Exhibit 16.1
Sinister Labs LLC
Balance Sheets
(Unaudited)
| For the six | ||||||||||||
| Months Ended | ||||||||||||
| December 31, 2019 | December 31, 2018 | June 30, 2020 | ||||||||||
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash | $ | 28,899 | $ | - | $ | 72,944 | ||||||
| Accounts receivable | 527,669 | 654,671 | 295,744 | |||||||||
| Other current assets | 856,253 | 1,592,356 | 332,791 | |||||||||
| Total current assets | 1,412,821 | 2,247,027 | 701,479 | |||||||||
| Fixed Assets | ||||||||||||
| Machinery, net | 1,949 | 1,949 | 1,949 | |||||||||
| Funiture & fixtures, net | - | - | 1,028 | |||||||||
| Total fixed assets | 1,949 | 1,949 | 2,977 | |||||||||
| Total Assets | $ | 1,414,770 | 2,248,976 | 704,456 | ||||||||
| Liabilities and Members Equity | ||||||||||||
| Current liabilites | ||||||||||||
| Accounts payable | $ | 403,491 | $ | 628,997 | 64,405 | |||||||
| Bank overdraft | - | 7,761 | - | |||||||||
| Credit cards | 31,379 | 18,377 | 2,200 | |||||||||
| Payroll liabilities | 332 | 11,481 | - | |||||||||
| Sales tax payable | 159 | 48 | - | |||||||||
| Other current liabilites | - | 304 | - | |||||||||
| Notes payable | 3,910,037 | 3,605,606 | 3,987,106 | |||||||||
| Total current liabilities | 4,345,398 | 4,272,574 | 4,053,711 | |||||||||
| Members Equity | ||||||||||||
| Accumulated Deficit | (2,930,628 | ) | (2,023,598 | ) | (3,349,255 | ) | ||||||
| Total equity | (2,930,628 | ) | (2,023,598 | ) | (3,349,255 | ) | ||||||
| Total liabilites and Members Equity | $ | 1,414,770 | $ | 2,248,976 | $ | 704,456 | ||||||
F-1
Sinister Labs LLC
Statements of Operations
(Unaudited)
| For the six months | ||||||||||||
| For the years ended | ended | |||||||||||
| December 31, 2019 | December 31, 2018 | June 30, 2020 | ||||||||||
| Revenue | $ | 2,239,266 | $ | 3,327,078 | $ | 271,394 | ||||||
| Cost of goods sold | 1,607,941 | 2,289,304 | 420,663 | |||||||||
| Gross profit | 631,325 | 1,037,774 | (149,269 | ) | ||||||||
| Operating expenses | - | |||||||||||
| Amazon Advertising Fees | 787 | - | 1,072 | |||||||||
| Bad Debt | 171,931 | - | - | |||||||||
| Charitable Contributions | - | 50 | - | |||||||||
| E-commerce Expenses | - | - | - | |||||||||
| CS Product Replacement | 1,463 | 626 | 393 | |||||||||
| D2C Shipping | 114,418 | 179,061 | 19,895 | |||||||||
| Digital Strategy | 65,000 | 132,000 | - | |||||||||
| Ecommerce Software | 12,712 | 3,253 | 7,901 | |||||||||
| Gateway Fees | 120 | 120 | 60 | |||||||||
| Merchant Fees | 16,184 | 16,977 | 4,574 | |||||||||
| Paid Advertising | 114,477 | 201,206 | 15,713 | |||||||||
| Website Expenses | 330 | - | - | |||||||||
| Domain Registration | 77 | 51 | 260 | |||||||||
| Shopify Application Fee | (3,330 | ) | 3,482 | 2,149 | ||||||||
| Shopify Shipping Fee | - | 5,097 | - | |||||||||
| Shopify Subscription Fees | 2,664 | 1,034 | 132 | |||||||||
| Shopify Transaction Fees | 2,279 | 4,421 | - | |||||||||
| Website Expenses - UK | 187 | (79 | ) | - | ||||||||
| Total Website Expenses | 2,207 | 14,008 | 2,540 | |||||||||
| Total E-commerce Expenses | 326,582 | 547,250 | 51,077 | |||||||||
| Employee Benefits & Labor | ||||||||||||
| Dental Insurance | 1,210 | 788 | 201 | |||||||||
| Health Insurance | 13,796 | 11,746 | 1,610 | |||||||||
| Vision Insurance | 165 | 31 | 7 | |||||||||
| Total Employee Benefits | 15,171 | 12,565 | 1,818 | |||||||||
| Reimbursement | 5 | |||||||||||
| Taxes | 26,044 | 37,011 | 9,237 | |||||||||
| Wages | - | |||||||||||
| Bonus | 13,862 | 12,034 | - | |||||||||
| Commission | 39,340 | 68,787 | 8,974 | |||||||||
| Holiday Pay | 288 | - | - | |||||||||
| Other Earnings | 15,356 | - | 9 | |||||||||
| Overtime | 191 | 157 | ||||||||||
| Paid time off | 672 | - | ||||||||||
| Regular Pay | 22,970 | 53,254 | 32,968 | |||||||||
