Attached files
| file | filename |
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| EX-10.16 - EXHIBIT 10.16 - SCORES HOLDING CO INC | v461091_ex10-16.htm |
| EX-32.2 - EXHIBIT 32.2 - SCORES HOLDING CO INC | v461091_ex32-2.htm |
| EX-32.1 - EXHIBIT 32.1 - SCORES HOLDING CO INC | v461091_ex32-1.htm |
| EX-31.2 - EXHIBIT 31.2 - SCORES HOLDING CO INC | v461091_ex31-2.htm |
| EX-31.1 - EXHIBIT 31.1 - SCORES HOLDING CO INC | v461091_ex31-1.htm |
| EX-21 - EXHIBIT 21 - SCORES HOLDING CO INC | v461091_ex21.htm |
| EX-10.18 - EXHIBIT 10.18 - SCORES HOLDING CO INC | v461091_ex10-18.htm |
| EX-10.17 - EXHIBIT 10.17 - SCORES HOLDING CO INC | v461091_ex10-17.htm |
| EX-10.15 - EXHIBIT 10.15 - SCORES HOLDING CO INC | v461091_ex10-15.htm |
| EX-10.14 - EXHIBIT 10.14 - SCORES HOLDING CO INC | v461091_ex10-14.htm |
| EX-10.13 - EXHIBIT 10.13 - SCORES HOLDING CO INC | v461091_ex10-13.htm |
| EX-10.10.1 - EXHIBIT 10.10.1 - SCORES HOLDING CO INC | v461091_ex10-x10x1.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For fiscal year ended: December 31, 2016
OR
| ¨ | TRANSITION REPORT UNDER 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 | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 533-535 West 27th Street | ||
| New York, NY | 10001 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (212) 246-9090
Securities registered under Section 12(b) of the Exchange Act:
| Title of each class | Name of exchange on which registered | |
| N/A | N/A |
Securities registered under Section 12(g) of the Exchange Act:
| Common Stock, $0.001 par value |
| (Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ |
| Non-accelerated filer ¨ | Smaller reporting company x |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
On September 30, 2016, the last business day of the registrant’s most recently completed third fiscal quarter, 76,285,894 shares of its common stock, $0.001 par value per share (its only class of voting or non-voting common equity) were held by non-affiliates of the registrant. The market value of those shares was $480,601, based on the last sale price of $0.0063 per share of the common stock on that date. Shares of common stock held by each officer and director and by each shareowner affiliated with a director have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of officer or affiliate status is not necessarily a conclusive determination for other purposes.
As of March 3, 2017, there were 165,186,144 shares of the registrant's common stock, par value $0.001, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
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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 sections “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”. 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.
Introduction: When we use the terms “Scores,” the “Company,” “we,” “us” and “our,” we mean Scores Holding Company, Inc. and all entities owned by us, except where it is clear that the term means only the parent company.
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. There are twenty-one such clubs currently operating under the Scores name, in New York, New York; Baltimore, Maryland; Chicago, Illinois; Tampa, Florida; New Orleans, Louisiana; Savannah, Georgia; Jacksonville, Florida; Houston, Texas; Harvey, Louisiana; Gary, Indiana; Mooresville, North Carolina; Greenville, South Carolina; Columbus, Ohio; Queens, New York; Palm Springs, Florida; and Raleigh, North Carolina; Providence, Rhode Island; Buffalo, New York; Tonawanda, New York; New Haven, Connecticut; and Manitowoc, Wisconsin. Atlantic City, New Jersey is currently closed and looking for a new location in the same area. Denver, Colorado has terminated its agreement during the third quarter 2016. A club in Detroit, Michigan is no longer operating and is in default and breach of contract (See the Notes to the Consolidated Financial Statements - Note 7 for more information). Clubs in Phoenix, Arizona, Atlanta, Georgia and Las Vegas, Nevada are not yet operating.
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Our trademarks and copyrights surrounding the Scores trade name are critical to the success and potential growth of our business. On December 9, 2013, the Company entered into a license agreement with its subsidiary, Scores Licensing Corp. (“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.
History and Development of our Business
On March 31, 2003, pursuant to the Amended and Restated Master License Agreement (the “MLA”) by and between us and our former affiliate, Entertainment Management Services, Inc. (“EMS”), an entity owned by two of our former directors and employees, we granted EMS an exclusive, worldwide renewable 20-year license in our property to sublicense the Scores trade name to nightclubs (the “Licensing Rights”). Under the MLA, EMS was required to pay us 100% of the royalties EMS received from the formerly affiliated clubs (defined below) and 50% of the royalties received from non-affiliated clubs (the “Royalty Rights”). These clubs had license agreements with EMS pursuant to which they typically paid EMS approximately 4.99% of their gross revenues from operations, including the sale of merchandise. We depended on these royalties to operate our business and as our principal source of revenue.
On January 27, 2009 (as further discussed below under “Nightclubs Currently Licensing our Scores Brand”), we terminated the MLA with EMS and EMS transferred to us all of the Licensing Rights and Royalty Rights. Since termination of the MLA, our intellectual property is licensed through its subsidiary, SLC, to the three remaining clubs that previously had been sublicensing our intellectual property from EMS, and, thus, as of January 27, 2009, we are receiving 100% of the royalty payments made by these clubs rather than the 50% we were entitled to under the MLA.
Until January 27, 2009, we were under common control with two previously existing nightclubs in New York, New York (referenced herein as “Scores East” and “Scores West”) which were owned, respectively, by 333 East 60th Street, Inc. (“333”), and Go West Entertainment, Inc. (“Go West”). EMS is also owned by 333. Through EMS, we had sublicense agreements with each of Scores East and Scores West pursuant to which they were entitled to use the Scores intellectual property. Throughout this report, we refer to Scores East and Scores West as our “formerly affiliated clubs.”
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On January 27, 2009, I.M. Operating LLC (“IMO”) entered into a licensing agreement with us and commenced operations of a new club in New York using the Scores brand name “Scores New York” in May, 2009 (“Scores New York”). The majority owner of IMO is Robert M. Gans (72%), our President and Chief Executive Officer and a member of our Board of Directors as well as our majority shareholder. In addition, Howard Rosenbluth, the Company’s Secretary, Treasurer and a Director, owns 2% of IMO.
Throughout this report, we refer to each of Scores New York and Scores Atlantic City (as defined below) as our “affiliated club” because of the common ownership by Mr. Gans. All of our clubs, with the exception of Scores New York and Scores Atlantic City (see discussion below under “Nightclubs Currently Licensing our Scores Brand”), are referred to in this report as “non-affiliated clubs” or as “licensees” (or “sublicensees,” as applicable), a term that may include the formerly affiliated clubs or the New York Club or Scores Atlantic City when the context requires.
As further discussed below under “Change in our Ownership,” on January 27, 2009, Mitchell’s East LLC, a New York limited liability company wholly-owned by Robert M. Gans, acquired a majority interest in our outstanding capital stock.
Change in our Ownership
On January 27, 2009, pursuant to a stock purchase agreement (the “SPA”), Mitchell’s East LLC (“Buyer”), purchased an aggregate of 88,900,230 shares (the “Owned Shares”) of our common stock beneficially owned by Richard Goldring and Elliot Osher (collectively the “Share Sellers”), as well as any rights Harvey Osher (the Share Sellers and Harvey Osher, together, the “Sellers”) may have in 13,886,059 shares of our common stock (the “Decedent Owned Shares”) currently held of record by the estate of William Osher, deceased, and any rights the Sellers may have in an additional 2,400,001 shares of our common stock (the “Expectancy Shares”). Under the terms of the SPA, Harvey Osher is to deliver to the Buyer the Decedent Owned Shares that he may receive and the Sellers are to deliver to the Buyer any shares of the Company underlying the Expectancy Shares that any such Seller may receive. Additionally, pursuant to the SPA, each of the Sellers granted to Buyer an irrevocable proxy enabling Buyer to act as his proxy with respect to any shares underlying the Decedent Owned Shares and the Expectancy Shares, as applicable.
The Owned Shares represent approximately fifty four percent (54%) of our outstanding capital stock and the Owned Shares together with the Decedent Owned Shares represent approximately sixty two percent (62%) of our outstanding capital stock.
Changes in our Management
On August 6, 2010, we appointed Robert M. Gans as our President and Chief Executive Officer and as a member of our Board of Directors. Robert Gans and Martin Gans, one of our existing Board members, are brothers. Also on August 6, 2010, we appointed Howard Rosenbluth as our Treasurer and Chief Financial Officer. Mr. Rosenbluth is also a director.
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In May 2009, Stephen J. Sabbeth became our director of acquisitions and licensing.
Nightclubs Currently Licensing our Scores Brand
Pursuant to the Assignment Agreement between us and EMS dated January 27, 2009, payments due to EMS under existing licenses with non-affiliated clubs were assigned to us. Since this Assignment Agreement, we have retained 100% of the royalty payments from each of these clubs.
In 2003, EMS licensed the use of the “Scores Chicago” name to Stone Park Entertainment, Inc. for its club in Chicago, Illinois. The license is for a term of five years, with five successive five year renewal terms.
In 2004, EMS licensed the use of the “Scores Baltimore” name to Club 2000 Eastern Avenue, Inc. for its nightclub in Baltimore, The license is for a term of five years, with five successive five year renewal terms.
In April 2007, EMS licensed the use of the “Scores New Orleans” name to Silver Bourbon, Inc. for a night club in New Orleans, Louisiana. The license is for a term of five years, with five successive five year renewal terms.
On January 27, 2009, we entered into a licensing agreement with IMO for the use of the Scores brand name “Scores New York.” IMO is owned in the majority by Robert M. Gans (72%) who is also our majority shareholder. In addition, Howard Rosenbluth, the Company’s Secretary, Treasurer and a Director, owns 2%. Royalties payable to us under this license agreement have been set at 3% of gross revenues of Scores New York. Scores New York commenced operations in May 2009 and has accounted for 0% of our total royalty revenue during 2016 and 7% of our total revenue during 2015. IMO owes the Company a royalty receivable of $144,698 and $144,698, which has been fully reserved as of December 31, 2016 and December 31, 2015, respectively. The building occupied by IMO is the same as that of the former Scores West nightclub, 533-535 West 27th Street, New York, NY (the “West 27th Street Building”). The West 27th Street Building is owned by Westside Realty of New York (“WSR”), which is majority-owned by Robert M. Gans (80%). The Company also leases office space directly from WSR (see “Item 2. Properties” below).
On September 30, 2010, we entered into a licensing agreement with Tampa Food & Entertainment, Inc. for the use of the name “Scores Tampa.” Upon signing the contract, we received a non-refundable fee. The license is for a term of five years, with five successive five year renewal terms.
On December 26, 2012, we entered into a trademark license agreement with Norm A Properties LLC, granting it an exclusive license for the use of certain Scores trademarks in its night club/restaurant in Detroit, Michigan. The license is for a term of five years, with five successive five year renewal terms. During the first five years of the agreement, we are entitled to receive a fixed fee of $10,000 per month. We will be required to designate a portion of that fee for advertising Scores Detroit. Pursuant to the written agreement, we also granted the licensee a non-exclusive license to sell certain licensed products bearing our trademarks. See “Item 3. Legal Proceedings” for information regarding litigations involving this licensee.
