UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June ~~27, 2020~~26, 2021

☐ 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.)

~~2387 Liberty Way~~109 Innovation Court, Suite J

~~Virginia Beach,Virginia23456~~Delaware, Ohio 43015

(Address of principal executive offices)

~~(757)493-8855~~(740) 363-2222

(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

7.50% Series A Cumulative Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share

FRGAP

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 ☒ No ☐

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 ☒ No ☐

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	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒☐
		Emerging growth company	☐
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.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant's common stock, par value $0.01 value per share, as of ~~August 3, 2020~~July 30, 2021 was ~~40,029,599~~40,228,467 shares.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Form 10-Q for the Quarterly Period Ended June ~~27, 2020~~26, 2021

Table of Contents



		Page
		Number

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June ~~27, 2020~~26, 2021 and December ~~28, 2019~~26, 2020	2
	Condensed Consolidated Statements of Operations for the three and six months ended June ~~27, 2020~~26, 2021 and June ~~30, 2019~~27, 2020	3
	Condensed Consolidated Statements of Comprehensive Operations for the three and six months ended June ~~27, 2020~~26, 2021 and June ~~30, 2019~~27, 2020	4
	Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June ~~27, 2020~~26, 2021 and June ~~30, 2019~~27, 2020	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June ~~27, 2020~~26, 2021 and June ~~30, 2019~~27, 2020	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3828
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5038
Item 4.	Controls and Procedures	5138

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	5239
Item 1A.	Risk Factors	5239
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5239
Item 3.	Defaults Upon Senior Securities	5339
Item 4.	Mine Safety Disclosures	5339
Item 5.	Other Information	5339
Item 6.	Exhibits	5440
Signatures		5743

PART I. FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS (UNAUDITED)

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


(In thousands, except share count and per share data)	June 26, 2021		December 26, 2020
Assets	(Unaudited)		(Audited)
Current assets:
Cash and cash equivalents	$	165,432	$	148,780
Current receivables, net	81,075		67,335
Inventories, net	504,726		302,307
Current assets held for sale	113,671		43,023
Other current assets	21,558		13,997
Total current assets	886,462		575,442
Property, equipment, and software, net	208,499		135,872
Non-current receivables, net	12,200		12,800
Goodwill	787,241		448,258
Intangible assets, net	312,180		109,892
Operating lease right-of-use assets	666,537		502,104
Non-current assets held for sale	0		55,116
Other non-current assets	14,332		8,428
Total assets	$	2,887,451	$	1,847,912
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations	$	11,544	$	104,053
Current operating lease liabilities	158,801		127,032
Accounts payable and accrued expenses	351,096		252,389
Current liabilities held for sale	33,422		40,576
Other current liabilities	30,261		25,174
Total current liabilities	585,124		549,224
Long-term obligations, excluding current installments	1,245,377		466,944
Non-current operating lease liabilities	522,005		402,276
Non-current liabilities held for sale	0		8,779
Other non-current liabilities	46,950		35,522
Total liabilities	2,399,456		1,462,745

Stockholders' equity:
Common stock, $0.01 par value per share, 180,000,000 and 180,000,000 shares authorized, 40,208,564 and 40,092,260 shares issued and outstanding at June 26, 2021 and December 26, 2020, respectively	402		401
Preferred stock, $0.01 par value per share, 20,000,000 and 20,000,000 shares authorized, 4,541,125 and 1,250,000 shares issued and outstanding at June 26, 2021 and December 26, 2020, respectively	45		13
Additional paid-in capital	467,351		382,383
Accumulated other comprehensive loss, net of taxes	(973)		(1,399)
Retained earnings	21,170		3,769
Total equity attributable to Franchise Group, Inc.	487,995		385,167
Non-controlling interest	0		0
Total equity	487,995		385,167
Total liabilities and equity	$	2,887,451	$	1,847,912

(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 (Unaudited)


	Three Months Ended				Six Months Ended
(In thousands, except share count and per share data)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Revenues:
Product	$	805,768	$	466,709	$	1,389,585	$	940,214
Service and other	48,193		13,669		76,768		26,691
Rental	8,797		17,176		17,750		33,596
Total revenues	862,758		497,554		1,484,103		1,000,501
Operating expenses:
Cost of revenue:
Product	522,576		277,582		861,991		565,400
Service and other	934		701		1,339		1,457
Rental	2,935		5,508		5,940		11,450
Total cost of revenue	526,445		283,791		869,270		578,307
Selling, general, and administrative expenses	278,157		198,986		503,702		410,262
Total operating expenses	804,602		482,777		1,372,972		988,569
Income from operations	58,156		14,777		111,131		11,932
Other expense:
Other	0		(28)		(36,726)		(4,048)
Interest expense, net	(22,865)		(27,877)		(70,300)		(52,389)
Income (loss) from continuing operations before income taxes	35,291		(13,128)		4,105		(44,505)
Income tax expense (benefit)	2,770		3,510		(81)		(52,108)
Income (loss) from continuing operations	32,521		(16,638)		4,186		7,603
Income (loss) from discontinued operations, net of tax	6,215		(5,304)		48,363		32,353
Net income (loss)	38,736		(21,942)		52,549		39,956
Less: Net loss (income) attributable to non-controlling interest	0		269		0		(2,090)
Net income (loss) attributable to Franchise Group, Inc.	$	38,736	$	(21,673)	$	52,549	$	37,866

Amounts attributable to Franchise Group, Inc.:
Net income (loss) from continuing operations	$	32,521	$	(16,361)	$	4,186	$	(6,278)
Net income (loss) from discontinued operations	6,215		(5,312)		48,363		44,144
Net income attributable to Franchise Group, Inc.	$	38,736	$	(21,673)	$	52,549	$	37,866

Basic earnings (loss) per share:
Continuing operations	$	0.76	$	(0.47)	$	0	$	(0.22)
Discontinued operations	0.15		(0.15)		1.20		1.51
Total basic earnings per share	$	0.91	$	(0.62)	$	1.20	$	1.29

Diluted earnings (loss) per share:
Continuing operations	$	0.74	$	(0.47)	$	0	$	(0.22)
Discontinued operations	0.15		(0.15)		1.20		1.51
Total diluted earnings per share	$	0.89	$	(0.62)	$	1.20	$	1.29

Weighted-average shares outstanding:
Basic	40,175,058		34,972,364		40,142,571		29,173,172
Diluted	40,905,567		34,972,364		40,142,571		29,173,172

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 Comprehensive Income (Loss) (Unaudited)


	Three Months Ended						Six Months Ended							Three Months Ended				Six Months Ended
(In thousands)	June 27, 2020			June 30, 2019			June 27, 2020			June 30, 2019			(In thousands)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Net income (loss)	$	(21,942	)	$	(5,255	)	$	39,956		$	32,936		Net income (loss)	$	38,736	$	(21,942)	$	52,549	$	39,956
Other comprehensive income (loss)													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		)
Unrealized (gain) loss on interest rate swap agreement, net of taxes of $(1), $(3), $13, and $(31), respectively													Unrealized (gain) loss on interest rate swap agreement, net of taxes of $(1), $(3), $13, and $(31), respectively	(2)		(7)		45		(80)
Foreign currency translation adjustment	381			113			(491		)	341			Foreign currency translation adjustment	158		381		381		(491)
Forward contracts related to foreign currency exchange rates	4			18			6			—			Forward contracts related to foreign currency exchange rates	(17)		4		0		6
Other comprehensive income (loss)	378			97			(565		)	286			Other comprehensive income (loss)	139		378		426		(565)
Comprehensive income (loss)	(21,564		)	(5,158		)	39,391			33,222			Comprehensive income (loss)	38,875		(21,564)		52,975		39,391
Less: comprehensive (income) loss attributable to non-controlling interest	269			—			(1,915		)	—
Less: comprehensive loss (income) attributable to non-controlling interest													Less: comprehensive loss (income) attributable to non-controlling interest	0		269		0		(1,915)
Comprehensive income (loss) attributable to Franchise Group, Inc.	$	(21,295	)	$	(5,158	)	$	37,476		$	33,222		Comprehensive income (loss) attributable to Franchise Group, Inc.	$	38,875	$	(21,295)	$	52,975	$	37,476

See accompanying notes to condensed consolidated financial statements.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)


	Three Months Ended June 26, 2021
(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 27, 2021	40,157	$	402	4,541	$	45	$	464,106	$	(1,112)	$	19	$	463,460	$	0	$	463,460
Net income	—	—		—	—		—		—		38,736		38,736		—		38,736
Total other comprehensive income	—	—		—	—		—		139		—		139		0		139
Exercise of stock options	33	0		—	—		360		—		—		360		—		360
Stock-based compensation expense, net	18	0		—	—		2,884		—		—		2,884		—		2,884
Issuance of common stock	—	—		—	—		—		—		—		—		—		—
Issuance of Series A Preferred Stock	—	—		0	0		1		—		—		1		—		1
Common dividend declared ($0.375 per share)	—	—		—	—		—		—		(15,457)		(15,457)		—		(15,457)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(2,128)		(2,128)		—		(2,128)
Balance at June 26, 2021	40,208	$	402	4,541	$	45	$	467,351	$	(973)	$	21,170	$	487,995	$	0	$	487,995

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 26, 2021
(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 26, 2020	40,092	$	401	1,250	$	13	$	382,383	$	(1,399)	$	3,769	$	385,167	$	0	$	385,167
Net income	—	—		—	—		—		—		52,549		52,549		—		52,549
Total other comprehensive income	—	—		—	—		—		426		—		426		0		426
Exercise of stock options	36	—		—	—		385		—		0		385		—		385
Stock-based compensation expense, net	80	1		—	—		5,073		0		—		5,074		0		5,074
Issuance of common stock	0	0		—	—		—		—		—		—		—		—
Issuance of Series A Preferred Stock	—	0		3,291	32		79,510		—		—		79,542		—		79,542
Common dividend declared ($0.375 per share)	—	—		—	—		—		—		(30,891)		(30,891)		—		(30,891)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		—		(4,257)		(4,257)		—		(4,257)
Balance at June 26, 2021	40,208	$	402	4,541	$	45	$	467,351	$	(973)	$	21,170	$	487,995	$	0	$	487,995

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 Stockholders' Equity (Unaudited)


	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	0	$	0	$	249,525	$	(2,103)	$	42,935	$	290,709	$	0	$	290,709

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


	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		0	0		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	0	$	0	$	249,525	$	(2,103)	$	42,935	$	290,709	$	0	$	290,709

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
$ —


	Six Months Ended
(In thousands)	June 26, 2021		June 27, 2020
Operating Activities
Net income	$	52,549	$	39,956
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts	1,910		3,403
Depreciation, amortization and impairment charges	31,157		33,792
Amortization of deferred financing costs	33,197		21,554
Loss (gain) on disposal of fixed assets	645		(166)
Stock-based compensation expense - equity awards	5,478		4,339
(Gain) on bargain purchases and sales of Company-owned offices	(731)		(1,258)
Equity in loss of affiliate	0		15
Deferred tax expense	0		7,739
Prepayment penalty for early debt extinguishment	36,726		0
Change in	0		0
Accounts, notes, and interest receivable	3,832		(1,784)
Income taxes receivable	2,215		(53,156)
Other assets	3,867		1,015
Accounts payable and accrued expenses	9,089		134
Inventory	(77,410)		84,434
Deferred revenue	3,102		8,938
Net cash provided by operating activities	105,626		148,955
Investing Activities
Issuance of operating loans to franchisees and Area Developers ("ADs")	(17,612)		(28,876)
Payments received on operating loans to franchisees and ADs	23,013		49,612
Purchases of Company-owned offices, AD rights, and acquired customer lists	(401)		(2,299)
Proceeds from sale of Company-owned offices and AD rights	293		989
Acquisition of business, net of cash and restricted cash acquired	(462,821)		(353,423)
Purchases of property, equipment, and software	(24,627)		(16,212)
Net cash (used in) in investing activities	(482,155)		(350,209)
Financing Activities
Proceeds from the exercise of stock options	386		187
Dividends paid	(32,808)		(10,406)
Non-controlling interest distribution	0		(4,716)
Repayment of other long-term obligations	(771,511)		(410,798)
Borrowings under revolving credit facility	6,724		142,000
Repayments under revolving credit facility	(84,874)		(112,760)
Issuance of common stock	0		92,082
Issuance of preferred stock	79,542		0
Payment for debt issue costs and original issuance discounts	(50,776)		(14,604)
Prepayment penalty for early debt extinguishment	(36,726)		0
Issuance of debt	1,300,000		586,000
Cash paid for taxes on exercises/vesting of stock-based compensation	(404)		(73)
Net cash provided by financing activities	409,553		266,912
Effect of exchange rate changes on cash, net	142		(234)
Net increase in cash equivalents and restricted cash	33,166		65,424
Cash, cash equivalents and restricted cash at beginning of period	151,502		45,146
Cash, cash equivalents and restricted cash at end of period	$	184,668	$	110,570
Supplemental Cash Flow Disclosure
Cash paid for taxes, net of refunds	$	1,284	$	493
Cash paid for interest	$	61,249	$	26,857
Accrued capital expenditures	$	3,406	$	2,608
Deferred financing costs from issuance of common stock	$	0	$	31,013
Capital expenditures funded by finance lease liabilities	$	1,211	$	0
Tax receivable agreement included in other long-term liabilities	$	0	$	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 26, 2021		June 27, 2020
Cash and cash equivalents	$	165,432	$	92,407
Restricted cash included in other non-current assets	367		5,097
Cash and cash equivalents for discontinued operations	18,869		13,066
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	184,668	$	110,570

(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

June 26, 2021 and June 27, 2020 ~~and 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"). On October 23, 2019, the Company completed the acquisition of the Sears Outlet ("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. Acquisitions”. New Holdco holds all of the Company’s operating subsidiaries.

~~Segment Information~~

The Company currently operates in four reportable segments: Liberty Tax, Buddy’s, Vitamin Shoppe and American Freight. Sears 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 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 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 to purchase new, one-of-a-kind, 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 at value-oriented prices.

~~Principles of Consolidation~~

The Company consolidates any entities in which it has a controlling interest, the usual condition of which is ownership of a majority voting interest. Prior to April 1, 2020, the Company was the sole managing member of New Holdco and possessed ownership of more than 50 percent of the outstanding voting units. As a result, the Company consolidated the financial results of New Holdco and reported a non-controlling interest that represented the interests of the New Holdco units not held by the Company. As of April 1, 2020, the Company redeemed all outstanding New Holdco units for shares of common stock of the Company and now has an 100% interest in New 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. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

~~Revenues have been classified into product, service~~

Unless otherwise stated, references to the "Company," "we," "us," and ~~other~~"our" in this Quarterly Report on Form 10-Q (the "Quarterly Report") refer to Franchise Group, Inc. and ~~rental revenues as further discussed in "Note 5. Revenue." Costs of sales for product includes the cost of merchandise, transportation~~its direct and warehousing costs. Service and other costs of sales include the direct costs of 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 classified in selling, general and administrative expenses. The Company also includes 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.~~

indirect subsidiaries on a consolidated basis. 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.~~information and pursuant to the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The unaudited condensed consolidated financial statements ~~including these notes, are unaudited~~should be read in conjunction with Exhibit 99.1 of Form 8-K filed on June 25, 2021, to reflect certain retrospective revisions for discontinued operations and ~~exclude some~~changes in reportable segments in the consolidated financial statements of the ~~disclosures required only~~Company 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 December 28, 2019 was derived from the Company’s TransitionAnnual Report on Form ~~10-K/T,~~10-K for the year ended December 26, 2020 that was previously filed with the ~~U.S.~~ Securities and Exchange Commission ~~(the "SEC"~~(“SEC”) on ~~April 24, 2020~~March 10, 2021 (the ~~"2019 Transition Report"~~“Form 10-K”). ~~The Company has provided unaudited historical financial information that was not previously presented for the three and six months ended June 30, 2019 for comparison purposes.~~

In the opinion of management, all adjustments (including those of a normal recurring nature) 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~~December 26, 2020 balance sheet information was derived from the audited financial statements ~~should be read in conjunction with~~as of that date.

Discontinued Operations

As previously disclosed, on February 21, 2021 the ~~Company’s consolidated financial statements and notes thereto included in~~Company entered into a purchase agreement (the " Purchase Agreement") to sell its ~~2019 Transition Report.~~

~~Use of Estimates~~

~~The preparation of financial statements in conformity with GAAP requires management~~Liberty Tax business to ~~make estimates and assumptions that affect~~NextPoint Acquisition Corp ("NextPoint"), a special purpose acquisition corporation incorporated under the ~~reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date~~laws of the ~~consolidated financial statements~~Province of British Columbia (the "Transaction"). On July 2, 2021 the Company completed the Transaction and received total consideration of approximately $249 million consisting of approximately $182 million in cash and approximately $67 million in proportionate voting shares of NextPoint. In the ~~reported amounts of revenues and expenses during the reporting 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 amountquarter ending September 25, 2021, the Company expects to ~~be realized from~~record a gain on the ~~ultimate~~ sale ~~or disposal~~and a non-consolidated investment in NextPoint. As a result of the ~~inventory. These estimates are based on management’s judgment regarding future demand~~Transaction, the financial position and ~~market conditions and analysis~~results 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 priceoperations of the ~~inventory plus costs of freight~~Liberty Tax segment are presented as discontinued operations and, as such, have been excluded from continuing operations and segment results 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 comparedall periods presented. The accompanying Notes to the ~~actual results of the physical inventory counts as they are taken~~Condensed Consolidated Financial Statements and ~~adjust the shrink estimates accordingly. Inventory values are adjusted~~all prior year balances have been reclassified 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~~conform 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 limitedthis presentation. Please refer 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”"Note 3. Divestitures" for additional information ~~on these balances.~~regarding discontinued operations.

~~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 June 2016, the Financial Accounting Standards Board ("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 ~~SEC filers that are smaller reporting companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. 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 on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 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 years, beginning after December 15, 2022. 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.

The London Interbank Offered Rate (“LIBOR”) is scheduled to be discontinued on December 31, 2021. In an effort to address the various challenges created by such discontinuance, the FASB issued an amendment to existing guidance, ASU No.

2020-04, "Reference Rate Reform." The amended guidance is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by the reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by the reference rate reform. Application of the guidance in the amendment is optional, is only available in certain situations, and is only available for companies to apply until December 31, 2022. The Company is currently evaluating the impacts of reference rate reform and the new guidance on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which amends and simplifies the requirements for income taxes. The ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The adoption did not result in a material impact to the Company's financial results or disclosures.

(2) Acquisitions

~~American Freight Acquisition~~

~~On February 14, 2020,~~The assets acquired and liabilities assumed in the Company completed its acquisition of American Freight (the "American Freight Acquisition"). The Company accounted for the transaction as a business combination using the acquisition method of accountingacquisitions below are recorded at fair value in accordance with ASC 805 - "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 recorded goodwill is deductible for tax purposes.

Pet Supplies Plus Acquisition

On March 10, 2021, the Company completed its acquisition of Pet Supplies Plus (the "Pet Supplies Plus Acquisition"). The ~~Company identified the American Freight trade name as an indefinite-lived intangible asset with a~~preliminary fair value of ~~$70.2~~the consideration transferred at the acquisition date was $451.1 million. ~~The trade name is not subject to amortization but will be evaluated annually for impairment.~~As of June 26, 2021, $5.5 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.

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~~table below summarizes the unaudited preliminary estimates of the fair values of the identifiable assets acquired and ~~equipment consists~~liabilities assumed in the Pet Supplies Plus Acquisition as 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.~~

March 10, 2021. 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~~are subject to revisions, which ~~resulted~~may result in ~~a decrease in goodwill of $5.0 million.~~

~~Sears Outlet Acquisition~~

~~On October 23, 2019,~~an adjustment to the Company completed the acquisition of the Sears Outlet business from Sears Hometown and Outlet Stores, Inc. (the "Sears Outlet Acquisition") for an aggregate purchase price of $128.8 million. The Company accounted for the transaction as a business combination using the acquisition method of accounting.preliminary values presented below. In the ~~six~~three months ended June ~~27, 2020,~~26, 2021 the preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed were adjusted which resulted in an increase in goodwill of ~~$2.5~~$0.6 million. The Company expects to complete the purchase price allocation as soon as reasonably possible but not to exceed one year from the Pet Supplies Plus Acquisition date.


