Quarterly Report for Quarter Ending September 30, 2023 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

Scores Holding Company, Inc. ("Scores," the "Company," "we," "us" or "our") was incorporated in Utah on September 21, 1981 under the name Adonis Energy, Inc. We adopted our current name in July 2002. Since 2003, we have been in the business of licensing the "Scores" trademarks and other intellectual property to fine gentlemen's nightclubs with adult entertainment in the United States. As of June 17, 2024, there are six such clubs operating under the Scores name, in Chicago, Illinois; Tampa, Florida; Mooresville, North Carolina; Palm Springs, Florida, Las Vegas, Nevada, and Huntsville Alabama.

On January 27, 2009, Mitchell's East LLC, wholly owned by Robert M. Gans, acquired a majority interest in our outstanding capital stock. I.M. Operating LLC ("IMO"), which is partially owned by Robert M. Gans who is also our majority shareholder, has signed a licensing agreement with us and commenced operations in New York of a new club (the "New York Club") under the Scores name in May 2009. Effective September 1, 2017, IMO no longer owned or operated the New York Club and terminated its licensing agreement with the Company. IMO sold the New York Club to Club Azure LLC ("CA") which was owned by Mark Yackow who is the sole owner (100%) of CA and former Chief Operating Officer of IMO. Mr. Yackow passed away on October 12, 2020. Effective September 1, 2017, the Company granted an exclusive, non-transferable license for the use of the "Scores New York" to CA for the New York Club.

Impact of COVID-19

As a result of the COVID-19 virus, during the first and second quarter of 2020, state and local governments have required all but certain essential businesses to close, including all eight clubs operating under the Scores name. The impact on such clubs' revenue was material in 2020 and resulted in a significant decline in our royalty revenues.

Upon management's evaluation of relevant hospitality industry conditions and events known as of the date that these financial statements are issued it is their belief the financial effects of the Covid 19 pandemic will not have a substantial or long term effect on the financial viability of the adult entertainment industry. There will be operational changes to be certain but not a consequentially detrimental impact on the industry.

That said it should be noted all royalty paying licensees have reopened and are current. That said it should be noted that all royalty paying licensees have reopened. In addition, cash collections increased from $235,000 during 2020 to $235,600, to $858,000 to $221,500 during 2021, 2022 and 2023 respectively.

Although there are fewer licensees and some of the licensing fees have been re-negotiated management believes the worst of the effects the Covid 19 pandemic are over. The lifting of many, if not all, gathering restrictions imposed by local government has vastly improved the appeal of adult entertainment-oriented establishments. Consequently, the Company has seen a recent increase in the number of such establishments interested in utilizing the SCORES brand trademarks.

Summary of Critical Accounting Policies and Estimates

There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2023 from our critical accounting policies and estimates disclosed under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Form 10-K.

Results of Operations

Three Months Ended September 30, 2023 ("the 2023 three-month period") Compared to Three Months Ended September 30, 2022 ("the 2022 three-month period").

Revenues:

Revenues remained the same at $73,500 for the 2023 three-month period and for the 2022 three-month period.

Our licenses are structured such that we receive royalty payments representing a percentage of revenues of the licensee, or structured with a flat monthly rate.

Other Expense

Total other expenses decreased to $0 for the 2023 three-month period from $(392) from the 2022 three-month period. Total other expenses for the 2023 three month-period included interest expense of $0, as the loan has been repaid and $392, for the 2022 three month-period.

General and Administrative Expenses:

General and administrative expenses decreased slightly during the 2023 and 2022 three-month period to $53,749 from $77,344, respectively. Legal expenses, which are reflected in general and administrative expenses, attributable to ongoing litigation amounted to $5,122 for 2023 and $5,961 for 2022.

Provision for Income Taxes

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

Net Income/(Loss):

Our net income $19,751 or $0.000 per share for the 2023 three-month period as comparted to our net loss ($4,236) or ($0.000) per share for the 2022 three-month period. This increase in our net income in 2023 was due to recognition of income that was previously deferred with ASC 606.

Net income/(loss) per share data for both the 2023 three-month period and the 2022 three-month period is based on net income/(loss) available to common shareholders divided by the weighted average of the number of common shares outstanding.