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Pursuant to an oral arrangement, in September 2013 we 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. This oral arrangement was memorialized in a written license agreement between SLC and Star Light effective December 9, 2013. Royalties under this license are payable at the rate of $10,000 per month, commencing in April 2014. The license is for a term of five years, with five successive five-year renewal terms. Pursuant to the written agreement, SLC also granted Star Light a non-exclusive, non-transferable license to sell certain licensed products bearing our trademarks, which Starlight will purchase from us or our affiliates at our cost plus 25%. Robert M. Gans, our President, Chief Executive Officer, majority shareholder and a director, is the majority owner (92%) of Star Light and Howard Rosenbluth, our Secretary, Treasurer and a director, owns 1%. Star Light owes the Company a royalty receivable of $130,000 as of December 31, 2016, which has been fully reserved, and $130,000 as of December 31, 2015, respectively. Star Light accounted for 0% royalty revenue in 2016 and 10% of royalty revenue in 2015.
On February 10, 2014, we (through our subsidiary SLC) entered into a trademark license agreement with TWDDD, Inc., granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Mooresville, North Carolina. The license is for a term of five years, with five successive five year renewal terms. Pursuant to the written agreement, SLC also granted the licensee a non-exclusive, non-transferable license to sell certain licensed products bearing our trademarks. As discussed in our Notes to the Consolidated Financial Statements because of the tenuous nature of the gentlemen’s club industry in general and the resulting financial instability of this licensee in particular the Company has implemented a policy of recognizing revenue for this specific entity as it is received rather than when it is earned.
On July 1, 2014, we (through our subsidiary SLC) entered into a trademark license agreement with Manhattan Fashions LLC, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Harvey, Louisiana. The license is for a term of five years, with five successive five year renewal terms. Pursuant to the written agreement, SLC also granted the licensee a non-exclusive, non-transferable license to sell certain licensed products bearing our trademarks.
On May 14, 2014, we (through our subsidiary SLC) entered into a trademark license agreement with Parallax Management Corporation, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Gary, Indiana. The license is for a term of five years, with five successive five year renewal terms. Pursuant to the written agreement, SLC also granted the licensee a non-exclusive, non-transferable license to sell certain licensed products bearing our trademarks.
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On May 2, 2014, we (through our subsidiary SLC) entered into a trademark license agreement with Houston KP LLC, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Houston, Texas. The license is for a term of five years, with five successive five year renewal terms. Pursuant to the written agreement, SLC also granted the licensee a non-exclusive, non-transferable license to sell certain licensed products bearing our trademarks. As discussed in our Notes to the Consolidated Financial Statements, because of the tenuous nature of the gentlemen’s club industry in general and the resulting financial instability of this licensee in particular, the Company has implemented a policy of recognizing revenue for this specific entity as it is received rather than when it is earned.
On July 18, 2013 we entered into a trademark license agreement with Southeast Showclubs LLC, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurants in Palm Beach, Florida, Jacksonville, Florida and Savannah, Georgia. The license is for a term of five years with five successive five year renewal terms. Since executing this agreement the licensee has not honored its terms and conditions and is in default. On November 24, 2014 a claim against them was begun to collect royalties due in the amount of $147,000.00 and to terminate the agreement. As of April 17, 2015 the parties settled this matter. Pursuant to the settlement, defendants agreed to pay us $150,000, payable in 13 installments. The first installment of $50,000 was paid upon finalization of the settlement, with 12 subsequent monthly payments of $8,333.33 commencing on May 1, 2015. In connection with the settlement, the parties entered into an amendment of the July 18, 2013 License Agreement between them. The amendment, among other things, (i) removes the Palm Beach club from the license agreement, (ii) provides that the license agreement shall only apply to the Jacksonville and Savannah nightclubs, (iii) requires the licensees to pay us a fixed royalty of $5,000 per month for each club, commencing May 1, 2015, and (iv) requires that the Savannah nightclub and any related websites utilize the name “Scores Presents.” As of December 31, 2016, the defendants have paid this settlement in full. As discussed in our Notes to the Consolidated Financial Statements, because of the tenuous nature of the gentlemen’s club industry in general and the resulting financial instability of this licensee in particular, the Company has implemented a policy of recognizing revenue for this specific entity as it is received rather than when it is earned.
On April 20, 2015, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with High Five Management Inc., granting it an exclusive, non-transferable license for the use of certain Scores Presents trademarks in its night club/restaurant in Greenville, South Carolina. The license is for a term of five years, with five successive five year renewal terms. Pursuant to the agreement, SLC also granted the licensee a non-exclusive, non-transferable license to sell certain licensed products bearing our trademarks
On June 17, 2015, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with the Cadillac Lounge LLC, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Providence, Rhode Island. The license is for a term of five years, with two successive five year renewal terms. Pursuant to the agreement, SLC also granted the licensee a non-exclusive, non-transferable license to sell certain licensed products bearing our trademarks.
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Effective June 15, 2015, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with CG Consulting LLC, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Columbus, Ohio. The license is for a term of five years, with five successive five year renewal terms.
Effective July 24, 2015, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with Funn House Productions LLC, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in New Haven, Connecticut. The license is for a term of five years, with five successive five year renewal terms.
Effective August 31, 2015, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with Palm Springs Grill LLC, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Palm Springs, Florida. The license is for a term of five years, with five successive five year renewal terms.
On November 10, 2015, we (through our subsidiary SLC) entered into a trademark license agreement with CJ NYC Inc., granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Queens, New York. The license is for a term of five years, with five successive five year renewal terms. See “Item 3. Legal Proceedings” for information regarding our legal proceeding against this licensee.
Effective December 31, 2015, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with 5111 Genessee St Inc., granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Buffalo, New York. The license is for a term of five years, with five successive five year renewal terms.
Effective December 31, 2015, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with Mustang Sallys Spirit and Grill, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Tonawanda, New York. The license is for a term of five years, with five successive five year renewal terms.
Effective March 22, 2016, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with Bonkers Space Coast Inc., granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Manitowoc, Wisconsin. The license is for a term of five years, with five successive five year renewal terms.
Effective February 17, 2016, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with Cary Golf & Travel, Inc, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Raleigh, North Carolina. The license is for a term of five years, with five successive five year renewal terms.
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Effective May 19, 2016, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with New 4125 LLC, granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Phoenix, Arizona. The license is for a term of two years, with an additional two year renewal term.
Effective November 28, 2016, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with1715 Northside Drive, Inc., granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Atlanta, GA. The license is for a term of five years, with five successive five year renewal terms.
Effective December 2, 2016, we (through our subsidiary Scores Licensing Corp.) entered into a trademark license agreement with Southern Highland Centerfolds Inc. granting it an exclusive, non-transferable license for the use of certain Scores trademarks in its night club/restaurant in Las Vegas, Nevada. The license is for a term of five years, with five successive five year renewal terms.
Scoreslive.com
On January 24, 2006, we entered into a licensing agreement with AYA International, Inc. (“AYA”) granting AYA the right to use our trademarks in connection with its online video chat website, “Scoreslive.com.” Our agreement with AYA provides for royalty payments to be made directly to us at the rate of 4.99% of weekly gross revenues from all revenue sources within the AYA website. The license continues for as long as the website is operational. Scoreslive.com piloted in January 2007. The Company began accruing royalties under the Scoreslive.com license in the second quarter of 2012. On December 21, 2009, AYA transferred all of its rights in Scoreslive.com and in its licensing agreement with us to Swan Media Group, Inc. (“SMG”), a newly formed New York corporation whose majority owner (80%) is Robert M. Gans. The Scoreslive.com license accounted for 0% and 1% of our total revenues in 2016 and 2015, respectively. The Company is owed $122,109 in unpaid royalties and expenses as of December 31, 2016 and December 31, 2015, respectively, which is fully reserved.
Competition
The adult nightclub entertainment business is highly competitive with respect to price, service, location and professionalism of its entertainment. Sublicensed clubs will compete with many locally-owned adult nightclubs. It is our belief, however, that only a few of these nightclubs have names that enjoy recognition and status equal to the Scores brand. For example, there are approximately 25 adult entertainment cabaret night clubs within the five boroughs of New York City; approximately six upscale located in the borough of Manhattan. We believe only three (Rick’s Cabaret, Hustler and Penthouse) provide the most competitive adult entertainment experience to that of our brand and our New York affiliate. Other localities where our “Scores” brand is licensed have similar competitive environments. Penthouse is a related-party competitor due to the common control and ownership by our President and Chief Executive Officer, Robert M. Gans, who owns 83% of Penthouse.
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We believe the combination of our name recognition and our distinctive entertainment environment allows our licensees to effectively compete within the industry, although we cannot assure anyone that this will prove to be the case. The success of our licensees depends upon their ability to retain quality entertainers, employees and to provide customer service to their customers. The inability to sustain quality entertainers, employees and customer service could have a material or adverse impact on the ability of our licensees to compete within the industry.
Competition among online adult entertainment providers is intense with respect to both content and subscribers’ capital. SMG’s competition for its Scoreslive.com internet site varies in both the type and quality of offerings, but consists primarily of other premium pay services. The availability of, and price pressure from, more explicit content on the Internet, frequently offered for free, also presents a significant competitive challenge to SMG. The Internet is highly competitive, and Scoreslive.com will compete for visitors, subscribers, shoppers and advertisers. We believe that the primary competitive factors affecting SMG’s Internet operations include brand recognition, the quality of content and products, pricing, ease of use and sales and marketing efforts. We believe that SMG and Scoreslive.com have the advantage of leveraging the power of our Scores brand across multiple media platforms.
Employees
As of December 31, 2016 we had two employees.
Government Regulation
Our licensees are subject to a variety of governmental regulations depending upon the laws of the jurisdictions in which they operate. The most significant governmental regulations are described below.
Liquor Licenses
Our licensees are subject to state and local licensing regulation of the sale of alcoholic beverages. We expect licensees to obtain and maintain appropriate licenses allowing them to sell liquor, beer and wine. Obtaining a liquor license may be a time consuming procedure. In New York, for example, a licensee must make an application to the New York State Liquor Authority (the “NYSLA”) for a liquor license regarding its proposed nightclub. The NYSLA has the authority, in its discretion, to issue or deny such a license request. The NYSLA typically requires local community board approval in connection with such grants. Approval is usually granted or denied within 90-120 days from the initial application date, but can take longer in certain circumstances. Other jurisdictions have their own procedures.
We cannot offer any assurance that our licensees will obtain liquor licenses or that, once obtained, they will maintain their liquor licenses or be able to assign or transfer them if necessary. A license to sell alcoholic beverages in many cases requires annual renewal and may be revoked or suspended for cause, including any regulatory violation by the nightclub operating the license or its employees. Royalties for our business could decrease, if one or more of our licensees fails to maintain its liquor license.
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"Cabaret" Licenses
Although not a requirement, our licensees typically request a cabaret license in connection with the operation of their nightclubs. Cabaret licenses are not a requirement in all states; however, some states mandate that such licenses be obtained prior to the operation of an adult nightclub. For example, one of our formerly affiliated clubs was granted a cabaret license for a nightclub by the City of New York’s Department of Consumer Affairs (the "DCA"). We believe our licensees comply with all regulatory laws regarding cabaret or an adult entertainment license; however, there is no assurance that any of their licenses will remain effective or that they could be assigned or transferred if necessary. If one or more of our licensees failed to maintain a required license, this could have a material or adverse effect on our cash flow and profitability.
Zoning Restrictions
Adult entertainment establishments must comply with local zoning restrictions which can be stringent. For example, zoning regulations in the City of New York mandate that an adult entertainment business operate in an area zoned as residential, or in areas that are commercially zoned, and devotes more than either 40% or more of its space available to customers or 10,000 square feet for adult entertainment activities. Although we expect our licensees to operate within "zoned" areas, we cannot make any assurances that local zoning regulations will remain constant, or that if changed, our licensees will be able to continue operations under our Scores brand name trademark. If zoning regulations were to restrict the operations of one or more of our licensees, this could have a material or adverse effect on our cash flow and profitability.
