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, 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
Six Months Ended June 30, 2019 ("the 2019 six-month period") Compared to Six
Months Ended June 30, 2018 ("the 2018 six-month period").
Revenues:
Revenues decreased to $183,849 for the 2018 three-month period from $293,866 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 June 30, 2018 from eleven agreements to nine
agreements for the three months June 30, 2019.
Other Income
Total other income increased to $48,701 for the 2019 three-month period from
$24,877 from the 2018 three-month period. Total other income for the 2018 three
month-period included a $40,000 recovery of the $1,300,000 Litigation Settlement
payment paid to us by various licensees, interest expense of $4,299, and other
income of $13,000 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 the $198 of interest expense,
and other income of $25,075 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 during the 2019 three-month period
to $138,731 from $167,053 during the 2019 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 $27,335 for the 2019
three-month period and $45,197 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 Income:
Our net income was $93,519 or $.00 per share for the 2019 three-month period as
compared to net income of $151,190 or $.00 per share for the 2018 three-month
period.
Net loss per share data for both the 2019 six-month period and the 2018
six-month period is based on net loss available to common shareholders divided
by the weighted average of the number of common shares outstanding.
Six Months Ended June 30, 2019 (the "2019 six-month period") Compared to Six
Months Ended June 30, 2018 (the "2018 six-month period").
Revenues:
Revenues decreased to $265,847 for the 2019 three-month period from $395,075 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 June 30, 2018 from eleven agreements to nine agreements as of June 30,
2019.
Other Income
Total other income increased to $105,177 for the 2019 six-month period from
total other expense of $1,265,630 for the 2018 six-month period. 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,
interest expense of $8,823, and other income of $29,000 representing a recovery
of royalty revenue previously written off as bad debt and collected during the
2019 six-month period. Total other expense for the 2018 six-month period
included the $1,300,000 Litigation Settlement payment, $705 of interest expense,
and other income of $35,075 representing a recovery of royalty revenue
previously written off as bad debt and collected during the 2018 six-month
period.
General and Administrative Expenses:
General and administrative expenses decreased slightly during the 2019 six-month
period to $320,461 from $358,304 during the 2018 six-month period, which can be
attributed to the decrease in salary and other expenses. Legal expenses, which
are reflected in general and administrative expenses, attributable to ongoing
litigation amounted to $60,488 for the 2019 six-month period and $62,261 for the
2018 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 income was $50,563 or $.00 per share for the 2019 six-month period as
compared to net loss of $1,230,735 or ($.01) per share for the 2018 six-month
period. This decrease was primarily due to the litigation settlement fees of
$1,300,000 in the 2018 six-month period.
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Net income/(loss) per share data for both the 2019 six-month period and the 2018
six-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 June 30, 2019, we had $51,101 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 six-month period was
$20,363 and net cash provided by operating activities for the 2018 six-month
period was $114,338. The decrease in cash provided by operating activities is
related to the recognition of ASC 606 revenue and the accrued litigation
settlement in the 2018 six-month period.
Financing Activities:
Net cash provided by financing activities for the 2019 six-month period was
$23,076 and net cash provided by financing activities for the 2018 six-month
period was $30,000.
As of June 30, 2019 and 2018, we owed $22,500 and $15,000, respectively in rent
to our Westside Realty affiliate. As of June 30, 2019 and 2018, we owed to our
Metropolitan Lumber Hardware and Building Supplies, Inc. affiliate $67,500 and
$45,000, respectively for management fees and $408,546 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 June 30, 2019, we had an accumulated
deficit of $(6,843,630). As of June 30, 2019, we had total current assets of
$183,681 and total current liabilities of $310,462 or negative working capital
of $126,781. 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. 