What pricing model does Annex Brands use to determine its share-based compensation expense?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company recognizes as compensation expense the value of all share-based awards, including those granted to employees in exchange for services, over the related service (vesting) period.
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.
Source: Item 21 — Financial Statements (FDD page 109)
What This Means (2025 FDD)
According to Annex Brands' 2025 Franchise Disclosure Document, the company utilizes the calculated value method in conjunction with the Black-Scholes pricing model to determine its share-based compensation expense. The calculated value method is used because Annex Brands does not have sufficient information regarding the expected volatility of their share prices. This is due to the lack of a public market for its shares and a limited history of equity transactions.
To estimate the expected volatility of its stock price, Annex Brands uses the Dow Jones Select MicroCap industry sector index, which it believes is representative of its position in the market. The volatility of this index is used for the historical period equal to the expected term of the options granted when calculating the value of its options.
The FDD indicates that no options were granted during the fiscal years ended September 30, 2024, 2023, or 2022, and the company recognized no share-based compensation expense for these years. As of September 30, 2024, the total compensation cost related to nonvested options not yet recognized was $0. This suggests that Annex Brands has not recently issued stock options, and there are currently no outstanding nonvested options with associated compensation costs.