We hold trademark and/or service mark registrations for the following trademarks in the United States: SCORES (Stylized) trademark, SCORES NEW YORK (Stylized), and SCORES SHOWROOM and Design. Such registrations were granted on various dates and are subject to renewal on various dates. Some of these trademarks are also registered in other jurisdictions outside of the United States. Applications have also been filed in the United States for other trademarks and/or service marks incorporating the SCORES word trademark, as well as others. It is too early to know whether registrations will issue for these pending applications.
Our trademarks and service marks provide significant value to us and are an important factor in our business. We believe that our trademarks and service marks do not infringe the intellectual property rights of any third parties.
Not applicable.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
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As of July 1, 2008, WSR, the owner of the West 27th Street Building, became the new lessor of our 700 square feet office occupancy at that location. Since April 1, 2009, the monthly rent, which includes overhead cost, has been $2,500. Robert M. Gans, the Company’s President, Chief Executive Officer, and majority shareholder, is the majority owner (80%) of WSR. Rent for the property was fully paid as of December 31, 2016 and December 31, 2015, respectively.
On February 19, 2015 we, together with our subsidiary SLC, filed an action against Norm A Properties LLC in the Supreme Court of the State of New York for the County of New York. Defendant utilizes the “Scores” name and trademark in connection with its ownership and operation of an adult entertainment club in Detroit, Michigan. In this action we sought damages for breach of contract in the amount of $110,000 plus interest, and the issuance of a permanent injunction prohibiting defendant from using the “Scores” name and trademark with respect to the Detroit club and all websites controlled by defendant. The defendant failed to appear and on August 31, 2015, the court entered a judgment in favor of the Company (which order was amended on October 17, 2015), awarding a total of $117,646.92 to the Company. In addition, the court ordered defendant to render an accounting to the Company and enjoined the defendant from using the “Scores” name and trademarks.
The Company was unable to collect on the judgement as the defendant, Norm. A. Properties, had no assets that could be found. The Company therefore filed another action in the US District Court in the Southern District of New York seeking to recover the unpaid royalties from Scores Detroit Inc., the company which is believed to have operated Scores Detroit, and Majed Mike Dabish, its principal. On June 29, 2016 the court transferred the case to the US District Court for the Eastern District of Michigan for further proceedings. The parties are currently discussing a possible settlement of this matter.
On March 14, 2016 three individuals purporting to be adult entertainers who performed at Scores New York commenced a lawsuit in the SDNY on behalf of themselves and a putative collective and class. The lawsuit is captioned Taylor et al. v. I.M. Operating LLC, et al., Case No. 16cv1909 (ALC) (S.D.N.Y.) (the “Action”). The defendants in the Action, in addition to us, included IMO, Robert Gans and Mark Yackow. The Action alleged violation of federal and state wage and hour laws, including, inter alia, failure to pay minimum wage, overtime, spread of hours, uniform violations, and failure to provide wage notices and statements, arising from an alleged misclassification of the plaintiffs as independent contractors. The Action was withdrawn by Notice of Voluntary Dismissal, So Ordered on May 11, 2016, in favor of the Arbitrations discussed below.
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On April 3, 2016, fifty (50) individuals purporting to be professional models and/or actresses, 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, “Defendants”), alleging images of the 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 further alleges 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 asserts 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; defamation; as well as various common law torts, namely negligence, conversion, unjust enrichment and quantum meruit. The lawsuit seeks unspecified compensatory damages, punitive damages, as well as attorneys’ fees and costs. The lawsuit also seeks an injunction permanently enjoining the use of the individuals’ images to promote, via any medium, any of the clubs. On January 5, 2017, the Court issued an Order granting in part, and denying in part, the Defendants’ motion to dismiss the complaint. Following the issuance of this Order, the plaintiffs filed an amended complaint and the Defendant filed an answer responding to same. The case is presently in the discovery phase. The Company, along with all of the Defendants, intends to vigorously defend themselves against the claims asserted against them in this lawsuit.
On or about July 22, 2016 three individuals, Courtney Taylor, Heidi Swensen and Trace Byers (collectively the “Claimants”) who formerly performed as adult entertainers at Scores New York, owned in its entirety by I.M. Operating LLC, each brought individual and separate arbitrations (collectively, the “Arbitrations”) against Scores NY as well as, among others, the Company. The American Arbitration Association is administering the Taylor, Swensen and Byers Arbitrations, identified by case numbers 01-16-0003-1171, 01-16-0003-1170 and 01-16-0003-1169, respectively. The Claimants allege that they were misclassified as independent contractors, that they should have been classified as employees, and as a result the respondents, including the Company, violated, inter alia, applicable federal and state wage and hour laws. The Arbitrations seek unspecified compensatory damages, liquidated damages, as well as attorneys’ fees and costs.
Discovery has been exchanged in each of the Arbitrations but depositions have not been taken.
Given that the Arbitrations are in their preliminary stages, it is not possible at this juncture to ascertain the likelihood of an unfavorable outcome.
The parties have exchanged written discovery. The Arbitrations have stayed to allow the parties to pursue mediation, which is currently scheduled for May 3, 2017.
The Arbitrations follow the filing and subsequent voluntary dismissal of the Action, as discussed above.
On or about December 20, 2016 three individuals, Stacey Scott, Angelica Andrade and Dislenia Munoz (“Claimants”), who formerly performed as adult entertainers at Scores New York, owned in its entirety by I.M. Operating LLC, each brought individual and separate arbitrations against Scores NY as well as, among others, the Company (the “Arbitrations”). The American Arbitration Association assigned the Scott, Andrade and Munoz_Arbitrations case numbers 01-16-0005-5566, 01-16-0005-5565 and 01-16-0005-5563, respectively. The Claimants allege that they were misclassified as independent contractors, that they should have been classified as employees, and as a result the respondents, including the Company, violated, inter alia, applicable federal and state wage and hour laws. The Arbitrations sought unspecified compensatory damages, liquidated damages, as well as attorneys’ fees and costs. The Company intends to vigorously defend against the claims asserted against it in the Arbitrations. Given that the Arbitrations are in their preliminary stages, it is not possible at this juncture to ascertain the likelihood of an unfavorable ruling.
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On January 3, 2017, we, together with our 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 we 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, we filled a motion for judgment by default. The court has scheduled a hearing on the motion for April 5, 2017.
On January 31, 2017 we, together with our 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 we 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.
On or about February 22, 2017, Natalia Titova (“Claimant”), who formerly performed as an adult entertainer at Scores New York, owned in its entirety by I.M. Operating LLC, brought an arbitration (the “Arbitration”) against, among others, the Company. The American Arbitration Association assigned the Arbitration Case No. 01-17-0001-1232. The Claimant alleges that she was misclassified as an independent contractor, that she should have been classified as an employee, and as a result the Respondents violated, among other things, applicable federal and state wage and hour laws. The Arbitration seeks unspecified compensatory damages, liquidated damages, as well as attorneys’ fees and costs. The Company intends to vigorously defend against the claims asserted against it in the Arbitrations. Given that the Arbitrations are in their preliminary stages, it is not possible at this juncture to ascertain the likelihood of an unfavorable ruling.
There are no other material legal proceedings pending to which we or any of our property are subject, nor to our knowledge are any such proceedings threatened.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information.
Our common stock has been quoted on OTC Pink, a marketplace under the OTC Markets Group (formerly known as Pink OTC Markets and Pink Sheets) under the symbol “SCRH” since 2004. The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices per share of our common stock, as reported by Nasdaq on its website, www.nasdaq.com. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
| Quarter Ended | High Bid | Low Bid | ||||||
| March 31, 2015 | .025 | .0119 | ||||||
| June 30, 2015 | .0276 | .0151 | ||||||
| September 30, 2015 | .05 | .013 | ||||||
| December 31, 2015 | .039 | .015 | ||||||
| March 31, 2016 | .0208 | .014 | ||||||
| June 30, 2016 | .014 | .005 | ||||||
| September 30, 2016 | .01 | .004 | ||||||
| December 31, 2016 | .009 | .0055 | ||||||
Holders
As of March 3, 2017, there were 578 record holders of our common stock.
Dividends
We have never declared any cash dividends with respect to our common stock. Future payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock, we presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock.
Recent Sales of Unregistered Securities
None.
Securities Authorized For Issuance under Equity Compensation Plans
The following table sets forth information about our equity compensation plans as of December 31, 2016.
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Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by security holders | 0 | $ | — | 0 | ||||||||
| Equity compensation plans not approved by security holders | 0 | $ | — | — | ||||||||
| Total | 0 | $ | — | — | ||||||||
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations:
The following is a discussion of the results of operation for the year ended December 31, 2016 compared to the year ended December 31, 2015.
Revenues:
Revenues decreased to $1,090,594 for the year ended December 31, 2016 from $1,181,564 for the year ended December 31, 2015. The decrease was primarily attributable to 2 clubs not paying royalties. Our licenses are structured such that we receive either a percentage of revenues from our licensees or a flat monthly rate.
Operating Expenses:
Operating expenses for the year ended December 31, 2016 and 2015 were $1,335,625 and $1,050,196, respectively. These expenses were directly related to the maintenance of the corporate entity and regulatory filing of periodic reports under the Securities Exchange Act of 1934 (the “Exchange Act”). To comply with the requirements of the Sarbanes Oxley Act, we expect these regulatory costs to increase in future years. Virtually all of the 21% increase in operating expenses can be attributed to our business development, legal costs, write offs of bad debt and other executive administrative costs that changed modestly during the year ended December 31, 2016 as compared with 2015, and are expected to increase in future periods due to the expansion of our brand into emerging markets.
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Provision for Income Taxes:
The provision for state income taxes relates primarily to average assets and capital which were not impacted by net operating losses.
Net income (loss) per share:
Our net loss for the year ended December 31, 2016 was ($350,644) or ($.001) per share versus a net income of $83,837 or $.001 per share for the year ended December 31,2015. Our net loss increased in 2016 by $324,828, primarily due to an increase in management services and payroll related to the new clubs opening and recording a reserve for bad debts. This change from the 2016 period to the 2015 period is based on net income available to common shareholders divided by the weighted average of the common shares outstanding.
Liquidity and Capital Resources
At December 31, 2016, we had $228,842 in cash and cash equivalents compared to $515,994 in cash and cash equivalents at December 31, 2015.
On February 28, 2007, our then President, Chief Executive Officer, Director and majority stockholder, Richard Goldring resigned from each of his positions, and terminated his employment with us. Under the terms of his employment agreement dated March 31, 2003, we were obligated to pay Mr. Goldring a $1 million termination fee (the “Termination Fee”). Because of our lack of cash and other business related reasons, we did not pay Mr. Goldring the Termination Fee. On May 10, 2009 Mr. Goldring assigned his right, title and interest in and to the Termination Fee to Robert M. Gans.
We have incurred mostly 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 December 31, 2016 we had an accumulated deficit of $(6,065,153). As of December 31, 2016, we had total current assets of $287,050 and total current liabilities of $77,483 or working capital of $209,567. As of December 31, 2015, we had total current assets of $807,550 and total current liabilities of $387,909 or working capital of $419,641. The decrease in the amount of working capital has been primarily attributable to the decrease in our accounts payable and accrued expenses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our audited consolidated financial statements as of, and for the years ended, December 31, 2016 and 2015 are included beginning immediately following the signature page to this report. See Item 15 for a list of the financial statements included herein.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Management’s Report on Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, consisting of Robert M. Gans, our chief executive officer, and Howard Rosenbluth, our chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded, as of the Evaluation Date, that our disclosure controls and procedures were effective to ensure that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer and secretary, as appropriate, to allow timely decisions regarding required disclosure.