| Salary | 244,487 | 302,426 | 83,219 | |||||||||
| Vacation Pay | 1,318 | - | ||||||||||
| Total Wages | 336,976 | 438,010 | 125,327 | |||||||||
| Total Employee Benefits & Labor | 378,191 | 487,586 | 136,387 | |||||||||
| Facility Expenses | ||||||||||||
| Janitorial | 1,214 | 848 | - | |||||||||
| Pest Control | 80 | 90 | - | |||||||||
| Rent Expense | 17,178 | 26,398 | - | |||||||||
| Repair & Maintenance | 716 | 206 | - | |||||||||
| TX Internet Expenses | 508 | 743 | - | |||||||||
| Utilities | 1,877 | 3,306 | - | |||||||||
| Total Facility Expenses | 21,573 | 31,590 | - | |||||||||
| General/Administrative Expenses | ||||||||||||
| Bank Fees | 1,021 | 1,877 | 384 | |||||||||
| Computer Maintenance | 820 | 229 | ||||||||||
| G&A Software Expense | 4,148 | 4,512 | 1,066 | |||||||||
| Gifts | 656 | 1,940 | 773 | |||||||||
| Insurance Expense | 11,064 | 25,615 | 5,460 | |||||||||
| Interest Expense | 64,430 | 146,684 | 1,836 | |||||||||
| Inventory XFer Account | - | (18 | ) | - | ||||||||
| Licenses, Registrations, & Permits | 649 | 1,010 | 159 | |||||||||
| Management Services | - | 90,000 | - | |||||||||
| Meals & Entertainment | 1,345 | 3,508 | 491 | |||||||||
| Office Supplies | 3,262 | 4,686 | 2,134 | |||||||||
| Payroll Processing Fees | 650 | 760 | - | |||||||||
| Postage | 532 | 106 | 127 | |||||||||
| Professional Fees | - | - | - | |||||||||
| Contract Consultant | 6,376 | 2,582 | 2,983 | |||||||||
| Legal & Professional Fees | 38,369 | 13,504 | 2,865 | |||||||||
| Total Professional Fees | 44,745 | 16,086 | 5,848 | |||||||||
| Recruiting Expenses | 180 | |||||||||||
| Taxes Paid | 14 | - | 76 | |||||||||
| Franchise Taxes | 963 | 800 | 611 | |||||||||
| Property Taxes | 25,657 | 4,955 | - | |||||||||
| Total Taxes Paid | 26,634 | 5,755 | 687 | |||||||||
| Total General/Administrative Expenses | 159,956 | 302,702 | 19,192 | |||||||||
| Marketing & Advertising | ||||||||||||
| Athlete Sponsorship | 4,800 | 113,174 | 3,000 | |||||||||
| Clothing | 176 | 476 | - | |||||||||
| Demo Expense | 3,250 | 10,894 | 120 | |||||||||
| Event Sponsorships | - | 575 | - | |||||||||
| Influencer Commission | - | 468 | ||||||||||
| Influencer Product | 3,121 | 2,572 | 301 | |||||||||
| Marketing Materials | 47,275 | 7,704 | 489 | |||||||||
| Marketing Other | 2,799 | 352 | - | |||||||||
| Print Advertising | 562 | 22,252 | - | |||||||||
| Promotional Product | 33,856 | 73,643 | 1,782 | |||||||||
| Sampling Expense | 182 | 791 | 46 | |||||||||
| Social Media Consulting | 20,000 | 24,000 | 2,000 | |||||||||
| Tradeshow Expenses | - | - | - | |||||||||
| Tradeshow Booth Fees/Materials | 20,776 | 38,216 | - | |||||||||
| Tradeshow Booth Workers | 3,015 | 4,154 | - | |||||||||
| Tradeshow Discounts & Giveaways | 5,194 | - | ||||||||||
| Tradeshow Internet | 2,664 | 2,177 | - | |||||||||
| Tradeshow M&E | 4,467 | 8,838 | - | |||||||||
| Tradeshow Shipping | 4,718 | 7,051 | - | |||||||||
| Tradeshow Travel | 11,253 | 18,212 | - | |||||||||
| Total Tradeshow Expenses | 46,894 | 83,842 | - | |||||||||
| Total Marketing & Advertising | 162,914 | 340,275 | 8,206 | |||||||||
| Payroll Expenses | ||||||||||||
| Wages | ||||||||||||
| Paid time off | - | - | 230 | |||||||||
| Total Wages | - | - | 230 | |||||||||
| Total Payroll Expenses | - | - | 230 | |||||||||
| Product Development | 1,760 | - | - | |||||||||
| Miscellaneous Development | 12,163 | 6,438 | - | |||||||||
| Packaging Design | 18,359 | 27,599 | - | |||||||||
| Product Registrations | 315 | 450 | - | |||||||||
| Research & Development | 6,484 | 1,132 | 28 | |||||||||
| Total Product Development | 39,081 | 35,619 | 28 | |||||||||
| Selling Expenses | ||||||||||||
| Advertising/Promotional | 8,004 | - | - | |||||||||
