UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~October 31, 2019~~June 27, 2020

o☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-35588

Franchise Group, Inc.

(Exact name of registrant as specified in its charter)



Delaware		27-3561876
(State of incorporation)		(IRS employer identification no.)

~~1716 Corporate Landing Parkway~~2387 Liberty Way

Virginia Beach,Virginia ~~23454~~23456

(Address of principal executive offices)

(757)493-8855

(~~Registrant’s~~Registrant's telephone number, including area code)

1716 Corporate Landing Parkway, Virginia Beach, Virginia 23454

Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $.01 per share	FRG	NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),; and (2) has been subject to such filing requirements for the past 90 days. Yes ý ☒No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý ☒No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o ☐	Accelerated filer	x☒
Non-accelerated filer	o ☐	Smaller reporting company	x☒
		Emerging growth company	o☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ Noý☒

The number of shares outstanding of the registrant's common stock, par value $0.01 value per share, as of ~~December 6, 2019,~~August 3, 2020 was ~~19,703,481~~40,029,599 shares.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Form 10-Q for the Quarterly Period Ended ~~October 31, 2019~~June 27, 2020

Table of Contents



		Page
		Number

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of ~~October 31,~~June 27, 2020 and December 28, 2019 ~~April 30, 2019 and October 31, 2018~~	2
	Condensed Consolidated Statements of Operations for the three and six months ended ~~October 31,~~June 27, 2020 and June 30, 2019 ~~and 2018~~	3
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Operations for the three and six months ended ~~October 31,~~June 27, 2020 and June 30, 2019 ~~and 2018~~	4
	Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended ~~October 31,~~June 27, 2020 and June 30, 2019 ~~and 2018~~	5
	Condensed Consolidated Statements of Cash Flows for the six months ended ~~October 31,~~June 27, 2020 and June 30, 2019 ~~and 2018~~	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4238
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5450
Item 4.	Controls and Procedures	5551

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	5652
Item 1A.	Risk Factors	5652
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6052
Item 3.	Defaults Upon Senior Securities	6053
Item 4.	Mine Safety Disclosures	6053
Item 5.	Other Information	6053
Item 6.	Exhibits	6154
Signatures		6557

PART I. FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS (UNAUDITED)

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

~~October 31, 2019, April 30, 2019 and October 31, 2018~~

~~(In thousands, except share count and per share data)~~

October 31, 2019 April 30, 2019 October 31, 2018
Assets (unaudited)
(unaudited)
Current assets:

Cash and cash equivalents $ 86,306
$ 22,983
$ 5,132
Receivables:

Accounts receivable 39,318
47,011
40,089
Notes receivable - current 30,541
21,097
38,014
Interest receivable, net of uncollectible amounts 2,281
1,718
2,500
Allowance for doubtful accounts - current (8,563 ) (11,183 ) (11,937 )
Total current receivables, net 63,577
58,643
68,666
Assets held for sale —
—
4,357
Income taxes receivable 427
1,784
14,890
Inventories, net 144,981
—
—
Other current assets 8,763
9,682
2,928
Total current assets 304,054
93,092
95,973
Property, equipment, and software, net 45,760
32,676
36,185
Notes receivable, non-current 20,054
7,445
10,569
Allowance for doubtful accounts, non-current (781 ) (633 ) (1,502 )
Total non-current notes receivables, net 19,273
6,812
9,067
Goodwill 118,844
6,566
7,550
Operating lease right-of-use assets 127,618
—
—
Other intangible assets, net 64,268
19,161
21,731
Deferred income taxes 1,038
315
1,441
Other assets 5,666
1,379
2,013
Total assets $ 686,521
$ 160,001
$ 173,960
Liabilities and Equity

Current liabilities:

Current installments of long-term obligations $ 13,454
$ 13,108
$ 15,685
Current portion of operating lease liabilities 32,290
—
—
Current portion of finance lease liabilities 418
—
—
Accounts payable and accrued expenses 63,836
13,672
15,100
Due to Area Developers (ADs) 3,550
17,282
6,886
Income taxes payable —
447
—
Revolving credit facility 39,260
—
48,275
Deferred revenue - current 3,188
3,679
3,873
Total current liabilities 155,996
48,188
89,819
Total long-term debt less debt issuance costs 193,472
1,940
1,979
Deferred revenue and other - non-current 3,220
5,622
6,890
Operating lease liabilities - non-current 90,861
—
—
Finance lease liabilities - non-current 703
—
—
Deferred income tax liability —
537
919
Long-term income taxes payable —
—
1,070
Total liabilities 444,252
56,287
100,677
Commitments and contingencies

Common stock subject to potential redemption, 9,096,435 shares (at redemption value of $12 per share) 109,157
—
—
Equity:

Common stock, $0.01 par value per share, 180,000,000, 22,000,000 and 21,200,000 shares authorized, 19,693,981 (excluding 9,096,435 shares subject to redemption), 14,048,528 and 14,036,684 shares issued and outstanding, respectively 197
140
140
Preferred stock, $0.01 par value per share, 20,000,000, 0 and 0 shares authorized, 1,886,667 issued and outstanding, respectively 19
—
—
Additional paid-in capital —
12,552
11,964
Accumulated other comprehensive loss, net of taxes (1,583 ) (1,910 ) (1,654 )
Retained earnings 63,706
92,932
62,833
Total equity attributable to Franchise Group, Inc. 62,339
103,714
73,283
Non-controlling interest 70,773
—
—
Total equity 133,112
103,714
73,283
Total liabilities, common stock subject to redemption and equity $ 686,521
$ 160,001
$ 173,960



(In thousands, except share count and per share data)	June 27, 2020			December 28, 2019
Assets	(Unaudited)			(Audited)
Current assets:
Cash and cash equivalents	$	105,473		$	39,581
Current receivables, net	111,857			79,693
Inventories, net	315,078			300,312
Other current assets	24,298			20,267
Total current assets	556,706			439,853
Property, equipment, and software, net	152,520			150,147
Non-current receivables, net	15,105			18,638
Goodwill	468,088			134,301
Intangible assets, net	145,887			77,590
Operating lease right-of-use assets	529,891			462,610
Other non-current assets	15,434			15,406
Total assets	$	1,883,631		$	1,298,545
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations	$	203,490		$	218,384
Current operating lease liabilities	130,307			107,680
Accounts payable and accrued expenses	222,461			158,995
Other current liabilities	38,008			16,409
Total current liabilities	594,266			501,468
Long-term obligations, excluding current installments	537,148			245,236
Non-current operating lease liabilities	426,255			394,307
Other non-current liabilities	35,253			5,773
Total liabilities	1,592,922			1,146,784

Stockholders' equity:
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 35,185,710 and 18,250,225 shares issued and outstanding at June 27, 2020 and December 28, 2019, respectively	352			183
Preferred stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 0 and 1,886,667 shares issued and outstanding at June 27, 2020 and December 28, 2019, respectively	—			19
Additional paid-in capital	249,525			108,339
Accumulated other comprehensive loss, net of taxes	(2,103		)	(1,538		)
Retained earnings	42,935			18,388
Total equity attributable to Franchise Group, Inc.	290,709			125,391
Non-controlling interest	—			26,370
Total equity	290,709			151,761
Total liabilities and equity	$	1,883,631		$	1,298,545

~~See accompanying notes to condensed consolidated financial statements.~~

~~FRANCHISE GROUP, INC. AND SUBSIDIARIES~~

~~Condensed Consolidated Statements of Operations~~

~~Three and Six Months Ended October 31, 2019 (unaudited) and~~ ~~2018~~ ~~(unaudited)~~

~~(In thousands, except share count and per share data)~~

Three Months Ended October 31, Six Months Ended October 31,
2019 2018 2019 2018
Revenues:

Product $ 11,947
$ —
$ 12,064
$ —
Service 12,641
6,776
19,384
13,940
Leasing 11,898
—
13,233
—
Total revenues 36,486
6,776
44,681
13,940
Operating expenses:

Cost of revenue:

Product 8,171
—
8,264
—
Service 1,210
—
1,210
—
Leasing 4,463
—
5,003
—
Total cost of revenue 13,844
—
14,477
—
Selling, general, and administrative expenses 46,969
24,052
77,837
51,308
Restructuring expenses —
1,078
—
9,345
Total operating expenses 60,813
25,130
92,314
60,653
Loss from operations (24,327 ) (18,354 ) (47,633 ) (46,713 )
Other income (expense):
Other 1
(2 ) 2
—
Interest expense, net (3,598 ) (547 ) (4,562 ) (1,077 )
Loss before income taxes (27,924 ) (18,903 ) (52,193 )
(47,790 )
Income tax benefit (3,829 ) (6,029 ) (8,960 ) (15,545 )
Net loss (24,095 ) (12,874 ) (43,233 ) (32,245 )
Less: Net loss attributable to non-controlling interest 10,657
—
13,892
—
Net loss attributable to Franchise Group, Inc. $ (13,438 ) $ (12,874 ) $ (29,341 ) $ (32,245 )

Net loss per share of common stock:
Basic and diluted $ (0.81 ) $ (0.92 ) $ (1.88 ) $ (2.38 )

Weighted-average shares outstanding basic and diluted 16,588,868
14,033,895
15,572,099
13,555,993

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Comprehensive Income (Loss)~~

~~Three and Six Months Ended October 31, 2019 (unaudited) and~~ ~~2018~~ ~~(unaudited)~~

~~(In thousands)~~Operations (Unaudited)

Three Months Ended October 31, Six Months Ended October 31,
2019 2018 2019 2018
Net loss $ (24,095 ) $ (12,874 ) $ (43,233 ) $ (32,245 )
Other comprehensive loss
Unrealized (loss) gain on interest rate swap agreement, net of taxes of $(8), $4, $(23), and $(1), respectively (20 ) 10
(58 ) 20
Foreign currency translation adjustment 42
(125 ) 385
(327 )
Other comprehensive gain (loss) 22
(115 ) 327
(307 )
Comprehensive loss (24,073 ) (12,989 ) (42,906 ) (32,552 )
Less: comprehensive loss attributable to non-controlling interest 10,648
—
13,761
—
Comprehensive loss attributable to Franchise Group, Inc. $ (13,425 ) $ (12,989 ) $ (29,145 ) $ (32,552 )



	Three Months Ended						Six Months Ended
(In thousands, except share count and per share data)	June 27, 2020			June 30, 2019			June 27, 2020			June 30, 2019
Revenues:
Product	$	466,709		$	—		$	940,214		$	—
Service and other	28,742			23,820			131,383			119,658
Rental	17,176			—			33,596			—
Total revenues	512,627			23,820			1,105,193			119,658
Operating expenses:
Cost of revenue:
Product	277,582			—			565,400			—
Service and other	701			—			1,456			—
Rental	5,508			—			11,450			—
Total cost of revenue	283,791			—			578,306			—
Selling, general, and administrative expenses	217,264			29,482			469,476			70,447
Total operating expenses	501,055			29,482			1,047,782			70,447
Income (loss) from operations	11,572			(5,662		)	57,411			49,211
Other expense:
Other	(6		)	(106		)	(4,064		)	(99		)
Interest expense, net	(31,626		)	(415		)	(57,378		)	(1,470		)
Income (loss) before income taxes	(20,060		)	(6,183		)	(4,031		)	47,642
Income tax expense (benefit)	1,882			(928		)	(43,987		)	14,706
Net income (loss)	(21,942		)	(5,255		)	39,956			32,936
Less: Net (income) loss attributable to non-controlling interest	269			—			(2,090		)	—
Net income (loss) attributable to Franchise Group, Inc.	$	(21,673	)	$	(5,255	)	$	37,866		$	32,936

Net income (loss) per share of common stock:
Basic	$	(0.62	)	$	(0.37	)	$	1.30		$	2.34
Diluted	(0.62		)	(0.37		)	1.29			2.33

Weighted-average shares outstanding:
Basic	34,972,364			14,062,766			29,173,172			14,059,279
Diluted	34,972,364			14,062,766			29,335,633			14,124,104

~~See accompanying notes to condensed consolidated financial statements.~~

~~FRANCHISE GROUP, INC. AND SUBSIDIARIES~~

~~Condensed Consolidated Statements of Stockholders' Equity~~

~~Three and Six Months Ended October 31, 2019 (unaudited)~~

~~(In thousands)~~

Three Months Ended October 31, 2019
Shares Common stock Shares Preferred stock Additional paid-in-capital Accumulated other comprehensive loss Retained earnings Total Franchise Group Equity Non-controlling interest Total Equity
Balance at August 1, 2019 16,212
$ 162
1,617
$ 16
$ 66,264
$ (1,605 ) $ 77,348
$ 142,185
66,042
$ 208,227
Non-controlling interest in New Holdco LLC —
—
—
—
(15,388 ) —
—
(15,388 ) 15,388
—
Buddy's Partners Asset Acquisition - issuance of Preferred Stock and New Holdco LLC units —
—
270
3
16,197
—
—
16,200
—
16,200
Net loss —
—
—
—
—
—
(13,438 ) (13,438 ) (10,666 ) (24,104 )
Total other comprehensive loss —
—
—
—
—
22
—
22
9
31
Exercise of stock options 149
2
—
—
1,571
—
—
1,573
—
1,573
Stock-based compensation, net of taxes —
—
—
—
342
—
—
342
—
342
Issuance of common stock related to Sears Outlet 3,333
33
—
—
39,967
—
—
40,000
—
40,000
Common stock subject to potential redemption —
—
—
—
(108,953 ) —
(204 ) (109,157 ) —
(109,157 )
Balance at October 31, 2019 19,694
$ 197
1,887
$ 19
$ —
$ (1,583 ) $ 63,706
$ 62,339
$ 70,773
$ 133,112

Six Months Ended October 31, 2019
Shares Common stock Shares Preferred stock Additional paid-in-capital Accumulated other comprehensive loss Retained earnings Total Franchise Group Equity Non-controlling interest Total Equity
Balance at May 1, 2019 14,049
$ 140
—
$ —
$ 12,552
$ (1,910 ) $ 92,932
$ 103,714
—
$ 103,714
Cumulative effect of adopted accounting standards, net —
—
—
—
—
—
319
319
—
319
Buddy's Acquisition - issuance of Preferred Stock and New Holdco LLC units —
—
1,617
16
96,984
—
—
97,000
—
97,000
Non-controlling interest in New Holdco LLC —
—
—
—
(84,665 ) —
—
(84,665 ) 84,665
—
Buddy's Partners Asset Acquisition - issuance of Preferred Stock and New Holdco LLC units —
—
270
3
16,197
—
—
16,200
—
16,200
Net loss —
—
—
—
—
—
(29,341 ) (29,341 ) (14,023 ) (43,364 )
Total other comprehensive loss —
—
—
—
—
327
—
327
131
458
Exercise of stock options 177
2
—
—
1,878
—
—
1,880
—
1,880
Stock-based compensation, net of taxes 52
1
—
—
1,061
—
—
1,062
—
1,062
Issuance of common stock related to Buddy's 2,083
21
—
—
24,979
—
—
25,000
—
25,000
Issuance of common stock related to Sears Outlet 3,333
33
—
—
39,967
—
—
40,000
—
40,000
Common stock subject to potential redemption —
—
—
—
(108,953 ) —
(204 ) (109,157 ) —
(109,157 )
Balance at October 31, 2019 19,694
$ 197
1,887
$ 19
$ —
$ (1,583 ) $ 63,706
$ 62,339
$ 70,773
$ 133,112

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Stockholders' Equity~~Comprehensive Income (Loss) (Unaudited)

~~Three and Six Months Ended October 31, 2018 (unaudited)~~

~~(In thousands)~~

Three Months Ended October 31, 2018
Shares Class A common stock Shares Class B common stock Shares Special voting preferred stock Shares Exchangeable stock Additional paid-in-capital Accumulated other comprehensive loss Retained earnings Total Equity
Balance at August 1, 2018 14,024
$ 140
—
$ —
—
$ —
—
$ —
$ 11,769
$ (1,539 ) $ 75,707
$ 86,077
Net loss —
—
—
—
—
—
—
—
—
—
(12,874 ) (12,874 )
Total other comprehensive loss —
—
—
—
—
—
—
—
—
(115 ) —
(115 )
Stock-based compensation, net of taxes 13
—
—
—
—
—
—
—
195
—
—
195
Balance at October 31, 2018 14,037
$ 140
—
$ —
—
$ —
—
$ —
$ 11,964
$ (1,654 ) $ 62,833
$ 73,283



	Three Months Ended						Six Months Ended
(In thousands)	June 27, 2020			June 30, 2019			June 27, 2020			June 30, 2019
Net income (loss)	$	(21,942	)	$	(5,255	)	$	39,956		$	32,936
Other comprehensive income (loss)
Unrealized loss on interest rate swap agreement, net of taxes of $(3), $(13), $(31) and $(21), respectively	(7		)	(34		)	(80		)	(55		)
Foreign currency translation adjustment	381			113			(491		)	341
Forward contracts related to foreign currency exchange rates	4			18			6			—
Other comprehensive income (loss)	378			97			(565		)	286
Comprehensive income (loss)	(21,564		)	(5,158		)	39,391			33,222
Less: comprehensive (income) loss attributable to non-controlling interest	269			—			(1,915		)	—
Comprehensive income (loss) attributable to Franchise Group, Inc.	$	(21,295	)	$	(5,158	)	$	37,476		$	33,222

Six Months Ended October 31, 2018
Shares Class A common stock Shares Class B common stock Shares Special voting preferred stock Shares Exchangeable stock Additional paid-in-capital Accumulated other comprehensive loss Retained earnings Total Equity
Balance at May 1, 2018 12,823
$ 128
200
$ 2
—
$ —
1,000
$ 10
$ 11,570
$ (1,347 ) $ 101,138
$ 111,501
Cumulative effect of adopted accounting standards, net —
—
—
—
—
—
—
—
—
—
(3,794 ) (3,794 )
Net loss —
—
—
—
—
—
—
—
—
—
(32,244 ) (32,244 )
Total other comprehensive loss —
—
—
—
—
—
—
—
—
(307 ) —
(307 )
Stock-based compensation, net of taxes 14
—
—
—
—
—
—
—
394
—
—
394
Conversion of Class B shares to Class A shares 1,200
12
(200 ) (2 ) —
—
—
—
—
—
—
10
Conversion of preferred stock to common stock —
—
—
—
—
—
(1,000 ) (10 ) —
—
—
(10 )
Cash Dividends —
—
—
—
—
—
—
—
—
—
(2,267 ) (2,267 )
Balance at October 31, 2018 14,037
$ 140
—
$ —
—
$ —
—
$ —
$ 11,964
$ (1,654 ) $ 62,833
$ 73,283

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Cash Flows~~

~~Six Months Ended October 31, 2019 (unaudited) and~~ ~~2018~~ ~~(unaudited)~~

~~(In thousands)~~

Stockholders' Equity (Unaudited)

Six Months Ended October 31,
2019 2018
Cash flows from operating activities:

Net loss $ (43,233 ) $ (32,245 )
Adjustments to reconcile net loss to net cash used in operating activities:

Provision for doubtful accounts 3,708
3,898
Depreciation, amortization, and impairment charges 8,621
6,359
Amortization of deferred financing costs 1,355
138
Loss on disposal of fixed and intangible assets 688
5,330
Stock-based compensation expense 1,083
439
Gain (loss) on bargain purchases and sales of Company-owned offices (1,032 ) (138 )
Equity in gain of affiliate 84
46
Deferred tax expense (11,971 ) (179 )
Changes in accrued income taxes 1,243
(19,441 )
Changes in other assets and liabilities 2,507
54
Net cash used in operating activities (36,947 ) (35,739 )
Cash flows from investing activities:

Issuance of operating loans to franchisees and ADs (14,868 ) (18,828 )
Payments received on operating loans to franchisees 815
1,525
Acquisition of business, net of cash acquired (149,859 ) —
Purchases of AD rights, Company-owned offices and acquired customer lists (2,506 ) (119 )
Proceeds from sale of Company-owned offices and AD rights —
90
Purchases of property, equipment and software (718 ) (1,925 )
Net cash used in investing activities (167,136 ) (19,257 )
Cash flows from financing activities:
Proceeds from the exercise of stock options 1,880
—
Issuance of common stock 65,000
—
Dividends paid —
(2,244 )
Repayment of long-term obligations (14,345 ) (4,280 )
Borrowings under revolving credit facility 39,260
48,601
Repayments under revolving credit facility (24,971 ) (326 )
Issuance of debt 210,000
—
Payment of debt issuance costs (9,551 ) —
Cash paid for taxes on exercises/vesting of stock-based compensation (21 ) (46 )
Net cash provided by financing activities 267,252
41,705
Effect of exchange rate changes on cash, net 154
(99 )
Net increase (decrease) in cash and cash equivalents 63,323
(13,390 )
Cash and cash equivalents at beginning of period 22,983
18,522
Cash and cash equivalents at end of period $ 86,306
$ 5,132



	Three Months Ended June 27, 2020
(In thousands)	Common stock shares	Common stock		Preferred stock shares		Preferred stock			Additional paid-in-capital			Accumulated other comprehensive loss			Retained earnings			Total Franchise Group equity			Non-controlling interest			Total equity
Balance at March 29, 2020	29,653	$	297	1,099		$	11		$	237,354		$	(2,306	)	$	73,652		$	309,008		$	20,013		$	329,021
Changes and distributions of non-controlling interest in New Holdco	—	—		—		—			19,919			(175		)	—			19,744			(19,744		)	—
Net loss	—	—		—		—			—			—			(21,673		)	(21,673		)	(269		)	(21,942		)
Total other comprehensive income	—	—		—		—			—			378			—			378			—			378
Exercise of stock options	23	—		—		—			186			—			—			186			—			186
Stock-based compensation expense, net	15	—		—		—			1,817			—			—			1,817			—			1,817
Conversion of preferred to common stock	5,496	55		(1,099	)	(11		)	(9,751		)	—			—			(9,707		)	—			(9,707		)
Dividend declared ($0.25 per share)	—	—		—		—			—			—			(9,044		)	(9,044		)	—			(9,044		)
Balance at June 27, 2020	35,187	$	352	—		$	—		$	249,525		$	(2,103	)	$	42,935		$	290,709		$	—		$	290,709



	Six Months Ended June 27, 2020
(In thousands)	Common stock shares	Common stock		Preferred stock shares		Preferred stock			Additional paid-in-capital			Accumulated other comprehensive loss			Retained earnings			Total Franchise Group equity			Non-controlling interest			Total equity
Balance at December 29, 2019	18,250	$	183	1,887		$	19		$	108,339		$	(1,538	)	$	18,388		$	125,391		$	26,370		$	151,761
Changes and distributions of non-controlling interest in New Holdco	—	—		—		—			23,744			(175		)	—			23,569			(25,927		)	(2,358		)
Net income	—	—		—		—			—			—			37,866			37,866			2,090			39,956
Total other comprehensive loss	—	—		—		—			—			(390		)	—			(390		)	(175		)	(565		)
Exercise of stock options	23	—		—		—			186			—			—			186			—			186
Stock-based compensation expense, net	18	—		—		—			4,265			—			—			4,265			—			4,265
Issuance of common stock	7,462	75		—		—			123,019			—			—			123,094			—			123,094
Conversion of preferred to common stock	9,434	94		(1,887	)	(19		)	(10,028		)	—			—			(9,953		)	—			(9,953		)
Dividend declared ($0.25 per share)	—	—		—		—			—			—			(15,677		)	(15,677		)	—			(15,677		)
Adjustment	—	—		—		—			—			—			2,358			2,358			(2,358		)	—
Balance at June 27, 2020	35,187	$	352	—		$	—		$	249,525		$	(2,103	)	$	42,935		$	290,709		$	—		$	290,709

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Cash Flows~~Stockholders' Equity (Unaudited)

~~Six Months Ended October 31, 2019 (unaudited) and~~ ~~2018~~ ~~(unaudited)~~

~~(In thousands)~~

Six Months Ended October 31,
2019 2018
Supplemental disclosures of cash flow information:

