EXHIBIT 99.2
FourCubed Management, LLC and Subsidiaries
Consolidated Financial Statements
As of June 30, 2021 and December 31, 2020 and
For the Six Months Ended
June 30, 2021 and 2020
FourCubed Management, LLC and Subsidiaries Table of Contents
Independent Accountant’s Review Report
The Members
FourCubed Management, LLC and Subsidiaries
Minneapolis, Minnesota
We have reviewed the accompanying consolidated financial statements of FourCubed Management, LLC and Subsidiaries, which comprise the consolidated balance sheets as of June 30, 2021 and December 31, 2020, and the related consolidated statements of operations, changes in members’ equity and cash flows for the six months ended June 30, 2021 and 2020, and the related notes to the consolidated financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Accountant’s Responsibility
Our responsibility is to conduct the review engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the consolidated financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.
We are required to be independent of FourCubed Management, LLC and Subsidiaries and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our review.
Accountant’s Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.
Minneapolis, Minnesota
January 17, 2022
FourCubed Management, LLC and Subsidiaries
As of June 30, 2021 and December 31, 2020
June 30, 2021 | 12/31/21 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 622,919 | $ | 1,186,219 | ||||
Accounts receivable, net | 475,993 | 518,931 | ||||||
Total current assets | 1,098,912 | 1,705,150 | ||||||
Noncurrent deferred tax asset | 5,500 | 5,500 | ||||||
Total assets | $ | 1,104,412 | $ | 1,710,650 | ||||
Liabilities and Members’ Equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 731,347 | $ | 703,792 | ||||
Accrued expenses | 12,354 | 15,394 | ||||||
Total current liabilities | 743,701 | 719,186 | ||||||
Long-term debt | — | 39,184 | ||||||
Total liabilities | 743,701 | 758,370 | ||||||
Members’ equity | 360,711 | 952,280 | ||||||
Total liabilities and members’ equity | $ | 1,104,412 | $ | 1,710,650 |
See notes to consolidated financial statements.
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FourCubed Management, LLC and Subsidiaries
Consolidated Statements of Operations
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Net sales | $ | 3,093,969 | $ | 3,516,533 | ||||
Cost of goods sold | 2,182,215 | 2,780,579 | ||||||
Gross profit | 911,754 | 735,954 | ||||||
Operating expenses | ||||||||
Selling | 220,360 | 31,840 | ||||||
General and administrative | 326,743 | 373,472 | ||||||
Total operating expenses | 547,103 | 405,312 | ||||||
Income from operations | 364,651 | 330,642 | ||||||
Other income (expense), net | 22,047 | (21,197 | ) | |||||
Net income before income taxes | 386,698 | 309,445 | ||||||
Income tax expense | — | 50,351 | ||||||
Net income | $ | 386,698 | $ | 259,094 |
See notes to consolidated financial statements.
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FourCubed Management, LLC and Subsidiaries
Consolidated Statements of Changes in Members’ Equity
Members’ | ||||
Equity | ||||
Balance - January 1, 2020 | $ | 783,836 | ||
Net income | 259,094 | |||
Member distributions | (74,625 | ) | ||
Balance - June 30, 2020 | $ | 968,305 | ||
Balance - January 1, 2021 | $ | 952,280 | ||
Net income | 386,698 | |||
Member distributions | (978,267 | ) | ||
Balance - June 30, 2021 | $ | 360,711 |
See notes to consolidated financial statements.
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FourCubed Management, LLC and Subsidiaries |
Consolidated Statements of Cash Flows |
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Cash Flows - Operating Activities | ||||||||
Net income | $ | 386,698 | $ | 259,094 | ||||
Adjustments to reconcile net income to net cash flows - operating activities | ||||||||
Deferred tax assets | — | (7,000 | ) | |||||
Gain on extinguishment of debt | (39,184 | ) | — | |||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable, net | 42,938 | (159,912 | ) | |||||
Prepaid expenses | — | (1,574 | ) | |||||
Accounts payable | 27,555 | 204,208 | ||||||
Income taxes payable | — | 12,491 | ||||||
Accrued expenses | (3,040 | ) | (1,046 | ) | ||||
Total adjustments | 28,269 | 47,167 | ||||||
Net cash flows - operating activities | 414,967 | 306,261 | ||||||
Cash Flows - Financing Activities | ||||||||
Proceeds from long-term debt | — | 39,184 | ||||||
Distributions | (978,267 | ) | (74,625 | ) | ||||
Net cash flows - financing activities | (978,267 | ) | (35,441 | ) | ||||
Net change in cash and cash equivalents | (563,300 | ) | 270,820 | |||||
Cash and Cash Equivalents | ||||||||
Beginning of period | 1,186,219 | 742,224 | ||||||
End of period | $ | 622,919 | $ | 1,013,044 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes | $ | — | $ | 43,500 |
See notes to consolidated financial statements.
