EX-99.2

EX-99.2 4 d28024dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

Consolidated Financial Statements

December 31, 2022 and 2021

VDC Holdco, LLC and Subsidiaries

Table of Contents

December 31, 2022 and 2021


Independent Auditor’s Report			1
Consolidated Financial Statements
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Statements of Members’ Equity (Deficit)			5
Consolidated Statements of Cash Flows			6
Notes to Consolidated Financial Statements			7

Independent Auditor’s Report

To the Board of Directors

VDC Holdco, LLC and Subsidiaries

Las Vegas, Nevada

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of VDC Holdco, LLC and Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of operations, members’ equity (deficit), and cash flows for the years then ended, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of VDC Holdco, LLC and Subsidiaries as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated financial statements section of our report. We are required to be independent of VDC Holdco, LLC and Subsidiaries and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Restatement and Reissuance

As discussed in Note 13, the Company is restating and reissuing the consolidated financial statements as of and for the years ended December 31, 2022 and 2021 to reflect presentation and disclosure requirements applicable to public business entities. Our opinion is not modified with respect to these matters.

Responsibilities of Management 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; and for 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.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about VDC Holdco, LLC and Subsidiaries’ ability to continue as a going concern for one year after the date that the consolidated financial statements are issued.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with GAAS, we:

•

Exercise professional judgment and maintain professional skepticism throughout the audit.

•

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of VDC Holdco, LLC and Subsidiaries’ internal control. Accordingly, no such opinion is expressed.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

•

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about VDC Holdco, LLC and Subsidiaries ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

/s/ Eide Bailly LLP

Las Vegas, Nevada

February 27, 2023, except for modifications disclosed in Note 13, for which the date is December 4, 2023.

VDC Holdco, LLC and Subsidiaries

Consolidated Balance Sheets

December 31, 2022 and 2021


	As Restated 2022		As Restated 2021
Assets
Current Assets
Cash and cash equivalents	$	26,016,855	$	11,911,825
Restricted cash		6,599,163		6,099,738
Accounts receivable		308,493		614,461
Other receivables		670,303		737,032
Prepaid expenses		1,501,974		1,293,679
Other current assets		—		68,734

Total current assets		35,096,788		20,725,469

Long-Term Assets
Property and equipment, net		2,044,490		2,342,827
Goodwill		45,748,167		45,748,167
Intangible assets, net		7,068,701		11,641,270
Deferred income taxes		1,359,000		2,193,000
Operating lease right-of-use asset		1,189,340		1,926,261
Security deposit		124,225		124,225

Total long-term assets		57,533,923		63,975,750

	$	92,630,711	$	84,701,219

Liabilities and Members’ Equity
Current Liabilities
Accounts payable	$	12,833,700	$	11,368,184
Accrued expenses		20,597,694		24,473,804
Income tax payable		1,763,454		—
Deferred merchant bookings		6,990,224		5,891,402
Contract liabilities		4,350,146		3,431,728
Current maturities of long-term debt		2,700,000		—
Current maturities of operating lease liability		655,951		1,218,287
Other payables		27,500		27,500

Total current liabilities		49,918,669		46,410,905

Long-Term Liabilities
Long-term debt, less current maturities		24,300,000		33,200,000
Operating lease liability, less current maturities		702,567		1,358,518
Other		—		40,329

Total long-term liabilities		25,002,567		34,598,847

Total liabilities		74,921,236		81,009,752
Commitments and Contingencies (Note 8)
Members’ Equity		17,709,475		3,691,467

	$92,630,711		$84,701,219

See Notes to Consolidated Financial Statements

VDC Holdco, LLC and Subsidiaries

Consolidated Statements of Operations

December 31, 2022 and 2021


	As Restated 2022			As Restated 2021
Revenue	$	91,359,242		$	52,156,231

Operating Expenses
Paid search fees and marketing		25,392,915			14,450,962
Cost of revenue, exclusive of depreciation and amortization		13,126,752			7,232,249
Salaries and wages		13,057,570			12,663,603
Depreciation and amortization		6,729,164			7,749,659
General and administrative expenses		5,012,130			4,369,990
License fee		2,500,000			2,500,000
Rent expense		1,602,806			1,709,345

Total operating expenses		67,421,337			50,675,808

Operating Income		23,937,905			1,480,423

Other Income (Expense)
Interest expense		(1,972,279	)		(2,776,533	)
Breakage income		3,209,499			2,384,057
Paycheck Protection Program loan forgiveness		—			3,319,020
Employee retention credit		—			325,958
Other income		607,000			—
Loss on sale of property and equipment		(5,117	)		(214,537	)