Cash paid for interest, net of capitalized interest of $13 and $16, respectively
$ 903
$ 1,010
Cash paid for taxes, net of refunds 13
4,030
Accrued capitalized software costs included in accounts payable 16
121
During the six months ended October 31, 2019 and 2018, the Company acquired certain assets from ADs, franchisees, and third parties as follows:
Fair value of assets purchased $ 9,487
$ 1,748
Receivables applied, net of amounts written off, due ADs and related deferred revenue (4,896 ) (117 )
Bargain purchase gains (978 ) (48 )
Long-term obligations and accounts payable issued to seller (1,107 ) (1,464 )
Cash paid to ADs, franchisees and third parties $ 2,506
$ 119
During the six months ended October 31, 2019 and 2018, the Company sold certain assets to ADs and franchisees as follows:

Book value of assets sold $ —
$ 726
loss on sale - loss recognized —
(27 )
Notes received —
(609 )
Restructuring —
—
Cash received from ADs and franchisees $ —
$ 90



	Three Months Ended June 30, 2019
(In thousands)	Common stock shares		Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital			Accumulated other comprehensive loss			Retained earnings			Total Franchise Group equity			Non-controlling interest		Total equity
Balance at April 1, 2019	14,058		$	141	—	$	—	$	12,632		$	(1,830	)	$	90,224		$	101,167		$	—	$	101,167
Cumulative effect of adopted accounting standards, net	—		—		—	—		—			—			322			322					322
Net loss	—		—		—	—		—			—			(5,255		)	(5,255		)	—		(5,255		)
Total other comprehensive income	—		—		—	—		—			97			—			97			—		97
Cancellation of common stock	(9	)	—		—	—		(88		)	—			—			(88		)			(88		)
Stock-based compensation, net	51		—		—	—		639			—			—			639			—		639
Balance at June 30, 2019	14,100		$	141	—	$	—	$	13,183		$	(1,733	)	$	85,291		$	96,882		$	—	$	96,882



	Six Months Ended June 30, 2019
(In thousands)	Common stock shares		Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital			Accumulated other comprehensive loss			Retained earnings		Total Franchise Group equity			Non-controlling interest		Total equity
Balance at January 1, 2019	14,044		$	140	—	$	—	$	12,091		$	(2,019	)	$	52,029	$	62,241		$	—	$	62,241
Cumulative effect of adopted accounting standards, net	—		—		—	—		—			—			322		322			—		322
Net income	—		—		—	—		—			—			32,936		32,936			—		32,936
Total other comprehensive income	—		—		—	—		—			286			—		286			—		286
Cancellation of common stock	(9	)	—		—	—		(88		)	—			—		(88		)	—		(88		)
Exercise of stock options	14		—		—	—		153			—			—		153			—		153
Stock-based compensation, net	51		1		—	—		1,027			—			—		1,028			—		1,028
RSU dividend accrual	—		—		—	—		—			—			4		4			—		4
Balance at June 30, 2019	14,100		$	141	—	$	—	$	13,183		$	(1,733	)	$	85,291	$	96,882		$	—	$	96,882

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)



	Six Months Ended
(In thousands)	June 27, 2020			June 30, 2019
Operating Activities
Net income	$	39,956		$	32,936
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts	3,403			4,770
Depreciation, amortization and impairment charges	33,792			7,772
Amortization of deferred financing costs	21,554			358
Loss (gain) on disposal of fixed assets	(166		)	270
Stock-based compensation expense - equity awards	4,339			1,047
Loss (gain) on bargain purchases and sales of Company-owned offices	(1,258		)	424
Equity in loss of affiliate	15			1
Deferred tax expense	7,739			742
Change in
Accounts, notes, and interest receivable	(1,784		)	1,380
Income taxes receivable	(53,156		)	13,341
Other assets	1,015			1,870
Accounts payable and accrued expenses	134			222
Inventory	84,434			—
Deferred revenue	8,938			(1,538		)
Net cash provided by operating activities	148,955			63,595
Investing Activities
Issuance of operating loans to franchisees and ADs	(28,876		)	(44,346		)
Payments received on operating loans to franchisees and ADs	49,612			66,204
Purchases of Company-owned offices, AD rights, and acquired customer lists	(2,299		)	(404		)
Proceeds from sale of Company-owned offices and AD rights	989			22
Acquisition of business, net of cash acquired	(353,423		)	—
Purchases of property, equipment, and software	(16,212		)	(647		)
Net cash provided by (used in) in investing activities	(350,209		)	20,829
Financing Activities
Proceeds from the exercise of stock options	187			153
Dividends paid	(10,406		)	—
Non-controlling interest distribution	(4,716		)	—
Repayment of other long-term obligations	(410,798		)	(16,178		)
Borrowings under revolving credit facility	142,000			93,874
Repayments under revolving credit facility	(112,760		)	(161,128		)
Issuance of common stock	92,082			—
Payment for debt issue costs	(14,604		)	(2,260		)
Issuance of debt	586,000			—
Cash paid for taxes on exercises/vesting of stock-based compensation	(73		)	(21		)
Net cash provided by (used in) financing activities	266,912			(85,560		)
Effect of exchange rate changes on cash, net	(234		)	131
Net increase (decrease) in cash equivalents and restricted cash	65,424			(1,005		)
Cash, cash equivalents and restricted cash at beginning of period	45,146			3,981
Cash, cash equivalents and restricted cash at end of period	$	110,570		$	2,976
Supplemental Cash Flow Disclosure
Cash paid for taxes, net of refunds	$	493		$	70
Cash paid for interest	$	26,857		$	993
Accrued capital expenditures	$	2,608		$	—
Deferred financing costs from issuance of common stock	$	31,013		$	—
Tax receivable agreement included in other long-term liabilities	$	17,156		$	—

See accompanying notes to condensed consolidated financial statements.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.



(In thousands)	June 27, 2020		June 30, 2019
Cash and cash equivalents	$	105,473	$	2,976
Restricted cash included in other non-current assets	5,097		—
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	110,570	$	2,976

Amounts included in other non-current assets represent those required to be set aside by a contractual agreement with an insurer for the payment of specific workers’ compensation claims.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

~~October 31, 2019~~June 27, 2020 and ~~2018~~June 30, 2019

(1) Organization and Significant Accounting Policies

Description of Business

Franchise Group, Inc. (the "Company"), a Delaware corporation, is a franchisor, operator and acquirer of franchised and franchisable businesses that it believes it can scale using its operating expertise. On July 10, 2019, the Company formed Franchise Group New Holdco, LLC (“New Holdco”), which completed the acquisition of Buddy's Newco, LLC ("Buddy's") ~~(the "Buddy's Acquisition") as described in "Note 2. Acquisition" in exchange for units of New Holdco ("New Holdco units") and voting non-economic preferred stock ("Preferred Stock") in the Company.~~. On October 23, 2019, the Company completed the acquisition of the Sears Outlet ~~segment~~("Sears Outlet") business from Sears Hometown and Outlet Stores, Inc. (subsequently rebranded as American Freight Outlet). On December 16, 2019, the Company completed its acquisition of The Vitamin Shoppe, Inc. ("Vitamin Shoppe"). On February 14, 2020, the Company completed its acquisition of the American Freight Group, Inc. ("American Freight") as described in “Note 2. ~~Acquisition”~~Acquisitions”. New Holdco holds all of the Company’s operating subsidiaries.

Segment Information

The Company currently operates in ~~three~~four reportable segments: Liberty Tax, Buddy’s, Vitamin Shoppe and American Freight. Sears ~~Outlet.~~Outlet, which was rebranded as American Freight Outlet following the acquisition of American Freight, is included in the American Freight segment. The Liberty Tax segment provides income tax services in the United States of America (the "U.S.") and Canada. The Buddy's segment is a specialty retailer engaged in the business of leasing and selling consumer electronics, residential furniture, appliances and household accessories. The ~~Sears~~Vitamin Shoppe segment is an omni-channel specialty retailer and wellness lifestyle company with the mission of providing customers with the most trusted products, guidance and services to help them become their best selves. The Vitamin Shoppe segment offers a comprehensive assortment of nutritional solutions, including vitamins, minerals, specialty supplements, herbs, sports nutrition, homeopathic remedies, green living products, and natural beauty aids through proprietary brands. The American Freight segment operates under the American Freight and American Freight Outlet ~~segment~~banners. American Freight is a retail chain offering brand-name furniture, mattresses, appliances and home accessories at discount prices. American Freight Outlet provides in-store and online access ~~for customers~~ to purchase new, one-of-a-kind, ~~out-of-carton,~~out-of-box, discontinued, obsolete, used, reconditioned, overstocked and scratched and dented products, collectively "outlet-value products" across a broad assortment of merchandise categories, including home appliances, mattresses and furniture ~~and lawn and garden equipment.~~at value-oriented prices.

~~The Liberty Tax segment's operating revenues are seasonal in nature, which has peak revenues occurring in the months~~Principles of ~~January through April. Therefore, results for interim periods are not indicative of results to be expected for the full year.~~Consolidation

~~Change in Fiscal Year-End~~

On October 1, 2019, the Board of Directors of the Company approved a change in the Company's fiscal year end from April 30 to the Saturday closest to December 31 of each year, effective immediately. The decision to change the fiscal year-end was related to the recent Buddy’s Acquisition and Sears Outlet Acquisition to closely align its operations and internal controls with that of its subsidiaries. The Company will file an annual report for the transition period ending December 28, 2019.

~~The Sears Outlet segment's quarter ended November 2, 2019. The Sears Outlet segment's year end will be on December 28, 2019, consistent with the Company's fiscal year end.~~

~~Basis of Presentation~~

The Company consolidates any entities in which it has a controlling interest, the usual condition of which is ownership of a majority voting interest. ~~The~~Prior to April 1, 2020, the Company iswas the sole managing member of New Holdco and ~~possesses~~possessed ownership of more than 50 percent of the outstanding voting ~~shares.~~units. As a result, the Company ~~consolidates~~consolidated the financial results of New Holdco and ~~reports~~reported a non-controlling interest that ~~represents~~represented the ~~economic interest~~interests of the New Holdco units not held by the ~~former equity holders~~Company. As of ~~Buddy's (the "Buddy's Members"). The assets and liabilities of~~April 1, 2020, the Company redeemed all outstanding New Holdco ~~reflect substantially all~~units for shares of common stock of the ~~Company’s consolidated assets~~Company and ~~liabilities with the exception of certain cash balances and deferred tax liabilities. As of October 31, 2019, the Company had~~now has an ~~ownership~~100% interest ~~of 60.1%~~ in New ~~Holdco and reported a non-controlling interest equal to 39.9%.~~Holdco.

The Company does not possess any ownership interests in franchisee entities; however, the Company may provide financial support to franchisee entities. Because the Company's franchise arrangements provide franchisee entities the power to direct the activities that most significantly impact their economic performance, the Company does not consider itself the primary beneficiary of any such entity that meets the definition of a variable interest entity ("VIE"). Based on the results of management's analysis of potential VIEs, the Company has not consolidated any franchisee entities. The Company's maximum exposure to loss resulting from involvement with potential VIEs is attributable to accounts and notes receivables and future lease payments due from franchisees. When the Company does not have a controlling interest in an entity but has the ability to exert significant influence over the entity, the Company applies the equity method of accounting. ~~Intercompany~~All intercompany balances and transactions have been eliminated in consolidation.

Inventory for the Buddy's segment is recorded at cost, including shipping and handling fees. All lease merchandise is available for lease or sale. Upon purchase, merchandise is not initially depreciated until it is leased or three months after the purchase date. Non-leased merchandise is depreciated on a straight-line basis over a periodBasis of 24 months. Leased merchandise is depreciated over the lease term of the rental agreement. On a weekly basis, all damaged, lost, stolen, or unsalable merchandise identified is written off. Maintenance and repairs of lease merchandise are charged to operations as incurred. Inventory for the Sears Outlet segment is valued at the lower of cost or market using the weighted average cost method. Inventory includes the inventory cost plus all freight and any warranty costs. A provision for estimated shrink is recorded based on the historical results of physical inventories and adjusted based on the actual results of physical inventories as they are performed.Presentation

~~Prior year period results were reclassified to conform to the current year presentation.~~ Revenues have been classified into product, service and ~~leasing~~other and rental revenues as further discussed in "Note 8.5. Revenue." Costs of sales for product includes the cost of merchandise, transportation and ~~transportation~~warehousing costs. Service and other costs of sales ~~includes~~include the direct costs of ~~warranties, the cost delivery and handling related to merchandise sold online. Leasing~~warranties. Rental cost of sales represents the amortization of inventory costs over the leased term. Other operating expenses, including employee costs, depreciation and amortization, and advertising expenses have been ~~reclassified into~~classified in selling, general and administrative expenses. The Company also includes ~~the cost of warehousing and~~ occupancy costs in selling, general and administrative expenses.

Assets and liabilities of the Company's Canadian operations have been translated into U.S. dollars using the exchange rate in effect at the end of the period. Revenues and expenses have been translated using the average exchange rates in effect each month of the period. Foreign exchange transaction gains and losses are recognized when incurred.

The Company reclassifies to accounts payable checks issued in excess of funds available and reports them as cash flow from operating activities.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required only in annual financial statements. The Company changed its fiscal year end from April 30 to the Saturday closest to December 31st of each year, resulting in an 8-month transition period from May 1, 2019 to December 28, 2019. The consolidated balance sheet data as of ~~April 30,~~December 28, 2019 was derived from the Company’s ~~2019 Annual~~Transition Report on Form ~~10-K~~10-K/T, filed with the U.S. Securities and Exchange Commission (the "SEC") on April 24, 2020 (the "2019 Transition Report"). The Company has provided unaudited historical financial information that was not previously presented for the three and six months ended June ~~27, 2019.~~30, 2019 for comparison purposes.

In the opinion of management, all adjustments necessary for a fair presentation of such condensed consolidated financial statements in accordance with GAAP have been recorded. These adjustments consisted only of normal recurring items. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its 2019 ~~Annual Report on Form 10-K filed on June 27, 2019.~~Transition Report.

Use of Estimates

~~Management has made a number~~The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions ~~relating to~~that affect the ~~reporting~~reported amounts of assets and liabilities ~~the disclosure~~and disclosures of contingent assets and liabilities at the date of the ~~condensed~~ consolidated financial statements and the reported amounts of revenues and expenses during the reporting ~~period, to prepare these condensed consolidated financial statements and accompanying notes in conformity with GAAP.~~period. Actual results could differ from those estimates.

Merchandise Inventories

Inventory for the Buddy's segment is recorded at cost, including shipping and handling fees. Upon purchase, merchandise is not initially depreciated until it is leased or three months after the purchase date. Non-leased merchandise is depreciated on a straight-line basis over a period of 24 months. Leased merchandise is depreciated over the lease term of the rental agreement and recorded in rental cost of revenue. On a weekly basis, all damaged, lost, stolen, or unsalable merchandise identified is written off. Maintenance and repairs of lease merchandise are charged to operations as incurred.

Inventory for the American Freight segment is accounted for by banner. Inventory for the American Freight banner is comprised of finished goods and is valued at the lower of cost or market, with cost determined by the first-in, first out method. The Company writes down inventory, the impact of which is reflected in cost of sales in the Consolidated Statements of Operations, if the cost of specific inventory items on hand exceeds the amount the Company expects to be realized from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding future demand and market conditions and analysis of historical experience. Inventory under the American Freight Outlet banner, previously the Sears Outlet segment, is recorded at the lower of cost or market using the weighted-average cost method. Inventory includes the purchase price of the inventory plus costs of freight for moving merchandise from vendors to distribution centers as well as from distribution centers to stores. A provision for estimated shrinkage is maintained based on the actual historical results of physical inventories. Estimates are compared to the actual results of the physical inventory counts as they are taken and adjust the shrink estimates accordingly. Inventory values are adjusted to the difference between the carrying value and the estimated market value, based on assumptions about future demand or when a permanent markdown indicates that the net realizable value of the inventory is less than cost.

Inventory for the Vitamin Shoppe segment is recorded at the lower of cost or market value using the weighted-average cost method. Inventory includes costs directly incurred in bringing the product to its existing condition and location. In addition, the cost of inventory is reduced by purchase discounts and other allowances received from vendors. A markdown reserve is estimated based on a variety of factors, including, but not limited to, the amount of inventory on hand and its remaining shelf life, current and expected market conditions and product expiration dates. In addition, the Company has established a reserve for estimated inventory shrinkage based on the actual, historical shrinkage of its most recent physical inventories adjusted, if necessary, for current economic conditions and business trends. Physical inventories and cycle counts are taken on a regular basis. These adjustments are estimates, which could vary significantly from actual results if future economic conditions, customer demand or competition differ from management expectations.

Goodwill and Non-amortizing Intangible Assets

Goodwill and non-amortizing intangible assets, including the Buddy's, Vitamin Shoppe and American Freight tradenames, are not amortized, but rather tested for impairment at least annually. In addition, goodwill and non-amortizing intangible assets will be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. The Company performs a qualitative and/or quantitative assessment to determine whether it is more likely than not that each reporting unit's fair value is less than its carrying value, including goodwill. If the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value, the Company then estimates the fair value. The Company uses a combination of a market multiple method and a discounted cash flow method to estimate the fair value of its reporting units and recognizes goodwill impairment for any excess of the carrying amount of a reporting unit’s goodwill over its estimated fair value. The Company evaluates the Buddy's, Vitamin Shoppe and American Freight tradenames for impairment by comparing its fair value, based on an income approach using the relief-from-royalty method, to its carrying value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess. The Company's reporting units are determined in accordance with the provisions of Accounting Standards Codification (“ASC”) 350, “Intangibles - Goodwill and Other (Topic 350).” The Company performs its annual impairment testing of goodwill and non-amortizing intangible assets on the last day of the first month of the Company's third quarter. Refer to “Note 4. Goodwill and Intangible Assets” for additional information on these balances.

Intangible and Long-Lived Assets Impairment

Amortization of intangible assets is calculated using the straight-line method over the estimated useful lives of the assets, generally from two to ten years. Long-lived assets, such as property, equipment, and software, and other purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. Recognition and measurement of a potential impairment is performed for these assets at the lowest level where cash flows are individually identifiable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

Revenue Recognition

The following is a description of the principal activities from which the Company generates its revenues. For more detailed information regarding reportable segments, see "Note 13. Segments."

Product revenues: These include sales of merchandise at the stores and online. Revenue is measured based on the amount of fixed consideration that the Company expects to receive, reduced by estimates for variable consideration such as returns. Revenue also excludes any amounts collected from customers and remitted or payable to governmental authorities. In arrangements where the Company has multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. The Company recognizes revenues from retail operations upon the transfer of control of goods to the customer. The Company satisfies its performance obligations at the point of sale for retail store transactions and upon delivery for online transactions. The Company recognizes revenue for retail store and online transactions when it transfers control of the goods to the customer. The performance obligation is generally satisfied in the following reporting period. Merchandise sales also include payments received for the exercise of the early purchase option offered through rental-purchase agreements or merchandise sold through point of sale transactions. Revenue for merchandise sales associated with rental purchase agreements is recognized when payment is received, and

ownership of the merchandise passes to the customer. The remaining net value of merchandise sold is recorded to cost of sales at the time of the transaction.

Service and other revenues: These include royalties and advertising fees from franchisees, fees from the sales of franchises and area developer territories, financial products, interest income from loans to franchisees and ADs, tax preparation services in the Company-owned stores, electronic filing fees, services and extended-service plans and financing programs. Commissions earned on services are presented net of related costs because the Company is acting as an agent in arranging the services for the customer and does not control the services being rendered. The Company recognizes revenue on the commissions on extended-service plans when it transfers control of the related goods to the customer. The Company recognizes franchise fee and AD fee revenue for the sales of individual territories on a straight-line basis over the initial contract term when the obligations of the Company to prepare the franchisee and AD for operation are substantially complete, not to exceed the estimated amount of cash to be received. Royalties and advertising fees are recognized as franchise territories generate sales. Tax return preparation fees and financial products revenue are recognized as revenue in the period in which related tax return is filed for the customer. Discounts for promotional programs are recorded at the time the return is filed and are recorded as reductions to revenues. Interest income on notes receivable is recognized based on the outstanding principal note balance less unrecognized revenue unless it is put on non-accrual status. Interest income on the unrecognized revenue portion of notes receivable is recognized when received. For accounts receivable, interest income is recognized based on the outstanding receivable balance over 30 days old, net of an allowance.

Rental revenues: The Company provides merchandise, consisting of consumer electronics, computers, residential furniture, appliances, and household accessories to its customers pursuant to rental-purchase agreements which provide for weekly, semi-monthly or monthly non-refundable rental payments. The average rental term is twelve to eighteen months and the Company maintains ownership of the lease merchandise until all payment obligations are satisfied under sales and lease ownership agreements. Customers have the option to purchase the leased goods at any point in the lease term. Customers can terminate the agreement at the end of any rental term without penalty. Therefore, rental transactions are accounted for as operating leases and rental revenue is recognized over the rental term. Cash received prior to the beginning of the lease term is recorded as deferred revenue. Revenue related to various payment, reinstatement or late fees are recognized when paid by the customer. The Company offers additional product plans along with rental agreements that provide customers with liability protection against significant damage or loss of a product, and club membership benefits, including various discount programs, product services and replacement benefits in the event merchandise is damaged or lost. Customers renew product plans in conjunction with their rental term renewals and can cancel the plans at any time. Revenue for product plans is recognized over the term of the plan.

Leases

The Company's lease portfolio primarily consists of leases for its retail store locations and office space. The Company also leases certain office equipment under finance leases. The finance lease right of use assets are included in Property, equipment and software and the finance lease liabilities are included in current installments of long-term obligations, and long-term obligations. The finance leases are immaterial to the financial statements. The Company subleases some of its real estate and equipment leases. The Company determines if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets; the Company recognizes expense for these leases on a straight-line basis over the lease term. For leases with an initial term in excess of 12 months, lease right-of-use assets and lease liabilities are recognized based on the present value of the future lease payments over the committed lease term at the lease commencement date. The Company’s leases do not provide an implicit rate; therefore, the Company uses its incremental borrowing rate and the information available at the lease commencement date in determining the present value of future lease payments. Most leases include one or more options to renew and the exercise of renewal options is at the Company’s sole discretion. The Company does not include renewal options in its determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, “Property, Plant, and Equipment - Overall,” to determine whether a right-of-use asset is impaired, and if so, the amount of the impairment loss to recognize.

The Company has lease agreements with lease and non-lease components, which the Company elects to combine as one lease component for all classes of underlying assets. Non-lease components include variable costs based on actual costs incurred by the lessor related to the payment of real estate taxes, common area maintenance, and insurance. These variable payments are expensed as incurred as variable lease costs.

Due to the COVID-19 pandemic, the Company has been negotiating lease concessions with landlords. The lease concessions have been in the form of lease forgiveness, lease deferrals and lease deferrals with term extensions. If the total payments in the modified lease are substantially the same as or less than total payments in the original lease, the Company has elected to not evaluate whether the concession is a lease modification as defined in ASC 842 - "Leases".

Deferred Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities, which are shown on the condensed consolidated balance sheets, are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company has elected to classify interest charged on a tax settlement in interest expense, and accrued penalties, if any, in selling, general, and administrative expenses.

The determination of the Company's provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items. The Company records unrecognized tax benefit liabilities for known or anticipated tax issues based on an analysis of whether, and the extent to which, additional taxes will be due.

Accounting Pronouncements

In ~~February~~June 2016, the Financial Accounting Standards Board ("FASB") issued ~~Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)~~" and subsequent amendments, which replaced previous lease accounting guidance in GAAP and require lessees to recognize right-of-use assets and corresponding lease liabilities on the consolidated balance sheets for all in-scope leases with a term of greater than 12 months and require disclosure of certain quantitative and qualitative information pertaining to an entity's leasing arrangements. The Company adopted the requirements of the standard on May 1, 2019, using the optional effective transition method provided by accounting pronouncement, ASU No. 2018-11, "~~Leases (Topic 842): Targeted Improvements.~~" ASU 2018-11 allows entities to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the Company's reporting for comparative periods presented in the year of adoption will continue to be in accordance with ASC 840, "~~Leases (Topic 840)~~" ("ASC 840"). The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, permitted the Company to carry forward the historical lease classification for leases that commenced before the effective date of the new standard. The Company elected to not separate non-lease components from lease components for all classes of underlying assets. The Company did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of right-of-use

assets. Adoption of the standard resulted in the recognition of lease right-of-use assets of $8.4 million, lease liabilities of $8.6 million and a reduction to retained earnings of $0.3 million, net of tax, as of April 30, 2019. The adoption of the standard did not have a material impact on the Company's condensed consolidated statements of operations or condensed consolidated statements of cash flows. Refer to "Note 9. Leases" for additional information related to the Company's accounting for leases.

