How does Southern Steer recognize revenue from royalties and support fees collected from franchisees?

es on a fiscal year ending on September 30.

Revenue Recognition

In accordance with FASB ASU No. 2016-10, Revenue from Contracts with Customers ("Topic 606"), the Company recognizes revenue by identifying specific performance obligations in its contracts with customer-franchisees. The Company's income from operations is comprised of two components: (1) franchise fees as consideration for services and expertise provided in connection with the formation and ongoing operation of its franchisees; and (2) royalties measured a proportion of franchisee gross revenues.

NOTES TO THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 2022

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Franchise Fees

The company charges an initial franchise fee of $45,000 for its services as a franchisor in supporting the organization and continuing operations of its member businesses. A discounted franchise fee of $30,000 per additional Southern Steer business is offered for clients investing in a t least 3 locations.

Royalty Payments

The Company also earns royalties based on gross revenue of its franchisees, ranging from three to five percent. The royalty rate schedule is regressive, computed as 5% for annual sales under $1MM, then dropping to 4% for additional sales up to $2MM and falling to 3% for all yearly revenue beyond the latter threshold.

Property and Equipment

It is the Company's policy that purchases of real property and tangible personal property costing more than $1,500 are capitalized and depreciated. Such assets are recognized at historical cost as the date of acquisition. Depreciation for financial reporting purposes is computed using the straight-line method over the estimated useful lives of the assets.

For federal income tax purposes, depreciation is computed using the modified accelerated cost recovery system (MACRS). Expenditures for major renewals and betterments that extend the useful lives of equipment and leasehold improvements are capitalized and depreciated. Expenditures for maintenance and repairs are charged to expenses as incurred.

Cash and Cash Equivalents

The Company considers bank money market funds and certificates of deposit to be equivalent to cash, being readily convertible into cash. The Company does not routinely maintain balances in excess of insured limits. The Federal Deposit Insurance Corporation ("FDIC") insures funds up to $250,000 per depository institution, per deposit product. As of September 30, 2022, the Company did hold cash and cash equivalents in excess of FDIC limits.

NOTES TO THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 2022

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounts Receivable and Allowance for Uncollectibles

The Company regularly assesses the need to recognize an allowance for doubtful accounts, and has determined no such accrual is necessary. Accounts receivable for the fiscal year ended September 30, 2022, was $186.

Estimates

Management uses estimates and assumptions in preparing financial statements.

Source: Item 5 — and 7 of the FDD, Section 3.1 of the Franchise Agreement and Section 4.1 of the Multi-Unit Development Agreement are hereby amended to state that payment of the initial franchise fee and development fee will be deferred until We have satisfied Our pre-opening obligations, and You have commenced business operations. (FDD pages 168–290)