Notes to Condensed Consolidated Financial Statements
(Unaudited)
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”).
Our condensed consolidated financial statements
include our accounts, as well as those of our wholly-owned subsidiary. Certain prior period amounts have been reclassified
to conform to the current period presentation. Our accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnote disclosures required by U.S. GAAP for complete financial statements. The
condensed consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the condensed
consolidated results of operations and financial position for the interim periods presented. All such adjustments are
of a normal recurring nature. These unaudited condensed interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes to the consolidated financial statements contained in
our Annual Report on Form 10-K for the year ended December 31, 2016.
The preparation of financial statements in
conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. The results of
operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for any other
interim period or for the year ending December 31, 2017.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2. Summary of Significant Accounting
Principles
Going Concern
As of March 31, 2017 the Company has cumulative
losses totaling $(6,118,108) and working capital of $151,945. The Company had a net loss of $(52,955) for the three months ended
March 31, 2017. 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.
Concentration of Credit Risk
The Company earns predominately royalty revenues
and to a lesser extent initiation fees from 23 licensees.
With regards to 2017, concentrations of sales
from 3 licensees range from 14% to 15%, totaling 44%. There are receivables from 4 licensees ranging from 20% to 26% totaling 91%.
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 20%, 23% and 26%, most of which has been reserved.
With regards to 2016, concentrations of sales
from 4 licensees range from 13% to 16%, totaling 55%. There are receivables from 4 licensees ranging from 13% to 28% totaling 89%.
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 23%, 25% and 28%, most of which has been reserved.
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.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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.
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.
Income per Share
Net income per share data for both the three-month
periods
ending March 31, 2017 and 2016 are based on net income available to common shareholders divided by the weighted average of
the number of common shares outstanding. As of March 31, 2017, there are no outstanding stock equivalents.
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.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
New Accounting Pronouncements
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
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 $109,876 and $122,109 in unpaid royalties and expenses as of March
31, 2017 and December 31, 2016, respectively 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 $86,103 and $144,698 as of March 31, 2017 and December 31, 2016, respectively 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 27
th
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 $7,500 and $0 in unpaid rents as of March 31, 2017 and December 31, 2016, 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. 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 $22,500 and $0
in unpaid management services as of March 31, 2017 and December 31, 2016, respectively.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company has accrued expenses of $8,926
due to Metropolitan Lumber Hardware and Building Supplies, Inc. The Company owes $8,926 and $9,074 as of March 31, 2017 and December
31, 2016, respectively.
During
the 2
nd
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 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.
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 $99,314
and $130,000 as of March 31, 2017 and December 31, 2016, respectively which has been fully reserved. Starlight is currently closed.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 recently entered into with unaffiliated third parties with respect to a former licensee in Detroit,
Michigan. See “Item 3. Legal Proceedings” for additional information regarding this settlement. Accordingly, we believe
the terms of the Settlement Agreement are fair to both the Company and the Settling Licensees, and are no less favorable to us
than we could have obtained in an adversarial proceeding.
In March 2017, the Company paid a $100,000 bonus to Robert Gans.
The total amounts due to the various related
parties as of March 31, 2017 and December 31, 2016 was $38,926 and $9,074 respectively and the total amounts due to the Company
from the various related parties as of March 31, 2017 and December 31, 2016 was $295,293 and $396,807, respectively of which $295,293
has been reserved as March 31, 2017.
Note 4. Licensees
The Company has 26 license agreements which
were obtained between 2003 and 2017.
On March 16, 2016, we (through our subsidiary
Scores Licensing Corp.) entered into a trademark license agreement with Michael Blutrick, granting a non-exclusive grant of rights
and licenses owned by the Company to the licensee for the right to use. The license, which is renewable, was for a term of twelve
months and has been extended. See Note 6 for litigation relating to a few of the Company’s license agreements.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
“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 0% of our royalty revenues for the three months ended March 31, 2017 and 2016, respectively.
Mr. Gans is also the majority owner (80%) of Swan Media Group, Inc., which accounted for 0% and 0% of our royalty revenues for
the three months ended March 31, 2017 and 2016, respectively. Mr. Gans is also the majority owner (92.165%) of Scores Atlantic
City, which accounted for 0% and 0% of our royalty revenues for the three months ended March 31, 2017 and 2016, respectively.
Note 5. 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 6. 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.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 subsequently settled
this matter for $60,000, and the settlement agreement was filed with the court on April 28, 2017. Defendant has paid the Company
$20,000 pursuant to the settlement agreement. An additional $20,000 is due by July 1st and a final $20,000 payment is due by October
1st.
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.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On April 20, 2017, as a result of the claims
asserted in the above action, the Company filed a third-party complaint against certain licensees, namely CG Consulting, LLC; Anthony
Quaranta; High Five Management Group, Inc.; Club 2000 Eastern Avenue, Inc.; SCMD, LLC; David Baucom; Manhattan Fashion L.L.C.;
Stone Park Entertainment, Inc.; Silver Bourbon, Inc.; Tampa Food & Entertainment, Inc.; Fuun House Productions, L.L.C.; Norm
A Properties, LLC; Southeast Show Clubs, LLC; Michael Tomkovich; Palm Spring Grill LLC; Houston KP LLC; and Star Light Events LLC
(collectively, “Third-Party Defendants”) asserting causes of action for breach of contract, breach of warranty, contractual
indemnification, common law indemnification, contribution and breach of contract for failure to procure insurance. The Company
alleges, among other things, that the Third-Party Defendants breached their respective license agreements by using promotional,
marketing and advertising materials, including the images of the individuals implicated in the above-action without obtaining the
Company’s approval and utilizing, publishing and/or disseminating the images of such individuals on their respective websites
and/or social media accounts without all appropriate permissions, authorizations, releases or licenses in violation of the rights
of such individuals. Additionally, the Company has alleged that pursuant to the Third-Party Defendants’ respective license
agreements, each of the Third-Party Defendants are expressly obligated to indemnify, defend and hold harmless the Company, among
others, for the claims asserted by the individuals in the above-action, including any resulting judgment, verdict or settlement
obtained by such individuals based on the claims asserted in the amended complaint, as well as all amounts the Company has expended,
and will continue to expend, in investigating and defending the claims asserted in the Amended Complaint. The Company is also seeking
damages from the Third-Party Defendants for allegedly failing to procure insurance for the Company’s benefit, as required
by the Third-Party Defendants’ respective license agreements.
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.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Arbitrations were resolved by way of
settlement on May 3, 2017.
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. At
this time, pursuant to a tolling agreement, the Arbitrations have been withdrawn and the parties will be pursuing mediation, which
is currently scheduled for August 10, 2017.
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 heard our motion on April 5, 2017, and on May 25, 2017 the court granted
our motion for a Judgment by default, granting a permanent injunction and awarding damages in the amount of $85,000 to SLC and
$14,333.33 in damages and $529.99 in costs to us.
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. The parties are attempting to negotiate a payment schedule.
SCORES HOLDING CO., Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. At this time,
pursuant to a tolling agreement, the Arbitration has been withdrawn and the parties will be pursuing mediation, which is currently
scheduled for August 10, 2017.
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 7. SUBSEQUENT EVENTS
In
May 2017, the Company paid a $25,000 bonus to Robert Gans.
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.