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American Freight Group, Inc. and Subsidiaries

Consolidated Balance Sheets

December 29, 2019 and December 30, 2018

	2019				2018
Assets
Current Assets
Cash and cash equivalents	$	16,384,157			$	11,195,563
Prepaid expenses and other assets	5,006,839				3,809,599
Inventory	54,795,696				48,895,542
Total current assets	76,186,692				63,900,704
Property and equipment, net	9,258,392				7,971,939
Goodwill	229,209,580				229,209,580
Intangible assets	56,000,000				56,000,000
Deposits and other assets	1,658,903				1,536,184
Total assets	$	372,313,567			$	358,618,407
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	21,004,231			$	13,666,683
Accounts payable - related parties	4,291,746				3,196,715
Layaway deposits and deferred rent	10,178,956				11,815,176
Accrued salaries and related benefits	2,316,744				3,261,579
Accrued expenses and other current liabilities	10,310,236				9,163,205
Term debt - current portion	3,210,000				3,210,000
Total current liabilities	51,311,913				44,313,358
Long-term liabilities
Term debt	98,690,345				101,566,595
Deferred rent obligation	2,335,053				1,819,049
Deferred tax liabilities	21,605,460				17,146,561
Total long-term liabilities	122,630,858				120,532,205
Total liabilities	173,942,771				164,845,563
Mezzanine Equity
Redeemable Series A preferred stock $0.001 par value 200,000 shares authorized, 114,400 issued and outstanding	114,400,000				114,400,000
Stockholders' Equity
Common stock $0.001 par value: 100,000 shares authorized, 28,663 issued and 28,600 outstanding	29				29
Additional paid-in capital	30,985,978				30,586,442
Retained earnings	52,984,789				48,786,373
Total stockholders' equity	83,970,796				79,372,844
Total liabilities, mezzanine equity and stockholders' equity	$	372,313,567			$	358,618,407

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American Freight Group, Inc. and Subsidiaries

Consolidated Statements of Operations

Years Ended December 29, 2019 and December 30, 2018

	2019				2018
Revenue	$	462,339,607			$	419,095,139
Cost of sales
Merchandise	232,198,304				208,147,083
Freight	22,211,158				20,811,682
Total cost of sales (exclusive of depreciation shown separately below)	254,409,462				228,958,765
Depreciation expense	2,451,245				1,698,503
Operating and selling expenses	161,062,105				147,830,407
Operating income	44,416,795				40,607,464
Interest expense, net	5,487,581				9,028,710
Pretax income	38,929,214				31,578,754
Income tax expense	9,730,798				8,168,051
Net income	$	29,198,416			$	23,410,703

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American Freight Group, Inc. and Subsidiaries

Consolidated Statements of Changes in Mezzanine and Stockholders’ Equity

Years Ended December 29, 2019 and December 30, 2018

	Redeemable Series A Preferred Stock							Common Stock							Additional				Retained
	Shares			Amount				Shares			Amount				Paid-In Capital				Earnings				Total
Balances at December 31, 2017	114,400			$	114,400,000			28,600			$	29			$	29,878,709			$	44,712,220			$	74,590,958
Cash dividends	—			—				—			—				—				(19,336,550		)		(19,336,550		)
Share-based compensation	—			—				—			—				707,733				—				707,733
Net income	—			—				—			—				—				23,410,703				23,410,703
Balances at December 30, 2018	114,400			114,400,000				28,600			29				30,586,442				48,786,373				79,372,844
Cash dividends	—			—				—			—				—				(25,000,000		)		(25,000,000		)
Share-based compensation	—			—				—			—				399,536				—				399,536
Net income	—			—				—			—				—				29,198,416				29,198,416
Balances at December 29, 2019	114,400			$	114,400,000			28,600			$	29			$	30,985,978			$	52,984,789			$	83,970,796

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American Freight Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 29, 2019 and December 30, 2018

		2019				2018
Cash flow from operating activities
Net income		$	29,198,416			$	23,410,703
Adjustments to reconcile net income to cash provided by operating activities
Depreciation expense		2,451,245				1,698,503
Share-based compensation		399,536				707,733
Amortization of deferred rent obligation		516,004				322,427
Amortization of debt issue costs		356,855				1,399,945
Loss on disposal of property and equipment		17,512				16,237
Changes in assets and liabilities
Prepaid expenses and other assets		(1,343,486		)		2,525,651
Inventory		(5,900,154		)		(6,064,076		)
Accounts payable		7,337,548				2,205,928
Accounts payable - related parties		1,095,031				(867,500		)
Layaway deposits and deferred revenue		(1,636,220		)		(4,284,789		)
Accrued salaries and related benefits		(944,835		)		1,589,012
Accrued expenses and other liabilities		1,147,031				3,975,216
Deferred income taxes		4,458,899				4,648,468
Cash provided by operating activities		37,153,382				31,283,458
Cash flows from investing activities
Purchase of property and equipment		(3,754,788		)		(2,417,402		)
Cash used in investing activities		(3,754,788		)		(2,417,402		)
Cash flows from financing activities
Borrowings on revolving credit facility		10,000,000				10,000,000
Payments on revolving credit facility		(10,000,000		)		(10,000,000		)
Cash dividends		(25,000,000		)		(19,336,550		)
Borrowings of term debt		—				49,458,825
Payments of term debt		(3,210,000		)		(79,760,974		)
Payments of debt issue costs		—				(1,247,663		)
Cash used in financing activities		(28,210,000		)		(50,886,362		)
Net change in cash and cash equivalents		5,188,594				(22,020,306		)
Cash and cash equivalents
Beginning of year		11,195,563				33,215,869
End of period		$	16,384,157			$	11,195,563
Supplemental disclosure for cash flow information
Cash paid for interest		$	5,448,388			$	7,426,147
Cash paid for income taxes		6,450,164				30,960

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Notes to Consolidated Financial Statements

December 29, 2019 and December 30, 2018

1.	The Company

American Freight Group, Inc. (the “Company”) was formed on August 7, 2014 as a Delaware corporation. The Company, through its operating subsidiaries, operates discount retail furniture stores in the United States of America.

2.	Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of our wholly owned subsidiaries. All significant intercompany balances or transactions have been eliminated in consolidation.

Fiscal Year

The Company’s fiscal year ends on the Sunday closest to December 31. The fiscal years 2019 and 2018 refer to the period from December 30, 2018 through December 29, 2019 and January 1, 2018 through December 30, 2018, respectively.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent to year-end, the Company has been negatively affected by actions taken by state and local governments in response to COVID-19 which has required certain temporary store closures, and the duration and total impact cannot be reasonably estimated at this time.  The Company’s liquidity needs have been affected by events occurring subsequent to year-end. Refer to further discussion in Note 12 Subsequent Events.

Revenue Recognition and Layaway Deposits

Furniture revenue is recognized when the furniture has been paid in full and has been delivered to or collected by the customer from the store. Incremental costs of obtaining sales in the form of commissions paid to employees are expensed as incurred. Cash received from customers is recorded as layaway deposits and deferred revenue until the order is paid in full and delivery or pickup of the furniture occurs. All delivered sales are considered final. After six months of inactivity, delinquent layaway deposits are charged a monthly service fee, unless prohibited by state law. The Company reports revenue net of sales and use taxes collected from customers and remitted to governmental taxing authorities. The customer may choose to finance purchases through a third-party finance company. The Company earns a commission from the finance company for offering this service. The commission is recorded in revenue and recognized at the same point in time as the related furniture sale is recognized.

The Company has disaggregated revenue by geographical region for the year ending December 29, 2019 as follows:

Northeast	$	36,109,642
Midwest	151,926,682
South	259,856,425
West	14,446,858
	$	462,339,607

Concentration of Risk

The Company is a retailer of furniture and sells primarily to customers in surrounding communities. The Company believes they are not exposed to any significant credit risk on customer sales. The Company maintains cash deposits in banks which, from time to time, exceed the amount of deposit insurance available by the Federal Deposit Insurance Corporation. Management periodically assesses the financial condition of the institutions and believes that any potential credit loss is minimal.

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The Company purchases inventory from a small number of vendors. Approximately 59% and 66% of merchandise purchases were from five vendors in the aggregate during the years ended December 29, 2019 and December 30, 2018, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, and deposits with financial institutions. The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less, which are not subject to withdrawal restrictions or penalties, to be cash and cash equivalents.

Cash and cash equivalents as of December 29, 2019 and December 30, 2018 also includes $5,044,237 and $3,702,883, respectively, of accounts receivable from credit card and financing companies because they are highly liquid in nature and typically converted to cash within a few days of the sales transaction.

Inventory

Inventories, which are comprised of finished goods, are valued at the lower of cost or market, with cost determined by the first-in, first out method. The Company writes down inventory, the impact of which is reflected in cost of sales in the Consolidated Statements of Operations, if the cost of specific inventory items on hand exceeds the amount they expect to be realized from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding future demand and market conditions and analysis of historical experience. At December 29, 2019 and December 30, 2018, inventory reserves for excess and obsolete inventory totaled $1,336,048 and $784,303, respectively.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Major renewals and improvements are capitalized. The cost and accumulated depreciation of disposed assets are eliminated from the accounts and resulting gain or loss is reflected in earnings. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset. Depreciation is computed using the straight-line method over the following estimated useful lives:

Leasehold improvements	1-15 years (not to exceed the lease term)
Machinery and equipment	5-10 years
Furniture and fixtures	3-15 years
Vehicles	5-10 years
Computer software and equipment	3-5 years

The Company assesses the recoverability of property and equipment and other amortizable long-lived assets whenever events and circumstances indicate that the carrying value of the asset may not be recoverable from its undiscounted cash flows. If it is determined an impairment has occurred, an impairment loss is recognized by the amount by which the carrying amount of the asset exceeds its estimated fair value.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired. The Company has concluded it has one reporting unit. Goodwill is not amortized and is tested for impairment at least annually and also when a triggering event occurs that indicates that the fair value of the reporting unit may be below its carrying amount. The Company first assesses qualitative factors to determine whether the quantitative impairment test is necessary. If that qualitative assessment indicates that it is more likely than not goodwill is impaired, the Company performs the quantitative test to compare the entity’s fair value with its carrying amount. The goodwill impairment loss, if any, represents the excess of the carrying amount of the reporting unit over its fair value. The Company did not record any impairment charges related to goodwill for the years ended December 29, 2019 and December 30, 2018.