Nine Months Ended September 30, 2023 ("the 2023 nine-month period") Compared to Nine Months Ended September 30, 2022 ("the 2022 nine-month period").

Revenues:

Revenues decreased to $276,500 for the 2023 nine-month period from $561,000 for the 2022 nine-month period. Revenues primarily decreased as we recognized previously deferred income under ASC 606.

Our licenses are structured such that we receive royalty payments representing a percentage of revenues of the licensee, or structured with a flat monthly rate.

Other Expense

Total other expenses decreased to $(587) for the 2023 nine-month period from $(5,292) for the 2022 nine-month period. Total other expenses for the 2023 nine-month-period and 2022 nine- month-period included interest expense of $587 and $5,292, respectively.

General and Administrative Expenses:

General and administrative expenses decreased slightly during the 2023 and 2022 nine-month period to $228,049 from $252,786, respectively. Virtually all of the decrease in operating expenses can be attributed to the decrease in legal expenses and reduction of day to day expenses. Legal expenses, which are reflected in general and administrative expenses, attributable to ongoing litigation amounted to $10,617 for 2023 and $44,195 for 2022.

Provision for Income Taxes

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

Net Income:

Our net income $47,864 or $0.000 per share for the 2023 nine-month period as compared to our net income $302,922 or $0.002 per share for the 2022 nine-month period. This decrease in our net income is due to recognition of income that was previously deferred with ASC 606 in the prior year.

Net income per share data for both the 2023 nine-month period and the 2022 nine-month period is based on net income available to common shareholders divided by the weighted average of the number of common shares outstanding.

Liquidity and Capital Resources

Going Concern:

Various conditions such as the accumulated losses, working capital deficit, significant debt, and the results of litigation raise substantial doubt about the Company's ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Cash:

At September 30, 2023, we had $57,633 in cash and cash equivalents compared to $7,600 in cash and cash equivalents at December 31, 2022.

Operating Activities:

Net cash provided by operating activities for the 2023 and 2022 nine-month period was $50,033 and $354,710, respectively. The decrease in cash is related to the receipt of monies related to the collection of deferred revenue and collection of trade receivable, in 2022.

Financing Activities:

Net cash used in financing activities for the 2023 nine-month period was $0 and net cash used in financing activities for the 2022 nine-month period was ($374,346).

Investing Activities:

Net cash provided by investing activities for the 2023 nine-month period was $0 and net cash used in investing activities for the 2022 nine-month period was $0.

Future Capital Requirements:

We have incurred significant losses since the inception of our business. Since our inception, we have been dependent on funding from private lenders and investors to conduct operations. As of September 30, 2023, we had an accumulated deficit of $(6,828,734). As of September 30, 2023, we had total current assets of $90,633 and total current liabilities of $250,564 or working capital deficit of $159,931. As of December 31, 2022, we had total current assets of $58,186 and total current liabilities of $263,981 or working capital deficit of $205,795. The decrease in the amount of working capital deficit has been primarily attributable to the extinguishment of the related party payable.

We will continue to evaluate possible acquisitions of or investments in businesses, products and technologies that are complementary to ours. These may require the use of cash, which would require us to seek financing. We may sell equity or debt securities or seek credit facilities to fund acquisition-related or other business costs. Sales of equity or convertible debt securities would result in additional dilution to our stockholders. We may also need to raise additional funds in order to support more rapid expansion, develop new or enhanced services or products, respond to competitive pressures, or take advantage of unanticipated opportunities. Our future liquidity and capital requirements will depend upon numerous factors, including the success of our adult entertainment trademark licensing business.

Statement of Forward-Looking Information

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are "forward-looking", including statements contained in this report and other filings with the Securities and Exchange Commission, reports to the Company's shareholders. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", "projects", "forecasts", "may", "should", variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and contingencies that are difficult to predict. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf of the Company are qualified by the cautionary statements in this section. Many of the factors that will determine the Company's future results are beyond the ability of management to control or predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements.

The forward-looking statements contained in this report include, but are not limited to, statements regarding (1) the Company's ability to finance its future working capital.

The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

Recently Issued Accounting Pronouncements

See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2023.

Impact of inflation and seasonality

We do not anticipate any changes due to inflation and/or seasonality.