10-K: Scores Holding Company Reports Increased Revenue in 2022 Annual Filing

Scores Holding Company's 2022 10-K filing reveals a significant increase in revenue compared to the previous year, alongside ongoing legal proceedings and internal control weaknesses.

Summary

• Scores Holding Company, Inc., a licensor of the Scores brand for adult entertainment nightclubs, filed its Form 10-K for the year ended December 31, 2022.
• The company reported an increase in revenue to $634,500 in 2022 from $241,001 in 2021, primarily due to the easing of COVID-19 restrictions and the recognition of previously deferred revenue under ASC 606.
• The company's net income was $262,084, or $0.00 per share, compared to a net loss of $147,022, or ($0.00) per share, in the previous year.
• As of February 26, 2025, there were five clubs operating under the Scores name.
• The company is involved in several legal proceedings, including disputes with licensees and employment-related claims.
• Management identified material weaknesses in internal control over financial reporting related to timely information generation and review of journal entries and account reconciliations.
• The company has an accumulated deficit of $6,876,598 and a negative working capital deficit of $205,765, raising substantial doubt about its ability to continue as a going concern.
• The company's common stock is quoted on OTC Pink under the symbol SCRH, but it is currently designated as 'Pink No Information'.
• Robert M. Gans, the President, CEO, and a director, beneficially owns 53.8% of the company's common stock.
• The company has never declared any cash dividends and intends to retain future earnings for business use.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While revenue and net income improved, the company faces significant financial challenges and internal control weaknesses. The sentiment is neutral, reflecting both positive and negative aspects.

Positives

• Revenue increased significantly in 2022 due to easing COVID-19 restrictions and recognition of deferred revenue.
• The company achieved net income in 2022, a significant improvement from the net loss in 2021.
• All royalty-paying licensees have reopened and are current on their payments.
• Management believes the worst effects of the COVID-19 pandemic are over, and the company has seen an increase in interest from establishments wanting to use the Scores brand.
• The company paid off the Voronina Note in full on March 28, 2022, for $373,068.

Negatives

• The company has a significant accumulated deficit and negative working capital, raising doubts about its ability to continue as a going concern.
• Material weaknesses exist in internal control over financial reporting.
• The company is involved in several ongoing legal proceedings.
• The company's stock is quoted on OTC Pink but is designated as 'Pink No Information'.
• The company had no employees as of December 31, 2022, relying on a management services agreement with Metropolitan.

Risks

• The company's ability to continue as a going concern is uncertain due to accumulated losses and negative working capital.
• Ongoing legal proceedings could result in significant expenses and liabilities.
• Failure to maintain effective internal controls could lead to misstatements in financial reporting.
• The adult nightclub entertainment business is highly competitive.
• Changes in government regulations, such as liquor licenses and zoning restrictions, could adversely affect licensees' operations and the company's cash flow.
• Cybersecurity threats, although not currently considered a material risk, could pose a future challenge.

Future Outlook

Management believes 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 and anticipates continued licensing of the Scores brand.

Management Comments

• Management believes the worst of the effects of the COVID-19 pandemic are over.
• Management has seen a recent increase in the number of establishments interested in utilizing the SCORES brand trademarks.
• Management believes the Company has adequate processes and systems to maintain the confidentiality of its communications and records.

Industry Context

The adult nightclub entertainment business is highly competitive, with sublicensed clubs competing with locally-owned establishments; however, the Scores brand name recognition is believed to provide a competitive advantage.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or comparable companies.
• The success of the 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.

Legal Proceedings

• The company is involved in several legal proceedings, including disputes with licensees and employment-related claims.
• A settlement in principle was reached in the Jessica Hall case, with SCRH and Harvey each paying Jessica B Hall $6,000.

Related Party Transactions

• The company has significant related-party transactions, including rent and management service agreements with entities owned by Robert M. Gans.
• The company entered into a Settlement and Offset Agreement to offset Royalty Amounts owed to the Company against the Voronina Amount owed to Metropolitan.

Stakeholder Impact

• Shareholders face uncertainty due to the company's going concern status and internal control weaknesses.
• Licensees are subject to competitive pressures and regulatory risks.
• The company's reliance on a management services agreement impacts employees.

Next Steps

• The company plans to continue efforts to improve internal control over financial reporting.
• Management and the Board of Directors will continue to monitor remedial measures and the effectiveness of internal controls and procedures.
• The company intends to raise additional working capital through the continued licensing of its brand.

Key Dates