TransNational Foods 2019 Audit Report

TransNational Foods, LLC
Independent Auditor’s Report and Consolidated Financial Statements

December 31, 2019 and 2018
Contents
Independent Auditor’s Report............................................................................................... 1
Consolidated Financial Statements

Balance Sheets .................................................................................................................................... 3
Statements of Operations .................................................................................................................... 4
Statements of Members’ Equity ......................................................................................................... 5
Statements of Cash Flows .................................................................................................................. 6
Notes to Financial Statements ............................................................................................................ 7
Independent Auditor’s Report
Board of Directors
Miami, Florida
We have audited the accompanying consolidated financial statements of TransNational Foods, LLC and
its subsidiary, which comprise the consolidated balance sheets as of December 31, 2019 and 2018, and
the related consolidated statements of operations, members’ equity and cash flows for the years then
ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the 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.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Board of Directors
Page 2
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of TransNational Foods, LLC and its subsidiary as of December 31, 2019
and 2018, and the results of their operations and their cash flows for the years then ended in accordance
with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 2 to the consolidated financial statements, in 2019, the entity adopted new
accounting guidance regarding recognition of revenue with customers. Our opinion is not modified with
respect to this matter.
Kansas City, Missouri

April 8, 2020
Consolidated Balance Sheets
Assets
2019 2018
Current Assets
Cash $ 9,109 $ -
Receivables
Trade, net of allowance; 2019 and 2018 - $149,900 8,079,581 11,400,747
Other receivables 281,397 252,653
Inventories 18,214,506 24,555,031
Prepaid and other assets 1,183,476 253,673
Prepaid assets - related party 461,707 1,095,982
Income tax receivable 833,859 411,295
Total current assets 29,063,635 37,969,381
Property and Equipment, Net 243,439 264,624
Other Assets
Goodwill, net 7,490,630 8,852,563
Intangible assets, net 8,135,968 9,972,077
Deposits 69,321 69,321
15,695,919 18,893,961
Total assets $ 45,002,993 $ 57,127,966
Liabilities and Members’ Equity
Current Liabilities
Checks in excess of bank balance $ - $ 149,861
Current portion of long-term debt 600,000 1,200,000
Line of credit - bank 13,065,261 14,856,113
Accounts payable 17,290,169 23,619,869
Accrued expenses 335,559 603,951
Total current liabilities 31,290,989 40,429,794
Notes payable to members 9,470,080 9,140,440

Notes payable to bank - 600,000
Total long-term debt 9,470,080 9,740,440
Deferred Tax Liability, Net 1,868,538 2,157,000
Total liabilities 42,629,607 52,327,234
Members’ Equity 2,373,386 4,800,732
Total liabilities and members’ equity $ 45,002,993 $ 57,127,966
See Notes to Consolidated Financial Statements 3

Consolidated Statements of Operations
Years Ended December 31, 2019 and 2018
2019 2018
Net Sales $ 116,957,055 $ 111,362,001
Cost of Goods Sold 104,284,942 99,012,484
Gross Margin 12,672,113 12,349,517
Operating Expenses
General and administrative 1,492,015 994,273
Depreciation 112,872 108,249
Amortization 3,204,400 3,204,400
Marketing and promotions 1,622,584 1,576,708
Insurance 573,317 500,750
Sales commissions 1,172,218 1,106,257
Salaries and employee benefits 4,712,208 4,700,224
Travel and related charges 557,203 489,382
Total operating expenses 13,446,817 12,680,243
Net Operating Loss (774,704) (330,726)
Other Expense
Interest expense (2,372,778) (2,135,428)
Management fee and board expenses (298,636) (352,523)
(2,671,414) (2,487,951)
Net Loss Before Credit for Income Taxes (3,446,118) (2,818,677)
Credit for Income Taxes (1,123,084) (613,961)
Net Loss $ (2,323,034) $ (2,204,716)

Consolidated Statements of Members’ Equity
Retained Total
Membership Members’ Members’
Interest Deficit Equity
Balance, January 1, 2018 $ 10,154,520 $ (2,498,044) $ 7,656,476
Net loss - (2,204,716) (2,204,716)

Distributions (651,028) - (651,028)
Balance, December 31, 2018 9,503,492 (4,702,760) 4,800,732
Net loss - (2,323,034) (2,323,034)

