BASSETT FURNITURE INDUSTRIES INC 10-Q

ITEM 1. FINANCIAL STATEMENTS BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED MAY 29, 2021 AND MAY 30, 2020 – UNAUDITED (In thousands)       Six Months Ended       May 29, 2021     May 30, 2020   Operating activities:                 Net income (loss)   $ 9,985     $ ( 19,142 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                 Depreciation and amortization     6,893       7,239   Gain on lease modification     -       ( 152 ) Asset impairment charges     -       12,184   Goodwill impairment charge     -       1,971   Inventory valuation charges     1,100       2,936   Bad debt valuation charges (recoveries)     ( 43 )     1,074   Deferred income taxes     1,201       ( 521 ) Other, net     255       673   Changes in operating assets and liabilities:                 Accounts receivable     ( 3,399 )     2,483   Inventories     ( 13,515 )     883   Other current assets     25       ( 9,091 ) Right of use assets under operating leases     12,558       14,810   Customer deposits     8,149       ( 2,150 ) Accounts payable and other liabilities     2,775       ( 2,670 ) Obligations under operating leases     ( 13,934 )     ( 16,274 ) Net cash provided by (used in) operating activities     12,050       ( 5,747 )                   Investing activities:                 Purchases of property and equipment     ( 3,483 )     ( 1,791 ) Proceeds from sales of property and equipment     96       2,345   Purchases of investments     -       ( 241 ) Other     ( 335 )     ( 211 ) Net cash provided by (used in) investing activities     ( 3,722 )     102                     Financing activities:                 Cash dividends     ( 4,954 )     ( 1,258 ) Proceeds from the exercise of stock options     42       -   Other issuance of common stock     172       157   Repurchases of common stock     ( 2,925 )     ( 1,241 ) Taxes paid related to net share settlement of equity awards     ( 219 )     ( 215 ) Repayments of finance lease obligations     ( 467 )     ( 50 ) Net cash used in financing activities     ( 8,351 )     ( 2,607 ) Change in cash and cash equivalents     ( 23 )     ( 8,252 ) Cash and cash equivalents - beginning of period     45,799       19,687   Cash and cash equivalents - end of period   $ 45,776     $ 11,435     The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.   6 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     1. Basis of Presentation   The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10 -Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.   References to “ASC” included hereinafter refer to the Accounting Standards Codification established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative GAAP.   The condensed consolidated financial statements include the accounts of Bassett Furniture Industries, Incorporated (“Bassett”, “we”, “our”, or the “Company”) and our wholly-owned subsidiaries of which we have a controlling interest. In accordance with ASC Topic 810, we have evaluated our licensees and certain other entities to determine whether they are variable interest entities (“VIEs”) of which we are the primary beneficiary and thus would require consolidation in our financial statements. To date we have concluded that none of our licensees nor any other of our counterparties represent VIEs.   Revenue from the sale of furniture and accessories is reported in the accompanying condensed consolidated statements of operations net of estimates for returns and allowances.   Revenues from logistical services are generated by our wholly-owned subsidiary, Zenith Freight Lines, LLC (“Zenith”). Sales of logistical services from Zenith to our wholesale segment have been eliminated in consolidation, and Zenith’s operating costs and expenses associated with sales to external customers are reported as cost of logistical services in our condensed consolidated statements of operations.   Recently Adopted Accounting Pronouncements   Effective as of the beginning of fiscal 2021, we have adopted Accounting Standards Update No. 2016 - 13, Financial Instruments – Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments (“ASU 2016 - 13” ). The guidance in ASU 2016 - 13 replaces the incurred loss impairment methodology under previous GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. We assessed the guidance under ASU 2016 - 13 as applied to our trade receivables and contract assets, and determined that there was no material impact to our financial condition or results of operations as a result of the adoption.   Effective as of the beginning of fiscal 2021, we have adopted Accounting Standards Update No. 2018 - 15 – Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350 - 40 ): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018 - 15” ). ASU 2018 - 15 was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in ASU 2018 - 15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in ASU 2018 - 15. We adopted ASU 2018 - 15 on a prospective basis and the adoption did not have a material impact upon our financial condition or results of operations.   Impact of the COVID- 19 Pandemic Upon our Financial Condition and Results of Operations   On March 11, 2020, the World Health Organization declared the coronavirus (“COVID- 19” ) outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID- 19 within the United States, federal, state and local governments throughout the country imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures had a significant adverse impact upon many sectors of the economy, including non-essential retail commerce, beginning in our second fiscal quarter of 2020.   