(b) Management’s Annual Report on Internal Control over Financial Reporting.
Management of Scores Holding Company, Inc. is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)).
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. In evaluating the effectiveness of our internal control over financial reporting, management used the criteria set forth in the framework in Internal Control—Integrated Framework and the Internal Control over Financial Reporting – Guidance for Smaller Public Companies both issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this evaluation, management concluded that, as of December 31, 2016 our internal controls over financial reporting were effective, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.
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Our management, including our chief executive officer and our chief financial officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.
(c) Changes in Internal Control over Financial Reporting . There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the last fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Executive Officers and Directors
The following table sets forth certain information, as of March 22, 2017, with respect to our directors and executive officers.
Directors serve until the next annual meeting of the stockholders, until their successors are elected or appointed and qualified, or until their prior resignation or removal. Officers serve until the next annual meeting of the Board of Directors, until their successors are elected or appointed and qualified, or until their prior resignation or removal.
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|
Name |
Positions Held | Age | Date of Election or Appointment as Director | |||
| Robert M. Gans | President, Chief Executive Officer and Director | 74 | August 6, 2010 | |||
| Martin Gans | Director | 81 | June 23, 2009 | |||
| Howard Rosenbluth | Treasurer, Chief Financial Officer, Secretary and Director | 70 | April 21, 2009 | |||
| Stephen J. Sabbeth | Head of Acquisitions and Licensing | 69 | N/A |
The following is a brief account of the business experience during the past five years or more of our directors and executive officers.
Robert M. Gans . Mr. Gans became President, Chief Executive Officer and director on August 6, 2010. For the past forty three years Robert M. Gans has owned and operated companies in the building materials business, as well as gentlemen’s clubs, restaurants, and several commercial and residential real estate properties. Mr. Gans has either been the President, Managing Member, or sole owner of all of the companies in which he has been involved, including The Executive Club LLC, a company operating in the Gentlemen’s Club industry. None of the companies was or is a public company. The Board concluded that Mr. Gans should serve as a director of the Company because of his extensive experience in the management and operation of gentlemen’s clubs.
Martin Gans. Martin Gans, who became a director on June 23, 2009, has been retired since 2002. Prior to his retirement, Mr. Gans held managerial positions with The Nassau County Board of Elections, from 1994 to 2002, and with the Metropolitan New York hospitals, from 1990 to 1994. Mr. Gans has a MBA in Health Care Administration from George Washington University and a Bachelor’s degree in Economics from Hunter College. Mr. Gans served in the United States Army where he reached the rank of SP4. The Board concluded that Mr. Gans should serve as a director of the Company because of his managerial experience and the knowledge and experience he has attained through his service as a director of the Company.
Robert Gans and Martin Gans are brothers.
Howard Rosenbluth. Mr. Rosenbluth became our Treasurer, Chief Financial Officer and Secretary on August 6, 2010, and became a director on April 21, 2009. Over the past five years, Mr. Rosenbluth has been an executive officer overseeing the financial operations for Metropolitan Lumber Hardware and Building Supplies, Inc., and The Executive Club LLC, a company operating in the Gentlemen’s club industry. Mr. Rosenbluth received an MBA in Finance in 1975 from the University of Connecticut and has owned a consulting firm, a manufacturing company and a restaurant and has worked in public accounting and consulting for more than 35 years. The Board concluded that Mr. Rosenbluth should serve as a director of the Company because of his financial literacy and expertise, as well as his extensive experience in the management and operation of gentlemen’s clubs.
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Stephen J. Sabbeth. Mr. Sabbeth has served as a consultant to us as our Head of Acquisitions and Licensing since May, 2009. His services to us have included leading the expansion of our licensing efforts throughout the U.S. and the Caribbean. As well, he assisted us in initiating and implementing gift card and guest loyalty systems for our licensees (which services he also provided to other entities in the hospitality industry). Over the past 9 years Mr. Sabbeth has provided management, marketing and administrative consulting services to various organizations requiring assistance from a seasoned and experienced professional. His clients principally have consisted of businesses involved in the restaurant, nightclub, adult entertainment, website, lumber and building supplies and intellectual property rights industries. Mr. Sabbeth has assisted his consulting clients with the creation and organization of Human Resource departments and ancillary employment related manuals and documentation. In addition, he has analyzed industry trends and customer preferences in the adult entertainment industry and assisted his clients in determining how best to allocate marketing and advertising resources. Mr. Sabbeth attended Hofstra University.
Board of Directors
None of our directors receives any remuneration for acting as such. Directors may, however, be reimbursed for their out-of-pocket expenses, if any, for attendance at meetings of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees. No such committees have been established to date. Accordingly, we do not have an audit committee or an audit committee financial expert. Given the small size of the Company’s board of directors and the limited number of independent directors over the Company’s history, the board has determined that it is appropriate for the entire board of directors to act as its audit committee, which has resulted in the directors who are also executive officers serving on its audit committee. Similarly, we do not have a nominating committee or a committee performing similar functions. We have not implemented procedures by which our security holders may recommend board nominees to us, but expect to do so in the future.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial statements of beneficial ownership on Form 3, reports of changes in ownership on Form 4 and annual reports concerning their ownership on Form 5. Executive officers, directors and greater than 10% stockholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely on the Company’s review of copies of Forms 3 and 4 and amendments thereto received by it during 2015 and Forms 5 and amendments thereto received by the Company with respect to 2015 and any written representations from certain reporting persons that no Form 5 is required, none of our directors, executive officers, or greater than 10% stockholders failed to file a required report on Form 3, Form 4 or Form 5 during the fiscal year ended December 31, 2015, except that Stephen J. Sabbeth, our Director of Acquisitions and Licensing, did not file a Form 3 upon becoming an executive officer during 2015.
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Director Independence
We are not subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the Board of Directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “Independent Directors.”
Code of Ethics
Due to the scope of our current operations, as of December 31, 2016, we have not adopted a code of ethics for financial executives, which include our Chief Executive Officer, Chief Financial Officer or persons performing similar functions. Our decision not to adopt such a code of ethics results from our having only a limited number of officers and directors operating as management. We believe that as a result of the limited interaction which occurs having such a small management structure eliminates the current need for such a code.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the total compensation paid or accrued by us during the two fiscal years ended December 31, 2016 and 2015 to (i) all individuals that served as our chief executive officer and our chief financial officer or acted in similar capacities for us at any time during the fiscal years ended December 31, 2016 and 2015 and (ii) all individuals that served as executive officers of ours at any time during the fiscal year ended December 31, 2016 and 2015 that received annual compensation during such fiscal years in excess of $100,000 (collectively, the “named executive officers”).
Summary Compensation Table
| Non-Equity | Nonqualified | |||||||||||||||||||||||||||||||||
| Incentive | Deferred | |||||||||||||||||||||||||||||||||
| Stock | Option | Plan | Compensation | All Other | ||||||||||||||||||||||||||||||
| Name and | Bonus | Awards | Awards | Compensation | Earnings | Compensation | ||||||||||||||||||||||||||||
| Principal Position | Year | Salary ($) | ($) | ($) | ($) | ($) | ($) | ($) | Total ($) | |||||||||||||||||||||||||
| Robert M. Gans, | 2016 | 168,923 | 0 | 0 | 0 | 0 | 0 | 0 | 168,923 | |||||||||||||||||||||||||
| Chief Executive Officer | 2015 | 0 | 180,000 | 0 | 0 | 0 | 0 | 0 | 180,000 | |||||||||||||||||||||||||
| Howard Rosenbluth, | 2016 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| Chief Financial Officer | 2015 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||
| Stephen J. Sabbeth | 2016 | 0 | 0 | 0 | 0 | 0 | 0 | 130,000 | 130,000 | |||||||||||||||||||||||||
| Director of Acquisitions and Licensing | 2015 | 130,000 | 130,000 | |||||||||||||||||||||||||||||||
We have not issued any stock options or maintained any stock option or other incentive plans other than our 2010 Plan, which was adopted by our board but never approved by our shareholders. (See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Securities Authorized for Issuance Under Equity Compensation Plans” above.) We have no other plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.
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Similarly, we have no contracts, agreements, plans or arrangements, whether written or unwritten, that provide for payments to the named executive officers or any other persons following, or in connection with, the resignation, retirement or other termination of a named executive officer, or a change in control of the Company or a change in a named executive officer’s responsibilities following a change in control.
Effective January 1, 2013, we entered into a management services agreement with Metropolitan Lumber, Hardware and Building Supplies, Inc., pursuant to which Metropolitan Lumber Hardware and Building Supplies, Inc. provides management and other services to us, including the services of Robert M. Gans and Howard Rosenbluth to act as executive officers of the Company. In consideration of the services, we pay Metropolitan Lumber Hardware and Building Supplies, Inc. a fee in the amount of $30,000 per year. The agreement may be terminated by either party upon ten days’ written notice. Mr. Gans is the sole owner of Metropolitan Lumber Hardware and Building Supplies, Inc. On May 5, 2015, we entered into an amendment, effective as of January 1, 2015, to our management services agreement with Metropolitan Lumber, Hardware and Building Supplies, Inc. Pursuant to the amendment, the fee we pay MLH for the management and other services it provides to us was increased from $30,000 per year to $90,000 per year, payable quarterly in arrears. In addition, the agreement as amended provides that MLH will be eligible for a discretionary cash bonus based on (i) MLH’s performance throughout the relevant fiscal year (or portion thereof) of the Company; and (ii) the Company’s performance throughout such fiscal year (or portion thereof). Effective January 1, 2017, the agreement was further amended to remove the requirement that the services of Robert M. Gans be provided under the agreement. The Board of Directors is responsible for establishing and implementing performance goals and a performance-based bonus plan, and the amount of the bonus, if any, will be determined by the Board in accordance with such plan. The agreement as amended does not guarantee MLH a bonus for any year (or portion thereof). The Company owed Metropolitan Lumber Hardware and Building Supplies, Inc. $0 and $0 in unpaid management services as of December 31, 2016 and December 31, 2015, respectively.
In December 2015, the Company accrued $180,000 bonus to Robert Gans which was paid in February 2016. The Company paid Mr. Gans a salary of $168,923 during 2016.
Mr. Sabbeth’s compensation of $130,000 per year represents consulting fees. Mr. Sabbeth became an executive officer during 2015.
Outstanding Equity Awards at 2015 Fiscal Year-End
As of the year ended December 31, 2016, there were no unexercised options, stock that has not vested or equity incentive plan awards held by any of the Company’s named executive officers.
Compensation of Directors
None of our directors receives any compensation for serving as such, for serving on committees of the Board of Directors or for special assignments. During the fiscal years ended December 31, 2016 and 2015 there were no other arrangements between us and our directors that resulted in our making payments to any of our directors for any services provided to us by them as directors. The following table shows compensation earned by each of our non-officer directors for the year ended December 31, 2016.
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| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Martin Gans | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information with respect to the beneficial ownership of our common stock known by us as of March 22, 2017 by (i) each person or entity known by us to be the beneficial owner of more than 5% of our common stock, (ii) each of our directors, (iii) each named executive officer and (iv) all of our directors and executive officers as a group.