Distributions (104,312) - (104,312)
Balance, December 31, 2019 $ 9,399,180 $ (7,025,794) $ 2,373,386

Consolidated Statements of Cash Flows
2019 2018
Operating Activities
Net loss $ (2,323,034) $ (2,204,716)
Items not requiring (providing) cash
Depreciation and amortization 3,317,272 3,312,649
Amortization of debt issuance costs 105,866 74,112
Capitalized covenant waiver fee on subordinated long-term debt 276,600 -
Deferred income taxes (288,462) (620,200)
Changes in
Accounts receivable 3,292,422 (2,373,588)
Inventories 6,340,525 (6,029,179)
Prepaid expenses (295,528) (525,519)
Accounts payable and accrued expenses (6,598,092) 4,046,453
Income taxes receivable (422,564) (3,487)
Net cash provided by (used in) operating activities 3,405,005 (4,323,475)
Investing Activities
Purchase of property and equipment (91,687) (82,226)
Purchases of intangibles/goodwill (6,358) (81,710)
Net cash used in investing activities (98,045) (163,936)
Financing Activities
Changes in outstanding checks in excess of bank balance (149,861) 74,976
Net borrowings under line-of-credit agreement (1,843,678) 6,637,361
Principal payments on long-term debt (1,200,000) (1,500,000)
Payment of deferred financing costs - (73,898)
Distributions paid (104,312) (651,028)
Net cash provided by (used in) financing activities (3,297,851) 4,487,411
Change in Cash 9,109 -
Cash, Beginning of Year - -
Cash, End of Year $ 9,109 $ -
Supplemental Cash Flows Information