7 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)   In response to the restrictive measures imposed by governmental authorities and for the protection of our employees and customers, we temporarily closed our dedicated stores, our manufacturing locations and many of our warehouses for much of the second fiscal quarter of 2020. This extended period of suspended operations had a material adverse impact upon our results of operations during the second fiscal quarter of 2020 and resulted in a significant net loss for the three and six months ended May 30, 2020. In addition to operating losses resulting from severely reduced sales volumes, we also recorded charges for goodwill impairment (Note 6 ) as well as for the impairment of certain other long-lived assets (Note 10 ). However, since restarting our manufacturing operations and reopening stores, we have seen a significant improvement in business conditions which allowed us to return to overall profitability for the third and fourth fiscal quarters of 2020 continuing through the first half of fiscal 2021. Tempering these improvements are the continuing logistical challenges faced by the entire home furnishings industry resulting from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs.   Whereas the progress in mass vaccination programs in the U.S. has prompted state and local governments to substantially lift most remaining restrictions on commercial retail activity, it is nevertheless possible that a resurgence in COVID- 19 cases due to new variants of the coronavirus entering the U.S. could prompt a return to tighter restrictions in certain areas of the country. Furthermore, pandemic-related labor shortages and supply chain disruptions remain unresolved and order cancellations could result if the present delays in order fulfillment continue for an extended period of time. Therefore, uncertainty remains regarding the ongoing impact of the COVID- 19 outbreak upon our financial condition and future results of operations, as well as upon the significant estimates and assumptions we utilize in reporting certain assets and liabilities.     2. Interim Financial Presentation   All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the three and six months ended May 29, 2021 are not necessarily indicative of results for the full fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10 -K for the year ended November 28, 2020.   Income Taxes   We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income and use that effective tax rate to record our year-to-date income tax provision.  Any change in annual projections of pretax income could have a significant impact on our effective tax rate for the respective quarter.   Our effective tax rates for the three and six months ended May 29, 2021 of 25.8 % and 27.3 %, respectively, differ from the federal statutory rate of 21 % primarily due to the effects of state income taxes and various permanent differences, including tax benefits (deficiencies) of $ 18 and ($ 117 ) during the three and six months ended May 29, 2021, respectively, arising from stock-based compensation.   On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. A major provision of the CARES Act allowed net operating losses from the 2018, 2019 and 2020 tax years to be carried back up to five years. As a result, our effective tax rates for the three and six months ended May 30, 2020 were ( 36.4 %) and ( 36.5 %), respectively, which differ from the federal statutory rate of 21 % primarily due to the effects of carrying back our net operating loss from fiscal 2020 to tax years in which the federal statutory rate was 35 %, and to the effects of state income taxes and various permanent differences.   8 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     3. Financial Instruments and Fair Value Measurements   Financial Instruments   Our financial instruments include cash and cash equivalents, short-term investments in certificates of deposit (CDs), accounts receivable, and accounts payable. Because of their short maturities, the carrying amounts of cash and cash equivalents, short-term investments in CDs, accounts receivable, and accounts payable approximate fair value.   Investments   Our short-term investments of $ 17,715 at May 29, 2021 and November 28, 2020 consisted of CDs. At May 29, 2021, the CDs had original terms averaging eight months, bearing interest at rates ranging from 0.01 % to 0.85 %. At May 29, 2021, the weighted average remaining time to maturity of the CDs was approximately four months and the weighted average yield of the CDs was approximately 0.07 %. Each CD is placed with a federally insured financial institution and all deposits are within federal deposit insurance limits. Due to the nature of these investments and their relatively short maturities, the carrying amount of the short-term investments at May 29, 2021 and November 28, 2020 approximates their fair value.   Fair Value Measurement   The Company accounts for items measured at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures . ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:   Level 1 Inputs – Quoted prices for identical instruments in active markets.   Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.   Level 3 Inputs – Instruments with primarily unobservable value drivers.   