(In thousands)	Preliminary March 10, 2021
Cash and cash equivalents	$	2,131
Other current assets	39,844
Inventories, net	118,600
Property, equipment and software, net	75,616
Goodwill	335,690
Operating lease right-of-use assets	151,243
Other intangible assets, net	205,800
Other non-current assets	6,393
Total assets	935,317
Current operating lease liabilities	25,405
Accounts payable and accrued expenses	80,404
Other current liabilities	3,372
Current installments of long-term obligations	3,507
Long-term obligations, excluding current installments	247,458
Non-current operating lease liabilities	114,292
Other long-term liabilities	9,761
Total liabilities	484,199
Consideration transferred	$	451,118

Other intangible assets, net consists of the Pet Supplies Plus trade name as an indefinite-lived intangible asset with a fair value of $104.4 million. The trade name is not subject to amortization but will be evaluated annually for impairment. Also included are franchise agreements of $67.1 million and customer relationships of $34.3 million.

Operating lease right-of-use assets and lease liabilities consists of leases for retail store locations, warehouses and office equipment. The operating lease right-of-use assets incorporates a favorable adjustment of $12.4 million, net for favorable and unfavorable Pet Supplies Plus real estate leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms.

~~Buddy's~~Property, equipment and software, net consists of fixtures and equipment of $37.0 million, leasehold improvements of $33.5 million, construction in progress of $3.5 million and financing leases of $1.7 million.

Other non-current assets includes $0.4 million of restricted cash.

Furniture Factory Outlet Acquisition

On ~~July 10, 2019,~~December 27, 2020, the Company completed the acquisition of ~~Buddy's~~Furniture Factory Outlet ("FFO Home"), a regional retailer of furniture and mattresses, for an ~~enterprise value~~all cash purchase price of ~~approximately $122.0~~$13.8 million. The Company acquired 31 operating locations which were rebranded as American Freight stores and included into its American Freight segment. As of June 26, 2021, $0.4 million of acquisition fees had been incurred that are recorded in selling, general and administrative expenses.


(In thousands)	Preliminary December 27, 2020
Cash and cash equivalents	$	6
Other current assets	96
Inventories, net	6,450
Property, equipment and software, net	2,934
Goodwill	3,293
Operating lease right-of-use assets	26,571
Total assets	39,350
Current operating lease liabilities	2,587
Other current liabilities	299
Non-current operating lease liabilities	22,624
Total liabilities	25,510
Consideration transferred	$	13,840

Operating lease right-of-use assets and lease liabilities consists of leases for retail store locations. The lease right of use assets incorporates a favorable adjustment of $1.4 million, net for favorable and unfavorable FFO Home leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms.

The property, equipment and software, net consists of leasehold improvements of $2.5 million and fixtures and equipment of $0.4 million.

American Freight Acquisition

On February 14, 2020, the Company completed its acquisition of American Freight (the ~~"Buddy's~~"American Freight Acquisition"). for an aggregate purchase price of $357.3 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 an increase in goodwill of $1.5 million.

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 Pet Supplies Plus and American Freight ~~Acquisition, Vitamin Shoppe Acquisition, Sears Outlet Acquisition and Buddy's Acquisition~~acquisitions as if they had occurred on ~~May 1, 2018.~~December 28, 2019.


	Pro forma (Unaudited)
	Three Months Ended				Six Months Ended
(In thousands)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Revenue	$	862,758	$	690,614	$	1,677,693	$	1,437,322
Net income	$	36,298	$	(10,312)	$	58,339	$	(43,599)
Basic net income per share	$	0.85	$	(0.29)	$	1.35	$	(1.49)
Diluted net income per share	$	0.84	$	(0.29)	$	1.32	$	(1.49)

Pro forma (Unaudited)
Three Months Ended Six Months Ended
(In thousands) June 27, 2020 June 30, 2019 June 27, 2020 June 30, 2019
Revenue $ 512,627
$ 539,814
$ 1,153,824
$ 1,218,208
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 Pet Supplies Plus and American Freight ~~Acquisition, Vitamin Shoppe Acquisition, Sears Outlet Acquisition or Buddy's Acquisition~~acquisitions 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 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 the acquisition, including, but not limited to, additional professional fees and employee integration.

(3) ~~Accounts~~Discontinued Operations and ~~Notes Receivable~~Assets Disposition

~~Current~~As previously disclosed, on February 21, 2021, the Company and ~~non-current receivables, as of June 27, 2020~~NextPoint entered into the Purchase Agreement to sell its Liberty Tax business to NextPoint. In connection with the Purchase Agreement, the parties entered into a transition services agreement pursuant to which both parties agreed to provide certain transition services to each other for a period not to exceed twelve months. On July 2, 2021, the Company completed the Transaction 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 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 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.~~

~~Analysis of Past Due Receivables~~

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

(In thousands) Past due Current Interest receivable, net
Total
receivables
Accounts receivable $ 28,494
$ 17,829
$ —
$ 46,323
Notes and interest receivable, net (1) 11,133
21,324
2,477
34,934
Total accounts, notes and interest receivable $ 39,627
$ 39,153
$ 2,477
$ 81,257

~~(1) Interest receivable is shown net of an allowance for uncollectible interest of $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 $11.1 million and $8.5 million at June 27, 2020 and December 28, 2019, 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~~total consideration of approximately $249 million, consisting of approximately $182 million in cash and approximately $67 million in proportionate voting shares of NextPoint. In the ~~estimated fair~~quarter ended September 25, 2021, the Company expects to record a gain on the sale and a non-consolidated investment for the value of the ~~franchises~~shares received as consideration.

The following is a summary of the major categories of assets and ~~AD areas collateralizing~~liabilities for the ~~receivables. Any adverse change~~Liberty Tax business. The balances for all periods are included in assets and liabilities held for sale in the ~~individual franchise or AD areas could affect~~Condensed Consolidated Balance Sheet.


Assets	June 26, 2021		December 26, 2020
(In thousands)
Current assets:
Cash and cash equivalents	$	18,869	$	2,722
Current receivables, net	31,218		33,525
Other current assets	7,256		6,776
Total current assets	57,343		43,023
Property, equipment, and software, net	11,091		7,634
Non-current receivables, net	2,767		3,889
Goodwill	9,058		8,719
Intangible assets, net	23,577		24,804
Operating lease right-of-use assets	8,678		8,771
Other non-current assets	1,157		1,299
Total assets held for sale	$	113,671	$	98,139
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations	$	409	$	1,335
Current operating lease liabilities	4,828		4,658
Accounts payable and accrued expenses	13,072		20,200
Other current liabilities	6,830		14,383
Total current liabilities	25,139		40,576
Long-term obligations, excluding current installments	1,590		1,711
Non-current operating lease liabilities	4,567		4,738
Other non-current liabilities	2,126		2,330
Total liabilities held for sale	$	33,422	$	49,355

The following is a Condensed Consolidated Statement of Operations for the Liberty Tax business. The amounts for all periods are included in "Income (loss) from discontinued operations, net of tax" in the Company's ~~estimate~~Condensed Consolidated Statements of Operations.


	Three Months Ended				Six Months Ended
(In thousands)	June 26, 2021		June 28, 2020		June 26, 2021		June 28, 2020
Revenue	$	30,513	$	15,073	$	106,993	$	104,692
Selling, general, and administrative expenses	23,725		18,277		57,786		59,214
Income from operations	6,788		(3,204)		49,207		45,478
Other expense:
Other	16		20		168		(15)
Interest expense, net	10		(3,749)		0		(4,989)
Income before income taxes	6,814		(6,933)		49,375		40,474
Income tax expense	599		(1,629)		1,012		8,121
Net Income	6,215		(5,304)		48,363		32,353
Less: Net (income) attributable to non-controlling interest	0		(8)		0		11,791
Net income attributable to discontinued operations	$	6,215	$	(5,312)	$	48,363	$	44,144

The following is the ~~allowance.~~

~~Activity~~operating and investing activities for the Liberty Tax business. These amounts are included in the ~~allowance for doubtful accounts for the three and six months ended June 27, 2020 and June 30, 2019 was as follows:~~Company's Condensed Consolidated Statement of Cash Flows.


	Six Months Ended
(In thousands)	June 26, 2021		June 28, 2020
Cash flows provided by operating activities from discontinued operations	$	36,627	$	47,881
Cash flows provided by investing activities from discontinued operations	$	492	$	17,781

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

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 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 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.

(4) Goodwill and Intangible Assets

The Company performs impairment tests for goodwill as of the end of July of each fiscal year and between annual impairment tests if an event occurs or circumstances change that would more likely than not reduce the fair values of the Company's reporting units below their carrying values. There are no accumulated goodwill impairment losses recorded.

Changes in the carrying amount of goodwill for the six months ended June ~~27, 2020 and the transition period ended December 28, 2019 were~~26, 2021 are 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


	Vitamin Shoppe		American Freight		Pet Supplies Plus		Buddy's		Total
Balance as of December 26, 2020	1,277		367,882		0		79,099		448,258
Acquisitions	0		3,293		335,690		—		338,983
Balance as of June 26, 2021	$	1,277	$	371,175	$	335,690	$	79,099	$	787,241

Components of intangible assets as of June ~~27, 2020~~26, 2021 and December ~~28, 2019~~26, 2020 were as follows:


	June 26, 2021
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	197,700		0		197,700
Franchise agreements	77,600		(3,410)		74,190
Customer contracts	43,080		(3,622)		39,458
Reacquired rights	1,478		(646)		832
Total intangible assets	$	319,858	$	(7,678)	$	312,180

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 tradenames were acquired in the American Freight Acquisition, Buddy's Acquisition and Vitamin Shoppe Acquisition, respectively. These tradenames have an indefinite life and they are tested for impairment on an annual basis.


	December 26, 2020
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	93,300	$	0	$	93,300
Customer contracts	8,781		(2,159)		6,622
Franchise agreements and non-compete agreements	10,500		(1,546)		8,954
Reacquired rights	1,478		(462)		1,016
Total intangible assets	$	114,059	$	(4,167)	$	109,892

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

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

(5) Revenue

For details regarding the principal activities from which the Company generates its revenue, see "Note 1. ~~Organization and Significant Accounting Policies"~~Basis of Presentation" in this quarterly report. For more detailed information regarding reportable segments, see "Note 13. Segments" in this quarterly report. The following represents the disaggregated revenue by reportable segments for the three and six months ended June 26, 2021:


	June 26, 2021
	Vitamin Shoppe				American Freight				Pet Supplies Plus				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
Retail sales	$	302,473	$	597,213	$	239,476	$	478,534	$	156,851	$	188,216	$	1,069	$	2,436
Wholesale sales	0		0		0		0		105,899		123,186		0		0
Total product revenue	302,473		597,213		239,476		478,534		262,750		311,402		1,069		2,436
Franchise fees	0		0		0		0		225		242		12		21
Royalties and advertising fees	82		82		411		411		5,597		6,727		3,302		7,181
Financial products	0		0		11,951		20,530		0		0		0		0
Interest income	—		—		290		585		71		84		—		—
Agreement, club and damage waiver fees	0		0		0		0		0		0		1,716		3,522
Warranty revenue	0		0		13,100		19,498		0		0		0		0
Other revenues	0		0		3,579		7,765		7,117		8,614		740		1,506
Total service revenue	82		82		29,331		48,789		13,010		15,667		5,770		12,230
Rental revenue, net	0		0		0		0		0		0		8,797		17,750
Total rental revenue	0		0		0		0		0		0		8,797		17,750
Total revenue	$	302,555	$	597,295	$	268,807	$	527,323	$	275,760	$	327,069	$	15,636	$	32,416

† Reflects the results from the March 10, 2021 acquisition date.

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


	June 27, 2020
	Vitamin Shoppe				American Freight				Pet Supplies Plus				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
Retail sales	$	237,735	$	513,622	$	227,253	$	423,353	$	0	$	0	$	1,721	$	3,239
Total product revenue	237,735		513,622		227,253		423,353		0		0		1,721		3,239
Franchise fees	—		—		—		—		—		—		13		13
Royalties and advertising fees	—		—		0		0		0		0		2,406		4,829
Financial products	—		—		686		1,291		—		—		—		—
Interest income	—		—		333		672		—		—		—		—
Agreement, club and damage waiver fees	—		—		0		0		0		0		3,369		6,689
Warranty revenue	—		—		4,727		8,979		—		—		—		—
Other revenues	0		0		1,428		2,879		0		0		707		1,339
Total service revenue	0		0		7,174		13,821		0		0		6,495		12,870
Rental revenue, net	0		0		0		0		0		0		17,176		33,596
Total rental revenue	0		0		0		0		0		0		17,176		33,596
Total revenue	$	237,735	$	513,622	$	234,427	$	437,174	$	0	$	0	$	25,392	$	49,705

June 27, 2020
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
Retail sales $ 237,735
$ 513,622
$ 227,253
$ 423,353
$ —
$ —
$ 1,721
$ 3,239
Total product revenue 237,735
513,622
227,253
423,353
—
—
1,721
3,239
Franchise fees —
—
—
—
221
727
13
13
Area developer fees —
—
—
—
448
1,469
—
—
Royalties and advertising fees —
—
—
—
6,616
48,065
2,406
4,829
Financial products —
—
—
—
2,433
29,872
—
—
Interest income —
—
333
672
943
2,898
—
—
Assisted tax preparation fees, net of discounts —
—
—
—
2,667
14,917
—
—
Electronic filing fees —
—
—
—
371
2,400
—
—
Agreement, club and damage waiver fees —
—
—
—
—
—
3,369
6,689
Warranty revenue —
—
4,727
8,979
—
—
—
—
Other revenues —
—
2,114
4,170
1,374
4,344
707
1,339
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 June 30, 2019:~~

June 30, 2019
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
Retail sales $ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
Total product revenue —
—
—
—
—
—
—
—
Franchise fees —
—
—
—
1,151
1,493
—
—
Area developer fees —
—
—
—
786
1,698
—
—
Royalties and advertising fees —
—
—
—
11,676
60,897
—
—
Financial products —
—
—
—
4,025
32,875
—
—
Interest income —
—
—
—
1,594
4,829
—
—
Assisted tax preparation fees, net of discounts —
—
—
—
2,814
11,990
—
—
Electronic filing fees —
—
—
—
567
2,945
—
—
Agreement, club and damage waiver fees —
—
—
—
—
—
—
—
Other revenues —
—
—
—
1,207
2,931
—
—
Total service revenue —
—
—
—
23,820
119,658
—
—
Rental revenue, net —
—
—
—
—
—
—
—
Total rental revenue —
—
—
—
—
—
—
—
Total revenue $ —
$ —
$ —
$ —
$ 23,820
$ 119,658
$ —
$ —

Contract Balances

The following table provides information about receivables and contract liabilities (deferred revenue) from contracts with ~~customers. Notes receivable are in the current receivables, net~~customers as of June 26, 2021 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.December 26, 2020:


(In thousands)	June 26, 2021		December 26, 2020
Accounts Receivable	$	68,760	$	38,444
Notes receivable	$	13,800	$	28,240
Deferred revenue	$	40,041	$	25,616

(In thousands) June 27, 2020 December 28, 2019
Notes receivable $ 32,457
$ 57,495
Deferred revenue 35,982
10,519

Significant changes in deferred revenue were as follows:


	Three Months Ended		Six Months Ended
(In thousands)	June 26, 2021		June 26, 2021
Deferred revenue at beginning of period	$	45,225	$	25,616
Revenue recognized during the period	(28,338)		(21,709)
Deferred revenue from acquisitions	0		10,714
New deferred revenue during the period	23,154		25,420
Deferred revenue at end of period	$	40,041	$	40,041

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

Anticipated Future Recognition of Deferred Revenue

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

(In thousands) Estimate for Fiscal Year
2020 (1) $ 32,511
2021 1,463
2022 913
2023 430
2024 169
Thereafter 496
Total $ 35,982


(In thousands)	Fiscal Year
Remainder of 2021	$	27,351
2022	1,473
2023	1,153
2024	597
2025	486
Thereafter	8,981
Total	$	40,041

~~(1) Represents deferred revenue expected to be recognized for the remainder of fiscal 2020. The amount does not includedeferred revenues recognized for the six months ended June 27, 2020.~~

(6) Long-Term Obligations

Long-term obligations at June ~~27, 2020~~26, 2021 and December ~~28, 2019,~~26, 2020 were as follows:


(In thousands)	June 26, 2021		December 26, 2020
Revolving credit facilities	$	0	$	78,310
Term loan, net of debt issuance costs	1,252,819		491,836
Finance lease liabilities	4,102		851
Total long-term obligations	1,256,921		570,997
Less current installments	11,544		104,053
Total long-term obligations, excluding current installments, net	$	1,245,377	$	466,944

(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

~~Franchise Group New Holdco~~First Lien Credit Agreement and Term Loan

On ~~February 14, 2020,~~March 10, 2021 (the “Closing Date”), the Company ~~through an indirect subsidiary, executed~~entered into a First Lien Credit Agreement (the “First Lien Credit Agreement”) with various lenders that provides for a $1,000.0 million senior secured term loan ~~agreement with GACP Finance Co., LLC for an amount of $575.0 million~~ (the ~~“FGNH Credit Agreement”), which consists of a $375.0 million first out tranche (the “FGNH Tranche A-1 Term Loan”) and a $200.0 million last out tranche (the “FGNH Tranche A-2~~“First Lien Term Loan”).

The ~~term loan~~Company’s obligations under the First Lien Credit Agreement are guaranteed by the Company and each of the Company’s other direct and indirect subsidiaries (other than certain excluded subsidiaries) pursuant to a First Lien Guarantee Agreement (the “First Lien Guarantee Agreement”) and are required to be guaranteed by each of the Company’s direct and indirect subsidiaries (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date. The obligations of the Company under the First Lien Credit Agreement are secured on a first priority basis by substantially all of the assets and are secured on a second priority basis by credit card receivables, accounts receivable, deposit accounts, securities accounts, commodity accounts, inventory and goods (other than equipment) of the Company, and in each case are required to be secured by such assets of the Company (other than certain excluded subsidiaries) that may be formed or acquired after the Closing Date.

The proceeds of the First Lien Term Loan, together with the proceeds of the Second Lien Term Loan (as defined below) and certain cash on hand of the Company, were used to consummate the Pet Supplies Plus Acquisition and to pay fees and expenses for certain related transactions, including the entry into the ABL Agreement (as defined below). A portion of the First Lien Term Loan and Second Lien Term Loan were also used to repay existing lenders.

The First Lien 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~~March 10, 2026 and will ~~at the option of the Company,~~ bear interest at ~~either (i)~~ a variable 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.~~5.50%. Interest is payable ~~in arrears at~~on either the ~~end~~last day of ~~each fiscal~~the interest period or the last business day of the calendar quarter. The Company is required to repay the ~~FGNH Credit Agreement~~First Lien Term Loan in equal ~~fiscal~~ quarterly installments of ~~$6.25~~$2.5 million on the last day of each ~~fiscal~~calendar quarter, commencing ~~with the fiscal quarter ending~~on June ~~27, 2020. Further,~~30, 2021 subject to certain early payment requirements based on certain events. On July 2, 2021, the Company ~~is required to prepay~~repaid $182 million of principal of the ~~FGNH~~First Lien Term Loan.

The First Lien 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~~First Lien Collateral Agreement and the ~~FGNH Credit~~First Lien Guarantee Agreement ~~other than the fixed quarterly installments and excess cash flow prepayments are subject to early repayment fees.~~

~~The FGNH Credit Agreement includes~~collectively include 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,~~to, 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~~First Lien 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~~commencing with ~~respect to certain subsidiaries of~~ the ~~Company.~~first full fiscal quarter ending after the Closing Date. In addition, the ~~FGNH~~First Lien Credit Agreement includes customary events of default, the occurrence of which may require ~~that~~ the Company to pay an additional ~~2.0% interest.~~

~~In addition to financing~~2.00% interest on the ~~American Freight acquisition and its related acquisition costs, a portion~~First Lien Term Loan and/or may result in, among other consequences, acceleration of the ~~proceeds from~~payment obligations with respect to the ~~FGNH~~First Lien Term Loan, calling on the guarantees, or exercise of remedies with respect to the collateral.

Second Lien Credit Agreement and ~~the FGNH ABL~~Second Lien 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 Closing Date, the Company entered into ~~an amendment~~a Second Lien Credit Agreement (the “Second Lien Credit Agreement”) with various lenders (the "Second Lien Lenders", and together with the First Lien Lenders, the "Term Loan Lenders") which provides for a $300.0 million senior secured term loan (the “Second Lien Term Loan”, and together with the First Lien Term Loan, the “Term Loans”), made by the Second Lien Lenders to the ~~FGNH~~Company.

