CLOSING DISCLOSURES & ASSUMPTION REGISTER

A.1 Accounting Framework

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP), as codified by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Relevant standards applied include, but are not limited to:

• ASC 606 -- Revenue from Contracts with Customers (revenue recognition)
• ASC 360 -- Property, Plant, and Equipment (fixed asset accounting and impairment)
• ASC 842 -- Leases (lease classification and measurement)
• ASC 326 -- Financial Instruments -- Credit Losses (accounts receivable allowance methodology)
• ASC 450 -- Contingencies (warranty and callback reserves)
• ASC 235 -- Notes to Financial Statements (disclosure requirements)

A.2 Reporting Period

The financial statements cover the fiscal year from January 1, 2025 through December 31, 2025 (FY2025). The Balance Sheet is presented as of December 31, 2025. Comparative prior-year figures (FY2024) are presented where available in the source data.

A.3 Entity Structure

Tidewater Roofing Group ("TRG" or the "Company") is a single-member limited liability company (LLC) treated as a disregarded entity for federal income tax purposes. This structural classification has the following implications for these financial statements:

• Tax treatment: No entity-level income tax provision is recorded. All taxable income passes through to the owner's personal return. Net income of $3,690K is a pre-tax, entity-level figure. Pro forma tax calculations (blended 30% rate, yielding $2,580K after-tax net income) are provided for comparability purposes only and are NOT reflected in the financial statements.
• Equity presentation: The equity section presents "Members' Equity" comprising Members' Capital (original contributions) and Accumulated Members' Equity (retained earnings equivalent), rather than common stock and retained earnings.
• Owner compensation: The managing member's compensation of $625K is classified as Guaranteed Payments and is recorded as an operating expense within SGA on the Income Statement. It is simultaneously a component of total member distributions ($3,814K) on the Statement of Members' Equity.
• Distributions: All equity withdrawals are classified as Member Draws/Distributions, not dividends. Total FY2025 distributions of $3,814K include Guaranteed Payments ($625K), Estimated Tax Distributions ($1,363K), and Discretionary Distributions ($1,826K).

A.4 Functional Currency

All transactions are denominated in United States Dollars (USD). No foreign currency translation or remeasurement adjustments were necessary.

A.5 Rounding Convention

All figures in these financial statements are presented in thousands of dollars ($000), rounded to the nearest thousand. Individual line items may not sum precisely to totals due to rounding; however, all material reconciliation checkpoints have been verified and confirmed.

A.6 Data Source

These financial statements were prepared from a Baseline Analysis document containing management-provided financial data, operational metrics, and narrative descriptions of the Company's financial position, results of operations, and cash flows. No access to the general ledger, source journals, bank statements, invoices, contracts, or other primary accounting records was available. All figures classified as "EXPLICIT" in the Structured Data Map were taken directly from the Baseline Analysis without modification.

A.7 Preparation Methodology

The financial statement preparation followed a structured, multi-step process:

1. Data Extraction (Structured Data Map): Every quantitative figure in the Baseline Analysis was catalogued, classified (EXPLICIT or DERIVED), and assigned to destination financial statements. A total of 139 primary figures were extracted.
2. Gap-Fill Assessment: Each required financial statement line item was evaluated for data completeness. Where the Baseline Analysis did not provide a figure directly, gap-fill levels were applied (Level 1 = arithmetic derivation; Level 2 = contextual inference; Level 3 = industry benchmark; Level 4 = conservative proxy; Level 5 = placeholder with disclosure).
3. Conflict Detection: Five data conflicts were identified and resolved (see Section C below).
4. Trial Balance Construction: All figures were organized into a pre-closing adjusted trial balance with debit/credit classification. The trial balance was verified to balance at $31,087K on each side.
5. Financial Statement Generation: The Income Statement, Statement of Members' Equity, Balance Sheet, and Statement of Cash Flows were generated from the trial balance with full cross-referencing.
6. Reconciliation: Seventeen reconciliation checkpoints were verified across all four statements.