~~In June 2016, the FASB issued~~ ASU No. 2016-13, "Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which changes how companies will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard replaces the "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost (which generally will result in the earlier recognition of allowances for losses) and requires companies to record allowances for available-for-sale debt securities, rather than reduce the carrying amount. In addition, companies will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables. The ASU should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the standard is effective. The ASU is effective for ~~U.S. Securities and Exchange Commission ("SEC")~~SEC filers that are ~~not~~ smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019 and for smaller reporting companies for fiscal years, and interim periods within those fiscal year, beginning after December 15,~~ 2022. ~~Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein.~~ The ASU is effective for the Company for the fiscal year beginning January 1, 2023. The Company is currently evaluating the impact of the adoption of this standard toon its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This standard eliminates Step 2 from the goodwill impairment test. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The ASU is effective for SEC filers that are not smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and for smaller reporting companies for fiscal years, and interim periods within those fiscal ~~year,~~years, beginning after December 15, 2022. ~~Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein.~~ The ASU is effective for the Company for the fiscal year beginning January 1, 2023. The Company is currently evaluating the impact of the adoption of this standard to its consolidated financial statements.

(2) Acquisitions

American Freight Acquisition

On February 14, 2020, the Company completed its acquisition of American Freight (the "American Freight Acquisition"). The ~~assets acquired and~~Company accounted for the ~~liabilities assumed in~~transaction as a business combination using the ~~acquisitions below are recorded at fair value~~acquisition method of accounting in accordance with ASC 805 - "Business Combinations."~~Business Combinations~~." The preliminary fair value of the consideration transferred at the acquisition date was $357.3 million. As of June 27, 2020, $9.9 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.

The table below summarizes the unaudited preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the American Freight Acquisition as of February 14, 2020. The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in an adjustment to the preliminary

values presented below. The Company expects to complete the purchase price allocation as soon as reasonably possible but not to exceed one year from the American Freight Acquisition date.



(In thousands)	Preliminary 2/14/2020
Cash and cash equivalents	$	3,840
Prepaid expenses and other current assets	3,284
Inventories, net	99,200
Property, equipment and software, net	11,032
Goodwill	335,474
Operating lease right-of-use assets	91,101
Other intangible assets, net	70,200
Other non-current assets	1,607
Total assets	615,738
Current operating lease liabilities	17,242
Accounts payable	44,696
Accrued expenses and other current liabilities	26,451
Current installments of long-term obligations	3,210
Long-term obligations, excluding current installments	93,975
Deferred tax liabilities	11,451
Non-current operating lease liabilities	61,450
Total liabilities	258,475
Consideration transferred	$	357,263

Goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The goodwill recognized is attributable to operational synergies in the expected franchise models and growth opportunities.

The Company identified the American Freight trade name as an indefinite-lived intangible asset with a fair value of $70.2 million. The trade name is not subject to amortization but will be evaluated annually for impairment.

Lease right-of-use assets and lease liabilities consists of leases for retail store locations, vehicles and office equipment. The lease right of use assets incorporates a favorable adjustment of $11.5 million, net for favorable and unfavorable American Freight leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms.

The property and equipment consists of leasehold improvements of $7.6 million, office furniture, fixtures and equipment of $2.2 million, computer hardware and software of $1.1 million and construction in progress of $0.2 million.

The Vitamin Shoppe

On December 16, 2019, the Company completed the acquisition of Vitamin Shoppe (the "Vitamin Shoppe Acquisition") for an aggregate purchase price of $161.8 million. The Company accounted for the transaction as a business combination using the acquisition method of accounting. In the six months ended June 27, 2020, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted which resulted in a decrease in goodwill of $5.0 million.

Sears Outlet Acquisition

On October 23, 2019, the Company completed the acquisition of the Sears Outlet ~~segment and nine Buddy's Home Furnishing franchises~~business from Sears Hometown and Outlet Stores, Inc. ~~(collectively, the~~(the "Sears Outlet Acquisition") ~~pursuant to the terms of the Equity and Asset Purchase Agreement, dated as of August 27, 2019,~~ for an aggregate purchase price of ~~$131.3~~$128.8 million.

The ~~table below summarizes~~Company accounted for the ~~preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Sears Outlet Acquisition~~transaction as ofa business combination using the acquisition ~~date. The~~method of accounting. In the six months ended June 27, 2020, the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed ~~are subject to revisions,~~were adjusted which ~~may result~~resulted in an ~~adjustment to the preliminary values presented below, when management's appraisals and estimates are finalized. Due to the recent completion~~increase in goodwill of the Sears Outlet Acquisition, the Company is awaiting additional information to finalize the valuation of various balances, which include the measurement of the lease right-of-use assets, merchandise inventories and property and equipment.$2.5 million.

(In thousands)
Cash and cash equivalents $ 1,800
Accounts receivable 1,615
Inventories, net 120,800
Other current assets 3,792
Property, equipment and software, net 13,012
Goodwill 9,763
Assets held for sale 15,000
Operating lease right-of-use assets 104,405
Other assets 915
Total assets 271,102
Current portion of operating lease liabilities 24,804
Accounts payable and accrued expenses 26,414
Other current liabilities 16,862
Operating lease liabilities - non-current 71,561
Finance lease liabilities - non-current 165
Total liabilities 139,806
Consideration transferred $ 131,296

Lease right-of-use assets and lease liabilities consists of leases for retail store locations, office space and vehicles. The lease right-of-use assets incorporate an adjustment of $8.0 million, net for favorable and unfavorable leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms.

The acquired property and equipment consist of leasehold improvements of $7.9 million, office furniture, fixtures and equipment of $3.7 million, computer hardware and software for $0.8 million and construction in progress of $0.6 million.

Assets held for sale relate to five Sears Outlet stores and nine Buddy’s Home Furnishing Stores acquired and immediately sold to third parties for $15.0 million. Refer to "Note 3. Assets Disposition" for further discussion.

The results of operations of the Sears Outlet segment are included in the Company's results of operations beginning October 23, 2019. From October 23, 2019 through November 2, 2019, the Sears Outlet segment generated revenues of $12 million and a net loss of $2.1 million.

Buddy's Acquisition

On July 10, 2019, ~~(the "Buddy's Acquisition Date"),~~ the Company ~~entered into and~~ completed ~~certain transactions contemplated by an Agreement of Merger and Business Combination Agreement with Buddy's, New Holdco, a wholly-owned direct subsidiary of~~ the Company, Franchise Group B Merger Sub, LLC, a wholly-owned indirect subsidiary of New Holdco and Vintage RTO, L.P., solely in its capacity as the representative of the Buddy's Members, to acquire Buddy's in a stock transaction. At the Buddy's Acquisition Date, each outstanding unitacquisition of Buddy's was converted into the right to receive 0.459315 New Holdco units and 0.091863 shares of Preferred Stock. The Buddy's Members may elect, following an initial six-month lockup period, to cause New Holdco and the Company to redeem one New Holdco Unit and one-fifth of a share of Preferred Stock in exchange for one share of common stock of the Company. As of the Buddy's Acquisition Date, on an as-converted basis, the Buddy's Members' aggregate ownership of New Holdco units and shares of Preferred Stock represent approximately 36.44% of the Company's outstanding common stock, which implies an enterprise value ~~for Buddy's~~ of approximately ~~$122~~$122.0 million ~~and an equity value of $12.00 per share of common stock.~~(the "Buddy's Acquisition"). The Company isaccounted for the ~~sole managing member of New Holdco, which will be consolidated for financial reporting purposes. New Holdco units held by the Buddy's Members will be recorded~~transaction as a ~~non-controlling interest on~~business combination using the ~~consolidated financial statements.~~

~~The Company and~~acquisition method of accounting. In the ~~Buddy's Members also entered into an income tax receivable agreement (the "TRA") pursuant to which, subject to certain exceptions set forth in~~six months ended June 27, 2020, the ~~TRA, the Company will pay the Buddy's Members 40% of the cash savings,~~

if any, in federal, state and local taxes that the Company realizes or is deemed to realize as a result of any increases in tax basis of the assets of New Holdco resulting from future redemptions or exchanges of New Holdco units held by the Buddy's Members. In connection with the Buddy's Acquisition, none of the New Holdco units were to be purchased or exchanged by the Company and the Buddy's Members. Accordingly, the Company is not obligated to make any TRA payments to the Buddy's Members and therefore has not recorded an initial TRA or contingent consideration liability. In future periods, to the extent that Buddy’s Members exchange their New Holdco units that result in an increase in tax basis of the assets of New Holdco, the Company will initially record an estimated TRA liability equal to the portion of realizable tax benefits that are probable to the Buddy’s Members as an adjustment to additional paid-in capital.

~~The purchase price is calculated as follows:~~

(In thousands except per share)
Number of New Holdco units issued to Buddy’s Members that are exchanged into Company common stock 8,083
Estimated fair value per unit issued to Buddy’s (a) $ 12.00
Equity consideration $ 97,000

(a) The fair value per unit of $12.00 was determined based on the estimated enterprise value of Buddy’s negotiated and agreed in connection with the Buddy's Acquisition. This price also approximates the estimated fair value of the Company's common stock.

~~The table below summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Buddy's Acquisition as of the Buddy's Acquisition Date. The~~ preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed ~~are subject to revisions,~~were adjusted which ~~may result~~resulted in an ~~adjustment to the preliminary values presented below, when management's appraisals and estimates are finalized. The Company is awaiting additional information to finalize the valuation~~increase in goodwill of ~~various balances, which include the acquired intangible assets, measurement of the lease right-of-use assets, and certain tax-related balances.~~

(In thousands)
Cash and cash equivalents $ 181
Accounts receivable 13,658
Inventory 9,620
Other current assets 1,291
Property, equipment, and software, net 1,592
Goodwill 86,147
Other intangible assets, net 28,900
Operating lease right-of-use assets 10,564
Other assets 857
Total Assets 152,810
Current portion of operating lease liabilities 1,402
Current portion of finance lease liabilities 432
Accounts payable and accrued expenses 5,354
Revolving credit facility 24,971
Deferred revenue - current and non-current 819
Operating lease liabilities - non-current 11,507
Finance lease liabilities - non-current 616
Deferred income tax liability 10,709
Total Liabilities 55,810
Consideration transferred $ 97,000

Intangible assets, net consist of three separately identified assets. The Company identified the Buddy's tradename as an indefinite-lived intangible asset with a fair value of $11.1 million. The tradename is not subject to amortization but will be evaluated annually for impairment. The Company also recognized an asset of $10.1 million for franchise agreements and $7.7 million for customer contracts. The allocation of the purchase price to intangible assets as well as their estimated useful lives, is preliminary and may be adjusted.

Lease right-of-use assets and lease liabilities consists of leases for retail store locations, vehicles and office equipment. The lease right of use assets incorporate an adjustment of $2.3 million, net for favorable and unfavorable Buddy's leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms. During the three months ended October 31, 2019, the Company updated the valuation of operating lease right-of-use assets, finance lease assets, operating lease liabilities, and finance lease liabilities and recorded a measurement period adjustment decreasing fixed assets and decreasing total liabilities by approximately $2.9 million with no impact to goodwill.

The amount of revenue and net income included in the Company's Condensed Consolidated Statements of Operations since Buddy's Acquisition for the three and six months ended October 31, 2019 is set forth in the table below:

Three Months Ended Six Months Ended
(In thousands) October 31, 2019 October 31, 2019
Revenue $ 18,462
$ 21,105
Net loss $ (1,089 ) $ (1,046 )

~~Pending Vitamin Shoppe Acquisition~~

On August 7, 2019, the Company entered into an Agreement and Plan of Merger (the "Vitamin Shoppe Merger Agreement") with Vitamin Shoppe, Inc. ("Vitamin Shoppe") pursuant to which, among other things, Vitamin Shoppe will become an operating subsidiary of the Company (the "Vitamin Shoppe Acquisition").

Consummation of the Vitamin Shoppe Acquisition is subject to certain customary closing conditions, including, without limitation, the approval of the Vitamin Shoppe Acquisition by Vitamin Shoppe shareholders.

~~Other acquisitions~~

On September 30, 2019, the Company acquired 21 Buddy’s Home Furnishings stores (the “Buddy’s Partners Asset Acquisition”) from franchisees of the Company's Buddy’s segment. In connection with the acquisition, the sellers received, in aggregate, 1,350,000 New Holdco units and 270,000 shares of Preferred Stock with an estimated fair value of $16.2 million. In addition to the issuance of New Holdco units and Preferred Stock, the Company also forgave $0.6 million of Buddy’s Partners receivable due to Buddy’s. This resulted in a total estimated purchase price of $16.8$1.5 million.

On August 23, 2019, the Company acquired 41 Buddy’s Home Furnishing stores from A-Team Leasing LLC. (“A-Team”), a franchisee of the Buddy’s segment, for the total consideration of $26.6 million (the "A-Team Leasing Asset Acquisition").

The table below summarizes the preliminary estimates of the fair value of the assets acquired and liabilities assumed and resulting goodwill from the Buddy’s Partners Asset Acquisition and the A-Team Leasing Asset Acquisition. The Company’s purchase price allocation for these acquisitions is preliminary and subject to revision as additional information related to the fair value of assets and liabilities becomes available. The amounts recognized and associated amortization periods will be finalized as the information necessary to complete the analyses is obtained, but no later than one year from the respective acquisition dates.

~~Recognized amounts of identifiable assets acquired and liabilities assumed:~~

(In thousands) Buddy's Partners Asset Acquisition A-Team Leasing Asset Acquisition
Cash and cash equivalents $ 6
$ 8
Inventories 4,832
8,294
Property, equipment and software, net 1,165
2,481
Goodwill 5,658
7,787
Other intangible assets, net 4,400
8,000
Lease right-of-use assets 2,425
3,854
Deferred income taxes 1,305

Other assets 213
35
Total assets 20,004
30,459
Operating lease liabilities - current 506
1,271
Operating lease liabilities - non-current 1,888
2,533
Other liabilities 777
17
Total liabilities 3,171
3,821
Consideration transferred $ 16,833
$ 26,638

~~Intangible assets acquired are as follows:~~

Buddy's Partners Asset Acquisition A-Team Leasing Asset Acquisition
(In thousands) Useful life Estimated fair value Useful life Estimated fair value
Re-acquired franchise rights 4.0 2,500
7.0 5,700
Customer contracts 5.0 1,900
6.0 2,300
Total intangible assets 4,400
8,000

Pro forma financial information

The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the American Freight Acquisition, Vitamin Shoppe Acquisition, Sears Outlet Acquisition ~~the~~and Buddy's ~~Acquisition, the A-Team Leasing Asset Acquisition and the Buddy's Partners Asset~~ Acquisition as if they had occurred onon May 1, 2018.


	Pro Forma - Unaudited												Pro forma (Unaudited)
	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	October 31, 2019			October 31, 2018			October 31, 2019			October 31, 2018
	(In thousands)
(In thousands)													June 27, 2020			June 30, 2019			June 27, 2020		June 30, 2019
Revenue	$	146,347		$	159,007		$	299,562		$	319,568		$	512,627		$	539,814		$	1,153,824	$	1,218,208
Net loss	$	(10,674	)	$	(7,000	)	$	(16,436	)	$	(27,063	)
Net income													(14,226		)	(9,715		)	56,921		38,395

The unaudited consolidated pro forma financial information was prepared in accordance with accounting standards and is not necessarily indicative of the results of operations that would have occurred if the American Freight Acquisition, Vitamin Shoppe Acquisition, Sears Outlet Acquisition ~~the~~or Buddy's ~~Acquisition, the A-Team Leasing Asset Acquisition or the Buddy's Partners Asset~~ Acquisition had been completed on the date indicated, nor is it indicative of the future operating results of the Company.

The unaudited pro forma results do not reflect events that either have occurred or may occur after ~~these acquisitions,~~the acquisition, including, but not limited to, the anticipated realization of operating synergies in subsequent periods. They also do not give effect to certain charges that the Company expects to incur in connection with ~~these acquisitions,~~the acquisition, including, but not limited to, additional professional fees and employee integration.

~~(3) Assets Disposition~~

On October 23, 2019, immediately following the completion of the Sears Outlet Acquisition, the Company entered into an asset purchase agreement and completed the sale of five Sears Outlet stores previously acquired in the Sears Outlet Acquisition, for $15.0 million as well as the sale of nine Buddy’s Home Furnishings franchises also previously acquired in the Sears Outlet Acquisition for $1 to an unrelated third party. These assets were initially classified as assets held for sale and recognized at fair value on the acquisition date. Therefore, the concurrent sale of these stores resulted in no gain or loss to the Company. The five Sears Outlet stores sold are now franchise locations within the Sears Outlet segment and the nine Buddy's Home Furnishings franchise locations continue to be reported in the Buddy's Segment.

~~(4)~~(3) Accounts and Notes Receivable

Current and non-current receivables, as of June 27, 2020 and December 28, 2019 are presented in the condensed consolidated balance sheets as follows:



(In thousands)	June 27, 2020			December 28, 2019
Accounts receivable, net	$	46,323		$	44,333
Notes receivable	16,646			37,994
Interest receivable, net	2,477			3,132
Income tax receivable	56,383			3,356
Allowance for doubtful accounts	(9,972		)	(9,122		)
Current receivables, net	111,857			79,693
Notes receivable - non-current	15,811			19,501
Allowance for doubtful accounts - non-current	(706		)	(863		)
Non-current receivables, net	15,105			18,638
Total receivables	$	126,962		$	98,331

The Company provides select financing to area developers ("ADs") and franchisees for the purchase of franchises, areas ~~Company-owned offices,~~ and operating loans for working capital and equipment needs. The franchise-related notes generally are payable over five years and the operating loans generally are due within one year. Most notes bear interest at ~~an annual rate of~~ 12%.

Most of the notes receivable are due from the Company's ADs and franchisees and are collateralized by the underlying franchise and when the AD or franchise is an entity, are guaranteed by the owners of the respective entity. The debtors' ability to

repay the notes is dependent upon both the performance of the franchisee's industry as a whole and the individual franchise or AD areas.

~~On October 31, 2019, the Company had an unfunded lending commitment for working capital loans to franchisees and ADs of $11.5 million through January 31, 2020.~~

Analysis of Past Due Receivables

The breakdown of accounts and notes receivable past due at ~~October 31, 2019,~~June 27, 2020 was as follows:


	Past due		Current		Interest receivable, net		Total receivables
	(In thousands)
(In thousands)									Past due		Current		Interest receivable, net		Total receivables
Accounts receivable	$	28,694	$	10,624	$	—	$	39,318	$	28,494	$	17,829	$	—	$	46,323
Notes and interest receivable (1)	9,141		41,454		2,281		52,876
Notes and interest receivable, net (1)									11,133		21,324		2,477		34,934
Total accounts, notes and interest receivable	$	37,835	$	52,078	$	2,281	$	92,194	$	39,627	$	39,153	$	2,477	$	81,257

(1) Interest receivable is shown net of an allowance for uncollectible interest of ~~$3.3~~$2.5 million.

Accounts receivable are considered to be past due if unpaid 30 days after billing, and notes receivable are considered past due if unpaid 90 days after the due date. If it is determined the likelihood of collecting substantially all of the notes and accrued interest is not probable, the notes are put on non-accrual status. The Company’s investment in notes receivable on non-accrual status was ~~$9.1 million, $15.6~~$11.1 million and ~~$12.1~~$8.5 million at ~~October 31,~~June 27, 2020 and December 28, 2019, ~~April 30, 2019, and October 31, 2018,~~ respectively. Payments received on notes in non-accrual status are applied to the principal until the note is current and then to interest income. Non-accrual notes that are paid current and expected to remain current are moved back into accrual status during the next annual review.

Allowance for Doubtful Accounts

The adequacy of the allowance for doubtful accounts is assessed on a quarterly basis and adjusted as deemed necessary. Management believes the recorded allowance is adequate based upon its consideration of the estimated fair value of the franchises and AD areas collateralizing the receivables. Any adverse change in the individual franchise or AD areas could affect the Company's estimate of the allowance.

Activity in the allowance for doubtful accounts for the three and six months ended ~~October 31,~~June 27, 2020 and June 30, 2019 ~~and 2018~~ was as follows:



	Three Months Ended						Six Months Ended
(In thousands)	June 27, 2020			June 30, 2019			June 27, 2020			June 30, 2019
Balance at beginning of period	$	9,170		$	10,581		$	9,985		$	12,353
Provision for doubtful accounts	1,901			2,715			3,524			4,770
Write-offs and reduction from repurchases of franchises	(449		)	(1,480		)	(2,750		)	(5,335		)
Foreign currency adjustment	56			44			(81		)	72
Balance at end of period	$	10,678		$	11,860		$	10,678		$	11,860

Three Months Ended October 31, Six Months Ended October 31,
2019 2018 2019 2018
(In thousands)
Balance at beginning of period $ 11,458
$ 13,559
$ 11,816
$ 12,487
Provision for doubtful accounts 1,853
1,931
3,708
3,870
Write-offs (3,974 ) (2,040 ) (6,225 ) (2,880 )
Foreign currency adjustment 7
(11 ) 45
(38 )
Balance at end of period $ 9,344
$ 13,439
$ 9,344
$ 13,439

Management considers specific accounts and notes receivable to be impaired if the net amounts due exceed the fair value of the underlying franchise at the time of the annual valuation ~~performed as of April 30 of each year~~ and estimates an allowance for doubtful accounts based on that excess. At the end of each fiscal quarter, the Company considers the activity during the period for accounts and notes receivable impaired from the prior ~~April 30th~~annual valuation and adjusts the allowance for doubtful accounts accordingly. While not specifically identifiable as of the balance sheet date, the Company's analysis of its experience also indicates that a portion of other accounts and notes receivable may not be collectible. Net amounts due include contractually obligated accounts and notes receivable plus accrued interest, reduced by unrecognized revenue, the allowance for uncollected interest, amounts due ADs, and amounts owed to the franchisee by the Company. When a franchise is repurchased, intangible assets are recorded if the franchise will be run as a Company-owned store.

~~(5) Restructuring Expense~~

In fiscal 2018, the Company began restructuring initiatives involving a review of Liberty Tax-owned stores and service providers to improve the Company's overall long-term profitability. The Company incurred $8.3 million of expenses in the six months ended October 31, 2018, related to these initiatives. The expenses incurred are presented in the Restructuring expense line item in the accompanying consolidated statements of operations. The restructuring initiatives were completed in October 2018. The composition of the restructuring expenses incurred for the six months ended October 31, 2018, were as follows:

Expense Cash Accrued Expenses Non-cash Total Expense
(In thousands)
Contract termination costs - maintenance $ 37
$ —
$ —
$ 37
Property and intangible impairments and exit costs 1,031
2,718
5,559
9,308
Total $ 1,068
$ 2,718
$ 5,559
$ 9,345

The property and intangible impairments and exit costs, which were primarily recorded in assets held for sale, were comprised of expenses related to lease obligations and non-cash charges associated with intangible write-downs. The accrued restructuring expenses of $2.7 million are included in "Accounts payable and accrued expenses" in the accompanying consolidated balance sheets.