We believe that the carrying amounts of our current assets and current liabilities approximate fair value due to the short-term nature of these items. Our primary non-recurring fair value estimates typically involve business acquisitions or the impairment of long-lived assets which involve a combination of Level 2 and Level 3 inputs.   9 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     4. Accounts Receivable   Accounts receivable consists of the following:       May 29, 2021     November 28, 2020   Gross accounts receivable   $ 27,050     $ 23,551   Allowance for doubtful accounts     ( 1,168 )     ( 1,211 ) Accounts receivable, net   $ 25,882     $ 22,340     We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging analysis which is applied to accounts pooled on the basis of similar risk characteristics. Judgments are made with respect to the collectibility of accounts receivable within each pool based on historical experience, current payment practices and current economic trends based on our expectations over the expected life of the receivables, which is generally ninety days or less. Actual credit losses could differ from those estimates.   Activity in the allowance for doubtful accounts for the six months ended May 29, 2021 was as follows:   Balance at November 28, 2020   $ 1,211   Reductions to allowance     ( 43 ) Balance at May 29, 2021   $ 1,168     We believe that the carrying value of our net accounts receivable approximates fair value. The inputs into these fair value estimates reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures . See Note 3.   10 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     5. Inventories   Domestic furniture inventories are valued at the lower of cost, which is determined using the last-in, first -out (LIFO) method, or market. Imported inventories and those applicable to our Lane Venture and Bassett Outdoor lines are valued at the lower of cost, which is determined using the first -in, first -out (FIFO) method, or net realizable value.   Inventories were comprised of the following:       May 29, 2021     November 28, 2020   Wholesale finished goods   $ 30,979     $ 25,001   Work in process     678       516   Raw materials and supplies     19,474       14,836   Retail merchandise     29,866       27,946   Total inventories on first-in, first-out method     80,997       68,299   LIFO adjustment     ( 9,422 )     ( 8,891 ) Reserve for excess and obsolete inventory     ( 4,274 )     ( 4,522 )     $ 67,301     $ 54,886     We estimate an inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs, taking into account future demand, market conditions and the respective valuations at LIFO. The need for these reserves is primarily driven by the normal product life cycle. As products mature and sales volumes decline, we rationalize our product offerings to respond to consumer tastes and keep our product lines fresh. If actual demand or market conditions in the future are less favorable than those estimated, additional inventory write-downs may be required. In determining reserves, we calculate separate reserves on our wholesale and retail inventories. Our wholesale inventories tend to carry the majority of the reserves for excess quantities and obsolete inventory due to the nature of our distribution model. These wholesale reserves primarily represent design and/or style obsolescence. Typically, product is not shipped to our retail warehouses until a consumer has ordered and paid a deposit for the product. We do not typically hold retail inventory for stock purposes. Consequently, floor sample inventory and inventory for delivery to customers account for the majority of our inventory at retail. Retail reserves are based on accessory and clearance floor sample inventory in our stores and any inventory that is not associated with a specific customer order in our retail warehouses.   Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:       Wholesale Segment     Retail Segment     Total                             Balance at November 28, 2020   $ 3,421     $ 1,101     $ 4,522   Additions charged to expense     579       521       1,100   Write-offs     ( 845 )     ( 503 )     ( 1,348 ) Balance at May 29, 2021   $ 3,155     $ 1,119     $ 4,274     Our estimates and assumptions have been reasonably accurate in the past. We have not made any significant changes to our methodology for determining inventory reserves in 2021 and do not anticipate that our methodology is likely to change in the future.   11 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     6. Goodwill and Other Intangible Assets   Goodwill and other intangible assets consisted of the following:       May 29, 2021       Gross Carrying Amount     Accumulated Amortization     Intangible Assets, Net   Intangibles subject to amortization                         Customer relationships   $ 3,550     $ ( 1,476 )   $ 2,074   Technology - customized applications     834       ( 755 )     79                             Total intangible assets subject to amortization   $ 4,384     $ ( 2,231 )     2,153                             Intangibles not subject to amortization:                         Trade names                     9,338   Goodwill                     12,146                             Total goodwill and other intangible assets                   $ 23,637         November 28, 2020       Gross Carrying Amount     Accumulated