RAN COPACKING SOLUTIONS LLC
FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT
AS OF DECEMBER 31, 2022 AND FOR THE PERIOD FROM JULY 1, 2022 TO DECEMBER 31, 2022
RAN COPACKING SOLUTIONS, LLC
TABLE OF CONTENTS
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| 805 Third Avenue 14th Floor New York, NY 10022 212.838-5100
www.rbsmllp.com |
Independent Auditors’ Report
To the Board of Directors and Stockholders’
of CFN Enterprises, Inc.
Opinion
We have audited the accompanying Balance Sheet of Ran CoPacking Solutions, LLC (“RanCo” or the “Business”) as of December 31, 2022, pursuant to the Asset Purchase Agreement (the “Purchase Agreement”) between CFN Enterprises, Inc. and Ran CoPacking Solutions, LLC on July 1, 2023 as described in Note 1, and the related Statements of Operations, Changes in Members’ Equity, and Cash Flows for the six months ended December 31, 2022, and the related notes to the Financial Statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business as of December 31, 2022, and the statement of operations and cash flows, pursuant to the Purchase Agreement, for the six months ended June 30, 2022 in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statement section of our report. We are required to be independent of Ranco and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that RanCo will continue as a going concern. As discussed in Note 2 to the financial statements, RanCo has incurred loss and had members’ deficit of $213,022 as of December 31, 2022 and has stated that substantial doubt exists about RanCo’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Emphasis of matter
We draw attention to Note 3 to the financial statement, which describes that the accompanying financial statements were prepared for the purposes of complying with certain rules and regulations of the Securities and Exchange Commission (for inclusion in the Current Report on Form 8-K/A of CFN Enteprises, Inc. dated July 5, 2023) and is not intended to be a complete presentation of the Business’s revenues and expenses. Our opinion is not modified with respect to this matter.
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Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statement 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 financial statement that are free from material misstatements, whether due to fraud or error.
In preparing the financial statement, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Business’s ability to continue as a going concern within one year after the date that the financial statement are available to be issued.
Auditors’ Responsibilities for the Audit of the Financial Statement
Our objectives are to obtain reasonable assurance about whether the financial statement as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ 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 generally accepted auditing standards 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 financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
·Exercise professional judgment and maintain professional skepticism throughout the audit.
·Identify and assess the risks of material misstatement of the 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 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 the RanCo’s 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 financial statements.
·Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Business’s 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/ RBSM LLP
New York, NY
September 15, 2023
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RAN COPACKING SOLUTIONS, LLC
BALANCE SHEET
As of December 31, 2022
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| December 31, |
| 2022 |
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ASSETS |
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Current assets |
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Cash and cash equivalents | $149,143 |
Accounts receivable | 272,780 |
Total current assets | 421,923 |
Deposits | 297,269 |
Right of use asset | 2,550,270 |
Total assets | $3,269,461 |
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LIABILITIES AND MEMBERS' DEFICIT |
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Current liabilities |
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Accounts payable and accrued expenses | $53,879 |
Loan payable | 11,950 |
Due to related party | 854,557 |
Right of use liability, current portion | 530,557 |
Total current liabilities | 1,450,942 |
Right of use of liability | 2,031,542 |
Total liabilities | 3,500,262 |
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Commitments and contingencies |
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Members' deficit | (213,022) |
Total members' deficit | (213,022) |
Total liabilities and members' deficit | $3,287,239 |
See accompanying notes, which are an integral part of these financial statements.