~~A summary of the activity in accrued expenses related to restructuring initiatives for the six months ended October 31, 2019 and 2018 is as follows:~~

Six Months Ended October 31, 2019
Contract termination costs Property exit costs Total accrued expenses
(In thousands)
Balance at beginning of period $ 690
$ 1,467
$ 2,157
Cash payments —
(431 ) (431 )
Balance at end of period $ 690
$ 1,036
$ 1,726

Six Months Ended October 31, 2018
Contract termination costs Property exit costs Total accrued expenses
(In thousands)
Balance at beginning of period $ 1,359
$ —
$ 1,359
Additions accrued against the liability —
3,749
3,749
Cash payments —
(1,031 ) (1,031 )
Balance at end of period $ 1,359
2,718
$ 4,077

~~(6)~~(4) Goodwill and Intangible Assets

Changes in the carrying amount of goodwill for the six months ended ~~October 31,~~June 27, 2020 and the transition period ended December 28, 2019 ~~and 2018~~ were as follows:



(In thousands)	June 27, 2020			December 28, 2019
Balance at beginning of period	$	134,301		$	6,566
Acquisitions of assets from franchisees and third parties	326			3,658
Buddy's Acquisition	—			75,038
Buddy's Partners Asset Acquisition	—			7,217
A-Team Leasing Acquisition	—			6,287
Sears Outlet Acquisition	—			31,028
American Freight Acquisition	335,472			—
Vitamin Shoppe Acquisition	—			4,951
Disposals and foreign currency changes, net	(1,108		)	(444		)
Purchase price reallocation	(877		)	—
Impairments	(26		)	—
Balance at end of period	$	468,088		$	134,301

October 31, 2019 October 31, 2018
(In thousands)
Balance at beginning of period $ 6,566
$ 8,640
Acquisitions from franchisees 2,962
118
Buddy's Acquisition 86,147
—
Buddy's Partners Asset Acquisition 5,658
—
A-Team Leasing Asset Acquisition 7,787
—
Sears Outlet Acquisition 9,762
—
Disposals and foreign currency changes, net (38 ) (1,208 )
Balance at end of period $ 118,844
$ 7,550

Components of intangible assets as of June 27, 2020 and December 28, 2019 were as ~~follows as~~follows:



	June 27, 2020
(In thousands)	Gross carrying amount		Accumulated amortization			Net carrying amount
Tradenames (1)	$	94,149	$	(97	)	$	94,052
Customer contracts	12,736		(2,011		)	10,725
Franchise agreements [and non-compete agreements]	10,609		(1,045		)	9,564
Customer lists	4,090		(2,618		)	1,472
Reacquired rights	11,377		(2,963		)	8,414
AD rights	40,948		(19,288		)	21,660
Total intangible assets	$	173,909	$	(28,022	)	$	145,887

(1) $70.2 million, $11.1 million and $12.0 million of ~~October 31, 2019, April 30, 2019~~tradenames were acquired in the American Freight Acquisition, Buddy's Acquisition and ~~October 31, 2018:~~Vitamin Shoppe Acquisition, respectively. These tradenames have an indefinite life and they are tested for impairment on an annual basis.



	December 28, 2019
(In thousands)	Gross carrying amount		Accumulated amortization			Net carrying amount
Tradenames (1)	$	23,534	$	(72	)	$	23,462
Customer contracts	12,736		(886		)	11,850
Franchise agreements	10,609		(486		)	10,123
Customer lists	4,338		(2,559		)	1,779
Reacquired rights	11,577		(2,053		)	9,524
AD rights	37,263		(16,411		)	20,852
Total intangible assets	$	100,057	$	(22,467	)	$	77,590

October 31, 2019
Weighted average amortization period Gross carrying amount Accumulated amortization Net carrying amount
(In thousands)
Tradenames (1) 3 years $ 11,485
$ (65 ) $ 11,420
Franchise agreements 10 years 10,100
(309 ) 9,791
Customer contracts 6 years 12,300
(510 ) 11,790
Non-compete agreements 2 years 81
(4 ) 77
Reacquired rights 6 years 7,800
(196 ) 7,604
Assets acquired from franchisees:
Customer lists 4 years 3,222
(1,503 ) 1,719
Reacquired rights 2 years 2,531
(1,596 ) 935
AD rights 9 years 36,740
(15,808 ) 20,932
Total intangible assets $ 84,259
$ (19,991 ) $ 64,268

(1) $11.1 million and $12.0 million of tradenames were acquired in the Buddy's Acquisition ~~which~~and Vitamin Shoppe Acquisition, respectively. These tradenames have an indefinite ~~life. It is~~life and they are tested for impairment on an annual basis.

April 30, 2019
Weighted average amortization period Gross carrying amount Accumulated amortization Net carrying amount
(In thousands)
Customer lists acquired from unrelated third parties 5 years $ 1,027
$ (1,027 ) $ —
Tradenames 3 years 108
(52 ) 56
Assets acquired from franchisees:
Customer lists 4 years 2,015
(1,288 ) 727
Reacquired rights 2 years 1,660
(1,380 ) 280
AD rights 9 years 32,271
(14,173 ) 18,098
Total intangible assets $ 37,081
$ (17,920 ) $ 19,161

October 31, 2018
Weighted average amortization period Gross carrying amount Accumulated amortization Net carrying amount
(In thousands)
Customer lists acquired from unrelated third parties 5 years $ 3,187
$ (1,846 ) $ 1,341
Tradenames 3 years 539
(291 ) 248
Non-compete agreements 2 years 241
(205 ) 36
Assets acquired from franchisees:
Customer lists 4 years 1,235
(1,015 ) 220
Reacquired rights 2 years 977
(898 ) 79
AD rights 9 years 32,002
(12,195 ) 19,807
Total intangible assets $ 38,181
$ (16,450 ) $ 21,731

~~The Company acquired $4.5 million and $1.3 million of AD rights during the six months ended October 31, 2019 and 2018, respectively.~~

During the six months ended October 31, 2019 and 2018, the Company recorded intangible assets of $48.4 million, and $1.5 million, respectively, from various acquisitions as described in "Note 2. Acquisitions". During the six months ended October 31, 2018, all assets acquired from franchisees and third parties in the U.S. were recorded as assets held for sale, while assets acquired in Canada were recorded as intangible assets.

~~(7) Assets Held For Sale~~

In the third quarter of fiscal 2019, the Company reclassified all assets associated with its U.S. Liberty Tax-owned offices from assets held for sale to reacquired rights, customer lists and goodwill. Prior to the third quarter of fiscal 2019, assets acquired from U.S. franchisees were classified as assets held for sale. During the six months ended October 31, 2018, the Company acquired $0.3 million in assets from U.S. franchisees and third parties that were first accounted for as business combinations, with the value allocated to customer lists and reacquired rights of less than $0.2 million and goodwill of less than $0.2 million prior to being recorded as assets held for sale. The acquired businesses are operated as Company-owned offices until a buyer is located and a new franchise agreement is entered into.

~~Changes in the carrying amount of assets held for sale for the six months ended October 31, 2019 and 2018 were as follows:~~

Six Months Ended October 31,
2019 2018
(In thousands)
Balance at beginning of period $ —
$ 8,941
Reacquired and acquired from third parties —
302
Sold or terminated, impairments and other —
(4,886 )
Balance at end of period $ —
$ 4,357

In connection with the Sears Outlet Acquisition in October 2019, the Company acquired certain stores that were classified as assets held for sale and sold concurrently to third parties. Refer to “Note 3. Assets Disposition” for further discussion.

~~(8)~~(5) Revenue

For ~~detail~~details regarding the principal activities from which the ~~Liberty Tax segment~~Company generates its revenue, see "Note 1. ~~Description of Business~~Organization and ~~Summary of~~ Significant Accounting Policies" in the Company’s 2019 Annual Report on Form 10-K filed on June 27, 2019. The following is a description of the principal activities from which the Buddy's and Sears Outlet segments generate their revenues.this quarterly report. For more detailed information regarding reportable segments, see "Note ~~18. Segments."~~13. Segments" in this quarterly report.

Product sales: These include sales of merchandise at the stores and online. Revenue is measured based on the amount of fixed consideration that the Company expects to receive, reduced by estimates for variable consideration such as returns. Revenue also excludes any amounts collected from customers and remitted or payable to governmental authorities. In arrangements where the Company has multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. The Company recognizes revenues from retail operations upon the transfer of control of goods to the customer. The Company satisfies its performance obligations at the point of sale for retail store transactions and upon delivery for online transactions. The Company defers revenue for retail store and online transactions including commissions on extended-service plans, where it has received consideration but has not transferred control of the goods to the customer at the end of the period. The performance obligation is generally satisfied in the following reporting period. Merchandise sales also include payments received for the exercise of the early purchase option offered through rental-purchase agreements or merchandise sold through point of sale transactions. Revenue for merchandise sales associated with rental purchase agreements is recognized when payment is received, and ownership of the merchandise passes to the customer. The remaining net value of merchandise sold is recorded to cost of sales at the time of the transaction.

Service sales: These include royalties and advertising fees from franchisees, fees from the sales of franchises and area developer territories, financial products, interest income from loans to franchisees and ADs, tax preparation services in our Company-owned stores, electronic filing fees, commissions on merchandise sales made through www.sears.com, services and extended-service plans, financing programs, and delivery and handling revenues related to merchandise sold online. The Company recognizes revenues from commissions on services, and delivery and handling revenues related to merchandise sold, at the point of sale as it is not the primary obligor with respect to such services and has no future obligations for future performance. Commissions earned on services, and delivery and handling revenues are presented net of related costs because the Company is acting as an agent in arranging the services for the customer and do not control the services being rendered.

Leasing sales: The Company provides merchandise, consisting of consumer electronics, computers, residential furniture, appliances, and household accessories to its customers pursuant to rental-purchase agreements which provide for weekly, semi-monthly or monthly rental terms with non-refundable rental payments. At the expiration of each rental term customers renew the rental agreement by pre-paying for the next rental term. Customers have the option to purchase the leased goods at any point in the lease term. Customers can terminate the agreement at the end of any rental term without penalty. Therefore, rental transactions are accounted for as operating leases and rental revenue is recognized over the rental term. Cash received prior to the beginning of the lease term is recorded as deferred revenue. Revenue related to various payment, reinstatement or late fees are recognized when paid by the customer at

the point service is provided. The Company offers additional product plans along with rental agreements that provide customers with liability protection against significant damage or loss of a product, and club membership benefits, including various discount programs, product services and replacement benefits in the event merchandise is damaged or lost. Customers renew product plans in conjunction with their rental term renewals and can cancel the plans at any time. Revenue for product plans is recognized over the term of the plan.

The following represents the disaggregated revenue by reportable segments for the three and six months ended ~~October 31, 2019:~~June 27, 2020:


	October 31, 2019													June 27, 2020
	Liberty Tax				Buddy's					Sears Outlet				Vitamin Shoppe				American Freight				Liberty Tax				Buddy's
(In thousands)	Three Months Ended		Six Months Ended		Three Months Ended			Six Months Ended		Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended
Retail sales	$	—	$	—	$	766		$	883	$	11,181	$	11,181	$	237,735	$	513,622	$	227,253	$	423,353	$	—	$	—	$	1,721	$	3,239
Total Product sales	—		—		766			883		11,181		11,181
Total product revenue														237,735		513,622		227,253		423,353		—		—		1,721		3,239
Franchise fees	435		766		10			10		—		—		—		—		—		—		221		727		13		13
Area developer fees	948		2,059		—			—		—		—		—		—		—		—		448		1,469		—		—
Royalties and advertising fees	893		1,683		2,583			3,243		—		—		—		—		—		—		6,616		48,065		2,406		4,829
Financial products	232		972		—			—		—		—		—		—		—		—		2,433		29,872		—		—
Interest income	1,313		2,870		(63		)	—		—		—		—		—		333		672		943		2,898		—		—
Assisted tax preparation fees, net of discounts	335		931		—			—		—		—		—		—		—		—		2,667		14,917		—		—
Electronic filing fees	46		95		—			—		—		—		—		—		—		—		371		2,400		—		—
Agreement, club and damage waiver fees	—		—		2,483			2,766		—		—		—		—		—		—		—		—		3,369		6,689
Delivery revenue	—		—		—			—		342		342
Warranty revenue	—		—		—			—		525		525		—		—		4,727		8,979		—		—		—		—
Other revenues	1,625		2,003		784			970		149		149		—		—		2,114		4,170		1,374		4,344		707		1,339
Total Service sales	5,827		11,379		5,797			6,989		1,016		1,016
Lease revenue, net	—		—		11,899			13,233		—		—
Total Leasing Sales	—		—		11,899			13,233		—		—
Total Revenue	$	5,827	$	11,379	$	18,462		$	21,105	$	12,197	$	12,197
Total service revenue														—		—		7,174		13,821		15,073		104,692		6,495		12,870
Rental revenue, net														—		—		—		—		—		—		17,176		33,596
Total rental revenue														—		—		—		—		—		—		17,176		33,596
Total revenue														$	237,735	$	513,622	$	234,427	$	437,174	$	15,073	$	104,692	$	25,392	$	49,705

The following represents the disaggregated revenue by reportable segments for the three and six months ended ~~October 31, 2018:~~June 30, 2019:


	October 31, 2018				June 30, 2019
	Liberty Tax				Vitamin Shoppe				American Freight				Liberty Tax				Buddy's
(In thousands)	Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended
Retail sales					$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total product revenue					—		—		—		—		—		—		—		—
Franchise fees	$	449	$	1,006	—		—		—		—		1,151		1,493		—		—
Area developer fees	619		1,647		—		—		—		—		786		1,698		—		—
Royalties and advertising fees	1,474		3,036		—		—		—		—		11,676		60,897		—		—
Financial products	477		1,056		—		—		—		—		4,025		32,875		—		—
Interest income	1,549		3,205		—		—		—		—		1,594		4,829		—		—
Assisted tax preparation fees, net of discounts	1,382		2,901		—		—		—		—		2,814		11,990		—		—
Electronic filing fees	30		58		—		—		—		—		567		2,945		—		—
Agreement, club and damage waiver fees					—		—		—		—		—		—		—		—
Other revenues	796		1,031		—		—		—		—		1,207		2,931		—		—
Total Service sales	$	6,776	$	13,940
Total service revenue					—		—		—		—		23,820		119,658		—		—
Rental revenue, net					—		—		—		—		—		—		—		—
Total rental revenue					—		—		—		—		—		—		—		—
Total revenue					$	—	$	—	$	—	$	—	$	23,820	$	119,658	$	—	$	—

The following table provides information about receivables and contract liabilities (deferred revenue) from contracts with ~~customers:~~

customers. Notes receivable are in the current receivables, net and non-current receivables, net lines of the consolidated balance sheets and deferred revenue is in the other current liabilities and other non-current liabilities lines of the consolidated balance sheets.

Significant changes in deferred ~~franchise and AD fees are~~revenue were as follows:

Anticipated Future Recognition of Deferred Revenue

The following table reflects ~~the estimated~~when deferred revenue is expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the period:

(1) Represents ~~franchise and AD fees~~deferred revenue expected to be recognized ~~by April 30,~~for the remainder of fiscal 2020. The amount does not include ~~$2.8 millionof franchise and AD fee~~deferred revenues recognized for the six months ended ~~October 31, 2019.~~June 27, 2020.

~~(9) Leases~~(6) Long-Term Obligations

~~The Company's lease portfolio primarily consists of leases for its retail store locations~~Long-term obligations at June 27, 2020 and office space. The Company also leases certain office equipment and vehicles under finance leases. The Company subleases some of its real estate and equipment leases. The Company determines if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets; the Company recognizes expense for these leases on a straight-line basis over the lease term. For leases with an initial term in excess of 12 months, lease right-of-use assets and lease liabilities are recognized based on the present value of the future lease payments over the committed lease term at the lease commencement date. The Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate and the information

available at the lease commencement date in determining the present value of future lease payments. Most leases include one or more options to renew and the exercise of renewal options is at the Company’s sole discretion. The Company does not include renewal options in its determination of the lease term unless the renewals are deemed to be reasonably certain at lease commencement. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease right-of-use assets are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, “Property, Plant, and Equipment - Overall,” to determine whether a right-of-use asset is impaired, and if so, the amount of the impairment loss to recognize.

~~The lease cost for leases that were recognized in the accompanying unaudited condensed statement of operations for the three and six months ended October 31,~~December 28, 2019, ~~are as follows:~~

~~As of October 31, 2019, maturities of lease liabilities~~ were as follows:



(In thousands)	June 27, 2020		December 28, 2019
Revolving credit facilities	$	158,500	$	129,260
Term loan, net of debt issuance costs	577,126		268,660
Convertible senior notes	—		60,439
Amounts due to former ADs, franchisees and third parties	1,882		1,661
Mortgages	1,758		1,825
Finance lease liabilities	1,372		1,775
Total long-term obligations	740,638		463,620
Less current installments	203,490		218,384
Total long-term obligations, excluding current installments, net	$	537,148	$	245,236

Operating leases Finance leases
(In thousands)
Remainder of 2019 $ 7,202
$ 81
2020 41,790
476
2021 34,261
384
2022 24,029
103
2023 16,204
5
2024 and thereafter 23,521
165
Total undiscounted lease payments 147,007
1,214
Less interest 23,850
93
Present value of lease liabilities $ 123,157
$ 1,121

Information regarding the weighted-average remaining lease term and the weighted-average discount rate for leases as of October 31, 2019, included a weighted-average remaining lease term of 4.4 years for operating leases and 2.3 years for finance leases and a weighted-average discount rate of 8.2% for operating leases and 8.5% for finance leases.

~~The right-of-use asset for finance leases as of October 31, 2019, amounts to $1.0 million and is included in property, equipment, and software, net.~~

~~The following represents other information pertaining to the Company's lease arrangements for the six months ended October 31, 2019:~~

(1) The majority of the lease liabilities from obtaining right-of-use assets were a result of the Buddy's Acquisition, Buddy’s Partners Asset Acquisition, the A-Team Leasing Asset Acquisition, and the Sears Outlet Acquisition.

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended April 30, 2019 and in accordance with ASC 840, future minimum lease payments under non-cancellable operating leases with initial lease terms in excess of one year, together with amounts due from franchisees under subleases, were as follows as of April 30, 2019:

~~(10) Long-Term Obligations~~

~~Sears Outlet~~Franchise Group New Holdco Credit Agreement and Term Loan

On ~~October 23, 2019 as part of the Sears Outlet Acquisition,~~February 14, 2020, the Company, through an indirect ~~subsidiaries, entered into~~subsidiary, executed a ~~Credit Agreement~~term loan agreement with GACP Finance Co., LLC for an amount of $575.0 million (the ~~“Sears Outlet~~“FGNH Credit Agreement”) ~~that provides for~~, which consists of a ~~$105.0~~$375.0 million first ~~priority senior secured term loan, net of financing costs of $2.8~~out tranche (the “FGNH Tranche A-1 Term Loan”) and a $200.0 million ~~which matures on October 23, 2023.~~last out tranche (the “FGNH Tranche A-2 Term Loan”). The term loan will mature on February 14, 2025, unless the maturity is accelerated subject to the terms set forth in the term loan agreement.

The FGNH Credit Agreement will, at the option of the Company, bear interest at either (i) a rate per annum based on London Interbank Offered Rate ("LIBOR") for an interest period of one, two, three or six months, plus an interest rate margin of 8.0% for the FGNH Tranche A-1 Term Loan and 12.5% for the FGNH Tranche A-2 Term Loan with a 1.50% LIBOR floor, or (ii) an alternate base rate determined as provided in the FGNH Credit Agreement, plus an interest rate margin of 7.0% for the FGNH Tranche A-1 Term Loan and 11.5% for the FGNH Tranche A-2 Term Loan with a 2.50% alternate base rate floor. Interest is payable in arrears at the end of each fiscal quarter. The Company is required to repay the FGNH Credit Agreement in equal fiscal quarterly installments of $6.25 million on the last day of each fiscal quarter, commencing with the fiscal quarter ending June 27, 2020. Further, the Company is required to prepay the FGNH Credit Agreement with 50% of consolidated excess cash flow on a quarterly basis with the net cash proceeds of certain other customary events. All repayments or prepayments (whether voluntary or mandatory) of the FGNH Credit Agreement, other than the fixed quarterly installments and excess cash flow prepayments are subject to early repayment fees.

The FGNH Credit Agreement includes customary affirmative, negative, and financial covenants binding on the Company and its subsidiaries, including delivery of financial statements and other reports. The negative covenants limit the ability of the Company and its subsidiaries, among other things, to incur debt, incur liens, make investments, sell assets, pay dividends on its capital stock and enter into transactions with affiliates. The financial covenants set forth in the FGNH Credit Agreement include a maximum total leverage ratio (net of certain cash) and a minimum fixed charge coverage ratio, to be tested at the end of each fiscal quarter, in each case with respect to certain subsidiaries of the Company. In addition, the FGNH Credit Agreement includes customary events of default, the occurrence of which may require that the Company pay an additional 2.0% interest.

In addition to financing the American Freight acquisition and its related acquisition costs, a portion of the proceeds from the FGNH Credit Agreement and the FGNH ABL Term Loan (as defined below) were used to repay the Buddy’s and Sears Outlet’s term loan for an outstanding amount of $101.6 million and $106.7 million including accrued interest, respectively. The early repayment of the term loans resulted in additional interest expense of $4.6 million for the write-off of deferred financing costs and $4.0 million for a prepayment penalty. The prepayment penalty is recorded in the Other expense line of the consolidated statements of operations for the six months ended June 27, 2020.

On May 1, 2020, the Company entered into an amendment to the FGNH Credit Agreement to provide for the joinder of Franchise Group Intermediate L 1, LLC, an indirect subsidiary of the Company, and each of its direct and indirect subsidiaries (collectively, the “Liberty Tax Entities”), to the FGNH Term Loan Credit Agreement and the FGNH ABL Credit Agreement, respectively, as borrowers thereunder, and in connection therewith, certain related security documents provided for the Liberty Tax Entities to grant or continue to grant liens on substantially all of their assets to secure the obligations under the FGNH Term Loan Credit Agreement and the FGNH ABL Credit Agreement. Further, the amendment modified the FGNH Term Loan Credit Agreement and the FGNH ABL Credit Agreement, respectively, to, among other things, (i) permit certain ordinary course and otherwise anticipated activities of the Liberty Tax Entities and (ii) make certain technical modifications related to the COVID-19 pandemic and other events.

Franchise Group New Holdco ABL Credit Agreement and ABL Term Loan

On February 14, 2020, the Company, through direct and indirect subsidiaries, entered into an ABL credit agreement (the "FGNH ABL Credit Agreement") with various lenders which provided the Company with a $100.0 million credit facility (the “FGNH ABL Term Loan”). On February 14, 2020, the Company borrowed $100.0 million on the FGNH ABL Term Loan to finance the acquisition of American Freight. The FGNH ABL Term Loan will mature on September 30, 2020.

Borrowings under the FGNH ABL Term Loan will, at the Company's option, bear interest at either (i) a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an interest rate margin of ~~6.5% (a “LIBOR Loan”)~~6.50% with a 1.50% LIBOR floor, ~~payable in arrears at the end of each applicable interest period~~ or (ii) an alternate base rate ~~determined as provided in the Sears Outlet Credit Agreement,~~ plus an interest rate margin of ~~5.5% (an “ABR Loan”)~~5.50% with a 2.50% alternate base rate ~~floor,~~floor. Interest is payable in arrears on the first day of each fiscal quarter. ~~The obligations~~If the borrowing base exceeds the outstanding principal amount of the FGNH ABL Term Loan, the Company ~~under~~must prepay the ~~Sears Outlet Credit Agreement are secured on a first priority basis by substantially all~~FGNH ABL Term Loan in the amount of ~~the assets of the Company’s indirect subsidiaries. The total proceeds of the term loan were used to finance the Sears Outlet Acquisition.~~

any such excess. The Company is ~~required to repay the term loan in equal quarterly installments of $2.5 million on the first day of each fiscal quarter, commencing on April 1, 2020. The Company is~~also required to prepay the ~~term loan with 75% of consolidated excess cash flow on an annual basis and~~FGNH ABL Term Loan, with the net cash proceeds of certain other customary events. All repayments or prepayments (whether voluntary or mandatory) of the ~~term loan~~FGNH ABL Term Loan which are made on or after September 30, 2020 are subject to an exit fee of ~~1.0%~~2.0%.

The ~~Sears Outlet~~FGNH ABL Credit Agreement includes customary affirmative, negative, and financial covenants binding on the Company and its ~~subsidiaries.~~subsidiaries, including delivery of financial statements and other reports. The negative covenants limit the ability of the Company and its subsidiaries, ~~to,~~ among other things, incur debt, incur liens, make investments, sell assets, pay dividends on capital stock and enter into transactions with affiliates. The financial covenants include a maximum consolidated total leverage ratio (net of certain cash), a minimum consolidated fixed charge coverage ratio, a minimum consolidated liquidity requirement and a minimum borrowing base ratio. In addition, the Sears Outlet Credit Agreement includes customary

events of default, the occurrence of which may require that the Company pay an additional 2.0% interest on the term loan. The Company was in compliance with all covenants of the Sears Outlet Credit Agreement as of October 31, 2019.