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FourCubed Management, LLC and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
FourCubed Management, LLC (“FCM”) and subsidiaries (together referred to as “the Company”) operate as an advertising agency in the online gaming industry, which is primarily a pay-for- performance and incentive-based industry. The Company markets to international gaming operators and international online marketers. Online gaming operators and marketers partner with the Company to drive traffic to their websites through advertisements of incentive-based offers.
FCM is a limited liability company registered in the state of Minnesota. The members of the Company have limited liability under Minnesota law.
Trendfront Marketing International Limited is based in Malta and CCRTL, LLC is based in Nevis.
6t4 Company (6t4) is a Minnesota based S-Corporation that operates as the management company for the Company.
Principles of Consolidation
The consolidated financial statements represent the consolidated balances of FCM and its wholly-owned subsidiaries, Trendfront Marketing International Limited and CCRTL, LLC. The consolidated financial statements also include the activities of 6t4, as it was determined to be a variable interest entity. All material intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purpose of the consolidated statements of cash flows, the Company considers cash in financial institutions and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents. The Company had no cash equivalents at June 30, 2021, and December 31, 2020. The Company has cash in various financial institutions and electronic wallets. Certain cash balances may exceed balances subject to insured limits. As of June 30, 2021, and December 31, 2021, uninsured cash balances were approximately $229,000 and $800,000, respectively.
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FourCubed Management, LLC and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable, Net
The Company grants credit to its customers in the normal course of business and expects to receive payments within 30 days of invoice. Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. The Company evaluates its need for an allowance for doubtful accounts by performing a review of outstanding receivables, historical collection information, and existing economic conditions. Individual accounts are charged against the allowance when collection efforts have been exhausted. The allowance for doubtful accounts was approximately $21,000 and
$20,000 at June 30, 2021, and December 31, 2020, respectively.
Paycheck Protection Program Loan
During 2020, the Company applied for and obtained a forgivable loan under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The loan was subject to forgiveness if during a specified period after the loan origination, the company maintains the same number of employees, did not reduce salaries more than 25%, and uses the proceeds on eligible expenses including payroll, benefits, rents, and utilities. The Company has elected to account for the loan as debt as of December 31, 2020, and recorded the loan as other income once it was forgiven in 2021. The Company must retain all records relating to the loan for six years from the date of forgiveness and must permit authorized representatives from the SBA, including representatives of its Office of Inspector General, to access such files upon request.
Revenue Recognition
The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”), Revenue Recognition from Contracts with Customers. Generally, the Company earns advertising commissions from online gambling sites, for connecting players/gamblers to the sites and subsequent commissions are paid to the Company based on revenue sharing arrangements with the gambling site. The Company has one performance obligation, to make the connection between the online gambling site and the player/gambler. Subsequently, the Company has the right to future earnings from the online gambling site, based on that player/gambler’s activities. The Company recognizes revenue as the services are performed, which is when a player/gambler joins an online gambling site and/or when the player/gambler has performed a revenue share activity as identified in the terms of its contract with the online gambling site.
Cost of Sales
The Company may hire third party marketing partners to perform additional advertising services related to its agreements with online gambling sites. Marketing partners have the ability to earn commissions from the Company for providing advertising services. Cost of sales are recorded as the services are performed.
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FourCubed Management, LLC and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
FCM is an LLC that has elected to be taxed as a C-Corporation. FCM evaluates uncertain tax positions using the “more likely than not” threshold (i.e., a likelihood of occurrence greater than fifty percent). The recognition threshold is met when an entity concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are classified as a gross unrecognized tax benefit until the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. De-recognition of a tax position that was previously recognized occurs when an entity subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained.
Only the portion of the unrecognized tax benefit that is expected to be paid within one year is classified as a current liability. As a result, liabilities expected to be resolved without the payment of cash (e.g., resolution due to the expiration of the statute of limitations) or are not expected to be paid within one year are not classified as current. It is the Company’s policy to record estimated interest and penalties as income tax expense and tax credits as a reduction in income tax expense.
Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the financial reporting and tax basis of assets and liabilities. Income tax expense is the sum of the tax currently payable and the change in the deferred tax assets and liabilities during the period.
Valuation allowances are established when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. FCM evaluates the realizability of its deferred tax assets and the need for a valuation allowance based on all positive and negative evidence.
6t4 is treated as a pass-through entity for tax purposes. The members report taxable income or loss on their individual tax returns. Therefore, no provision or liability for income taxes has been included in the consolidated financial statements related to 6t4.
Foreign Currency Transaction Gain/Loss
The Company has determined the functional currency of Trendfront Marketing International Limited is the US Dollar. Foreign currency transaction gains and losses are reported in general and administrative expense and other income (expense) in the consolidated statements of operations. The Company recognized foreign currency transaction losses of approximately $17,000 during the six months ended June 30, 2021, of which approximately $31,000 is recorded in other income and a gain of approximately $14,000 is recorded in general and administrative expenses. The Company recognized foreign currency transaction losses of approximately $18,000 during the six months ended June 30, 2020, of which approximately $13,500 is recorded in other expense and approximately $4,500 is recorded in general and administrative expenses.
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FourCubed Management, LLC and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2 – CONCENTRATIONS, RISKS AND UNCERTAINTIES
Cash in Excess of FDIC Insured Limits
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. The Company has not experienced any losses in such accounts.
Customer Concentrations
During the six months ended June 30, 2021 and 2020, the Company had sales to one customer that represented approximately 86% and 87% of total sales, respectively. Accounts receivable balances due from this same customer represented approximately 72% and 88% of total accounts receivable at
June 30, 2021, and December 31, 2020, respectively. In addition, one additional customer accounts receivable balance represented 12% of total accounts receivable at June 30, 2021. The customer did not have a significant accounts receivable balance at December 31, 2020.
Marketing Partner Concentrations
The Company has established relationships with various marketing partners. The loss of a marketing partner could significantly impact the Company’s financial results.
COVID-19 Pandemic
A novel strain of coronavirus (“COVID-19”) was first identified in December 2019, and in March 2020, the World Health Organization categorized COVID-19 as a pandemic. The COVID-19 pandemic affects the Company’s customers, marketing partners, and employees. The ultimate impacts of COVID-19 on the business, results of operations, liquidity and prospects are not fully known at this time. The impact of the COVID-19 outbreak cannot be specifically identified and may result in changes in operations in the future.
NOTE 3 – LONG-TERM DEBT
As part of the Small Business Administration (SBA) Paycheck Protection Program (PPP), the Company received a loan in the amount of $39,184 in 2020. The loan bears interest at 1.00% per annum, however the principal balance of the loan and interest were forgiven subsequent to year end under the terms and conditions of the Coronavirus Aid, Relief, and Economic Security Act. During the six months ended June 30, 2021, the full amount was forgiven and recorded as other income.
The Company must retain all records relating to the loan for six years from the date of forgiveness and must permit authorized representatives from the SBA, including representatives of its Office of Inspector General, to access such files upon request.
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FourCubed Management, LLC and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 4 – INCOME TAXES
The provision for income taxes consists of state taxes currently due, and differs from the expected tax provision, computed by applying the federal corporate tax rate, as follows:
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Federal benefit at statutory rate | $ | — | $ | 36,000 | ||||
State taxes, net of federal benefit | — | 21,351 | ||||||
Deferred income taxes | — | (7,000 | ) | |||||
Total provision for income taxes | $ | — | $ | 50,351 |
Deferred tax assets consist of the following as of:
June 30, 2021 | December 31, 2020 | |||||||
Deferred tax asset | ||||||||
Accrued liabilities | $ | 5,500 | $ | 5,500 | ||||
Deferred tax asset | $ | 5,500 | $ | 5,500 |
NOTE 5 – VARIABLE INTEREST ENTITIES
FCM has consolidated activities with 6t4 as it was determined to be a variable interest entity. The carrying amount of assets and liabilities of 6t4 included in the consolidated financial statements are as follows at:
June 30, 2021 | December 31, 2020 | |||||||
Current assets | $ | 195,566 | $ | 823,575 | ||||
Long-term assets | — | — | ||||||
Current liabilities | $ | (703,493 | ) | $ | (700,746 | ) | ||
Long-term liabilities | — | (39,184 | ) |
NOTE 6 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through January 17, 2022, the date which the consolidated financial statements were available to be issued.
Subsequent to June 30, 2021, Trendfront Marketing International Limited was acquired by a third party.
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