Intangible Assets

The Company has intangible assets, primarily its tradename. The Company concluded that its tradename has an indefinite useful life. The Company plans to use the American Freight Furniture name for an indefinite period of time and plans to continue to make investments to enhance the value of the brand into the future. There are no legal, regulatory, contractual, competitive, economic or other factors that the Company is aware of or that the Company believes would limit the useful life of the trade name.

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Intangible assets with indefinite lives are reviewed for impairment annually in the fourth quarter, or more frequently if indicators of impairment are present, by comparing the carrying value to the estimated fair value, determined using a relief from royalty methodology. Factors used in the valuation of the intangible asset include, but are not limited to, estimated growth rates, royalty rates, risk adjusted discount rates, and future economic and market conditions. The Company did not record any impairment charges for the years ended December 29, 2019 and December 30, 2018.

Leases and Rent Expense

The Company has leases that contain pre-determined fixed escalations of minimum rentals and/or rent abatements subsequent to taking possession of the leased property. The related rent expense is recognized on a straight-line basis commencing upon possession date. The Company records the difference between the recognized rent expense and amounts payable under the leases as deferred or prepaid rent obligations.

Shipping and Handling Costs

Warehousing and distribution costs, including costs associated with delivering product to customers, are included in operating and selling expenses in the Consolidated Statements of Operations.

Advertising Costs

Advertising costs are expensed as they are delivered to the public and included in operating and selling expenses in the Consolidated Statements of Operations. Advertising costs were $41,243,170 and $37,850,499 for the years ended December 29, 2019 and December 30, 2018, respectively.

Income Taxes

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable enacted tax rates. Deferred tax assets and liabilities are presented on a net basis, by jurisdiction, as noncurrent in the Consolidated Balance Sheets. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings.

The Company recognizes the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company recognizes interest and penalties related to income tax matters in income tax expense.

Debt Issuance Costs

Debt issuance costs are capitalized and amortized using the effective interest method over the term of the respective term debt and straight-line over the term of the line of credit facility. Debt issuance costs related to term debt are recorded as a reduction to the debt proceeds as a debt discount. Debt issuance costs related to the line of credit are recorded as a deferred financing cost and included in Deposits and other assets in the Consolidated Balance Sheets. Accretion of the debt discount and amortization of deferred financing costs are recorded as a component of interest expense in the Consolidated Statements of Operations and totaled $356,855 and $1,399,945 for the years ended December 29, 2019 and December 30, 2018, respectively.

Share-Based Compensation

The Company grants share-based compensation awards to certain directors and key employees of the Company. The fair values of stock option grants are determined as of the grant date using the Black-Scholes option pricing method. This method incorporates the fair value of the Company’s common stock at the date of each grant and various assumptions such as the risk-free interest rate, expected volatility based on the Company’s analysis of historical volatility of similar companies in the retail industry, expected dividend yield, and expected term of the options. The fair values of the stock-based awards, including the effect of estimated forfeitures, are then expensed using the straight-line method over the requisite service period, which is generally the award’s vesting period. The Company records and classifies share-based compensation expense in the Consolidated Statements of Operations in the same manner in which the respective award recipient’s payroll costs are classified.

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Recently Issued Accounting Standards

The following accounting standards applicable to the Company were recently issued by the Financial Accounting Standards Board (“FASB”).

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. It also results in enhanced disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. On December 31, 2018, the Company adopted the revenue standard using the modified retrospective approach. However, there was no material adjustment to our Consolidated Balance Sheet or Statement of Operations.

Accounting Standards not yet Effective

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. This ASU is effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted. The Company is currently assessing the impact of this ASU and anticipates the new guidance will have a material impact to its consolidated financial statements.

3.	Property and Equipment

The components of property and equipment at December 29, 2019 and December 30, 2018 are as follows:

	2019				2018
Leasehold improvements	$	9,363,919			$	6,827,878
Machinery and equipment	2,543,670				2,387,160
Furniture and fixtures	1,884,886				1,302,823
Vehicles	62,692				62,692
Computer software and equipment	1,948,248				1,543,939
Construction in progress	412,631				377,186
	16,216,046				12,501,678
Less: Accumulated depreciation	(6,957,654		)		(4,529,739		)
Property and equipment, net	$	9,258,392			$	7,971,939

The Company recorded depreciation expense for the years ended December 29, 2019 and December 30, 2018 of $2,451,245 and $1,684,547, respectively.

4.	Related Party Transactions

The Company purchases inventory from related parties. The Company purchased inventory from related parties totaling $48,697,000 and $52,336,000 during the years ended December 29, 2019 and December 30, 2018, respectively. Amounts due to the related companies, related to purchases of inventory, as of December 29, 2019 and December 30, 2018 were $3,886,276 and $2,744,638, respectively.

The Company is a party to a management consulting and advisory agreement with The Jordan Company, L.P., the management company for The Resolute Fund Ill, L.P., which is an affiliate of the majority stockholder. The related parties are referred to herein as The Jordan Company. This consulting and advisory agreement provides for the payment of fees based upon the Company’s consolidated earnings before interest, tax, depreciation, and amortization (“EBITDA”). An estimate is paid quarterly and adjusted to actual after the completion of each audited fiscal year. For the years ended December 29, 2019 and December 30, 2018, the Company incurred fees of $1,371,418 and $1,354,181, respectively, pursuant to this agreement. As of December 29, 2019, and December 30, 2018, there was $405,470 and $452,077 due to The Jordan Company, respectively. The consulting and advisory agreement also provides for fees to be paid to The Jordan Company for their assistance with various transactions, including acquisitions made by the Company, a sale of the Company or the Company’s subsidiaries, and debt and equity financing obtained with assistance from The

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Jordan Company. The Company is also obligated to reimburse out-of-pocket expenses incurred by The Jordan Company in connection with providing the above services. The Company reimbursed The Jordan Company for $16,830 and $14,669 of out-of-pocket expenses during the years ended December 29, 2019 and December 30, 2018, respectively.

5.	Leases

The Company leases certain buildings under long-term noncancelable operating leases. The leases require the Company to pay taxes, maintenance, insurance and certain operating expenses applicable to leased facilities. Rent expense to third parties was $19,616,152 and $16,986,785 for the years ended December 29, 2019 and December 30, 2018, respectively. Rent expense to related parties was $3,483,395 and $3,549,702 for the years ended December 29, 2019 and December 30, 2018, respectively.

Future minimum lease payments are as follows as of December 29, 2019:

	Operating Leases
	Third Parties				Related Parties
2020	$	20,414,779			$	3,482,836
2021	18,293,697				3,517,657
2022	14,843,050				3,507,811
2023	11,507,526				2,506,569
2024	8,203,973				1,888,548
All years after 2024	12,054,053				606,592
Total minimum lease payments	$	85,317,078			$	15,510,013

6.	Debt

On October 31, 2014, the Company executed a credit agreement with financial institutions that provided a revolving credit facility for maximum available borrowings of $20,000,000, a Tranche A Term Loan for $75,000,000 and a Tranche B Term Loan for $75,000,000.

On July 25, 2018 the Company entered into Amendment No. 1 to its credit agreement (the “Amendment”). In connection with the Amendment, the Company repaid all principal outstanding under its Tranche B Term Loan, totaling $67,291,175. The Company also borrowed an incremental $49,458,825 under its Tranche A Term Loan, bringing the new closing principal balance outstanding on the Company’s Tranche A Term Loan to $107,000,000. The maturity date on the Tranche A Term Loan was extended from April 30, 2020 to April 30, 2023, with principal payments of $802,500 due quarterly beginning on September 30, 2018 and any remaining outstanding principal balance due upon maturity. With the Amendment, the interest rate on Tranche A borrowings decreased from LIBOR plus 3.5% to LIBOR plus 3.25% subject to a step-down to LIBOR plus 3.00% or LIBOR plus 2.75% based on the Net Leverage Ratio, as defined in the credit agreement.

The Amendment also reduced the interest rate on the Company’s revolving credit facility from LIBOR plus 3.5% to LIBOR plus 3.25% subject to a step-down to LIBOR plus 3.00% or LIBOR plus 2.75% based on the Net Leverage Ratio, as defined in the credit agreement, and extended the expiration date of the Revolver from October 31, 2019 to October 31, 2022. The interest rate on the Term Loan was 4.45% and 5.34% at December 29, 2019 and December 30, 2018, respectively.