Amortization     Intangible Assets, Net   Intangibles subject to amortization                         Customer relationships   $ 3,550     $ ( 1,346 )   $ 2,204   Technology - customized applications     834       ( 695 )     139                             Total intangible assets subject to amortization   $ 4,384     $ ( 2,041 )     2,343                             Intangibles not subject to amortization:                         Trade names                     9,338   Goodwill                     12,146                             Total goodwill and other intangible assets                   $ 23,827     The carrying amounts of goodwill by reportable segment at both May 29, 2021 and November 28, 2020 are as follows:       Original     Accumulated               Recorded     Impairment     Carrying       Value     Losses     Amount                             Wholesale   $ 9,188     $ ( 1,971 )   $ 7,217   Retail     1,926       ( 1,926 )     -   Logistical services     4,929       -       4,929                             Total goodwill   $ 16,043     $ ( 3,897 )   $ 12,146     Due to the impact of the COVID- 19 pandemic, we performed an interim impairment assessment of our remaining goodwill as of May 30, 2020, the end of our second quarter of fiscal 2020. As a result of this test, we concluded that the carrying value of our wood reporting unit exceeded its fair value by an amount in excess of the goodwill previously allocated to the reporting unit. Therefore, we recognized a goodwill impairment charge of $ 1,971 for the three and six months ended May 30, 2020. Our annual goodwill impairment test, conducted as of the beginning of our fourth quarter of fiscal 2020, resulted in no additional impairment.   12 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)   Amortization expense associated with intangible assets during the three and six months ended May 29, 2021 and May 30, 2020 was as follows:       Quarter Ended     Six Months Ended                                 May 29, 2021     May 30, 2020     May 29, 2021     May 30, 2020   Intangible asset amortization expense   $ 95     $ 95     $ 189     $ 189     Estimated future amortization expense for intangible assets that exist at May 29, 2021 is as follows:   Remainder of fiscal 2021   $ 189   Fiscal 2022     279   Fiscal 2023     259   Fiscal 2024     259   Fiscal 2025     259   Fiscal 2026     259   Thereafter     649   Total   $ 2,153       7. Bank Credit Facility   Our bank credit facility provides for a line of credit of up to $ 25,000 . At May 29, 2021, we had $ 3,181 outstanding under standby letters of credit against our line, leaving availability under our credit line of $ 21,819 . In addition, we have outstanding standby letters of credit with another bank totaling $ 325 . The line bears interest at the rate of LIBOR plus 1.9 %, with a fee of 0.25 % charged for the unused portion of the line and is secured by a general lien on our accounts receivable and inventory. We were in compliance with all covenants under the agreement as of May 29, 2021 and expect to remain in compliance through the end of fiscal 2021. The credit facility matures on January 31, 2022.     8. Post Employment Benefit Obligations   Defined Benefit Plans   We have an unfunded Supplemental Retirement Income Plan (the “Supplemental Plan”) that covers one current and certain former executives. The liability for the Supplemental Plan was $ 8,485 and $ 8,565 as of May 29, 2021 and November 28, 2020, respectively.   We also have the Bassett Furniture Industries, Incorporated Management Savings Plan (the “Management Savings Plan”) which was established in the second quarter of fiscal 2017. The Management Savings Plan is an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees. As part of the Management Savings Plan, we have made Long Term Cash Awards (“LTC Awards”) totaling $ 2,000 to certain management employees in the amount of $ 400 each. The liability for the LTC Awards was $ 1,520 and $ 1,506 as of May 29, 2021 and November 28, 2020, respectively.   13 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)   The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets:       May 29, 2021     November 28, 2020   Accrued compensation and benefits   $ 613     $ 613   Post employment benefit obligations     9,392       9,458                     Total pension liability   $ 10,005     $ 10,071     Components of net periodic pension costs for our defined benefit plans for the three and six months ended May 29, 2021 and May 30, 2020 are as follows:       Quarter Ended     Six Months Ended       May 29, 2021     May 30, 2020     May 29, 2021     May 30, 2020   Service cost   $ 31     $ 43     $ 60     $ 87   Interest cost     48       67       98       134   Amortization of prior service costs     31       31       63       63   Amortization of loss     15       2       30       4                                     Net periodic pension cost   $ 125     $ 143     $ 251     $ 288     The components of net periodic pension cost other than the service cost component are included in other loss, net in our condensed consolidated statements of operations.   Deferred Compensation Plans   We have an unfunded deferred compensation plan that covers one current executive and certain former executives and provides for voluntary deferral of compensation. This plan has been frozen with no additional participants or deferrals permitted. Our liability under this plan was $ 1,658 and $ 1,677 as of May 29, 2021 and November 28, 2020, respectively.   