Total other income (expense)		1,839,103			3,037,965

Net Income Before Income Taxes		25,777,008			4,518,388
Provision for Income Taxes		(5,559,000	)		(499,000	)

Net Income	$	20,218,008		$	4,019,388

See Notes to Consolidated Financial Statements

VDC Holdco, LLC and Subsidiaries

Consolidated Statements of Members’ Equity (Deficit)

December 31, 2022 and 2021


	Contributed Capital		Preferred Membership Units			Retained Earnings (Deficit)			Total
Balance, January 1, 2021, as restated	$	20,000,000	$	6,190,673		$	(20,327,921	)	$	5,862,752
Net income, as restated		—		—			4,019,388			4,019,388
Dividend accretion of preferred units		—		516,481			—			516,481
Redemption of preferred units		—		(6,707,154	)		—			(6,707,154	)

Balance, December 31, 2021, as restated		20,000,000		—			(16,308,533	)		3,691,467
Net income, as restated		—		—			20,218,008			20,218,008
Distributions		—		—			(6,200,000	)		(6,200,000	)

Balance, December 31, 2022, as restated	$	20,000,000	$	—		$	(2,290,525	)	$	17,709,475

See Notes to Consolidated Financial Statements

VDC Holdco, LLC and Subsidiaries

Consolidated Statements of Cash Flows

December 31, 2022 and 2021


	As Restated 2022			As Restated 2021
Operating Activities
Net income	$	20,218,008		$	4,019,388
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		6,729,164			7,749,659
Deferred income taxes		834,000			226,000
Loss on sale of property and equipment		5,117			214,537
Breakage income		(3,209,499	)		(2,384,057	)
Paycheck Protection Program loan forgiveness income		—			(3,319,020	)
Dividend accretion of preferred units expense		—			516,481
Changes in operating assets and liabilities:
Accounts receivable		305,967			(406,208	)
Other receivables		66,730			(85,663	)
Prepaid expenses		(208,295	)		268,192
Other current assets		68,734			(68,734	)
Operating lease right-of-use assets and liabilities		(481,366	)		(497,340	)
Accounts payable		1,465,516			(3,639,671	)
Accrued expenses		(666,611	)		12,527,961
Income tax payable		1,763,454			—
Deferred merchant bookings		1,098,822			4,248,185
Contract liabilities		918,418			2,968,608
Other payables		—			(71,000	)

Net Cash from Operating Activities		28,908,159			22,267,318

Investing Activities
Payroll costs capitalized to software development in progress		(729,979	)		(478,893	)
Acquisition of internet domain		(629,120	)		—
Sale of property and equipment		—			387,446
Acquisition of property and equipment		(504,276	)		(59,641	)

Net Cash used for Investing Activities		(1,863,375	)		(151,088	)

Financing Activities
Payments on long-term debt		(6,200,000	)		(10,750,000	)
Proceeds from issuance of Paycheck Protection Program loan		—			1,658,175
Redemption of preferred units		—			(6,707,154	)
Payments on other long-term liabilities		(40,329	)		—
Distributions		(6,200,000	)		—

Net Cash used for Financing Activities		(12,440,329	)		(15,798,979	)

Net Change in Cash, Cash Equivalents, and Restricted Cash		14,604,455			6,317,251
Cash, Cash Equivalents, and Restricted Cash, Beginning of Year		18,011,563			11,694,312

Cash, Cash Equivalents, and Restricted Cash, End of Year	$	32,616,018		$	18,011,563

Cash and Cash Equivalents	$	26,016,855		$	11,911,825
Restricted Cash		6,599,163			6,099,738

Total cash, cash equivalents, and restricted cash	$	32,616,018		$	18,011,563

Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest	$	1,975,114		$	3,016,137
Income taxes		2,200,000			350,000

See Notes to Consolidated Financial Statements

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Note 1—Principal Business Activity and Significant Accounting Policies

Principal Business Activity

VDC Holdco, LLC (“VDC Holdco”) was established on January 1, 2020 and has no designated legal life. VDC Holdco acquired VDC-MGG Holdings, LLC (“VDC-MGG”) on March 10, 2020. VDC-MGG owns and operates Vegas.com, LLC (“Vegas.com”) and its subsidiaries. Primary offices and operations are in the Las Vegas, Nevada area. Vegas.com operates websites which provide for sale to customers a full range of travel products including hotel rooms, air-hotel packages, show tickets, tours, and attractions.

