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.
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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 (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.
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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.
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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.
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