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
September 30, 2019, there are nine such clubs operating under the Scores name,
in New York, New York; Chicago, Illinois; Tampa, Florida; New Orleans,
Louisiana; Harvey, Louisiana; Mooresville, North Carolina; Palm Springs,
Florida; Buffalo, New York and Las Vegas, Nevada.
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.
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 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.
Results of Operations
Three Months Ended September 30, 2019 ("the 2019 three-month period")
Compared to Three Months Ended September 30, 2018 ("the 2018 three-month
period").
Revenues:
Revenues decreased to $174,124 for the 2019 three-month period from $234,489 for
the 2018 three-month period.
Our licenses are structured such that we receive royalty payments representing a
percentage of revenues of the licensee, or structured with a flat monthly rate.
The foregoing decrease is a direct result of a decline in royalty revenues. This
decrease is primarily due to the decrease in the number of licensing agreements
for the three months ended September 30, 2018 from twelve agreements to ten
agreements for the three months September 30, 2019.
Other Income
Total other income decreased to $11,092 for the 2019 three-month period from
$567,095 from the 2018 three-month period. Total other income for the 2019 three
month-period included a $5,000 recovery of the $1,300,000 Litigation Settlement
payment paid to us by various licensees, interest expense of $3,098, and other
income of $10,000 representing a recovery of royalty revenue previously written
off as bad debt and collected during the 2019 three-month period. Total other
income for the 2018 three-month period included a $325,660 recovery of the
$1,300,000 Litigation Settlement payment paid to us by various licensees,
interest income of $13,890, and other income of $227,545 representing a recovery
of royalty revenue previously written off as bad debt and collected during the
2018 three-month period.
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General and Administrative Expenses:
General and administrative expenses decreased during the 2019 three-month period
to $159,954 from $209,636 during the 2018 three-month period, which can be
attributed to the decrease in salary, consulting, advertising, and other
expenses. Legal expenses, which are reflected in general and administrative
expenses, attribute to ongoing litigation in the amount of $30,785 for the 2019
three-month period and $59,561 for the 2018 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:
Our net income was $25,262 or $.00 per share for the 2019 three-month period as
compared to net income of $591,934 or $.00 per share for the 2018 three-month
period.
Net income per share data for both the 2019 three-month period and the 2018
three-month period is based on net income available to common shareholders
divided by the weighted average of the number of common shares outstanding.
Nine Months Ended September 30, 2019 (the "2019 nine-month period") Compared to
Nine Months Ended September 30, 2018 (the "2018 nine-month period").
Revenues:
Revenues decreased to $439,971 for the 2019 nine-month period from $629,564 for
the 2018 nine-month period.
Our licenses are structured such that we receive royalty payments representing a
percentage of revenues of the licensee, or structured with a flat monthly rate.
The foregoing decrease is a direct result of a decline in royalty revenues. This
decrease is primarily due to the decrease in the number of licensing agreements
as of September 30, 2018 from twelve agreements to ten agreements as of
September 30, 2019.
Other Income
Total other income increased to $116,269 for the 2019 nine-month period from
total other expense of $698,535 for the 2018 nine-month period. Total other
income for the 2019 nine month-period included a $90,000 recovery of the
$1,300,000 Litigation Settlement payment paid to us by various licensees,
interest expense of $12,731, and other income of $39,000 representing a recovery
of royalty revenue previously written off as bad debt and collected during the
2019 nine-month period. Total other expense for the 2018 nine-month period
included the net payment of $974,340 of the Litigation Settlement, $13,185 of
interest income, and other income of $262,620 representing a recovery of royalty
revenue previously written off as bad debt and collected during the 2018
nine-month period.
General and Administrative Expenses:
General and administrative expenses decreased slightly during the 2019
nine-month period to $480,415 from $567,940 during the 2018 nine-month period,
which can be attributed to the decrease in salary, legal and other expenses.
Legal expenses, which are reflected in general and administrative expenses,
attributable to ongoing litigation amounted to $91,273 for the 2019 nine-month
period and $121,822 for the 2018 nine-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.
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Net Income/(Loss):
Our net income was $75,825 or $.00 per share for the 2019 nine-month period as
compared to net loss of $638,801 or ($.00) per share for the 2018 nine-month
period. This decrease was primarily due to the litigation settlement fees of
$1,300,000 in the 2018 nine-month period.
Net income/(loss) per share data for both the 2019 nine-month period and the
2018 nine-month period is based on net income/(loss) available to common
shareholders divided by the weighted average of the number of common shares
outstanding.
Liquidity and Capital Resources
Going Concern:
Various conditions such as the accumulated losses, significant debt, and the
results of litigation raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Cash:
At September 30, 2019, we had $17,143 in cash and cash equivalents compared to
$7,662 in cash and cash equivalents at December 31, 2018.
Operating Activities:
Net cash provided by operating activities for the 2019 nine-month period was
$90,273 and net cash used by operating activities for the 2018 nine-month period
was $479,244. The increase in cash provided by operating activities is related
to the recognition of ASC 606 revenue and the accrued litigation settlement in
the 2018 nine-month period.
Financing Activities:
Net cash used by financing activities for the 2019 nine-month period was $80,792
and net cash provided by financing activities for the 2018 nine-month period was
$459,139.
As of September 30, 2019 and 2018, we owed $7,500 and $22,500, respectively in
rent to our Westside Realty affiliate. As of September 30, 2019 and 2018, we
owed to our Metropolitan Lumber Hardware and Building Supplies, Inc. affiliate
$45,000 and $67,500, respectively for management fees and $342,178 and $0,
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 September 30, 2019, we had an accumulated
deficit of $(6,818,368). As of September 30, 2019, we had total current assets
of $140,710 and total current liabilities of $248,597 or negative working
capital of $107,887. As of December 31, 2018, we had total current assets of
$73,576 and total current liabilities of $231,496 or negative working capital of
$157,920. The decrease in the amount of negative working capital has been
primarily attributable to the increase in cash from previous non-paying clubs.
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.
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SCORES HOLDING COMPANY, INC. 