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The term debt consisted of the following at December 29, 2019 and December 30, 2018:

	2019				2018
Tranche A Term Loan	$	102,987,500			$	106,197,500
Less: Debt discount	(1,087,155		)		(1,420,905		)
	101,900,345				104,776,595
Less: Current maturities	(3,210,000		)		(3,210,000		)
Total noncurrent term debt	$	98,690,345			$	101,566,595
Aggregate maturities of long-term debt are as follows:
2020					$	3,210,000
2021					3,210,000
2022					3,210,000
2023					93,357,500
					$	102,987,500

The credit agreement is collateralized by substantially all of the Company’s assets.

The Company’s credit agreement contains certain covenants that requires the maintenance of certain financial measures. The financial covenants specify a maximum net leverage ratio of debt to EBITDA. The nonfinancial covenants include restrictions on indebtedness, liens and dividends.

Annually the credit agreement requires the Company to determine if any additional payments are required based on an excess cash flow calculation as defined by the credit agreement. No payments are required if the Company meets certain net leverage ratio requirements.

7.	Redeemable Preferred Stock and Stockholders’ Equity

The Company is authorized to issue 400,000 shares of stock consisting of: 100,000 shares of Common Stock and 300,000 shares of Preferred Stock of which 200,000 shares are designated Series A Preferred Stock.

Holders of the Series A Preferred Stock are entitled to accrue and receive, when, as and if declared by the Board of Directors, cumulative annual dividends per share in an amount equal to 10% of the issued and outstanding Series A Preferred Stock. The preferred dividends accrue and compound semi-annually and are payable in full and in cash upon the declaration of a dividend payment by the Board of Directors, or upon the closing of any merger, combination, sale or similar business transaction of the Company. The Board of Directors approved, and the Company paid cash dividend payments of $25,000,000 on September 20, 2019 and $19,336,550 on July 18, 2018.

As of December 29, 2019, and December 30, 2018, cumulative preferred dividends of $27,112,850 and $37,282,159, respectively, were outstanding. The cumulative preferred dividends were not accrued on the Company’s Consolidated Balance Sheets as of December 29, 2019 and December 30, 2018, since the Board of Directors had not declared dividend payments and the Company had not closed upon any merger, combination, sale or similar business transaction as of those dates.

The Company has 1,504 stock warrants outstanding. Holders of the stock warrants have the right to purchase 1,504 shares of common stock of the Company for an exercise price of $1,000 per share. Holders of the stock warrants may exercise their rights upon the closing of any merger, combination, sale or similar business transaction of the Company as long as the proceeds exceed a specified rate of return on preferred and common shares. The value assigned to the stock warrants at issuance was immaterial and therefore not presented on the Consolidated Balance Sheets.

8.	Share-Based Compensation Plans

The Company established the 2015 Nonqualified Stock Option Plan (“2015 Plan”) to award nonqualified stock options of common stock to certain directors, consultants, advisors, and key employees. The aggregate number of options of the Company’s common shares that may be granted under the 2015 Plan may not exceed 3,175 shares. All option grants

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have an exercise price equal to the fair market value of the underlying stock on the grant date. All of the options issued are subject to time vesting conditions and vest ratably and become exercisable over a period of five years from grant date. As defined by the 2015 Plan upon a change of control 100% of any unvested options shall vest and become exercisable.

The vesting schedule of the common shares is based on the anniversary date of the option grant and is as follows:

Year 2                                                40%

Year 3                                                20%

Year 4                                                20%

Year 5                                                20%

For the years ended December 29, 2019 and December 30, 2018, the Company recorded a total of $399,536 and $707,733, respectively, of share-based compensation expense which is included as operating and selling expenses in the accompanying Consolidated Statements of Operations; resulting in $767,123 and $1,580,627 of unrecognized share-based compensation expense as of December 29, 2019 and December 30, 2018.

The following table summarizes the activity for stock options for the years ended December 29, 2019 and December 30, 2018, respectively:

	2019							2018
	Shares			Weighted Average Exercise Price per Share				Shares			Weighted Average Exercise Price per Share
Outstanding - beginning of year	2,858			$	2,345			2,333			$	1,988
Granted	—			—				525			3,935
Exercised	—			—				—			—
Forfeited	(175	)		(3,935		)		—			—
Outstanding - end of year	2,683			$	2,242			2,858			$	2,345
Exercisable - end of year	1,717			$	1,805			1,251			$	1,737

The weighted-average grant-date fair value of stock options granted during the year ended December 30, 2018 was $1,743.

9.	Intangible Assets

	December 29, 2019
	Estimated Useful Lives						Accumulated
	Years		Cost				Amortization			Net
Trade name			$	56,000,000			—			$	56,000,000
Total intangible assets			$	56,000,000			—			$	56,000,000
	December 30, 2018
	Estimated Useful Lives						Accumulated
	Years		Cost				Amortization			Net
Trade name			$	56,000,000			—			$	56,000,000
Total intangible assets			$	56,000,000			—			$	56,000,000

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10.	Income Taxes

The income tax expense is summarized as follows:

	2019				2018
Current income tax (benefit) expense
Federal	$	4,076,824			$	2,617,538
State and local	1,195,075				902,045
Total current income tax expense	$	5,271,899			$	3,519,583
Deferred income tax (benefit) expense
Federal	$	3,651,510			$	3,613,876
State and local	807,389				1,034,592
Total deferred income tax expense	$	4,458,899			$	4,648,468
Total income tax expense (benefit)
Federal	$	7,728,334			$	6,231,414
State and local	2,002,464				1,936,637
Total income tax expense	$	9,730,798			$	8,168,051

The tax effect of temporary differences that give rise to deferred tax assets (liabilities) is as follows:

	2019				2018
Deferred tax assets
Inventories	$	553,700			$	363,487
Accrued expenses	547,691				847,049
Deferred rent obligation	584,580				459,055
Stock options	518,477				421,813
Other	89,526				41,693
Total deferred tax assets	2,293,974				2,133,097
Deferred tax liabilities
Goodwill and intangible assets	(23,132,046		)		(18,371,696		)
Depreciation	(537,469		)		(701,562		)
Other	(229,919		)		(206,400		)
Total deferred tax liabilities	(23,899,434		)		(19,279,658		)
Net deferred tax asset (liability)	$	(21,605,460	)		$	(17,146,561	)

The differences between income taxes determined based on statutory federal tax rate and the effective tax rate is as follows:

	2019				2018
Federal income tax at the statutory rate	$	8,223,519			$	6,653,713
State and local taxes net of federal benefit	1,581,946				1,529,943
Permanent items	16,097				14,823
Other	(90,764		)		(30,428		)
	$	9,730,798			$	8,168,051

The Company did not have any unrecognized tax benefits in 2019 or 2018 and does not expect unrecognized tax positions to change significantly over the next 12 months. During the years ended December 29, 2019 and December 30, 2018, the Company did not record any expenses for penalties and interest.

15

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11.	Retirement Plan

The Company maintains a Profit Sharing and 401(k) Savings Retirement Plan (the “Plan”) which covers all employees who meet certain eligibility requirements. The Plan does not have a matching contribution. The Company reserves the right to terminate or amend the Plan at any time. The Company did not make any discretionary contributions for the years ended December 29, 2019 and December 30, 2018.

12.	Subsequent Events

On February 12, 2020, the Company elected to make an optional prepayment of $5,000,000 on its term debt.

On December 28, 2019, the Company entered into a merger agreement with a subsidiary of Franchise Group, Inc. In consideration of the merger, the stockholders will receive $450,000,000 less outstanding debt and transaction related expenses. The merger closed on February 14, 2020, and all term debt of the Company was paid in full and all Company stock redeemed, including $28,880,253 in accumulated Series A preferred dividends, which became due and payable at the time of the merger.

On February 14, 2020 in connection with the acquisition of the Company by a subsidiary of Franchise Group, Inc., the acquirer entered into a $675,000,000 credit facility, which was used, in part, to fund the acquisition.  The Company is a named borrower on the credit facility along with other Franchise Group, Inc. subsidiaries. Without the support of Franchise Group, Inc., the Company does not expect to have the liquidity required to pay the full amount coming due under the credit facility within the year from when the consolidated financial statements were available to be issued.  The Company obtained a support letter from Franchise Group, Inc. under which Franchise Group, Inc. will fully support the operating, investing, and financing activities of the Company until at least May 5, 2021.

In March 2020, the COVID-19 outbreak was declared to be a global pandemic by the World Health Organization. The Company operates stores in 30 states in the U.S., some of which have implemented various degrees of mandatory retail store closures in response to COVID-19. Beginning in late March 2020 and continuing into April 2020, the Company temporarily closed a number of its stores, based on the orders from state and local governments.  The Company is currently not able to predict when these stores will reopen, which may occur on a location-by-location basis. The Company has realized material reductions in revenue during the first three weeks of April 2020 as a result of the COVID-19 closures. Although not anticipated at this time, the Company could experience other material impacts as a result of COVID-19, including, but not limited to, charges from potential adjustments of the carrying amount of inventory, and asset impairment charges. The current circumstances are dynamic and the impacts of COVID-19 on the Company’s business operations, including the duration and impact on overall customer demand, cannot be reasonably estimated at this time.

The Company considered subsequent events through May 4, 2020, the date the consolidated financial statements were available to be issued.

16

•

the historical statement of operations for the fiscal year ended December 31, 2018 of Buddy’s, the historical statement of operations for the fiscal year ended December 29, 2018 of VSI, and the historical statement of operations for the fiscal year ended December 30, 2018 of American Freight have been adjusted to reflect a trailing twelve months ended March 31, 2019 by adding Buddy’s, VSI’s and American Freight’s statement of operations for the three months ended March 31, 2019, March 30, 2019, and March 31, 2019, respectively, and subtracting their statement of operations for the three months ended March 31, 2018; and

•	the historical combined statement of operations for the fiscal year ended February 2, 2019 of Sears Outlet has been adjusted to reflect a trailing twelve months ended May 4, 2019 by adding Sears Outlet’s statement of operations for the three months ended May 4, 2019 and subtracting Sears Outlet’s statement of operations for the three months ended May 5, 2018.