The Company's obligations under the Second Lien Credit Agreement are guaranteed by the Loan Parties pursuant to ~~provide for the joinder of Franchise Group Intermediate L 1, LLC, an indirect subsidiary~~a Second Lien Guarantee Agreement (the “Second Lien Guarantee Agreement”) and are required to be guaranteed by each of the ~~Company, and each of its~~Company’s direct and indirect subsidiaries ~~(collectively,~~(other than certain excluded subsidiaries) that may be formed or acquired after the ~~“Liberty Tax Entities”), to~~Closing Date. The obligations of the ~~FGNH Term Loan~~Company under the Second Lien Credit Agreement are secured on a second priority basis by the Term Priority Collateral and are secured on a third priority basis by the ~~FGNH~~ ABL ~~Credit~~Priority Collateral pursuant to a Second Lien Collateral Agreement ~~respectively, as borrowers thereunder,~~(the “Second Lien Collateral Agreement”) and ~~in connection therewith, certain related security documents provided for the Liberty Tax Entities~~are required to ~~grant or continue to grant liens on substantially all~~be secured by such assets 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 activitieseach 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~~Company’s direct and indirect subsidiaries ~~entered into an ABL credit agreement (the "FGNH ABL Credit Agreement") with various lenders which provided~~(other than certain excluded subsidiaries) that may be formed or acquired after 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. Closing Date.

The ~~FGNH ABL~~Second Lien Term Loan will mature on September ~~30, 2020.~~

~~Borrowings under the FGNH ABL Term Loan will, at the Company's option, bear~~10, 2026 and bears interest at ~~either (i)~~ a variable rate ~~per annum based on LIBOR for~~with an interest period of one, two, three or six months, plus an interest rate margin of 6.50% with a 1.50% LIBOR floor, or (ii) an alternate base rate plus an interest rate margin of 5.50% with a 2.50% alternate base rate8.50% floor. Interest is payable ~~in arrears~~ on either the ~~first~~last day of ~~each fiscal quarter. If~~ the ~~borrowing base exceeds~~interest period or the ~~outstanding principal amount~~last business day of the ~~FGNH ABL~~calendar quarter.

The Second Lien Term Loan is not subject to scheduled amortization. Solely to the extent the First Lien Term Loan and related obligations have been repaid in full, the Company ~~must prepay the FGNH ABL Term Loan in the amount of any such excess. The Company~~ is ~~also~~ required to prepay the ~~FGNH ABL~~Second Lien Term Loan with 50% of consolidated excess cash flow on an annual basis, subject to certain exceptions and to leverage-based step-downs to 25% and 0%, and with 100% of the net cash proceeds of certain other customary ~~events. All repayments or prepayments (whether voluntary or mandatory)~~events, including certain asset sales (but excluding sales of ~~the FGNH~~ ABL ~~Term Loan which are made on or after September 30, 2020 are~~Priority Collateral), including customary reinvestment rights and leverage-based step-downs to 25% and 0%, in each case, subject to ~~an exit fee of 2.0%.~~certain exceptions.

~~The FGNH ABL Credit~~Third Amended and Restated Loan and Security 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 ABL Credit Agreement include a minimum consolidated 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.(ABL)

On ~~April 3, 2020,~~the Closing Date, 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~~Third 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~~“ABL Agreement”) ~~that~~with various lenders. The ABL Agreement provides for a ~~$70.0 million~~ senior secured ~~term~~revolving loan facility (the ~~"Vitamin Shoppe Term Loan"~~“ABL Revolver”) ~~which matures~~with aggregate commitments available to Company of the lesser of (i) $150.0 million and (ii) a specified borrowing base based on a percentage of the Company's eligible credit card receivables, accounts (subject to certain limitations) and inventory (subject to certain limitations), less certain reserves (the “Aggregate Borrowing Cap”). Furthermore, the ABL Agreement includes separate borrowing caps equal to (A) the lesser of (1) $100.0 million and (2) a specified borrowing base based on a percentage of the certain of the Company's subsidiaries eligible credit card receivables, accounts (subject to certain limitations) and inventory (subject to certain limitations), less certain reserves.

As of the Closing Date, the ABL Revolver was undrawn. The ABL Agreement amended and restated the existing Second Amended and Restated Loan and Security Agreement, dated as of December 16, ~~2022.~~2019. The Company's obligations under the ~~Vitamin Shoppe Term Loan~~ABL Agreement are guaranteed pursuant to a Second Amended and Restated Guaranty Agreement, dated as of the Closing Date. The obligations of the Company under the ABL Agreement are secured by substantially all of the assets of the ~~Company's Vitamin Shoppe segment.~~

~~An Intercreditor~~Company pursuant to the ABL Agreement and a Third Amended and Restated Pledge Agreement (the ~~“Intercreditor Agreement”~~“ABL Pledge”) ~~sets forth~~.

The ABL Revolver will mature on March 10, 2025, and borrowings under the ~~relative priorities~~ABL Revolver will, at the option 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~~Company, bear interest at a variable 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)~~1.75% floor. Interest is payable ~~in arrears~~ on either the ~~first business~~last 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~~interest period or the last business day of ~~each fiscal quarter, commencing with~~ the ~~fiscal quarter ending March 28, 2020. Further, the Company is required~~calendar quarter.

Subject 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 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,an intercreditor agreement, the Company is required to repay the excess amount of ~~such excess.~~borrowings under the ABL Revolver if: (i) the aggregate outstanding principal amount of all borrowings by the Company under the ABL Revolver at any time exceeds the Aggregate Borrowing Cap, or (ii) the aggregate outstanding principal amount of all borrowings of certain of the Company's subsidiaries exceeds their borrowing caps.

The ~~Vitamin Shoppe Term Loan~~ABL Agreement ~~includes~~and ABL Pledge include customary affirmative ~~negative,~~ and ~~financial~~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. 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 lender, (ii) modify the minimum consolidated 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 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 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 ~~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 borrowings under the ABL Revolver.

The following debt agreements have been repaid since reported in the Form 10-K. Refer to the Form 10-K for further information regarding these debt agreements.

Franchise Group New Holdco Credit Agreement and Term Loan

On March 10, 2021, the outstanding amount of $527.4 million, including accrued interest, under the Franchise Group New Holdco Credit Agreement and Term Loan was paid in full in connection with the issuance of the First Lien Term Loan and the Second Lien Term Loan. The early repayment resulted in additional interest expense of $20.1 million for the write-off of deferred financing costs and $36.7 million for a prepayment penalty. The prepayment penalty is recorded in the Other expense line of the Consolidated Statement of Operations for the six months ended June 26, 2021.

Franchise Group New Holdco New ABL Credit Agreement and New ABL Term Loan

On March 10, 2021, the Franchise Group New Holdco New ABL Credit Agreement and Term Loan was replaced by the ABL Agreement and the outstanding amount of $37.0 million, including accrued interest, under the Franchise Group New Holdco New ABL Credit Agreement and Term Loan was paid in full by the Company in connection with the issuance of the First Lien Term Loan and the Second Lien Term Loan. The early repayment resulted in additional interest expense of $8.1 million for the write-off of deferred financing costs.

Vitamin Shoppe ABL ~~Revolver.~~

~~Liberty Tax Credit Agreement~~

Revolver

On ~~May 16, 2019,~~March 10, 2021, the outstanding amount of $43.0 million, including accrued interest, under the Vitamin Shoppe ABL Revolver was paid in full with the proceeds from the First Lien Term Loan and the Second Lien Term Loan which resulted in a write-off of $1.2 million of deferred financing costs.

Compliance with Debt Covenants

The Company's revolving credit and long-term debt agreements impose restrictive covenants on it, including requirements to meet certain ratios. As of June 26, 2021, the Company ~~entered into~~was in compliance with all covenants under these agreements and, based on a ~~new credit agreement (the "Liberty Tax Credit Agreement") which provided for a $135.0 million senior revolving credit facility, a $10.0 million sub-facility~~continuation of current operating results, the Company expects to be in compliance for the issuance of letters of credit, and a $20.0 million swingline loan sub-facility. 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.next twelve months.

The Liberty Tax Credit Agreement included customary affirmative, negative, and financial covenants, including delivery of financial statements and other reports and maintenance of existence. On February 14, 2020, the Company amended certain provisions of the Liberty Tax Credit Agreement to provide for the gradual reduction of the commitments under the Liberty Tax Credit Agreement and terminated the facility on April 30, 2020.

~~Other Indebtedness~~

On February 7, 2020, the Company completed the repurchase of $60.4 million in aggregate principal amount of outstanding Convertible Senior Notes for a purchase price of $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.

(7) Income Taxes

Overview

For the three months ended June 26, 2021 and June 27, 2020, the Company had an effective tax rate from continuing operations of 7.8% and (26.7)%, respectively. For the six months ended June 26, 2021 and June 27, 2020, the Company had an effective tax rate from continuing operations of (2.0)% and 117.1%, respectively. The impact of the enactment of the CARES Act was included in the three and six months ended June 27, 2020 which is the primary driver of the difference in the effective tax rate for both periods. The Company is also expecting to utilize a portion of its deferred tax assets, including net operating loss carryforwards, which previously had a full valuation allowance.

CARES Act

The Coronavirus, Aid, Relief, and 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 years 2018, 2019 and 2020 to be carried back for 5 years. The Company recorded a total income tax benefit of ~~$45.6~~$52.3 million ~~through the second quarter~~during 2020 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 June 27, 2020, included the impact of the enactment of the Act, as discussed above, which is the primary driver of the difference in effective tax rate.

In addition, the impact of the American Freight Acquisition has been considered for the six months ended June 27, 2020. The Company recorded an additional $11.4 million deferred tax liability to account for cumulative temporary differences resulting from the 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 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 thatPayments will be made when such TRA ~~Payments would be paid based on~~related deductions actually reduce 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.Company’s income tax liability. No payments were made to members of New Holdco pursuant to the ~~Tax Receivable Agreement~~TRA during the quarter ended June ~~27, 2020.~~26, 2021. Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company has obtained an increase in its share of the tax basis in the net assets of New Holdco when the New Holdco units were redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. The Company has treated the 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. This increase in tax basis will 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.

(8) Stockholders’ Equity

Stockholders' Equity Activity

On January ~~3, 2020,~~11, 2021, the Company entered into ~~a Subscription~~an Underwriting Agreement with ~~an affiliate of Vintage Capital Management, LLC ("Vintage")~~B. Riley Securities, Inc., ~~pursuant to which the affiliate of Vintage purchased from the Company 2,354,000 shares of common stock~~as representative of the ~~Company,~~several underwriters named therein (the “Underwriters”), to issue and sell an aggregate of 2,976,191 shares (the “Firm Shares”) of the Company’s 7.50% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share (the “Series A Preferred Stock”), in a public offering at a price to the public of $25.20 per share. The Company also granted the Underwriters an option (the “Option”) to purchase ~~price~~up to 446,428 additional shares of ~~$12.00 per share~~Series A Preferred Stock during the 30 days following the date of the Underwriting Agreement. On January 14, 2021, the Underwriters partially exercised the Option for ~~an aggregate purchase price of $28.2 million in cash.~~314,934 shares (together with the Firm Shares, the “Shares”). The ~~common stock was purchased pursuant~~offering closed on January 14, 2021, and the net proceeds to ~~an amendment to an equity commitment letter, dated August 7, 2019, between~~ the Company were approximately $79.5 million, after deducting underwriting discounts, an advisory fee and ~~Tributum, L.P. (as amended, the "ECL"), pursuant to which Vintage agreed to provide $70.0 million of equity financing for the Vitamin Shoppe Acquisition.~~offering expenses totaling approximately $3.2 million.

On February 7, 2020, investors purchased approximately 3,877,965 shares of the Company's common stock for $65.9 million. The equity financing was done through purchases of shares of common stock of the Company at $12.00 per share 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 portion of such Equity Financing to certain of the investors. The proceeds of the of Equity Financing were used by the Company to fund the repurchase or redemption of the 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 their maturity and to also fund general, working capital and cash needs of the Company.

On February 14, 2020, the Company issued 1,250,000 shares of the Company's common 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 financing of the American Freight Acquisition.

During the first quarter of 2020, the Company also corrected an immaterial misclassification between retained earnings and non-controlling interest related to distributions declared to the non-controlling interest in the prior year.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss at June ~~27, 2020~~26, 2021 and December ~~28, 2019~~26, 2020 were as 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 )


(In thousands)	June 26, 2021		December 26, 2020
Foreign currency adjustment	$	(873)	$	(1,254)
Interest rate swap agreements, net of tax	(100)		(145)
Total accumulated other comprehensive loss	$	(973)	$	(1,399)

Non-controlling interest

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 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~~retained a controlling interest in New Holdco were accounted for as equity transactions. As such, redemptions or direct exchanges of New Holdco units by the Buddy’s Members resulted in a change in ownership and reduced the amount recorded as non-controlling interest and increased additional paid-in capital. On March 26, 2020, the Company 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 increase in the tax basis of the net assets of New Holdco and a liability to be recognized pursuant to the TRA. The difference of $10.0 million in the adjustment of the deferred tax balances and 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 the TRA.

Net Income (Loss) per Share

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 common stock assumed the conversion of exchangeable shares, and Preferred Stock, if dilutive.

The ~~computation~~following table sets forth the calculations of basic and diluted net income (loss) per ~~share for the three and six months ended June 27, 2020 and June 30, 2019 is as follows:~~share:


	Three Months Ended				Six Months Ended
(In thousands, except for share and per share amounts)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Net income (loss) from continuing operations attributable to Franchise Group	$	32,521	$	(16,361)	$	4,186	$	(6,278)
Less: Preferred dividend declared	(2,128)		0		(4,257)		0
Adjusted net income (loss) from continuing operations available to Common Stockholders	30,393		(16,361)		(71)		(6,278)
Net income from discontinued operations attributable to Franchise Group	6,215		(5,312)		48,363		44,144
Adjusted net income (loss) available to Common Stockholders	$	36,608	$	(21,673)	$	48,292	$	37,866

Weighted-average common stock outstanding	40,175,058		34,972,364		40,142,571		29,173,172
Net dilutive effect of stock options and restricted stock	730,509		0		0		0
Weighted-average diluted shares outstanding	40,905,567		34,972,364		40,142,571		29,173,172

Basic net income (loss) per share:
Continuing operations	$	0.76	$	(0.47)	$	0	$	(0.22)
Discontinued operations	0.15		(0.15)		1.20		1.51
Basic net income per share	$	0.91	$	(0.62)	$	1.20	$	1.29

Diluted net income (loss) per share:
Continuing operations	$	0.74	$	(0.47)	$	0	$	(0.22)
Discontinued operations	0.15		(0.15)		1.20		1.51
Diluted net income per share	$	0.89	$	(0.62)	$	1.20	$	1.29

Three Months Ended
June 27, 2020 Three Months Ended
June 30, 2019
Common Stock Common Stock
(In thousands, except for share and per
share amounts)
Basic and diluted net loss per share:

Numerator

Allocation of undistributed loss attributable to Franchise Group $ (21,673 ) $ (5,255 )
Denominator
Weighted-average common stock outstanding 34,972,364
14,062,766

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

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

(9) ~~Stock~~Stock-Based 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~~For a ~~variety~~discussion of ~~awards, including stock options, stock appreciation rights, performance units, performance shares, shares~~our stock-based compensation plans, refer to “Note 11. - Stock-Based Compensation Plans” 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~~Form 10-K for 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.year ended December 26, 2020.

~~Stock Options~~Tax Receivable Agreement

~~Stock option activity during the six months ended 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

Intrinsic value is defined as the fair value of the stock less the cost to exercise. The total intrinsic value of stock options outstanding at June 27, 2020 was $5.3 million. Stock options vest from the date of grant to three years after the date of grant and expire from four to five years after the vesting date.

~~Nonvested stock options activity during the six months ended 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 June 27, 2020, unrecognized compensation costs related to nonvested stock options were $0.2 million. These costs are expected to be expensed through fiscal 2021.~~

~~The following table summarizes information about stock options outstanding and exercisable at 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

$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

~~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 June 27, 2020 was as follows:~~

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~~

~~The Company recorded $4.3 million of expense related to stock awards for the six months ended June 27, 2020.~~

~~(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 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:

~~Level 1 — Quoted prices for identical assets and liabilities in active markets.~~

Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.

~~Level 3 — Unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.~~

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 adjustment in certain circumstances, such as when there is evidence of impairment.

The following tables present, for each of the fair value hierarchy levels, the assets and liabilities that are measured at fair value on a recurring and nonrecurring basis at June 27, 2020 and December 28, 2019.

June 27, 2020
Fair value measurements using
(In thousands) Total Level 1 Level 2 Level 3
Assets:

Recurring assets:

Cash equivalents $ 537
$ 537
$ —
$ —
Forward contract related to foreign currency exchange rates 61
—
—
61
Total recurring assets 598
537
—
61
Nonrecurring assets:

Impaired accounts and notes receivable, net of unrecognized revenue and allowance 10,959
—
—
10,959
Total nonrecurring assets 10,959
—
—
10,959
Total recurring and nonrecurring assets $ 11,557
$ 537
$ —
$ 11,020

Liabilities:

Recurring liabilities:

Contingent consideration included in obligations due former ADs, franchisees and others $ 594
$ —
$ —
$ 594
Interest rate swap agreement 169
—
169
—
Total recurring liabilities $ 763
$ —
$ 169
$ 594

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

The 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 1 or 2 recurring fair value measurements for the six months ended 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 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:~~ 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 comparable sales of Company-owned stores, sales between franchisees, the net fees of open offices, and the number of unopened offices.

~~Contingent consideration included in long-term obligations:~~ ~~Contingent consideration is carried at fair value. The fair value of these obligations was determined 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~~

Accounting standards require the disclosure of the estimated fair value of financial instruments that are not recorded at fair value. For the financial instruments not 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 debt:~~ ~~The carrying amount approximates fair value because the interest rate paid has a variable component (Level 2).~~

~~(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.~~

~~Messrs. Kahn and Laurence~~

Vintage and its affiliates held approximately 42% of the aggregate voting power of the Company through their ownership of common stock and Preferred Stock as of June 27, 2020. Brian Kahn and Andrew Laurence, principals of Vintage, are members of the Company's Board of Directors with Mr. Laurence serving as the Company's Chairman of the Board until March 31, 2020. Mr. Kahn is the President and Chief Executive Officer of the Company and Mr. Laurence is an Executive Vice President of 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,~~July 10, 2019, the Company entered into a tax receivable agreement with the ~~Vitamin Shoppe Term Loan with an entity controlled~~then-existing non-controlling interest holders (the "Tax Receivable Agreement") that provides for the payment by ~~Mr. Riley. On February 14, 2020,~~ the Company ~~entered into~~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 ~~$675 million credit facility, which included a $575 million FGNH Credit Agreement and a $100 million FGNH ABL Term Loan with an entity controlled by Mr. Riley acting as~~result of any increases in tax basis of the ~~administrative agent. During~~assets of New Holdco resulting from future redemptions or exchanges of New Holdco units.

Payments will be made when such TRA related deductions actually reduce the ~~six months~~Company’s income tax liability. No payments were made to members of New Holdco pursuant to the TRA during the quarter ended June ~~27, 2020,~~26, 2021. Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company ~~borrowed and repaid~~has obtained 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~~increase in ~~"Note 8. Stockholder's Equity".~~

~~Fee Letters.~~ On February 14, 2020, the Company entered into a fee letter 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 fee letter with B. Riley pursuant to which B. Riley received an equity fee equal to 6%its share of the ~~$36.0 million~~tax basis in the net assets of ~~equity raised~~New Holdco when the New Holdco units were redeemed or exchanged by ~~B. Riley~~the non-controlling interest holders and other qualifying transactions. The Company has treated the 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. This increase in tax basis will reduce the ~~Company as part~~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 ~~Equity Financing (as defined above in "Note 8. Stockholder's Equity").~~extent tax basis is allocated to those capital assets.

