What financial instruments potentially subject Annex Brands to concentrations of credit risk?

According to Annex Brands' 2025 Franchise Disclosure Document, the financial instruments that potentially subject the company to concentrations of credit risk primarily consist of cash, cash equivalents, and accounts receivable. The company maintains its cash in bank accounts, which at times may exceed federally insured limits, and also holds a money market account at a brokerage firm. However, Annex Brands states that it has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk related to cash holdings. This suggests that while the amounts may be large, the company perceives the risk as low due to the stability of the institutions.

With respect to accounts receivable, Annex Brands indicates that concentrations of credit risk are limited due to its large and geographically diverse franchisee customer base. The company performs credit evaluations of its franchisees but generally does not require collateral to support accounts receivable. This means that Annex Brands is exposed to the risk of non-payment by franchisees, but this risk is spread across many different franchisees, reducing the potential impact of any single franchisee defaulting on their payments. The lack of collateral increases the risk, as Annex Brands has no assets to seize in case of non-payment.

Accounts receivable primarily consist of continuing franchise fees. These receivables are stated at the amount Annex Brands expects to collect and are unsecured, placing the company at risk if these amounts become uncollectible. Receivables are generally considered past due when payments have not been received within 30 days of the due date. The company maintains an allowance for doubtful accounts, which represents management's estimate of potential losses on specific and non-specific accounts receivable, based on the credit risk of specific franchisees, historical trends, and other relevant information. This allowance is a standard accounting practice to account for potential losses. Annex Brands writes off accounts receivable once all standard collection procedures have been exhausted and management determines that the receivable is uncollectible, which is a typical procedure for handling uncollectible debts.