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RAN COPACKING SOLUTIONS, LLC
STATEMENT OF OPERATIONS
For the period from July 1, 2022 to December 31, 2022
| For the Period |
| July 1, 2022 |
| through |
| December 31, |
| 2022 |
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Revenues | $1,775,883 |
Cost of revenues | 1,402,610 |
Gross profit | 373,273 |
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Operating expenses: |
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Selling, general and administrative | 400,296 |
Total operating expenses | 400,296 |
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Net loss | $(27,022) |
See accompanying notes, which are an integral part of these financial statements
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RAN COPACKING SOLUTIONS, LLC
STATEMENT OF CHANGES IN MEMBERS’ EQUITY
For the period from July 1, 2022 to December 31, 2022
| Members' |
| Deficit |
Balances at July 1, 2022 | $- |
Member distributions | (186,000) |
Net loss | (27,022) |
Balances at December 31, 2022 | $(213,022) |
See accompanying notes, which are an integral part of these financial statements
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RAN COPACKING SOLUTIONS, LLC
STATEMENT OF CASH FLOWS
For the period from July 1, 2022 to December 31, 2022
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| For the Period |
| July 1, 2022 |
| through |
| December 31, |
| 2022 |
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Cash flows from operating activities: |
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Net loss | $(27,022) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Non-cash expenses incurred by related party | 150,637 |
Due to related party | 406,651 |
Changes in operating assets and liabilities: |
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Accounts receivable | (272,780) |
Accounts payable and accrued expenses | 53,879 |
Right of use liability, net | 11,829 |
Net cash provided by operating activities | 323,193 |
Cash flows from financing activities: |
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Member distributions | (186,000) |
Proceeds from loan payable, net | 11,950 |
Net cash used in financing activities | (174,050) |
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Change in cash and cash equivalents | 149,143 |
Cash and cash equivalents at beginning of period | - |
Cash and cash equivalents at end of period | $149,143 |
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Supplemental disclosure of non‐cash operating activities: |
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Cash paid for interest | $- |
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Supplemental disclosure of non‐cash investing activities: |
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Right of use asset and liability | $2,828,481 |
Security deposit incurred by related party | $297,269 |
See accompanying notes, which are an integral part of these financial statements
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RAN COPACKING SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2022 and for the period from July 1, 2022 to December 31, 2022
NATURE OF OPERATIONS |
RAN CoPacking Solutions LLC (the “Company”) is a California limited liability company. RAN CoPacking Solutions which offers extensive manufacturing, packaging and labeling services for specialist and consumer brands. The Company design, develop and market client’s products or need repackaging specialist and technical expertise.
On July 1, 2023, CFN Enterprises, Inc. and its wholly owned subsidiary, RANCO, LLC, a Delaware limited liability company, entered into an asset purchase agreement (the “Asset Purchase Agreement”) with RAN CoPacking Solutions LLC, and the members of the RAN CoPacking Solutions LLC (collectively, the “Founders”). The assets of the RAN CoPacking Solutions, LLC acquired by Ranco LLC consist of assets for co-packing and white label manufacturing services, including comprehensive solutions for third party logistics (3PL) related areas such as storage, order fulfillment, solutions for custom packaging and hardware needs for many different industries, and media and design services, along with strategic marketing support, to help clients establish and enhance their brand presence in the market (the “Purchased Assets”) (see Note 9).
2.GOING CONCERN
The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt as to the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a net loss of $27,022 for the period ended December 31, 2022. As of December 31, 2022, the Company had members’ deficit of $213,022. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern for the next twelve months is dependent upon its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and/or to obtain additional capital financing. No assurance can be given that the Company will be successful in these efforts. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("GAAP"). The Company’s fiscal year is December 31. The financial statements of the Company are presented beginning at July 1, 2022, which is the point when the Company entered into a lease for its warehouse (see Note 7) and commenced its operations surrounding the Purchased Assets.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to right of use assets and liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
See accompanying notes, which are an integral part of these financial statements
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RAN COPACKING SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2022 and for the period from July 1, 2022 to December 31, 2022
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. At December 31, 2022, the Company’s cash and cash equivalents were held at one accredited financial institution.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents.
Accounts Receivable
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
●Level 1—Quoted prices in active markets for identical assets or liabilities.
●Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
●Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and due to related party approximate their fair value due to the short-term maturity of these items. The Company’s loan payable approximate their fair value due to the market rate of interest on the loan.
See accompanying notes, which are an integral part of these financial statements
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RAN COPACKING SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2022 and for the period from July 1, 2022 to December 31, 2022
The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
The Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered.
The Company performs services including white label manufacturing and co-packing for customers. Customers will drop off their product and the Company will perform the services via their employees and contractors. When the services are complete, the Company has satisfied its performance obligations. Revenue is recognized at this point in time.
The Company will order products that are manufactured overseas, such as custom boxes, packaging and hardware. These products are generally shipped from overseas to the customer. When these products are shipped out from the manufacturer, the Company has satisfied its performance obligations. Revenue is recognized at this point in time.
