How does Exit value and carry its financial instruments?

According to Exit's 2025 Franchise Disclosure Document, the company carries its financial instruments at cost, less any impairment value. The financial instruments include cash, marketable securities, accounts receivable, stockholder advances, accounts payable, operating lease liability obligations, deferred revenue, and notes payable. Fair value estimates are based on market information and information about the financial instrument at the balance sheet date. These estimates are subjective and involve judgment, so they cannot be determined with precision, and changes in assumptions could significantly affect these estimates.

For items like cash, accounts receivable, accounts payable, and accrued liabilities, the carrying amounts on the balance sheet approximate their fair value due to the short-term maturities of these items. However, the fair value of notes receivable, loans receivable, advances to and from related parties, and notes payable is not determinable because these items are non-interest bearing and lack comparable market data. The fair value of the mortgage payable approximates its carrying value because it bears interest at market rates for similar debt.

Exit also uses the Financial Accounting Standards Board (FASB) hierarchy to categorize the fair value of its financial assets and liabilities. This hierarchy prioritizes inputs to valuation techniques, with Level 1 measurements relying on unadjusted quoted prices in active markets for identical assets or liabilities and Level 3 measurements relying on unobservable inputs. Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or similar assets or liabilities in less active markets; or other inputs that can be derived principally from, or corroborated by, observable market data.

Furthermore, Exit adopted FASB ASU 2016-13 on January 1, 2023, which introduced the current expected credit loss (CECL) method for measuring credit losses on financial instruments. This method requires estimating credit losses over the life of the financial asset using historical experience, current conditions, and forecasts. For Exit, this applies to accounts receivable, which are presented using an allowance for credit losses to reduce the balances to the net amount expected to be collected.