Principles of Consolidation

The consolidated financial statements include the accounts of VDC Holdco, LLC and its wholly-owned subsidiaries: VDC-MGG Holdings, Vegas.com, and LasVegas.com, LLC (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Concentrations of Credit Risk

The Company maintains its cash in bank deposit accounts which exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per depositor, per insured bank, for each account ownership category. At December 31, 2022 and 2021, the Company had $31,790,710 and $16,793,093, respectively, in excess of FDIC-insured limits.

Cash Equivalents

Cash equivalents consists of highly liquid investments with an original maturity of three months or less.

Restricted Cash

Amounts included in restricted cash represent letters of credit required by vendors to be held by a bank. The letters of credit bear no interest, have no maturity, and can only be released in whole or in part at the vendors discretion.

Accounts Receivable and Credit Policy

Accounts receivable due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer. The Company does not generally charge interest on overdue customer account balances. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.

The Company estimates an allowance for doubtful accounts based upon an evaluation of the current status of receivables, historical experience, and other factors as necessary. The estimate for the allowance for doubtful accounts was $0 for the years ended December 31, 2022 and 2021, respectively. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change.

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Property and Equipment

Property and equipment is recorded at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense. When equipment is retired or sold, the cost and related accumulated depreciation are eliminated from the accounts and the resultant gain or loss is reflected in operations.

Depreciation is provided using the straight-line method, based on useful lives of the assets which range from three to five years. Right-of-use (“ROU”) assets from financing leases are amortized on the straight-line method over the shorter of the lease term or their respective estimated useful lives. Financing lease ROU asset amortization is included in deprecation in the consolidated statement of operations.

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on this assessment there was no impairment at December 31, 2022 and 2021.

Internally Developed Software

The Company develops and utilizes internally developed software. Costs incurred are accounted for under the provision of Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other. Accordingly, all costs incurred in planning the development of the software are expensed as incurred. Costs, other than general and administrative and overhead costs, incurred in the application development stage, which includes hiring outside software developers to develop the software, are capitalized. Other costs incurred during the operating stage, such as training, administrative, and maintenance costs are expensed as incurred. Costs incurred during the operating stage for upgrades and enhancements of software are capitalized if it is probable that they will result in added functionality. Capitalized software development costs are included in property and equipment, net in the accompanying consolidated balance sheets and are amortized over their estimated useful lives.

Goodwill

Goodwill represents costs in excess of purchase price over the fair value of the assets of businesses acquired, including other identifiable intangible assets.

Goodwill is not amortized, rather potential impairment is considered on an annual basis, or more frequently upon the occurrence of an event or when circumstances indicate that the amount of goodwill is greater than its fair value. As of December 31, 2022 and 2021, respectively, the carrying value of the Company’s goodwill was not considered impaired.

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Intangible Assets

Intangible assets with a finite life consist of developed technology, customer relationships, and customer lists and are carried at cost less accumulated amortization. The Company amortizes the cost of identifiable intangible assets on a straight-line basis over the expected period of benefit, which is three years for customer relationships and developed technology and two years for customer lists.

Intangible assets with an indefinite life include a trademark and internet domains.

Income Taxes

VDC Holdco filed an entity classification election (Form 8832) in 2020, the year the entity was created. This election under the Internal Revenue Code election results in VDC Holdco being taxed as a C Corporation. VDC Holdco effectively files a consolidated return, which includes all of its subsidiaries.

Income taxes are provided for the tax effects of transactions reporting in the consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of intangibles, prepaid expenses, property and equipment, accrued liabilities, and net operating losses for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets are reduced by a valuation allowance 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.

The Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual is necessary for uncertain tax positions. As of December 31, 2022 and 2021, the unrecognized tax benefits accrual was zero. The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred. The Company is no longer subject to Federal tax examinations by tax authorities for years before 2019.

Revenue Recognition

For the majority of the Company’s sales, the Company remain the merchant of record, but various service providers with whom they maintain relationships are ultimately responsible for delivering the underlying services for which customers transact, such as lodging, air travel and entertainment. The Company’s obligation to its customers is to arrange for these service providers to provide the underlying services and the Company satisfies their obligation at the point in time that these service providers begin to provide the underlying service (e.g., upon the check-in date for lodging stays, upon the show/performance date for entertainment transactions, etc.). Though the Company is the merchant of record for transactions in which other entities provide the ultimate service, they are an agent in such transactions; therefore, they recognize revenue from transactions on a net basis (i.e., the amount billed to customers less the amounts paid to service providers).