(8) Stockholders’ Equity

~~Backstop ABL Commitment Letter.~~

Stockholders' Equity Activity

On ~~May 1, 2020, in connection with our acquisition of American Freight and the ABL Credit Agreement,~~January 11, 2021, the Company entered into an ~~Amended and Restated ABL Commitment Letter~~Underwriting Agreement 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,~~Securities, Inc. ~~("B. Riley FBR")~~, ~~an affiliate of B. Riley, acted~~ as representative of the ~~underwriters. In connection with the offering, B. Riley FBR was entitled~~several underwriters named therein (the “Underwriters”), to issue and sell an ~~underwriting discount~~aggregate of ~~approximately $5.4 million and reimbursement of certain out-of-pocket expenses incurred in connection with the offering.~~

~~M. Brent Turner~~

~~Mr. Turner is the President and Chief Executive Officer~~2,976,191 shares (the “Firm Shares”) of the Company’s ~~Liberty Tax segment.~~

~~Revolution Financial Services Agreement.~~7.50% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share (the “Series A Preferred Stock”), in a public offering at a price to the public of $25.20 per share. The Company ~~entered into a one-year Services Agreement~~also granted the Underwriters an option (the ~~“Revolution Agreement”~~“Option”) to purchase up to 446,428 additional shares of Series A Preferred Stock during the 30 days following the date of the Underwriting Agreement. On January 14, 2021, the Underwriters partially exercised the Option for 314,934 shares (together with ~~Revolution Financial, Inc. (“Revolution”) effective as August 23, 2019. Mr. Turner serves as~~ the ~~Chief Executive Officer of Revolution.~~Firm Shares, the “Shares”). The ~~Revolution Agreement provides for certain transition services, including leased office space~~offering closed on January 14, 2021, and ~~information technology personnel. Pursuant~~the net proceeds to the ~~terms~~Company were approximately $79.5 million, after deducting underwriting discounts, an advisory fee and offering expenses totaling approximately $3.2 million.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss at June 26, 2021 and December 26, 2020 were as ~~provided~~follows:


(In thousands)	June 26, 2021		December 26, 2020
Foreign currency adjustment	$	(873)	$	(1,254)
Interest rate swap agreements, net of tax	(100)		(145)
Total accumulated other comprehensive loss	$	(973)	$	(1,399)

Non-controlling interest

The Company is the sole managing member of New Holdco and, as a result, consolidates the financial results of New Holdco. Prior to April 1, 2020, the Company reported a non-controlling interest representing the economic interest in New Holdco held by the former equity holders of Buddy's (the "Buddy’s Members"). Changes in the ~~Revolution Agreement, fees~~Company's ownership interest in New Holdco while it retained a controlling interest in New Holdco were accounted for ~~each~~as equity transactions. On March 26, 2020, the Company 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 increase in the tax basis of the ~~services provided by Revolution are calculated based on the actual costs for each applicable service~~net assets of New Holdco and a liability to be ~~paid~~recognized pursuant to the TRA. The difference of $10.0 million in the adjustment of the deferred tax balances and 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 the TRA.

Net Income (Loss) per Share

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 ~~Company.~~ treasury stock method. Additionally, the computation of the diluted net income (loss) per share of common stock assumed the conversion of exchangeable shares, and Preferred Stock, if dilutive.

The following table sets forth the calculations of basic and diluted net income (loss) per share:


	Three Months Ended				Six Months Ended
(In thousands, except for share and per share amounts)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Net income (loss) from continuing operations attributable to Franchise Group	$	32,521	$	(16,361)	$	4,186	$	(6,278)
Less: Preferred dividend declared	(2,128)		0		(4,257)		0
Adjusted net income (loss) from continuing operations available to Common Stockholders	30,393		(16,361)		(71)		(6,278)
Net income from discontinued operations attributable to Franchise Group	6,215		(5,312)		48,363		44,144
Adjusted net income (loss) available to Common Stockholders	$	36,608	$	(21,673)	$	48,292	$	37,866

Weighted-average common stock outstanding	40,175,058		34,972,364		40,142,571		29,173,172
Net dilutive effect of stock options and restricted stock	730,509		0		0		0
Weighted-average diluted shares outstanding	40,905,567		34,972,364		40,142,571		29,173,172

Basic net income (loss) per share:
Continuing operations	$	0.76	$	(0.47)	$	0	$	(0.22)
Discontinued operations	0.15		(0.15)		1.20		1.51
Basic net income per share	$	0.91	$	(0.62)	$	1.20	$	1.29

Diluted net income (loss) per share:
Continuing operations	$	0.74	$	(0.47)	$	0	$	(0.22)
Discontinued operations	0.15		(0.15)		1.20		1.51
Diluted net income per share	$	0.89	$	(0.62)	$	1.20	$	1.29

(9) Stock-Based Compensation Plans

For a discussion of our stock-based compensation plans, refer to “Note 11. - Stock-Based Compensation Plans” of 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~~Form 10-K for the ~~transition services was immaterial for the six months~~year ended ~~June 27,~~December 26, 2020.

~~Michael S. Piper~~

Mr. Piper is the Chief Financial Officer of the Company's Liberty Tax segment. On February 7, 2020, Mr. Piper purchased 123,529 shares for $2.1 million under the Equity Financing as defined above in "Note 8. Stockholders' Equity".

~~Steve Belford~~

The Company's American Freight segment leases retail space and purchases inventory from entities either fully or partially owned by Steve Belford, the former Chief Executive Officer of American Freight. Mr. Belford's employment with American Freight ended on April 6, 2020. In the six months ended June 27, 2020, American Freight paid these entities approximately $1.8 million under the lease obligations and purchased approximately $25.8 million of inventory.

Tax Receivable Agreement

Payments will be made when such TRA related deductions actually reduce the Company’s income tax liability. No payments were made to members of New Holdco pursuant to the TRA during the quarter ended June 26, 2021. Pursuant to the Company's election under Section 754 of the Internal Revenue Code (the "Code"), the Company has obtained an increase in its share of the tax basis in the net assets of New Holdco when the New Holdco units were redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. The Company has treated the 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. This increase in tax basis will 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.

(8) Stockholders’ Equity

Stockholders' Equity Activity

On January 11, 2021, the Company entered into an Underwriting Agreement with B. Riley Securities, Inc., as representative of the several underwriters named therein (the “Underwriters”), to issue and sell an aggregate of 2,976,191 shares (the “Firm Shares”) of the Company’s 7.50% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share (the “Series A Preferred Stock”), in a public offering at a price to the public of $25.20 per share. The Company also granted the Underwriters an option (the “Option”) to purchase up to 446,428 additional shares of Series A Preferred Stock during the 30 days following the date of the Underwriting Agreement. On January 14, 2021, the Underwriters partially exercised the Option for 314,934 shares (together with the Firm Shares, the “Shares”). The offering closed on January 14, 2021, and the net proceeds to the Company were approximately $79.5 million, after deducting underwriting discounts, an advisory fee and offering expenses totaling approximately $3.2 million.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss at June 26, 2021 and December 26, 2020 were as follows:


(In thousands)	June 26, 2021		December 26, 2020
Foreign currency adjustment	$	(873)	$	(1,254)
Interest rate swap agreements, net of tax	(100)		(145)
Total accumulated other comprehensive loss	$	(973)	$	(1,399)

Non-controlling interest

The Company is the sole managing member of New Holdco and, as a result, consolidates the financial results of New Holdco. Prior to April 1, 2020, the Company reported a non-controlling interest representing the economic interest in New Holdco held by the former equity holders of Buddy's (the "Buddy’s Members"). Changes in the Company's ownership interest in New Holdco while it retained a controlling interest in New Holdco were accounted for as equity transactions. On March 26, 2020, the Company 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.

Net Income (Loss) per Share

The following table sets forth the calculations of basic and diluted net income (loss) per share:


	Three Months Ended				Six Months Ended
(In thousands, except for share and per share amounts)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Net income (loss) from continuing operations attributable to Franchise Group	$	32,521	$	(16,361)	$	4,186	$	(6,278)
Less: Preferred dividend declared	(2,128)		0		(4,257)		0
Adjusted net income (loss) from continuing operations available to Common Stockholders	30,393		(16,361)		(71)		(6,278)
Net income from discontinued operations attributable to Franchise Group	6,215		(5,312)		48,363		44,144
Adjusted net income (loss) available to Common Stockholders	$	36,608	$	(21,673)	$	48,292	$	37,866

Weighted-average common stock outstanding	40,175,058		34,972,364		40,142,571		29,173,172
Net dilutive effect of stock options and restricted stock	730,509		0		0		0
Weighted-average diluted shares outstanding	40,905,567		34,972,364		40,142,571		29,173,172

Basic net income (loss) per share:
Continuing operations	$	0.76	$	(0.47)	$	0	$	(0.22)
Discontinued operations	0.15		(0.15)		1.20		1.51
Basic net income per share	$	0.91	$	(0.62)	$	1.20	$	1.29

Diluted net income (loss) per share:
Continuing operations	$	0.74	$	(0.47)	$	0	$	(0.22)
Discontinued operations	0.15		(0.15)		1.20		1.51
Diluted net income per share	$	0.89	$	(0.62)	$	1.20	$	1.29

(9) Stock-Based Compensation Plans

For a discussion of our stock-based compensation plans, refer to “Note 11. - Stock-Based Compensation Plans” of the Form 10-K for the year ended December 26, 2020.

Stock Options

Stock option activity during the six months ended June 26, 2021 was as follows:


	Number of options	Weighted average exercise price
Outstanding at December 26, 2020	391,409	$	10.19
Exercised	(36,188)	10.66
Expired or forfeited	0	0
Outstanding at June 26, 2021	355,221	$	10.15

Intrinsic value is defined as the fair value of the stock less the cost to exercise. The total intrinsic value of stock options outstanding at June 26, 2021 was $9.1 million. Stock options vest from the date of grant to three years after the date of grant and expire from four to five years after the vesting date.

Nonvested stock options activity during the six months ended June 26, 2021 was as follows:


	Nonvested options	Weighted average exercise price
Outstanding at December 26, 2020	63,334	$	8.83
Vested	(63,334)	8.83
Expired or forfeited	0	0
Outstanding at June 26, 2021	0	$	0

At June 26, 2021, there were no unrecognized compensation costs related to nonvested stock options.

The following table summarizes information about stock options outstanding and exercisable at June 26, 2021:


	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

$0.00 - $10.89	204,500	$	8.80	3.8	204,500	$	8.80
$10.90 - $12.79	150,721	11.98		2.5	150,721	11.98
	355,221	$	10.15		355,221	$	10.15

Restricted Stock Units

The Company has awarded service-based restricted stock units ("RSUs") and performance restricted stock units ("PRSUs") to its non-employee directors, officers and certain employees. The Company recognizes expense based on the estimated fair value of the RSUs or PRSUs granted over the vesting period on a straight-line basis. The fair value of RSUs and PRSUs is determined using the Company's closing stock price on the date of the grant. At June 26, 2021, unrecognized compensation costs related to RSUs and PRSUs were $6.8 million and $28.2 million, respectively. These costs are expected to be recognized through fiscal 2024.

The following table summarizes the status of RSUs as of and changes during the six months ended June 26, 2021:


	Number of restricted stock units	Weighted average fair value at grant date
Balance at December 26, 2020	296,147	$	20.51
Granted	120,952	35.72
Vested	(91,856)	22.34
Canceled	0	0
Balance at June 26, 2021	325,243	$	25.65

The following table summarizes the status of PRSUs as of and changes during the six months ended June 26, 2021:


	Number of restricted stock units	Weighted average fair value at grant date
Balance at December 26, 2020	618,737	$	17.00
Granted	913,875	21.72
Vested	0	0
Canceled	0	0
Balance at June 26, 2021	1,532,612	$	19.81

Stock Compensation Expense

The Company recorded $5.5 million and $4.3 million during the six months ended June 26, 2021 and June 27, 2020, respectively.

(10) Fair Value of Financial Instruments

As required, financial assets and liabilities are classified in the fair value hierarchy in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). The Company did not record any impairment charges during the six months ended June 26, 2021 and June 27, 2020.

Fair Value of Financial Instruments

The carrying value of Cash and cash equivalents, restricted cash, accounts receivable and accounts payable as reported in the accompanying unaudited condensed consolidated balance sheets approximate fair value due to their short-term maturities. The carrying amount of Long-term debt approximates fair value because the interest rate paid has a variable component.

(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.

Messrs. Kahn and Laurence

Vintage Capital Management, LLC and its affiliates ("Vintage") held approximately 31% of the aggregate voting power of the Company through their ownership of common stock as of June 26, 2021. Brian Kahn and Andrew Laurence are principals of Vintage. Mr. Kahn is a member of the Board of Directors, President and Chief Executive Officer of the Company. Mr. Laurence is an Executive Vice President of the Company, served as a member of the Company's Board of Directors until the Company's annual meeting of stockholders in May 2021 and served as the Company's Chairman of the Board until March 31, 2020.

Buddy's Franchises. Mr. Kahn's brother-in-law owns seven Buddy's franchises. 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)

Bryant Riley, through controlled entities or affiliates held approximately 4% of the aggregate ownership of the Company's common stock as of June 26, 2021. Prior to the quarter ended June 26, 2021, Mr. Riley held greater than 5% of the aggregate

ownership of the Company's common stock. Mr. Riley was also a member of the Company's Board of Directors from September 2018 through March 2020.

January 2021 Underwritten Offering of Preferred Stock. On January 11, 2021, the Company reopened its original issuance of its Series A Preferred Stock, which closed on September 18, 2020 as noted above. The Company completed the reopened underwritten offering on January 15, 2021 in which B. Riley Securities, an affiliate of Mr. Riley, acted as representative of the underwriters. In connection with the offering B. Riley Securities and the other underwriters in the offering were entitled to an underwriting discount and reimbursement of certain out-of-pocket expenses incurred of approximately $3.0 million and B. Riley Securities was entitled to a structuring fee of $0.3 million.

Debt Commitment Letter and Fee Letter. On January 23, 2021, in connection with the Pet Supplies Plus Acquisition and the refinancing of the Company's existing indebtedness, the Company entered into a debt commitment letter with, among others, BRF Finance Co., LLC (“BRF”), an affiliate of Mr. Riley, pursuant to which BRF committed to provide (i) $100.0 million of a then-contemplated first lien term loan credit facility and (ii) $300.0 million of a then-contemplated senior unsecured term loan credit facility (the “Senior Unsecured Facility”). On January 23, 2021, the Company entered into a fee letter with BRF pursuant to which (a) BRF committed to provide $100.0 million of an alternative then-contemplated first lien term loan credit facility (the “Alternative First Lien Facility”) and (b) BRF (or its affiliates) received, on March 10, 2021, (i) a $9.0 million arrangement fee as consideration for BRF’s commitments and agreements with respect to the Senior Unsecured Facility and (ii) a $1.0 million take-out fee as consideration for BRF’s commitments and agreements with respect to the Alternative First Lien Facility.

M. Brent Turner

Mr. Turner is the President and Chief Executive Officer of the Company’s Liberty Tax business which was sold to NextPoint on July 2, 2021 in connection with the Transaction. The Company previously entered into certain agreements with Revolution Finance, an entity partially owned by Mr. Turner, which were terminated upon completion of the sale of the Liberty Tax business. During the six months ended June 26, 2021, the Company earned less than $0.2 million in royalties related to such agreements which was recorded in Discontinued Operations.

Tax Receivable Agreement

In connection with the acquisition of Buddy's, ~~Acquisition,~~ the Company entered into 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. Amounts due under the Tax Receivable Agreement to the Buddy's Members as of June ~~27, 2020~~26, 2021 were ~~$17.2~~$16.8 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~~Buddy's Members pursuant to the Tax Receivable Agreement during the ~~quarter~~six months ended June ~~27, 2020.~~26, 2021.

(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.

~~Eastern District of New York Securities Litigation~~

Guarantees

The Company remains secondarily liable under various real estate leases that were assigned to franchisees who acquired Pet Supplies Plus stores from the Company. In Rethe event of the failure of an acquirer to pay lease payments, the Company could be obligated to pay the remaining lease payments which extend through 2033 and aggregated $9.4 million as of June 26, 2021. If the Company is required to make payments under these guarantees, the Company could seek to recover those amounts from the franchisees or in some cases their affiliates. The Company believes that payment under these guarantees is remote as of June 26, 2021.

In July 2021, the Company completed the sale of its Liberty Tax ~~Inc. Securities Litigation.~~ ~~This case consolidated two previously filed cases on July 12, 2018. The case, among other things, asserts that~~business pursuant to the ~~Company’s SEC filings over a multi-year period failed to disclose the alleged misconduct~~terms of the ~~individual defendants~~Purchase Agreement. In connection with the Transaction, as discussed in "Note 3. Divestitures," all obligations and ~~that disclosure of~~liabilities with respect to legal proceedings associated with 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 which was granted on January 17, 2020. The Plaintiff filed their notice to appealLiberty Tax segment, including, but not limited, to the ~~United States Court of Appeals for~~below referenced

matters, namely: (i) Rene Labrado v. JTH Tax, Inc., (ii) the ~~Second Circuit on February 19, 2020. The Second Circuit set an expedited briefing schedule for the appeal. Appellant's brief was filed on May 5, 2020~~DOJ and ~~Appellant’s opposition brief was filed on June 9, 2020.~~IRS Matter settlement

~~Stockholder Class Action~~ and ~~Derivative Complaint~~

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”)(iii) Convergent Mobile, Inc. v. JTH Tax, Inc., were assumed by NextPoint 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, 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~~connection 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.Transaction.

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.

On February 7, 2020, Matthew Sciabacucchi, a purported stockholder of the Company, filed a motion to intervene to pursue some or all of the derivative claims pending in the Court of Chancery. Mr. Sciabacucchi’s motion states that Asbestos Workers’ Philadelphia Pension Fund has sold its shares in the Company. The motion to intervene was granted March 10, 2020.

On June 8, 2020 the Court entered an order governing briefing on Plaintiff’s petition for an interim award of attorney’s fees. Plaintiff’s opening brief was filed on June 8, 2020. Defendant's opposition was filed on July 23, 2020, and Plaintiff’s reply is due on or before August 6, 2020.

Class Action Litigation

Rene Labrado v. JTH Tax, Inc. On July 3, 2018, a class action complaint was filed in the Superior Court of California, County of Los Angeles by a former employee for herself and on behalf of all other “similarly situated” persons. The Complaint alleges, among other things, that the Company allegedly violated various provisions of the California Labor Code, including: unpaid overtime, unpaid meal period premiums, unpaid rest premiums, unpaid minimum wages, final wages not timely paid, wages not timely paid, non-compliant wage statements, failure to keep pay records, unreimbursed business expenses and violation of California Business and Profession Code Section 17200. The Complaint seeks actual, consequential and incidental losses and damages, injunctive relief and other damages. On May 24, 2021, the parties agreed to settle this matter in principle for $1.1 million and the matter has been stayed pending the parties’ filing of settlement papers. The settlement is expected to contain broad and customary releases. Despite the parties' desire to settle the matter, there is no assurance that the settlement will be approved by the Court. As of June 26, 2021, the Company ~~highly disputes the allegations set forth~~had accrued $1.1 million related to this case, which is included in current liabilities held for sale in the Complaint and filed a motion to dismiss. On May 29, 2019, the Court denied the Company’s motion to dismiss, but granted the Company leave to file a motion to strike. The Company filed a motion to strike and on August 20, 2019, the Court granted in part and denied in part the Company’s motion. The Court provided the Company with twenty days to file its answer to the Complaint and lifted the discovery stay. A status conference was held on March 3, 2020 where the Court set a hearing on the class certification for December 18, 2020. A further status conference was held on August 3, 2020 and the Court set a continuance for August 13, 2020.accompanying condensed balance sheet.

Department of Justice ("DOJ") and IRS Matters

On December 3, 2019, the DOJ initiated a legal proceeding against the Company, in the U.S. District Court for the Eastern District of Virginia. Also, on December 3, 2019, the DOJ and the Company filed a joint motion asking the court to approve a proposed order setting forth certain enhancements to the Company's Liberty Tax segments compliance program and requiring the Company to retain an independent monitor to oversee the implementation of the required enhancements to the compliance program. The monitor will work with the Company's Liberty Tax segments compliance team and may make recommendations for further refinements to improve the tax compliance program. As part of the proposed order, the Company also agreed that it would not rehire or otherwise engage the Company’s former chairman, John T. Hewitt, under whose supervision the conduct at issue occurred, and agreed not to grant Mr. Hewitt any options or other rights to acquire equity in the Company, or to nominate him to the Company’s Board of Directors. On December 20, 2019 the Court granted the joint motion for the proposed order and the confidentiality motion, which fully resolved the legal proceeding initiated by DOJ.

In addition, the Company entered into a settlement agreement resolving the previously disclosed investigation by the IRS with respect to the tax return preparation activities of the Company’s Liberty Tax segments franchise operations and Company-owned stores. Pursuant to that agreement, the Company agreed to make a compliance payment to the IRS in the amount of $3.0 million, to be paid in installments over four years, starting with an upfront payment of $1.0 million, followed by a $0.5 million payment on each anniversary thereof.