Interest paid $ 2,319,738 $ 2,051,709
Income taxes refunded (366,080) -

Notes to Consolidated Financial Statements
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
TransNational Foods, LLC (the Company) was formed on July 6, 2015, for the purpose of
acquiring TransNational Foods, Inc. The Company through its wholly-owned subsidiary earns
revenues predominately from the importing, marketing and wholesale distribution of a wide range
of food and other related products through their own brands (Pampa, Della Natura, So Natural) and
other private labels to various customers throughout the United States of America. The Company
distributes its merchandise from its leased warehouse located in Norfolk, Virginia as well as from
six other handling, distribution and storage locations owned and operated by third parties located in
Miami, Florida; Houston, Texas; Laredo, Texas; Bell Gardens, California; Newark, New Jersey;
and Grand Rapids, Michigan. The Company extends credit to its customers on an unsecured basis.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiary, TransNational Foods, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity 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
At December 31, 2019, the Company’s cash accounts did not exceed federally insured limits.
Accounts Receivable
Accounts receivable consist primarily of trade receivables from customers. Accounts receivable
are stated at the amount of consideration from customers of which the Company has an
unconditional right to receive. The Company evaluates the collectability of accounts receivable
and determines the appropriate reserve for doubtful accounts based on a combination of factors.
The Company utilizes specific criteria to determine uncollectible receivables to be written off,
including whether a customer has had accounts past due over specified periods and the amount of
coverage the customer receives by the Company’s insurance policy. The Company does not offer
sales on credit to customers who are not covered by the insurance. The Company has recorded an
allowance for doubtful accounts based on the average deductions taken after the sale. In
circumstances where the Company is aware of a specific customer’s inability to meet its financial
obligations, a specific direct write-off will be recorded to reduce the receivable to the net amount
reasonably expected to be collected.
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Each customer is separately insured in full or up to an agreed upon amount, based on each
customers’ credit limit and credit history. Delinquent receivables are reported to the insurance
company for reimbursement or have terms adjusted. The Company sells certain accounts
receivable from one customer to its primary lender with recourse available only in the case of a
commercial dispute. The Company believes any exposure related to these receivables is
insignificant.
As of December 31, 2019 and 2018, 57 percent and 53 percent, respectively, of accounts receivable
were related to two customers.
Inventory Pricing
Inventories consist of finished goods, including food, beverages and related products. Inventories
are stated at the lower of cost or net realizable value. Costs of all inventories are determined using
the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment acquisitions are stated at cost less accumulated depreciation. Depreciation
is charged to expense on the straight-line basis over the estimated useful life of each asset.
The estimated useful lives for each major depreciable classification of property and equipment are
as follows:
Computer equipment 3-5 years
Furniture and fixtures 5-7 years
Goodwill and Intangible Assets
The Company elected the private company accounting alternative for the subsequent measurement
of goodwill. Under this alternative, goodwill is amortized on a straight-line basis over 10 years.
The Company evaluates the recoverability of the carrying value of goodwill at the entity level
whenever events or circumstances indicate the carrying amount may not be recoverable.
In testing goodwill for impairment, the Company has the option first to perform a qualitative
assessment to determine whether it is more likely than not that goodwill is impaired or the entity
can bypass the qualitative assessment and proceed directly to the quantitative test by comparing the
carrying amount, including goodwill, of the entity with its fair value. The goodwill impairment
loss, if any, is measured as the amount by which the carrying amount of an entity, including
goodwill, exceeds its fair value. Subsequent increases in goodwill value are not recognized in the
consolidated financial statements.
Intangible assets with finite lives are being amortized on the straight-line basis over periods
ranging from 2 to 15 years. Such assets are periodically evaluated as to the recoverability of their
carrying values.
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Long-lived Asset Impairment
The Company evaluates the recoverability of the carrying value of long-lived assets whenever
events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset
is tested for recoverability and the undiscounted estimated future cash flows expected to result
from the use and eventual disposition of the asset is less than the carrying amount of the asset, the
asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the
carrying amount of a long-lived asset exceeds its fair value.
No asset impairment was recognized during the years ended December 31, 2019 and 2018.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to the
Company’s customers, in an amount that reflects the consideration that it expects to be entitled to
in exchange for those goods or services. The amount and timing of revenue recognition varies
based on the nature of the goods or services provided and the terms and conditions of the customer
contract. See Note 2 for additional information about the Company’s revenue.
Deferred Financing Costs
Costs incurred in obtaining financing have been capitalized and are being amortized over the life of
the debt obligation. Deferred financing costs are presented as a reduction of long-term debt on the
accompanying consolidated balance sheets. Amortization expense related to the deferred financing
fees for the years ended December 31, 2019 and 2018 was $53,040 and $74,112, respectively, and
are included in interest expense.
Income Taxes
The Company’s members have elected to have the Company’s income taxed as a partnership under
the provisions of the Internal Revenue Code and applicable state laws. Therefore, taxable income
or loss is reported to the individual partners for inclusion in their respective tax returns and no
provision for federal and state income taxes has been included in the accompanying consolidated
financial statements.
The Company’s subsidiary, TransNational Foods, Inc., accounts for income taxes in accordance
with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting
guidance results in two components of income tax expense: current and deferred. Current income
tax expense reflects taxes to be paid or refunded for the current period by applying the provisions
of the enacted tax law to the taxable income or excess of deductions over revenues. The Company
determines deferred income taxes using the liability (or balance sheet) method. Under this method,
the net deferred tax asset or liability is based on the tax effects of the differences between the book
and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in
the period in which they occur. Deferred income tax expense results from changes in deferred tax
assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if,
based on the weight of evidence available, it is more likely than not that some portion or all of a
deferred tax asset will not be realized.
9
Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax
position will be realized or sustained upon examination. The term more likely than not means a
likelihood of more than 50 percent; the terms examined and upon examination also include
resolution of the related appeals or litigation processes, if any. A tax position that meets the more-
likely-than-not recognition threshold is initially and subsequently measured as the largest amount
of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a
taxing authority that has full knowledge of all relevant information. The determination of whether
or not a tax position has met the more-likely-than-not recognition threshold considers the facts,
circumstances and information available at the reporting date and is subject to management’s
judgment.
Shipping and Handling Costs
Shipping and handling costs of $2,613,409 and $2,820,725 for the years ended December 31, 2019
and 2018, respectively, are included in costs of goods sold.
Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes collected from customers and remitted to governmental authorities are presented in the
accompanying consolidated statements of operations on a net basis.
Note 2: Revenue from Contracts with Customers
Change in Accounting Principle
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), that replaces
existing revenue recognition guidance. The new standard requires companies to recognize revenue
in a way that depicts the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. In addition, Topic 606 requires disclosures of the nature, amount, timing and uncertainty
of revenue and cash flows arising from contracts with customers. The Company adopted this
standard on January 1, 2019, using a modified retrospective approach with the cumulative effect of
initially applying the new standard recognized in retained earnings at the beginning of the year of
adoption. Comparative prior period information has not been adjusted and continues to be reported
in accordance with previous revenue recognition guidance in ASC Topic 605 — Revenue
Recognition. The Company has applied the new standard to all contracts not complete at the date
of adoption.
The Company’s adoption of Topic 606 did not result in a change to the timing of revenue
recognition.
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Performance Obligations
Revenue is measured as the amount of consideration the Company expects to receive in exchange
for transferring distinct goods or providing services to customers. The Company’s revenue
consists substantially of product sales and is reported net of sales discounts, returns and other
allowances offered to customers. The Company recognizes revenue when performance obligations
under the terms of contracts with its customers are satisfied, which occurs when control passes to a
customer to enable them to direct the use of and obtain benefit from a product. This typically
occurs when a customer obtains legal title, obtains the risks and rewards of ownership, has received
the goods according to the contractual shipping terms either at the shipping point or destination and
is obligated to pay for the product. Customary terms for payment vary from customer to customer.
All of the Company’s revenues are recognized at a point in time.
The Company has determined that the nature, amount, timing and uncertainty of revenue and cash
flows are affected by the customers that have different reimbursement and payment methodologies.
Note 3: Inventories
At December 31, 2019 and 2018, inventory was located as follows:
2019 2018
Norfolk, Virginia $ 10,420,419 $ 9,237,123