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Customers pay at the time the reservation is made via the Company’s sales channels, primarily the Vegas.com website and mobile application. Because the reservation date almost always precedes the date that the performance obligation is satisfied, the Company records a contract liability for the amount of consideration received. In general, the Company satisfies most of their performance obligations within approximately three to four months from the reservation date, and substantially all performance obligations are satisfied within one year from the reservation date.

The Company records revenue from click-through fees charged to their travel partners for leads sent to the travel partners’ websites. The Company records revenue from click-through fees after the traveler makes the click-through to the related travel partners’ websites. The Company records revenue for advertising placements ratably over the advertising period or upon delivery of advertising impressions, depending on the terms of the contract. Payments from advertisers are generally due within 30 days of invoicing.

The following table disaggregates the Company’s revenue based on the timing of satisfaction of performance obligations for the years ended December 31, 2022 and 2021:


	2022		2021
Revenue recognized at a point in time	$	88,065,448	$	49,809,684
Revenue recognized over time		2,813,399		1,719,895

Total revenue from contracts with customers		90,878,847		51,529,579
Lease revenue		480,395		626,652

Total revenue	$	91,359,242	$	52,156,231

Revenue from performance obligations satisfied at a point in time consist of sales such as lodging, air travel and entertainment, where the Company remains the merchant of record. Revenue from performance obligations satisfied over time consists of the sale of advertising on the Company’s various websites.

Contract liabilities consist of advanced payments from customers, in the form of cash, for which revenue will be recognized in a later period. The beginning and ending balances for accounts receivable and contract liabilities were as follows for the years ended December 31, 2022 and 2021:


	2022
	January 1		December 31
Accounts receivable	$	614,461	$	308,493
Contract liabilities		3,431,728		4,350,146

	2021
	January 1		December 31
Accounts receivable	$	845,455	$	614,461
Contract liabilities		463,120		3,431,728

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

At December 31, 2022, contract liabilities in the consolidated balance sheets totaled $4,350,136. The Company expects to recognize the majority of outstanding contract liabilities during the year ended December 31, 2023.

At December 31, 2021, $3,431,728 was recorded as contract liabilities, of which $2,332,464 was recognized as revenue during year ended December 31, 2022. At January 1, 2021, $463,120 was recorded as contract liabilities, of which $270,531 was recognized as revenue during the year ended December 31, 2021.

Gift Card and Store Credit Liabilities and Breakage

Gift card and store credit liabilities, a component of accrued expenses on the consolidated balance sheets, represent purchased credit for future use or credits issued and outstanding for event cancellations or other service issues related to recorded sales transactions. The accrued amount is reduced by the amount of credits estimated to go unused, or breakage. The Company estimates breakage based on historical usage trends and recognize breakage based on the age of the gift card or store credit. The Company’s breakage estimate could be impacted by future activity differing from estimates, the effects of which could be material.

Total gift card and store credit liability was $1,373,547, $4,511,281, and $5,570,646 as of December 31, 2022, December 31, 2021, and January 1, 2021, respectively. During the year ended December 31, 2022, $5,233,774 of gift card and store credit liabilities were redeemed and the Company recognized $3,209,499 of breakage. During the year ended December 31, 2021, $6,789,972 of accrued customer credits were redeemed and we recognized $2,384,057 of breakage.

Sales Taxes

Various jurisdictions impose a sales tax on the Company’s sales to non-exempt customers on the use or occupancy of hotel accommodations or other traveler services. Generally, the sales tax passes through to the hotel or traveler service company who collects taxes based on the rate paid to the hotel and remits these taxes to the various tax authorities.

Employee Retention Credit

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provided an employee retention credit (the “Credit”) which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The Credit is equal to 50% of qualified wages paid to employees, capped at $10,000 of qualified wages through December 31, 2020.

The Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021 (collectively, the “Acts”) expanded the availability of the employee retention Credit and extended the credit through December 31, 2021. The Acts increased the credit to 70% of qualified wages, capped at $10,000 per quarter, through 2021. As a result of the changes to the credit initiated through the Acts, the maximum credit per employee increased from $5,000 in 2020 to $28,000 in 2021. The Company qualified for the additional credits in 2021.

During the year ended December 31, 2021, the Company recorded a $325,958 benefit related to the Credit which is presented in the consolidated statements of operations as an element of other income.