The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on such date and all shares of our common stock issuable to such holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by such person at said date which are exercisable within 60 days of such date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent such power may be shared with a spouse. The addresses for our executive officers and directors are c/o Scores Holding Company, Inc., 533-535 West 27 th Street, New York, NY 10001.
| Name and Address of Beneficial Owner | Title of Class | Amount and Nature of Beneficial Ownership | Percent of Class (1) | |||||||
| Robert M. Gans (2) | Common Stock | 88,900,230 | (2) | 53.8 | % | |||||
| Howard Rosenbluth | Common Stock | -0- | 0.0 | % | ||||||
| Martin Gans | Common Stock | -0- | 0.0 | % | ||||||
| Stephen J. Sabbeth | Common Stock | 2,000 | (3) | * | ||||||
| All directors and executive officers as a group (4 persons) | Common Stock | 88,902,230 | (2) | 53.8 | % | |||||
| Mitchell’s East LLC (2) 617 Eleventh Avenue New York, NY 10036 | Common Stock | 88,900,230 | (2) | 53.8 | % | |||||
| Estate of William Osher (4) 2955 Shell Road Brooklyn, NY | Common Stock | 13,886,059 | (2) | 8.4 | % | |||||
| 25 |
| * | Less than 1%. |
| (1) | Based upon 165,186,144 shares of Common Stock issued and outstanding as at March 3, 2017. | |
| (2) | Robert M. Gans is the sole owner of Mitchell’s East LLC. The principal business address of Mr. Gans is 617 Eleventh Avenue, New York, NY 10036. Does not include 13,886,059 shares of Common Stock currently held of record by William Osher, deceased, of which Harvey Osher (“H. Osher”) claims title and which H. Osher has agreed to transfer to Mitchell’s East LLC pursuant to the Stock Purchase Agreement whereby Mr. Gans purchased any rights of H. Osher to such shares. |
| (3) | Mr. Sabbeth owns these shares directly. |
| (4) | William Osher passed away in August, 2007. H. Osher claims all right and title to and interest in these shares of Common Stock and has agreed to transfer them to Mitchell’s East LLC pursuant to the Stock Purchase Agreement. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
On January 24, 2006, the Company entered into a licensing agreement with AYA International, Inc. (“AYA”) granting AYA the right to use our 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 us to Swan Media Group, Inc., 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 $ 122,109 and $122,109 in unpaid royalties and expenses as of December 31, 2016 and December 31, 2015, which has been fully reserved.
On January 27, 2009, pursuant to a stock purchase agreement (the “SPA”), Mitchell’s East LLC (“Buyer”), purchased an aggregate of 88,900,230 shares (the “Owned Shares”) of our common stock beneficially owned by Richard Goldring and Elliot Osher (collectively the “Share Sellers”), as well as any rights Harvey Osher (the Share Sellers and Harvey Osher, together, the “Sellers”) may have in 13,886,059 shares of our common stock (the “Decedent Owned Shares”) currently held of record by the estate of William Osher, deceased, and any rights the Sellers may have in an additional 2,400,001 shares of our common stock (the “Expectancy Shares”). Under the terms of the SPA, Harvey Osher is to deliver to the Buyer the Decedent Owned Shares that he may receive and the Sellers are to deliver to the Buyer any shares of the Company underlying the Expectancy Shares that any such Seller may receive. Additionally, pursuant to the SPA, each of the Sellers granted to Buyer an irrevocable proxy enabling Buyer to act as his proxy with respect to any shares underlying the Decedent Owned Shares and the Expectancy Shares, as applicable.
The Owned Shares represent approximately fifty four percent (54%) of our outstanding capital stock and the Owned Shares together with the Decedent Owned Shares represent approximately sixty two percent (62%) of our outstanding capital stock.
| 26 |
On September 26, 2011, the Company, Richard Goldring and Elliot Osher (Goldring and Osher were formerly two of the Company’s principal shareholders) (collectively the “Defendants”) and Sari Diaz et al. (the “Plaintiffs”) entered into a Court approved Joint Stipulation of Settlement and Release (the “Settlement Agreement”) relating to a purported class action and collective action on behalf of all tipped employees filed by Plaintiffs, pursuant to which Defendants agreed to make a settlement payment of $450,000 to resolve and settle awards to Plaintiffs and related Plaintiffs’ attorneys’ fees. Additionally, the Defendants agreed to pay the employer portion of payroll taxes on approximately $300,000 in distributions, approximately $15,600.
In a settlement payment agreement among the Company, Goldring and Osher, the Company agreed to advance all of the Defendants’ obligations under the Settlement Agreement and to pay $64,500 of Goldring’s and Osher’s legal fees to their designated attorney. In consideration for the Company’s payment of these obligations, Goldring and Osher agreed, jointly and severally, to pay the Company $440,000 plus interest at the rate of 5% per annum on the unpaid balance of such amount, in 40 equal monthly payments of $11,965 per month. To secure his obligations under this agreement, Goldring agreed to assign to the Company a portion of his interests in a promissory note dated September 14, 2009 in the principal amount of $2,400,000 made by a third party to Goldring (the “Note”) and to grant the Company a security interest in the Note, which will remain in effect until his obligations under this settlement payment agreement are paid in full. As of December 31, 2016 and 2015, the settlement receivable is $0.
On December 29, 2011 the Company entered into a Promissory Note with Goldring for $30,000 plus interest at the rate of 5% per annum on the unpaid balance. To secure his obligations under this agreement, Goldring agreed to assign to the Company a portion of his interests in a promissory note dated September 14, 2009 in the principal amount of $2,400,000 made by a third party to Goldring (the “Note”) and to grant the Company a security interest in the Note, which will remain in effect until his obligations under this settlement payment agreement are paid in full. Three payments of $11,965 are due beginning March 2015. As of December 31, 2016 and 2015, the promissory note balance is $0.
In connection with the settlement receivable discussed above relating to the settlement of the Sari Diaz, et. al. litigation, Robert M. Gans, the Company’s President, Chief Executive Officer, majority shareholder and a director, advanced $560,151 to settle the litigation and fund the $30,000 loan to Mr. Goldring. As of December 31, 2016 and 2015 $0 was outstanding.
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 Howard Rosenbluth, the Company’s Treasurer and a Director, owns 2%. IMO owes the Company a royalty receivable of $144,698 and $144,698 as of December 31, 2016 and December 31, 2015, which has been fully reserved.
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 owed WSR $0 and $0 in unpaid rents as of December 31, 2016 and December 31, 2015, respectively.
| 27 |
Effective January 1, 2013, the Company entered into a management services agreement with Metropolitan Lumber, Hardware and Building Supplies, Inc., pursuant to which Metropolitan Lumber Hardware and Building Supplies, Inc. 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 Lumber Hardware and Building Supplies, Inc. 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 be provided under the agreement. In addition, Metropolitan Lumber Hardware and Building Supplies, Inc. 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 Lumber Hardware and Building Supplies, Inc. The Company owed $0 and $0 in unpaid management services as of December 31, 2016 and December 31, 2015, respectively.
The Company has accrued expenses of $9,074 due to Metropolitan Lumber Hardware and Building Supplies, Inc. The Company owes $9,074 and $0 as of December 31, 2016 and December 31, 2015, respectively.
During the 2nd quarter of 2016, the Company had made advances to Starlin LLC and Metropolitan Lumber, Hardware & Building Supplies, Inc. as short term loans. It should be noted both of the loans were repaid on July 29, 2016. Both of these entities are under the common control of Mr. Robert Gans, our President and Chief Executive Officer. At December 31, 2016 amounts due from these related parties amounted to $0 and $0, respectively. The Company accounted for and presented the advances due from related parties as a reduction of stockholders' equity in accordance with the guidance of ASC 505-10-45. It is possible that these advances by the Company to related parties could be deemed to be in violation of Section 402 of the Sarbanes-Oxley Act of 2002. However, the Company has not made a determination as of the date hereof if the advances resulted in a violation of that provision. If, however, it is determined these advances violated the prohibitions of Section 402 from making loans to executive officers or directors, the Company could be subject to investigation and/or litigation that could involve significant time and costs and may not be resolved favorably. The Company is unable to predict the extent of its ultimate liability with respect to these transactions. The costs and other effects of any future litigation, government investigations, legal and administrative cases and proceedings, settlements, judgments and investigations, claims and changes in this matter could have a material adverse effect on the Company's financial condition and operating results.
In December 2015, the Company accrued a $180,000 bonus to Robert Gans which was paid in February 2016. The Company paid Mr. Gans a salary of $168,923 per year commencing in February 2016.
| 28 |
Effective December 9, 2013, we 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 $10,000 per month, commencing in April 2014, and the license is for a term of five years, with five successive five year renewal terms. Pursuant to the written agreement, we also granted Star Light a non-exclusive, non-transferable license to sell certain licensed products bearing our trademarks. Starlight will purchase the licensed products from us or our affiliates at our cost plus 25%. Robert M. Gans, our President, Chief Executive Officer and a director, is the majority owner (92.165%) of Star Light Events LLC and Howard Rosenbluth, our Secretary, Treasurer and a Director, owns 1%. Starlight owes the Company a royalty receivable of $130,000 and $130,000 as of December 31, 2016 and December 31, 2015, which has been fully reserved. Starlight is currently closed and looking for a new location in the same area.
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.
The total amounts due to the various related parties as of December 31, 2016 and December 31, 2015 was $9,074 and $180,000, respectively and the total amounts due to the Company from the various related parties as of December 31, 2016 and December 31, 2015 was $396,807 and $396,807, respectively.
Penthouse is a related-party competitor due to the common control and ownership by our President and Chief Executive Officer, Robert M. Gans, who owns 83% of Penthouse.
Effective February 28, 2017 (the “Effective Date”), we entered into separate Settlement Agreements (each, a “Settlement Agreement”) with three licensees, I.M. Operating LLC (“IMO”), Star Light Events LLC (“Star Light”) and Swan Media Group, Inc. (“Swan”), controlled by Robert M. Gans, our President, Chief Executive Officer and a member of our Board of Directors.
As of the Effective Date, IMO owed us 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 us, in full settlement of all claims we 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 us under its license agreement from and after the Effective Date.
| 29 |
As of the Effective Date, Starlight owed us an aggregate of $250,000 in unpaid royalties and other fees. Starlight is currently inactive and has no revenue. Under its Settlement Agreement, Starlight has agreed to pay us $75,000, in full settlement of all claims we 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.
As of the Effective Date, Swan owed us an aggregate of $166,000 in unpaid royalties and other fees. Swan is currently unprofitable. Under its Settlement Agreement, Swan has agreed to pay us $50,000, in full settlement of all claims we 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 us under its license agreement from and after the Effective Date.
Mr. Gans personally guaranteed the obligations of each of IMO, Starlight and Swan under their respective promissory notes.
The terms of the Settlement Agreements are similar to the terms of a settlement we are currently negotiating with unaffiliated third parties with respect to amounts owed to us by a former licensee. Accordingly, we believe the terms of the Settlement Agreements are fair to us, and are no less favorable to us than we could have obtained in an adversarial proceeding.
Director Independence
Our Board of Directors has considered the independence of its directors in reference to the definition of “independent director” established by the Nasdaq Marketplace Rule 5605(a)(2). In doing so, the Board has reviewed all commercial and other relationships of each director in making its determination as to the independence of its directors. After such review, the Board has determined that none of our directors qualifies as independent under the requirements of the Nasdaq listing standards.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit Fees
The aggregate fees billed to us by RBSM LLP, our independent registered public accounting firm, for services rendered during the fiscal years ended December 31, 2016 and 2015 are set forth in the table below:
| Fee Category | Fiscal year ended December 31, 2016 | Fiscal year ended December 31, 2015 | ||||||
| Audit Fees (1) | $ | 37,000 | $ | 30,000 | ||||
| Audit-Related Fees (2) | — | — | ||||||
| Tax Fees (3) | $ | 3,000 | 5,700 | |||||
| All Other Fees (4) | — | — | ||||||
| Total Fees | $ | 40,000 | $ | 35,700 | ||||
| 30 |
| (1) | Audit fees consists of fees incurred for professional services rendered for the audit of annual consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements. |
| (2) | Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.” |
| (3) | Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice. |
| (4) | All other fees consist of fees billed for all other services. |
Audit Committee’s Pre-Approval Practice.