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SECTION B -- ASSUMPTION REGISTER

B.1 Materiality Threshold

The materiality threshold used throughout this financial statement set is $1,260K, calculated as the greater of:

• 5% of Total Revenue: $25,200K x 5% = $1,260K
• 5% of Total Assets: $4,850K x 5% = $242.5K

Items above this threshold require individual line-item presentation and individual disclosure of any gap-fill assumptions. Items below this threshold may be aggregated.

B.2 Gap-Fill Classification Summary

Summary: The Baseline Analysis was exceptionally comprehensive. All required financial statement figures are either EXPLICIT in the source data or derivable at Level 1 (arithmetic) with HIGH confidence. No Level 2 through Level 5 gap-fills were required. No gap-filled figures above the materiality threshold of $1,260K exist.

B.3 Assumption Register -- Sorted by Confidence Level (Lowest First)

Because all gap-fills are Level 1 with HIGH confidence, no items carry LOW or MEDIUM confidence. The register below is presented in order of decreasing relative uncertainty within the HIGH-confidence category. The first three entries are those where arithmetic derivation required a judgment-based resolution of a data conflict.

B.4 Items Below Materiality -- No Gap-Fill Required

No figures below the materiality threshold required gap-filling beyond Level 1 arithmetic derivation. Every balance sheet line item, income statement line item, and cash flow line item is either EXPLICIT in the Baseline Analysis or derivable as a simple arithmetic total of explicit figures.

B.5 Items Intentionally Excluded from Financial Statements

The following items from the Baseline Analysis are disclosed but NOT presented on the face of the financial statements:

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SECTION C -- DATA ANOMALIES

Five data anomalies were identified during the data intake and financial statement generation process. All five were documented in the Structured Data Map (Section D) and resolved using the data integrity principle: stated figures from the Baseline Analysis are treated as authoritative; derived figures are adjusted to reconcile.

C.1 Additional Anomaly Observations

Beyond the five formally documented anomalies, the following observations are noted:

• Allowance for Doubtful Accounts roll-forward: The computed ending allowance ($68 + $52 - $38 = $82K) differs from the reported ending allowance ($85K) by $3K. This was not classified as a formal anomaly because the $85K is an explicitly stated figure and the $3K difference likely reflects specific identification adjustments not individually described in the Baseline. The reported $85K is used. (See Data Map B-001, BS footnote [1].)

• Contra-revenue items: The Baseline identifies $126K in warranty callback credits and $63K in material return credits as contra-revenue items, yet revenue is presented at $25,200K gross. The Baseline explains these are "netted within operations per company practice" rather than presented as reductions to gross revenue. This is a presentation choice, not a data conflict, but it means the $25,200K revenue figure is not a "net revenue" figure in the traditional sense. (See IS footnote [5], Data Map A-005, A-006.)

• Dual classification of Guaranteed Payments: The owner's compensation of $625K appears both as an SGA expense (reducing net income) and as a component of member distributions (reducing equity). This is not a double-counting error; it reflects the dual nature of guaranteed payments under LLC tax treatment. On the Income Statement, it is an operating expense. On the Statement of Members' Equity, the full $3,814K distribution (which includes the $625K) reduces accumulated members' equity. The retained earnings roll-forward ($2,804 + $3,690 - $3,814 = $2,680) is correct because net income already reflects the $625K as an expense.

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SECTION D -- ACCOUNTING POLICY ELECTIONS

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SECTION E -- LIMITATIONS & CAVEATS

E.1 Overall Confidence Rating: HIGH -- with Significant Qualifications

The overall confidence rating for these financial statements is HIGH, based on the following:

Supporting factors:

• The Baseline Analysis was exceptionally detailed, providing 139 explicit data points covering all major financial statement line items
• No gap-fills above Level 1 (arithmetic derivation) were required
• All five data anomalies were individually immaterial (largest impact: $100K SGA reassignment, well below the $1,260K materiality threshold)
• The accounting equation balances perfectly ($4,850K = $1,920K + $2,930K)
• Seventeen cross-statement reconciliation checkpoints were verified and confirmed
• The trial balance balances at $31,087K