~~Buddy's Credit Agreement~~

On July 10, 2019 as part of the Buddy's Acquisition, the Company, through an indirect subsidiary, entered into a Credit Agreement (the "Buddy's Credit Agreement") that provides for an $82.0 million first priority senior secured term loan which matures on July 10, 2024. The term loan will bear interest, at the option of the Company, at either (i) a rate per annum based on London Interbank Offered Rate ("LIBOR") for an interest period of one, two, three or six months (a "LIBOR Loan"), plus an interest rate margin of 8.0% with a 1.50% LIBOR floor, payable in arrears at the end of each applicable interest period or (ii) an alternate base rate determined as provided in the Buddy's Credit Agreement, plus an interest rate margin of 7.0% (an "ABR Loan") with a 2.50% alternate base rate floor, payable in arrears on the first day of each fiscal quarter. If the consolidated leverage ratio of the Buddy's segment exceeds certain thresholds set forth in the Buddy's Credit Agreement, the Company will also be required to pay an additional 2.0% of interest to be paid in-kind. The obligations under the Buddy's Credit Agreement are guaranteed by certain subsidiaries of the Company and secured on a first priority basis by the assets of Buddy's. A portion of the proceeds of the Buddy's Credit Agreement was used to terminate the outstanding revolving credit facility of Buddy's.

The Company is required to repay the Buddy's Credit Agreement in equal quarterly installments of $1,025,000 on the first day of each calendar quarter, commencing on October 1, 2019. The Company is also required to prepay the term loan with 75% of consolidated excess cash flow on an annual basis and with the net cash proceeds of certain other customary events. All voluntary and certain customary mandatory prepayments are subject to a prepayment penalty. Prior to the first anniversary of the closing date, the prepayment penalty is a make-whole premium on the portion of the Buddy’s Credit Agreement so prepaid. Thereafter, the amount of the prepayment penalty on the portion of the Buddy’s Credit Agreement so prepaid is (a) 3.0%, from the first anniversary of the closing date through (but not including) the second anniversary of the closing date, (b) 2.0%, from the second anniversary of the closing date through (but not including) the third anniversary of the closing date, and (c) 1.0%, from the third anniversary of the closing date through (but not including) the fourth anniversary of the closing date. The Company may also be required to pay LIBOR breakage and redeployment costs in certain limited circumstances.

The Buddy's Credit Agreement includes customary affirmative, negative and financial covenants binding on the Company and its subsidiaries. The negative financial covenants limit the ability of the Company to incur debt, incur liens, make investments, sell assets, pay dividends on its capital stock and enter into transactions with affiliates. The financial covenants set forth in the FGNH ABL Credit Agreement include a ~~maximum~~minimum consolidated ~~leverage ratio~~liquidity of the Loan Parties and their subsidiaries (other than certain excluded subsidiaries), to be tested at all times, and a minimum borrowing base ratio of the Loan Parties, to be tested at the end of each month. In addition, the FGNH ABL Credit Agreement includes customary events of default, the occurrence of which may require that the Company to pay an additional 2.0% interest on the borrowings under the FGNH ABL Term Loan.

On April 3, 2020, the Company entered into a Limited Waiver and Amendment Number Two to ABL Credit Agreement (the “ABL Second Amendment”) which amends that certain FGNH ABL Credit Agreement dated as of February 14, 2020 by and among the Loan Parties, various lenders from time to time party thereto and the ABL Agent (as amended prior to the ABL Second Amendment, the “Existing ABL Credit Agreement”).

The ABL Second Amendment amended the Existing ABL Credit Agreement to (i) extend the maturity date of the term loan provided pursuant to the Existing ABL Credit Agreement to September 30, 2020, (ii) increase the interest rate margin to 7.50% for loans bearing interest based on LIBOR and 6.50% for loans bearing interest based on an alternate base rate, and (iii) make certain other modifications and grant certain waivers with respect to the Existing ABL Credit Agreement.

B. Riley ABL Commitment

On May 1, 2020, in connection with the American Freight Acquisition and the ABL Credit Agreement, the Company entered into an Amended and Restated ABL Commitment Letter with B. Riley Financial, Inc. ("B. Riley") pursuant to which B. Riley agreed to provide, subject to the terms and conditions set forth therein, a backstop commitment for a $100 million asset-based lending facility. As of June 27, 2020, no amounts had been drawn on this facility.

Vitamin Shoppe Term Loan

On December 16, 2019 as part of the Vitamin Shoppe Acquisition, the Company, through direct and indirect subsidiaries, entered into a Loan and Security Agreement (the “Vitamin Shoppe Term Loan Agreement”) that provides for a $70.0 million senior secured term loan (the "Vitamin Shoppe Term Loan") which matures on December 16, 2022. The obligations under the Vitamin Shoppe Term Loan are secured by substantially all of the assets of the Company's Vitamin Shoppe segment.

An Intercreditor Agreement (the “Intercreditor Agreement”) sets forth the relative priorities of the security interests granted with respect to the Vitamin Shoppe Term Loan and those granted with respect to the Vitamin Shoppe ABL Revolver (as defined below). The security interest granted to the Vitamin Shoppe Term Loan lenders is senior to that granted to the Vitamin Shoppe ABL Revolver lenders.

The Vitamin Shoppe Term Loan bears interest at a rate per annum based on LIBOR for an interest period of one month (or, during the continuance of an event of default, an alternate base rate determined as provided in the Vitamin Shoppe Term Loan Agreement), plus an interest rate margin of 9.0%, with a 2.0% LIBOR (or alternate base rate) floor. Interest is payable in arrears on the first business day of each calendar month. The Company is required to repay the Vitamin Shoppe Term Loan in equal fiscal quarterly installments of $4.25 million on the last business day of each fiscal quarter, commencing with the fiscal quarter ending March 28, 2020. Further, the Company is required to prepay the Vitamin Shoppe Term Loan (i) with 60% of consolidated excess cash flow on a fiscal quarterly basis (less voluntary prepayments already made), up to a maximum of $12.5 million in any fiscal year, and (ii) subject to the Intercreditor Agreement, with the net cash proceeds of certain other customary prepayment events (subject to certain customary reinvestment rights). Such fixed ~~charge coverage ratio~~quarterly installments and excess cash flow prepayments cease to be required (subject to certain exceptions) if the then outstanding aggregate principal amount of the Vitamin Shoppe Term Loan is less than or equal to the lesser of $25 million and a specified borrowing base based on the Company's eligible credit card receivables, accounts, inventory and equipment, less certain reserves. All repayments or prepayments (whether voluntary or mandatory) of the Vitamin Shoppe Term Loan, other than the fixed quarterly installments and excess cash flow prepayments, are subject to early repayment fees. If the outstanding aggregate principal amount of the Term Loan at any time exceeds a specified borrowing base, set at $70.0 million until January 10, 2020, and thereafter based on the eligible credit card receivables, accounts receivable, inventory, equipment and intellectual property, less certain reserves, the Agent must instruct the agent of the Vitamin Shoppe ABL Revolver to implement a reserve against the borrowing base under the Vitamin Shoppe ABL Agreement (as defined below) in the amount of such excess, and if such reserve is not implemented, the Company is required to repay the amount of such excess.

The Vitamin Shoppe Term Loan Agreement includes customary affirmative, negative, and financial covenants binding on the Company and its subsidiaries, including the delivery of financial statements, borrowing base certificates and other reports. The negative covenants limit the ability of the Company and its subsidiaries, among other things, to incur debt, incur liens, make investments, sell assets, pay dividends on its capital stock and enter into transactions with affiliates. The financial covenants set forth in the Vitamin Shoppe Term Loan Agreement include a limit on capital expenditures in each fiscal year, a minimum consolidated liquidity requirement to be tested weekly and a minimum consolidated EBITDA requirement to be tested at the end of each fiscal quarter, in each case with respect to the Company and its subsidiaries. In addition, the Vitamin Shoppe Term Loan Agreement includes customary events of default, the occurrence of which may require that the Company pay an additional 3.0% interest on the Vitamin Shoppe Term Loan.

On May 22, 2020, the Company amended the Vitamin Shoppe Term Loan and Vitamin Shoppe ABL Revolver. The Vitamin Shoppe Term Loan was amended to, among other things, (i) permit the assignment of $5.3 million of the outstanding term loan to Franchise Group, Inc. (the "Parent"), subject to certain conditions and certain limitations on Parent’s rights as a ~~requirement that~~lender, (ii) modify the minimum consolidated ~~liquidity~~EBITDA covenant, (iii) limit the quarterly dividend payment by Parent that would otherwise have been permitted in the second fiscal quarter of 2020 (by reference to certain financial calculations from the first fiscal quarter of 2020) (the "Dividend Waiver") and (iv) permit the Parent and the Borrowers to use an anticipated tax refund to prepay $12.5 million of the term loan upon receipt of such tax refund, along with a 2% prepayment fee, plus (x) if the tax refund prepayment is not made by July 31, 2020, the Borrowers will be required to pay a fee of 0.5% of the outstanding term loan (other than the portion of the term loan held by Parent) and (y) if the tax refund prepayment is not made by September 25, 2020, the Borrowers will be required to pay additional amortization of $3.1 million for each fiscal quarter

(beginning with the fiscal quarter ending on September 26, 2020) until the tax refund prepayment is made (which additional quarterly amortization may be deducted from the required tax refund prepayment).

On May 22, 2020, the Company purchased $5.3 million of the Vitamin Shoppe Term Loan from one of the participating lenders, which effectively retired that portion of the term loan.

Vitamin Shoppe ABL Revolver

On December 16, 2019, the Company, through direct and indirect subsidiaries, entered into a Second Amended and Restated Loan and Security Agreement (the “ Vitamin Shoppe ABL Agreement”) providing for a senior secured revolving loan facility (the “Vitamin Shoppe ABL Revolver”) with commitments available to the Company of the lesser of (i) $100.0 million and (ii) a specified borrowing base based on our eligible credit card receivables, accounts receivable and inventory, less certain reserves, and as to each of clauses (i) and (ii), less a $10.0 million availability block. The Vitamin Shoppe ABL Revolver will mature on December 16, 2022, unless the maturity is accelerated subject to the terms set forth in the Vitamin Shoppe ABL Agreement. The Company borrowed $70.0 million on December 16, 2019, the proceeds of which were used to consummate the Vitamin Shoppe Acquisition. The ABL Agreement amended and restated the existing Amended and Restated Loan and Security Agreement (the “Existing Vitamin Shoppe ABL Agreement”), dated as of January 20, 2011.

The Company's obligations under the ABL Agreement are secured by substantially all of the assets of the Vitamin Shoppe segment. The Intercreditor Agreement sets forth the relative priorities of the security interests granted with respect to the Vitamin Shoppe ABL Revolver and those granted with respect to the Vitamin Shoppe Term Loan. The security interest granted to the Vitamin Shoppe ABL Revolver lenders is senior to that granted to the Vitamin Shoppe Term Loan lenders with respect to, among other assets, accounts receivable, inventory and deposit accounts.

Borrowings under the Vitamin Shoppe ABL Revolver will, at the Company's option, bear interest at either (i) a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an interest rate margin that ranges from 1.25% to 1.75%, depending on excess availability (a “LIBOR Loan”), with a 0.0% LIBOR floor, or (ii) an alternate base rate determined as provided in the Vitamin Shoppe ABL Agreement, plus an interest rate margin that ranges from 0.25% to 0.75%, depending on excess availability (an “ABR Loan”), with a 1.0% alternate base rate floor. Interest on LIBOR Loans is payable in arrears at the end of each applicable interest period (and, with respect to a six-month interest period, three months after commencement of the interest period), and interest on ABR Loans is payable in arrears on the first business day of each calendar quarter.

Subject to the Intercreditor Agreement, the Company is required to repay borrowings under the Vitamin Shoppe ABL Revolver with the net cash proceeds of certain ~~subsidiaries must not be less than $1.0 million~~customary events (subject to certain customary reinvestment rights). Further, if the outstanding principal amount of the borrowings under the Vitamin Shoppe ABL Revolver at any ~~time.~~time exceeds the lesser of $100.0 million and the borrowing base, less, in each case, a $10.0 million availability block, the Company must prepay any such excess.

The Vitamin Shoppe ABL Agreement includes customary affirmative and negative covenants binding on the Company and its subsidiaries, including the delivery of financial statements, borrowing base certificates and other reports. The negative covenants limit the ability of the Company and its subsidiaries, among other things, to incur debt, incur liens, make investments, sell assets, pay dividends on its capital stock and enter into transactions with affiliates. In addition, the ~~Buddy’s Credit~~Vitamin Shoppe ABL Agreement includes customary events of default, the occurrence of which may require the Company to pay an additional 2.0% interest on the ~~term loan to be paid in-kind. The Company was in compliance with all covenants of the Buddy’s Credit Agreement as of October 31, 2019.~~

On August 23, 2019, as part of the 41 stores acquisition from A-Team, the Buddy's Credit Agreement was amended. The amendment provides for a $23.0 million first priority senior secured loan (the “Buddy’s Additional Term Loan”), net of financing costs of $0.4 million. The Company is required to repay the additional amountsborrowings under the ~~amended Buddy's Credit Agreement in equal quarterly installments of $287,500 on the first day of each calendar quarter, commencing on October 1, 2019.~~Vitamin Shoppe ABL Revolver.

On September 30, 2019, the Buddy's Credit Agreement was further amended to update the agreed consolidated EBITDA figures for September 30, 2018, December 31, 2018, March 31, 2019 and June 30, 2019 and to clarify the circumstances under which acquisitions may be given pro forma effect in the calculation of consolidated EBITDA.

Liberty Tax Credit Agreement

On May 16, 2019, the Company entered into a new ~~Credit Agreement~~credit agreement (the "Liberty Tax Credit Agreement") ~~that provides~~which provided for a $135.0 million senior revolving credit facility, ~~(the "Revolving Credit Facility"), with~~ a $10.0 million sub-facility for the issuance of letters of credit, and a $20.0 million swingline loan sub-facility. The Company’s obligations under the Liberty Tax Credit Agreement are guaranteed by certain subsidiaries of the Company. The Company’s obligations under the Liberty Tax Credit Agreement are secured by substantially all of the assets (other than existing real property) of the Liberty Tax segment and each guarantor (including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries). The Liberty Tax Credit Agreement replaces the Company’s prior credit facility.

The Revolving Credit Facility will mature on May 31, 2020. Borrowings under the Revolving Credit Facility will, at the option of the Company, bear interest at either (i) a LIBOR Loan, plus an applicable interest rate margin determined as

provided in the Liberty Tax Credit Agreement, or (ii) an ABR Loan, as determined by the Liberty Tax Credit Agreement. The applicable interest rate margin varies from 3.0% per annum to 4.0% per annum for LIBOR Loans, and from 2.0% per annum to 3.0% per annum for ABR Loans, in each case depending on the Company’s consolidated leverage ratio and is determined in accordance with a pricing grid set forth in the Liberty Tax Credit Agreement (the “Pricing Grid”). Interest on LIBOR Loans is payable in arrears at the end of each applicable interest period, and interest on ABR Loans is payable in arrears at the end of each calendar quarter. There are no prepayment penalties in the event the Company elects to prepay and terminate the Revolving Credit Facility prior to its scheduled maturity date, subject to LIBOR breakage and redeployment costs in certain limited circumstances. The Company agrees in the Liberty Tax Credit Agreement to pay a fee on the average daily unused amount of the Revolving Credit Facility during the term thereof. Such unused fee is payable in arrears at the end of each calendar quarter and accrues at a rate which varies from 0.25% to 0.5% depending on the Company’s consolidated leverage ratio, as determined in accordance with the Pricing Grid. The Company also agreed to pay (x) a fee for each outstanding letter of credit at a rate per annum equal to the applicable interest rate margin for LIBOR Loans, as determined in accordance with the Pricing Grid, multiplied by the average daily amount available to be drawn under such letter of credit, and (y) to the letter-of-credit issuer, a fronting fee which shall accrue at a rate of 0.125% per annum on the average daily amount of the outstanding aggregate letter-of-credit obligations under the Liberty Tax Credit Agreement. The average interest rate paid during the six months ended October 31, 2019 was 5.02%.

The Liberty Tax Credit Agreement includes customary affirmative, negative, and financial covenants binding on the Company, including the delivery of financial statements and other reports and maintenance of existence. The financial covenants set forth in the Liberty Tax Credit Agreement include a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio, each of which will be tested at the end of each fiscal quarter of the Company, and a minimum consolidated net worth ratio tested at the end of each fiscal year of the Company. The Liberty Tax Credit Agreement provides that, for a period of 30 consecutive days after May 16, 2019, our outstanding obligations under the Liberty Tax Credit Agreement will not exceed $12.5 million. Additionally, from April 30, 2020 until the maturity date, our outstanding obligations must be reduced to $0. In addition, the Liberty Tax Credit Agreement includes customary events of default. The Company was in compliance with all covenants of the Liberty Tax Credit Agreement as of October 31, 2019.

On October 2, 2019, the Company amended the Liberty Tax Credit Agreement dated May 16, 2019 to extend the maturity date to October 2, 2022, from the original maturity date of May 31, 2020 and decrease the aggregate amount of commitments from $135.0 million to $125.0 million as of October 2, 2019.The amendment reduced the applicable interest rate margin used to calculate interest for LIBOR Loans and ABR Loans. The amended LIBOR Loans interest rate margin is 2.75% per annum to 3.50% per annum compared to a range of 3.00% per annum to 4.00% per annum prior to the amendment. The amended ABR Loans applicable interest rate margin range is 1.75% per annum to 2.50% per annum compared to a range of 2.00% per annum to 3.00% per annum before the amendment. The range is dependent on the Company’s consolidated leverage ratio and is determined in accordance with a pricing grid set forth in the amendment.

~~The amended~~ Liberty Tax Credit Agreement ~~also changed~~included customary affirmative, negative, and financial covenants, including delivery of financial statements and other reports and maintenance of existence. On February 14, 2020, the ~~clean-down period. Under~~Company amended certain provisions of the ~~amendment, all outstanding obligations~~Liberty Tax Credit Agreement to provide for the gradual reduction of the commitments under the Liberty Tax Credit Agreement ~~must be reduced to zero for a period of at least 45 consecutive days,~~and terminated the ~~first day of which must begin between March 15th and~~facility on April ~~30th of each year.~~30, 2020.

The amendment also amended the Liberty Tax Credit Agreement to permit dividends or other distributions to the parent to make a dividend or other distributions with regard to the parent’s equity interest, provided that (i) such dividend or distribution may only be made once per fiscal year and during a certain period of the fiscal year, and (ii) in any fiscal year the dividend or distribution shall not exceed 25% of consolidated EBITDA for the Liberty Tax segment for the fiscal year. The amendment also permits dividends or other distributions to the parent to pay management and administrative expenses provided that (i) such dividend or other distribution may only be made once per fiscal year and during a certain period of the fiscal year, and (ii) the aggregate amount of such dividend or other distribution may not exceed $1.0 million in any fiscal year.

~~The amendment also eliminated a negative covenant in the Liberty Tax Credit Agreement that prohibited~~

On February 7, 2020, the Company ~~from incurring certain types~~completed the repurchase of ~~indebtedness and liens.~~

~~Vintage Subordinated Note~~

~~On May 16, 2019, the Company also entered into a Subordinated Note (the “Subordinated Note”) payable to Vintage Capital Management LLC (“Vintage”). The~~$60.4 million in aggregate principal amount of all loans to be made by Vintage under the Subordinated Note was limited to $10.0 million. Any indebtedness owed to Vintage under the Subordinated Note was subordinate to and subject in right and time of payment to the Revolving Credit Facility. The Company did not make any borrowings under the Subordinated Note. The Subordinated Note was terminated effective with the October 2, 2019 amendment of the Liberty Tax Credit Agreement.

~~Other Indebtedness~~

The Company previously had a credit facility that consisted of a term loan with an original principal amount of $21.2 million and a revolving credit facility that allowed borrowing of up to $170.0 million with an accordion feature that permitted the Company to request an increase in availability of up to an additional $50.0 million. Outstanding borrowings accrued interest, which was paid monthly at a rate of the one-month LIBOR plus a margin ranging from ~~1.50%~~ to ~~2.25%~~ ~~depending on the Company’s leverage ratio.~~

The average interest rate paid during the six months ended October 31, 2018 was 3.78%. The indebtedness was collateralized by substantially all the assets of the Company, and both loans matured on April 30, 2019 (except as to the commitments of one smaller lender which matured on September 30, 2017).

The former credit facility contained certain financial covenants that the Company was required to meet, including leverage and fixed-charge coverage ratios as well as minimum net worth requirements. In addition, the Company was required to reduce the outstanding ~~balance under its revolving credit facility to zero~~Convertible Senior Notes for a ~~period~~purchase price of ~~at least 45 consecutive days each fiscal year.~~$60.6 million, which included accrued interest.

In December 2016, the Company obtained a mortgage payable to a bank in monthly installments of principal payments plus interest at the one-month LIBOR plus 1.85% through December 2026 with a balloon payment of $0.8 million due at maturity. The mortgage is collateralized by land and buildings.

In December 2016, in connection with obtaining a mortgage payable to a bank, the Company entered into an interest rate swap agreement that allows it to manage fluctuations in cash flow resulting from changes in the interest rate on the mortgage. This swap effectively changes the variable-rate of the Company's mortgage into a fixed rate of 4.12%. The Company has designated this swap agreement as a cash flow hedge. At October 31, 2019, the fair value of the interest rate swap is less than $0.1 million and is included in accounts payable and accrued expenses. The interest rate swap expires in December 2026.

~~Long-term obligations at October 31, 2019, April 30, 2019, and October 31, 2018, consisted of the following:~~

~~(11)~~(7) Income Taxes

~~We are anticipating a pre-tax book~~

The Coronavirus, Aid, Relief, and ~~tax~~Economic Security, or CARES Act (the “Act”) was enacted on March 27, 2020. The Act retroactively changed the eligibility of certain assets for expense treatment in the year placed in service, back to 2018, and permitted any net operating loss for the tax ~~year ending December 28, 2019. Management determined that it is at least more-likely-than-not that realization of tax benefits~~years 2018, 2019 and 2020 to be carried back for ~~the current period loss carryforward~~5 years. The Company recorded ~~in our financial statements will occur in future periods. The amount of~~a total income tax benefit ~~recorded~~of $45.6 million through the second quarter associated with the income tax components contained in the Act. As of June 27, 2020, the Company has completed an initial analysis of the tax effects of the Act but continues to monitor developments by federal and state rule making authorities regarding implementation of the Act. The Company has made reasonable estimates of the effects of the Act and will adjust, if needed, as new laws or guidance becomes available.

For the three months ended June 27, 2020 and June 30, 2019, the Company had an effective tax rate of (9.4)% and 15.0%, respectively. The difference in the tax rate is primarily due an increase in the valuation allowance driven by the redemption of the New Holdco units during the quarter. For the six months ended June 27, 2020, the Company recognized an income tax benefit of $44.0 million, which represented an effective tax rate of 1,091.2%. For the six months ended June 30, 2019, the Company recognized income tax expense of $14.7 million, which represented an effective tax rate of 30.9%. The income tax benefit for the six months ended ~~October 31, 2019 reflects~~June 27, 2020, included the ~~Company’s estimated annual~~impact of the enactment of the Act, as discussed above, which is the primary driver of the difference in effective tax ~~rate applied to the year-to-date loss from continuing operations adjusted for the tax impact of discrete items.~~rate.

Our effective tax rate from continuing operations, including discrete income tax items, was 14.1% and 31.9% for the three months ended October 31, 2019 and 2018, respectively and 17.7% and 32.9% for the six months ended October 31, 2019 and 2018, respectively. The reduced effective tax rate for the three and six months ended October 31, 2019 results primarily from adjustments to deferred taxes as a result of the remeasurement of tax rates in the prior year that did not recur in fiscal 2020, the permanent tax effect related to non-deductible acquisition-related costs, and the establishment of New Holdco and the related non-controlling interests. As New Holdco is treated as a partnership for tax purposes, any net income or loss is passed through to its members. Therefore, the effective tax rate reflects only the allocable share of income or loss of New Holdco related to the Company.