Houston, Texas 123,884 103,784
Bell Gardens, California 2,829,803 6,269,305
Laredo, Texas 254,345 278,736
Grand Rapids, Michigan 40,609 20,620
Miami, Florida - 44,356
Newark, New Jersey 27,629 99,097
In transit 4,517,817 8,502,010
$ 18,214,506 $ 24,555,031
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Note 4: Acquired Intangible Assets and Goodwill
The carrying basis and accumulated amortization of recognized intangible assets at December 31,
2019 and 2018 was:
2019 2018
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
Amortized intangible assets
Vendor relationships $ 8,049,000 $ 3,622,050 $ 8,049,000 $ 2,817,150
Non-compete agreements 4,134,000 4,134,000 4,134,000 4,134,000
Tradename 3,529,068 1,032,300 3,522,710 802,900
Open orders 771,000 771,000 771,000 771,000
Customer relationships 4,849,000 3,636,750 4,849,000 2,828,583
Goodwill 13,572,854 6,082,224 13,572,854 4,720,291
$ 34,904,922 $ 19,278,324 $ 34,898,564 $ 16,073,924
Amortization expense for each of the years ended December 31, 2019 and 2018 was $3,204,400 for
both years. Estimated amortization expense for each of the following five years and thereafter is:
2020 $ 3,204,400
2021 2,800,316
2022 2,396,233
2023 2,396,233
2024 2,396,233
Thereafter 2,433,183
$ 15,626,598
The change in the net carrying amount of goodwill is as follows:
2019 2018
Balance as of January 1 $ 8,852,563 $ 10,214,496
Amortization expense (1,361,933) (1,361,933)
Balance as of December 31 $ 7,490,630 $ 8,852,563
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Note 5: Line of Credit and Financing Agreements
In July 2015, the Company entered into an amended and restated credit facility agreement that
included a $6,000,000 term note (see Note 6) and a $20,000,000 revolving line of credit. Effective
August 14, 2018, the revolving line of credit agreement was amendment to extend the maturity to
August 14, 2020. At December 31, 2019 and 2018, there was $13,065,261 and $14,908,939
borrowed against this line, respectively. The line is collateralized by substantially all of the
Company’s assets. Interest varies with the 30 day LIBOR rate plus 2 percent, which was
3.71 percent and 4.35 percent on December 31, 2019 and 2018, respectively, and is payable
monthly.
TransNational Foods, Inc. and TransNational Foods, LLC have obtained financing for the
revolving line of credit, term note and mezzanine debt holders (see Note 6) as co-obligors, i.e., the
debt holders have the right to demand payment equally from all parties listed on the agreements.
During 2016, one the Company’s customers requested extended payment terms from 60 days to
120 days. To minimize the cash flow impact of the change, the Company entered into an
agreement in which TransNational Foods, Inc. can elect to sell up to $5,000,000 of eligible
receivables for one customer to the bank. Receivables are sold at various times within the terms of
the agreement expiring no later than 120 days from the date of the sale. Interest varies with the 30
day LIBOR rate plus 1.75 percent, which was 3.50 percent and 4.21 percent on December 31, 2019
and 2018, respectively, and is payable at the time the sale occurs. Interest expense in 2019 and
2018 was $63,420 and $77,337, respectively.
Unamortized debt issuance costs are amortized to interest expense based on a straight line
amortization of two years. In connection with the note payable to bank, the Company is required,
among other things, to maintain certain financial conditions. The unamortized debt issuance costs
were $0 and $52,826 at December 31, 2019 and 2018, respectively.
While the line of credit has a due date within one year of the issuance of these consolidated
financial statements, the Company utilizes the financing for long-term operating purposes. While
the Company’s current assets at December 31, 2019 are not sufficient to repay the balances at the
maturity date, management intends to renew the credit agreement on comparable terms at or near
the maturity date and believes it is probable such renewal will be successful.
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Note 6: Long-term Debt
2019 2018
Note payable, bank (A) $ 600,000 $ 1,800,000

