What comprises the accounts and notes receivable, net, for Checkersrallys?

cash and cash equivalents on the consolidated balance sheets. Restricted cash balances as of December 30, 2024 (Successor) and January 1, 2024 (Successor) were $2.5 million and $2.6 million, respectively.

Accounts and Notes Receivable, Net

Receivables consist primarily of franchise royalties, franchise fees, sublease rents, delivery sales receivables, and retail royalties. These amounts are recorded net of an allowance for credit losses. Franchisee related accounts receivable are due within 10 days of billing and in some instances, we draw the funds directly from the franchisee's bank account on a predetermined day. Although the Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

maintains an allowance for credit loss, the majority of the balance relates to specific accounts where collection is not expected. The reserves are established using the specific identification method based on our best estimate of the collectible balance. When determining collectability, we evaluate the debtor's financial condition, the historical experience with the debtor, and the pledged security interest value, if any. The Company has traditionally experienced a high rate of collection as the franchise agreements frequently provide remedy to the Company in the event of the franchisee's default on outstanding balances through a security interest in the assets of the business when a sublease is in place or through a personal guarantee of the franchisee.

Notes receivable consist of funds extended to franchisees as consideration for the sale of restaurants and repayment terms on past due rents and royalties. Specific allowances are established when collection is no longer deemed likely. With respect to secured notes, the assets of the associated restaurant often act as collateral. In the event of default, the Company has the option to acquire the restaurant assets, with the balance of the outstanding notes included in the consideration provided by the Company. However, not all notes are collateralized. Interest on outstanding notes is charged according to the terms of the promissory note and is recognized on a period basis over the term of the note.

Inventory

Inventory consists of food and paper packaging. Inventory is stated at the lower of cost (first-in, first-out basis) or net realizable value.

Business Combination

The Company applies the provisions of Accounting Standards Codification ("ASC") 805, Business Combinations, in accounting for business combination transactions. ASC 805 requires the Company to recognize separately from goodwill the assets acquired, and the liabilities assumed at their acquisition date fair values. Goodwill, if any, as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and liabilities assumed.

Estimated consideration transferred in connection with the Out-of-Court Restructuring is allocated to the assets acquired and liabilities assumed based on their fair values as of the date of the Out-of-Court Restructuring, including identifiable intangible assets. The fair value determinations require judgment and involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discounts rates, and market multiples, among other items.

Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)