In addition, the impact of the ~~Buddy’s Acquisition, A-Team Leasing Asset Acquisition, Buddy's Partners Asset Acquisition and Sears Outlet~~American Freight Acquisition has been considered for the six months ended ~~October 31, 2019. The acquisitions' post-acquisition operations have been included in the tax expense calculation for the period.~~June 27, 2020. The Company recorded an additional ~~$9.9~~$11.4 million deferred tax liability to account for cumulative temporary differences resulting from the ~~Buddy’s~~American Freight Acquisition. These initial amounts recorded in connection with purchase accounting will be adjusted during the measurement periods as the Company gathers information regarding facts and circumstances that existed as of the acquisition ~~dates.~~date.

The Company has a valuation allowance recorded against its net deferred tax assets of $45.3 million. The Company intends to maintain a valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period in which the release is recorded. However, the exact timing and amount of any reduction in the Company’s valuation allowance are unknown at this time and will be subject to the earnings level it achieves in future periods.

During the three months ended June 27, 2020, the Company recognized $24.2 million of deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments. See "-Tax Receivable Agreement" for more information.

Tax Receivable Agreement

Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company expects to obtain an increase in its share of the tax basis in the net assets of New Holdco when New Holdco units are redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. The Company plans to make an election under Section 754 of Code for each taxable year in which a redemption or exchange of New Holdco units occurs. The Company intends to treat any redemptions and exchanges of New Holdco units by the non-controlling interest holders as direct purchases of New Holdco units for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that it would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

On July 10, 2019, the Company entered into a tax receivable agreement with the then-existing non-controlling interest holders (the "Tax Receivable Agreement") that provides for the payment by the Company to the non-controlling interest holders of 40% of the cash savings, if any, in federal, state and local taxes that the Company realizes or is deemed to realize as

a result of any increases in tax basis of the assets of New Holdco resulting from future redemptions or exchanges of New Holdco units.

During the three months ended June 27, 2020, the Company acquired an aggregate of 5,495,606 New Holdco units, which resulted in an increase in the tax basis of our investment in New Holdco subject to the provisions of the Tax Receivable Agreement. In the three months ended June 27, 2020, the Company recognized an additional liability in the amount of $9.7 million for the payments due to the redeeming members under the Tax Receivable Agreement ("TRA Payments"), representing 40% of the cash savings it expects to realize from the tax basis increases related to the redemption of New Holdco units, after concluding it was probable that such TRA Payments would be paid based on the Company's estimates of future taxable income. The total liability owed under the Tax Receivable Agreement is $17.2 million as of June 27, 2020, which is recorded in "Other non-current liabilities" in the accompanying condensed consolidated balance sheets. No payments were made to members of New Holdco pursuant to the Tax Receivable Agreement during the quarter ended June 27, 2020.

~~(12)~~(8) Stockholders’ Equity

Stockholders' Equity Activity

On ~~October 23, 2019,~~January 3, 2020, the Company entered into a Subscription Agreement with an affiliate of Vintage ~~Brian R. Kahn and Lauren Kahn and B. Riley FBR, Inc. provided~~Capital Management, LLC ("Vintage"), pursuant to which the affiliate of Vintage purchased from the Company ~~with an aggregate $40.0 million of equity financing in conjunction with the Sears Outlet Acquisition through the purchase of 3,333,333.33~~2,354,000 shares of common stock of the Company, ~~at $12.00~~par value $0.01 per share, ~~pursuant to certain subscription agreements entered into by each of them with the Company.~~

Under the terms of the Buddy's Acquisition, the Company entered into a subscription agreement with a Vintage affiliate (the “Closing Subscription Agreement”), pursuant to which 2,083,333.33 shares of the Company's common stock were purchased at a purchase price of $12.00 per share for an aggregate purchase price of ~~$25.0~~$28.2 million in cash. ~~Also, under the terms of the Buddy's Acquisition,~~The common stock was purchased pursuant to an amendment to an equity commitment letter, dated August 7, 2019, between the Company ~~entered into a second subscription agreement with~~and Tributum, L.P. (as amended, the "ECL"), pursuant to which Vintage ~~affiliate (the “Post-Closing Subscription Agreement”),~~agreed to provide $70.0 million of equity financing for ~~a commitment to purchase from~~ the Company additional shares of common stock at a purchase price of $12.00 per share. The purchase price under the Post Closing Subscription Agreement could not exceed $40 million in the aggregate. The Post-Closing Subscription Agreement was not required to complete the Tender Offer (as defined below).Vitamin Shoppe Acquisition.

~~Under the terms of the Buddy's Acquisition, on August 1, 2019, the Company commenced a tender offer (the “Tender Offer”) to purchase any and all of the outstanding~~On February 7, 2020, investors purchased approximately 3,877,965 shares of the Company's common stock for ~~cash~~$65.9 million. The equity financing was done through purchases of shares of common stock of the Company at ~~a price of~~ $12.00 per share ~~without interest. The Tender Offer was not subject~~under the ECL, and $23.00 per share in connection with a separate private placement of shares of common stock (collectively, the "Equity Financing") pursuant to certain subscription agreements entered into by each investor with the Company. Pursuant to the ECL, Tributum, L.P. assigned certain of its obligations thereunder to provide a ~~minimum tender requirement, and~~portion of such Equity Financing to certain ~~large stockholders~~ of the ~~Company agreed not to tender their shares in~~investors. The proceeds of the Tender Offer. The Tender Offer was financed through cash on hand and (i) the $25.0 million Closing Subscription Agreement and (ii) the proceeds from the Buddy’s Credit Agreement. On October 11, 2019,of Equity Financing were used by the Company ~~filed an amendment and extended~~to fund the ~~expiration date~~repurchase or redemption of the ~~Tender Offer~~Company's outstanding 2.25% Convertible Notes (the "Convertible Notes"), to make interest payments on the Convertible Notes that are not repurchased or redeemed until ~~November 13, 2019. Two of Company’s major stockholders, Vintage~~their maturity and ~~B. Riley Capital Management LLC, agreed not~~ to ~~participate in the Tender Offer. As the potential redemption is not solely within the control~~also fund general, working capital and cash needs of the ~~Company, the Company’s Class A common stock subject to possible redemption has been presented outside of the stockholders’ equity section of the Company’s balance sheets.~~ Company.

On ~~November 13, 2019, the Company completed the Tender Offer with 3,935,738 shares tendered for an aggregate purchase price of approximately $47.2 million.~~

The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the securities to equal the redemption value at the end of each reporting period. The initial increases or decreases in the carrying amount of the redeemable common stock are affected by charges against additional paid-in capital. Accordingly, at October 31, 2019, 9,096,435 of the 19,693,981 public shares are classified outside of permanent equity at their redemption value of $12.00 per share.

~~Under terms of the Buddy's Acquisition and the Buddy's Partners Asset Acquisition,~~February 14, 2020, the Company issued ~~1,616,667 and 270,000~~1,250,000 shares ~~of Preferred Stock respectively to the sellers. One-fifth of a share of Preferred Stock along with one New Holdco unit can be exchanged for one share~~ of the Company's common ~~stock.~~

~~Under~~stock with a value of $31.0 million, which was recorded as deferred financing costs, to Kayne FRG Holdings L.P. for services provided in the ~~terms~~financing of the Buddy's Acquisition, the Company filed with the U.S. Securities and Exchange Commission (the "SEC") an information statement regarding certain amendments to the Company's Second Amended and Restated Certificate of Incorporation, including an amendment to increase the number of authorized shares of the Company to 200,000,000, comprised of 180,000,000 shares of common stock and 20,000,000 shares of Preferred Stock.American Freight Acquisition.

During the ~~three months ended October 31, 2018,~~first quarter of 2020, the ~~sole holder of the Company's Class B common stock entered into a stock purchase agreement~~Company also corrected an immaterial misclassification between retained earnings and non-controlling interest related to sell all of his outstanding shares of the Company's Class A common stock and Class B common stock owned directly and indirectly by him. In connection with the sale, the shares of the Company’s Class B common stock converted into shares of the Company’s Class A common stock on a one-for-one basis and for no additional consideration. As of October 31, 2019, no shares of the Company’s Class B common stock remained outstanding. In addition, an agreement was reached which converted the 10 shares of special voting preferred stock to 1,000,000 shares of common

~~stock. Pursuant~~distributions declared to the ~~Company’s Second Amended and Restated Certificate of Incorporation, as approved by stockholders on December 13, 2018,~~non-controlling interest in the ~~Company currently has only one class of common stock.~~prior year.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss at ~~October 31,~~June 27, 2020 and December 28, 2019 ~~April��30, 2019 and October 31, 2018~~ were as ~~follows.~~follows:



(In thousands)	June 27, 2020			December 28, 2019
Foreign currency adjustment	$	(1,987	)	$	(1,496	)
Interest rate swap agreements, net of tax	(122		)	(42		)
Forward contracts related to foreign currency exchange rates	6			—
Total accumulated other comprehensive loss	$	(2,103	)	$	(1,538	)

Non-controlling interest

The Company is the sole managing member of New Holdco and, as a result, consolidates the financial results of New Holdco. ~~The~~Prior to April 1, 2020, the Company ~~reports~~reported a non-controlling interest representing the economic interest in New Holdco held by the ~~Buddy’s Members.~~former equity holders of Buddy's (the "Buddy’s Members"). The New Holdco LLC Agreement ~~provides~~provided that the Buddy’s Members ~~may,~~could, from time to time, ~~require~~have required the Company to redeem all or a portion of their New Holdco

units for newly-issued shares of common stock on a basis of one New Holdco unit and one-fifth of a share of Preferred Stock of the Company for one share of common stock of the Company. In connection with any redemption or exchange, the Company ~~will receive~~received a corresponding number of New Holdco units, increasing its total ownership interest in New Holdco. Changes in the Company's ownership interest in New Holdco while it retains their controlling interest in New Holdco ~~will be~~were accounted for as equity transactions. As such, ~~future~~ redemptions or direct exchanges of New Holdco units by the Buddy’s Members ~~will result~~resulted in a change in ownership and ~~reduce~~reduced the amount recorded as non-controlling interest and ~~increase~~increased additional paid-in capital. ~~As of October 31, 2019,~~On March 26, 2020, the Company ~~had~~redeemed 3,937,726 New Holdco units and 787,545 shares of preferred stock for common stock. On April 1, 2020, the Company redeemed the remaining 5,495,606 New Holdco units and 1,099,121 shares of preferred stock for common stock and the Company is the sole owner of New Holdco.

The exchange of New Holdco units for common stock resulted in an ~~ownership interest~~increase in the tax basis of ~~60.1% in~~the net assets of New Holdco and ~~reported~~ a ~~non-controlling interest equal~~liability to ~~39.9%~~be recognized pursuant to the TRA. The difference of $10.0 million in the adjustment of the deferred tax balances and ~~there were no exchanges~~the tax receivable agreement liability was recorded as an adjustment to additional paid-in-capital. Refer to "Note 7. Income Taxes" for further discussion of ~~New Holdco units.~~the TRA.

Net ~~Loss~~Income (Loss) per Share

Prior to 2019, due to the Company having Class A and Class B common stock, net income (loss) was computed using the two-class method. Basic net income (loss) per share was computed by allocating undistributed earnings to common stock and participating securities (exchangeable shares) and using the weighted-average number of common stock outstanding during the period. Undistributed losses were not allocated to participating securities because they do not meet the required criteria for such allocation. The rights, including liquidation and dividend rights, of the holders of Class A and Class B common stock were identical, with the exception of the election of directors. As a result, the undistributed earnings were allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year had been distributed. Participating securities had dividend rights that were identical to Class A and Class B common stock.

At October 31, 2019, the Company no longer had any outstanding Class B common stock or exchangeable shares. In addition, the Preferred Stock of the Company does not share in any income or loss and therefore is not a participating security but is a potentially dilutive security upon exchange to common stock.

Diluted net income (loss) per share is computed using the weighted-average number of common stock and, if dilutive, the potential common stock outstanding during the period. Potential common stock consists of the incremental common stock issuable upon the exercise of stock options and vesting of restricted stock units. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. Additionally, the computation of the diluted net income (loss) per share of ~~Class A~~ common stock assumed the conversion of ~~Class B common stock,~~ exchangeable shares, and Preferred Stock, if ~~dilutive, while the diluted net loss per share of Class B common stock did not assume conversion of those shares.~~dilutive.

The computation of basic and diluted net ~~loss~~income (loss) per share for the three and six months ended ~~October 31,~~June 27, 2020 and June 30, 2019 ~~and 2018~~ is as follows:

As a result of the net losses for the periods shown, diluted net loss per share excludes the impact of shares of potential common stock from the exercise of options to purchase 182,604 and 417,083 shares for the three months ended October 31, 2019 and 2018, respectively, because the effect would be anti-dilutive.



	Six Months Ended June 27, 2020		Six Months Ended June 30, 2019
	Common Stock		Common Stock
	(In thousands, except for share and per share amounts)
Basic net income per share:
Numerator
Allocation of undistributed income attributable to Franchise Group	$	37,866	$	32,936
Denominator
Weighted-average common stock outstanding	29,173,172		14,059,279

Basic net income per share	$	1.30	$	2.34

Diluted net income per share:
Numerator
Allocation of undistributed earnings for basic computation	$	37,866	$	32,936
Denominator
Number of shares used in basic computation	29,173,172		14,059,279
Weighted-average effect of dilutive securities
Employee stock options and restricted stock units	162,461		64,825
Weighted-average diluted shares outstanding	29,335,633		14,124,104

Diluted net income per share	$	1.29	$	2.33

Six Months Ended
October 31, 2019 Six Months Ended
October 31, 2018
Class A Class B
Common Stock Common Stock Common Stock
(In thousands, except for share and per
share amounts)
Basic and diluted net loss per share:

Numerator

Allocation of undistributed losses attributable to Franchise Group $ (29,341 ) $ (32,012 ) $ (233 )
Denominator

Weighted-average common shares outstanding 15,572,099
13,458,167
97,826

Basic and diluted net loss per share $ (1.88 ) $ (2.38 ) $ (2.38 )

As a result of the net losses for the periods shown, diluted net loss per share excludes the impact of shares of potential common stock from the exercise of options to purchase 243,558 and 634,498 shares for the six months ended October 31, 2019 and 2018, respectively, because the effect would be anti-dilutive.

~~(13)~~(9) Stock Compensation Plans

2019 Omnibus Incentive Plan

In December 2019, the Company's stockholders approved the Company's 2019 Omnibus Incentive Plan (the "2019 Plan"). The 2019 Plan provides for a variety of awards, including stock options, stock appreciation rights, performance units, performance shares, shares of the Company’s common stock, par value $0.01 per share, restricted stock, restricted stock units, incentive awards, dividend equivalent units and other stock-based awards. Awards under the 2019 Plan may be granted to the Company’s eligible employees, directors, or consultants or advisors. The 2019 Plan provides that an aggregate maximum of 5,000,000 shares of common stock are reserved for issuance under the 2019 Plan, subject to adjustment for certain corporate events. At June 27, 2020, 4,128,173 shares of common stock remained available for grant.

The Company has an equity and cash incentive plan, for the issuance of up to 2,500,000 shares of common stock in which employees and outside directors are eligible to receive awards. At October 31, 2019, 1,589,668 shares of common stock remain available for grant.

Stock option activity during the six months ended ~~October 31, 2019~~June 27, 2020 was as follows:



	Number of options		Weighted average exercise price
Outstanding at December 28, 2019	460,285		$	10.28
Exercised	(22,500	)	8.30
Expired or forfeited	(18,598	)	11.93
Outstanding at June 27, 2020	419,187		$	10.31

Number of
options

Weighted
average
exercise price
Balance at beginning of period 796,244
$ 10.88
Granted 88,340
11.93
Exercised (177,221 ) 10.61
Expired or forfeited (216,497 ) 12.87
Balance at end of period 490,866
$ 10.30

Intrinsic value is defined as the fair value of the stock less the cost to exercise. The total intrinsic value of ~~options exercised during the~~ ~~six months ended October 31, 2019~~ ~~was $0.2 million. The total intrinsic value of~~ stock options outstanding at ~~October 31, 2019~~June 27, 2020 was ~~$0.8~~$5.3 million. Stock options vest from the date of grant to ~~five~~three years after the date of grant and expire from four to ~~seven~~five years after the vesting date.

Nonvested stock options activity during the six months ended~~October 31, 2019~~ June 27, 2020 was as follows:



	Nonvested options		Weighted average exercise price
Outstanding at December 28, 2019	215,007		$	10.11
Vested	(63,333	)	8.83
Expired or forfeited	(18,598	)	11.93
Outstanding at June 27, 2020	133,076		$	10.46

At ~~October 31, 2019,~~June 27, 2020, unrecognized compensation costs related to nonvested stock options were ~~$0.5 million~~.$0.2 million. These costs are expected to be ~~recognized~~expensed through fiscal ~~2022.~~2021.

The following table summarizes information about stock options outstanding and exercisable at ~~October 31, 2019:~~June 27, 2020:



	Options Outstanding				Options Exercisable
Range of exercise prices	Number	Weighted average exercise price		Weighted average remaining contractual life (in years)	Number	Weighted average exercise price
Range of exercise prices	Number	Weighted average exercise price		Weighted average remaining contractual life (in years)	Number	Weighted average exercise price
$0.00 - $10.89	217,500	$	8.77	4.7	154,166	$	8.74
$10.90 - $12.79	201,687	11.98		3.7	131,945	12.01
	419,187	$	10.31		286,111	$	10.25

Options Outstanding Options Exercisable
Range of exercise prices Number of shares outstanding Weighted average exercise price Weighted average remaining contractual life (in years) Number of options exercisable Weighted average exercise price

$0.00 - $10.89 270,581
$ 8.93
5.1 143,914
$ 9.01
$10.90 - $16.38 220,285
11.98
4.4 —
—

490,866
$ 10.30

143,914
$ 9.01

Restricted Stock Units

The Company has awarded restricted stock units to its non-employee directors and certain employees. Restricted stock units are valued at the closing stock price the day preceding the grant date. Compensation costs associated with these restricted shares are amortized on a straight-line basis over the vesting period and recognized as an increase in additional paid-in capital. At June 27, 2020, unrecognized compensation cost related to restricted stock units was $15.6 million. These costs are expected to be recognized through fiscal 2023.

In the six months ended June 27, 2020, the Company awarded performance restricted stock units with an estimated fair value of $3.0 million to certain officers and employees. Each employee has the opportunity to earn an amount between 0% and 150% of the individual target award contingent on the Company meeting certain performance targets for the period beginning December 28, 2019 and ending on December 31, 2022. Provided the vesting conditions are satisfied, the awards will vest at the end of the performance period. The estimated value is to be expensed over the performance period. The Company recognized $0.3 million of expense related to these performance restricted stock units in the six months ended June 27, 2020. The estimated fair value of these performance restricted stock units was determined using the Company's closing price on the grant date.

In the six months ended June 27, 2020, the Company also awarded restricted stock units with a fair value of $3.0 million to certain officers and employees. One-third of the awards will vest each year on the anniversary date of the grant. The Company recognized $0.3 million of expense related to these restricted stock units in the six months ended June 27, 2020. The Company also awarded restricted stock units with a fair value of $0.7 million to directors of the Company. The awards will vest on the anniversary date of the grant. The Company recognized $0.2 million of expense related to these restricted stock units in the six months ended June 27, 2020. The fair value of restricted stock units was determined using the Company's closing price on the grant date.

Restricted stock activity during the six months ended ~~October 31, 2019~~June 27, 2020 was as follows:

Number of restricted stock units Weighted average fair value at grant date
Balance at beginning of period 168,792
$ 10.56
Granted 17,252
11.93
Vested (53,550 ) 10.19
Forfeited (36,122 ) 10.72
Balance at end of period 96,372
$ 10.95



	Number of restricted stock units		Weighted average fair value at grant date
Balance at December 28, 2019	671,039		$	14.00
Granted	279,839		24.80
Vested	(21,081	)	9.99
Canceled	(14,763	)	20.32
Balance at June 27, 2020	915,034		$	17.29

Stock Compensation Expense

~~At October 31, 2019, unrecognized compensation costs~~The Company recorded $4.3 million of expense related to ~~restricted~~ stock ~~units were~~ ~~$0.6 million. These costs are expected to be recognized through fiscal 2022.~~awards for the six months ended June 27, 2020.

~~(14)~~(10) Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities subject to fair value measurements ~~on a recurring basis~~ are classified according to a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Valuation methodologies for the fair value hierarchy are as follows:

The Company measures or monitors certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for those assets and liabilities for which fair value is the primary basis of accounting. Other assets and liabilities are measured at fair value on a nonrecurring basis; that is, they are subject to fair value ~~adjustments~~adjustment in certain circumstances, such as when there is evidence of impairment.

The following tables present, at ~~October 31, 2019~~, ~~April 30, 2019~~ ~~and October 31, 2018,~~ for each of the fair value hierarchy levels, the assets and liabilities that are measured at fair value on a recurring and nonrecurring basis ~~(In thousands):~~at June 27, 2020 and December 28, 2019.



	December 28, 2019
			Fair value measurements using
(In thousands)	Total		Level 1		Level 2		Level 3
Assets:
Recurring assets:
Cash equivalents	$	4,253	$	4,253	$	—	$	—
Total recurring assets	4,253		4,253		—		—
Nonrecurring assets:
Impaired accounts and notes receivable, net of unrecognized revenue	7,310		—		—		7,310
Total nonrecurring assets	7,310		—		—		7,310
Total recurring and nonrecurring assets	$	11,563	$	4,253	$	—	$	7,310

Liabilities:
Recurring liabilities:
Contingent consideration included in obligations due to former ADs, franchisees and others	$	916	$	—	$	—	$	916
Interest rate swap agreement	58		—		58		—
Total recurring liabilities	$	974	$	—	$	58	$	916

April 30, 2019
Fair value measurements using
Total Level 1 Level 2 Level 3
Assets:
Recurring assets:

Cash equivalents $ 15,772
$ 15,772
$ —
$ —
Total recurring assets 15,772
15,772
—
—
Nonrecurring assets:

Impaired accounts and notes receivable, net of unrecognized revenue 12,707
—
—
12,707
Contingent consideration for sale of accounting offices 1,120
—
—
1,120
Impaired goodwill 178
—
—
178
Impaired fixed assets 39
—
—
39
Total nonrecurring assets 14,044
—
—
14,044
Total recurring and nonrecurring assets $ 29,816
$ 15,772
$ —
$ 14,044

Liabilities:
Recurring liabilities:

Contingent consideration included in obligations due to former ADs, franchisees and others $ 816
$ —
$ —
$ 816
Interest rate swap agreement 3
—
3
—
Total recurring liabilities $ 819
$ —
$ 3
$ 816

The ~~Company’s~~Company's policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of ~~level~~Level 1 or 2 ~~requiring~~recurring fair value measurements for ~~each of~~ the six months ended ~~October 31, 2019~~ ~~and 2018.~~June 27, 2020, as well as the year ended December 28, 2019.

The following methods and assumptions are used to estimate the fair value of ~~our~~the Company's financial instruments.

Cash equivalents: The carrying amounts approximate fair value because of the short maturity of these instruments. Cash equivalent financial instruments consist of money market accounts.

Impaired accounts and notes ~~receivable, net of unrecognized revenue:~~receivable: Accounts and notes receivable are considered to be impaired if the net amounts due exceed the fair value of the underlying franchise or if management considers it probable that all principal and interest will not be collected when contractually due. In establishing the estimated fair value of the underlying franchise, consideration is given to a variety of factors, including, recent ~~sales between franchisees,~~comparable sales of Company-owned stores, sales between franchisees, the net fees of open offices, and the number of unopened offices.

~~Impaired goodwill, reacquired rights, and customer lists:~~ Goodwill, reacquired rights and customer lists associated with a Company-owned office are considered to be impaired if the net carrying amount exceeds the fair value of the underlying office. In establishing the fair value of the underlying office, consideration is given to the related net fees and third-party transactions of franchises and when appropriate a discounted cash flow model.