Less current maturities (600,000) (1,200,000)
Total note payable to bank $ - $ 600,000
Notes payable (B) $ 9,496,600 $ 9,220,000

Less unamortized debt issuance costs (26,520) (79,560)
Total note payable to members $ 9,470,080 $ 9,140,440
(A) Due June 30, 2020; payable $300,000 quarterly plus quarterly interest at 3.25 percent plus
the 90 day LIBOR rate (5.16 percent and 5.65 percent at December 31, 2019 and 2018,
respectively); secured by property and equipment and computer software; unrestricted
compensating cash balances and certain other requirements; guaranteed and partially
secured by assets of majority stockholders.
(B) Series of identical subordinated mezzanine notes due May 2021; interest at 13 percent
cash payable monthly.
In 2019 and 2018, the Company was in default of certain covenant requirements. In
exchange for a waiver of these covenant violations, the Company recorded additional
principal due under these agreements and a related expense of $276,600. Subsequent to
year-end, the Company executed a series of amendments to the subordinated mezzanine
notes waiving additional covenant violations occurring in 2019 and extending the maturity
date of the notes to May 2021. The amendments also reinstated the requirement to pay
additional paid-in-kind interest (PIK Interest). The Company shall pay PIK Interest of
2.00 percent through August 2020. Beginning in September 2020 through the maturity
date of the notes, the Company will pay PIK Interest of 6.00 percent. In addition, the
Securities Purchase Agreement was modified to adjust the covenant requirements on a
prospective basis.
Unamortized debt issuance costs are amortized to interest expense based on a straight line
amortization of five years. In connection with the note payable to bank, the Company is
required, among other things, to maintain certain financial conditions. The unamortized
debt issuance cost was $26,520 and $79,560 at December 31, 2019 and 2018, respectively.
14
Aggregate annual maturities of long-term debt at December 31, 2019 are:

Long-term
Debt
2020 $ 600,000
2021 9,470,080
$ 10,070,080
Note 7: Operating Leases
Noncancellable operating leases for the Company’s operating location, warehouse and other
equipment expire in various years through 2021. These leases generally contain renewal options
for two years and require the Company to pay all executory costs (property taxes, maintenance and
insurance). Rental expense for all operating leases during the years ended December 31, 2019 and
2018 was approximately $868,000 and $831,000, respectively.
Future minimum lease payments at December 31, 2019, were:
2020 $ 685,718
2021 360
$ 686,078
Note 8: Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. At December 31, 2019, there were no Internal Revenue Service (IRS) examinations
of the Company’s U.S. income tax returns in process.
The credit for income taxes for the years ended December 31, 2019 and 2018 consisted of the
following:
2019 2018
Taxes currently payable (receivable) $ (834,622) $ 6,239