---

•	the accompanying notes to the unaudited pro forma combined financial statements;

•	Franchise Group’s audited historical consolidated financial statements and related notes for the year ended April 30, 2019 and for the Transition Period ended December 28, 2019;

•	Buddy’s’ audited and unaudited historical consolidated financial statements and related notes for the fiscal year ended December 31, 2018 and for the three months ended June 30, 2019, March 31, 2019 and March 31, 2018;

•	Sears Outlet’s audited and unaudited historical combined financial statements and related notes for the fiscal year ended February 2, 2019 and for the six months ended August 3, 2019 and August 4, 2018;

•	VSI’s audited historical consolidated financial statements and related notes for the fiscal year ended December 29, 2018; and

•	American Freight’s audited historical consolidated financial statements and related notes for the fiscal year ended December 29, 2019.

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•

Term loan financing: Buddy’s executed the Buddy’s credit agreement with various lenders from time to time party thereto and Kayne Solutions Fund, L.P., as administrative agent and as collateral agent, with proceeds, net of financing costs, of approximately $80.2 million. The Buddy’s credit agreement was used to repay approximately $25.0 million of the existing line of credit financing of Buddy’s, $22.2 million towards the tender offer and the remaining amount of approximately $23.0 million was used towards the acquisition costs.

•

Equity investment from Tributum, L.P. (“Tributum”): Contemporaneously with the consummation of the merger and pursuant to the closing subscription agreement between Franchise Group and Tributum, an affiliate of Vintage Capital Management, LLC, Tributum purchased approximately 2,083,333 shares of Franchise Group common stock at a purchase price of $12.00 per share, for an aggregate purchase price of $25.0 million in cash. Such commitment financed the first $25.0 million of tender offer acceptances.

•

Term loan financing: Franchise Group Newco S, LLC, an indirect subsidiary of Franchise Group, executed a term loan agreement with Guggenheim Credit Services, LLC providing Franchise Group with a senior secured term loan facility in an amount equal to $105.0 million (the “Sears Outlet term loan”). The Sears Outlet term loan will mature on October 23, 2023 and bear interest at a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an interest margin of 6.5% with a 1.50% LIBOR floor.

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•

Equity contributions from the Investors: On October 23, 2019, Stefac LP, an affiliate of Vintage Capital Management, LLC, Brian R. Kahn, Lauren Kahn, and B. Riley FBR, Inc. (collectively, the “Investors”) provided Franchise Group with an aggregate $40.0 million of equity financing to fund a portion of the Sears Outlet acquisition through the purchase of Franchise Group common stock at $12.00 per share.

•

Term loan financing: On December 16, 2019, Vitamin Shoppe Industries, LLC, an indirect subsidiary of Franchise Group executed a term loan agreement with GACP Finance Co., LLC for an amount of $70.0 million (the “VSI term loan”). The VSI term loan will mature on December 16, 2022, unless the maturity is accelerated subject to the terms set forth in the VSI term loan. The VSI term loan will bear interest at a rate per annum based on LIBOR for an interest period of one month plus an interest rate margin of 9.0%.

•

Credit facility financing: On December 16, 2019, Franchise Group entered into a Second Amendment and Restated Loan and Security Agreement (the “ABL Agreement”) with JPMorgan Chase Bank, N.A. whereby JP Morgan Chase Bank, N.A. provided Franchise Group with a $100.0 million credit facility (the “VSI credit facility”). On December 16, 2019, Franchise Group borrowed $70.0 million on the VSI credit facility to finance the acquisition of VSI. The VSI credit facility will mature on December 16, 2022 unless the maturity is accelerated subject to the terms set forth in the ABL Agreement. The VSI credit facility bears interest at 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.

•	Equity contribution from Tributum: In addition, on December 16, 2019, Tributum, an affiliate of Vintage, purchased 2.5 million shares of common stock which provided Franchise Group with an aggregate of approximately $31.0 million of equity financing in order to partially fund the closing of the acquisition (the “VSI equity contribution”).

•	Equity contribution from Vintage in connection with the repurchase of VSI Convertible Notes: On January 3, 2020, Franchise Group entered into a subscription agreement with an affiliate of Vintage, pursuant to which the affiliate of Vintage purchased from the Company 2.4 million shares of common stock for an aggregate purchase price of $28.2 million in cash.

•

Equity contributions from certain other investors: On February 7, 2020, in connection with the Company’s repurchases of VSI’s outstanding 2.25% Convertible Senior Notes due 2020 (the “VSI Convertible Notes”), certain investors purchased approximately 3.9 million shares of the Company’s common stock for approximately $65.9 million. Franchise Group used the proceeds to complete the repurchase of approximately $60.4 million in aggregate principal amount of outstanding VSI Convertible Notes for a purchase price of approximately $60.6 million, which includes accrued interest.

1.

Term loan financing: On February 14, 2020, Franchise Group Intermediate Holdco, LLC and Franchise Group New Holdco, LLC, an indirect subsidiary of Franchise Group executed a term loan agreement with GACP Finance Co., LLC for an amount of $575.0 million (the “New Holdco term loan”), which consists of a $375.0 million first out tranche (the “New Holdco Tranche A-1”) and a $200.0 million last out Tranche (the “New Holdco Tranche A-2”). The New Holdco term loan will mature on May 14, 2025, unless the maturity is accelerated subject to the terms set forth in the New Holdco term loan. The New Holdco term loan will bear interest at a rate per annum based on LIBOR for an interest period of one, two, three or six months plus an interest rate margin of 8.0% for the New Holdco Tranche A-1 and 12.5% for the New Holdco Tranche A-2.

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2.

ABL credit facility financing: On February 14, 2020, Franchise Group entered into an ABL credit agreement with various lenders which provided Franchise Group with a $100.0 million credit facility (the “New Holdco credit facility”). On February 14, 2020, Franchise Group borrowed $100.0 million on the New Holdco credit facility to finance the acquisition of American Freight. The New Holdco credit facility will mature on September 30, 2020 and it bears interest at a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an interest rate margin of 7.5%, as amended on April 3, 2020.

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Year Ended April 30, 2019

		Adjusted Franchise Group				Adjusted Buddy's				Adjusted Sears Outlet				Adjusted VSI				Adjusted American Freight
		(Note 2)				(Note 2b)				(Note 2c)				(Note 2d)				(Note 2e)
		Year Ended				Year Ended				Year Ended				Year Ended				Year Ended				Acquisition and related Pro Forma Adjustments				Financing and offer Pro Forma Adjustments				Pro Forma Combined Year Ended
(Dollars in thousands except per share amounts)		April 30, 2019				March 31, 2019				May 4, 2019				March 30, 2019				March 30, 2019				(Note 3)				(Note 4)				April 30, 2019
Revenue:
Product		$	—			$	2,592			$	448,573			$	1,101,528			$	443,954			$	—			$	—			$	1,996,647
Service and other		132,546				23,005				41,626				—				—				(177		)		—				197,000
Rental		—				26,504				—				—				—				—				—				26,504
Total Revenues		132,546				52,101				490,199				1,101,528				443,954				(177		)		—				2,220,151
Operating Expenses:																														—
Cost of revenue:																														—
Product		—				1,844				334,068				745,028				243,548				—				—				1,324,488
Service and other		—				—				20,428				—				—				(177		)		—				20,251
Rental		—				9,230				—				—				—				—				—				9,230
Total cost of revenue		—				11,074				354,496				745,028				243,548				(177		)		—				1,353,969
Selling, general, and administrative expenses		124,060				29,098				133,364				347,191				155,810				1,012				—				790,535
Restructuring Costs		9,345				—				—				—				—				—				—				9,345
Total operating expenses		133,405				40,172				487,860				1,092,219				399,358				835				—				2,153,849
Gain (loss) from operations		(859		)		11,929				2,339				9,309				44,596				(1,012		)		—				66,302
Other income (expense):																														—
Interest expense, net		(3,023		)		(1,412		)		(6,410		)		(5,227		)		(8,161		)		—				(75,723		)		(99,956		)
Other		(113		)		259				1,440				4,400				—				—				—				5,986
Income (loss) before income taxes		(3,995		)		10,776				(2,631		)		8,482				36,435				(1,012		)		(75,723		)		(27,668		)
Income tax (benefit) expense		(1,839		)		—				271				1,101				9,399				—				(14,456		)		(5,524		)
Net (loss) income		(2,156		)		10,776				(2,902		)		7,381				27,036				(1,012		)		(61,267		)		(22,144		)
Less: Income/ (Loss) attributable to noncontrolling interests		—				—				—				—				—				—				(7,481		)		(7,481		)
Net (loss) income attributable to common stockholders		$	(2,156	)		$	10,776			$	(2,902	)		$	7,381			$	27,036			$	(1,012	)		$	(53,786	)		$	(14,663	)
Earnings per common share
Basic (a)		$	(0.16	)																										$	(0.57	)
Diluted (b)		(0.16		)																										(0.57		)
Weighted average common share
Basic (a)		13,800,884																												25,565,373
Diluted (b)		13,800,884																												25,565,373

