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 March 31, 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 is owned by Mark Yackow who 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 the New York Club.

As a result of the COVID-19 virus, during the first 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 March 31, 2019 ("the 2019 three-month period") Compared to Three Months Ended March 31, 2018 ("the 2018 three-month period").

Revenues:

Revenues decreased to $82,298 for the 2019 three-month period from $101,209 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 as of March 31, 2018 from eleven agreements to nine agreements as of March 31, 2019.

Other Income

Total other income increased to $56,476 for the 2019 three-month period from total other expense of $1,290,507 for the 2018 three-month period. Total other income for the 2019 three month-period included a $45,000 recovery of the $1,300,000 Litigation Settlement payment paid to us by various licensees, interest expense of $4,524, and other income of $16,000 representing a recovery of royalty revenue previously written off as bad debt and collected during the 2019 three-month period. Total other expense for the 2018 three-month period included the $1,300,000 Litigation Settlement payment, $507 of interest expense, and other income of $10,000 representing a recovery of royalty revenue previously written off as bad debt and collected during the 2018 three-month period.

General and Administrative Expenses:

General and administrative expenses decreased slightly during the 2019 three-month period to $181,730 from $191,251 during the 2018 three-month period, which can be attributed to the decrease in salary and other expenses offset by the increase in legal expenses. Legal expenses, which are reflected in general and administrative expenses, attributable to ongoing litigation amounted to $33,153 for the 2019 three-month period and $17,064 for the 2018 three-month period.



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Provision for Income Taxes

The provision for income taxes relates primarily to the greater of average assets and capital taxable income. The average assets and capital are not impacted by net operating losses.

Net Loss:

Our net loss was $42,956 or ($.00) per share for the 2019 three-month period as compared to net loss of $1,381,925 or ($.01) per share for the 2018 three-month period. This decrease was primarily due to the litigation settlement fees of $1,300,000 in the 2018 three-month period.

Net loss per share data for both the 2019 three-month period and the 2018 three-month period is based on net loss available to common shareholders divided by the weighted average of the number of common shares outstanding.

Liquidity and Capital Resources

Going Concern:

Various conditions such as the accumulated losses, 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 March 31, 2019, we had $25,453 in cash and cash equivalents compared to $7,662 in cash and cash equivalents at December 31, 2018.

Operating Activities:

Net cash used in operating activities for the 2019 three-month period was $16,227 and net cash used in operating activities for the 2018 three-month period was $37,688. The decrease in cash used in operating activities is related to the recognition of ASC 606 revenue and the accrued litigation settlement in the 2018 three-month period.

Financing Activities:

Net cash provided by financing activities for the 2019 three-month period was $34,018 and net cash provided by financing activities for the 2018 three-month period was $34,452.

As of March 31, 2019 and 2018, we owed $15,000 and $15,000, respectively in rent to our Westside Realty affiliate. As of March 31, 2019 and 2018, we owed to our Metropolitan Lumber Hardware and Building Supplies, Inc. affiliate $90,000 and $67,500, respectively for management fees and $404,488 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 March 31, 2019, we had an accumulated deficit of $(6,937,149). As of March 31, 2019, we had total current assets of $100,799 and total current liabilities of $325,157 or negative working capital of $224,358. As of December 31, 2018, we had total current assets of $73,576 and total current liabilities of $231,496 or negative working capital of $157,920. The decrease in the amount of working capital has been primarily attributable to the increase in payables and decrease in cash from 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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