What method does Annex Brands use to estimate the value of its share-based compensation?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
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The Company estimates the value of its share-based compensation using the calculated value method. The calculated value method permits certain nonpublic companies which do not have sufficient information available regarding the expected volatility of their share prices to account for stock options and similar instruments using the historical volatility of an appropriate industry sector index rather than the expected volatility of their own share price.
Due to the lack of a public market for its shares and its limited history of equity transactions, it is not practicable for the Company to estimate the expected volatility of its stock price. Accordingly, the Company has selected the Dow Jones Select MicroCap industry sector index, an index it believes is most representative of its own position in the market, as an estimate of the expected volatility of its own share price. In calculating the value of its options, the Company uses the volatility of the index for the historical period equal to the expected term of the options granted.
Leases
In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance codified in Accounting Standards Codification ("ASC") 842, "Leases", to increase transparency and comparability among entities by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
Source: Item 21 — Financial Statements (FDD page 109)
What This Means (2025 FDD)
According to Annex Brands' 2025 Franchise Disclosure Document, the company uses the calculated value method to estimate the value of its share-based compensation. This method is used because Annex Brands does not have sufficient information regarding the expected volatility of their share prices. As a nonpublic company with a limited history of equity transactions, it's not practical for them to estimate their stock price volatility directly.
To address this, Annex Brands uses the historical volatility of an appropriate industry sector index instead of their own share price volatility. Specifically, they have selected the Dow Jones Select MicroCap industry sector index, which they believe is most representative of their position in the market. When calculating the value of its options, Annex Brands uses the volatility of this index for the historical period that matches the expected term of the options granted.
For the fiscal years ended September 30, 2024, 2023, and 2022, Annex Brands did not grant any options. Consequently, the company recognized no share-based compensation expense for these years. As of September 30, 2024, the total compensation cost related to nonvested options that has not yet been recognized is $0.