4. Asset Sale to WBA

Termination of Merger Agreement with WBA

On June 28, 2017, the Company, WBA and Victoria Merger Sub, Inc. entered into a Termination Agreement (the "Merger Termination Agreement"), under which the parties agreed to terminate the Merger Agreement. The Merger Termination Agreement provides that WBA would pay to the Company a termination fee in the amount of $325,000, which was received on June 30, 2017.

Entry Into Amended and Restated Asset Purchase Agreement with WBA

On September 18, 2017, the Company entered into the Amended and Restated Asset Purchase Agreement (the "Amended and Restated Asset Purchase Agreement", with WBA and Walgreen Co., an Illinois corporation and wholly owned direct subsidiary of WBA ("Buyer"), which amended and restated in its entirety the previously disclosed Asset Purchase Agreement (the "Original APA"), dated as of June 28, 2017, by and among the Company, WBA and Buyer. Pursuant to the terms and subject to the conditions set forth in the Amended and Restated Asset Purchase Agreement, Buyer will purchase from the Company 1,932 stores (the "Acquired Stores"), three (3) distribution centers, related inventory and other specified assets and liabilities related thereto (collectively the "Assets to be Sold" or "Disposal Group") for a purchase price of approximately $4,375,000, on a cash-free, debt-free basis (the "Sale").

The Company announced on September 19, 2017 that the waiting period under the HSR Act, expired with respect to the Sale. On November 27, 2017, the Company announced that it had completed the pilot closing and first subsequent closings under the Amended and Restated Asset Purchase Agreement, resulting in the transfer of 97 Rite Aid stores and related assets to the Buyer. As of March 3, 2018, the Company has sold 1,651 stores and related assets to WBA in exchange for proceeds of $3,553,486, which were used to repay outstanding debt. As of March 27, 2018, the Company has completed the store transfer process, and all 1,932 stores and related assets have been transferred to WBA and the Company has received cash proceeds of $4,156,686. The transfer of the three distribution centers and related inventory is expected to begin after September 1, 2018. The majority of the closing conditions have been satisfied, and the transfer of the three distribution centers and related assets remain subject to minimal customary closing conditions applicable only to the distribution centers being transferred at such distribution center closings, as specified in the Amended and Restated Asset Purchase Agreement.

The parties to the Amended and Restated Asset Purchase Agreement have each made customary representations and warranties. The Company has agreed to various covenants and agreements, including, among others, the Company's agreement to conduct its business at the distribution centers being sold to WBA in the ordinary course during the period between the execution of the Amended and Restated Asset Purchase Agreement and the distribution center closing. The Company has also agreed to provide transition services to Buyer for up to three (3) years after the initial closing of the Sale. Under the terms of the TSA, the Company provides various services on behalf of WBA, including but not limited to the purchase and distribution of inventory and virtually all selling, general and administrative activities. In connection with these services, the Company purchases the related inventory and incurs cash payments for the selling, general and administrative activities, which, the Company bills on a cash neutral basis to WBA in accordance with terms as outlined in the TSA. Total billings for these items from the initial closing through March 3, 2018 were $725,190, of which $354,321 is included in Accounts receivable, net. The Company has charged WBA TSA fees of $8,422 from the initial closing through March 3, 2018 which are reflected as a reduction to selling, general and administrative expenses.

Albertsons is obligated to assume the Company's remaining obligations under the TSA. Under the terms of the Amended and Restated Asset Purchase Agreement, the Company has the option to purchase pharmaceutical drugs through an affiliate of WBA under terms, including cost, that are substantially equivalent to Walgreen's for a period of ten (10) years, subject to certain terms and conditions.

Divestiture of the Assets to be Sold

Through March 3, 2018, the Company announced that it had sold 1,651 of the 1,932 stores for $3,553,486, which the Company used to reduce its outstanding indebtedness. The Company estimates that the total pre-tax gain on the Sale will be approximately $2,500,000. As of March 27, 2018, the Company has completed the store transfer process, and all 1,932 stores and related assets have been transferred to WBA and the Company has received cash proceeds of $4,156,686. The transfer of the three distribution centers and related inventory is expected to begin after September 1, 2018. The majority of the closing conditions have been satisfied, and the transfer of the three distribution centers and related assets remain subject to minimal customary closing conditions applicable only to the distribution centers being transferred at such distribution center closing, as specified in the Amended and Restated Asset Purchase Agreement.