Contingent consideration included in ~~obligations due to former ADs, franchisee and others:~~ ~~Obligations due to former ADs and franchisees related to estimated contingent~~long-term obligations: Contingent consideration ~~are~~is carried at fair value. The fair value of these obligations was determined ~~using a discounted cash flow model.~~based upon the estimated future net revenues of the acquired businesses.

Interest rate swap agreement: Value of interest rate swap on variable rate mortgage debt. The fair value of this instrument was determined based on third-party market research.

Other Fair Value Measurements

~~Additionally, accounting~~Accounting standards require the disclosure of the estimated fair value of financial instruments that are not recorded at fair value. For the financial instruments ~~that the Company does~~ not ~~record~~recorded at fair value, estimates of fair value are made at a point in time based on relevant market data and information about the financial instrument. No readily available market exists for a significant portion of the Company's financial instruments. Fair value estimates for these instruments are based on current economic conditions, interest rate risk characteristics, and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following methods and assumptions were used by the Company in estimating the fair value of these financial instruments.

Receivables other than notes, other current assets, accounts payable and accrued expenses, and due to ADs: The carrying amounts approximate fair value because of the short maturity of these instruments (Level 1).

Notes receivable:The carrying amount approximates fair value because the interest rate charged by the Company on these notes approximates rates currently offered by local lending institutions for loans of similar terms to individuals/entities with comparable credit risk (Level 3).

Long-term ~~obligations:~~ debt: The carrying amount approximates fair value because the interest rate paid has a variable component (Level 2).

~~(15)~~(11) Related Party Transactions

The Company considers directors and their affiliated companies, as well as named executive officers and members of their immediate families, to be related parties.

~~M. Brent Turner's Consulting~~Messrs. Kahn and ~~Services Agreements~~Laurence

~~M. Brent Turner served as a consultant~~Vintage and its affiliates held approximately 42% of the aggregate voting power of the Company ~~from September 2018 until~~through their ownership of common stock and Preferred Stock as of June ~~2019. On June 9, 2019, the Company appointed Mr. Turner as interim Chief Executive Officer~~27, 2020. Brian Kahn and Andrew Laurence, principals of Vintage, are members of the ~~Company. Subsequently, on October 2, 2019,~~Company's Board of Directors with Mr. ~~Turner was appointed~~Laurence serving as the Company's Chairman of the Board until March 31, 2020. Mr. Kahn is the President and Chief Executive Officer of ~~Franchise Group L1, LLC,~~ the ~~Company’s subsidiary~~Company and ~~parent~~Mr. Laurence is an Executive Vice President of ~~Liberty Tax Service.~~the Company.

Stock Subscription Agreement. On January 6, 2020, Vintage affiliates purchased 2,354,000 shares of the Company's common stock for $28.2 million under a subscription agreement dated August 7, 2019 with the Company.

Buddy's Franchises. Mr. Kahn had an equity interest in an entity that owned three Buddy's franchisees. The entity sold the franchisees on June 26, 2020 and Mr. Kahn no longer has an interest in any franchisees of the Company. Mr. Kahn's brother-in-law owns seven Buddy's franchisees. All transactions between the Company's Buddy's segment and Mr. Kahn's brother-in-law are conducted on a basis consistent with other franchisees.

Bryant Riley (former director)

Mr. Riley, through controlled entities or affiliates held approximately 13% of the aggregate ownership of the Company's common stock as of June 27, 2020. Mr. Riley was also a member of the Company's Board of Directors from September 2018 through March 2020.

Credit Agreements. On December 16, 2019, the Company ~~is a participant in~~entered into the ~~following related party transactions~~Vitamin Shoppe Term Loan with an entity controlled by Mr. ~~Turner since the beginning of fiscal 2020:~~

~~Turner Consulting Agreement.~~ ~~Mr. Turner and~~Riley. On February 14, 2020, the Company entered into a ~~Consulting~~$675 million credit facility, which included a $575 million FGNH Credit Agreement ~~on September 20, 2018 commencing on October 1, 2018~~ and ~~was~~a $100 million FGNH ABL Term Loan with an entity controlled by Mr. Riley acting as the administrative agent. During the six months ended June 27, 2020, the Company borrowed and repaid an $11.0 million promissory note with B. Riley Financial, Inc.

Stock Subscription Agreements. On February 7, 2020, Mr. Riley, and entities or affiliates of Mr. Riley purchased 669,678 shares for $11.4 million under the Equity Financing as defined above in ~~effect until September 30, 2019 (the "Consulting Agreement")~~"Note 8. Stockholder's Equity". ~~The Consulting Agreement paid~~

Fee Letters. On February 14, 2020, the Company entered into a fee atletter with B. Riley pursuant to which B. Riley was entitled to receive $5 million for advisory services provided for the American Freight Acquisition. B. Riley received payment for these services on June 26, 2020. On February 19, 2020, the Company entered into a ~~monthly rate~~fee letter with B. Riley pursuant to which B. Riley received an equity fee equal to 6% of ~~$65,000~~the $36.0 million of equity raised by B. Riley for the Company as part of the Equity Financing (as defined above in "Note 8. Stockholder's Equity").

Backstop ABL Commitment Letter. On May 1, 2020, in connection with ~~a total~~our acquisition of ~~$455,000 being paid in fiscal 2019. Mr. Turner~~American Freight and the ABL Credit Agreement, the Company entered into an ~~Employment Agreement~~Amended and Restated ABL Commitment Letter with B. Riley pursuant to which B. Riley agreed to provide, subject to the terms and conditions set forth therein, a backstop commitment for a $100.0 million asset-based lending facility.

Underwritten Offering of Common Stock. On June 30, 2020, the Company completed an underwritten offering of its common stock in which with B. Riley FBR, Inc. ("B. Riley FBR"), an affiliate of B. Riley, acted as representative of the underwriters. In connection with the ~~Company on June 9, 2019 upon his appointment as Interim~~offering, B. Riley FBR was entitled to an underwriting discount of approximately $5.4 million and reimbursement of certain out-of-pocket expenses incurred in connection with the offering.

Mr. Turner is the President and Chief Executive Officer ~~(the “Employment Agreement”). The Employment Agreement made~~of the ~~Consulting Agreement void and of no effect.~~Company’s Liberty Tax segment.

Revolution Financial Services Agreement.The Company entered into a one-year Services Agreement (the “Revolution Agreement”) with Revolution Financial, Inc. (“Revolution”) effective as August 23, 2019. Mr. Turner serves as the Chief Executive Officer of Revolution. The Revolution Agreement provides for certain transition services, including leased office space and information technology personnel. Pursuant to the terms as provided in the Revolution Agreement, fees for each of the services provided by Revolution are calculated based on the actual costs for each applicable service to be paid by the Company. For the transition services provided by the Company in retail locations, which includes the provision of space and staffing, Revolution will pay the Company 50% of net revenue. The amount for the transition services was immaterial for the six months ended June 27, 2020.

~~Messrs. Kahn and Laurence~~Michael S. Piper

~~Vintage and its affiliates held approximately 41% of~~Mr. Piper is the ~~aggregate voting power of the Company through their ownership of common stock and Preferred Stock as of October 31, 2019. Brian Kahn and Andrew Laurence, principals of Vintage, are members~~Chief Financial Officer of the Company's ~~Board of Directors with~~Liberty Tax segment. On February 7, 2020, Mr. ~~Laurence also serving~~Piper purchased 123,529 shares for $2.1 million under the Equity Financing as defined above in "Note 8. Stockholders' Equity".

The Company's American Freight segment leases retail space and purchases inventory from entities either fully or partially owned by Steve Belford, the ~~Company's Chairman of the Board. As of October 2, 2019, Mr. Kahn was also appointed as President and~~former Chief Executive Officer of American Freight. Mr. Belford's employment with American Freight ended on April 6, 2020. In the ~~Company with an initial term of three years and Mr. Laurence was appointed an Executive Vice President of the Company, each with an initial term of three years.~~

~~Buddy's Acquisition~~ ~~On July 10, 2019, the Company completed the Buddy's Acquisition. Vintage and other~~six months ended June 27, 2020, American Freight paid these entities ~~controlled by Mr. Kahn owned~~ approximately 59.7% of Buddy's. For more information about the Buddy's Acquisition please see "Note 2. Acquisitions" included in “Part I. Financial Information, Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

~~Stock Subscription Agreements~~ ~~Affiliates of Vintage, purchased 2,083,333.33 shares of the Company's common stock for $25.0~~$1.8 million under the ~~Closing Subscription Agreement on July 10, 2019. On October 21, 2019~~lease obligations and ~~October 23, 2019, a Vintage affiliate and Brian Kahn and Lauren Kahn~~ purchased ~~an aggregate~~approximately $25.8 million of ~~2,333,333.33 shares of the Company's common stock for $28.0 million under a subscription agreement with the Company.~~inventory.

~~Vitamin Shoppe Acquisition and Related Transactions~~ On August 7, 2019, the Company entered into an agreement to acquire Vitamin Shoppe through the Vitamin Shoppe Acquisition. Vintage has an approximately 15% equity ownership in Vitamin Shoppe. In addition, a Vintage affiliate entered into a binding equity commitment letter pursuant to which it agreed to finance up to $70.0 million in equity to complete the Vitamin Shoppe Acquisition and the repayment of the existing Vitamin Shoppe convertible notes (the “Vitamin Shoppe equity commitment”). Pursuant to the Vitamin Shoppe equity commitment, the Vintage affiliate or its designated co-investors have agreed to purchase up to $70.0 million of the Company’s common stock at a purchase price of $12.00 per share to finance the Vitamin Shoppe Acquisition. For more information on the Vitamin Shoppe Acquisition, please see the Company’s Current Report on Form 8-K filed with the SEC on August 8, 2019.

~~Buddy's Partner Asset Acquisition~~ On September 30, 2019, the Company completed the Buddy's Partner Asset Acquisition. As consideration for the acquisition, the sellers, which included Vintage and affiliates, received 1,350,000 New Holdco units and 270,000 shares of Preferred Stock. For more information about the Buddy's Partner Asset Acquisition please see "Note 2. Acquisitions".

~~Buddy's Franchises~~ Mr. Kahn has an equity interest in an entity that owns three Buddy's franchisees. All transactions between the Company's Buddy's segment and Mr. Kahn's entity are conducted on an arms-length basis. Mr. Kahn's brother-in-law owns three Buddy's franchisees. All transactions between the Company's Buddy's segment and Mr. Kahn's brother-in-law are conducted on an arms-length basis.

Mr. Riley, through controlled entities or affiliates held approximately 15% of the aggregate ownership of the Company's common stock as of October 31, 2019. Mr. Riley is also a member of the Company's Board of Directors.

~~Stock Subscription Agreement~~ ~~On October 22, 2019, B. Riley FBR, Inc., an entity controlled by Mr. Riley, purchased 1,000,000 shares of the Company's common stock for $12.0 million under a subscription agreement with the Company.~~

~~Nicole Ossenfort’s (Former Chief Executive Officer) franchise agreement~~

Ms. Ossenfort, together with her husband, Scott Ossenfort, jointly own a Company franchise through JL Enterprises. All transactions between the Company's Liberty Tax segment and Ms. Ossefort's entity are conducted on an arms-length basis and any amounts due are immaterial.

Mr. York has an Area Development arrangement with the Company that is conducted through Yorkompany LLC. All transactions between the Company's Liberty Tax segment and Mr. York's entity are conducted on an arms-length basis and any amounts due are immaterial.

Tax Receivable Agreement

~~As discussed in "Note 2. Acquisition", in~~In connection with the Buddy's Acquisition, the Company entered into ~~a TRA~~the Tax Receivable Agreement with the Buddy's Members that provides for the payment to the Buddy's Members of 40% of the amount of any tax benefits that the Company actually realizes as a result of increases in the tax basis of the net assets of New Holdco resulting from any redemptions or exchanges of New Holdco units. ~~There were no amounts paid or~~Amounts due under the ~~TRA~~Tax Receivable Agreement to the Buddy's Members as of ~~and~~June 27, 2020 were $17.2 million which is recorded in "Other non-current liabilities" in the accompanying condensed consolidated balance sheets. No payments were made to member of New Holdco pursuant to the Tax Receivable Agreement during the ~~period~~quarter ended ~~October 31, 2019.~~June 27, 2020.

~~(16)~~(12) Commitments and Contingencies

In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company's business, financial condition, cash flows, or results of operations except as provided below.

~~Virginia Derivative Litigation~~

RSL Senior Partners LLC, derivatively and on behalf of Liberty Tax, Inc. v. Edward L. Brunot, John T. Hewitt, Kathleen E. Donovan, Gordon D’Angelo, John Garel, Thomas Herskovits, Robert M. Howard, Ross N. Longfield. Steven Ibbotson, Ellen M. McDowell, Nicole Ossenfort, George Robson and John Seal (Individual Defendants) and Liberty Tax. Inc. (Nominal Defendant), Case No. 18 cv 127, This case was filed on March 7, 2018 in the United States District Court for the Eastern District of Virginia (the “Virginia Action”). The parties to the Virginia Action have agreed that all claims in the Virginia Action have been settled and the Company has agreed that it (and/or its insurance carrier) will pay $295,000 in fees and expenses to the Plaintiffs' counsel in the Virginia Action in connection with settlement of the Virginia Action. A fairness hearing for the Virginia Action was held on September 11, 2019 where the Court approved the Settlement.

Eastern District of New York Securities Litigation

In Re Liberty Tax, Inc. Securities ~~Litigation~~, ~~Case No. 27 CV 07327.~~Litigation. This case consolidated two previously filed cases on July 12, 2018. The case, among other things, asserts that the Company’s SEC filings over a multi-year period failed to disclose the alleged misconduct of the individual defendants and that disclosure of the alleged misconduct caused the Company’s stock price to drop and, thereby harm the purported class of stockholders. The class period is alleged to be October 1, 2013 through February 23, 2018. The defendants filed a joint motion to dismiss the Consolidated Amended Class Action Complaint on September 17, ~~2018.~~2018 which was granted on January 17, 2020. The ~~Lead~~ Plaintiff ~~served their opposition on November 1, 2018 and the defendants~~ filed their ~~reply~~notice to appeal to the United States Court of Appeals for the Second Circuit on February 19, 2020. The Second Circuit set an expedited briefing schedule for the appeal. Appellant's brief was filed on ~~November 27, 2018. A mediation took place~~May 5, 2020 and Appellant’s opposition brief was filed on ~~November 12, 2018 but did not result in a resolution. The motion to dismiss is still pending before the Court.~~June 9, 2020.

Stockholder Class Action and Derivative Complaint

~~Case No. 2019-0633-AG.~~ On August 12, 2019, Asbestos Workers’ Philadelphia Pension Fund, individually and on behalf of all others similarly situated and derivatively on behalf of the Company filed a class action and derivative complaint (the “Derivative Complaint”) in the Court of Chancery of the State of Delaware, against Matthew Avril, Patrick A. Cozza, Thomas Herskovits, Brian R. Kahn, Andrew M. Laurence, Lawrence Miller, G. William Minner Jr., Bryant R. Riley, Kenneth

M. Young, (collectively the “Derivative Complaint Individual Defendants”), and against Vintage, ~~Capital Management, LLC ("Vintage"),~~ B. Riley Financial, Inc. ("B. Riley"), and the Company as a Nominal Defendant.

The Derivative Complaint alleges breach of fiduciary duty against the Derivative Complaint Individual Defendants based on the following allegations: (a) causing the Company to completely transform its business model and to acquire Buddy’s at an inflated price, (b) transfer the control of the Company to Vintage and B. Riley for no premium and without a stockholder vote, (c) allowing Vintage and B. Riley’s other former stockholders to unfairly extract additional value from the Company by virtue of a TRA, (d) the offering to the Company's non-Vintage and non-B. Riley stockholders of an inadequate price for their shares of Company stock ($12.00 per share), (e) disseminating materially misleading and/or omissive Tender Offer documents, and (f) issuing additional Company shares to Vintage at less than fair value to fund the Tender Offer and Vitamin Shoppe Acquisition. The Derivative Complaint also includes a count of unjust enrichment against Vintage and B. Riley.

The Derivative Complaint seeks: (a) declaration that the action is properly maintainable as a class action; (b) a finding the Individual Defendants are liable for breaching their fiduciary duties owed to the class and the Company; (c) a finding that demand on the Company's Board is excused as futile; (d) enjoining the consummation of the Tender Offer unless and until all material information necessary for the Company's stockholders to make a fully informed tender decision has been disclosed; (e) a finding Vintage and B. Riley are liable for unjust enrichment; (f) an award to Plaintiff and the other members of the class damages in an amount which may be proven at trial; (g) an award to Plaintiff and the other members of the class pre-judgment and post-judgment interest, as well as their reasonable attorneys’ and expert witness fees and other costs; (h) an award to the Company in the amount of damages it sustained as a result of Individual Defendants’ breaches of fiduciary duties to the Company; and (i) awarding such other and further relief as this Court may deem just and proper.

Simultaneously with the filing of the Derivative Complaint, the Plaintiff filed a motion seeking expedited proceedings. The motion was withdrawn as the Derivative Complaint Individual Defendants agreed to produce certain documents.

On October 23, 2019, the Plaintiff filed a Verified Amended Stockholder Class Action and Derivative Complaint (the “Amended Complaint”), following the Company’s filing of the amended and restated offer to purchase on October 16, 2019 (the “Offer to Purchase”). The Amended Complaint contained substantially similar allegations but revised certain allegations based on disclosures contained in, or purportedly omitted, from the Offer to Purchase. The Plaintiff filed a Motion for Preliminary Injunction on October 25, 2019, seeking to prevent the consummation of the pending Offer to Purchase unless additional information was disclosed. On November 5, 2019, the Company filed Amendment No. 5 to the Offer to Purchase making certain additional disclosures, and Plaintiff withdrew its Motion for Preliminary Injunction.

~~Franchise Litigation~~


	October 31, 2019		April 30, 2019		October 31, 2018
	(In thousands)
(In thousands)							June 27, 2020		December 28, 2019
Notes receivable	$	50,595	$	28,542	$	48,583	$	32,457	$	57,495
Deferred revenue	6,553		8,654		10,149		35,982		10,519



	Three Months Ended			Six Months Ended
	October 31, 2019			October 31, 2019
	(In thousands)
Deferred franchise and AD fees at beginning of period	$	8,553		$	8,654
Revenue recognized during the period	(1,393		)	(2,835		)
Deferred revenue assumed from the Buddy's Acquisition	—			819
New deferrals (terminations) of franchise and AD fees	(607		)	(85		)
Deferred franchise and AD fees at end of period	$	6,553		$	6,553



	Three Months Ended			Six Months Ended
(In thousands)	June 27, 2020			June 27, 2020
Deferred revenue at beginning of period	$	23,838		$	10,519
Revenue recognized during the period	(16,809		)	(24,996		)
Deferred revenue from acquisitions and purchase price adjustments	1,540			14,159
New deferred revenue during the period	27,413			36,300
Deferred revenue at end of period	$	35,982		$	35,982



	Three Months Ended October 31,						Six Months Ended October 31,
	2019			2018			2019			2018
Revenues:
Product	$	11,947		$	—		$	12,064		$	—
Service	12,641			6,776			19,384			13,940
Leasing	11,898			—			13,233			—
Total revenues	36,486			6,776			44,681			13,940
Operating expenses:
Cost of revenue:
Product	8,171			—			8,264			—
Service	1,210			—			1,210			—
Leasing	4,463			—			5,003			—
Total cost of revenue	13,844			—			14,477			—
Selling, general, and administrative expenses	46,969			24,052			77,837			51,308
Restructuring expenses	—			1,078			—			9,345
Total operating expenses	60,813			25,130			92,314			60,653
Loss from operations	(24,327		)	(18,354		)	(47,633		)	(46,713		)
Other income (expense):
Other	1			(2		)	2			—
Interest expense, net	(3,598		)	(547		)	(4,562		)	(1,077		)
Loss before income taxes	(27,924		)	(18,903		)	(52,193		)	(47,790		)
Income tax benefit	(3,829		)	(6,029		)	(8,960		)	(15,545		)
Net loss	(24,095		)	(12,874		)	(43,233		)	(32,245		)
Less: Net loss attributable to non-controlling interest	10,657			—			13,892			—
Net loss attributable to Franchise Group, Inc.	$	(13,438	)	$	(12,874	)	$	(29,341	)	$	(32,245	)

Net loss per share of common stock:
Basic and diluted	$	(0.81	)	$	(0.92	)	$	(1.88	)	$	(2.38	)

Weighted-average shares outstanding basic and diluted	16,588,868			14,033,895			15,572,099			13,555,993



	Three Months Ended October 31, 2019
	Shares	Common stock		Shares	Preferred stock		Additional paid-in-capital			Accumulated other comprehensive loss			Retained earnings			Total Franchise Group Equity			Non-controlling interest			Total Equity
Balance at August 1, 2019	16,212	$	162	1,617	$	16	$	66,264		$	(1,605	)	$	77,348		$	142,185		66,042			$	208,227
Non-controlling interest in New Holdco LLC	—	—		—	—		(15,388		)	—			—			(15,388		)	15,388			—
Buddy's Partners Asset Acquisition - issuance of Preferred Stock and New Holdco LLC units	—	—		270	3		16,197			—			—			16,200			—			16,200
Net loss	—	—		—	—		—			—			(13,438		)	(13,438		)	(10,666		)	(24,104		)
Total other comprehensive loss	—	—		—	—		—			22			—			22			9			31
Exercise of stock options	149	2		—	—		1,571			—			—			1,573			—			1,573
Stock-based compensation, net of taxes	—	—		—	—		342			—			—			342			—			342
Issuance of common stock related to Sears Outlet	3,333	33		—	—		39,967			—			—			40,000			—			40,000
Common stock subject to potential redemption	—	—		—	—		(108,953		)	—			(204		)	(109,157		)	—			(109,157		)
Balance at October 31, 2019	19,694	$	197	1,887	$	19	$	—		$	(1,583	)	$	63,706		$	62,339		$	70,773		$	133,112



	Six Months Ended October 31, 2019
	Shares	Common stock		Shares	Preferred stock		Additional paid-in-capital			Accumulated other comprehensive loss			Retained earnings			Total Franchise Group Equity			Non-controlling interest			Total Equity
Balance at May 1, 2019	14,049	$	140	—	$	—	$	12,552		$	(1,910	)	$	92,932		$	103,714		—			$	103,714
Cumulative effect of adopted accounting standards, net	—	—		—	—		—			—			319			319			—			319
Buddy's Acquisition - issuance of Preferred Stock and New Holdco LLC units	—	—		1,617	16		96,984			—			—			97,000			—			97,000
Non-controlling interest in New Holdco LLC	—	—		—	—		(84,665		)	—			—			(84,665		)	84,665			—
Buddy's Partners Asset Acquisition - issuance of Preferred Stock and New Holdco LLC units	—	—		270	3		16,197			—			—			16,200			—			16,200
Net loss	—	—		—	—		—			—			(29,341		)	(29,341		)	(14,023		)	(43,364		)
Total other comprehensive loss	—	—		—	—		—			327			—			327			131			458
Exercise of stock options	177	2		—	—		1,878			—			—			1,880			—			1,880
Stock-based compensation, net of taxes	52	1		—	—		1,061			—			—			1,062			—			1,062
Issuance of common stock related to Buddy's	2,083	21		—	—		24,979			—			—			25,000			—			25,000
Issuance of common stock related to Sears Outlet	3,333	33		—	—		39,967			—			—			40,000			—			40,000
Common stock subject to potential redemption	—	—		—	—		(108,953		)	—			(204		)	(109,157		)	—			(109,157		)
Balance at October 31, 2019	19,694	$	197	1,887	$	19	$	—		$	(1,583	)	$	63,706		$	62,339		$	70,773		$	133,112



	Three Months Ended October 31, 2018
	Shares	Class A common stock		Shares	Class B common stock		Shares	Special voting preferred stock		Shares	Exchangeable stock		Additional paid-in-capital		Accumulated other comprehensive loss			Retained earnings			Total Equity
Balance at August 1, 2018	14,024	$	140	—	$	—	—	$	—	—	$	—	$	11,769	$	(1,539	)	$	75,707		$	86,077
Net loss	—	—		—	—		—	—		—	—		—		—			(12,874		)	(12,874		)
Total other comprehensive loss	—	—		—	—		—	—		—	—		—		(115		)	—			(115		)
Stock-based compensation, net of taxes	13	—		—	—		—	—		—	—		195		—			—			195
Balance at October 31, 2018	14,037	$	140	—	$	—	—	$	—	—	$	—	$	11,964	$	(1,654	)	$	62,833		$	73,283