We also have an unfunded, nonqualified deferred compensation plan maintained for the benefit of certain highly compensated or management level employees which was established under the Management Savings Plan. Our liability under this plan, including both accrued Company contributions and participant salary deferrals, was $ 1,644 and $ 1,250 as of May 29, 2021 and November 28, 2020, respectively.   Our combined liability for all deferred compensation arrangements, including Company contributions and participant deferrals under the Management Savings Plan, is recorded as follows in the condensed consolidated balance sheets:       May 29, 2021     November 28, 2020   Accrued compensation and benefits   $ 296     $ 296   Post employment benefit obligations     3,006       2,631                     Total deferred compensation liability   $ 3,302     $ 2,927     14 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)   We recognized expense under our deferred compensation arrangements during the three and six months ended May 29, 2021 and May 30, 2020 as follows:       Quarter Ended     Six Months Ended       May 29, 2021     May 30, 2020     May 29, 2021     May 30, 2020   Deferred compensation expense   $ 202     $ 198     $ 355     $ 294       9. Stock Compensation   2021 Plan   On March 10, 2021, our shareholders approved the Bassett Furniture Industries, Incorporated 2021 Stock Incentive Plan (the “2021 Plan”). All present and future non-employee directors, key employees and outside consultants for the Company are eligible to receive incentive awards under the 2021 Plan. Our Organization, Compensation and Nominating Committee (the “OCN Committee”) selects eligible key employees and outside consultants to receive awards under the 2021 Plan in its discretion. Our Board of Directors or any committee designated by the Board of Directors selects eligible non-employee directors to receive awards under the 2021 Plan in its discretion. Five hundred thousand ( 500,000 ) shares of common stock are reserved for issuance under the 2021 Plan. Participants may receive the following types of incentive awards under the 2021 Plan: stock options, stock appreciation rights, payment shares, restricted stock, restricted stock units and performance shares. Stock options may be incentive stock options or non-qualified stock options. Stock appreciation rights may be granted in tandem with stock options or as a freestanding award. Non-employee directors and outside consultants are eligible to receive restricted stock and restricted stock units only. The full terms of the 2021 Plan have been filed as an exhibit to our Schedule 14A filed with the United States Securities and Exchange Commission on February 8, 2021.   During the second quarter of fiscal 2021, 7,105 restricted shares with an aggregate fair value of $ 175 were granted to our non-employee directors under the 2021 Plan. These shares will fully vest on the first anniversary of the grant.   2010 Plan   The Bassett Furniture Industries, Incorporated 2010 Stock Incentive Plan, which was approved on April 14, 2010 and amended and restated effective January 13, 2016 ( the “2010 Plan”), expired in April of 2020 and no additional grants can be awarded under the plan. During the six months ended May 29, 2021, 31,000 restricted shares previously granted under the 2010 Plan were vested and released, of which 10,850 shares were withheld to cover withholding taxes of $ 219 . At May 29, 2021, there were 3,500 unvested restricted shares outstanding that were granted under the 2010 Plan and will vest during the fourth quarter of fiscal 2022.   During the three and six months ended May 29, 2021, 5,250 stock options granted under the 2010 Plan were exercised resulting in proceeds to the Company of $ 42 . At May 29, 2021, there were no additional stock options outstanding under the 2010 Plan.   Stock compensation expense for the three and six months ended May 29, 2021 and May 30, 2020 was as follows:         Quarter Ended     Six Months Ended       May 29, 2021     May 30, 2020     May 29, 2021     May 30, 2020   Stock compensation expense   $ 48     $ 124     $ 62     $ 215     15 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     10. Other Operating Losses   Fiscal 2020   Asset Impairment Charges   During the three and six months ended May 30, 2020, we recorded $ 11,114 of non-cash impairment charges on the assets of five underperforming retail stores, including $ 6,239 for the impairment of operating lease right-of-use assets associated with the leased locations. Our estimates of the fair value of the impaired right-of-use assets included estimates of discounted cash flows based upon current market rents and other inputs which we consider to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurement and Disclosure (see Note 3 ).   During the three and six months ended May 30, 2020, we incurred $ 1,070 of non-cash impairment charges in our wholesale segment, primarily due to the closing of our custom upholstery manufacturing facility in Grand Prairie, Texas, in May 2020.   Litigation Expense   During the three and six months ended May 30, 2020 we accrued $ 1,050 relating to estimated costs to resolve certain wage and hour violation claims that had been asserted against the Company.     