Deferred income taxes (288,462) (620,200)
Income tax benefit $ (1,123,084) $ (613,961)
15
The differences between tax benefit calculated at the statutory rate and the tax provision are due to
permanent differences, state taxes and flow through earnings of the Company. The Company’s
effective income tax expense rate differs from the federal statutory rate of 21 percent for the years
ended December 31, 2019 and 2018 as follows:
2019 2018
Benefit at federal statutory rate - 21% $ (950,051) $ (814,237)

Increase (decrease) resulting from
Permanent difference - goodwill amortization 286,000 286,000
Carryback of net operating losses (317,698) -
Other (36,975) 26,751
State net operating loss (37,160) (63,300)
State benefit (67,200) (49,175)
$ (1,123,084) $ (613,961)
The tax effects of temporary differences related to deferred taxes shown on the consolidated
balance sheets at December 31, 2019 and 2018 were:
2019 2018
Deferred tax assets
Tradename amortization $ 25,400 $ 29,200
Accrued debt fees 33,700 -
Federal and State NOL carryforwards 77,062 329,600
136,162 358,800
Deferred tax liability

Depreciation of property and equipment (41,800) (48,900)
Amortization of prepaid assets (2,400) -
Amortization of intangible assets (1,960,500) (2,466,900)
(2,004,700) (2,515,800)
Net deferred tax liability $ (1,868,538) $ (2,157,000)
At December 31, 2019, the Company had unused operating loss carryforwards of approximately
$1,812,000.
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Note 9: Related Party Transactions
The Company is involved in purchases transactions with Andes Gourmet, which is a related party.
For the years ended December 31, 2019 and 2018, the Company purchased $1,120,820 and
$1,552,705 of product from this related party, respectively. As of December 31, 2019 and 2018,
the Company had prepaid Andes Gourmet $461,707 and $1,095,982 for inventory, respectively.
The Company paid quarterly management fees of $31,250 and $62,500 in 2019 and 2018,
respectively, to Cave Creek Capital Management LLC and Stewart Capital Management LLC. For
the years ended December 31, 2019 and 2018, the Company paid $140,625 and $234,375,
respectively, for management fees and is included in other expenses in the consolidated statements
of operations. The Company paid $158,011 and $118,148 for board expenses for the years ended
December 31, 2019 and 2018, respectively.
The Company purchases services from TransNational Foods Argentina, a related party, for
marketing and logistical services. The monthly fees for services were $42,000. During the years
ended December 31, 2019 and 2018, the Company purchased $504,000 and $515,800 of services
from this related party, respectively.
Note 10: Significant Estimates and Concentrations
Accounting principles generally accepted in the United States of America require disclosure of
certain significant estimates and current vulnerabilities due to certain concentrations. Those
matters include the following:
General Litigation
The Company is subject to claims and lawsuits that arise primarily in the ordinary course of
business. It is the opinion of management that the disposition or ultimate resolution of such claims
and lawsuits will not have a material adverse effect on the consolidated financial position, results
of operations and cash flows of the Company.
Depreciation and Amortization Expense
As described in Note 1, property and equipment are assigned an estimated useful life and
depreciated on a straight-line method. Additionally, goodwill and intangibles are assigned an
estimated useful life and amortized on a straight-line method.
Major Customers
Two customers accounted for approximately 46 percent of total revenues during the year ended
December 31, 2019. One customer accounts for approximately 31 percent of total revenues during
the year ended December 31, 2018.
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Major Supplier
One supplier accounts for approximately 14 percent and 11 percent of purchased products during
the years ended December 31, 2019 and 2018, respectively.
Note 11: Commitments
Letter of Credit
The Company had a $200,000 outstanding letter of credit during 2019 to be used for the purchase of
foreign-sourced inventory.
Note 12: Future Changes in Accounting Principle
Accounting for Leases
The Financial Accounting Standards Board amended its standard related to the accounting for leases.
Under the new standard, lessees will now be required to recognize substantially all leases on the
balance sheet as both a right-of-use asset and a liability. The standard has two types of leases for
income statement recognition purposes: operating leases and finance leases. Operating leases will
result in the recognition of a single lease expense on a straight-line basis over the lease term similar
to the treatment for operating leases under existing standards. Finance leases will result in an
accelerated expense similar to the accounting for capital leases under existing standards. The
determination of lease classification as operating or finance will be done in a manner similar to
existing standards. The new standard also contains amended guidance regarding the identification of
embedded leases in service contracts and the identification of lease and nonlease components in an
arrangement. The new standard is effective for annual periods beginning after December 15, 2020,
and any interim periods within annual reporting periods that begin after December 15, 2021. The
Company is evaluating the impact the standard will have on the consolidated financial statements;
however, the standard is expected to have a material impact on the consolidated financial statements
due to the recognition of additional assets and liabilities for operating leases.
Note 13: Subsequent Events
Subsequent events have been evaluated through April 8, 2020, which is the date the consolidated
financial statements were available to be issued.
As a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which
may negatively affect the financial position, results of operations and cash flows of companies in
the distribution industry. While the Company has experienced favorable results since the start of
the pandemic, the duration of these uncertainties and the ultimate financial effects cannot be
reasonably estimated at this time.
18