	Six Months Ended October 31, 2018
	Shares	Class A common stock		Shares		Class B common stock			Shares	Special voting preferred stock		Shares		Exchangeable stock			Additional paid-in-capital		Accumulated other comprehensive loss			Retained earnings			Total Equity
Balance at May 1, 2018	12,823	$	128	200		$	2		—	$	—	1,000		$	10		$	11,570	$	(1,347	)	$	101,138		$	111,501
Cumulative effect of adopted accounting standards, net	—	—		—		—			—	—		—		—			—		—			(3,794		)	(3,794		)
Net loss	—	—		—		—			—	—		—		—			—		—			(32,244		)	(32,244		)
Total other comprehensive loss	—	—		—		—			—	—		—		—			—		(307		)	—			(307		)
Stock-based compensation, net of taxes	14	—		—		—			—	—		—		—			394		—			—			394
Conversion of Class B shares to Class A shares	1,200	12		(200	)	(2		)	—	—		—		—			—		—			—			10
Conversion of preferred stock to common stock	—	—		—		—			—	—		(1,000	)	(10		)	—		—			—			(10		)
Cash Dividends	—	—		—		—			—	—		—		—			—		—			(2,267		)	(2,267		)
Balance at October 31, 2018	14,037	$	140	—		$	—		—	$	—	—		$	—		$	11,964	$	(1,654	)	$	62,833		$	73,283



	(In thousands)
Cash and cash equivalents	$	1,800
Accounts receivable	1,615
Inventories, net	120,800
Other current assets	3,792
Property, equipment and software, net	13,012
Goodwill	9,763
Assets held for sale	15,000
Operating lease right-of-use assets	104,405
Other assets	915
Total assets	271,102
Current portion of operating lease liabilities	24,804
Accounts payable and accrued expenses	26,414
Other current liabilities	16,862
Operating lease liabilities - non-current	71,561
Finance lease liabilities - non-current	165
Total liabilities	139,806
Consideration transferred	$	131,296



	(In thousands except per share)
Number of New Holdco units issued to Buddy’s Members that are exchanged into Company common stock	8,083
Estimated fair value per unit issued to Buddy’s (a)	$	12.00
Equity consideration	$	97,000



(In thousands)	Buddy's Partners Asset Acquisition		A-Team Leasing Asset Acquisition
Cash and cash equivalents	$	6	$	8
Inventories	4,832		8,294
Property, equipment and software, net	1,165		2,481
Goodwill	5,658		7,787
Other intangible assets, net	4,400		8,000
Lease right-of-use assets	2,425		3,854
Deferred income taxes	1,305
Other assets	213		35
Total assets	20,004		30,459
Operating lease liabilities - current	506		1,271
Operating lease liabilities - non-current	1,888		2,533
Other liabilities	777		17
Total liabilities	3,171		3,821
Consideration transferred	$	16,833	$	26,638



Expense	Cash		Accrued Expenses		Non-cash		Total Expense
	(In thousands)
Contract termination costs - maintenance	$	37	$	—	$	—	$	37
Property and intangible impairments and exit costs	1,031		2,718		5,559		9,308
Total	$	1,068	$	2,718	$	5,559	$	9,345



	Six Months Ended October 31, 2019
	Contract termination costs		Property exit costs			Total accrued expenses
	(In thousands)
Balance at beginning of period	$	690	$	1,467		$	2,157
Cash payments	—		(431		)	(431		)
Balance at end of period	$	690	$	1,036		$	1,726



	October 31, 2019
	Weighted average amortization period	Gross carrying amount		Accumulated amortization			Net carrying amount
	(In thousands)
Tradenames (1)	3 years	$	11,485	$	(65	)	$	11,420
Franchise agreements	10 years	10,100		(309		)	9,791
Customer contracts	6 years	12,300		(510		)	11,790
Non-compete agreements	2 years	81		(4		)	77
Reacquired rights	6 years	7,800		(196		)	7,604
Assets acquired from franchisees:
Customer lists	4 years	3,222		(1,503		)	1,719
Reacquired rights	2 years	2,531		(1,596		)	935
AD rights	9 years	36,740		(15,808		)	20,932
Total intangible assets		$	84,259	$	(19,991	)	$	64,268


	Estimate for Fiscal Year
	(In thousands)
(In thousands)			Estimate for Fiscal Year
2020 (1)	$	1,366	$	32,511
2021	2,232		1,463
2022	1,264		913
2023	763		430
2024	412		169
Thereafter	516		496
Total	$	6,553	$	35,982



	Operating leases		Finance leases
	(In thousands)
Remainder of 2019	$	7,202	$	81
2020	41,790		476
2021	34,261		384
2022	24,029		103
2023	16,204		5
2024 and thereafter	23,521		165
Total undiscounted lease payments	147,007		1,214
Less interest	23,850		93
Present value of lease liabilities	$	123,157	$	1,121



	(In thousands)
Non-cash information on lease liabilities arising from obtaining right-of-use assets (1)	$	119,279
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	6,853
Operating cash flows from finance leases	26
Financing cash flows from finance leases	138



	Lease payments		Sublease receipts
	(In thousands)
Year ending April 30:
2020	$	5,164	$	1,593
2021	2,387		673
2022	1,166		320
2023	352		180
2024	32		24
Thereafter	51		77
Total minimum lease payments	$	9,152	$	2,867


	Three Months Ended October 31, 2019			Three Months Ended October 31, 2018
							Three Months Ended June 27, 2020			Three Months Ended June 30, 2019
	Common Stock			Common Stock			Common Stock			Common Stock
	(In thousands, except for share and per share amounts)						(In thousands, except for share and per share amounts)
Basic and diluted net loss per share:
Numerator
Allocation of undistributed losses attributable to Franchise Group	$	(13,438	)	$	(12,874	)
Allocation of undistributed loss attributable to Franchise Group							$	(21,673	)	$	(5,255	)
Denominator
Weighted-average common stock outstanding	16,588,868			14,033,895			34,972,364			14,062,766

Basic and diluted net loss per share	$	(0.81	)	$	(0.92	)	$	(0.62	)	$	(0.37	)



	Six Months Ended October 31, 2019			Six Months Ended October 31, 2018
				Class A			Class B
	Common Stock			Common Stock			Common Stock
	(In thousands, except for share and per share amounts)
Basic and diluted net loss per share:
Numerator
Allocation of undistributed losses attributable to Franchise Group	$	(29,341	)	$	(32,012	)	$	(233	)
Denominator
Weighted-average common shares outstanding	15,572,099			13,458,167			97,826

Basic and diluted net loss per share	$	(1.88	)	$	(2.38	)	$	(2.38	)


		Three Months Ended October 31,											Six Months Ended October 31,
								Change											Change					Three Months Ended											Six Months Ended
		2019			2018			$			%		2019			2018			$			%								Change									Change
(In thousands)	(In thousands)																							June 27, 2020			June 30, 2019			$			%		June 27, 2020		June 30, 2019		$		%
Total revenues		$	36,486		$	6,776		$	29,710		438	%	$	44,681		$	13,940		$	30,741		221	%	$	512,627		$	23,820		$	488,807		2,052	%	$	1,105,193	$	119,658	$	985,535	824	%
Loss from operations		(24,327		)	(18,354		)	(5,973		)	33	%	(47,633		)	(46,713		)	(920		)	2	%
Net loss		(24,095		)	(12,874		)	(11,221		)	87	%	(43,233		)	(32,245		)	(10,988		)	34	%
Income from operations																								11,572			(5,662		)	17,234			(304	)%	57,411		49,211		8,200		17	%
Net income																								$	(21,942	)	$	(5,255	)	$	(16,687	)	318	%	$	39,956	$	32,936	$	7,020	21	%


	Three Months Ended October 31,						Six Months Ended October 31,						Reconciliation of Net Loss to Adjusted EBITDA
	2019			2018			2019			2018			Three Months Ended						Six Months Ended
Reconciliation of Net Loss to Adjusted EBITDA	(In thousands)
Net loss	$	(24,095	)	$	(12,874	)	$	(43,233	)	$	(32,245	)
(In thousands)													June 27, 2020			June 30, 2019			June 27, 2020			June 30, 2019
Net income													$	(21,673	)	$	(5,255	)	$	37,866		$	32,936
Add back:
Interest expense	3,598			547			4,562			1,077			31,626			415			57,378			1,470
Income tax benefit	(3,829		)	(6,029		)	(8,960		)	(15,545		)	1,882			(928		)	(43,987		)	14,706
Depreciation, amortization, and impairment charges	4,635			3,165			8,621			6,359			17,865			3,699			33,792			7,772
Total Adjustments	4,404			(2,317		)	4,223			(8,109		)	51,373			3,186			47,183			23,948
EBITDA	(19,691		)	(15,191		)	(39,010		)	(40,354		)	29,700			(2,069		)	85,049			56,884
Adjustments to EBITDA
Executive severance and related costs including stock-based compensation	—			—			952			933
Executive recruitment costs	—			—			—			725
Executive severance and related costs													663			952			5,319			952
Stock based compensation													1,854			218			4,339			607
Shareholder litigation costs	457			4			518			59			156			61			286			61
Restructuring expense	343			1,078			805			9,345
Corporate governance costs	—			—			—			—
Accrued judgments and settlements, net of estimated revenue	126			—			809			—
Corporate compliance costs													4			58			104			58
Prepayment penalty on early debt repayment													—			—			4,048			—
Accrued judgments and settlements													117			2,632			(1,169		)	326
Store closures													257			58			516			1,221
Rebranding costs													1,964			—			3,222			—
Acquisition costs	8,061			—			14,389			—			8,004			500			17,100			675
Inventory fair value step up amortization													7,403			—			28,193			—
Total Adjustments to EBITDA	8,987			1,082			17,473			11,062			20,422			4,479			61,958			3,900
Adjusted EBITDA	$	(10,704	)	$	(14,109	)	$	(21,537	)	$	(29,292	)	$	50,122		$	2,410		$	147,007		$	60,784



(In millions)	At October 31, 2019
Loans to franchisees and ADs for working capital and equipment loans			$	17.2
Unpaid purchase price of franchise territories, royalties and other amounts, gross	55.8
Unrecognized revenue	(4.9	)
Unpaid purchase price of franchise territories, royalties and other amounts, net			50.9
Book balance of amounts due			68.1
AD share of royalties and franchise fees			(3.6		)
Exposure to potential credit loss			$	64.5



Exhibit Number	Exhibit Description	Filed Herewith	Incorporated by Reference

2.1	Agreement of Merger and Business Combination Agreement dated as of July 10, 2019, among Liberty Tax, Inc., Buddy’s Newco, LLC, Franchise Group New Holdco, LLC, Franchise Group B Merger Sub, LLC, and Vintage RTO, L.P. (Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on July 11, 2019).		X

2.2	Agreement and Plan of Merger, dated as of August 7, 2019, by and among Liberty Tax, Inc., Vitamin Shoppe, Inc. and Valor Acquisition, LLC (Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on August 8, 2019).		X

2.2.1	First Amendment to Agreement and Plan of Merger, dated as of November 11, 2019, by and among Franchise Group, Inc., Vitamin Shoppe, Inc. and Valor Acquisition, LLC. (Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on November 12, 2019).		X

2.3	Equity and Asset Purchase Agreement, dated as of August 27, 2019, by and between Sears Hometown Outlet Stores, Inc., Franchise Group Newco S, LLC and solely for purposes of Section 10.17 thereto, Liberty Tax, Inc. ~~(Exhibit~~(incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed August 28, 2019).		X

~~3.1~~2.4	Asset Purchase Agreement, dated as of December 16, 2019, by and among Franchise Group Newco R, LLC, the sellers listed on Schedule I thereto, and Revolution Financial, Inc. as the representative of the sellers (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on December 17, 2019).		X

2.4.1	Amendment No. 1, dated as of March 12, 2020, to Asset Purchase Agreement, dated as of December 16, 2019, by and among Franchise Group Newco R, LLC, the sellers listed on Schedule I thereto, and Revolution Financial, Inc. as the representative of the sellers (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on March 12, 2020).		X

2.4.2	Mutual Termination Agreement, dated as of March 31, 2020, by and among Franchise Group Newco R, LLC, the sellers listed on Schedule I thereto, and Revolution Financial, Inc. as the representative of the sellers (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on April 3, 2020)		X



2.5	Agreement and Plan of Merger, dated as of December 28, 2019, by and among Franchise Group Newco Intermediate AF, LLC, American Freight Group, Inc., Franchise Group Merger Sub AF, Inc., and The Jordan Company, L.P., solely in its capacity as representative (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on December 30, 2019).	X

2.5.1	Amendment to Agreement and Plan of Merger, dated as of February 14, 2020, by and among American Freight Group, Inc., Franchise Group Newco Intermediate AF, LLC and The Jordan Company, L.P., solely in its capacity as representative for the Fully-Diluted Stockholders (as defined in the Merger Agreement) (incorporated by reference to Exhibit 2.1, File No. 001-35588 filed on February 18, 2020).	X

3.1	Second Amended and Restated Certificate of Incorporation of Liberty Tax, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed on December 19, 2018).	X

3.1.1	Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of Liberty Tax, Inc. ~~(Exhibit~~(incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed September 19, 2019).	X

3.1.2	Certificate of Increase of the Number of Shares of Voting Non-Economic Preferred Stock of Franchise Group, Inc., filed with the Secretary of State of the State of Delaware on September 30, 2019 ~~(Exhibit~~(incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed October 1, 2019).	X

10.1	~~Amendment Number One~~Second Amended and ~~Consent,~~Restated Limited Liability Company Agreement of Franchise Group New Holdco, LLC dated as of ~~August 23, 2019,~~April 1, 2020, between Franchise Group New Holdco, Inc., as the company, and Franchise Group, Inc. (incorporated by reference to Exhibit 10.18.2 to Form 10-K/T, File No. 001-35588 filed April 24, 2020).	X

10.2	Limited Waiver, Joinder and Amendment Number Two to Credit Agreement, dated as of ~~July 10, 2019,~~May 1, 2020, by and among ~~Buddy’s Newco,~~Franchise Group New Holdco, LLC, ~~and Buddy’s Franchising and Licensing LLC, each as borrowers,~~ Franchise Group Intermediate B,Holdco, LLC, ~~various~~each of its subsidiaries named therein, the lenders ~~from time to time party thereto,~~named therein, GACP Finance Co., LLC, as administrative agent, and Kayne Solutions Fund, L.P., as ~~administrative~~collateral agent ~~and as collateral agent. (Exhibit~~(incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed ~~August 28, 2019)~~May 7, 2020).	X

10.3	Joinder and Amendment Number Three to ABL Credit Agreement, dated as of May 1, 2020, by and among Franchise Group New Holdco, LLC, Franchise Group Intermediate Holdco, LLC, each of its subsidiaries named therein, the lenders named therein, and GACP Finance Co., LLC, as administrative agent and collateral agent. (incorporated by reference to Exhibit 10.2 to Form 8-K, File No. 001-35588 filed May 7, 2020).	X



~~10.2~~10.4	~~Amended Schedule 1~~Amendment Number One to ~~the First Amended~~Loan and ~~Restated Limited Liability Company~~Security Agreement, dated as of ~~July 10, 2019,~~May 22, 2020, by and among ~~Franchise Group New Holdco,~~Vitamin Shoppe Industries LLC and each of its subsidiaries named therein, as borrowers, Valor Acquisition, LLC, as a guarantor, the ~~company, Franchise Group, Inc.~~lenders named therein and GACP Finance Co., ~~the Brian DeGustino Revocable Trust, the Amy DeGustino Revocable Trust, Samjor Family LP, Vintage RTO, L.P., Martin Meyer, Fengfeng Ren, David O’Neil and Jeffrey D. Miller, each~~LLC, as ~~a member, and Franchise Group, Inc., as the manager (Exhibit~~agent (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed ~~October 1, 2019)~~May 29, 2020).	X

~~10.3~~10.5	Amendment ~~No. 1~~Number One to ~~Registration Rights~~Second Amended and Restated Loan and Security Agreement, dated as of ~~September 30, 2019,~~May 22, 2020, by and among ~~Franchise Group, Inc., Tributum, L.P., Samjor Family LP, Vintage RTO, L.P., Vintage Capital Management,~~Vitamin Shoppe Industries LLC and ~~Vintage Tributum, LP (Exhibit~~each of its subsidiaries named therein, as borrowers, Valor Acquisition, LLC, as a guarantor, and JPMorgan Chase Bank, N.A., as agent and a lender (incorporated by reference to Exhibit 10.2 to Form 8-K, File No. 001-35588 filed ~~October 1, 2019)~~May 29, 2020).	X

~~10.4~~10.6	~~Amendment Number Two to Credit~~Underwriting Agreement, dated ~~as of September 30, 2019, to Credit Agreement, dated as of July 10, 2019, among Buddy’s Newco, LLC~~June 25, 2020, by and ~~Buddy’s Franchising and Licensing LLC, each as borrowers,~~between Franchise Group, ~~Intermediate B, LLC, various lenders from time to time party thereto,~~Inc. and ~~Kayne Solutions Fund, L.P.~~B. Riley FBR, Inc., as ~~administrative agent and as collateral agent (Exhibit 10.1~~representative of the several underwriters (incorporated by reference to Exhibit 1.1 to Form 8-K, File No. 001-35588 filed ~~October 4, 2019)~~June 30, 2020).	X

~~10.5~~10.6.1	~~Third~~ Amendment ~~to Credit Agreement,~~Number One, dated as of ~~October 2, 2019, among~~July 25, 2020, to Underwriting Agreement, dated June 25, 2020, by and between Franchise Group, Inc. and B. Riley FBR, Inc., as borrower, JTH Tax LLC, SiempreTax+ LLC, JTH Financial, LLC, Wefile LLC, JTH Properties 1632, LLC, LTS Properties, LLC, LTS Software LLC, JTH Tax Office Properties, LLC, 360 Accounting Solutions LLC, JTH Court Plaza, LLC, and Franchise Group Intermediate L 1, LLC, each as guarantors, CIBI Bank USA, as administrative agent, andrepresentative of the ~~lenders party thereto (Exhibit 10.2~~several underwriters (incorporated by reference to Exhibit 1.1 to Form 8-K, File No. 001-35588 filed ~~October 4, 2019)~~July 30, 2020).	X

~~10.6~~10.7	~~Executive Employment~~Senior Secured Super Priority Debtor-In-Possession Delayed Draw Term Loan Agreement, dated as of July 10, 2020, by and ~~Severance Agreement between Brian Kahn and~~among Franchise Group, Inc., ~~dated October 2, 2019 (Exhibit 10.3~~Tuesday Morning Corporation, Tuesday Morning, Inc. and each of the subsidiaries of Tuesday Morning Corporation and Tuesday Morning, Inc. named therein (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed ~~October 4, 2019)~~July 10, 2020).	X

~~10.7~~	~~Executive Employment and Severance Agreement between Eric Seeton and Franchise Group, Inc., dated October 2, 2019 (Exhibit 10.4 to Form 8-K, File No. 001-35588 filed October 4, 2019).~~	X

~~10.8~~	~~Executive Employment and Severance Agreement between Andrew Laurence and Franchise Group, Inc., dated October 2, 2019 (Exhibit 10.5 to Form 8-K, File No. 001-35588 filed October 4, 2019).~~	X

~~10.9~~	~~Executive Employment and Severance Agreement between Andrew Kaminsky and Franchise Group, Inc., dated October 2, 2019 (Exhibit 10.6 to Form 8-K, File No. 001-35588 filed October 4, 2019).~~	X



~~10.10~~	Credit Agreement, dated as of October 23, 2019, by and among Franchise Group Intermediate S, LLC, Franchise Group Newco S, LLC, each of its subsidiaries named therein, Franchise Group Intermediate Holdco, LLC, Franchise Group New Holdco, LLC, Franchise Group Intermediate L, LLC, the lenders named therein and Guggenheim Credit Services, LLC, as administrative agent and collateral agent (Exhibit 10.1 to Form 8-K, File No. 001-35588 filed October 23, 2019).	X

~~10.11~~	Security Agreement, dated as of October 23, 2019, by and among Franchise Group Intermediate S, LLC, Franchise Group Newco S, LLC, each of its subsidiaries named therein and Guggenheim Credit Services, LLC (Exhibit 10.2 to Form 8-K, File No. 001-35588 filed October 23, 2019).	X

~~10.12~~	Parent Guaranty and Collateral Agreement, dated as of October 23, 2019, among Franchise Group Intermediate Holdco, LLC, Franchise Group New Holdco, LLC, Franchise Group Intermediate L, LLC and Guggenheim Credit Services, LLC (Exhibit 10.3 to Form 8-K, File No. 001-35588 filed October 23, 2019).	X

~~10.13~~	~~Subscription Agreement, dated as of October 23, 2019, by and between Franchise Group, Inc. and Stefac LP (Exhibit 10.4 to Form 8-K, File No. 001-35588 filed October 23, 2019).~~	X

~~10.14~~	~~Subscription Agreement, dated as of October 23, 2019, by and between Franchise Group, Inc. and B. Riley FBR, Inc. (Exhibit 10.5 to Form 8-K, File No. 001-35588 filed October 23, 2019).~~	X

~~10.15~~	Subscription Agreement, dated as of October 23, 2019, by and between Franchise Group, Inc. and Brian R. Kahn and Lauren Kahn, as tenants by the entirety (Exhibit 10.6 to Form 8-K, File No. 001-35588 filed October 23, 2019).	X

~~10.16~~	Amendment No. 2 to Registration Rights Agreement, dated as of October 23, 2019, by and among Franchise Group, Inc., Tributum, L.P., Samjor Family LP, Vintage RTO, L.P., Vintage Capital Management, LLC and Vintage Tributum, LP (Exhibit 10.7 to Form 8-K, File No. 001-35588 filed October 23, 2019).	X

~~10.17~~31.1 (1)	~~Franchise Group, Inc. 2019 Omnibus Incentive Plan (Exhibit 10.1 to Form 8-K, File No. 001-35588 filed December 5, 2019).~~	X

~~10.18~~	~~Form of Franchise Group, Inc. 2019 Omnibus Incentive Plan Stock Option Award Agreement (Exhibit 10.2 to Form 8-K, File No. 001-35588 filed December 5, 2019).~~	X

~~10.19~~	~~Form of Franchise Group, Inc. 2019 Omnibus Incentive Plan Restricted Stock Unit Award Agreement (Exhibit 10.3 to Form 8-K, File No. 001-35588 filed December 5, 2019).~~	X

~~10.20~~	~~Form of Franchise Group, Inc. 2019 Omnibus Incentive Plan Performance Restricted Stock Unit Award Memorandum and Agreement (Exhibit 10.4 to Form 8-K, File No. 001-35588 filed December 5, 2019).~~	X




~~31.1 (1)~~	Certification of Chief Executive Officer	X

31.2 (1)	Certification of Chief Financial Officer	X

32.1(1)	Section 1350 Certification (Chief Executive Officer)	X

32.2(1)	Section 1350 Certification (Chief Financial Officer)	X

~~101.INS~~101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 27, 2020, formatted in Inline XBRL, ~~Instance Document~~filed herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited), (iv) the Condensed Consolidated Statements of Stockholders’ Equity (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited) and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements	X

~~101.SCH~~104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 27, 2020, formatted in Inline XBRL ~~Taxonomy Extension Schema~~	X

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase~~	X

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase~~	X

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase~~	X

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase~~(included with Exhibit 101)	X



		~~Franchise Group, Inc.~~FRANCHISE GROUP, INC. (Registrant)


~~December 10, 2019~~August 5, 2020	By:		/s/ Brian R. Kahn
			Brian R. Kahn Chief Executive Officer and Director (Principal Executive Officer)

~~December 10, 2019~~August 5, 2020	By:		/s/ Eric F. Seeton
			Eric F. Seeton Chief Financial Officer (Principal Financial and Accounting Officer)