unjust enrichment,
promissory estoppels, fraudulent inducement and breach of implied
duty of good faith and fair dealing.
By Order dated March 18, 2020, the Court dismissed all the
causes of action except for the breach of contract claim pertaining
to Greene’s consultancy agreement with SMG (First Cause of Action)
and the unjust enrichment claim relating to ScoresCasino.com
(Second Cause of Action). The parties have exchange documents and
information relating to the remaining causes of action and
depositions were held in April, July, August and November,
2021. The parties do not expect expert disclosures will be
necessary as neither side sees the need for it.
On March 4, 2022, the parties appeared before Judge Stanton
for a status conference where the parties discussed a briefing
schedule for summary judgment motions and the potential for trial
on certain issues.
On April 17, 2021, in an action entitled Jessica Hall v.
Scores Holding Company, Inc., et al, filed in Federal Court,
Southern District, the Plaintiff claims that, while she worked at a
gentlemen’s club located in New York, New York and commonly known
as Scores NY, she was discriminated and retaliated against because
of her race in violation of both Federal and State law. A motion
for default judgment was denied, and Plaintiff was recently granted
permission to file and serve an Amended Complaint. 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 March 18, 2022 the Defendants filed A
First Demand for Interrogatories Upon the Defendant. We have made
demands for discovery from the Plaintiff and motioned for summary
judgement seeking dismissal of all claims, which is pending. The
likelihood of success on the merits is negligible because the
Company, as simply the owner of the “Scores” brand and trademarks,
did not own, operate or otherwise control Scores NY or employ,
manage, or otherwise control Plaintiff’s employment during the
period October 23, 2009 until June 18, 2019.
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.
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.
None.
ITEM
6. EXHIBITS.
* |
Filed
herewith. |
± |
Furnished
herewith. |
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: June 16, 2022
|
By: |
/s/
Robert M. Gans |
|
|
Robert
M. Gans |
|
|
Chief
Executive Officer and Director |
|
|
(Principal
Executive Officer) |
|
|
|
Date: June 16, 2022
|
By: |
/s/
Howard Rosenbluth |
|
|
Howard
Rosenbluth |
|
|
Chief
Financial Officer |
|
|
(Principal
Financial and Accounting Officer) |
Scores (CE) (USOTC:SCRH)
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