Lastly, the Company provides certain shipping and third party logistics services for customers. When the services are complete, the Company has satisfied its performance obligations. Revenue is recognized at this point in time.
The following is a disaggregation of revenue for the period ended December 31, 2022:
Services | $686,732 |
Products | 501,722 |
Shipping and logistics | 587,430 |
| $1,775,883 |
Cost of Revenues
Cost of revenues includes direct labor and materials. Cost of revenues also includes inbound and outbound shipping, freight and delivery costs.
Selling, General and Administrative
Selling, general and administrative expenses primarily consist of legal and professional services, insurance as well as general corporate expenses. These costs are expensed as incurred.
Income Taxes
The Company has elected to be taxed as a partnership under the Internal Revenue Code. Accordingly, no federal income tax provision and state income taxes, to the extent possible, have been recorded in the consolidated financial statements, as all items of income and expense generated by the Company are reported on the members’ personal income tax returns. The Company has no federal or state tax examinations in process as of December 31, 2022.
See accompanying notes, which are an integral part of these financial statements
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RAN COPACKING SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2022 and for the period from July 1, 2022 to December 31, 2022
Leases
In accordance with FASB ASC 842, Leases, upon lease commencement the Company recognizes a right-of-use asset and a corresponding lease liability measured at the present value of the fixed future minimum lease payments. The Company calculates operating lease liabilities with a risk-free discount rate, using a comparable period with the lease term. Lease and non-lease components are combined for all leases. Lease payments for leases with a term of 12 months or less are expensed on a straight-line basis over the term of the lease with no lease asset or liability recognized.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2021. Early adoption is permitted. The Company adopted ASU 2016-02 on July 1, 2022 and it did not have any effect on its financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
4.LOAN PAYABLE
5.MEMBERS’ EQUITY
The debts, obligations, and liabilities of the Company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the Company, and no member of the Company is obligated personally for any such debt, obligation, or liability.
During the period ended December 31, 2022, member distributions totaled $186,000.
6. RELATED PARTY TRANSACTIONS
During the period ended December 31, 2022, the Company incurred $150,637 in expenses paid by the related party, which is the business in operations prior to the Purchased Assets. As of December 31, 2022, there was $854,557 in amounts due to the related party.
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
See accompanying notes, which are an integral part of these financial statements
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RAN COPACKING SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2022 and for the period from July 1, 2022 to December 31, 2022
The Company entered into an operating lease agreement commencing on July 1, 2022 and expiring on July 31, 2027. The lease requires monthly base rent payments of $49,782 and required a security deposit of $297,269, which was incurred by the related party prior business. On July 1, 2022, the Company recognized a ROU asset and liability of $2,828,481.
The components of lease costs are as follows:
|
| For the Period |
|
| July 1, 2022 |
|
| through |
| Financial Statement | December 31, |
Type | Line Item | 2022 |
Operating lease | Selling, general and administrative | $272,875 |
Total lease costs |
| $272,875 |
Supplemental cash flow information related to leases are as follows:
| For the Period |
| July 1, 2022 |
| through |
| December 31, |
| 2022 |
Operating cash flows paid for operating leases | $261,046 |
Right-of-use assets obtained in exchange for operating lease obligations | $2,828,481 |
Supplemental balance sheet information related to leases are as follows:
| December 31, |
| 2022 |
Weighted-average remaining lease term (in years) | 4.58 |
Weighted-average discount rate | 2.88% |
The following is a summary of minimum lease payments as of December 31, 2022:
Year Ending December 31, | Operating Leases |
2023 | $597,379 |
2024 | 597,379 |
2025 | 597,379 |
2026 | 597,379 |
2027 | 348,471 |
Total undiscounted cash flows | 2,737,985 |
Unamortized interest | (175,886) |
Present value of lease liability | $2,562,099 |
Contingencies
The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matters will have a material adverse effect on its business, financial condition or results of operations.
See accompanying notes, which are an integral part of these financial statements
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RAN COPACKING SOLUTIONS, LLC
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2022 and for the period from July 1, 2022 to December 31, 2022
8. | SUBSEQUENT EVENTS |
Management has evaluated subsequent events through September 15, 2023, the date the financial statements were available to be issued. Based on this evaluation, no material events were identified which require adjustment or disclosure in these financial statements.
See accompanying notes, which are an integral part of these financial statements
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