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Advertising Costs

Advertising costs identified as paid search fees and marketing fees are expensed as incurred. Such costs were $25,392,915 and $14,450,952, respectively, for the years ended December 31, 2022 and 2021.

Estimates

The preparation of the consolidated 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 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.

Recent Accounting Guidance

In June 2016, FASB issued accounting standards update 2016-13, Financial Instruments – Credit Losses (Topic 326), which replaces the incurred loss impairment model with a forward-looking loss model, and is applicable to most financial assets, including trade receivables other than those arising from operating leases. The amended guidance is effective for the Company beginning January 1, 2023. A modified retrospective transition method with a cumulative effect adjustment to retained earnings is required to be applied at the date of adoption. The Company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

Note 2—Property and Equipment

Property and equipment at December 31, 2022 and 2021 consists of the following:


			2022			2021
	Estimated Life (Years)
Software		3	$	4,326,288		$	3,838,257
Machinery and equipment		3		1,040,785			767,432
Software development in progress		N/A		616,428			548,671
Furniture		5		181,208			174,323
Leasehold improvements		3		156,228			156,228

				6,320,937			5,484,911
Less accumulated depreciation				(4,276,447	)		(3,142,084	)

			$	2,044,490		$	2,342,827

Depreciation expense totaled $1,527,475 and $1,856,326 for the years ended December 31, 2022 and 2021, respectively.

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Note 3—Intangible Assets and Goodwill

Intangible assets as of December 31, 2022, consist of the following:


	Cost		Accumulated Amortization			Net
Finite-lived intangible assets
Developed technology	$	7,830,000	$	(7,343,753	)	$	486,247
Customer relationships		7,300,000		(6,846,667	)		453,333
Customer list		1,700,000		(1,700,000	)		—

		16,830,000	$	(15,890,420	)		939,580

Indefinite-lived intangible assets
Internet domains		629,121					629,121
Trademark		5,500,000					5,500,000

		6,129,121					6,129,121

Total intangible assets	$	22,959,121				$	7,068,701

Intangible assets as of December 31, 2021, consist of the following:


	Cost		Accumulated Amortization			Net
2021
Finite-lived intangible assets
Developed technology	$	7,830,000	$	(4,733,753	)	$	3,096,247
Customer relationships		7,300,000		(4,413,333	)		2,886,667
Customer list		1,700,000		(1,541,644	)		158,356

	$	16,830,000	$	(10,688,730	)		6,141,270

Indefinite-lived intangible assets
Trademark		5,500,000					5,500,000

Total intangible assets	$	22,330,000				$	11,641,270

Amortization expense for the years ended December 31, 2022 and 2021 was $5,201,689 and $5,893,333, respectively. Estimated future amortization expense related to these intangible assets is $939,580 for the year ended December 31, 2023.

As of December 31, 2022, December 31, 2021, and January 1, 2021, the carrying value of goodwill was $45,748,167. There was no impairment at either December 31, 2022 and 2021.

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Note 4—Long-Term Debt

Long-term debt at December 31, 2022 and 2021 consists of:


	2022			2021
Note payable; $650,000 due on December 31, 2023 followed by quarterly principal installments of $1,050,000 through maturity, plus interest of LIBOR plus 4.75% (4.90% as of December 31, 2021), to March 2025, secured by substantially all of the Company’s assets. Refinanced in November 2022.	$	—		$	33,200,000
Note payable; quarterly principal installments of $675,000 plus interest of Secured Overnight Financing Rate (SOFR) plus 4.25% (4.30% as of December 31, 2022), to March 2027, secured by substantially all of the Company’s assets.		27,000,000			—
Less current maturities		(2,700,000	)		—

Long-term debt, less current maturities	$	24,300,000		$	33,200,000

Future maturities of long-term debt are as follows:


Years ended December 31,
2023	$	2,700,000
2024		2,700,000
2025		2,700,000
2026		2,700,000
2027		16,200,000

	$	27,000,000

Borrowings under the notes payable are subject to certain covenants and restrictions on consolidated total leverage and fixed charges coverage.

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Note 5—Leases

The Company leases office space under a long-term lease agreement. The lease expires in November 2024 and provides for a renewal option of one year. The Company included in the determination of the right-of-use assets and lease liabilities any renewal options when the options are reasonably certain to be exercised. The Company leased other office space, and subleased portions of the space, under a long-term lease agreement until the lease expired in September 2022.

The weighted-average discount rate is based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company estimates an applicable incremental borrowing rate. The incremental borrowing rate is estimated using the Company’s applicable borrowing rates and the contractual lease term.

