Summary of Significant Accounting Principles	6 Months Ended
Jun. 30, 2023
Summary of Significant Accounting Principles
Summary of Significant Accounting Principles	Note 2.Summary of Significant Accounting Principles COVID-19 As a result of the COVID-19 virus, during the first quarter of 2020 and ongoing, state and local governments have required all but certain essential businesses to close, including all 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 that continued in 2021. 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 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. Going Concern As of June 30, 2023, the Company had an accumulated deficit totaling $6,848,485 and working capital deficit of $175,182. 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 within one year after the date the financials are issued. 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. Revenue Recognition Under ASC 606, revenue from the initiation fees are recognizable at a point in time (first month of the contract) and royalty revenues are recognized over time for those contracts with probable collections. The Company’s license fee revenue is generated from royalties earned through intellectual property licensing agreements which permit the licensee to use the recognition and status of the Scores brand in order to promote their businesses. Under ASC 606, revenue is recognized throughout the life of the executed licensing agreement. The Company measures revenue based on consideration specified in a contract with a customer. Furthermore, the Company recognizes revenue when it satisfies a performance obligation by transferring control over the service to its customer. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The Company’s customers typically receive the benefit of its services as they are performed. Substantially all customer contracts provide that the Company is compensated for services performed to date. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Contract Liabilities arise when the company collects cash from a customer, however if steady collection is not considered probable under ASC 606, the revenue is deferred until collection becomes probable or the contract is terminated. Nature of goods and services The following is a description of the Company’s products and services from which it generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each: i. Licensing Revenue Licensing fees represent the fees the Company receives from the licensing of the Company’s Scores trademark. 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. The licensing rights are transferred to the Company’s customers over time, and the Company recognizes licensing revenue over time because the customer will simultaneously receive and consume the benefit from the license as the performance occurs. ii. Stand-Ready for Consulting and Club Set-up Services The Company offers an initial set-up and consultation to new clubs in order to aid in the opening and operation. The services are provided within the first month of any licensing agreements, and sometimes are not requested by the licensee and therefore never provided. Concentration of Credit Risk The Company received royalty revenues from 6 licensees during the 3 months ended June 30, 2023 and 6 months ended June 30, 2023. With regards to three months ending June 30, 2023, concentrations of revenue from four licensees from 12% to 43%, totaling 91%. With regards to six months ending June 30, 2023, concentrations of revenue from four licensees from 15% to 28%, totaling 88%. There are two receivables from three licensees totaling 100%. There are no revenues or receivables from these licensees that are considered related parties. With regards to three months ending June 30, 2022, concentrations of revenue from four licensees for from 10% to 33%, totaling 94%. With regards to six months ending June 30, 2022, concentrations of revenue from two licensees for 26% to 47%, totaling 73%. There is one receivable from one licensee totaling 100%. There are no revenues or receivables from licensees that are considered related parties. Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. 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. At June 30, 2023 and December 31, 2022, the uninsured balance amounted to $-0- and $-0-, respectively. 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. As of June 30, 2023, there are no outstanding stock equivalents. Accordingly, the weighted average number of common shares outstanding for the periods ended June 30, 2023 and 2022, respectively, is the same for purposes of computing both basic and diluted net income per share for such periods. 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 identical 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 or quoted prices in active markets for similar assets or liabilities. Level 3: Unobservable inputs are used when little or no market data is available including the Company’s own assumptions in determining the fair value. The fair value hierarchy gives the lowest priority to Level 3 inputs. Recently Issued Accounting Standards Update Credit loss In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendment to the initial guidance: ASU 2018-19 (collectively, Topic 326). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted Topic 326, and the adoption did not have a material impact on the Company’s consolidated financial statements. All other 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.

Summary of Significant Accounting Principles

6 Months Ended

Jun. 30, 2023

Summary of Significant Accounting Principles

Summary of Significant Accounting Principles

Note 2.Summary of Significant Accounting Principles

COVID-19

As a result of the COVID-19 virus, during the first quarter of 2020 and ongoing, state and local governments have required all but certain essential businesses to close, including all 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 that continued in 2021.

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 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.

Going Concern

As of June 30, 2023, the Company had an accumulated deficit totaling $6,848,485 and working capital deficit of $175,182. 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 within one year after the date the financials are issued. 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.

Revenue Recognition

Under ASC 606, revenue from the initiation fees are recognizable at a point in time (first month of the contract) and royalty revenues are recognized over time for those contracts with probable collections.

The Company’s license fee revenue is generated from royalties earned through intellectual property licensing agreements which permit the licensee to use the recognition and status of the Scores brand in order to promote their businesses. Under ASC 606, revenue is recognized throughout the life of the executed licensing agreement. The Company measures revenue based on consideration specified in a contract with a customer. Furthermore, the Company recognizes revenue when it satisfies a performance obligation by transferring control over the service to its customer.

A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. The Company’s customers typically receive the benefit of its services as they are performed. Substantially all customer contracts provide that the Company is compensated for services performed to date. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Contract Liabilities arise when the company collects cash from a customer, however if steady collection is not considered probable under ASC 606, the revenue is deferred until collection becomes probable or the contract is terminated.

Nature of goods and services

The following is a description of the Company’s products and services from which it generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each:

i. Licensing Revenue

Licensing fees represent the fees the Company receives from the licensing of the Company’s Scores trademark. 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. The licensing rights are transferred to the Company’s customers over time, and the Company recognizes licensing revenue over time because the customer will simultaneously receive and consume the benefit from the license as the performance occurs.

ii. Stand-Ready for Consulting and Club Set-up Services

The Company offers an initial set-up and consultation to new clubs in order to aid in the opening and operation. The services are provided within the first month of any licensing agreements, and sometimes are not requested by the licensee and therefore never provided.

Concentration of Credit Risk

The Company received royalty revenues from 6 licensees during the 3 months ended June 30, 2023 and 6 months ended June 30, 2023.

With regards to three months ending June 30, 2023, concentrations of revenue from four licensees from 12% to 43%, totaling 91%. With regards to six months ending June 30, 2023, concentrations of revenue from four licensees from 15% to 28%, totaling 88%. There are two receivables from three licensees totaling 100%. There are no revenues or receivables from these licensees that are considered related parties.

With regards to three months ending June 30, 2022, concentrations of revenue from four licensees for from 10% to 33%, totaling 94%. With regards to six months ending June 30, 2022, concentrations of revenue from two licensees for 26% to 47%, totaling 73%. There is one receivable from one licensee totaling 100%. There are no revenues or receivables from licensees that are considered related parties.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. 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. At June 30, 2023 and December 31, 2022, the uninsured balance amounted to $-0- and $-0-, respectively.

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. As of June 30, 2023, there are no outstanding stock equivalents. Accordingly, the weighted average number of common shares outstanding for the periods ended June 30, 2023 and 2022, respectively, is the same for purposes of computing both basic and diluted net income per share for such periods.

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 identical 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 or quoted prices in active markets for similar assets or liabilities.

Level 3: Unobservable inputs are used when little or no market data is available including the Company’s own assumptions in determining the fair value. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Recently Issued Accounting Standards Update

Credit loss

In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendment to the initial guidance: ASU 2018-19 (collectively, Topic 326). ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted Topic 326, and the adoption did not have a material impact on the Company’s consolidated financial statements.

All other 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 10-Q