As previously disclosed, the Company expects that the increased costs to enhance its compliance program could exceed $1.0 million per year over several years, in addition to the costs necessary to resolve the investigation.Convergent Mobile

~~Other Matters~~

Convergent Mobile, Inc. v. JTH Tax, ~~Inc.~~Inc. On August 26, 2019, Convergent Mobile, Inc. (“Convergent”) filed a complaint in the Superior Court of the State of California, County of Sonoma, against the Company (the "California Complaint"). The California Complaint alleges that the Company breached a contract between it and Convergent, and Convergent has asserted

counts for breach of contract, promissory estoppel, and breach of the covenant of good faith and fair dealing. The California Complaint generally seeks damages according to proof, special damages according to proof, interest, attorneys’ fees and cost. The Company removed the matter to the federal district court for the Northern District of California and filed a motion to dismiss and motion to strike. On ~~January 16, 2020,~~April 23, 2021 the Court ~~vacated~~ruled in favor of the ~~previously scheduled hearing on Company’s motion to dismiss~~plaintiff and ~~motion to strike and stated~~awarded a ~~written opinion would be forthcoming. On April 22, 2020, the Court granted~~judgment of $0.6 million which is accrued in part and denied in part the Company's motion to dismiss. The Court denied the Company's motion to strike. The Company filed its answer and a counterclaim against Convergent and the matter is proceeding in discovery. The Company disputes these claims and intends to defend the matter vigorously.

~~Sears Outlet Stores, L.L.C., n/k/a American Freight Outlet Stores, LLC v. Capgemini America, Inc., successor in interest to Capgemini U.S. LLC.On April 8, 2020, Sears Outlet Stores, L.L.C., n/k/a American Freight Outlet Stores, LLC (“Outlet”) filed a complaint against Capgemini America Inc. ("Capgemini")~~current liabilities held for sale of discontinued operations in the United States District Court, Northern District Court of Illinois (the “Complaint”), seeking a declaratory action. Outlet alleges claims against Capgemini of fraudulent inducement, breach of contract, constructive fraud, and intentional non-disclosure/fraudulent concealment. Outlet also seeks a declaratory action for excuse of non-performance to pay any further invoices from Capgemini, including certain invoices which Outlet disputes and Capgemini alleges are past due, specific performance from Capgemini’s obligation to provide termination assistance services, actual and consequential damages, incidental damages in an amount yet to be determined, interest, attorney’s fees and costs, and punitive damages. On June 19, 2020, the parties mutually resolved all claims between them and the Complaint was dismissed with prejudice on June 25, 2020.accompanying condensed consolidated balance sheet.

The Company is also party to claims and lawsuits that are considered to be ordinary, routine litigation incidental to the business, including claims and lawsuits concerning the preparation of customers' income tax returns, the fees charged to customers for various products and services, relationships with franchisees, intellectual property disputes, employment matters, and contract disputes. Although the Company cannot provide assurance that it will ultimately prevail in each instance, it believes the amount, if any, it will be required to pay in the discharge of liabilities or settlements in these claims will not have a material adverse impact on its consolidated results of operations, financial position, or cash flows.

(13) Segments

The Company's operations are conducted in four ~~reporting~~reportable business segments: Vitamin Shoppe, American Freight, ~~Liberty Tax~~Pet Supplies Plus and Buddy's. The Company defines its segments as those operations which results its chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. The results of operations of Buddy's are included in the Company's results of operations beginning on July 10, 2019, the results of operations of Vitamin Shoppe are included in the Company's results of operations beginning on December 16, 2019, while the results of operations of American Freight are included in the Company's results of operations beginning on February 14, ~~2020. The~~2020 and the results of operations of ~~the Sears Outlet business~~Pet Supplies Plus are included in the Company's results of operations beginning on ~~October 23, 2019 and are included in the results of operations~~March 11, 2021. As a result of the ~~American Freight segment. Prior to July 10, 2019,~~Company's

sale of its Liberty Tax business, as discussed in "Note 3. Divestitures," the ~~Company operated~~Company's Liberty Tax business is not reported in segment information since this business is reported as a ~~single reportable segment that was comprised of Liberty Tax.~~discontinued operation. Current and prior year amounts have been revised to reflect this change.

The 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, however they define it. 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. The Vitamin Shoppe segment consists of our operations under the "Vitamin Shoppe" brand and is headquartered in Secaucus, New Jersey.

The American Freight segment operates under the American Freight and American Freight Outlet banners. American Freight is a retail chain offering brand-name furniture, mattresses and home accessories at discount prices. American Freight Outlet, previously Sears Outlet, provides in-store and online access to purchase new, one-of-a-kind, 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~~household appliances and unbranded furniture and mattresses ~~and furniture~~ at ~~value-oriented~~value prices. The American Freight segment consists of our operations under the "American Freight" banner and is headquartered in Delaware, Ohio.

The ~~Liberty Tax~~Pet Supplies Plus segment is ~~one of the largest providers of tax preparation services~~a franchisor and retailer in the ~~U.S.~~pet industry. Pet Supplies Plus has a diversified revenue model comprised of corporate store revenue, royalties and ~~Canada.~~wholesale distribution to franchisees. The ~~Liberty Tax~~Pet Supplies Plus segment ~~includes~~consists of the Company's operations under the ~~"Liberty Tax," "Liberty Tax Canada"~~"Pet Supplies Plus" brand and ~~"Siempre" brands. The Liberty Tax segment and our corporate headquarters are located~~is headquartered in ~~Virginia Beach, Virginia.~~Livonia, Michigan.

The Buddy's segment leases and sells electronics, residential furniture, appliances and household accessories. The Buddy's segment consists of the Company's operations under the "Buddy's" brand and is headquartered in Orlando, Florida.

The Company measures the results of its segments, using, among other measures, each segment's total consolidated revenue, consolidated depreciation, amortization, and impairment charges and consolidated income (loss) from operations. The Company may revise the measurement of each segment's income (loss) from operations as determined by the information regularly reviewed by the CODM. When the measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation.

Total revenues by segment were as follows:


	Three Months Ended				Six Months Ended
(In thousands)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Total revenue:
Vitamin Shoppe	$	302,555	$	237,735	$	597,295	$	513,622
American Freight	268,807		234,427		527,323		437,174
Pet Supplies Plus	275,760		0		327,069		0
Buddy's	15,636		25,392		32,416		49,705
Consolidated total revenue	$	862,758	$	497,554	$	1,484,103	$	1,000,501

Three Months Ended Six Months Ended
(In thousands) June 27, 2020 June 30, 2019 June 27, 2020 June 30, 2019
Total revenue:
   Vitamin Shoppe $ 237,735
$ —
$ 513,622
$ —
   American Freight 234,427
—
437,174
—
   Liberty Tax 15,073
23,820
104,692
119,658
   Buddy's 25,392
—
49,705
—
Consolidated total revenue $ 512,627
$ 23,820
$ 1,105,193
$ 119,658

~~Depreciation, amortization, and impairment charges by segment are as follows:~~

Three Months Ended Six Months Ended
(In thousands) June 27, 2020 June 30, 2019 June 27, 2020 June 30, 2019
Depreciation, amortization, and impairment charges:
   Vitamin Shoppe $ 12,419
$ —
$ 23,729
$ —
   American Freight 1,553
—
2,465
—
   Liberty Tax 2,379
3,699
4,444
7,772
   Buddy's 1,514
—
3,154
—
Consolidated depreciation, amortization, and impairment charges $ 17,865
$ 3,699
$ 33,792
$ 7,772

Operating income (loss) by segment were as follows:


	Three Months Ended				Six Months Ended
(In thousands)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Income (loss) from operations:
Vitamin Shoppe	$	29,763	$	(587)	$	63,037	$	(6,063)
American Freight	21,956		12,422		47,086		14,009
Pet Supplies Plus	10,578		0		6,409		0
Buddy's	3,367		5,338		7,640		8,683
Total Segments	65,664		17,173		124,172		16,629
Corporate	(7,508)		(2,396)		(13,041)		(4,697)
Consolidated income (loss) from operations	$	58,156	$	14,777	$	111,131	$	11,932

Three Months Ended Six Months Ended
(In thousands) June 27, 2020 June 30, 2019 June 27, 2020 June 30, 2019
Income from operations:
   Vitamin Shoppe $ (587 ) $ —
$ (6,063 ) $ —
   American Freight 12,422
—
14,009
—
   Liberty Tax (3,204 ) (5,662 ) 45,478
49,211
   Buddy's 5,338
—
8,683
—
Total Segments 13,969
(5,662 ) 62,107
49,211
   Corporate (2,397 ) —
(4,696 ) —
Consolidated income from operations $ 11,572
$ (5,662 ) $ 57,411
$ 49,211

Total assets by segment were as follows:


(In thousands)	June 26, 2021		December 26, 2020
Total assets:
Vitamin Shoppe	$	591,724	$	607,148
American Freight	882,107		801,731
Pet Supplies Plus	941,335		0
Buddy's	144,430		137,698
Total Segments	2,559,596		1,546,577
Corporate	214,184		203,196
Consolidated total assets	$	2,773,780	$	1,749,773

(In thousands) June 27, 2020 December 28, 2019
Total assets:
   Vitamin Shoppe $ 635,353
$ 679,646
   American Freight 854,493
267,176
   Liberty Tax 105,897
123,576
   Buddy's 187,209
188,941
Total Segments 1,782,952
1,259,339
   Corporate 100,679
39,206
Consolidated total assets $ 1,883,631
$ 1,298,545

~~Goodwill by segment is as follows:~~

(In thousands) June 27, 2020 December 28, 2019
Goodwill:
   Vitamin Shoppe $ —
$ 4,951
   American Freight 369,034
31,028
   Liberty Tax 8,972
9,780
   Buddy's 90,082
88,542
Consolidated goodwill $ 468,088
$ 134,301

(14) Subsequent Events

On ~~June 25, 2020,~~July 2, 2021, the Company ~~entered into an Underwriting Agreement (the "Underwriting Agreement")~~repaid $182 million of principal outstanding under the First Lien Term Loan with ~~B. Riley FBR, as representative~~the cash proceeds from the sale of its Liberty Tax business.

On August 3, 2021, the ~~underwriters named therein (the “Underwriters”)~~Company's Board of Directors declared quarterly dividends of $0.375 per share of common stock and $0.46875 per share of Series A Preferred Stock. The dividends will be paid in cash on or about October 15, 2021 to ~~issue and sell an aggregate~~holders of ~~4,200,000 shares~~record of the Company's common stock ~~in a public offering at a price~~and Series A Preferred Stock on the close of $23.25 per share. In addition, the Company granted the Underwriters an option to purchase up to an additional 630,000 shares of the Company's common stock for a period of 30 days from June 25, 2020. The Company offering closedbusiness on June 30, 2020 and the net proceeds to the Company from the offering were $92.2 million, after deducting underwriting discounts and estimated offering expenses of approximately $5.4 million. On July 25, 2020, the Company and B. Riley FBR entered into an Amendment No.October 1, to the Underwriting Agreement to extend the period during which the Company granted the Underwriters the Option to 35 days from June 25, 2020, or July 30, 2020. On July 30, 2020, the Underwriters provided notice to purchase the additional 630,000 shares of the Company's common stock. The Company received proceeds of $13.8 million, net of expenses of $0.8 million.2021.

On July 10, 2020, the Company entered into a Senior Secured Super Priority Debtor-In-Possession Delayed Draw Term Loan Agreement (the “DIP DDTL Agreement”) with Tuesday Morning Corporation (“Tuesday Morning”). Pursuant to the DIP DDTL Agreement, the Company agreed to lend Tuesday Morning up to an aggregate principal amount of $25 million in the form of delayed draw term loans (the “DIP Term Facility”). The DIP Term Facility is guaranteed by certain of the Tuesday Morning's subsidiaries and secured on a super priority basis by real estate assets owned by Tuesday Morning, including its corporate headquarters and warehouse/distribution complex located in Dallas, Texas. The DIP Term Facility will mature on April 10, 2021, which maturity (unless accelerated subject to the terms set forth in the DIP DDTL Agreement) may be extended, subject to payment of an extension fee to the Company, for an additional three (3) months at the election of Tuesday Morning. The DIP Term Facility will bear interest at a rate per annum based on 3-month LIBOR (with a 1.00% LIBOR floor), plus an interest rate margin of 5.0% (subject to further increase of 2.0% upon the occurrence of an event of default). The DIP Term Facility is being provided in connection with Tuesday Morning’s Chapter 11 bankruptcy cases. Following a hearing held on July 8, 2020, on July 10, 2020 the judge presiding over the Tuesday Morning's bankruptcy cases entered an order approving the DIP Term Facility.

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements concerning our business, operations, and financial performance and condition as well as our plans, objectives, and expectations for our business operations and financial performance and condition. Any statements contained herein that are not of historical facts may be deemed to be forward-looking statements. You can identify these statements by words such as "aim," "anticipate," "assume," "believe," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "potential," "positioned," "should," "target," "will," "would," and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and our management's beliefs and assumptions. They are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Additionally, other factors may cause actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. Factors that may cause such differences include, but are not limited to, the risks described under "Item 1A-Risk Factors," including:

•the uncertainty of the future impact of the COVID-19 pandemic and public health measures on our business and results of operations, including uncertainties surrounding the physical and financial health of our customers, the ability of government assistance programs available to individuals, households and businesses to support consumer spending, levels of foot traffic in our stores, changes in customer demand for our products and services, possible disruptions in our supply chain or sources of supply, potential future temporary store closures due to government mandates and whether we will have the governmental approvals, personnel and sources of supply to be able to keep our stores open;

•our plans and expectations in response to the COVID-19 pandemic, including increased expenses for potential higher wages and bonuses paid to associates and the cost of personal protective equipment and additional cleaning supplies and protocols for the safety of our associates, and expected delays in new store ~~openings;~~openings and cost reduction initiatives (including our ability to effectively obtain lease concessions with landlords);

•the effect of steps ~~the Company takes~~we take in response to the COVID-19 pandemic, the severity and duration of the pandemic, ~~including whether there is a “second wave” as a result~~new variants of COVID-19 that have emerged, and the ~~loosening~~speed and efficacy of ~~governmental restrictions,~~vaccine and treatment developments, the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described ~~herein;~~herein and in our other filings with the SEC;

•potential regulatory actions relating to the COVID-19 pandemic;

•the impact of the COVID-19 pandemic and the related government mitigation efforts on our business and our financial results;

•the possibility that any of the anticipated benefits of ~~the Buddy’s Acquisition, Sears Outlet Acquisition, Vitamin Shoppe Acquisition and American Freight Acquisition (as all such terms are defined below)~~our acquisitions will not be realized or will not be realized within the expected time period, the businesses of the Company and ~~the Buddy’s segment, Vitamin Shoppe segment or American Freight segment~~our acquisitions may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, or revenues following ~~the Buddy’s Acquisition, Sears Outlet Acquisition, Vitamin Shoppe Acquisition or American Freight Acquisition~~our acquisitions may be lower than expected;

•our inability to grow on a sustainable basis;

•changes in operating costs, including employee compensation and benefits;

•the seasonality of certain of ~~the Company's~~our business segments;

•departures of key executives or directors;

•our ability to attract additional talent to our senior management team;

•our ability to maintain an active trading market for our common stock on The Nasdaq Global Market (“Nasdaq”);

~~our inability to secure reliable sources of the products and services we make available to our customers;~~

~~government regulation and oversight over our products and services;~~

~~our ability to comply with the terms of our settlement with the Department of Justice (the "DOJ") and the Internal Revenue Service ("IRS");~~

government initiatives that simplify tax return preparation, improve the timing and efficiency of processing tax returns, limit payments to tax preparers, or decrease the number of tax returns filed or the size of the refunds;

~~government initiatives to pre-populate income tax returns;~~

•the effect of regulation of the products and services that we offer, including changes in laws and regulations and the costs and administrative burdens associated with complying with such laws and regulations;

•our ability to maintain relationships with our third-party product and service providers;

•our ability to offer merchandise and services that our customers demand;

•our ability to successfully manage our inventory levels and implement initiatives to improve inventory management and other capabilities;

•competitive conditions in the ~~possible characterization~~retail industry and the performance of ~~refund transfers as a form~~our products within the prevailing retail industry;

•worldwide economic conditions and business uncertainty, the availability of ~~loan or extension of credit;~~

consumer and commercial credit, change in consumer confidence, tastes, preferences and spending, and changes in vendor relationships;

•the ~~tax settlement products offered~~risk that natural disasters, public health crises, political uprisings, uncertainty or unrest, or other catastrophic events could adversely affect our operations and financial results, including the impact of the COVID-19 pandemic on manufacturing operations and our supply chain, customer traffic and our operations in general;

•disruption of manufacturing, warehouse or distribution facilities or information systems;

•the continued reduction of our competitors promotional pricing on new-in-box appliances, potentially adversely impacting our sales of out-of-box appliances and associated margin;

•any potential non-compliance, fraud or other misconduct by our franchisees or employees;

•our ability and the ability of our franchisees to comply with legal and regulatory requirements;

•failures by our ~~customers that make~~franchisees and their employees to comply with their contractual obligations to us and with laws and regulations, to the extent these failures affect our ~~services less attractive~~reputation or subject us to ~~customers or more costly~~legal risk;

•the ability of our franchisees to open new territories and operate them successfully;

•the availability of suitable store locations at appropriate lease terms;

•the ability of our franchisees to generate sufficient revenue to repay their indebtedness to us;

•our ability to manage Company-owned stores;

•our exposure to litigation and any governmental investigations;

•our ability and our franchisees' ability to protect customers' personal information, including from a cyber-security incident;

•the impact of identity-theft concerns on customer attitudes toward our services;

•our ability to access the credit markets and satisfy our covenants to lenders;

•challenges in deploying accurate tax software in a timely way each tax season;

•delays in the commencement of the tax season attributable to Congressional action affecting tax matters and the resulting inability of federal and state tax agencies to accept tax returns on a timely basis or other changes that have the effect of delaying the tax refund cycle;

~~our ability to maintain relationships with our third-party product and service providers;~~

~~our ability to offer merchandise and services that our customers demand;~~

~~our ability to successfully manage our inventory levels and implement initiatives to improve inventory management and other capabilities;~~

~~the performance of our products within the prevailing retail industry;~~

~~disruption of manufacturing, warehouse or distribution facilities or information systems;~~

~~the continued reduction of our competitors promotional pricing on new-in-box appliances, potentially adversely impacting our sales of out-of-box appliances and associated margin;~~

~~competitive conditions in the retail industry and tax preparation market;~~

worldwide economic conditions and business uncertainty, the availability of consumer and commercial credit, change in consumer confidence, tastes, preferences and spending, and changes in vendor relationships;

the risk that natural disasters, public health crises, political uprisings, uncertainty or unrest, or other catastrophic events could adversely affect our operations and financial results, including the impact of the COVID-19 pandemic on manufacturing operations and our supply chain, customer traffic and our operations in general;

~~any potential non-compliance, fraud or other misconduct by our franchisees or employees;~~

~~our ability and the ability of our franchisees to comply with legal and regulatory requirements;~~

failures by our franchisees and their employees to comply with their contractual obligations to us and with laws and regulations, to the extent these failures affect our reputation or subject us to legal risk;

~~the ability of our franchisees to open new territories and operate them successfully;~~

~~the availability of suitable store locations at appropriate lease terms;~~

~~the ability of our franchisees to generate sufficient revenue to repay their indebtedness to us;~~

~~our ability to manage Company-owned offices;~~

~~our exposure to litigation and any governmental investigations;~~

~~our ability and our franchisees' ability to protect customers' personal information, including from a cyber-security incident;~~

~~the impact of identity-theft concerns on customer attitudes toward our services;~~

~~our ability to access the credit markets and satisfy our covenants to lenders;~~

~~challenges in deploying accurate tax software in a timely way each tax season;~~

•the effect of federal and state legislation that affects the demand for paid tax preparation, such as the Affordable Care Act and potential immigration reform;

•our reliance on technology systems and electronic communications;

•our ability to effectively deploy software in a timely manner and with all the features our customers require;

•the impact of any acquisitions or dispositions, including our ability to integrate acquisitions and capitalize on their anticipated synergies; and

•other factors, including the risk factors discussed in this quarterly report.

Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. These forward-looking statements speak only as of the date of this quarterly report. Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. A potential investor or other vendor should, however, review the factors and risks we describe in the reports we will file from time to time with the U.S. Securities and Exchange Commission ("SEC") after the date of this quarterly report.