The Company elected the practical expedient to not separate lease and non-lease components for its real estate leases. The Company also elected the short-term lease exemption for all leases with a term of 12 months or less for both existing and ongoing operating leases to not recognize the asset and liability for these leases. Lease payments for short-term leases are recognized on straight-line basis.

The Company subleased portions of its operating office locations to 3 separate tenants until the maturity date in September 2022. Total lease expense and sublease income for the years ended December 31, 2022 and 2021 was as follows:


	2022			2021
Operating lease cost	$	1,602,806		$	1,709,345
Sublease income	$	(480,395	)	$	(626,652	)

The following summarizes the weighted-average remaining lease term and weighted-average discount rate as of December 31, 2022 and 2021:


	2022			2021
Weighted-average remaining lease term:
Operating leases		1.9 Years			2.4 Years
Weighted-average discount rate:
Operating leases		13.0	%		13.0	%

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The future minimum lease payments under noncancelable operating leases with terms greater than one year are listed below as of December 31, 2022.


Years ended December 31,
2023	$	794,766
2024		749,379

Total lease payments		1,544,145
Less: interest		(185,627	)

Present value of lease liabilities	$	1,358,518

Note 6—Income Taxes

Deferred tax assets and liabilities consist of the following components as of December 31, 2022 and 2021:


	2022			2021
Deferred Tax Assets (Liabilities)
Intangibles	$	971,000		$	468,000
Prepaid Expenses		(76,000	)		(53,000	)
Property and Equipment		(57,000	)		(141,000	)
Accrued Liabilities		(26,000	)		810,000
Net Operating Loss		92,000			654,000
Interest Limitaion Carryover		455,000			455,000

	$	1,359,000		$	2,193,000

The provision for income taxes charged to income for the years ended December 31, 2022 and 2021, consists of the following:


	2022		2021
Current	$	4,725,000	$	273,000
Deferred		834,000		226,000

	$	5,559,000	$	499,000

The Company’s effective income tax rate is lower than what would be expected if the federal statutory rate were applied to income from continuing operations primarily because of expenses deductible for financial reporting purposes that are not deductible for tax purposes, as follows for the years ended December 31, 2022 and 2021:

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021


	2022			2021
U.S. Statutory Tax Rate		21.0	%		21.0	%
Nondeductible expenses		0.5	%		2.0	%
Nondeductible interest expense		0.0	%		2.2	%
PPP loan forgiveness		0.0	%		-14.1	%
Nontaxable refund		-0.5	%		0.0	%
Other		0.0	%		-1.0	%

Total Income Tax Expense (Benefit)		21.0	%		10.1	%

As of December 31, 2022 and 2021, the Company had approximately $440,000 and $3,114,000, respectively, of federal net operating loss carryforwards available to offset future taxable income. If not utilized, the pre-2018 federal net operating loss carryforwards expire in varying amounts between 2036 and 2037. The federal net operating losses generated after 2018 do not expire and may be carried forward indefinitely.

Note 7—Employee Benefit Plan

The Company has a defined contribution plan covering substantially all employees. The plan provides that employees who have attained age 21 can voluntarily contribute from 0% to 99% of their earnings to the plan, subject to statutory contribution limits. The Company provides matching contributions up to 4% of eligible compensation. Total expense related to the plan for the years ended December 31, 2022 and 2021 was $254,067 and $0, respectively.

Note 8—Commitments and Contingencies

In 2018, the Company entered into an agreement for use of a suite at Allegiant Stadium in Las Vegas, Nevada with an unrelated party. Under the agreement, the Company is obligated to pay approximately $515,000 per year until the agreement expires in 2034.

In 2005, the Company entered into an agreement for use of an internet domain name with an unrelated party. Under the terms of the agreement, the Company is obligated to pay approximately $2,500,000 per year until the agreement expires in 2040. The Company has the option to terminate the agreement at any time, provided they operate the domain for a period of thirty days after termination.

Note 9—Related Party Transactions

TZP Capital Partners III-A (Blocker), L.P. and TZP Capital Partners III, L.P. (the two entities are referred to herein as “TZP”), members of VDC Holdco, charge the Company a management fee for services rendered by TZP to the Company. The management fee is $62,500 per quarter with an additional 2% fee for any preferred membership units outstanding greater than six months. TZP management fees were $250,000 for the years ended December 31, 2022 and 2021 and are included as a component of general and administrative expense on the consolidated statements of operations.

