Does Apricot Lane's concentration of credit risk involve financial instruments other than cash?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are comprised of cash. The company has cash on deposit with federally insured banks. At times, such deposit balances may be in excess of the maximum amount insured by the Federal Deposit Insurance Corporation. As of December 31, 2024 and 2023, cash balances exceeded federally insured limits by approximately $0.
Royalties and Advertising Fees Receivable
Royalty and advertising fees are recognized as revenue when the underlying revenues are earned by the franchisee. Royalty and advertising fees range from 3.00% to 5.50% and .50% to 1.00% of the franchisee net revenues, respectively, depending on the number of open stores the franchisee has in operation.
Allowance for Doubtful Accounts
The Company's accounts receivable are generated in the ordinary course of business from franchise agreements. The Company provides for estimated losses on accounts receivable based on prior bad debt experience and a review of existing customer receivables. Uncollectible receivables are charged off when deemed uncollectible by management. Recoveries from previously charged off accounts are recorded when received, Interest was not charged on past due receivables.
In addition, the Company has two outstanding notes receivable that are currently in default. Management believes that there is sufficient collateral available should the notes continue in default, but that the notes are fully collectible. There is currently a reserve for doubtful accounts established against theses notes to account for the time-value of money covering an expected delayed payment sequence. These notes have also been classified as long-
Source: Item 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to Apricot Lane's 2025 Franchise Disclosure Document, the company's financial instruments that potentially subject it to concentrations of credit risk are comprised of cash. The company holds cash on deposit with federally insured banks. It is noted that at times, the deposit balances may exceed the maximum amount insured by the Federal Deposit Insurance Corporation (FDIC). However, as of December 31, 2024 and 2023, cash balances exceeded federally insured limits by approximately $0.
In addition to cash, Apricot Lane also has accounts receivable generated from franchise agreements. The company provides for estimated losses on these accounts receivable based on prior bad debt experience and a review of existing customer receivables. Uncollectible receivables are charged off when deemed uncollectible by management, and recoveries from previously charged off accounts are recorded when received. Interest is not charged on past due receivables.
Furthermore, Apricot Lane has two outstanding notes receivable that are currently in default. Despite the default, management believes there is sufficient collateral available and that the notes are fully collectible. A reserve for doubtful accounts has been established against these notes to account for the time-value of money covering an expected delayed payment sequence. These notes have also been classified as long-term due to the unlikelihood of immediate collection of the entire balance.
In summary, while the company's concentration of credit risk is primarily associated with cash, it also has exposure through accounts receivable from franchisees and notes receivable, although management believes these are manageable with established reserves and collateral.