Huuuge Inc.

Annual / Quarterly Financial Statement • Mar 14, 2024

PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k. , ul. Polna 11, 00-633 Warsaw, Poland, T: +48 (22) 746 4000, F:+48 (22) 742 4040 , www.pwc.pl PricewaterhouseCoopers Polska Spółka z ograniczoną odpowiedzialnością Audyt sp. k. is entered into the National Court Register maintained by the District Court for the Capital City of Warsaw, under KRS number 0000750050, NIP 526-021-02-28. The seat of the Company is in Warsaw at Polna 11 str. Independent Registered Auditor’s Report To the Shareholders and the Board of Directors of Huuuge, Inc. Report on the audit of separate financial statements Our opinion In our opinion, the accompanying annual separate financial statements: • give a true and fair view of the separate financial position of Huuuge, Inc. (the “Company”) as at 31 December 2023 and the Company’s separate financial performance and the separate cash flows for the year then ended in accordance with the applicable International Financial Reporting Standards as adopted by the European Union and the adopted accounting policies; • comply in terms of form and content with the laws applicable to the Company and the Company’s Certificate of Incorporation. What we have audited We have audited the annual separate financial statements of Huuuge, Inc. which comprise: • the Company’s separate statement of financial position as at 31 December 2023; and the following prepared for the financial year from 1 January to 31 December 2023: • the Company’s separate statement of comprehensive income; • the Company’s separate statement of changes in equity; • the Company’s separate statement of cash flows, and • the notes to the separate financial statements comprising material accounting policies and other explanatory information. Basis for opinion We conducted our audit in accordance with the National Standards on Auditing as adopted by the resolution of the National Council of Statutory Auditors and the resolution of the Council of the Polish Audit Supervision Agency (“NSA”) and pursuant to the Law of 11 May 2017 on Registered Auditors, Registered Audit Companies and Public Oversight (the “Law on Registered Auditors”). Our responsibilities under NSA are further described in the Auditor’s responsibility for the audit of the separate financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) as adopted by resolution of the National Council of Statutory Auditors and other ethical requirements that are relevant to our audit of the separate 2 financial statements in Poland. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. During the audit, the key registered auditor and the registered audit firm remained independent of the Company in accordance with the independence requirements set out in the Law on Registered Auditors. Our audit approach Overview • The overall materiality threshold adopted for the purposes of our audit was set at USD 1,226 thousand, which represents 1% of the total assets • We have audited the annual separate financial statements of the Company for the period ended 31 December 2023. • Investments in subsidiaries - determination whether impairment indicators exist • Classification of pending litigations as contingent liabilities or provisions As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the separate financial s tatements. In particular, we considered where the Chief Executive Officer made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Materiality Scoping Key audit matters 3 Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the separate financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the separate financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the separate financial statements as a whole, as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the separate financial statements as a whole. Overall materiality USD 1,226 thousand How we determined it 1% of the total assets Rationale for the materiality benchmark applied We chose total assets as the benchmark because, in our view, it is the benchmark against which the performance of the Company i s most commonly measured by users, and is a generally accepted benchmark for entities being a holding company with no operations other than these related to holding activities. The Company is a parent entity for the Huuuge, Inc Group (the “Group”) holding the shares in subsidiaries and has no other material operations. We chose 1% as, based on our professional judgement, it is within the acceptable quantitative materiality thresholds. We agreed with the Audit Committee of the Company that we would report to them misstatements of the separate financial statements identified during our audit above USD 61 thousand, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the separate financial statements of the current period. They include the most significant identified risks of material misstatements, including the identified risks of material misstatement resulting from fraud. These matters were addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters. 4 Key audit matter How our audit addressed the key audit matter Investments in subsidiaries – determination whether impairment indicators exist As at the balance sheet date 31 December 2023, the Company held investment in subsidiaries in the total amount of USD 29.8 million. During the year ended 31 December 2023 the value of investments in the Company’s subsidiaries increased by USD 685 thousand, primarily as the result of capitalization of the stock option plan expense attributable to the employees of subsidiaries. Disclosures in respect of the investments in subsidiaries are described in the Note 1 and 8 to the separate financial statements. The accounting policy for measurement of investments in subsidiaries is described in Note 2.3) (d) to the separate financial statements. According to IAS 36 "Impairment of assets", as of the balance sheet date, the Company conducts an analysis of impairment indicators in relation to the investment in subsidiaries, and if such indicators are identified – the impairment tests are performed. Determination whether there are indicators that the value of investments in subsidiaries is impaired requires a critical judgement of the management. As of 31 December 2023 the management concluded that no impairment indicators were identified. Given the inherent risk of uncertainties over the significant judgement made by the management, we have concluded that this is a key matter for our audit . Our audit procedures included, in particular: ● Understanding and evaluation of accounting policies for measurement of investments in subsidiaries and related impairment assessment for compliance with the requirements of IAS 27 and IAS 36; ● Understanding and assessment of the process of identification by the management of the indicators for impairment of investments in subsidiaries; ● Making a critical assessment of the existence of indicators for impairment for these investments, considering both: internal sources of information and those external to the Company; ● Determination on adequacy of the disclosures in respect of assessment of impairment indicators of investments in subsidiaries . Classification of pending litigations as contingent liabilities or provisions As at 31 December 2023 the Company had become involved in a number of pending litigations, related primarily to the alleged illegality of the Company’s social casino games under the laws of several US states. The nature and status of respective litigations are disclosed in note 16 to the separate financial statements, and the relevant accounting policies are disclosed in note 2.3) (l). In management’s assessment none of the pending Our audit procedures over the classification of pending litigations as contingent liabilities included, among others: ● assessment of management’s process for the identification of open pending litigations; ● assessment of management’s process for consideration of the nature and expected 5 litigations was e xpected to have a material impact on the Company’s operations, financial conditions or cash flows. These litigations were classified as contingent liabilities and their details were disclosed in the separate financial statements based on management’s assessment that the material outflow of the economic