Based on its magnitude and because the Company is exiting certain markets, the Sale represents a significant strategic shift that has a material effect on the Company's operations and financial results. Accordingly, the Company has applied discontinued operations treatment for the Sale as required by Accounting Standards Codification 210-05—Discontinued Operations (ASC 205-20). In accordance with ASC 205-20, the Company reclassified the Disposal Group to assets and liabilities held for sale on its consolidated balance sheets as of the periods ended March 3, 2018 and March 4, 2017, and reclassified the financial results of the Disposal Group in its consolidated statements of operations and consolidated statements of cash flows for all periods presented. The Company also revised its discussion and presentation of operating and financial results to be reflective of its continuing operations as required by ASC 205-20.

The carrying amount of the Assets to be Sold, which were included in the Retail Pharmacy segment, have been reclassified from their historical balance sheet presentation to current and non-current assets and liabilities held for sale as follows:

	March 3, 2018		March 4, 2017
Inventories	$	264,286	$	1,047,670
Property and equipment		158,433		—
Goodwill(a)		4,629		—
Intangible assets		10,789		—

Current assets held for sale	$	438,137	$	1,047,670


Property and equipment	$	—	$	725,230
Goodwill(a)		—		32,632
Intangible assets		—		120,389
Other assets		—		4,017

Noncurrent assets held for sale	$	—	$	882,268


Current maturities of long-term lease financing obligations	$	270	$	3,626
Accrued salaries, wages and other current liabilities		6,146		29,057
Long-term debt, less current maturities(b)		549,549		—
Lease financing obligations, less current maturities		838		—
Other noncurrent liabilities		3,402		—

Current liabilities held for sale	$	560,205	$	32,683


Long-term debt, less current maturities(b)	$	—	$	4,027,400
Lease financing obligations, less current maturities		—		6,866
Other noncurrent liabilities		—		23,126

Noncurrent liabilities held for sale	$	—	$	4,057,392


(a)	The Company had $76,124 of goodwill in its Retail Pharmacy segment resulting from the acquisition of Health Dialog and RediClinic, which is accounted for as Retail Pharmacy segment enterprise goodwill. The Company has allocated a portion of its Retail Pharmacy segment enterprise goodwill to the discontinued operation.
(b)	In connection with the Sale, the Company is estimating that the Sale will provide excess cash proceeds of approximately $4,027,400 which will be used to repay outstanding indebtedness. As such, the $4,027,400 of estimated repayment of outstanding indebtedness has been included in liabilities held for sale as of March 4, 2017. As of March 3, 2018, the Company repaid outstanding indebtedness of $3,135,000 with transaction proceeds received.

The operating results of the discontinued operations that are reflected on the consolidated statements of operations within net income (loss) from discontinued operations are as follows:

	March 3, 2018 (52 weeks)			March 4, 2017 (53 weeks)			February 27, 2016 (52 weeks)
Revenues	$	8,686,397		$	10,050,049		$	10,045,543
Costs and expenses:
Cost of revenues(a)		6,406,067			7,340,691			7,211,267
Selling, general and administrative expenses(a)		2,134,276			2,465,364			2,432,175
Lease termination and impairment charges		77			9,516			7,946
Loss on debt retirements, net		8,180			—			—
Interest expense(b)		224,300			231,926			263,442
Gain on stores sold to Walgreens Boots Alliance		(2,128,832	)		—			—
(Gain) loss on sale of assets, net		(377	)		2,625			3,909

		6,643,691			10,050,122			9,918,739

Income (loss) from discontinued operations before income taxes		2,042,706			(73	)		126,804
Income tax expense		749,704			46			63,427

Net income (loss) from discontinued operations, net of tax	$	1,293,002		$	(27	)	$	63,377


(a)	Cost of revenues and selling, general and administrative expenses for the discontinued operations excludes corporate overhead. These charges are reflected in continuing operations.
(b)	In accordance with ASC 205-20, the operating results for the fifty-two week period ended March 3, 2018, the fifty-three week period ended March 4, 2017, and the fifty-two week period ended February 27, 2016 for the discontinued operations include interest expense relating to the $4,027,400 of outstanding indebtedness expected to be repaid with the estimated excess proceeds from the Sale.

The operating results reflected above do not fully represent the Disposal Group's historical operating results, as the results reported within net income from discontinued operations only include expenses that are directly attributable to the Disposal Group.