11. Commitments and Contingencies   We are involved in various legal and environmental matters which arise in the normal course of business. Although the final outcome of these matters cannot be determined, based on the facts presently known, we believe that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations.     12. Lease Guarantees   We have guaranteed certain lease obligations of licensee operators. Lease guarantees range from one to three years. We were contingently liable under licensee lease obligation guarantees in the amounts of $ 2,073 and $ 1,811 at May 29, 2021 and November 28, 2020, respectively.   In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated through a combination of options that include, but are not limited to, arranging for a replacement dealer or liquidating the collateral (primarily inventory). The proceeds of the above options are expected to cover the estimated amount of our future payments under the guarantee obligations, net of recorded reserves. The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at May 29, 2021 and November 28, 2020 was not material.   16 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     13. Earnings (Loss) Per Share   The following reconciles basic and diluted earnings (loss) per share:       Net Income     Weighted Average Shares     Net Income Per Share   For the quarter ended May 29, 2021:                                                   Basic earnings per share   $ 5,974       9,894,627     $ 0.60   Add effect of dilutive securities:                         Options and restricted shares     -       5,476       -   Diluted earnings per share   $ 5,974       9,900,103     $ 0.60                             For the quarter ended May 30, 2020:                                                   Basic loss per share   $ ( 20,352 )     9,956,975     $ ( 2.04 ) Add effect of dilutive securities:                         Options and restricted shares*     -       -       -   Diluted loss per share   $ ( 20,352 )     9,956,975     $ ( 2.04 )                                                     For the six months ended May 29, 2021:                                                   Basic earnings per share   $ 9,985       9,907,073     $ 1.01   Add effect of dilutive securities:                         Options and restricted shares     -       12,629       -   Diluted earnings per share   $ 9,985       9,919,702     $ 1.01                             For the six months ended May 30, 2020:                                                   Basic loss per share   $ ( 19,142 )     9,992,101     $ ( 1.92 ) Add effect of dilutive securities:                         Options and restricted shares *     -       -       -   Diluted loss per share   $ ( 19,142 )     9,992,101     $ ( 1.92 )   * Due to the net loss, potentially dilutive securities would have been anti-dilutive and are therefore excluded.   For the three and six months ended May 29, 2021 and May 30, 2020, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:       Quarter Ended     Six Months Ended       May 29, 2021     May 30, 2020     May 29, 2021     May 30, 2020                                     Stock options     -       5,250       -       5,250   Unvested shares     -       51,653       7,105       88,153                                     Total anti-dilutive securities     -       56,903       7,105       93,403     17 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     14. Segment Information   We have strategically aligned our business into three reportable segments as defined in ASC 280, Segment Reporting , and as described below:     ● Wholesale. The wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (Company-owned and licensee-owned retail stores) and independent furniture retailers. Our wholesale segment includes our wood and upholstery operations, which include Lane Venture, as well as all corporate selling, general and administrative expenses, including those corporate expenses related to both Company- and licensee-owned stores. Our wholesale segment also includes our holdings of short-term investments and retail real estate previously leased as licensee stores. The earnings and costs associated with these assets are included in other income (loss), net, in our condensed consolidated statements of operations.     ● Retail –  Company-owned stores. Our retail segment consists of Company-owned stores and includes the revenues, expenses, assets and liabilities and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers.     ● Logistical services. Our logistical services segment reflects the operations of Zenith. In addition to providing shipping and warehousing services for the Company, Zenith also provides similar services to other customers, primarily in the furniture industry. Revenue from the performance of these services to other customers and the associated cost is included in logistical services revenue and cost of logistical services, respectively, in our condensed consolidated statements of operations.   Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores and the elimination of Zenith logistics revenue from our wholesale segment. Inter-company income elimination includes the embedded wholesale profit in the Company-owned store inventory that has not been realized. These profits will be recorded when merchandise is delivered to the retail consumer. The inter-company income elimination also includes rent paid by our retail stores occupying Company-owned real estate, and the elimination of shipping and handling charges from Zenith for services provided to our wholesale operations.   