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		Adjusted Franchise Group				Adjusted Buddy's				Adjusted Sears Outlet				Adjusted VSI				Adjusted American Freight
		(Note 2a)				(Note 2b)				(Note 2c)				(Note 2d)				(Note 2e)
(Dollars in thousands except per share amounts)		Eight Months Ended, December 28, 2019				Three Months Ended, June 30, 2019				Six Months Ended, August 3, 2019				Eight Months Ended, November 30, 2019				Eight Months Ended, November 30, 2019				Acquisition and related Pro Forma Adjustments				Financing and offer Pro Forma Adjustments				Pro Forma Combined Eight Months Ended, December 28, 2019
Revenue:
Product		$	54,266			$	549			$	217,187			$	670,796			$	273,771			$	—			$	—			$	1,216,569
Service and other		27,528				5,935				16,998				—				—				(261		)		—				50,200
Rental		22,303				6,589				—				—				—				—				—				28,892
Total Revenues		104,097				13,073				234,185				670,796				273,771				(261		)		—				1,295,661
Operating Expenses:																														—
Cost of revenue:																														—
Product		44,684				441				161,350				425,839				—				—				—				632,314
Service and other		(442		)		—				7,975				—				—				(261		)		—				7,272
Rental		8,121				2,400				—				—				151,951				—				—				162,472
Total cost of revenue		52,363				2,841				169,325				425,839				151,951				(261		)		—				802,058
Selling, general, and administrative expenses		142,488				8,466				53,695				257,659				100,220				(16,752		)		—				545,776
Restructuring Costs		—				—				—				—				—				(895		)		—				(895		)
Total operating expenses		194,851				11,307				223,020				683,498				252,171				(17,908		)		—				1,346,939
Gain (loss) from operations		(90,754		)		1,766				11,165				(12,702		)		21,600				17,647				—				(51,278		)
Other income (expense):																														—
Interest expense, net		(7,960		)		(360		)		(1,786		)		(2,828		)		(3,503		)		—				(47,929		)		(64,366		)
Other		37				11				2,883				—				—				—				—				2,931
Income (loss) before income taxes		(98,677		)		1,417				12,262				(15,530		)		18,097				17,647				(47,929		)		(112,713		)
Income tax (benefit) expense		(10,445		)		—				(290		)		(3,616		)		4,494				—				(12,648		)		(22,505		)
Net (loss) income		(88,232		)		1,417				12,552				(11,914		)		13,603				17,647				(35,281		)		(90,208		)
Less: Income/ (Loss) attributable to noncontrolling interests		(36,039		)		—				—				—				—				—				5,565				(30,474		)
Net (loss) income attributable to common stockholders		$	(52,193	)		$	1,417			$	12,552			$	(11,914	)		$	13,603			$	17,647			$	(40,846	)		$	(59,734	)
Earnings per common share
Basic (a)		$	(3.13	)																										$	(2.34	)
Diluted (b)		(3.13		)																										(2.34		)
Weighted average common share
Basic (a)		16,669,065																												25,565,373
Diluted (b)		16,669,065																												25,565,373

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(a)	Pro forma basic earnings per share and pro forma weighted average basic shares outstanding for the year ended April 30, 2019 and the eight months ended December 28, 2019 reflect the number of shares of the Company’s common stock that are outstanding upon completion of the Transactions. The following represents the pro forma adjustments to the basic and weighted average earnings per share:

	Number of shares
Weighted average common share at April 30, 2019	13,800,884
Common stock repurchased as part of the offer	(3,935,738)
Common stock purchased by Tributum in connection with the offer	2,083,333
Common stock purchased by Stefac LP, Brian R. Kahn and Lauren Kahn, and B. Riley FBR, Inc. in connection with the Sears Outlet acquisition	3,333,333
Common stock purchased by Tributum/Stefac LP in connection with the VSI acquisition	2,438,748
Common stock purchased by Tributum/Stefac LP in connection with the repayment of VSI convertible note	2,354,000
Common stock purchased by certain investors, in connection with the repayment of VSI's convertible note	3,877,965
Common stock issued and sold to Kayne FRG Holdings, LP for the financing services rendered by Kayne FRG	1,250,000
Other	362,848
Pro Forma weighted average common share at April 30, 2019	25,565,373

	Number of shares
Weighted average common share at December 28, 2019	16,669,065
Additional weighted average impact of common stock repurchased as part of the offer	(2,113,437)
Additional weighted average impact of common stock purchased by Tributum in connection with the offer	399,543
Additional weighted average impact of common stock purchased by Stefac LP, Brian R. Kahn and Lauren Kahn, and B. Riley FBR, Inc. in connection with the Sears Outlet acquisition	1,598,173
Additional weighted average impact of common stock purchased by Tributum/Stefac LP in connection with the VSI acquisition	1,530,064
Common stock purchased by Tributum/Stefac LP in connection with the repayment of VSI convertible note	2,354,000
Common stock purchased by certain investors, in connection with the repayment of VSI's convertible note	3,877,965
Common stock issued and sold to Kayne FRG Holdings, LP for the financing services rendered by Kayne FRG	1,250,000
Pro Forma weighted average common share at December 28, 2019	25,565,373

(b)

Due to the pro forma combined net loss attributable to the Franchise Group common stockholders for the year ended April 30, 2019 and the eight months ended December 28, 2019, dilutive common share-equivalents, including the potential conversion of New Holdco common units to shares of Franchise Group common stock and the potential issuance of shares of Franchise Group common stock under equity plans in which Franchise Group employees participate, were excluded from diluted weighted average common shares outstanding as they would have been anti-dilutive.

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as of December 28, 2019

		Historical
		Franchise Group				American Freight (Note 2e)
(Dollars in thousands, except per share amounts)		As of December 28, 2019				As of December 29, 2019				Acquisition and related Pro Forma Adjustments (Note 3)				Financing and offer Pro Forma Adjustments (Note 4)				Pro Forma Combined As of December 28, 2019
Assets
Current assets:
Cash and cash equivalents		$	39,581			$	16,384			$	(359,951	)	(3h)	$	387,511		(4d)	$	83,525
Current receivables, net		79,693				—				—				—				79,693
Inventories, net		300,312				54,796				11,951			(3b)	—				367,059
Other current assets		20,267				5,007				(1,128		)	(3d)	—				24,146
Total Current Assets		439,853				76,187				(349,128		)		387,511				554,423
Operating lease right-of-use assets		462,610				—				91,236			(3d)	—				553,846
Property, equipment, and software, net		150,147				9,258				2,074			(3b)	—				161,479
Non-current receivable, net		18,638				—				—				—				18,638
Goodwill		134,301				229,210				107,430			(3e)	—				470,941
Intangible assets, net		77,590				56,000				14,200			(3b)	—				147,790
Other non-current assets		15,406				1,659				(67		)	(3a)	9,117			(4d)	26,115
Total Assets		1,298,545				372,314				(134,255		)		396,628				1,933,232
Liabilities and Equity
Current liabilities:
Current installments of long-term obligations		218,384				3,210				—				(50,225		)	(4d)	171,369
Revolving credit facility		—				—				—				100,000			(4d)	100,000
Accounts payable and accrued expenses		158,995				33,631				—				(4,396		)	(4d)	188,230
Current portion of operating lease liabilities		107,680				—				17,457			(3d)	—				125,137
Accounts payable - related parties		—				4,292				—				—				4,292
Layaway deposits and deferred revenue		—				10,179				—				—				10,179
Other current liabilities		16,409				—				—				—				16,409
Total current Liabilities		501,468				51,312				17,457				45,379				615,616
Long-term obligations, excluding current installments, net		245,236				98,690				1,087			(3a)	226,063			(4d)	571,076
Operating Lease Liabilities - non-current		394,307				—				62,289			(3d)	—				456,596
Other non-current liabilities		5,773				23,941				(14,491		)	(3c,d,i)	—				15,223
Total Liabilities		$	1,146,784			$	173,943			$	66,342			$	271,442			$	1,658,511
Redeemable series A preferred stock $0.001 par value		—				114,400				(114,400		)	(3f)	—				—
Stockholders and Members' equity:																		—
Preferred stock, $0.01 par value per share,		19				—				—				—				19
Common stock, $0.01 par value per share		183				28,600				(28,600		)	(3f)	75			(4d)	258
Contributed capital		—				2,368				(2,368		)	(3f)	—				—
Additional paid-in capital		108,339				—				—				125,111			(4d)	233,450
														(47,905		)	(4e)	(47,905		)
Accumulated other comprehensive loss, net of taxes		(1,538		)		—				—				—				(1,538		)
Retained earnings		18,388				52,985				(55,211		)	(3f,j)	—				16,162
Total stockholders' equity attributable to Liberty		125,391				83,971				(86,197		)		77,281				200,446
Non-controlling interest		26,370				—				—				47,905			(4e)	74,275
Total stockholders' equity		151,761				83,971				(86,197		)		125,186				274,721
Total Liabilities, Mezzanine Equity and Equity		$	1,298,545			$	372,314			$	(134,255	)		$	396,628			$	1,933,232

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Note 1: Basis of Presentation

The accompanying pro forma financial statements were prepared in accordance with Article 11 of Regulation S-X and present the pro forma statements of operations and pro forma balance sheet of the combined company based on the historical financial statements of Franchise Group, Buddy’s, Sears Outlet, VSI, and American Freight (the “Combined Company”), after giving effect to the Transactions as described above. The historical financial statements of Franchise Group, Buddy’s, Sears Outlet, VSI, and American Freight have been adjusted in the accompanying pro forma financial statements to give effect to pro forma events that are (i) directly attributable to the Transactions, (ii) factually supportable and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results of operations of the Combined Company.