Inasmuch as we do not have an audit committee, our Board of Directors performs the functions of an audit committee. Section 10A(i) of the Exchange Act prohibits our auditors from performing audit services for us as well as any services not considered to be “audit services” unless such services are pre-approved by the Board of Directors (in lieu of the audit committee) or unless the services meet certain de-minimis standards.
All audit services were approved by our Board of Directors.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Financial Statement Schedules.
The consolidated financial statements of Scores Holding Company, Inc. are listed on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.
All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
Exhibits.
The following Exhibits are being filed with this Annual Report on Form 10-K:
| 31 |
| Exhibit No |
SEC Report Reference Number |
Description | ||
| 3.1 | 3(i) | Certificate of Incorporation of Scores Holding Company, Inc. (1) | ||
| 3.2 | 3(ii) | By-Laws of Scores Holding Company, Inc. (2) | ||
| 10.1 | 10.20 | Stock Option Agreement dated October 22, 2002 between the Registrant and Richard Goldring (3) | ||
| 10.2 | 10.38 |
Sublicense Agreement, dated January 24, 2006, between the Registrant and AYA Entertainment, Inc. (4) | ||
| 10.3 | 10.1 | Transfer Agreement by and among the Registrant, 333 East 60th Street Inc. (“333”) and Entertainment Management Services, Inc. (“EMS”) dated as of December 9, 2008 (5) | ||
| 10.4 | 10.2 | Cancellation Agreement by and among the Registrant and EMS dated as of January 27, 2009 (5) | ||
| 10.5 | 10.3 | Assignment and Assumption Agreement by and among the Registrant, 333 and EMS dated as of January 27, 2009 (5) | ||
| 10.6 | 10.47 | License Agreement, dated January 27, 2009, between the Registrant and I.M. Operating LLC (6) | ||
| 10.7 | ** | 10.4 | Form of Director and Officer Indemnification Agreement (7) | |
| 10.8 | 10.15 | Stock Purchase Agreement, dated January 27, 2009, among Elliot Osher, Harvey Osher, Richard Goldring and Mitchell’s East LLC (1) | ||
| 10.9 | 10.18 |
Management Services Agreement, effective January 1, 2013, between Scores Holding Company, Inc. and Metropolitan Lumber, Hardware and Building Supplies, Inc. (1) | ||
| 10.10 | 10.4 | Amendment to Management Services Agreement, effective January 1, 2015, between Scores Holding Company, Inc. and Metropolitan Lumber, Hardware and Building Supplies, Inc. (9) | ||
| 10.10.1 | * | Second Amendment to Management Services Agreement, effective January 1, 2017, between Scores Holding Company, Inc. and Metropolitan Lumber, Hardware and Building Supplies, Inc. | ||
| 10.11 | 10.1 | License Agreement between Scores Holding Company, Inc. and Scores Licensing Corp. (8) | ||
| 10.12 | 10.2 |
Trademark License Agreement between Scores Licensing Corp. and Star Light Events LLC (8) | ||
| 10.13 | * | Settlement Agreement, dated as of February 28, 2017, by and among Scores Holding Company, Inc., I.M. Operating LLC and Robert M. Gans | ||
| 10.14 | * | Settlement Agreement, dated as of February 28, 2017, by and among Scores Holding Company, Inc., Swan Media Group, Inc. and Robert M. Gans |
| 32 |
|
10.15 |
* | Settlement Agreement, dated as of February 28, 2017, by and among Scores Holding Company, Inc., Star Light Events LLC and Robert M. Gans | ||
| 10.16 | * | Promissory Note, dated February 28, 2017, from Star Light Events LLC to Scores Holding Company, Inc., with attached Personal Guaranty of Robert M. Gans | ||
| 10.17 | * | Promissory Note, dated February 28, 2017, from Swan Media Group, Inc. to Scores Holding Company, Inc., with attached Personal Guaranty of Robert M. Gans | ||
| 10.18 | * | Promissory Note, dated February 28, 2017, from I.M. Operating LLC to Scores Holding Company, Inc., with attached Personal Guaranty of Robert M. Gans | ||
| 21 | * | List of Subsidiaries | ||
| 31.1 | * | Certification of Principal Executive Officer pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31.2 | * | Certification of Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32.1 | ± | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32.2 | ± | Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 101.INS | * | XBRL INSTANCE DOCUMENT | ||
| 101.SCH | * | XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT | ||
| 101.CAL | * | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT | ||
| 101.DEF | * | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT | ||
| 101.LAB | * | XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT | ||
| 101.PRE | * | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT |
| * | Filed herewith. |
| ** | Indicates management contract or compensatory plan or arrangement. |
| ± | Furnished herewith. |
| (1) | Filed with the Securities and Exchange Commission on November 14, 2013 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, which exhibit is incorporated herein by reference. |
| (2) | Filed with the Securities and Exchange Commission on April 4, 1997 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-KSB for the year ended November 30, 1996, which exhibit is incorporated herein by reference. |
| (3) | Filed with the Securities and Exchange Commission on April 23, 2003 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2002, which exhibit is incorporated herein by reference. |
| (4) | Filed with the Securities and Exchange Commission on May 17, 2007 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2006, which exhibit is incorporated herein by reference. |
| (5) | Filed with the Securities and Exchange Commission on February 2, 2009 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated February 2, 2009, which exhibit is incorporated herein by reference. |
| 33 |
| (6) | Filed with the Securities and Exchange Commission on April 15, 2009 as an exhibit, numbered as indicated above, to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, which exhibit is incorporated herein by reference. |
| (7) | Filed with the Securities and Exchange Commission on August 13, 2010 as an exhibit, numbered as indicated above, to the Registrant’s Current Report on Form 8-K dated August 5, 2010, which exhibit is incorporated herein by reference. |
| (8) | Filed with the Securities and Exchange Commission on December 27, 2013 as an exhibit, numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, which exhibit is incorporated herein by reference. |
| (9) | Filed with the Securities and Exchange Commission on May 12, 2015 as an exhibit, numbered as indicated above, to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, which exhibit is incorporated herein by reference. |
| 34 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| Date: April 10, 2017 | SCORES HOLDING COMPANY, INC. | |
| By: | /s/ Robert M. Gans | |
| Robert M. Gans | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Howard Rosenbluth | |
| Howard Rosenbluth | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| SIGNATURE | TITLE | DATE | ||
| /s/ Robert M. Gans | Chief Executive Officer (Principal Executive Officer), Director | April 10, 2017 | ||
| Robert M. Gans | ||||
| /s/ Howard Rosenbluth | Chief Financial Officer (Principal Financial Officer), Director | April 10, 2017 | ||
| Howard Rosenbluth | ||||
| /s/ Martin Gans | Director | April 10, 2017 | ||
| Martin Gans |
| 35 |
 |
805 Third Avenue 14th Floor New York, NY 10022 212.838-5100 212.838.2676/ Fax www.rbsmllp.com |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Scores Holding Company, Inc. and subsidiary
We have audited the accompanying consolidated balance sheets of Scores Holding Company, Inc. and subsidiary as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and 2015, and the results of its operations and cash flows for the two years in the period ended December 31, 2016, in conformity with generally accepted accounting principles in the United States.
The accompanying consolidated financial statements have been prepared assuming that Scores Holding Company, Inc. and subsidiary will continue as a going concern. As more fully described in Note 2 to the consolidated financial statements, the Company has incurred recurring operating losses and had a net loss for the year ended December 31, 2016. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
New York, NY
April 10, 2017
New York, NY Washington DC Mumbai, India San Francisco, CA Las Vegas, NV Kansas City, KS Beijing, China Athens, Greece
Member: ANTEA International with affiliated offices worldwide
| F-1 |
SCORES HOLDING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 228,842 | $ | 515,994 | ||||
| Trade receivables - including affiliates, net of allowance of $506,807and $266,807, respectively | 46,329 | 280,119 | ||||||
| Prepaid expenses | 11,879 | 11,437 | ||||||
| Total Current Assets | 287,050 | 807,550 | ||||||
| TOTAL ASSETS | $ | 287,050 | $ | 807,550 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 26,576 | $ | 255,509 | ||||
| Accrued expenses, related | 9,074 | - | ||||||
| Security deposit payable | 30,000 | 35,000 | ||||||
| Accrued income tax payable | - | 49,400 | ||||||
| Deferred revenue | 11,833 | 48,000 | ||||||
| Total Current Liabilities | 77,483 | 387,909 | ||||||
| Deferred revenue | 51,417 | 20,500 | ||||||
| TOTAL LIABILITIES | 128,900 | 408,409 | ||||||
| Commitments and Contingencies (Note 8) | - | - | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, $.0001 par value, 10,000,000 shares authorized, -0- issued and outstanding | - | - | ||||||
| Common stock, $.001 par value; 500,000,000 shares authorized, 165,186,144 issued and 165,186,144 outstanding, respectively | 165,186 | 165,186 | ||||||
| Additional paid-in capital | 6,058,117 | 6,058,117 | ||||||
| Accumulated deficit | (6,065,153 | ) | (5,824,162 | ) | ||||
| Total stockholders' Equity | 158,150 | 399,141 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 287,050 | $ | 807,550 | ||||
See notes to the consolidated financial statements.
| F-2 |
SCORES HOLDING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| REVENUES | ||||||||
| Royalty Revenue | $ | 1,055,594 | $ | 1,180,064 | ||||
| Initiation Fee | 35,250 | 1,500 | ||||||
| Total Revenue | 1,090,844 | 1,181,564 | ||||||
| EXPENSES | ||||||||
| General and Administrative Expenses | 1,335,625 | 1,050,196 | ||||||
| INCOME(LOSS) FROM OPERATIONS | (244,781 | ) | 131,368 | |||||
| OTHER INCOME/(EXPENSE) | ||||||||
| Interest Income/(Expense), net | (1,041 | ) | 1,869 | |||||
| TOTAL OTHER INCOME/(EXPENSE) | (1,041 | ) | 1,869 | |||||
| NET INCOME(LOSS) BEFORE INCOME TAXES | (245,822 | ) | 133,237 | |||||
| PROVISION FOR INCOME TAXES | - | (49,400 | ) | |||||
| INCOME TAXES, refund | 4,831 | - | ||||||
| NET INCOME(LOSS) | $ | (240,991 | ) | $ | 83,837 | |||
| NET INCOME(LOSS) PER SHARE-Basic and Diluted | (0.001 | ) | 0.001 | |||||
| WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING-Basic and Diluted | 165,186,144 | 165,186,144 | ||||||
See notes to the consolidated financial statements.
