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 subsequently settled this matter for $60,000, pursuant to the settlement agreement. A satisfaction of judgment was filed with the Court on or about October 30, 2017.

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 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 Defendants 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; however, while discovery is ongoing, the parties are engaged in settlement discussions in an attempt to resolve the claims asserted in the lawsuit.

On April 20, 2017, as a result of the claims asserted in the above action, the Company filed a third-party complaint against certain current and former 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.; Funn 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 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. All signage has been removed and the Company is attempting to collect on the default judgment.

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 negotiated a settlement agreement, which included a payment schedule, but then Defendant did not sign the proposed settlement agreement. The Company is attempting to collect on the default judgment.

On or about July 25, 2017, plaintiff Dislenia Munoz (“Plaintiff”), who formerly performed as an adult entertainer at Scores New York, owned in its entirety by I.M. Operating LLC (“I.M. Operating”), commenced a putative class action lawsuit (the “Lawsuit”) against the Company, I.M. Operating, Robert Gans and Mark Yackow (collectively, “Defendants”) in the Supreme Court of the State of New York, County of New York. Plaintiff alleges that she and other similarly situated entertainers at Scores New York were misclassified as independent contractors, that they should have been classified as employees, and as a result, the defendants violated, among other things, applicable state wage and hour laws. The Lawsuit seeks unspecified compensatory damages, liquidated damages, as well as attorneys’ fees and costs. The Company, along with all of the Defendants, intend to vigorously defend themselves against the claims asserted against them in the Lawsuit. At this time, the parties have reached a settlement in principle to resolve the claims in the Lawsuit which is being memorialized in a written agreement to be submitted to the court for approval.

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.