The accompanying pro forma financial statements are presented for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the Combined Company if the Transactions had been consummated for the periods presented or that will be achieved in the future. The pro forma financial statements do not reflect the costs of any integration activities or benefits that may result from realization of revenue growth or operational synergies expected to result from the Transactions.

In addition, the historical statement of operations for the fiscal year ended December 31, 2018 of Buddy’s, fiscal year ended December 29, 2018 of VSI, and the fiscal year ended December 30, 2018 of American Freight have been adjusted to reflect a trailing twelve months ended March 31, 2019 for Buddy’s and a trailing twelve months ended March 30, 2019 for VSI and American Freight by adding the statement of operations for the three months ended March 31, 2019 for Buddy’s and the statement of operations for the three months ended March 30, 2019 for VSI and American Freight, and subtracting the statement of operations for the three months ended March 31, 2018. Similarly, the historical combined statement of operations for the fiscal year ended February 2, 2019 of Sears Outlet has been adjusted to reflect a trailing twelve-months ended May 4, 2019 by adding Sears Outlet’s statement of operation for the three months ended May 4, 2019 and subtracting Sears Outlet’s statement of operations for the three months ended May 5, 2018.

Note 2: Adjustments to Franchise Group’s, Buddy’s, Sears Outlet’s, VSI’s and American Freight’s Historical Financial Statements

(2a) Adjustments and reclassifications to Franchise Group’s historical financial statements:

Certain reclassifications have been made to the historical presentation of the statement of operations for the fiscal year ended April 30, 2019 of Franchise Group to conform to its financial statement presentation for the eight months ended December 28, 2019. The pro forma combined statement of operations for the eight months ended December 28, 2019 was prepared by combining the historical consolidated statement of operations for the eight months ended December 28, 2019 of Franchise Group and the pre-merger historical consolidated statement of operations for the three months ended June 30, 2019 of Buddy’s, the pre-acquisition historical combined statement of operations for the six months ended August 3, 2019 of Sears Outlet, the pre-acquisition historical consolidated statement of operations for the eight months ended November 30, 2019 of VSI, and the pre-acquisition historical consolidated statement of operations for the eight months ended December 29, 2019 of American Freight and giving effect to the Transactions as if they had occurred on the first day of the fiscal year May 1, 2018.

10

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Unaudited Pro Forma Combined Statement of Operations

for the year-ended April 30, 2019

Dollars in thousands, except per share amounts	Historical Franchise Group			Reclassification			After Reclassification
Revenue:
Franchise fees	$	2,766		$	(2,766	)	$	—
Area Developer fees	3,146			(3,146		)	—
Royalties and advertising fees	63,716			(63,716		)	—
Financial products	33,478			(33,478		)	—
Interest income	8,189			(8,189		)	—
Assisted tax preparation fees, net of discounts	14,611			(14,611		)	—
Electronic Filing Fee	2,675			(2,675		)	—
Product	—			—			—
Service and other	—			132,546			132,546
Rental	—			—			—
Other revenues	3,965			(3,965		)	—
Total revenues	132,546						132,546
Operating Expenses:							—
Cost of revenue:	—			—			—
Product	—			—			—
Service and other	—			—			—
Rental	—			—			—
Total cost of revenue	—			—			—
Employee compensation and benefits	39,822			(39,822		)	—
Selling, general, and administrative expenses	42,038			82,022			124,060
Area Developer expense	15,584			(15,584		)	—
Advertising expense	12,532			(12,532		)	—
Depreciation, amortization, and impairment charges	14,084			(14,084		)	—
Restructuring Costs	9,345			—			9,345
Total operating expenses	133,405			—			133,405
Gain (loss) from operations	(859		)	—			(859		)
Other (expense) income:
Foreign currency transaction (loss) gain	(113		)	113			—
Interest expense, net	(3,203		)	—			(3,203		)
Other	—			(113		)	(113		)
Loss before income taxes	(3,995		)	—			(3,995		)
Income tax benefit	1,839			—			1,839
Net loss	(2,156		)	—			(2,156		)
Less: Net (loss) income attributable to participating securities	—			—			—
Net loss attributable to Class A and Class B common stockholders	$	(2,156	)				$	(2,156	)
Net (loss) income per share attributable to Class A and Class B common stockholders:							—
Basic	$	(0.16	)				$	(0.16	)
Diluted	(0.16		)				(0.16		)
Weighted-average shares used to compute net income (loss) per share attributable to Class A and Class B common stockholders:
Basic	13,800,884						13,800,884
Diluted	13,800,884						13,800,884

11

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The statement of operations for the eight months ended December 28, 2019 include post-merger operations of Buddy’s for the period July 10, 2019 to December 28, 2019, post-acquisition operations of Sears Outlet for the period October 23, 2019 to December 28, 2019, and post-acquisition operations of VSI for the period December 16, 2019 to December 28, 2019. Accordingly, the following adjustments to Franchise Group’s statement of operations were made to eliminate the post-merger operations of Buddy’s for the period July 11, 2019 to July 31, 2019, the post-acquisition operations of Sears Outlet for the period October 23, 2019 to October 31, 2019, and the post-acquisition operations of VSI for the period December 16, 2019 to December 28, 2019 in order to avoid combining operating results of Buddy’s, Sears Outlet, and VSI that exceed an eight-month period.

		Historical Franchise Group				Less: Buddy's adjustments				Less: Sears Outlet adjustments				Less: VSI adjustments				Adjusted Franchise Group
Dollars in thousands, except per share amounts		Eight Months Ended December 28, 2019				July 10, 2019 - July 31, 2019				October 23, 2019 - October 31, 2019				December 16, 2019 - December 28, 2019				Eight Months Ended December 28, 2019
Revenue:
Product		$	96,139			$	118			$	11,181			$	30,574			$	54,266
Service and other		29,735				1,191				1,016				—				27,528
Rental		23,636				1,334				(1		)		—				22,303
Total revenues		149,510				2,643				12,196				30,574				104,097
Operating expenses:
Cost of revenue:
Product		71,820				93				7,565				19,478				44,684
Service and other		768				—				1,210				—				(442		)
Rental		8,661				540				—				—				8,121
Total cost of revenue		81,249				633				8,775				19,478				52,363
Selling, general, and administrative expenses		173,860				1,479				5,288				24,605				142,488
Total operating expenses		255,109				2,112				14,063				44,083				194,851
Loss from operations		(105,599		)		531				(1,867		)		(13,509		)		(90,754		)
Other income (expense):
Interest expense, net		(9,349		)		(487		)		(212		)		(690		)		(7,960		)
Other		37				—				—				—				37
Loss before income taxes		(114,911		)		44				(2,079		)		(14,199		)		(98,677		)
Income tax benefit		(10,445		)		—				—				—				(10,445		)
Loss before income taxes		(104,466		)		44				(2,079		)		(14,199		)		(88,232		)
Less: Net loss attributable to non-controlling interest		36,039				—				—				—				36,039
Net loss attributable to Franchise Group, Inc.		$	(68,427	)		$	44			$	(2,079	)		$	(14,199	)		$	(52,193	)

(2b) Adjustments and reclassifications of Buddy’s historical financial statements:

Certain reclassifications have been made to the historical presentation of the statement of operations of Buddy’s to conform to the financial statement presentation of Franchise Group. In addition, certain operations of Buddy’s, including its Flexi Buddy’s, BGTG LLC and 1357 LLC subsidiaries, were divested to the Buddy’s equity holders in December 2018 and therefore were not acquired or assumed by Franchise Group. The following summarizes the reclassification adjustments and elimination of the operations that were not acquired as part of the merger in the unaudited pro forma combined statement of operations for the trailing twelve months ended March 31, 2019 and the three months ended June 30, 2019.

12

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Buddy's Statement of Operations

		April 1, 2018 - March 31, 2019																April 1, 2019 - June 30, 2019
(in thousands)		Before Adjustment				Operations not contributed				Reclassification				After Adjustment				Before Adjustment				Reclassification				After Adjustment
Revenue
Lease revenue		$	30,560			$	(4,056	)		$	(26,504	)		$	—			$	6,589			$	(6,589	)		$	—
Agreement, club and damage waiver fee		6,160				(792		)		(5,368		)		—				1,352				(1,352		)		—
Retail sales		2,874				(282		)		(2,592		)		—				549				(549		)		—
Franchising and licensing fees		15,204				532				(15,736		)		—				4,270				(4,270		)		—
Other support revenue		2,023				(122		)		(1,901		)		—				313				(313		)		—
Product		—				—				2,592				2,592				—				549				549
Service		—				—				23,005				23,005				—				5,935				5,935
Leasing		—				—				26,504				26,504				—				6,589				6,589
Revenue, net		56,821				(4,720		)		—				52,101				13,073				—				13,073
Leasing cost of sales		10,949				(1,719		)		(9,230		)		—				2,400				(2,400		)		—
Retail cost of sales		2,197				(353		)		(1,844		)		—				441				(441		)		—
Cost of revenue:																										—
Product		—				—				1,844				1,844				—				441				441
Leasing		—				—				9,230				9,230				—				2,400				2,400
Total cost of revenue		13,146				(2,072		)		—				11,074				2,841				—				2,841
Operating expenses:
Personnel expense		16,375				(2,074		)		(14,301		)		—				3,722				(3,722		)		—
Occupancy expense		4,845				(635		)		(4,210		)		—				1,050				(1,050		)		—
Marketing expense		1,927				(89		)		(1,838		)		—				603				(603		)		—
Delivery/Vehicle expense		1,356				(208		)		(1,148		)		—				257				(257		)		—
General & Administrative expense		7,426				(339		)		(7,087		)		—				2,490				(2,490		)		—
Selling, general, and administrative expenses		—				—				29,098				29,098				—				8,466				8,466
Depreciation expenses		608				(95		)		(513		)		—				107				(107		)		—
Total operating costs		45,683				(5,512		)		1				40,172				11,070				237				11,307
Operating income		11,138				792				(1		)		11,929				2,003				(237		)		1,766
Other income (expense)
Net gain on sale of store related assets		178				81				(259		)		—				11				(11		)		—
Other		—				—				259				259				—				11				11
Amortization expense		(178		)		177				1				—				(237		)		237				—
Interest expense		(1,453		)		41				—				(1,412		)		(360		)		—				(360		)
Total other income (expense)		(1,453		)		299				1				(1,153		)		(586		)		237				(349		)
Net income before income taxes		9,685				1,091				—				10,776				1,417				—				1,417
Income taxes		—				—								—				—								—
Net income from continuing operations		$	9,685			$	1,091			$	—			$	10,776			$	1,417			$	—			$	1,417