| Amazon Fees | 14,853 | 21,849 | 203 | |||||||||
| Car Stock | 6,821 | 6,547 | - | |||||||||
| Distributor/Wholesale Freight | 102,368 | 159,621 | 15,847 | |||||||||
| EDI Expense | 3,149 | 2,292 | 614 | |||||||||
| Freight Damages | 3,440 | - | 657 | |||||||||
| Outside Sales Commission | 585 | 1,371 | - | |||||||||
| QuickBooks Payments Fees | 1,088 | 2,086 | - | |||||||||
| Registration Fees | 51 | 499 | - | |||||||||
| Store/Retail Product Promo | 5,120 | 14,947 | - | |||||||||
| Travel Expenses | ||||||||||||
| Airfare | 4,336 | 21,934 | 604 | |||||||||
| Gas | 5,663 | 7,992 | 1,324 | |||||||||
| Hotel | 2,419 | 13,297 | 65 | |||||||||
| Taxi/Train/Bus/Shuttle | 4,259 | 8,739 | 380 | |||||||||
| Travel Internet | 46 | 109 | 6 | |||||||||
| Travel Meals | 5,645 | 8,279 | 617 | |||||||||
| Total Travel Expenses | 22,367 | 60,350 | 2,996 | |||||||||
| UPS Shipping | 5,063 | |||||||||||
| Vendor Slotting, Compliance & Other Fees | 18,986 | 10,613 | 8,184 | |||||||||
| Wholesale Software | 750 | 750 | ||||||||||
| Total Selling Expenses | 192,644 | 280,925 | 28,500 | |||||||||
| Technology Expenses | 293 | |||||||||||
| Minor Hardware | 213 | 462 | ||||||||||
| Total Technology Expenses | - | 213 | 755 | |||||||||
| Warehouse & Logistics | - | - | 170 | |||||||||
| Inner Warehouse Shipping | 4,797 | 7,505 | 1,082 | |||||||||
| Logistics Consulting | 4,100 | 10,410 | 600 | |||||||||
| Warehouse Labor | 5,730 | 21,328 | 4,385 | |||||||||
| Warehouse Repairs | - | 128 | - | |||||||||
| Warehouse Storage - External | 55,166 | 58,863 | 11,507 | |||||||||
| Warehouse Supplies | 14,903 | 25,993 | 6,167 | |||||||||
| Total Warehouse & Logistics | 84,696 | 124,227 | 23,911 | |||||||||
| Total Expenses | 1,538,354 | 2,150,438 | 269,359 | |||||||||
| Net Operating Income | (907,029 | ) | (2,150,438 | ) | (269,359 | ) | ||||||
| Other Expenses | ||||||||||||
| Depreciation | - | 550 | - | |||||||||
| Other Miscellaneous Expense | - | 30 | - | |||||||||
| Total Other Expenses | - | 580 | - | |||||||||
| Net Other Income | - | (580 | ) | - | ||||||||
| Net loss | $ | (907,029 | ) | $ | (1,113,245 | ) | $ | (418,628 | ) | |||
F-2
Sinister Labs LLC
Statement of Members’ Equity
(Unaudited)
| For the six months | ||||||||||||
| For the years ended Decemeber 31, | ended June 30, | |||||||||||
| 2019 | 2018 | 2020 | ||||||||||
| Members’ equity, beginning of year | $ | (2,023,598 | ) | $ | (910,353 | ) | $ | (2,930,627 | ) | |||
| Net loss | (907,029 | ) | (1,113,245 | ) | (418,628 | ) | ||||||
| Members’ equity, end of year | $ | (2,930,627 | ) | $ | (2,023,598 | ) | $ | (3,349,255 | ) | |||
F-3
Sinister Labs LLC
Statements of Cash Flows
(Unaudited)
| For the six | ||||||||||||
| For the years ended | Months Ended | |||||||||||
| December 31, 2019 | December 31, 2018 | June 30, 2020 | ||||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net Income | $ | (907,029 | ) | $ | (1,113,245 | ) | $ | (418,628 | ) | |||
| Adjustments to reconcile Net Income to Net Cash provided by operations: | ||||||||||||
| Accounts Receivable (A/R) | 127,002 | (508,985 | ) | 217,943 | ||||||||
| Amazon Holding | (46 | ) | ||||||||||
| Due from (to) Employees | 10,163 | (4,561 | ) | 61 | ||||||||
| Due from Others | (372 | ) | - | 213,245 | ||||||||
| Intercompany Allocations | (98,218 | ) | (49,465 | ) | (49,539 | ) | ||||||
| Inventory Asset | 812,104 | (499,059 | ) | 370,729 | ||||||||
| Prepaid Expenses | 12,428 | 8,651 | 3,523 | |||||||||
| Accumulated Depreciation | - | 550 | ||||||||||
| Accounts Payable | (225,476 | ) | (22,752 | ) | (340,302 | ) | ||||||
| Accrued expenses | 13,679 | (17,793 | ) | (29,198 | ) | |||||||
| Taxes Payable | (281 | ) | 145 | 73,386 | ||||||||
| Payroll Liabilities | (11,725 | ) | 2,592 | (72 | ) | |||||||