Qualifications that prevent an unreserved HIGH rating:

• These statements are based entirely on a secondary source document (the Baseline Analysis), not on primary accounting records. No general ledger, bank statements, invoices, or contracts were reviewed.
• The Baseline Analysis itself contains estimates (it covers FY2025 "estimated" results, not audited actuals)
• Five data conflicts required judgment-based resolution
• The ASC 842 lease gross-up (~$1,920K ROU asset and liability) is excluded from the balance sheet, which could be considered a departure from full GAAP presentation depending on the intended use of these statements

E.2 Areas of Highest Uncertainty

The following figures or assumptions carry the most risk of material misstatement, ranked from highest to lowest uncertainty:

1. Revenue Composition and Gross Revenue Presentation ($25,200K)

• Risk: Revenue is presented at $25,200K gross, with $189K of contra-revenue items ($126K warranty callbacks + $63K material returns) netted within COGS/SGA rather than deducted from gross revenue. If these items were reclassified as contra-revenue, net revenue would be $25,011K. More concerning, the Baseline is described as "estimated" -- the $25,200K is a management estimate, not an audited figure.
• Statement affected: Income Statement, Line: Total Revenue
• Potential impact: Revenue misstatement affects gross profit, all margin calculations, and the materiality threshold itself.

2. SGA Composition and the $100K Miscellaneous Allocation ($4,410K total)

• Risk: The $100K gap between itemized SGA ($4,310K) and stated Total SGA ($4,410K) was assigned to Miscellaneous SGA. If the true composition were known, it might include items that should be classified differently (e.g., capitalized rather than expensed, or classified as COGS rather than SGA). The total of $4,410K is reliable; the line-item detail is less so.
• Statement affected: Income Statement, Lines: Miscellaneous SGA, Total SGA
• Potential impact: Reclassification of expenses between COGS and SGA could affect gross profit and gross margin but would not affect EBIT or net income.

3. Cash Reconciliation ($10K Timing Adjustment)

• Risk: The $10K difference between computed ending cash ($140K) and reported ending cash ($150K) is attributed to "timing adjustments" but is not further explained. While immaterial, unexplained cash differences in an unaudited context may indicate broader reconciliation issues.
• Statement affected: Statement of Cash Flows, Line: Cash Reconciliation Adjustment; Balance Sheet, Line: Cash and Cash Equivalents
• Potential impact: If the $10K represents a systematic error rather than a timing difference, other working capital balances may also be imprecise.

4. Work-in-Progress Exclusion from Balance Sheet ($215K)

• Risk: WIP of $215K is excluded from the balance sheet based on the Baseline's comparative table composition. If TRG's actual accounting practice records WIP as a current asset, total assets would be $5,065K and the balance sheet would not balance under the equity figures provided. This suggests either (a) the Baseline's narrative about WIP describes a different metric than a traditional balance sheet asset, or (b) the equity figures implicitly incorporate WIP.
• Statement affected: Balance Sheet, Total Assets; potentially Cash Flow working capital adjustments
• Potential impact: Could affect total current assets, total assets, current ratio, and working capital metrics.

5. Other Non-Operating Income Bridge ($13K)

• Risk: The $13K line item was created to reconcile EBIT-derived net income ($3,677K) to stated net income ($3,690K). The actual source of this income is unknown. While immaterial, it represents an unexplained variance in the income statement architecture.
• Statement affected: Income Statement, Line: Other Non-Operating Income
• Potential impact: Individually immaterial. However, combined with the $100K SGA gap and the $10K cash difference, total unexplained variances are $123K (still below materiality but approaching a level that warrants attention in aggregate).

E.3 Information That Would Most Improve Accuracy

The following data points, if provided, would materially improve the reliability of these financial statements, listed in order of impact:

1. General ledger trial balance (actual): Would eliminate the need for all gap-fills and conflict resolutions. Every figure could be verified to the penny.