benefits is not probable. In arriving at its conclusion the management analysed the nature of underlying claims related to its business model and took into consideration advice of both internal and external legal experts. We consider classification of these legal cases as contingent liabilities to be a key audit matter as significant judgements and estimates are made by management in applying definition of a contingent liability as defined by IAS 37 and in determining the magnitude of the potential impact on the separate financial statements. The judgments related to classification of claims and litigations as contingent liabilities or provisions are subject to inherent risk and may change in future as individual cases progress, legal strategies are amended and settlement scenarios are considered. The final conclusion of the contingent liability and the final liability, if any, is subject to significant judgments and estimates and the interpretation. outcome of pending litigations; ● reading the underlying claims and demands for arbitration received by the Company; ● discussion of the nature of these claims and assessments of the expected outcome of these cases with management and internal legal experts; ● analysis of the significant legal cases and sending letters to external legal counsel requesting for i) their explanations of the nature of the case and their assessment of the probability of the Company being successful in defending its position, and ii) their assessment, if possible, of the range or estimated amount of potential costs; ● considering the adequacy and completeness of disclosures. Responsibility of the Chief Executive Officer, the Treasurer and the Board of Directors of the Company for the separate financial statements The Chief Executive Officer and the Treasurer of the Company under supervision of the Board of Directors are responsible for the preparation, based on the properly maintained books of account of the annual separate financial statements that give a true and fair view of the Company’s financial position and results of operations, in accordance with International Financial Reporting Standards as adopted by the European Union, the adopted accounting policies, the applicable laws and the Company’s Certificate of Incorporation, and for such internal control as they determine is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the separate financial statements, the Chief Executive Officer and the Treasurer of the Company under supervision of the Board of Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. 6 The Board of Directors together with the Chief Executive Officer and the Treasurer of the Company are responsible for overseeing the financial reporting process of the Company. The Audit Committee is responsible for the supervision over the adequacy of the internal control system and over monitoring its effectiveness in the preparation of the separate financial statements. Auditor’s responsibility for the audit of the separate financial statements Our objectives are to obtain reasonable assurance about whether the separate 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 a guarantee that an audit conducted in accordance with the NSA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence economic decisions of users taken on the basis of these separate financial statements. The scope of the audit does not include an assurance on the Company’s future profitability nor the efficiency and effectiveness of the Chief Executive Officer of the Company conducting its affairs, now or in future. As part of an audit in accordance with NSA, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. 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. • 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 the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Chief Executive Officer and the Treasurer of the Company. • Conclude on the appropriateness of the Chief Executive Officer and the Treasurer of the Company’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 7 We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated to the Audit Committee, we determine those matters that were of most significance in the audit of the separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Other information, including the report on the operations Other information Other information comprises the Annual Report including: • information on pages from 5 to 38 that relates to the management’s analysis of the Company’s and the Group’s operations for the financial year ended 31 December 2023 (the “Report on activities”), • information on pages from 39 to 70 that relates to corporate governance (the “Corporate governance statement”), • other documents comprising the Annual Report for the financial year ended 31 December 2023, (together “Other Information”). Other information does not include the consolidated financial statements and the separate financial statements and our auditor’s reports thereon. Responsibility of the Board of Directors The Board of Directors of the Company is responsible for the preparation of the Other Information in accordance with the law. The members of the Board of Directors are obliged to ensure that the Report on activities and the Corporate governance statement comply with the requirements of the Regulation of the Minister of Finance dated 29 March 2018 on current and periodical information submitted by issuers of securities and conditions for considering as equivalent the information required under the legislation of a non- Member State (the “Regulation on current information”). Registered auditor’s responsibility Our opinion on the separate financial statements does not cover the Other Information. In connection with our audit of the separate financial statements and the consolidated financial statements, our responsibility under NSA is to read the Other Information and, in doing so, consider whether the Other Information is materially inconsistent with the information in the separate financial statements and consolidated financial statements, our knowledge obtained in our audit, or otherwise appears to be materially misstated. If, based on the work performed, we identified a material misstatement in the Other Information, we are obliged to inform about it in our audit report. In accordance with the requirements of the Law on the Registered Auditors, we are also obliged to issue an opinion on whether the Report on activities has been prepared in accordance with the law and is consistent with information included in annual separate financial statements of the Company and the annual consolidated financial statements. 8 Moreover, we are obliged to issue an opinion on whether the Company and the Group provided required information in its Corporate governance statement. Statement on the Other information We declare, based on the knowledge of the Company and the Group and their environment obtained during our audit, that we have not identified any material misstatements in the Report on activities of the Company and the Group and the remaining elements of Other information. Opinion on the Report on activities Based on the work we carried out during our audit, in our opinion, the Report on activities of the Company and the Group: • has been prepared in accordance with the requirements of para. 70 and 71 of the Regulation on current information; • is consistent with the information in the separate financial statements and the consolidated financial statements. Opinion on the Corporate governance statement In our opinion, in its Corporate governance statement, the Company and the Group included information set out in para. 70.6 (5) of the Regulation on current information. In addition, in our opinion, information specified in paragraph 70.6 (5)(c)–(f), (h) and (i) of the said Regulation included in the Corporate governance statement is consistent with the applicable provisions of the law and with information included in the separate financial statements and the consolidated financial statements. The Key Registered Auditor responsible for the audit on behalf of PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp. k., a company entered on the list of Registered Audit Companies with the number 144, is Paweł Wesołowski. Paweł Wesołowski Key Registered Auditor No. 12150 Warsaw, 14 March 2024