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Sears Outlet Statement of Operations

		May 5, 2018 - May 4, 2019												February 5, 2019 - August 3, 2019
(in thousands)		Before Adjustment				Reclassification				After Adjustment				Before Adjustment				Reclassification				After Adjustment
Revenue
Product		$	—			$	448,573			$	448,573			$	—			$	217,187			$	217,187
Service		—				41,626				41,626				—				16,998				16,998
Net sales		490,199				(490,199		)		—				234,185				(234,185		)		—
Operating expenses:
Cost of revenue:
Product		—				334,068				334,068				—				161,350				161,350
Service		—				20,428				20,428								7,975				7,975
Cost of goods sold		354,496				(354,496		)		—				169,325				(169,325		)		—
Selling, general, and administrative expenses		126,296				7,068				133,364				51,582				2,113				53,695
Impairment of property and equipment		1,082				(1,082		)		—				—				—				—
Depreciation and amortization		5,986				(5,986		)		—				2,113				(2,113		)		—
Loss (gain) on sale of assets		(1,306		)		1,306				—				(2,877		)		2,877				—
Total costs and expenses		486,554				1,306				487,860				220,143				2,877				223,020
Operating income (loss)		3,645				(1,306		)		2,339				14,042				(2,877		)		11,165
Other income (expense)
Interest expense		(6,410		)		—				(6,410		)		(1,786		)		—				(1,786		)
Other income		134				1,306				1,440				6				2,877				2,883
Income (loss) before income taxes		(2,631		)		—				(2,631		)		12,262				—				12,262
Income tax expense (benefit)		271				—				271				(290		)		—				(290		)
Net income (loss)		$	(2,902	)		$	—			$	(2,902	)		$	12,552			$	—			$	12,552

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VSI Statement of Operations

		April 1, 2018 - March 30, 2019												April 1, 2019 - November 30, 2019
(in thousands)		Before Adjustment				Reclassification				After Adjustment				Before Adjustment				Reclassification				After Adjustment
Revenue
Product		$	—			$	1,101,528			$	1,101,528			$	—			$	670,796			$	670,796
Net sales		1,101,528				(1,101,528		)		—				670,796				(670,796		)		—
Cost of revenue:
Product		—				745,028				745,028				—				425,839				425,839
Cost of goods sold		745,028				(745,028		)		—				425,839				(425,839		)		—
Gross profit		356,500				—				356,500				244,957				—				244,957
Selling, general, and administrative expenses		344,174				3,017				347,191				246,255				11,404				257,659
Goodwill, tradename and store fixed-assets impairment charges		3,017				(3,017		)		—				11,404				(11,404		)		—
Income (loss) from operations		9,309				—				9,309				(12,702		)		—				(12,702		)
Gain on extinguishment of debt		4,400				—				4,400				—				—				—
Interest expense		(5,227		)		—				(5,227		)		(2,828		)		—				(2,828		)
Income (loss) before provision (benefit) for income taxes		8,482				—				8,482				(15,530		)		—				(15,530		)
Income tax expense (benefit)		1,101				—				1,101				(3,616		)		—				(3,616		)
Net income (loss) from continuing operations		$	7,381			$	—			$	7,381			$	(11,914	)		$	—			$	(11,914	)

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American Freight Statement of Operations

		April 1, 2018 - March 30, 2019												May 1, 2019 - December 29, 2019
(in thousands)		Before Adjustment				Reclassification				After Adjustment				Before Adjustment				Reclassification				After Adjustment
Revenue
Product		$	—			$	443,954			$	443,954			$	—			$	273,771			$	273,771
Revenue		443,954				(443,954		)		—				273,771				(273,771		)		—
Cost of revenue																						—
Merchandise		220,365				(220,365		)		—				139,231				(139,231		)		—
Freight		23,183				(23,183		)		—				12,720				(12,720		)		—
Product		—				243,548				243,548				—				151,951				151,951
Gross profit		200,406				—				200,406				121,820				—				121,820
Depreciation expense		1,843				(1,843		)		—				1,745				(1,745		)
Selling, general, and administrative expenses		153,967				1,843				155,810				98,475				1,745				100,220
Gain (loss) from operations		44,596				(1,843		)		44,596				21,600				(1,745		)		21,600
Interest expense		(8,161		)		—				(8,161		)		(3,503		)		—				(3,503		)
Income (loss) before provision (benefit) for income taxes		36,435				(1,843		)		36,435				18,097				(1,745		)		18,097
Income tax expense (benefit)		9,399				—				9,399				4,494				—				4,494
Net income (loss) from continuing operations		$	27,036			$	(1,843	)		$	27,036			$	13,603			$	(1,745	)		$	13,603

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American Freight Group, Inc. Balance sheet

As of December 29, 2019
(in thousands)		Before Reclassification				Reclassification				As Adjusted
Assets
Cash and cash equivalents		$	16,384			$	—			$	16,384
Other current assets		—				5,007				5,007
Prepaid expenses and other current assets		5,007				(5,007		)		—
Inventories, net		54,796				—				54,796
Total Current Assets		76,187				—				76,187
Property, equipment, and software, net		9,258				—				9,258
Goodwill		229,210				—				229,210
Intangible assets		56,000								56,000
Other Assets		1,659				—				1,659
Total Assets		$	372,314			$	—			$	372,314
Liabilities and Equity
Account payable		$	21,004			$	(21,004	)		$	—
Accounts payable - related parties		4,292				—				4,292
Layaway deposits and deferred revenue		10,179				—				10,179
Other current liabilities		—				—				—
Accrued salaries and related benefits		2,317				(2,317		)		—
Accrued expenses and other current liabilities		10,310				(10,310		)		—
Accounts payable and accrued expenses		—				33,631				33,631
Term debt - current portion		3,210				(3,210		)		—
Current installments of long-term obligations		—				3,210				3,210
Total Current Liabilities		51,312				—				51,312
Term debt		98,690				(98,690		)		—
Long-term obligations, excluding current installments, net		—				98,690				98,690
Deferred rent obligations		2,335				(2,335		)		—
Other non-current liabilities		—				23,941				23,941
Deferred tax liabilities		21,606				(21,606		)		—
Total Liabilities		$	173,943			$	—			$	173,943
Redeemable series A preferred stock $0.001 par value		$	114,400			$	—			$	114,400
Stockholders' Equity
Common stock		$	28,600			$	—			$	28,600
Contributed capital		2,386				—				2,386
Additional paid-in-capital		—				—				—
Retained earnings		52,985				—				52,985
Total stockholders' equity		83,971				—				83,971
Total Liabilities, Mezzanine Equity and Stockholders' Equity		$	372,314			$	—			$	372,314

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	For the year ended April 30, 2019
(in thousands)	Buddy's				Sears Outlet				VSI				American Freight				Total Acquisition Pro Forma Adjustments			Notes
Revenue:
Service	$	(177	)	(3g)	$	—			$	—			$—				$	(177	)	(3g)
Total	(177		)		—				—				—				(177		)
Operating Expenses:
Cost of revenue:
Service					(177		)	(3g)									(177		)	(3g)
Selling, general, and administrative expenses	1,942			(3b3)	4,754			(3b2)	(8,259		)	(3b1)	2,575			(3b),(3d)	1,012			(3b)
Total	1,942				4,577				(8,259		)		2,575				835
Total operating income/ (expense)	$	(2,119	)		$	(4,577	)		$	8,259			$	(2,575	)		$	(1,012	)

	For the 8-months ended December 28, 2019
(in thousands)	Buddy's				Sears Outlet				VSI				American Freight				Total Acquisition Pro Forma Adjustments
Revenue:
Service	$	(261	)	(3g)	$	—			$	—			$	—			$	(261	)	(3g)
Total	(261		)		—				—				—				(261		)
Operating Expenses:
Cost of revenue:
Service	—				(261		)	(3g)	—				—				(261		)	(3g)
Selling, general, and administrative expenses	(6,367		)	(3k)	(5,179		)	(3k)	(3,704		)	(3k)	(1,502		)	(3k)	(16,752		)	(3k)
Selling, general, and administrative expenses	486			(3b3)	2,377			(3b2)	(5,474		)	(3b1)	1,716			(3b),(3d)	(895		)	(3b)
Total	(5,881		)		(3,063		)		(9,178		)		214				(17,908		)
Total operating income/ (expense)	$	5,620			$	3,063			$	9,178			$	(214	)		$	17,647

