October 31, 2024:

Additionally, the Company owned and operated one corporate location, Carbone's Pizzeria, during the year ended October 31, 2024.

2. Summary of Significant Accounting Policies

Fiscal Year

The Company's fiscal year is October 31.

Basis of Accounting and Consolidated Financial Statement Presentation

The Consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

Principles of Consolidation

The consolidated financial statements include M & T Pizza Incorporated (M&T), a Minnesota corporation, and its wholly-owned subsidiaries, Carbone & Sons, Inc. (C&S), a Minnesota corporation, and Carbone Pizza, Inc. (CPI), a Minnesota corporation. All material intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements as well as related disclosures. On an ongoing basis, the Company evaluates its estimates and assumptions based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

Concentrations

The Company holds cash and cash equivalents at times may exceed federal insurance limits; however, the Company does not anticipate any losses related to this balance.

M & T PIZZA INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements For the Year Ended October 31, 2024

2. Summary of Significant Accounting Policies (Continued)

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. There were no cash equivalents at October 31, 2024.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable for royalty fees from franchisees are due on or before the first day of each week for the sales during the preceding week and accounts receivable for advertising fee royalties from franchisees are due on or before Tuesday of each week for the sales during the preceding week. All receivables not received on time receive additional scrutiny from management and may be charged interest at rates up to 12% annually.

The Financial Accounting Standards Board ("FASB") issued guidance FASB Accounting Standards Codification ("ASC") 326 which changed how entities measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The most significant change in this standard is a shift from the incurred loss model to the expected loss model. Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an entity's exposure to credit risk and the measurement of credit losses. Financial assets held by the Company that are subject to the guidance in FASB ASC 326 are trade accounts receivable. The impact of the adoption was not considered material to the financial statements and primarily resulted in enhanced disclosures only.

The Company's allowance for expected credit losses, is Management's best estimate of the amount of probable credit losses in its existing accounts receivable. The Company reviews its allowance for expected credit losses periodically. Management determines an allowance based on historical experience and then analyzes individual past due balances for collectability based on current conditions and reasonable and supportable forecasts.

In addition, if Management believes it is probable a receivable will not be recovered, it is charged off against the allowance. For the year ended October 31, 2024, the allowance for credit losses for accounts receivable amounted to $175,595.

Inventories

Inventories consist primarily of items held at the restaurant and are valued at the lower of cost or net realizable value with cost determined using the first-in, first-out method.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization and are depreciated or amortized using the straight-line method. Property and equipment is comprised of furniture and equipment, and vehicles which will be depreciated over five to seven years and leasehold improvements over the shorter of the lease term or the life of the asset.

Notes to Consolidated Financial Statements For the Year Ended October 31, 2024

2. Summary of Significant Accounting Policies (Continued)

Long-Lived Assets

The Company periodically evaluates the net realizable value of long-lived assets, including property and equipment, and intangible assets, relying on a number of factors including operating results, business plans and economic projections, and anticipated future cash flows. An impairment in the carrying value of an asset is recognized when the fair value of the asset is less than its carrying value.

Revenue Recognition

The Company assesses the products or services promised in contracts with customers at contract inception to determine the appropriate amount at which to record revenue which is referred to as a performance obligation. Revenue is recognized when control of the promised products or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for the products or services.

Revenue from contracts with customers is recognized using the following five steps:

• Identify the contract(s) with a customer;
• Identity the performance obligations in the contract;
• Determine the transaction price;
• Allocate the transaction price to the performance obligations in the contract; and
• Recognize revenue when (or as) the Company satisfies a performance obligation.

Franchise fees are recognized as deferred revenue at the time a franchise agreement is executed or when a location commences operations. The deferred revenue is then recognized as revenue pro-rata over the term of the agreement. For area development agreements, the development fees are recognized as deferred revenue at the time an area development agreement is executed. The deferred revenue is recognized pro-rata over the term of the agreement or when the required number of franchises in the area development agreement are satisfied, whichever occurs earlier.

Deferred commissions for sales of franchises are recorded at the time of sale and recognized as commission expense over the term of the franchise agreement.

Royalties

The Company receives a service fee based on a percentage of sales each week from the franchised locations as royalties. Revenue from royalties is recognized each week based on a percentage of reported franchisee sales.

Initial and Renewal Franchise Fees

When an individual franchise is sold, the Company agrees to provide certain services to the franchisee. Generally, these services include assistance in site selection, training personnel, implementation of an accounting system, and design of a quality control program. The Company's initial and renewal franchise fees are considered highly dependent upon and interrelated with the franchise right granted in the franchise agreement. As such, these franchise fees are recognized over the contractual term of the franchise agreement.

Notes to Consolidated Financial Statements For the Year Ended October 31, 2024

2. Summary of Significant Accounting Policies (Continued)

Initial and Renewal Franchise Fees (Continued)

The contract term for the initial franchise agreements is 10 years commencing on the earlier of the date when the restaurant opens or twelve months following the date the franchise agreement was signed. During that time, the franchisee is allowed to use the Carbone's Pizzeria name and menu. When the franchise agreement expires, the franchise may pay an additional franchise fee to renew the agreement. The contract term for franchise renewal agreements is 10 years. There were no initial and renewal franchise fees in the year ended October 31, 2024.

Company Restaurant Sales

The Company earns revenue from sales at the Company owned restaurant and is recognized at the time of sale.

Advertising

In accordance with signed franchise agreements, franchisees contribute royalties to an advertising fund. The fund is to be used to maximize public recognition of Carbone's Pizzeria. The Company expenses advertising costs as incurred. Advertising expenses are included in sales and marketing expenses for the years ended October 31, 2024 amounted to $237,855.

Income Taxes

The Company accounts for income taxes under asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributed to temporary differences between the financial reporting basis and the respective tax basis of these assets and liabilities

Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is recorded for carryforwards and other deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. Based on its facts, the Company considered all available evidence, both positive and negative, including historical levels of taxable income, expectations, and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance.

As of October 31, 2024, the Company's returns are subject to examination by federal and state taxing authorities, generally for three years and four years, respectively, after they are filed.

3. Related Party Transactions

Due from stockholder

The Company has note receivables from its sole stockholder in the amount of $519,028 as of October 31, 2024. This balance has no set repayment terms, is due on demand, unsecured and noninterest bearing.

Notes to Consolidated Financial Statements For the Year Ended October 31, 2024

3. Related Party Transactions (Continued)

Operating Lease

The Company leases a facility from a limited liability company which is owned by the stockholder of the Company (See Note 4).

4. Commitments and Contingencies

Legal

From time to time, the Company is party to legal actions arising out of the ordinary course of business. The Company does not believe that these legal actions will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

Operating Lease

The Company has a month-to-month operating lease with a related party. Rental payments are approximately $8,000 a month. The lease also provides that the Company pay property taxes, maintenance, insurance and other occupancy expenses applicable to the leased premise.

Source: Item 22 — CONTRACTS (FDD page 30)