ears Ended December 31, 2024 and 2023

Supplemental disclosure for non-cash transaction

The Company entered into an office lease agreement in 2023 and recognized operating lease right-of-use asset and corresponding operating lease liability of approximately $541,000.

(A Wholly-Owned Subsidiary of Nagatanien Holdings Co., Ltd.)

Notes to Financial Statements

December 31, 2024 and 2023

1. Organization and Business

Muginoho International, Inc. (the "Company") was incorporated under the laws of the State of New York in 2002 as a wholly-owned subsidiary of Muginoho Holdings Co., Ltd., a Japanese corporation. The Company franchises and operates Beard Papa's® quick-service restaurants, which specialize in the preparation of cream puffs and other desserts. On April 15, 2016, Muginoho Holding Co., Ltd entered into an agreement to transfer all 10 shares of the Company's common stock to Nagatanien Holdings Co., Ltd. As a result, the Company has become a wholly-owned subsidiary of Nagatanien Holdings Co., Ltd (the "Parent").

As of December 31, 2024, the Company has 42 franchised stores and one direct-operated store in the United States. As of December 31, 2023, the Company had 40 franchised stores in the United States.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in United States of America ("U.S. GAAP").

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires that management of the Company make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflect the consideration the Company expects to receive in exchange for those products or services.

A performance obligation is a promise in a contract to transfer a distinct goods or service to the customer and is the basis of revenue recognition in accordance with U.S GAAP. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The Company's revenues are mainly composed of a) revenue from the Company-owned restaurant, b) distribution revenue, c) commission income and d) franchise fees.

(A Wholly-Owned Subsidiary of Nagatanien Holdings Co., Ltd.)

Notes to Financial Statements (continued)

a) Revenue from the Company-Owned Restaurant

Revenues from sales of food and beverages at the company-owned restaurant are recognized at the point in time when they are served to customers.

b) Distribution Revenue

The Company requires its franchised stores to purchase food and packaging products and restaurant equipment through its established distribution network. The timing of revenue recognition for distribution revenues varies depending on the contract terms. Distribution revenues for franchise stores are recognized upon receipt of the products by the franchisees. Distribution revenues for franchise stores located in Canada are recognized upon shipment of goods to franchisees. The Company satisfies performance obligations when control of the products is passed to customers, which is the point in time that customers are able to direct the use of and obtain substantially all of the remaining economic benefit of the goods.

c) Commission Income

Beginning April 1, 2018, the Company entered into a commission rate agreement with JFC International Inc. ("JFC"), an Asian foods importer, to distribute various foods to all domestic Beard Papa's® locations. The Company charges JFC monthly commission fees based upon various rebate rates, as well as additional volume rebates on sales of certain products. The rebate rates and amounts are determined by the rebate agreement.

Source: Item 21 — FINANCIAL STATEMENTS (FDD page 57)