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Shortly after the COVID-19 pandemic shut down a majority of the Company’s operations, a second amendment to the Company’s LLC agreement was signed on May 18, 2020 wherein TZP agreed to make a “cash preferred equity contribution” to VDC Holdco. The agreement classed the two membership units to be created as (1) Class A Units and (2) Preferred Units (Note 11). The agreement also required TZP to make capital contributions (up to $10,000,000) in the event VDC Holdco’s cash on hand at the end of any week dropped below $4,000,000; preferred units issued at $1 per unit were issued to TZP in exchange for these capital contributions. The dividend rate on preferred units is 8% accrued daily and compounded quarterly for the first six months after issuance; 15% for the period between six and twelve months; 20% for the period between twelve and eighteen months; and 25% after 18 months.

For the year ended December 31, 2021, dividend accretions to the TZP preferred units totaled $516,481, based on the timing of accretions from the prior year of $6,190,673. The Company began redeeming the preferred units in June 2021 and continued redeeming units until the final units were redeemed in November 2021. Total amounts redeemed during the year ended December 31, 2021 was $6,707,154.

Note 10—Paycheck Protection Program Loans

In March 2021 and March 2020, the Company was granted $1,658,175 and $1,660,845, respectively, of loans under the Paycheck Protection Program (“PPP”) administered by Small Business Administration (“SBA”) approved partners. The loans are uncollateralized and are fully guaranteed by the Federal government. The Company initially recorded notes payable and recorded forgiveness when the loan obligations were legally released by the SBA. The Company recognized $3,319,020 of loan forgiveness income for the year ended December 31, 2021. There was no remaining balance after forgiveness.

In accordance with PPP loan requirements, the Company is required to maintain PPP loan files and certain underlying supporting documents for periods ranging from three to six years. The Company is also required to permit access to such files upon request by the SBA. Accordingly, there is potential the PPP loan could be subject to further review by the SBA and that previously recognized forgiveness could be reversed based on the outcome of this review.

Note 11—Equity

The Company has two classes of membership interests – Class A Units and Preferred Units. There were 61,000,000 Class A Units issued and outstanding as of December 31, 2022 and 2021. Holders of Class A Units are entitled to distributions made by the Company in accordance with their respective sharing ratios.

The Preferred Units are senior to the Class A Units, and earn a preferential dividend that ranges from 8% per annum to a maximum of 25% per annum based upon how long each Preferred Unit remains outstanding. If more than $10,000,000 in Preferred Units remain outstanding for more than 18 months, the unit holder is entitled to appoint additional directors to constitute a majority of the Board. In addition, a management fee of 2% accrues on each Preferred Unit that remains outstanding for more than 6 months. The Preferred Units are subject to optional redemption and mandatory redemption upon a sale of the Company. Preferred Units were issued in 2020 and were redeemed in 2021. There were no Preferred Units issued or outstanding as of December 31, 2022 and 2021.

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

Note 12—Subsequent Events

On November 3, 2023, the members entered into a definitive agreement to sell 100% of the ownership of the Company to Vivid Seats, Inc. The agreed-upon purchase price was approximately $243,800,000 which is subject to customary closing adjustments, comprised of approximately $153,600,000 in cash and approximately 15,600,000 million shares of Vivid Seats, Inc. Class A common stock (calculated based on a price per share of $5.80, representing the average daily volume weighted price per share for each of the five consecutive trading days ending on and including November 2, 2023). The transaction closed on November 3, 2023.

Note 13—Restatement

Subsequent to the issuance of the December 31, 2022 consolidated financial statements and our report thereon dated February 27, 2023, VDC Holdco, LLC and Subsidiaries was acquired by Vivid Seats, Inc. which necessitated the reissuance of these consolidated financial statements under US GAAP for public business entities. To comply with US GAAP for public business entities, the accompanying consolidated financial statements have been restated to reflect the unwinding of the private company alternative for goodwill and the related tax implications. Accordingly, amounts reported for goodwill, deferred income taxes, tax provision, and amortization expense have been restated in the 2022 and 2021 consolidated financial statements now presented and an adjustment has been made to retained earnings as of January 1, 2021.