18 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)   The following table presents our segment information:       Quarter Ended     Six Months Ended       May 29, 2021     May 30, 2020     May 29, 2021     May 30, 2020   Sales Revenue                                 Wholesale sales of furniture and accessories   $ 76,034     $ 33,128     $ 146,298     $ 98,145   Less: Sales to retail segment     ( 28,520 )     ( 13,299 )     ( 57,524 )     ( 45,220 ) Wholesale sales to external customers     47,514       19,829       88,774       52,925   Retail sales of furniture and accessories     62,483       33,171       122,878       99,017   Consolidated net sales of furniture and accessories     109,997       53,000       211,652       151,942                                     Logistical services revenue     22,244       15,259       42,325       36,574   Less: Services to wholesale segment     ( 8,182 )     ( 4,458 )     ( 16,245 )     ( 12,595 ) Logistical services to external customers     14,062       10,801       26,080       23,979   Total sales revenue   $ 124,059     $ 63,801     $ 237,732     $ 175,921                                     Income (Loss) from Operations                                 Wholesale   $ 5,359     $ ( 7,381 )   $ 10,156     $ ( 4,668 ) Retail - Company-owned stores     1,652       ( 9,170 )     2,746       ( 10,419 ) Logistical services     1,294       ( 1,842 )     1,753       ( 1,007 ) Inter-company elimination     74       2,369       ( 255 )     2,280   Asset impairment charges     -       ( 12,184 )     -       ( 12,184 ) Goodwill impairment charge     -       ( 1,971 )     -       ( 1,971 ) Litigation expense     -       ( 1,050 )     -       ( 1,050 ) Consolidated   $ 8,379     $ ( 31,229 )   $ 14,400     $ ( 29,019 )                                   Depreciation and Amortization                                 Wholesale   $ 823     $ 782     $ 1,621     $ 1,591   Retail - Company-owned stores     1,581       1,712       3,097       3,442   Logistical services     1,158       1,122       2,175       2,206   Consolidated   $ 3,562     $ 3,616     $ 6,893     $ 7,239                                     Capital Expenditures                                 Wholesale   $ 1,409     $ 271     $ 2,166     $ 693   Retail - Company-owned stores     119       42       137       603   Logistical services     1,060       138       1,180       495   Consolidated   $ 2,588     $ 451     $ 3,483     $ 1,791                                           As of     As of   Identifiable Assets   May 29, 2021     November 28, 2020   Wholesale   $ 185,780     $ 176,243   Retail - Company-owned stores     168,697       169,105   Logistical services     64,002       57,201   Consolidated   $ 418,479     $ 402,549     See Note 15, Revenue Recognition, for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments.   19 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     15. Revenue Recognition   We recognize revenue when we transfer promised goods or services to our customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For our wholesale and retail segments, revenue is recognized when the risks and rewards of ownership and title to the product have transferred to the buyer. At wholesale, transfer occurs and revenue is recognized upon the shipment of goods to independent dealers and licensee-owned BHF stores. At retail, transfer occurs and revenue is recognized upon delivery of goods to the customer. All wholesale and retail revenues are recorded net of estimated returns and allowances based on historical patterns. We typically collect a significant portion of the purchase price from our retail customers as a deposit upon order, with the balance typically collected upon delivery. These customer deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $ 47,911 and $ 39,762 as of May 29, 2021 and November 28, 2020, respectively. Substantially all of the customer deposits held at November 28, 2020 related to performance obligations that were satisfied during the current year-to-date period and have therefore been recognized in revenue for the six months ended May 29, 2021.   For our logistical services segment, line-haul freight revenue is recognized as services are performed and are billed to the customer upon the completion of delivery to the destination. Because the customer receives the benefits of these services as the freight is in transit from point of origin to destination, we recognize revenue using a percentage of completion method based on our estimate of the amount of time freight has been in transit as of the reporting date compared with our estimate of the total required time for the deliveries. The balances of assets recognized for shipping revenues earned but not billed were $ 962 and $ 783 as of May 29, 2021 and November 28, 2020, respectively. Warehousing services revenue is based upon warehouse space occupied by a customer’s goods and inventory movements in and out of a warehouse and is recognized as such services are provided and billed to the customer concurrently in the same period.   We exclude from revenue all amounts collected from customers for sales tax. We do not disclose amounts allocated to remaining unsatisfied performance obligations as they are expected to be satisfied within one year or less.   