TransNational Foods 2019 Audit Report

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TransNational Foods, LLC

Independent Auditor’s Report and Consolidated Financial Statements

Independent Auditor’s Report............................................................................................... 1

Consolidated Financial Statements

Management’s Responsibility for the Financial Statements

Kansas City, Missouri

Total current assets 29,063,635 37,969,381

Property and Equipment, Net 243,439 264,624

Total assets $ 45,002,993 $ 57,127,966

Liabilities and Members’ Equity

Total current liabilities 31,290,989 40,429,794

Notes payable to members 9,470,080 9,140,440

Total long-term debt 9,470,080 9,740,440

Deferred Tax Liability, Net 1,868,538 2,157,000

Total liabilities 42,629,607 52,327,234

Members’ Equity 2,373,386 4,800,732

Total liabilities and members’ equity $ 45,002,993 $ 57,127,966

See Notes to Consolidated Financial Statements 3

Net Sales $ 116,957,055 $ 111,362,001

Cost of Goods Sold 104,284,942 99,012,484

Gross Margin 12,672,113 12,349,517

Total operating expenses 13,446,817 12,680,243

Net Operating Loss (774,704) (330,726)

Net Loss Before Credit for Income Taxes (3,446,118) (2,818,677)

Credit for Income Taxes (1,123,084) (613,961)

Net Loss $ (2,323,034) $ (2,204,716)

See Notes to Consolidated Financial Statements 4

Balance, January 1, 2018 $ 10,154,520 $ (2,498,044) $ 7,656,476

Net loss - (2,204,716) (2,204,716)

Balance, December 31, 2018 9,503,492 (4,702,760) 4,800,732

Net loss - (2,323,034) (2,323,034)

Balance, December 31, 2019 $ 9,399,180 $ (7,025,794) $ 2,373,386

See Notes to Consolidated Financial Statements 5

Net cash provided by (used in) operating activities 3,405,005 (4,323,475)

Net cash used in investing activities (98,045) (163,936)

Net cash provided by (used in) financing activities (3,297,851) 4,487,411

Change in Cash 9,109 -

Cash, Beginning of Year - -

Cash, End of Year $ 9,109 $ -

Supplemental Cash Flows Information

See Notes to Consolidated Financial Statements 6

Note 1: Nature of Operations and Summary of Significant Accounting Policies

The preparation of financial statements in conformity with accounting principles generally

Goodwill and Intangible Assets

Long-lived Asset Impairment

Note 2: Revenue from Contracts with Customers

Change in Accounting Principle

At December 31, 2019 and 2018, inventory was located as follows:

Norfolk, Virginia $ 10,420,419 $ 9,237,123

Note 4: Acquired Intangible Assets and Goodwill

$ 34,904,922 $ 19,278,324 $ 34,898,564 $ 16,073,924

The change in the net carrying amount of goodwill is as follows:

Balance as of January 1 $ 8,852,563 $ 10,214,496

Amortization expense (1,361,933) (1,361,933)

Balance as of December 31 $ 7,490,630 $ 8,852,563

Note 5: Line of Credit and Financing Agreements

Note 6: Long-term Debt

Note payable, bank (A) $ 600,000 $ 1,800,000

Notes payable (B) $ 9,496,600 $ 9,220,000

Aggregate annual maturities of long-term debt at December 31, 2019 are:

Note 7: Operating Leases

Note 8: Income Taxes

Taxes currently payable (receivable) $ (834,622) $ 6,239

Income tax benefit $ (1,123,084) $ (613,961)