The following is a summary of the effects of the restatement in the Company’s Consolidated Balance Sheet as of December 31, 2022:


	As Previously Reported		Adjustment			As Restated
Goodwill	$	32,883,061	$	12,865,106		$	45,748,167
Deferred tax asset		—		1,359,000			1,359,000
Total long-term assets		43,309,817		14,224,106			57,533,923
Total assets		78,406,605		14,224,106			92,630,711
Deferred tax liability		1,305,000		(1,305,000	)		—
Total long-term liabilities		26,307,567		(1,305,000	)		25,002,567
Total liabilities		76,226,236		(1,305,000	)		74,921,236
Members’ equity		2,180,370		15,529,105			17,709,475
Total liabilities and members’ equity		78,406,606		14,224,105			92,630,711

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The following is a summary of the effects of the restatement in the Company’s Consolidated Balance Sheet as of

December 31, 2021:


	As Previously Reported			Adjustment			As Restated
Other receivables	$	99,830		$	637,202		$	737,032
Prepaid expenses		1,232,015			61,664			1,293,679
Total current assets		20,026,603			698,866			20,725,469
Goodwill		37,455,372			8,292,795			45,748,167
Deferred tax asset		—			2,193,000			2,193,000
Total long-term assets		53,489,955			10,485,795			63,975,750
Total assets		73,516,558			11,184,661			84,701,219
Deferred tax liability		1,431,000			(1,431,000	)		—
Total long-term liabilities		36,029,847			(1,431,000	)		34,598,847
Total liabilities		82,440,752			(1,431,000	)		81,009,752
Members’ (deficit) equity		(8,924,194	)		12,615,661			3,691,467
Total liabilities and members’ equity		73,516,558			11,184,661			84,701,219

The following is a summary of the effects of the restatement in the Company’s Consolidated Statement of Operations as of December 31, 2022:


	As Previously Reported			Adjustment			As Restated
Depreciation and amortization	$	11,301,356			$ (4,572,192)		$	6,729,164
Total operating expenses		71,993,529			(4,572,192	)		67,421,337
Operating income		19,365,713			4,572,192			23,937,905
Net income before income taxes		21,204,816			4,572,192			25,777,008
Provision for income taxes		(3,900,252	)		(1,658,748	)		(5,559,000	)
Net income		17,304,564			2,913,444			20,218,008

The following is a summary of the effects of the restatement on the Company’s Consolidated Statement of Operations as of December 31, 2021:


	As Previously Reported			Adjustment			As Restated
Depreciation and amortization	$	12,321,970			$ (4,572,311)		$	7,749,659
Total operating expenses		55,248,119			(4,572,311	)		50,675,808
Operating (loss) income		(3,091,888	)		4,572,311			1,480,423
Net income before income taxes		(53,923	)		4,572,311			4,518,388
Provision for income taxes		(5,125,000	)		4,626,000			(499,000	)
Net (loss) income		(5,178,923	)		9,198,311			4,019,388

VDC Holdco, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The following is a summary of the effects of the restatement on the Company’s Consolidated Statement of Cash Flows as of December 31, 2022:


	As Previously Reported			Adjustment			As Restated
Net income	$	17,304,564		$	2,913,444		$	20,218,008
Depreciation and amortization		11,301,475			(4,572,311	)		6,729,164
Deferred income taxes		(126,000	)		960,000			834,000
Other receivables		(570,473	)		637,203			66,730
Prepaid expenses		(269,959	)		61,664			(208,295	)

The following is a summary of the effects of the restatement on the Company’s Consolidated Statement of Cash Flows as of December 31, 2021:


	As Previously Reported			Adjustment			As Restated
Net (loss) income		$ (5,178,923)			$ 9,198,311			$ 4,019,388
Depreciation and amortization		12,321,970			(4,572,311	)		7,749,659
Deferred income taxes		4,775,000			(4,549,000	)		226,000
Dividend accretion of preferred units expense		—			516,481			516,481
Other receivables		(8,663	)		(77,000	)		(85,663	)
Net cash from operating activities		21,750,837			516,481			22,267,318
Issuance of preferred membership units		516,481			(516,481	)		—
Net cash used for financing activities		(15,282,498	)		(516,481	)		(15,798,979	)

The following is a summary of the effects of the restatement on the Company’s Consolidated Statements of Members’ Equity (Deficit) as of December 31, 2022 and 2021:


	As Previously Reported			Adjustment		As Restated
Retained earnings (deficit); balance, January 1, 2021	$	(23,745,271	)	$	3,417,350	$	(20,327,921	)
Net (loss) income		(5,178,923	)		9,198,311		4,019,388
Retained earnings (deficit); balance, December 31, 2021		(28,924,194	)		12,615,661		(16,308,533	)
Net income		17,304,564			2,913,444		20,218,008
Retained earnings (deficit); balance, December 31, 2022		(17,819,630	)		15,529,105		(2,290,525	)