Overview

We are ~~a retailer, franchisor~~an owner and operator ~~and acquirer~~ of franchised and franchisable businesses that ~~can be scaled using~~continually looks to grow our portfolio of brands while utilizing our operating ~~philosophies.~~and capital allocation philosophies to generate strong cash flows for our stockholders. We ~~currently operate four reportable segments: Liberty Tax, Buddy’s, American Freight,~~have a diversified and ~~Vitamin Shoppe.~~

~~Our Liberty Tax segment is one~~growing portfolio of ~~the largest providers of tax preparation services~~highly recognized brands that compete in the U.S. and Canada. Our ~~tax preparation services~~asset-light business model is designed to generate consistent, recurring revenue and ~~related tax settlement products~~strong operating margins and requires limited maintenance capital expenditures. As a multi-brand operator, we continually look to diversify and grow our portfolio of brands either through acquisition or organic brand development. Our acquisition strategy typically targets businesses that are ~~offered primarily through franchised locations, although we operate a limited number of Company-owned offices each tax season.~~highly cash flow generative with compelling unit economics that can be scaled by adding franchise and company owned units, or that can be restructured to enhance performance and value to Franchise Group. We strive to create value for our stockholders by generating free cash flow and capital-efficient growth across economic cycles.

Our business lines include American Freight, The Vitamin Shoppe ("Vitamin Shoppe"), Liberty Tax Service ("Liberty Tax"), Pet Supplies Plus and Buddy’s Home Furnishings ("Buddy's"). See "Note 1. Organization and Significant Accounting Policies" in the notes to Consolidated Financial Statements in our ~~Transition~~Annual Report on Form ~~10-K/T~~10-K for the ~~transition period~~fiscal year ended December ~~28, 2019, for details of the U.S. office activity and the number of Canadian and Company-owned offices for the years ended December 28, 2019, April 30, 2019, and April 30, 2018.~~26, 2020.

On ~~July~~March 10, 2019, we completed our acquisition of Buddy's Home Furnishings (“Buddy’s”). Our Buddy's segment franchises or operates rent-to-own stores that lease household durable goods, such as electronics, residential furniture, appliances and household accessories, to customers on a rent-to-own basis. Merchandise is also offered for immediate purchase or an installment sales basis.

~~On October 23, 2019,~~2021, we completed the acquisition (the "Pet Supplies Plus Acquisition") of the Sears Outlet business from Sears Hometown and Outlet Stores, Inc. (“Sears Outlet”). Sears Outlet has been rebranded as American Freight Outlet and is included in the American Freight segment. American Freight Outlet provides in-store and online access to purchase outlet-value products primarily in the home appliance category. Since the rebranding, American Freight Outlet stores also carry a large selection of the American Freight furniture and mattresses assortments, which offers deep value price points to consumers. Merchandise categories formerly associated with Sears Outlet, such as apparel, sporting goods, lawn and garden equipment, tools, and other household goods have been discontinued to make space for a new furniture and mattress program. Products are generally covered by a warranty and a full suite of extended-service plans and services are also offered.

On December 16, 2019, we completed our acquisition of the Vitamin Shoppe, Inc. (“Vitamin Shoppe). Our Vitamin Shoppe segment is an omni-channel specialty retailer of vitamins, minerals, herbs, specialty supplements, sports nutrition and other health and wellness products. We believe we offer one of the largest varieties of products among vitamin, mineral and supplementPSP Midco, LLC ("VMS") retailers and continue to refine our product assortment with approximately 7,200 stock keeping units ("SKUs") offered in our stores or though e-commerce. We believe our product offering and emphasis on product knowledge and customer service helps us meet the needs of our target customer and serves as a foundation for enhancing strong customer loyalty.

~~On February 14, 2020, we completed the acquisition of American Freight Group, Inc. ("American Freight"~~Pet Supplies Plus"). Our ~~American Freight~~Pet Supplies Plus segment is a ~~retail chain offering brand-name furniture, mattresses~~franchisor and ~~home accessories at discount prices.~~operator of pet specialty stores. Pet Supplies Plus has a diversified revenue model comprised of Company-owned stores, franchise royalties and wholesale distribution to franchisees. Pet Supplies Plus provides a broad selection of products and services to customers.

American Freight buys direct from manufacturers and sells direct in warehouse-style stores. By cutting out the middleman and keeping its overhead costs low, American Freight can offer quality, new furniture and mattresses at the lowest prices. American Freight offers same-day delivery on all in-stock items with flexible payment options including free layaway and take it home today for $50 with low, easy payment plans.

Our revenue is primarily derived from merchandise sales, lease revenue, ~~loans and fee charges in our Company-owned stores,~~ royalties and other required fees from our ~~franchisees and financial products related to refund transfers.~~franchisees.

In evaluating our performance, management focuses on Adjusted EBITDA as a measure of the cash flow from recurring operations from the businesses. Adjusted EBITDA represents net income (loss), before income taxes, interest expense, depreciation and amortization, and certain other items.

Acquisition

On ~~February 14, 2020,~~March 10, 2021, we ~~announced~~completed the ~~completion of our previously announced acquisition of American Freight (“American Freight Acquisition”).~~Pet Supplies Plus Acquisition. Additionally, we entered into a new ~~$675 million~~$1.3 billion credit facility which funded the ~~American Freight~~Pet Supplies Plus Acquisition and refinanced certain ~~debts~~outstanding indebtedness.

Divestiture

On February 21, 2021, we entered into a purchase agreement (the "Purchase Agreement") with NextPoint Acquisition Corp ("NextPoint") to sell our Liberty Tax business (the "Transaction"). On July 2, 2021 the Transaction was completed and we received total consideration of ~~our Buddy’s Home Furnishings business~~approximately $249 million consisting of approximately $182 million in cash and approximately $67 million of proportional voting shares of NextPoint. In connection with the ~~American Freight Outlet portion of our American Freight businesses.~~Purchase Agreement, the parties also entered into a transition services agreement pursuant to which both parties will provide certain transition services to each other for a period not to exceed twelve months.

For purposes of this section and throughout this quarterly report, all references to “fiscal 2020” refer to the year ~~ending~~ended December 26, 2020 and corresponding references to fiscal quarters are references to quarters within that fiscal year. ~~For purposes of this section and throughout this quarterly report all references to “tax season” refer to the period between January 1 and April 30 of the referenced year.~~

Impact of COVID-19

The COVID-19 pandemic has affected, and likely will continue to affect, our financial condition and results of operations for the foreseeable future. In most states, during 2020, our ~~segments~~businesses were deemed essential ~~businesses~~ and, therefore, the majority of our stores ~~have~~ remained open during the pandemic. The highest number of ~~stores~~temporary store closures we experienced due to the COVID-19 pandemic was approximately 240 ~~stores.~~stores during the second quarter of 2020. As of June ~~27, 2020, no~~26, 2021, and July 30, 2021, none of our stores were closed due to the COVID-19 ~~out of our 4,108 total stores (owned or franchised);~~pandemic; however, we cannot predict whether our stores will remain open if the COVID-19 pandemic worsens and states and localities issue new restrictions.

We ~~also made changes to reduce~~have seen disruptions in our exposure to potential short-term liquidity risk in the banking system. On May 1, 2020, we executed backstop commitment letter pursuant to which B. Riley Financial, Inc. ("B. Riley") agreed to provide, subjectsupply chain due to the ~~terms~~COVID-19 pandemic, primarily in our American Freight and ~~conditions set forth therein, a backstop commitment for a $100.0 million asset-based lending facility. On June 30, 2020,~~Buddy's segments. Despite furniture and mattress supply constraints, we ~~completed a public offering~~have been able to source enough product to open new stores and replenish existing stores. The supply chain disruption has also reduced the supply of ~~4.2 million shares~~new appliances, which in turn directly impacts the availability of ~~our common stock with net cash proceeds~~"as-is" merchandise. We expect the availability of furniture and mattresses to improve during this fiscal year and the ~~Company~~recovery of ~~$92.2 million. As of June 27, 2020, we were in compliance with our debt covenants and, based on a continuation of current operating results, we expect~~as-is appliance availability to ~~be in compliance for the~~extend into next ~~twelve months.~~year.

While ~~too early to fully quantify,~~ we have not experienced a significant negative impact on our sales and ~~profitability. However,~~profitability due to the COVID-19 pandemic, if the pandemic worsens we could ~~negatively impact~~see negative impacts to our business and financial ~~results by~~results. We could experience weakening demand for our products and services, ~~interfering with~~difficulty operating our ~~ability~~ and ~~our franchisees’ ability to operate~~franchisees' store locations ~~disrupting~~and continued disruptions in our supply ~~chain or affecting our ability to raise capital from financial institutions.~~chain. As events are ~~rapidly~~continuously changing, we are unable to accurately predict the impact that the COVID-19 pandemic will have on our results of operations due to uncertainties including, but not limited to, the duration of shutdowns, quarantines and travel restrictions, the severity of the disease, the duration of the outbreak and the public’s response to the outbreak;operations; however, we are actively managing our business to respond to the impact.

Results of Operations

The table below shows results of operations for the three and six months ended June ~~27, 2020~~26, 2021 and June ~~30, 2019.~~27, 2020.


	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	June 26, 2021		June 27, 2020		$		%		June 26, 2021		June 27, 2020		$		%
Total revenues	$	862,758	$	497,554	$	365,204	73.4	%	$	1,484,103	$	1,000,501	$	483,602	48.3	%
Income from operations	58,156		14,777		43,379		293.6	%	111,131		11,932		99,199		831.4	%
Net income	$	32,521	$	(16,638)	$	49,159	(295.5)	%	$	4,186	$	7,603	$	(3,417)	(44.9)	%

Three Months Ended Six Months Ended
Change Change
(In thousands) June 27, 2020 June 30, 2019 $ % June 27, 2020 June 30, 2019 $ %
Total revenues $ 512,627
$ 23,820
$ 488,807
2,052 % $ 1,105,193
$ 119,658
$ 985,535
824 %
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 %

Revenues. The table below sets forth the components and changes in our revenues for the three and six months ended June ~~27, 2020~~26, 2021 and June ~~30, 2019.~~27, 2020.


	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	June 26, 2021		June 27, 2020		$		%		June 26, 2021		June 27, 2020		$		%
Product	$	805,768	$	466,709	$	339,059	72.6	%	$	1,389,585	$	940,214	$	449,371	47.8	%
Service and other	48,193		13,669		34,524		252.6	%	76,768		26,691		50,077		187.6	%
Rental	8,797		17,176		(8,379)		(48.8)	%	17,750		33,596		(15,846)		(47.2)	%
Total revenue	$	862,758	$	497,554	$	365,204	73.4	%	$	1,484,103	$	1,000,501	$	483,602	48.3	%

Three Months Ended Six Months Ended
Change Change
(In thousands) June 27, 2020 June 30, 2019 $ % June 27, 2020 June 30, 2019 $ %
Product $ 466,709
$ —
466,709
— % $ 940,214
$ —
$ 940,214
— %
Service and other 28,742
23,820
4,922
21 % 131,383
119,658
$ 11,725
10 %
Rental 17,176
—
17,176
— % 33,596
—
$ 33,596
— %
Total revenue $ 512,627
$ 23,820
$ 488,807
2,052 % $ 1,105,193
$ 119,658
$ 985,535
824 %

For the three months ended June ~~27, 2020,~~26, 2021, total revenues increased ~~$488.8~~$365.2 million, or ~~2,052%~~73%, ~~to $512.6~~of $862.8 million compared to ~~$23.8~~$497.6 million in the same period last year. This increase was primarily due to the ~~Buddy's~~Pet Supplies Plus Acquisition, which increased revenue by ~~$25.4~~$275.8 million, ~~the~~a $64.8 million increase in revenue at our Vitamin Shoppe segment and a $34.4 million increase in revenue at our American Freight ~~Acquisition and Sears Outlet Acquisition, which collectively increased revenue by $234.4 million and the Vitamin Shoppe Acquisition, which increased revenue by $237.7 million. This increase was~~segment. These increases were offset by ~~an $8.7~~a $9.8 million decrease in ~~service and other~~ revenue ~~from~~at our ~~Liberty Tax~~Buddy's segment ~~primarily due to reduced tax returns driven by reduced office count and the extension of the tax filing deadline to July 15, 2020~~ due to the ~~COVID-19 pandemic.~~sale of Company-owned stores in the prior year.

For the six months ended June ~~27, 2020,~~26, 2021, total revenues increased ~~$985.5~~$483.6 million, or ~~824%~~48.3%, ~~to $1,105.2~~of $1,484.1 million compared to ~~$119.7~~$1,000.5 million in the same period last year. This increase was primarily due to the ~~Buddy's~~Pet Supplies Plus Acquisition, which increased revenue by ~~$49.7~~$327.1 million, ~~the~~an $90.1 million increase in revenue at our American Freight ~~Acquisition~~segment including a $55.8 million increase due to the annualization of the segment, and ~~Sears Outlet Acquisition which collectively increased~~an $83.7 million increase in revenue ~~by $437.2 million and the~~at our Vitamin Shoppe ~~Acquisition which increased revenue by $513.6 million.~~segment. These increases were offset by a ~~$15.0~~$17.3 million decrease in ~~service and other~~ revenue ~~from~~at our ~~Liberty Tax~~Buddy's segment ~~primarily due to reduced tax returns from store closures and the extension of the tax filing deadline to July 15, 2020~~ due to the ~~COVID-19 pandemic.~~sale of Company-owned stores in the prior year.

Operating expenses. The following table details the amounts and changes in our operating expenses for the three and six months ended June ~~27, 2020~~26, 2021 and June ~~30, 2019.~~27, 2020.


	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	June 26, 2021		June 27, 2020		$		%		June 26, 2021		June 27, 2020		$		%
Cost of revenue:
Product	$	522,576	277,582		$	244,994	88.3	%	$	861,991	$	565,400	$	296,591	52.5	%
Service and other	934		701		233		33.2	%	1,339		1,457		(118)		(8.1)	%
Rental	2,935		5,508		(2,573)		(46.7)	%	5,940		11,450		(5,510)		(48.1)	%
Total cost of revenue	526,445		283,791		242,654		85.5	%	869,270		578,307		290,963		50.3	%
Selling, general, and administrative expenses	278,157		198,986		79,171		39.8	%	503,702		410,262		93,440		22.8	%
Total operating expenses	$	804,602	$	482,777	$	321,825	66.7	%	$	1,372,972	$	988,569	$	384,403	38.9	%

Three Months Ended Six Months Ended
Change Change
(In thousands) June 27, 2020 June 30, 2019 $ % June 27, 2020 June 30, 2019 $ %
Cost of revenue:
  Product $ 277,582
$ —
$ 277,582
— % $ 565,400
$ —
$ 565,400
— %
  Service and other 701
—
701
— % 1,456
—
1,456
— %
  Rental 5,508
—
5,508
— % 11,450
—
11,450
— %
     Total cost of revenue 283,791
—
283,791
— % 578,306
—
578,306
— %
Selling, general, and administrative expenses 217,264
29,482
187,782
637 % 469,476
70,447
399,029
566 %
   Total operating expenses $ 501,055
$ 29,482
$ 471,573
1,600 % $ 1,047,782
$ 70,447
$ 977,335
1,387 %

For the three months ended June ~~27, 2020,~~26, 2021, total operating expenses were ~~$501.1~~$804.6 million compared to ~~$29.5~~$482.8 million in the same period last year, representing an increase of ~~$471.6~~$321.8 million, or ~~1,600%~~66.7%. This increase was primarily due to the ~~Buddy's~~Pet Supplies Plus Acquisition which increased operating expenses by ~~$20.1~~$265.2 million, ~~the~~a $34.5 million increase at our Vitamin Shoppe segment, a $24.8 million increase at our American Freight ~~Acquisition~~segment and ~~Sears Outlet Acquisition which collectively increased operating~~a $5.0 million increase in corporate expenses primarily due to fees related to the sale of our Liberty Tax business and higher payroll and stock compensation expense. These increases were partially offset by ~~$222.0~~an $7.8 million ~~and~~decrease at our Buddy's segment due to the ~~Vitamin Shoppe Acquisition which increased operating expenses by $238.3 million.~~sale of Company-owned stores in the prior year.

For the six months ended June ~~27, 2020,~~26, 2021, total operating expenses were ~~$1,047.8~~$1,373.0 million compared to ~~$70.4~~$988.6 million in the same period last year, representing an increase of ~~$977.3~~$384.4 million, or ~~1,387%~~38.9%. This increase was primarily due to the ~~Buddy's~~Pet Supplies Plus Acquisition which increased operating expenses by ~~$41.0~~$320.7 million ~~the~~and a $57.1 million increase at our American Freight ~~Acquisition and Sears Outlet Acquisition which collectively increased operating expenses by $423.2~~segment, a $14.6 million ~~and the~~increase at our Vitamin Shoppe ~~Acquisition which increased operating~~segment and a $8.0 million increase in corporate expenses primarily due to fees related to the sale of our Liberty Tax business and higher payroll and stock compensation expense. These increases were partially offset by ~~$519.7 million.~~an $16.2 million decrease at our Buddy's segment due to the sale of Company-owned stores in the prior year.

Other. Other expense increased ~~by $4.0~~$32.7 million for the six months ended June ~~27, 2020. The increase is~~26, 2021 primarily due to a prepayment penalty from the repayment of the ~~debt used to fund~~Franchise Group New Holdco Term Loan and ABL Term Loan in the ~~Buddy's Acquisition and the Sears Outlet Acquisition.~~six months ended June 27, 2021.

Interest expense, net. Interest expense, net ~~increased $31.2 million and $55.9~~decreased $5.0 million for the three months ended June 26, 2021 primarily due to a $3.9 million decrease in deferred financing cost amortization and lower interest rates on the First and Second Lien Term loans compared to the Franchise New Holdco Term Loan. Interest expense, net increased $17.9 million for the six months ended June ~~27, 2020, respectively. These increases were~~26, 2021 primarily due to ~~an increase in long-term obligations to finance~~ the ~~acquisitions~~write-off of ~~Buddy's, Sears Outlet, Vitamin Shoppe and American Freight, deferred financing cost amortization expense for the New Holdco debt of $4.5~~$29.3 million ~~and $9.7 million in the three and six months ended June 27, 2020, respectively, and a $3.5 million write-off~~ of deferred financing costs due to the termination of the ~~Liberty Tax Credit Agreement in~~Franchise Group New Holdco Term Loan and ABL Term Loan partially offset by the ~~quarter ended June 27, 2020.~~reduced amortization of deferred financing costs.

Income tax benefit. Our effective tax rate from continuing operations, including discrete income tax items, was ~~(9.4%)~~7.8% and ~~15.0%~~(26.7)% for the three months ended June ~~20, 2020~~26, 2021 and June ~~30, 2019, respectively,~~27, 2020, respectively. For the six months ended June 26, 2021 and ~~1,091.2%~~June 27, 2020, the Company had an effective tax rate from continuing operations of (2.0)% and ~~30.9% for~~117.1%, respectively. The impact of the enactment of the CARES Act was included in the three and six months ended June 27, 2020 ~~and June 30, 2019, respectively. The Coronavirus Aid, Relief, and Economic Security, or CARES Act was enacted on March 27, 2020,~~ which ~~retroactively changed~~is the ~~eligibility~~primary

driver of ~~certain assets for expense treatment~~the difference in the ~~year placed in service, back~~effective tax rate for both periods. We also expect to ~~2018, and permitted any~~utilize a portion of its deferred tax assets, including net operating loss ~~for the tax years 2018, 2019 and 2020 to be carried back for five years. The Company recorded an income tax benefit of $45.6 million as~~carryforwards, which previously had a ~~result of the CARES Act which is the primary reason for the change in the effective rate for the six months ended June 27, 2020 compared to the same period in the prior year.~~full valuation allowance.

Segment Information

We, through our franchisees and Company-owned stores, operate a system of ~~tax preparation,~~ rent-to-own and point of sale retail locations. Our operations are conducted in four reporting business segments: ~~Liberty Tax, Buddy's,~~Vitamin Shoppe, American Freight, Pet Supplies Plus and ~~Vitamin Shoppe.~~Buddy's. We define our segments as those operations whose results our ~~chief operating decision maker~~Chief Operating Decision Maker ("CODM") regularly reviews to analyze performance and allocate resources.

We measure the results of our segments using, among other measures, each segment's net sales, operating expenses, which includes cost of revenue, and operating income (loss). We may revise the measurement of each segment's operating income, including the allocation of overhead costs, as determined by the information regularly reviewed by the CODM. When the measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation. Because the ~~Buddy's Acquisition, American Freight Acquisition and Vitamin Shoppe~~Pet Supplies Plus Acquisition occurred ~~subsequent to~~during the six months ended June ~~30, 2019,~~26, 2021; no comparable information is available, ~~for the three and six months ended June 27, 2020;~~ therefore, ~~Buddy's, American Freight and Vitamin Shoppe~~Pet Supplies Plus segment information is not provided in this discussion.