2. Detailed SGA schedule with all line items summing to $4,410K: Would resolve the $100K Miscellaneous SGA allocation (DA-001) and provide confidence in expense classification.

3. Bank reconciliation as of December 31, 2025: Would resolve the $10K cash timing difference (DA-005) and confirm the $150K ending cash balance.

4. Clarification of WIP accounting treatment: A clear statement of whether WIP is a balance sheet asset or an off-balance-sheet tracking metric would resolve the presentation question (DA-002) definitively.

5. Breakdown of the $13K net income bridge: Identifying whether this represents interest income, miscellaneous income, rounding, or other items would eliminate the "Other Non-Operating Income" line (DA-003).

6. ASC 842 lease schedules: Full lease amortization schedules would allow proper presentation of ROU assets and lease liabilities on the balance sheet, rather than disclosure-only treatment.

7. Allowance for doubtful accounts roll-forward detail: Would explain the $3K difference between computed ($82K) and reported ($85K) ending allowance.

8. Depreciation schedule by asset: Individual asset depreciation schedules would allow verification of the $474K aggregate depreciation expense.

E.4 Structural Limitations

1. Single-source data dependency: All financial statements are derived from a single Baseline Analysis document. There is no independent corroboration from bank statements, tax returns, or third-party confirmations. If the Baseline contains errors, those errors propagate through every financial statement.

2. Estimated rather than actual results: The Baseline Analysis describes FY2025 figures as estimates. These are not audited, reviewed, or compiled actuals. The degree to which estimates may differ from actual results is unknown.

3. No access to underlying transactions: Without general ledger detail, the preparer cannot verify whether figures represent the sum of actual transactions or are themselves management estimates. For example, the $25,200K revenue figure could be the sum of all invoices or a management projection.

4. Pass-through entity tax complexity: Because TRG is a disregarded entity, there is no entity-level tax provision to validate. The pro forma 30% blended tax rate is a simplification; actual tax rates depend on the owner's complete tax situation, which is outside the scope of these statements.

5. ASC 842 incomplete presentation: The ~$1,920K ROU asset and lease liability are recognized internally by TRG but excluded from the summary balance sheet. A reader of only the balance sheet would not see the full extent of TRG's lease obligations. The deferred rent balance of $110K is a poor proxy for the $1,920K gross lease obligation.

6. Comparative period limitations: While FY2024 comparative balances are available for balance sheet items (enabling cash flow working capital calculations), no FY2024 income statement comparatives were provided. Trend analysis is limited to balance sheet metrics.

7. No segment-level profitability: Revenue is broken out by segment (Residential, Commercial, New Construction), but cost of revenue and SGA are not allocated by segment. There is no way to determine the profitability of individual business lines.

8. AI preparation inherent limitations: These statements were prepared by an artificial intelligence system that applied algorithmic rules and pattern recognition. The system lacks professional judgment in the truest sense -- it cannot assess whether a management estimate "feels" right based on industry experience, nor can it follow up with management on ambiguous data points.

E.5 Normalization Disclosures (for Earnings Quality Assessment)

While not part of the GAAP financial statements, the Baseline Analysis provides normalization adjustments for Adjusted EBITDA. These are disclosed here for transparency:

These adjustments are common in M&A due diligence contexts. They represent management's view of "normalized" earnings, not GAAP figures. A buyer or lender should independently evaluate each adjustment.

E.6 Mandatory Disclaimer

These financial statements were prepared by an AI system using data from a baseline analysis document. They have not been audited, reviewed, or compiled by a licensed CPA. Material assumptions and estimates were required where source data was incomplete. These statements should not be relied upon for investment decisions, lending decisions, regulatory filings, or tax reporting without independent professional review and verification. Users assume all risk associated with reliance on AI-prepared financial information.

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CROSS-REFERENCE INDEX

The following index traces every assumption, gap-fill, and conflict resolution to its specific impact on the financial statements:

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RECONCILIATION CHECKPOINT SUMMARY (Final Verification)

All seventeen reconciliation checkpoints have been verified across the complete financial statement set:

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