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		American Freight
								Amortization expense
		Fair Value		Estimated Useful Life		Amortization Method		Eight months ended December 29, 2019				Year ended April 30, 2019
Trademark / trade name		14,200		Indefinite		N/A		$	—			$	—
Above/ (below) market leases		11,490		4.9		Straight-line		1,563				2,345
Total acquired intangible assets		25,690						1,563				2,345
Less: historical intangible assets								—				—
Pro forma adjustment								$	1,563			$	2,345

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Pro forma adjustment to cash		Cash
(in thousands)
Purchase of American Freight		$	(356,886	)
Transaction-related costs		(3,065		)
Pro forma adjustment to cash		$	(359,951	)

Buddy's Original Acquisition		$	6,367
Vitamin Shoppe		3,704
Sears Outlet Stores		5,179
American Freight		1,502
Total		$	16,752

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		Sears Outlet
											Amortization expense
		Fair Value				Estimated Useful Life			Amortization Method		Six months ended August 3, 2019				Year ended April 30, 2019
Above/ (below) market leases		$	19,260			4.1			Straight-line		$	2,349			$	4,698
Total acquired intangible assets											2,349				4,698
Less: historical intangible assets											—				—
Pro forma adjustment											$	2,349			$	4,698

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Note 4: Financing and Offer Adjustments

(4a) Represents an increase to interest expense of $75.7 million and $47.9 million for the fiscal year ended April 30, 2019 and eight months ended December 28, 2019, respectively, which includes the following:

(in thousands)		For the twelve months ended April 30, 2019
		Buddy's				Sears Outlet				VSI				New Holdco (4)				Total
Estimated interest expense on new financing (1)		$	—			$	—			$	9,544			$	72,829			$	82,373
Elimination of historical interest expenses (2)		(1,412		)		(6,410		)		(5,227		)		(8,161		)		(21,210		)
Amortization of deferred debt issuance costs (3)		—				—				2,792				11,768				14,560
Total pro forma adjustment to interest expense		$	(1,412	)		$	(6,410	)		$	7,109			$	76,436			$	75,723

(in thousands)		For the eight months ended December 28, 2019
		Buddy's				Sears Outlet				VSI				New Holdco (4)				Total
Estimated interest expense on new financing (1)		$	—			$	—			$	5,346			$	47,586			$	52,932
Elimination of historical interest expenses (2)		(4,881		)		(3,383		)		(2,828		)		(3,503		)		(14,595		)
Amortization of deferred debt issuance costs (3)		—				—				1,606				7,985				9,591
Total pro forma adjustment to interest expense		$	(4,881	)		$	(3,383	)		$	4,124			$	52,068			$	47,929

(1)

Represents additional interest expense calculated at an estimated 9.69% interest rate in connection with the New Holdco Tranche A-1, an estimated 14.19% interest rate in connection with the New Holdco Tranche A-2, an estimated 9.19% interest rate in connection with the $100 million New Holdco credit facility, an estimated 11.00% interest rate on the $70.0 million 3-year VSI term loan, and an estimated 3.66% on the $70.0 million 3-year VSI credit facility. The estimated interest rates and adjustments are based on current LIBOR rates and estimated interest rate spreads based on the terms of the executed debt agreements. Refer to Note 4d for further summary of the financing transactions.

(2)

Represents the elimination of Buddy’s, Sears Outlet’s, VSI’s, and American Freight’s historical interest expense as a result of the extinguishment of its historical term loans and line of credits pursuant to the acquisition agreements. The adjustment also reflects the elimination of the Buddy’s term loan interest incurred from July 10, 2019 to December 28, 2019 and Sears Outlet term loan interest incurred from October 23, 2019 to December 28, 2019 as these two loans were refinanced by using the proceeds from the New Holdco term loan and ABL credit facility.

(3)	Represents the amortization of the estimated deferred financing costs in connection with the New Holdco term loan and the New Holdco credit facility.

(4)	New Holdco is the Company’s subsidiary created in connection with the Transactions that owns Buddy’s, Sears Outlet, VSI and American Freight and issued debt on February 14, 2020 to finance the American Freight acquisition and repay the Buddy’s and Sears Outlet existing term loans.

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1.	In connection with the Buddy’s merger and offer, Buddy’s has signed the Buddy’s initial credit agreement for debt financing of the Transactions consisting of a $82.0 million, 5-year term loan, which bears interest at variable rates. The proceeds were used to finance transaction costs, a portion of the tender offer acceptances and general working capital purposes.

2.

In connection with the Sears Outlet acquisition, Franchise Group Newco S, LLC, an indirect subsidiary of Franchise Group, signed the Sears Outlet term loan to finance the acquisition of Sears Outlet in an amount equal to $105.0 million. The Sears Outlet term loan bears a variable interest rate. The total proceeds from the debt financing and the equity contribution from the Investors of $40 million as explained above were used to pay the cash consideration in connection with the Sears Outlet acquisition.

3.

In connection with the VSI acquisition, Vitamin Shoppe Industries, LLC, an indirect subsidiary of Franchise Group has executed a 3-year term loan in the amount of $70.0 million and borrowed $70.0 million of 3-year credit facility and the total proceeds were used to finance the VSI acquisition. The VSI term loan and the VSI credit facility bear variable interest rates. The total proceeds from the debt financing and the equity contribution from Vintage of $30 million as explained above were used to pay the cash consideration in connection with the VSI acquisition.

4.

In connection with the A-team Asset Acquisition, the Buddy’s segment of Franchise Group entered into the Buddy’s first amendment to the Buddy’s initial term loan to provide for a $23.0 million first priority senior secured term loan. The proceeds from the debt were used to acquire 41 Buddy’s Home Furnishings stores from A-Team. The purchase price allocation related to the Asset Acquisition of the 41 stores is reflected in the historical financial statements of Franchise Group but is not reflected in the pro forma statements of operations as the A-team Asset Acquisition was not considered material to the pro forma results.

5.	The historical balance sheet of Franchise Group as of December 28, 2019 also reflects the purchase of shares in connection with the final offer acceptances of $47.2 million.

•

the issuance of debt to finance the American Freight acquisition and repay the existing Buddy’s and the Sears Outlet term loans. Franchise Group through certain of its subsidiaries, entered into the New Holdco term loan agreement with GACP Finance Co., LLC for an amount of $575.0 million which consists of a $375.0 million first out tranche and a $200.0 million last out tranche. The term loan will mature on May 14, 2025. In addition, Franchise Group entered into an ABL Credit Agreement with various lenders which provided the Company with a $100.0 million credit facility. The pro forma adjustments, as illustrated below, reflect the incurrence of the debt, net of financing costs and the repayment of the existing Buddy’s and the Sears Outlet term loans;

•	the equity issuance to Kayne FRG Holdings, L.P. (“Kayne FRG”) of 1.3 million shares of common as a consideration and payment for debt financing services rendered to the Company. The fair value of the 1.3 million of shares issued to Kayne FRG is $31.0 million, which has been capitalized as deferred financing costs with an offset to common stock par and Additional Paid In Capital (“APIC”); and

•	the additional equity contribution from affiliates of Vintage for $65.9 million or 3.9 million shares to finance the repurchase of the VSI Convertible Notes for $60.6 million including $0.2 million of accrued interest with the excess cash used to fund general, working capital and cash needs of the Company.

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Pro forma adjustment to cash		American Freight transaction				VSI transaction				Total
(in thousands)
Increase from issuance of New Holdco term loan		$	566,814			$	—			$	566,814
Increase of New Holdco credit facility		95,477				—				95,477
Repayment of Buddy's existing term loan		(104,576		)		—				(104,576		)
Repayment of Sears' existing term loan		(106,574		)		—				(106,574		)
Repayment of American Freight's existing term loan		(97,364		)		—				(97,364		)
Repurchase of VSI's existing convertible notes						(60,439		)		(60,439		)
Vintage additional equity contribution						94,173				94,173
Pro forma adjustment to cash		$	353,777			$	33,734			$	387,511

Pro forma adjustment to debt		Issuance of New Holdco term loan and credit facility				Redemption of VSI's existing convertible notes				Prepayment of American Freight's existing term loan				Prepayment of Buddy's existing term loan				Prepayment of Sears Outlet's existing term loan				Total
(in thousands)
Term loan financing		$	575,000			$	—			$	—			$	—			$	—			$	575,000
Less: Debt issuance costs		(34,604		)		—				—				—				—				(34,604		)
Debt, net of debt issuance costs		540,396				—				—				—				—				540,396
Pro forma adjustment to current portion of debt:		25,000				(60,439		)		(3,210		)		(4,822		)		(6,754		)		(50,225		)
Pro forma adjustment to debt, net of current portion:		515,396				—				(93,747		)		(97,431		)		(98,155		)		226,063
Pro forma adjustment to Revolver		100,000				—				—				—				—				100,000
Pro forma adjustment to other assets (revolver commitment fee)		$	(9,117	)		$	—			$	—			$	—			$	—			$	(9,117	)

Pro forma adjustment to accrued interest on the repayment of the debt		Accrued interest
(in thousands)
American Freight's existing term loan		$	(407	)
Buddy's term loan		(2,323		)
Sears Outlet’s term loan		(1,665		)
Pro forma adjustment to accrued interest		$	(4,395	)

Pro forma adjustment to equity		Common stock				APIC
(in thousands)
Vintage equity contribution		$	62			$	94,111
Shares issued to Kayne FRG for debt financing services rendered		13				31,000
Pro forma adjustment to equity		$	75			$	125,111

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