The following table summarizes the operating results of our Vitamin Shoppe segment:


	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	June 26, 2021		June 27, 2020		$		%		June 26, 2021		June 27, 2020		$		%
Total revenues	$	302,555	$	237,735	$	64,820	27.3	%	$	597,295	$	513,622	$	83,673	16.3	%
Operating expenses	272,792		238,322		34,470		14.5	%	534,258		519,685		14,573		2.8	%
Segment income	$	29,763	$	(587)	$	30,350	(5,170.4)	%	$	63,037	$	(6,063)	$	69,100	(1,139.7)	%

Total revenue for the three months and six months ended June 26, 2021 for our Vitamin Shoppe segment increased $64.8 million or 27.3% and $83.7 million or 16.3% compared to the same periods in the prior year, respectively. The increases in revenue were primarily due to the reduction in impact of COVID-19 restrictions, such as temporary store closures, and positive same store sales.

Operating expenses for our Vitamin Shoppe segment increased $34.5 million or 14.5% for the three months ended June 26, 2021 as compared to the same period in the prior year. The increases in operating expenses were primarily due to a $33.3 million increase in cost of revenue due to higher revenue in the current year and a $6.0 million increase in payroll expenses partially offset by a decrease in depreciation expense.

Operating expenses for Vitamin Shoppe segment increased $14.6 million or 2.8% for the six months ended June 26, 2021 as compared to the same period last year. The increases in operating expenses were primarily due to a $31.8 million increase in cost of revenue partially offset by a decrease in depreciation expense and costs related to organizational restructuring, including severance expenses incurred in the prior year.

The following table summarizes the operating results of the ~~Liberty Tax~~American Freight segment:


	Three Months Ended											Six Months Ended										Three Months Ended								Six Months Ended
							Change									Change										Change								Change
(In thousands)	June 27, 2020			June 30, 2019			$			%		June 27, 2020		June 30, 2019		$			%		(In thousands)	June 26, 2021		June 27, 2020		$		%		June 26, 2021		June 27, 2020		$		%
Total revenues	$	15,073		$	23,820		$	(8,747	)	(36.7	)%	$	104,692	$	119,658	$	(14,966	)	(12.5	)%	Total revenues	$	268,807	$	234,427	$	34,380	14.7	%	$	527,323	$	437,174	$	90,149	20.6	%
Operating expenses	18,277			29,482			(11,205		)	(38.0	)%	59,214		70,447		(11,233		)	(15.9	)%	Operating expenses	246,851		222,005		24,846		11.2	%	480,237		423,165		57,072		13.5	%
Segment income	$	(3,204	)	$	(5,662	)	$	2,458		(43.4	)%	$	45,478	$	49,211	$	(3,733	)	(7.6	)%	Segment income	$	21,956	$	12,422	$	9,534	76.8	%	$	47,086	$	14,009	$	33,077	236.1	%

Total revenue for our ~~Liberty Tax~~American Freight segment ~~decreased $8.7~~increased $34.4 million or ~~36.7%~~14.7% for the three months ended June ~~27, 2020~~26, 2021 as compared to the same period last year. The increase in revenue was primarily due to new store openings and temporary store closures during the same period last year due to the COVID-19 pandemic.

Total revenue for our American Freight segment increased $90.1 million or 20.6% for the six months ended June 26, 2021 as compared to the same period last year. The increase in revenue was primarily due to the inclusion of the full first quarter results in the current year (American Freight was acquired on February 14, 2020), new store openings and temporary store closures during the same period last year due to the COVID-19 pandemic.

Operating expenses for our American Freight segment increased $24.8 million or 11.2% for the three months ended June 26, 2021 as compared to the same period last year. The increase in operating expenses was primarily due to higher cost of revenue due to higher revenues, higher occupancy costs due to the increase in store count and increases in advertising, supplies and travel expenses due to reduced spending in the prior year due to the COVID-19 pandemic.

Operating expenses for our American Freight segment increased $57.1 million or 13.5% for the six months ended June 26, 2021 as compared to the same period last year. The increase in operating expenses was primarily due to the inclusion of the full first quarter in the current year (American Freight was acquired on February 14, 2020), increased cost of revenue and commissions due to higher revenue, higher occupancy costs due to the increase in store count and higher advertising costs due to a reduction in advertising spending in the prior year due to the COVID-19 pandemic.

The following table summarizes the operating results of the Buddy's segment:


	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	June 26, 2021		June 27, 2020		$		%		June 26, 2021		June 27, 2020		$		%
Total revenues	$	15,636	$	25,392	$	(9,756)	(38.4)	%	$	32,416	$	49,705	$	(17,289)	(34.8)	%
Operating expenses	12,269		20,054		(7,785)		(38.8)	%	24,776		41,022		(16,246)		(39.6)	%
Segment income	$	3,367	$	5,338	$	(1,971)	(36.9)	%	$	7,640	$	8,683	$	(1,043)	(12.0)	%

Total revenue for our Buddy's segment decreased $9.8 million or 38.4% and $17.3 million or 34.8% for the three and six months ended June 26, 2021, respectively as compared to the same period last year. The decrease in revenue was primarily ~~driven by the following:~~

~~a decrease of $7.3 million in royalties and advertising, financial products, tax preparation and electronic filing fees related to store closures and reduced tax returns~~ due to ~~COVID-19;~~the sale and re-franchising of 47 Company owned stores on November 10, 2020.

~~a decrease of $1.3 million in franchise and area developer fees due to AD buybacks and the timing of payments made on loans due to COVID-19.~~

~~Total revenue~~Operating expenses for our ~~Liberty Tax~~Buddy's segment decreased ~~$15.0~~$7.8 million or ~~12.5%~~38.8% and $16.2 million or 39.6% for the three and six months ended June ~~27, 2020 as compared to the same period last year. The decrease in revenue was primarily driven by the following:~~

~~a decrease of $16.4 million in royalties and advertising, financial products and electronic filing fees related to store closures and reduced tax returns due to COVID-19;~~

~~a $1.9 million decrease in interest income due to fewer working capital loans issued to franchisees;~~

~~a decrease of $1.0 million in franchise and area developer fees due to AD buybacks and the timing of payments made on loans due to COVID-19;~~

~~an increase of $2.9 million in assisted tax preparation fees, net of discounts related to an increase in the number of Company-owned stores operated in 2020; and~~

~~a $1.8 million increase in other revenue primarily related to gains on sales of Company-owned stores where the sales price exceeds the carrying value of the assets sold.~~

~~Operating expenses for Liberty Tax decreased $11.2 million or 38.0% for the three months ended June 27, 2020~~26, 2021, respectively as compared to the same period last year. The decrease in operating expenses was ~~driven by the following:~~

~~a $1.9 million decrease in AD expenses due to reacquired ADs and reduced tax return volume;~~

~~a decrease of $1.3 million in depreciation, amortization and impairment charges~~ primarily ~~related to software disposed of in December 2019; and~~

a $6.9 million decrease in other expenses primarily related to non-recurring professional fees and legal settlements in 2019, decreased bad debt expense, partially offset by higher software license costs.

Operating expenses for Liberty Tax decreased $11.2 million or 15.9% for the six months ended June 27, 2020 as compared to the same period last year. The decrease in operating expenses was driven by the following:

~~a $6.9 million decrease in AD expenses due to reacquired ADs and reduced tax return volume;~~

~~a decrease of $3.3 million in depreciation, amortization and impairment charges primarily related to software disposed of in December 2019;~~

~~a $2.0 million decrease in other expenses primarily related to non-recurring professional fees and legal settlements in 2019 offset by higher software license and franchisee rebate costs; and~~

~~a $1.6 million increase in advertising expense~~ due to the ~~timing~~sale and re-franchising of ~~advertising compared to the prior year.~~47 Company owned stores on November 10, 2020.

Adjusted EBITDA

To provide additional information regarding our financial results, we have disclosed in the Adjusted EBITDA table below and within this quarterly ~~report Adjusted EBITDA.~~report. Adjusted EBITDA represents net income (loss), before income taxes, interest expense, depreciation and amortization, and certain other items specified below. We have provided a reconciliation below of Adjusted EBITDA to net ~~loss,~~income (loss), the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this quarterly report because we seek to manage our business to achieve higher levels of Adjusted EBITDA and to improve the level of Adjusted EBITDA as a percentage of revenue. In addition, it is a key basis upon which we assess the performance of our operations and management. We also use Adjusted EBITDA for business planning and the evaluation of acquisition opportunities. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons. We believe the presentation of Adjusted EBITDA enhances an overall understanding of the financial performance of and prospects for our business. Adjusted EBITDA is not a recognized financial measure under GAAP and may not be comparable to similarly titled measures used by other companies in our industry. Adjusted EBITDA should not be considered in isolation from or as an alternative to net income (loss), operating income (loss), or any other performance measures derived in accordance with GAAP.

The following table presents a reconciliation of Adjusted EBITDA for each of the periods indicated.


	Reconciliation of Net Loss to Adjusted EBITDA
	Three Months Ended				Six Months Ended
(In thousands)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Net income from continuing operations	$	32,521	$	(16,638)	$	4,186	$	7,603
Add back:
Interest expense	22,865		27,877		70,300		52,389
Income tax benefit	2,770		3,510		(81)		(52,108)
Depreciation and amortization	17,115		15,486		28,572		29,348
Total Adjustments	42,750		46,873		98,791		29,629
EBITDA	75,271		30,235		102,977		37,232
Adjustments to EBITDA
Executive severance and related costs	(2)		663		9		5,320
Stock based compensation	2,825		1,706		5,260		4,042
Long-term executive compensation expense	325		—		824		—
Litigation costs including accrued judgements and settlements	(86)		158		3		(1,389)

Early debt repayment costs	—		—		36,726		4,048
Store closures	—		195		222		455
Acquisition costs (inclusive of inventory step up amortization)	6,419		14,772		13,649		44,294
Divestiture costs	2,318		—		2,660		—
Compliance costs	—		—		779		—
Integration costs	4,694		2,660		7,817		4,280
Total Adjustments to EBITDA	16,493		20,154		67,949		61,050
Adjusted EBITDA	$	91,764	$	50,389	$	170,926	$	98,282

Reconciliation of Net Loss to Adjusted EBITDA
Three Months Ended Six Months Ended
(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 31,626
415
57,378
1,470
Income tax benefit 1,882
(928 ) (43,987 ) 14,706
Depreciation, amortization, and impairment charges 17,865
3,699
33,792
7,772
Total Adjustments 51,373
3,186
47,183
23,948
EBITDA 29,700
(2,069 ) 85,049
56,884
Adjustments to EBITDA
Executive severance and related costs 663
952
5,319
952
Stock based compensation 1,854
218
4,339
607
Shareholder litigation costs 156
61
286
61
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 8,004
500
17,100
675
Inventory fair value step up amortization 7,403
—
28,193
—
Total Adjustments to EBITDA 20,422
4,479
61,958
3,900
Adjusted EBITDA $ 50,122
$ 2,410
$ 147,007
$ 60,784

Liquidity and Capital Resources

We believe that we have sufficient liquidity to support our ongoing operations and maintain a sufficient liquidity position to meet our obligations and commitments. Our liquidity plans are established as part of our financial and strategic planning processes and consider the liquidity necessary to fund our operating, capital expenditure and debt service needs.

We primarily fund our operations and acquisitions through operating cash flows and, as needed, a combination of borrowings under various credit agreements, availability under our revolving credit facilities and the issuance of equity securities. Cash generation can be subject to variability based on many factors, including seasonality ~~receipt of prepaid payments from area developers, timing of repayment of loans to franchisees~~ and the effects of changes in end markets.

As of June ~~27, 2020,~~26, 2021, we have current installments of long-term obligations of ~~$203.5~~$11.5 million. On May 1, 2020, we entered into an ABL Commitment Letter, due in 2025, with B. Riley pursuant to which B. Riley agreed to provide a backstop commitment for a $100.0 million asset-based lending facility to replace the FGNH ABL Term Loan due on September 30, 2020. The $70.0 million due on the Vitamin Shoppe ABL Revolver, while classified as a current installment as required of revolving credit facilities, expires in December 2022. We expect ~~that the remaining $45.0 million of current~~these obligations can be serviced from our cash and cash equivalents, which were ~~$105.5~~$165.4 million as of June ~~27, 2020.~~26, 2021.

During the six months ended June ~~27, 2020,~~26, 2021, we executed several substantial transactions that will affect our liquidity and capital resources in future periods. For more details please see "Note 6. Long-Term Obligations" and "Note 8. Stockholders' Equity":

•On January 3, 2020, we entered into a subscription agreement with an affiliate of Vintage, pursuant to which the affiliate of Vintage purchased from the Company 2,354,000 shares of common stock for an aggregate purchase price of $28.2 million in cash.

On February 7, 2020, in connection with our repurchases of Vitamin Shoppe’s outstanding 2.25% Convertible Senior Notes due 2020 (the “VSI Convertible Notes”), certain investors provided the Company with an aggregate of approximately $65.9 million of equity financing to fund the repurchase or redemption of the VSI Convertible Notes, make interest payments on the VSI Convertible Notes that are not so repurchased or redeemed until their maturity and to also fund general, working capital and cash needs of the Company.

~~On February~~ 14, ~~2020, we entered into a $675.0 million credit facility, which was used to fund the American Freight Acquisition and repay the existing Sears Outlets and Buddy’s term loans.~~

~~On May 1, 2020, we entered into a backstop commitment for a $100.0 million asset-based lending facility with B. Riley. As of June 27, 2020, no amounts had been drawn on this facility.~~

~~On June 30, 2020,~~2021, we completed ~~the Offering~~an offering in which we sold ~~4.2~~3.3 million shares of our ~~common stock~~Series A Preferred Stock and received net proceeds of approximately ~~$92.2~~$79.7 million, after deducting underwriting discounts and estimated offering expenses totaling ~~approximately $5.4~~$3.2 million.

•On ~~July 30, 2020,~~March 10, 2021, we entered into a $1.3 billion credit facility, which was used to fund the ~~Underwriters exercised~~Pet Supplies Plus Acquisition and repay the ~~Option,~~existing term loans and ~~we received net proceeds of approximately $13.8 million, after deducting underwriting discounts of approximately $0.8 million.~~revolving credit balances.

The outbreak of the COVID-19 pandemic has affected economic conditions, including macroeconomic conditions and levels of business confidence and has created economic disruption. Mitigation efforts, including federal, state and local government restrictions, including travel restrictions, restrictions on public gatherings, closing of nonessential businesses and quarantining of people who may have been exposed to the COVID-19 pandemic, may have an impact on our cash flow from operations and our ability to raise capital from financial institutions. Currently, there is significant uncertainty surrounding the potential impact on our business and we are actively managing our business to respond to the impact and increase our liquidity.

Sources and uses of cash

Operating activities. In the six months ended June ~~27, 2020,~~26, 2021, cash from operating activities ~~increased $85.4~~decreased $43.3 million compared to the same period in the prior year ~~was~~ primarily due to a ~~$84.4~~$161.8 million ~~increase~~change in working capital to finance inventory ~~a $61.1 million increase in cash income~~ and a ~~$10.5 increase~~$9.0 million decrease in ~~deferred revenue~~accounts payable and accrued expenses due to the timing of payments. These were partially offset by a ~~$66.5~~$55.4 million decrease in income taxes receivable.

Investing activities. In the six months ended June ~~27, 2020, we~~26, 2021, cash used ~~$371.0 million more cash for~~in investing activities increased $131.9 million compared to the same period in the prior year. This increase was primarily due to ~~$353.4~~an increase of $109.4 million ofin cash used for ~~the American Freight Acquisition,~~acquisitions and a ~~$16.6~~$26.6 million decrease in cash ~~payments~~ received onfrom operating loans to franchisees and ADs ~~and a $15.5 million increase in purchases of property, equipment and software. This increase was~~ partially offset by ~~a $15.6~~an $11.3 million decrease in ~~cash used for~~the issuance of operating loans to franchisees and ADs.

Financing activities. In the six months ended June ~~27, 2020,~~26, 2021, cash ~~from~~provided by financing activities increased ~~$352.5~~$142.6 million compared to the same period in the prior year. This increase was driven by a ~~$575.0 million in borrowing under the FGNH Credit Agreement, $48.1~~$714.0 million increase in proceeds from ~~revolving credit agreements,~~the issuance of debt and a ~~$92.1~~$79.5 million increase ~~due to~~in proceeds from ~~share issuances and a $48.3 million decrease in repayments~~the issuance of ~~borrowings under revolving credit facilities. The~~preferred stock. These increases were partially offset by ~~the $394.6~~a $360.7 million ~~repayment~~increase in repayments of long-term obligations, ~~primarily the term loans used to acquire Buddy's, Sears Outlet and American Freight,~~ a ~~$15.1~~$135.3 million reduction in borrowing under revolving credit facilities, a $92.1 million reduction in proceeds from common stock, a $36.7 million increase in ~~dividends and non-controlling interest distributions~~cash paid ~~and~~for penalties for early debt repayment, a ~~$12.3~~$36.2 million increase in payments for debt issuance ~~costs.~~costs and an $22.4 million increase in dividends paid.

Long-term debt borrowings

~~Franchise Group New Holdco Term Loan.~~ On February 14, 2020, as part of the American Freight Acquisition, we, through direct and indirect subsidiaries, entered into a $675.0 million credit facility, which included a $575.0 million senior secured term loan (the “FGNH Term Loan”) and a $100.0 million senior secured asset based term loan (the “FGNH ABL Term Loan”), to finance the transaction and repay the existing Sears Outlets and Buddy’s term loans for an amount of $106.7 million and $101.6 million including accrued interest, respectively. The FGNH Term Loan will mature on February 24, 2025 and the FGNH ABL Term Loan will mature on September 30, 2020. We are required to repay the FGNH Term Loan in equal quarterly installments of $6.25 million on the last day of each fiscal quarter, commencing on June 27, 2020.

~~Vitamin Shoppe Term Loan.~~ ~~On December 16, 2019 as part of the Vitamin Shoppe Acquisition, we, through direct and indirect subsidiaries, entered into~~For 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. Our obligations under the Vitamin Shoppe Term Loan are secured by substantially all of the assetsdescription of our Vitamin Shoppe segment. We are required to repay the term loan in equal quarterly installments of $4.3 million on the last day of each fiscal quarter, commencing on March 28, 2020. The Vitamin Shoppe Term Loan Agreement includes customary affirmative, negative, and financial covenants binding on us and our subsidiaries, including delivery of financial statements,long-term debt borrowing ~~base certificates and other reports.~~

On May 22, 2020, 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 the Company (the “Term Loan Assignment”), subject to certain conditions and certain limitations on the Company’s rights as a lender, (ii) modify the minimum consolidated EBITDA covenant, (iii) limit the quarterly dividend payment by the Company 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 Company 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 Company 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 Company 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, we 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, we, 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 us of the lesser of (i) $100.0 million and (ii) a specified borrowing base based on our eligible credit card receivables, accounts 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. We borrowed $70.0 million on December 16, 2019, the proceeds of which were used to consummate the Vitamin Shoppe Acquisition. Subject to the Intercreditor Agreement, we are required to repay borrowings under the Vitamin Shoppe ABL Revolver with the net cash proceeds of certain 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 exceeds the lesser of $100.0 million and the borrowing base, less, in each case, a $10.0 million availability block, we must prepay any such excess. In addition, the Vitamin Shoppe ABL Agreement includes customary affirmative and negative

~~covenants binding on us and our subsidiaries, including delivery of financial statements, borrowing base certificates and other reports.~~

~~On May 22, 2020, the Vitamin Shoppe ABL Revolver was amended to permit the Term Loan Assignment and provide for the Dividend Waiver.~~

~~Liberty Tax Credit Agreement.~~ On May 16, 2019, we entered into a new credit agreement (the "Liberty Tax Credit Agreement") which provided for a $135.0 million senior revolving credit facility, a $10.0 million sub-facility for the issuance of letters of credit, and a $20.0 million swingline loan sub-facility. On October 2, 2019, we 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 Liberty Tax Credit Agreement included customary affirmative, negative, and financial covenants, including delivery of financial statements and other reports and maintenance of existence. On February 14, 2020, we amended certain provisions of the Liberty Tax Credit Agreement to provide for the gradual reduction of the commitments under the Liberty Tax Credit Agreement and termination of the facility on April 30, 2020.

~~For more information on the long-term obligations,~~ refer to "Note 6. Long-Term Obligations”, to the Consolidated Financial Statements in Item 1.

As of June 26, 2021, our current debt outstanding is $10.0 million which we can repay with our cash on hand and operating cash flows.