Disaggregated revenue information for sales of furniture and accessories by product category for the three and six months ended May 29, 2021 and May 30, 2020, excluding intercompany transactions between our segments, is a follows:       Quarter Ended       May 29, 2021     May 30, 2020       Wholesale     Retail     Total     Wholesale     Retail     Total   Bassett Custom Upholstery   $ 25,960     $ 35,378     $ 61,338     $ 11,728     $ 17,620     $ 29,348   Bassett Leather     10,201       228       10,429       2,881       681       3,562   Bassett Custom Wood     6,839       7,624       14,463       3,053       3,054       6,107   Bassett Casegoods     4,514       10,704       15,218       2,167       6,809       8,976   Accessories, mattresses and other (1)     -       8,549       8,549       -       5,007       5,007   Consolidated net sales of furniture and accessories   $ 47,514     $ 62,483     $ 109,997     $ 19,829     $ 33,171     $ 53,000         Six Months Ended       May 29, 2021     May 30, 2020       Wholesale     Retail     Total     Wholesale     Retail     Total   Bassett Custom Upholstery   $ 50,858     $ 69,839     $ 120,697     $ 31,905     $ 54,380     $ 86,285   Bassett Leather     17,756       480       18,236       7,047       1,453       8,500   Bassett Custom Wood     12,176       13,082       25,258       8,254       8,168       16,422   Bassett Casegoods     7,984       21,781       29,765       5,719       19,951       25,670   Accessories, mattresses and other (1)     -       17,696       17,696       -       15,065       15,065   Consolidated net sales of furniture and accessories   $ 88,774     $ 122,878     $ 211,652     $ 52,925     $ 99,017     $ 151,942     ( 1 ) Includes the sale of goods other than Bassett-branded products, such as accessories and bedding, and also includes the sale of furniture protection plans.   20 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     16. Changes to Stockholders ’ Equity   The following changes in our stockholders’ equity occurred during the three and six months ended May 29, 2021 and May 30, 2020:       Quarter Ended     Six Months Ended                                         May 29, 2021     May 30, 2020     May 29, 2021     May 30, 2020   Common Stock:                                                                   Beginning of period   $ 49,567     $ 50,173     $ 49,714     $ 50,581   Issuance of common stock     89       89       120       118   Forfeited shares     -       -       -       ( 35 ) Purchase and retirement of common stock     ( 394 )     ( 285 )     ( 572 )     ( 687 ) End of period   $ 49,262     $ 49,977     $ 49,262     $ 49,977                                     Common Shares Issued and Outstanding:                                                                   Beginning of period     9,913,496       10,034,591       9,942,787       10,116,291   Issuance of common stock     17,815       17,765       24,036       23,508   Forfeited shares     -       -       -       ( 7,000 ) Purchase and retirement of common stock     ( 78,952 )     ( 57,000 )     ( 114,464 )     ( 137,443 ) End of period     9,852,359       9,995,356       9,852,359       9,995,356                                     Additional Paid-in Capital:                                                                   Beginning of period   $ -     $ -     $ -     $ 195   Issuance of common stock     42       ( 7 )     94       39   Forfeited shares     -       -       -       35   Purchase and retirement of common stock     ( 90 )     ( 102 )     ( 156 )     ( 463 ) Stock based compensation     48       109       62       194   End of period   $ -     $ -     $ -     $ -                                     Retained Earnings:                                                                   Beginning of period   $ 109,493     $ 125,078     $ 109,710     $ 129,130   Cumulative effect of a change in accounting principal     -       -       -       ( 3,785 ) Net income (loss) for the period     5,974       ( 20,352 )     9,985       ( 19,142 ) Purchase and retirement of common stock     ( 1,907 )     ( 87 )     ( 2,415 )     ( 304 ) Cash dividends declared     ( 1,235 )     ( 1,248 )     ( 4,955 )     ( 2,508 ) End of period   $ 112,325     $ 103,391     $ 112,325     $ 103,391                                     Accumulated Other Comprehensive Loss:                                                                   Beginning of period   $ ( 1,359 )   $ ( 1,211 )   $ ( 1,394 )   $ ( 1,236 ) Amortization of pension costs, net of tax     34       24       69       49   End of period   $ ( 1,325 )   $ ( 1,187 )   $ ( 1,325 )   $ ( 1,187 )   21 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 29, 2021 (Dollars in thousands except share and per share data)     17. Recent Accounting Pronouncements   In December 2019, the FASB issued Accounting Standards Update No. 2019 - 12 – Income Taxes (Topic 740 ) Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019 - 12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019 - 12 also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in ASU 2019 - 12 will become effective for us as of the beginning of our 2022 fiscal year. Early adoption is permitted, including adoption in any interim period. We are currently evaluating the impact that this guidance will have upon our financial position and results of operations, if any.   22 of 39     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 29, 2021 (Dollars in thousands except share and per share data)