| F-3 |
SCORES HOLDING COMPANY INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended | ||||||||
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income (Loss) | $ | (240,991 | ) | $ | 83,837 | |||
| Adjustments to reconcile net income(loss) to net cash (used in) provided by operating activities: | ||||||||
| Reserve for bad debts | 240,000 | 266,807 | ||||||
| Changes in assets and liabilities: | ||||||||
| Licensee receivable | (6,210 | ) | (222,516 | ) | ||||
| Prepaid expenses | (442 | ) | (169 | ) | ||||
| Security deposit payable | (5,000 | ) | (2,500 | ) | ||||
| Accounts payable and accrued expenses | (228,933 | ) | 150,255 | |||||
| Accrued expenses, related party | 9,074 | - | ||||||
| Accrued income tax payable | (49,400 | ) | 49,400 | |||||
| Deferred revenue | (5,250 | ) | 68,500 | |||||
| NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES | (287,152 | ) | 393,614 | |||||
| CASH FLOW FROM INVESTING ACTIVITES: | ||||||||
| Advances to related party | (275,000 | ) | - | |||||
| Repayment of advances to related party | 275,000 | - | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | - | - | ||||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||
| Settlement receivable | - | 23,781 | ||||||
| Loan receivable | - | 34,844 | ||||||
| Settlement payable | - | (28,654 | ) | |||||
| Loan payable | - | (34,844 | ) | |||||
| NET CASH USED IN FINANCING ACTIVITIES | - | (4,873 | ) | |||||
| NET INCREASE/(DECREASE) IN CASH | (287,152 | ) | 388,741 | |||||
| Cash and cash equivalents - beginning of year | 515,994 | 127,253 | ||||||
| Cash and cash equivalents - end of year | $ | 228,842 | $ | 515,994 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the year for interest | $ | 348 | $ | 1,418 | ||||
| Cash paid for income taxes | $ | 58,739 | $ | 1,276 | ||||
See notes to the consolidated financial statements.
| F-4 |
SCORES HOLDING COMPANY INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2016 and 2015
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid in | Accumulated | Stockholders | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2014 | 165,186,144 | $ | 165,186 | $ | 6,058,117 | $ | (5,907,999 | ) | $ | 315,304 | ||||||||||
| Net Income | - | - | - | 83,837 | 83,837 | |||||||||||||||
| Balance as of December 31, 2015 | 165,186,144 | 165,186 | 6,058,117 | (5,824,162 | ) | 399,141 | ||||||||||||||
| Related party loan | - | - | (275,000 | ) | - | (275,000 | ) | |||||||||||||
| Repayment related party loan | - | - | 275,000 | - | 275,000 | |||||||||||||||
| Net Income | - | - | - | (240,991 | ) | (240,991 | ) | |||||||||||||
| Balance as of December 31, 2016 | 165,186,144 | $ | 165,186 | $ | 6,058,117 | $ | (6,065,153 | ) | $ | 158,150 | ||||||||||
See notes to the consolidated financial statements.
| F-5 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 1. Organization
BASIS OF PRESENTATION
Scores Holding Company, Inc. and subsidiary (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.
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States. The consolidated financial statements of the Company include the accounts of Scores Licensing Corp. (“SLC”).
Note 2. Summary of Significant Accounting Principles
Going Concern
As of December 31, 2016 the Company has cumulative losses totaling $(6,065,153) and working capital of only $209,733. The Company had a net loss of $(240,991) for the year ended December 31, 2016. 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. 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.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Inter-company items and transactions have been eliminated in consolidation.
| F-6 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
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.
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 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.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Licensee receivable and reserves
Accounts deemed uncollectible are applied against the allowance for doubtful accounts. Allowance for doubtful accounts as of December 31, 2016 and 2015 were $506,807 and $266,807 respectively. In reviewing any delinquent royalty or note receivable, the Company considers many factors in estimating its reserve, including historical data, experience, customer types, credit worthiness, financial distress and economic trends. From time to time, the Company may adjust its assumptions for anticipated changes in any of above or other factors expected to affect collectability.
| F-7 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
Stock Based Compensation
The Company accounts for the plans under the recognition and measurement provisions of Accounting Standards Codification (ASC) Topic 718 Compensation – Stock Compensation. The standard requires entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for the award.
There were no stock options or warrants issued during the years ended December 31, 2016 and 2015, hence the Company has recorded no compensation expense. If the Company were to issue equity rights for compensation, then the Company would recognize compensation expense under Topic 718 over the requisite service period using the Black-Scholes model for equity rights granted.
Revenue Recognition
The Company records revenues earned as royalties under its license agreements as they are earned over the term of the license agreements. 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. If a license agreement is terminated, then the remaining unearned balance of the deferred revenues are recorded as earned if applicable.
As a result of the tenuous nature of the gentlemen’s club industry in general and the resulting financial instability of several of our new licensees the company has implemented a policy of recognizing revenue for these specific entities as it is received rather than when it is earned. Once our relationship with them has been more firmly established and payments have been made regularly and on time we will report these revenues when earned.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10-25, “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company has net operating loss carryforwards of approximately $4,920,000, which expire in the years 2020 through 2028. The related deferred tax asset of approximately $400,000 has been offset by a valuation allowance. The Company’s net operating loss carryforwards have been limited, pursuant to the Internal Revenue Code Section 382, as to the utilization of such net operating loss carryforwards due to changes in ownership of the Company over the years. We have determined the Company has lost cumulatively $1,780,000 of deferred tax assets attributed to net operating loss carryforwards due to the change in ownership in 2001. The final section 382 limitation evaluation resulted in a $1,250,000 decrease of the deferred tax asset being recorded in 2015. Approximately $130,000 of the net operating loss carryforward deferred tax asset was utilized against current earnings. The remaining $518,000 of deferred tax assets can only be utilized up to $30,000 per year through 2028.
| F-8 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
| 2016 | 2015 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward | $ | 400,000 | $ | 400,000 | ||||
| Allowance for doubtful accounts | 223,000 | 118,000 | ||||||
| Less valuation allowance | (623,000 | ) | (518,000 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
The reconciliation of the Company’s effective tax rate differs from the Federal income tax rate of 34% for the years ended December 31, 2016 and 2015, as a result of the following:
| 2016 | 2015 | |||||||
| Tax (benefit) at statutory rate | $ | (82,000 | ) | $ | 46,000 | |||
| State and local taxes | (25,000 | ) | 14,000 | |||||
| Permanent differences | - | - | ||||||
| Change in valuation allowance | (107,000 | ) | (10,600 | ) | ||||
| Tax due | $ | 0 | $ | 49,400 | ||||
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. Accordingly, the weighted average number of common shares outstanding for the years ended December 31, 2016 and 2015, respectively, is the same for purposes of computing both basic and diluted net income per share for such years. As of December 31, 2016, there are no outstanding stock equivalents.
Concentration of Credit Risk
The Company earns predominately royalty revenues and to a lesser extent initiation fees from 24 licensees.
| F-9 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
With regards to 2016, concentrations of sales from 4 licensees range from 10% to 15%, totaling 49%. There are receivables from 4 licensees ranging from 20% to 26% totaling 92%. Included in these amounts for 2016 are sales from 0 licensee considered a related party. There are receivables from these 3 licensees that are considered related parties of 22%, 24% and 27%, most of which has been reserved.
With regards to 2015, concentrations of sales from 7 licensees range from 10% to 14%, totaling 77%. There are receivables from 4 licensees ranging from 12% to 25% totaling 64%. Included in these amounts for 2015 are sales from 1 licensee considered a related party representing 10% of sales. There are receivables from these 3 licensees that are considered related parties of 22%, 24% and 26%, most of which has been reserved.
New Accounting Pronouncements
In August 2015, FASB issued Accounting Standards Update (“ASU”) No.2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
| F-10 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
In January 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) “ASU 2016 – 01 Recognition and Measurement of Financial Assets and Financial Liabilities” intended to improve the recognition and measurement of financial instruments. The ASU affects public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities. The new guidance makes targeted improvements to existing GAAP by requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities. Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The ASU on recognition and measurement will take effect for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The ASU permits early adoption of the own credit provision (referenced above). Additionally, it permits early adoption of the provision that exempts private companies and not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In April 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) “ASU 2016 – 10 Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing.” The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgment necessary to comply with Topic 606.
The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update2014-09 by one year. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
| F-11 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to 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. 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 our 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 us to Swan Media Group, Inc., 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 $122,109 in unpaid royalties and expenses as of December 31, 2016 and December 31, 2015, which has been fully reserved.
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 Howard Rosenbluth, the Company’s Treasurer and a Director, owns 2%. IMO owes the Company a royalty receivable of $144,698 as of December 31, 2016 and December 31, 2015, which has been fully reserved.
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 owed WSR $0 and $0 in unpaid rents as of December 31, 2016 and December 31, 2015, respectively.
Effective January 1, 2013, the Company entered into a management services agreement with Metropolitan Lumber Hardware and Building Supplies, Inc., pursuant to which Metropolitan Lumber Hardware and Building Supplies, Inc. 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 Lumber Hardware and Building Supplies, Inc. 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. In addition, Metropolitan Lumber Hardware and Building Supplies, Inc. 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 Lumber Hardware and Building Supplies, Inc. The Company owed $0 and $0 in unpaid management services as of December 31, 2016 and December 31, 2015, respectively.
| F-12 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
The Company has accrued expenses of $9,074 due to Metropolitan Lumber Hardware and Building Supplies, Inc. The Company owes $9,074 and $0 as of December 31, 2016 and December 31, 2015, respectively.
During the 2nd quarter, the Company had made advances to Starlin LLC and Metropolitan Lumber, Hardware & Building Supplies, Inc. as short term loans. It should be noted both of the loans were repaid on July 29, 2016. Both of these entities are under the common control of Mr. Robert Gans, our President and Chief Executive Officer. At September 30, 2016 amounts due from these related parties amounted to $0 and $0, respectively. The Company accounted for and presented the advances due from related parties as a reduction of stockholders' equity in accordance with the guidance of ASC 505-10-45. It is possible that these advances by the Company to related parties could be deemed to be in violation of Section 402 of the Sarbanes-Oxley Act of 2002. However, the Company has not made a determination as of the date hereof if the advances resulted in a violation of that provision. If, however, it is determined these advances violated the prohibitions of Section 402 from making loans to executive officers or directors, the Company could be subject to investigation and/or litigation that could involve significant time and costs and may not be resolved favorably. The Company is unable to predict the extent of its ultimate liability with respect to these transactions. The costs and other effects of any future litigation, government investigations, legal and administrative cases and proceedings, settlements, judgments and investigations, claims and changes in this matter could have a material adverse effect on the Company's financial condition and operating results.
In December 2015, the Company accrued a $180,000 bonus to Robert Gans which was paid in February 2016.
Effective December 9, 2013, the Company 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 $10,000 per month, commencing in April 2014, 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 our trademarks. Starlight will purchase the licensed products from the Company or its affiliates at the Company’s cost plus 25%. Robert M. Gans, our President, Chief Executive Officer and a director, is the majority owner (92.165%) of Star Light Events LLC and Howard Rosenbluth, our Secretary, Treasurer and a Director, owns 1%. Starlight owes the Company a royalty receivable of $130,000 as of December 31, 2016 and December 31, 2015, which has been fully reserved. Starlight is currently closed.
| F-13 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
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.
The total amounts due to the various related parties as of December 31, 2016 and December 31, 2015 was $9,074 and $180,000 respectively and the total amounts due to the Company from the various related parties as of December 31, 2016 and December 31, 2015 was $396,807 and $266,807, respectively of which $396,807 has been reserved as December 31, 2016.
Note 4. Intangible Assets
Trademark
In connection with the acquisition of Scores Licensing Company (“SLC”) as discussed above, the Company acquired the trademark to the name "SCORES". This trademark had a gross recorded value at December 31, 2008 of $878,318 which had been increased for the purchase from SLC for $250,000. This trademark has been registered in the United States, Canada, Mexico, Costa Rica, Dominican Republic and the European Community. The trademark has been completely amortized by straight line method over an estimated useful life of ten years. The Company's trademark having an infinite useful life by its definition is being amortized over ten years due to the difficult New York legal environment for which the related showcase adult club is operating. As of December 31, 2011 the cost of the trademark has been fully amortized.