Other factors affecting our liquidity

~~Seasonality of cash flow.~~ Our Liberty Tax segment's tax return preparation business is seasonal, and most of its revenues and cash flow are generated during the period from late January through April 30 each year. Following each tax season, from May 1 through late January of the following year, it relies significantly on excess operating cash flow from the previous season, from cash payments made by franchisees who purchase new territories prior to the next tax season, and on the use of its credit facility to fund its operating expenses and invest in the future growth of the business. Its business has historically generated a strong cash flow from operations on an annual basis. The Liberty Tax segment devotes a significant portion of its cash resources during the off-season to finance the working capital needs of its franchisees, and expenditures for property, equipment and software.

~~Franchisee lending and potential exposure to credit loss.~~ A portion of our cash flow during the year is utilized to provide funding to our franchisees. At June 27, 2020, our total balance of loans to franchisees for working capital and equipment loans, representing cash we had advanced to the franchisees, was $3.3 million. In addition, at that date, our franchisees and ADs together owed us an additional $47.9 million, net of unrecognized revenue of $3.7 million, representing unpaid royalties, the unpaid purchase price for franchise territories and other amounts.

Our Liberty Tax segment franchise agreements allow us to obtain repayment of amounts due to us from our franchisees through an electronic fee intercept program before our franchisees receive the net proceeds from tax preparation and other fees they have charged to their customers on tax returns associated with tax settlement products. Therefore, we are able to minimize the nonpayment risk associated with amounts outstanding from franchisees by obtaining direct electronic payment in the ordinary course throughout the tax season. The unpaid amounts owed to us from our franchisees and ADs are collateralized by the underlying franchise or area and, when the franchise or area owner is an entity, are generally guaranteed by the owners of the respective entity. Accordingly, to the extent a franchisee or AD does not satisfy its payment obligations to us, we may repossess the underlying franchise or area in order to resell it in the future. At June 27, 2020, we had an investment in impaired accounts and notes receivable and related interest receivable of approximately $17.8 million. We consider accounts and notes receivable to be impaired if the amounts due exceed the fair value of the underlying franchise and estimate an allowance for doubtful accounts based on that excess. Amounts due include the recorded value of the accounts and notes receivable reduced by the allowance for uncollected interest, amounts due to ADs for their portion of franchisee receivables, any related unrecognized revenue and amounts owed to the franchisee or AD by us. In establishing the fair value of the underlying franchise, we consider net fees of open territories and the number of unopened territories. At June 27, 2020, our allowance for doubtful accounts for impaired accounts and notes receivable was $7.1 million.

Tax Receivable Agreement. We may be required to make payments under the Tax Receivable Agreement ("TRA Payments") to the former equity holders of Buddy's (the "Buddy’s Members"). Under the terms of the Tax Receivable Agreement, we ~~will~~agreed to pay the Buddy's Members 40% of the cash savings, if any, in federal, state and local taxes that we realize or are 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. Any future obligations and the timing of such payments under the Tax Receivable Agreement, however, are subject to several factors, including (i) the timing of subsequent exchanges

of New Holdco units by the Buddy’s Members, (ii) the price of our common stock at the time of exchange, (iii) the extent to which such exchanges are taxable, (iv) the ability to generate sufficient future taxable income over the term of the Tax Receivable Agreement to realize the tax benefits and (v) any future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. Although the amount of the TRA Payments would reduce the total cash flow to us and New Holdco, we expect the cash tax savings we will realize from the utilization of the related tax benefits would be sufficient to fund the required payments. As of June ~~27, 2020,~~26, 2021, we have TRA Payments due to the Buddy's Members of ~~$17.2~~$16.8 million.

Dividends. On ~~June 9, 2020,~~August 3, 2021, our Board of Directors declared a quarterly dividend to common stockholders of ~~$0.25~~$0.375 per share and preferred stockholders of $0.46875 per share. The cash ~~dividend was~~dividends will be paid on or about ~~July 22, 2020~~October 15, 2021 to holders of record of our common stock and preferred stock on the close of business on ~~June 22, 2020.~~October 1, 2021. On May 4, 2021, our Board of Directors declared a quarterly dividend to common stockholders of $0.375 per share and preferred stockholders of $0.46875 per share. The cash dividends were paid on or about July 15, 2021 to holders of record of our common stock and preferred stock on the close of business on July 1, 2021. The payment of dividends is at the discretion of our Board of Directors and depends, among other things, on our earnings, capital requirements, and financial condition. Our ability to pay dividends is also subject to compliance with financial covenants that are contained in our credit facility and may be restricted by any future indebtedness that we incur or issuances of ~~Preferred Stock.~~our preferred stock. In addition, applicable law requires our Board of Directors to determine that we have adequate surplus prior to the declaration of dividends. We cannot provide an assurance that we will pay dividends at any specific level or at all.

Future cash needs and capital requirements

Operating and financing cash flow needs. Following transactions completed subsequent to June ~~27, 2020,~~26, 2021, our primary cash needs ~~will~~are expected to include the payment of scheduled debt and interest payments, capital expenditures and normal operating activities. We believe that the revolving credit facilities along with cash from operating activities, will be sufficient to support our cash flow needs for at least the next twelve months.

Several factors could affect our cash flow in future periods, including the following:

•The extent to which we extend additional operating financing to our franchisees ~~and ADs,~~ beyond the levels of prior periods;

•The extent and timing of capital expenditures;

•The extent and timing of future acquisitions;

•Our ability to integrate our acquisitions and implement business and cost savings initiatives to improve profitability; and

•The extent, if any, to which our Board of Directors elects to continue to declare dividends on our common stock.

Compliance with debt covenants. Our revolving credit and long-term debt agreements impose restrictive covenants on us, including requirements to meet certain ratios. As of June ~~27, 2020,~~26, 2021, we were in compliance with all covenants under these agreements and, based on a continuation of current operating results, we expect to be in compliance for the remainder of fiscal ~~2020.~~2021.

Off Balance Sheet Arrangements

From time to time, we have been party to interest rate swap agreements. These swaps effectively changed the variable-rate of our credit facility into a fixed rate credit facility. Under the swaps, we received a variable interest rate based on the one-month LIBOR and paid a fixed interest rate. We entered into an interest rate swap agreement in relation to our mortgage payable to a bank, during fiscal 2017.

We also enter into forward contracts to eliminate exposure related to foreign currency fluctuations in connection with the short-term advances we make to our Canadian subsidiary in order to fund personal income tax refund discounting for our Canadian operations. ~~At June 27, 2020,~~All amounts related to the ~~value of our~~interest rate swaps and forward contracts ~~outstanding was $0.1 million.~~are immaterial as of June 26, 2021.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Not required~~We are exposed to various types of market risk in the normal course of our business, including the impact of interest rate changes. We may enter into interest rate swaps to manage exposure to interest rate changes. We do not enter into derivative instruments for ~~smaller reporting companies.~~any purpose other than cash flow hedging and we do not hold derivative instruments for trading purposes.

Our exposure to interest rate risk relates to our long-term debt obligations, as they bear interest at LIBOR, reset periodically and have an interest rate margin. Assuming our revolving credit facility was fully drawn, a ten basis point change in the interest rates would change our annual interest expense by $1.5 million.

ITEM 4

CONTROLS AND PROCEDURES

~~Evaluation of Disclosure Controls and Procedures~~

The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June ~~27, 2020.~~26, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June ~~27, 2020,~~26, 2021, the Company’s disclosure controls and procedures were ~~not effective due~~designed and functional effectively to ~~material weaknesses~~provide reasonable assurance that information required to be disclosed in reports that the Company files or submits under the Exchange act is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company's ~~internal controls over financial reporting~~management, including the Chief Executive Officer and Chief Financial Officer, as ~~described below.~~appropriate to allow timely decisions regarding disclosure.

On ~~February 14, 2020,~~March 10, 2021, the Company acquired American Freight. As permitted by SEC guidance for newly acquired businesses, the Company excluded the operations of American Freight, Buddy's, Sears Outlet and Vitamin Shoppe from the scope of our Sarbanes-Oxley Section 404 report on internal control over financial reporting.Pet Supplies Plus. The Company is in the process of implementing its internal control structure over the acquired business's operations and ~~expect~~expects that ~~this effort will~~process to be completed ~~during fiscal 2020.~~

~~The Company concluded that, notwithstanding the material weaknesses~~ in the Company's internal controls over financial reporting, the consolidated financial statements included in this report fairly present, in all material respects, the Company’s financial position, resultsfirst quarter of ~~operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.~~fiscal year 2022.

~~Changes in Internal Control over Financial Reporting~~

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Other than as described under “Remediation Efforts to Address Material Weaknesses” and the controls that the Company is implementing in connection with the American Freight Acquisition, Buddy's Acquisition, Sears Outlet Acquisition and Vitamin Shoppe Acquisition, there wereThere have been no changes in ~~the Company’s~~our internal control over financial reporting during the ~~most recent~~ fiscal quarter ended June 26, 2021 that have materially affected, or ~~are~~our reasonably ~~likely~~like to ~~materially~~ affect, ~~the Company’s~~our internal control over financial reporting.

~~Remediation Efforts to Address Material Weaknesses~~

Management will work to ensure that control activities are selected, designed and effectively implemented during the fiscal year ending December 26, 2020. Management believes that such activities will allow the Company to (i) select and develop control activities that contribute to the mitigation of risks and the achievement of objectives and (ii) deploy control activities through policies that establish what is expected and procedures that put policies into action.

The Company has engaged an outside firm to assist in remediating the information technology general controls related to user access, change control, and monitoring controls around key IT systems. The Company believes this effort along with improving policies and procedures regarding the granting and review of access to IT systems to ensure access is limited to functions required for roles and responsibilities thereby reducing separation of duties conflicts will remediate the material weaknesses.

The Company is committed to maintaining a strong control environment and believes that remediation efforts represent significant improvements in its controls. Additional remediation efforts continue to be considered and will be implemented as appropriate. The Company will continue to assess the effectiveness of our remediation efforts in connection with its evaluations of internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS

For information regarding legal proceedings, please see "Note ~~12.~~13. Commitments and Contingencies" in the Notes to the Consolidated Financial Statements, which information is incorporated herein by reference.

ITEM 1A

RISK FACTORS

There are no additional risk factors that should be considered in addition to the risk factors described in Part I, Item 1A, in ~~its Transition~~the Form 10-K and Part II. Item IA in our Quarterly Report on Form ~~10-K/T~~10-Q for the ~~transition period~~quarter ended ~~December 28, 2019, except as described below.~~March 27, 2021.

The Company’s results of operations and financial condition have been, and will likely continue to be, adversely affected by the COVID-19 pandemic and, depending on future developments, may be materially adversely impacted by the COVID-19 pandemic.

The outbreak of the novel coronavirus and the resulting COVID-19 pandemic, the widespread government response and the impact on consumers and businesses in our market area have caused significant disruption in the United States and international economies and financial markets and have had and will likely continue to have a significant impact on the operations and financial performance of the Company. Beginning in March 2020, governments, businesses and the public began taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects including quarantines, shelter-in-place orders, state of emergency declarations, travel bans, closures of businesses and schools, fiscal stimulus and legislative initiatives to deliver monetary aid and other relief. The National Bureau of Economic Research has determined that the U.S. economy has entered a recession as a result of the effects of the COVID-19 pandemic. Although the scope, duration and full effects of the pandemic are rapidly evolving and cannot be fully known at this time, consequences of the pandemic and efforts to contain the spread of COVID-19 and mitigate the pandemic’s effects have included and may include further market volatility, disrupted trade and supply chains, increased unemployment and reduced economic activity. The period of recovery from the economic recession cannot be predicted and may be protracted. Additionally, our business operations may be disrupted if key personnel or significant portions of our employees are unable to work effectively, including because of illness.

The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity and impact of the COVID-19 pandemic, and the actions required to contain and mitigate it, the effects of the pandemic on our customers and vendors and the remedial actions and stimulus measures adopted by local, state and federal governments, the timing and availability of government support for the economy and financial markets, the short- and long-term health impacts of the pandemic, and how quickly and to what extent normal economic and operating conditions can resume. If the severity of the COVID-19 pandemic worsens, additional actions may be taken by federal, state, and local governments to contain COVID-19 or treat its impact, including additional shelter-in-place orders. There can be no assurance that any efforts by the Company to address the adverse impacts of the COVID-19 pandemic will be effective. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future. For instance, changes in the behavior of customers, businesses and their employees as a result of the COVID-19 pandemic, including social distancing practices, even after formal restrictions have been lifted, are unknown. Furthermore, the financial condition of our customers and vendors may be adversely impacted, which may result in a decrease in the demand for our products, the inability and our franchisees’ ability to operate store locations or a disruption our supply chain. Any of these events may, in turn, have a material adverse impact our business, results of operations and financial condition.

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of equity securities of the Company which were not previously reported in a Current Report on Form 8-K for the period covered by this quarterly report.

SHARE REPURCHASES

Our Board of Directors has authorized up to $10.0 million for share repurchases. This authorization has no specific expiration date and cash proceeds from stock option exercises and other expenditures can increase or decrease the amount of the authorization. In addition, the Board of Directors authorized an AD repurchase program, which reduces the amount of the share repurchase authorization on a dollar-for-dollar basis. Shares repurchased from option exercises and RSUs vesting that are net-share settled by us and shares repurchased in privately negotiated transactions are not considered share repurchases under this authorization. As part of the AD repurchase program, the Company expended $3.2 million duringDuring the six months ended June ~~27, 2020.~~26, 2021, we did not repurchase any shares of our common stock.

ITEM 3

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4

MINE SAFETY DISCLOSURES

None.

ITEM 5

OTHER INFORMATION

None.

ITEM 6

EXHIBITS

We have filed the following exhibits as part of this quarterly report:

Exhibit
Number

Exhibit Description

Filed

Herewith

Incorporated by

Reference

~~Exhibit~~

~~Number~~

~~Exhibit Description~~

~~Filed~~

~~Herewith~~2.1

~~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).

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).

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).

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. (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed August 28, 2019).

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).

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).

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)

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).

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).

~~3.1~~2.6

Membership Interest Purchase Agreement, by and between NextPoint Acquisition Corp. and Franchise Group Intermediate L, LLC, dated as of February 21, 2021 (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed February 22, 2021).

2.6.1

Amendment No. 1, dated as of April 13, 2021 to Membership Interest Purchase Agreement, by and between NextPoint Acquisition Corp. and Franchise Group Intermediate L, LLC, dates as of February 21, 2021.

2.6.2

Amendment No. 2, dated as of June 30, 2021 to Membership Interest Purchase Agreement, by and between NextPoint Acquisition Corp. and Franchise Group Intermediate L, LLC. dates as of February 21, 2021.

2.7

Amended and Restated Equity Purchase Agreement, dated as of March 3, 2021, by and among Franchise Group Newco PSP, LLC, PSP Holdings, LLC, Sentinel Capital Partners VI-A, L.P., Sentinel PSP Blocker, Inc., PSP Midco, LLC, PSP Intermediate, LLC, Sentinel Capital Partners, L.L.C., solely for purposes of agreeing to the covenants set forth in Section 6.8 and Section 6.9 thereof, effective as of immediately prior to the Closing (as defined therein), a newly formed Delaware limited liability company to be named PSP Midco Holdings, LLC, and Franchise Group, Inc., solely for purposes of agreeing to the covenants set forth in Section 10.19 thereof (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed March 8, 2021).

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).

3.1.1

Certificate of Designation of the Voting Non-Economic Preferred Stock of Liberty Tax, Inc. filed with the Secretary of State of the State of Delaware July 10, 2019 (incorporated by reference to Exhibit 3.1, File No. 001-35588 filed on July 11, 2019).

3.1.2

Certificate of Amendment to the 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 September 19, 2019).

~~3.1.2~~3.1.3

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 (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed October 1, 2019).

~~10.1~~3.1.4

~~Second Amended and Restated Limited Liability Company Agreement~~Certificate of ~~Franchise Group New Holdco, LLC dated as~~Designation designating the 7.50% Series A Cumulative Perpetual Preferred Stock of ~~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).~~

~~10.2~~

Limited Waiver, Joinder and Amendment Number Two to 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, GACP Finance Co., LLC, as administrative agent, and Kayne Solutions Fund, L.P., as collateral agent (incorporated by reference to Exhibit 10.13.1 to Form 8-K, File No. 001-35588 filed ~~May 7,~~September 18, 2020).

~~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).

~~10.4~~3.1.5

~~Amendment~~Certificate of Increase of the Number ~~One to Loan and Security Agreement, dated as~~ of ~~May 22, 2020, by and among Vitamin Shoppe Industries LLC and each~~Shares of ~~its subsidiaries named therein, as borrowers, Valor Acquisition, LLC, as a guarantor,~~7.50% Series A Cumulative Perpetual Preferred Stock of Franchise Group, Inc., filed with the ~~lenders named therein and GACP Finance Co., LLC, as agent~~Secretary of State of the State of Delaware on January 15, 2021 (incorporated by reference to Exhibit ~~10.1~~3.1 to Form 8-K, File No. 001-35588 filed ~~May 29, 2020)~~January 15, 2021).

~~10.5~~3.2

~~Amendment Number One to~~ Second Amended and Restated ~~Loan and Security Agreement, dated as~~Bylaws of May 22, 2020, by and among Vitamin Shoppe Industries LLC and each of its subsidiaries named therein, as borrowers, Valor Acquisition, LLC, as a guarantor, and JPMorgan Chase Bank, N.A., as agent and a lenderLiberty Tax, Inc. (incorporated by reference to Exhibit ~~10.2~~3.2 to Form 8-K, File No. 001-35588 filed ~~May 29, 2020)~~on July 15, 2014).

~~10.6~~31.1

Underwriting Agreement, dated June 25, 2020, by and between Franchise Group, Inc. and B. Riley FBR, Inc., as representative of the several underwriters (incorporated by reference to Exhibit 1.1 to Form 8-K, File No. 001-35588 filed June 30, 2020).

~~10.6.1~~

Amendment Number One, dated as of July 25, 2020, to Underwriting Agreement, dated June 25, 2020, by and between Franchise Group, Inc. and B. Riley FBR, Inc., as representative of the several underwriters (incorporated by reference to Exhibit 1.1 to Form 8-K, File No. 001-35588 filed July 30, 2020).

~~10.7~~

Senior Secured Super Priority Debtor-In-Possession Delayed Draw Term Loan Agreement, dated as of July 10, 2020, by and among Franchise Group, Inc., 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 July 10, 2020).

~~31.1 (1)~~

Certification of Chief Executive Officer

31.2 ~~(1)~~

Certification of Chief Financial Officer

~~32.1(1)~~32.1

Section 1350 Certification (Chief Executive Officer)

~~32.2(1)~~32.2

Section 1350 Certification (Chief Financial Officer)

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June ~~27, 2020,~~26, 2021, formatted in Inline XBRL, 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

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June ~~27, 2020,~~26, 2021, formatted in Inline XBRL (included with Exhibit 101)

~~(1) This exhibit is furnished and shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934, as amended.~~

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		FRANCHISE GROUP, INC. (Registrant)


August ~~5, 2020~~3, 2021	By:		/s/ Brian R. Kahn
			Brian R. Kahn Chief Executive Officer and Director (Principal Executive Officer)

August ~~5, 2020~~3, 2021	By:		/s/ Eric F. Seeton
			Eric F. Seeton Chief Financial Officer (Principal Financial and Accounting Officer)

5743



(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



	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



(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



(In thousands)	Past due		Current		Interest receivable, net		Total receivables
Accounts receivable	$	28,494	$	17,829	$	—	$	46,323
Notes and interest receivable, net (1)	11,133		21,324		2,477		34,934
Total accounts, notes and interest receivable	$	39,627	$	39,153	$	2,477	$	81,257



(In thousands)	Estimate for Fiscal Year
2020 (1)	$	32,511
2021	1,463
2022	913
2023	430
2024	169
Thereafter	496
Total	$	35,982



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

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



	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



	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 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



	June 27, 2020
			Fair value measurements using
(In thousands)	Total		Level 1		Level 2		Level 3
Assets:
Recurring assets:
Cash equivalents	$	537	$	537	$	—	$	—
Forward contract related to foreign currency exchange rates	61		—		—		61
Total recurring assets	598		537		—		61
Nonrecurring assets:
Impaired accounts and notes receivable, net of unrecognized revenue and allowance	10,959		—		—		10,959
Total nonrecurring assets	10,959		—		—		10,959
Total recurring and nonrecurring assets	$	11,557	$	537	$	—	$	11,020

Liabilities:
Recurring liabilities:
Contingent consideration included in obligations due former ADs, franchisees and others	$	594	$	—	$	—	$	594
Interest rate swap agreement	169		—		169		—
Total recurring liabilities	$	763	$	—	$	169	$	594