| Total Adjustments to reconcile Net Income to Net Cash provided by operations: | 639,258 | (1,090,677 | ) | 459,776 | ||||||||
| Net cash provided by operating activities | (267,771 | ) | (2,203,922 | ) | 41,148 | |||||||
| INVESTING ACTIVITIES | ||||||||||||
| Fixed Assets:Furnitures & Fixtures | - | - | (1,028 | ) | ||||||||
| Net cash used in investing activities | - | - | (1,028 | ) | ||||||||
| FINANCING ACTIVITIES | ||||||||||||
| Notes payable | 304,431 | 2,116,482 | 3,432 | |||||||||
| Net cash provided by financing activities | 304,431 | 2,116,482 | 3,432 | |||||||||
| Net cash increase for the period | 36,660 | (87,439 | ) | 43,552 | ||||||||
| Cash balance at beginning of period | (7,761 | ) | 87,439 | 29,392 | ||||||||
| cash balance at December 31, 2019 | $ | 28,899 | $ | - | $ | 72,944 | ||||||
F-4
Sinister Labs, LLC
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2020
Note 1 – Organization and Description of Business
Sinister Labs, LLC. (the Company), was incorporated under the laws of the State of Florida on October 21, 2016. The Company sells health and nutrition products.
The Company has elected December 31 as its year end.
Note 2 – Going Concern
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not established any source of revenue to cover its operating costs. These conditions raise substantial doubt about the company’s ability to continue as a going concern Company will engage in very limited activities without incurring any liabilities that must be satisfied in cash until a source of funding is secured. The Company will offer noncash consideration and seek equity lines as a means of financing its operations. If the Company is unable to obtain revenue producing contracts or financing or if the revenue or financing it does obtain is insufficient to cover any operating losses it may incur, it may substantially curtail or terminate its operations or seek other business opportunities through strategic alliances, acquisitions or other arrangements that may dilute the interests of existing stockholders.
Note 3 – Summary of Significant Accounting Policies
Basis of Presentation
The Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States (See Note 2) regarding the assumption that the Company is a “going concern”.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. Consolidated cash and cash equivalents for the six months ended June 30, 2020 was $72,944 and at December 31, 2019 was $28,899. Sinister Labs, Inc. considers all highly liquid investments with maturities of three months or less to be cash equivalents.
F-5
Income Taxes
The Company accounts for income taxes under ASC 740 “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
Basic Earnings (Loss) Per Share
The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, Earnings per Share. Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.
Fair Value of Financial Instruments
The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
The Company follows FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures” which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| ☐☐ | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| ☐☐ | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| ☐☐ | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. |
F-6
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of February 28, 2019. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, other current assets, accounts payable, accrued compensation and accrued expenses. The fair value of the Company’s notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.
Related Parties
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions
Recently Issued Accounting Pronouncements
Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
F-7