The Company believes that the carrying amount of the “Scores” trademark exceeds its fair or net present value as of December 31, 2016 and December 31, 2015.
| F-14 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 5. Licensees
The Company has 26 license agreements which were obtained between 2003 and 2016; Stone Park Entertainment Group, Inc. known as “Scores Chicago”, Club 2000 Eastern Avenue Inc. known as “Scores Baltimore”, Silver Bourbon, Inc. known as “Scores New Orleans”, I.M Operating LLC known as “Scores New York”, Tampa Food and Entertainment Inc. known as “Scores Tampa”, Swan Media Group, Inc. (formerly AYA International, Inc.) known as “Scores Live”, South East Clubs, LLC (which includes “Scores Savannah” and “Scores Jacksonville”), Starlight Events LLC known as “Scores Atlantic City”, Scores Licensing Corp known as “SLC”, Houston KP LLC known as “Scores Houston”, Parallax Management Corporation known as “Scores Gary”, Manhattan Fashions, LLC known as “Scores Harvey”, TWDDD, Inc. known as “Scores Mooresville”, High Five Management Inc. known as “Scores Greenville”, CG Consulting LLC known as “Scores Columbus”, The Cadillac Lounge LLC known as “Scores Providence”, Funn House Productions LLC known as “Scores New Haven”, Palm Springs Grill LLC known as “Scores Palm Springs”, CJ NYC Inc, known as “Scores Queens”, Cary Golf & Travel Inc. known as “Scores Raleigh”, 5111 Genesee St Inc. known as “Scores Tiffany Buffalo”, Mustang Sally’s Spirits and Grill, Inc. known as “Scores Tonawanda Buffalo”, Bonkers Space Coast, Inc. known as “Scores Green Bay”, NEW 4125 LLC known as “Scores Phoenix”, Southern Highland Centerfolds, Inc. known as “Scores Las Vegas” and 1715 Northside Drive Inc. known as “Scores Atlanta”. See Note 8 for litigation relating to a few of these clubs.
“IMO’s” members are our 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%). The club accounted for 0% and 7% of our royalty revenues for the years 2016 and 2015, respectively. Mr. Gans is also the majority owner (80%) of Swan Media Group, Inc., which accounted for 0% and 1% of our royalty revenues for the years 2016 and 2015, respectively. Mr. Gans is also the majority owner (92.165%) of Scores Atlantic City, which accounted for 0% and 10% of our royalty revenues for the years 2016 and 2015, respectively.
Note 6. Deferred Revenue
License agreements sometimes include Initiation/Inception Fees. These fees are recorded as deferred revenue and amortized over the life of the agreements, usually five years.
Note 7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of December 31, 2016 is comprised of professional fees of $12,800, accrued payroll and taxes of $3,487, legal fees of $2,000, filing fees of $2,248, marketing fees and expenses of $1,041 and miscellaneous accruals and payables of $5,000. Accounts payable and accrued expenses as of December 31, 2015 is comprised of accrued payroll and taxes of $189,742, professional fees of $22,050, legal fees of $20,192, filing fees of $2,452, marketing and advertising fees of $6,900 and miscellaneous accruals and payables of $5,000.
| F-15 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
Note 8. Commitments and Contingencies
The Company records $7,500 a month as rent, overhead, and services due to Metropolitan Lumber Hardware Building Supplies, Inc. for services rendered by the management of the Company. Mr. Gans is the sole owner of Metropolitan Lumber Hardware Building Supplies, Inc.
The Company currently leases office space from the Westside Realty of New York which is owned and operated by Robert Gans our majority shareholder, for $2,500 a month.
On February 19, 2015 we, together with our subsidiary SLC, filed an action against Norm A Properties LLC in the Supreme Court of the State of New York for the County of New York. Defendant utilizes the “Scores” name and trademark in connection with its ownership and operation of an adult entertainment club in Detroit, Michigan. In this action we sought damages for breach of contract in the amount of $110,000 plus interest, and the issuance of a permanent injunction prohibiting defendant from using the “Scores” name and trademark with respect to the Detroit club and all websites controlled by defendant. The defendant failed to appear and on August 31, 2015, the court entered a judgment in favor of the Company (which order was amended on October 17, 2015), awarding a total of $117,646.92 to the Company. In addition, the court ordered defendant to render an accounting to the Company and enjoined the defendant from using the “Scores” name and trademarks.
The Company was unable to collect on the judgement as the defendant, Norm. A. Properties, had no assets that could be found. The Company therefore filed another action with in the US District Court in the Southern District of New York seeking to recover the unpaid royalties from Scores Detroit, Inc., the company which is believed to have operated Scores Detroit and Majed Mike Dabish, its principal. On June 29, 2016 the court transferred the case to the US District Court for the Eastern District of Michigan for further proceedings. The parties are currently discussing a possible settlement of this matter.
On March 14, 2016 three individuals purporting to be adult entertainers who performed at Scores New York commenced a lawsuit in the SDNY on behalf of themselves and a putative collective and class. The lawsuit is captioned Taylor et al. v. I.M. Operating LLC, et al., Case No. 16cv1909 (ALC) (S.D.N.Y.) (the “Action”). The defendants in the Action, in addition to us, included IMO, Robert Gans and Mark Yackow. The Action alleged violation of federal and state wage and hour laws, including, inter alia, failure to pay minimum wage, overtime, spread of hours, uniform violations, and failure to provide wage notices and statements, arising from an alleged misclassification of the plaintiffs as independent contractors. The Action was withdrawn by Notice of Voluntary Dismissal, So Ordered on May 11, 2016, in favor of the Arbitrations discussed below.
| F-16 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
On April 3, 2016, fifty (50) individuals purporting to be professional models and/or actresses, 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, “Defendants”), alleging images of the 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 further alleges 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 asserts 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; defamation; as well as various common law torts, namely negligence, conversion, unjust enrichment and quantum merit. The lawsuit seeks unspecified compensatory damages, punitive damages, as well as attorneys’ fees and costs. The lawsuit also seeks an injunction permanently enjoining the use of the individuals’ images to promote, via any medium, any of the clubs. On January 5, 2017, the Court issued an Order granting in part, and denying in part, the Defendants’ motion to dismiss the Complaint. Following the issuance of the Order, an amended complaint was filed and the Defendants have interposed an answer with affirmative defenses. The case is currently in the discovery phase. The Company, along with all of the Defendants, intends to vigorously defend themselves against the claims asserted against them in this lawsuit.
On or about July 22, 2016 three individuals, Courtney Taylor, Heidi Swensen and Trace Byers, (collectively the “Claimants”) who formerly performed as adult entertainers at Scores New York, owned in its entirety by I.M. Operating LLC, each brought individual and separate arbitrations (collectively, the “Arbitrations”) against Scores NY as well as, among others, the Company. The American Arbitration Association is administering the Taylor, Swensen and Byers Arbitrations, identified by case numbers 01-16-0003-1171, 01-16-0003-1170 and 01-16-0003-1169, respectively. The Claimants allege that they were misclassified as independent contractors, that they should have been classified as employees, and as a result the respondents, including the Company, violated, inter alia, applicable federal and state wage and hour laws. The Arbitrations seek unspecified compensatory damages, liquidated damages, as well as attorneys’ fees and costs.
Discovery has been exchanged in each of the Arbitrations but depositions have not been taken.
Given that the Arbitrations are in their preliminary stages; it is not possible at this juncture to ascertain the likelihood of an unfavorable outcome.
The parties have exchanged written discovery. The Arbitrations have stayed to allow the parties to pursue mediation, which is currently scheduled for May 3, 2017.
| F-17 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
The Arbitrations follow the filing and subsequent voluntary dismissal of the Action, as discussed above.
On or about December 20, 2016 three individuals, Stacey Scott, Angelica Andrade and Dislenia Munoz (“Claimants”), who formerly performed as adult entertainers at Scores New York, owned in its entirety by I.M. Operating LLC, each brought individual and separate arbitrations against Scores NY as well as, among others, the Company (the “Arbitrations”). The American Arbitration Association assigned the Scott, Andrade and Munoz_Arbitrations case numbers 01-16-0005-5566, 01-16-0005-5565 and 01-16-0005-5563, respectively. The Claimants allege that they were misclassified as independent contractors, that they should have been classified as employees, and as a result the respondents, including the Company, violated, inter alia, applicable federal and state wage and hour laws. The Arbitrations sought unspecified compensatory damages, liquidated damages, as well as attorneys’ fees and costs. The Company intends to vigorously defend against the claims asserted against it in the Arbitrations. Given that the Arbitrations are in their preliminary stages, it is not possible at this juncture to ascertain the likelihood of an unfavorable ruling.
On January 3, 2017, we, together with our 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 we 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, we filled a motion for judgment by default. The court has scheduled a hearing on the motion for April 5, 2017.
| F-18 |
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Consolidated Financial Statements
On January 31, 2017 we, together with our 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 we 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.
On or about February 22, 2017, Natalia Titova (“Claimant”), who formerly performed as an adult entertainer at Scores New York, owned in its entirety by I.M. Operating LLC, brought an arbitration (the “Arbitration”) against, among others, the Company. The American Arbitration Association assigned the Arbitration Case No. 01-17-0001-1232. The Claimant alleges that she was misclassified as an independent contractor, that she should have been classified as an employee, and as a result the Respondents violated, among other things, applicable federal and state wage and hour laws. The Arbitration seeks unspecified compensatory damages, liquidated damages, as well as attorneys’ fees and costs. The Company intends to vigorously defend against the claims asserted against it in the Arbitrations. Given that the Arbitrations are in their preliminary stages, it is not possible at this juncture to ascertain the likelihood of an unfavorable ruling.
There are no other material legal proceedings pending to which the Company or any of its property is subject, nor to our knowledge are any such proceedings threatened.
Note 9. SUBSEQUENT EVENTS
Effective January 1, 2017 the terms of the Management Agreement with Metropolitan Lumber, Hardware & Building Supplies, Inc. have been amended to remove the reference to services from Robert M. Gans.
Effective February 28, 2017 (the “Effective Date”), we entered into separate Settlement Agreements (each, a “Settlement Agreement”) with three licensees, I.M. Operating LLC (“IMO”), Star Light Events LLC (“Star Light”) and Swan Media Group, Inc. (“Swan”), controlled by Robert M. Gans, our President, Chief Executive Officer and a member of our Board of Directors.
As of the Effective Date, IMO owed us 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 us, in full settlement of all claims we 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 us under its license agreement from and after the Effective Date.
As of the Effective Date, Starlight owed us an aggregate of $250,000 in unpaid royalties and other fees. Starlight is currently inactive and has no revenue. Under its Settlement Agreement, Starlight has agreed to pay us $75,000, in full settlement of all claims we 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.
As of the Effective Date, Swan owed us an aggregate of $166,000 in unpaid royalties and other fees. Swan is currently unprofitable. Under its Settlement Agreement, Swan has agreed to pay us $50,000, in full settlement of all claims we 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 us under its license agreement from and after the Effective Date.
Mr. Gans personally guaranteed the obligations of each of IMO, Starlight and Swan under their respective promissory notes.
The terms of the Settlement Agreement are similar to the terms of the settlement we are currently negotiating into with unaffiliated third parties with respect to amounts owed to us by a former licensee. See “Item 3. Legal Proceedings” for additional information regarding this matter. Accordingly, we believe the terms of the Settlement Agreements are fair to the Company, and are no less favorable to us than we could have obtained in an adversarial proceeding.
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 financial statements.
| F-19 |