BASSETT FURNITURE INDUSTRIES INC 10-Q

bset20220528_10q.htm       UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q   ☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended May 28, 2022   OR   ☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from _____________________________ to _______________________   Commission File No. 000-00209   BASSETT FURNITURE INDUSTRIES, INCORPORATED (Exact name of Registrant as specified in its charter)   Virginia 54-0135270 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)   3525 Fairystone Park Highway Bassett , Virginia 24055 (Address of principal executive offices) (Zip Code)   ( 276 ) 629-6000 (Registrant's telephone number, including area code)   Securities registered pursuant to Section 12(b) of the Act:   Title of each class   Trading Symbol   Name of exchange on which registered Common Stock ($5.00 par value)   BSET   NASDAQ   Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes    ☒    No   ☐     Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   ☒    No   ☐     Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.   Large Accelerated Filer ☐   Accelerated Filer   ☒ Non-accelerated Filer  ☐   Smaller Reporting Company  ☐       Emerging Growth Company  ☐     If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ☐      No   ☒     At June 24, 2022, 9,247,410 shares of common stock of the Registrant were outstanding.   Page 1 of 37       BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES   TABLE OF CONTENTS   ITEM   PAGE         PART I - FINANCIAL INFORMATION         1. Condensed Consolidated Financial Statements as of May 28, 2022 (unaudited) and November 27, 2021 and for the three and six months ended May 28, 2022 (unaudited) and May 29, 2021 (unaudited)            Condensed Consolidated Statements of Income 3          Condensed Consolidated Statements of Comprehensive Income 4         Condensed Consolidated Balance Sheets 5         Condensed Consolidated Statements of Cash Flows 6         Notes to Condensed Consolidated Financial Statements 7       2.          Management's Discussion and Analysis of Financial Condition and Results of Operations 23       3.          Quantitative and Qualitative Disclosures About Market Risk 34       4. Controls and Procedures 34         PART II - OTHER INFORMATION         1. Legal Proceedings 35       2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities 35       3. Defaults Upon Senior Securities 35       6. Exhibits 36   Page 2 of 37       PART I - FINANCIAL INFORMATION   ITEM 1. FINANCIAL STATEMENTS BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED MAY 28, 2022 AND MAY 29, 2021 – UNAUDITED (In thousands except per share data)       Quarter Ended     Six Months Ended                                         May 28, 2022     May 29, 2021     May 28, 2022     May 29, 2021                                     Net sales of furniture and accessories   $ 128,706     $ 109,997     $ 246,570     $ 211,652   Cost of furniture and accessories sold     62,767       52,911       123,239       101,163   Gross profit     65,939       57,086       123,331       110,489                                     Selling, general and administrative expenses     54,927       50,001       105,841       97,842   Income from operations     11,012       7,085       17,490       12,647                                     Other loss, net     ( 627 )     ( 259 )     ( 1,256 )     ( 560 ) Income from continuing operations before income taxes     10,385       6,826       16,234       12,087                                     Income tax expense     2,642       1,749       4,200       3,313                                     Income from continuing operations     7,743       5,077       12,034       8,774                                     Discontinued operations:                                 Income from operations of logistical services     -       1,222       1,712       1,644   Gain on disposal     53,254       -       53,254       -   Income tax expense     13,879       325       14,309       433                                     Income from discontinued operations     39,375       897       40,657       1,211                                     Net income   $ 47,118     $ 5,974     $ 52,691     $ 9,985                                     Basic earnings per share:                                 Income from continuing operations   $ 0.81     $ 0.51     $ 1.25     $ 0.89   Income from discontinued operations     4.14       0.09       4.22       0.12   Basic and diluted earnings per share   $ 4.95     $ 0.60     $ 5.47     $ 1.01                                     Diluted earnings per share:                                 Income from continuing operations   $ 0.81     $ 0.51     $ 1.25     $ 0.89   Income from discontinued operations     4.13       0.09       4.22       0.12   Diluted earnings per share   $ 4.94     $ 0.60     $ 5.47     $ 1.01     The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.   Page 3 of 37       PART I – FINANCIAL INFORMATION – CONTINUED ITEM 1. FINANCIAL STATEMENTS BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE PERIODS ENDED MAY 28, 2022 AND MAY 29, 2021 – UNAUDITED (In thousands)       Quarter Ended     Six Months Ended                                         May 28, 2022     May 29, 2021     May 28, 2022     May 29, 2021                                     Net income   $ 47,118     $ 5,974     $ 52,691     $ 9,985   Other comprehensive income:                                 Amortization associated with Long Term Cash Awards (LTCA)     33       36       66       72   Income taxes related to LTCA     ( 8 )     ( 9 )     ( 16 )     ( 18 ) Amortization associated with supplemental executive retirement defined benefit plan (SERP)     31       11       62       22   Income taxes related to SERP     ( 8 )     ( 3 )     ( 16 )     ( 6 )                                   Other comprehensive income, net of tax     48       35       96       70                                     Total comprehensive income   $ 47,166     $ 6,009     $ 52,787     $ 10,055     The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.   Page 4 of 37       PART I – FINANCIAL INFORMATION – CONTINUED ITEM 1. FINANCIAL STATEMENTS BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MAY 28, 2022 AND NOVEMBER 27, 2021 (In thousands)       (Unaudited)               May 28, 2022     November 27, 2021   Assets                 Current assets                 Cash and cash equivalents   $ 71,610     $ 34,374   Short-term investments     17,715       17,715   Accounts receivable, net     22,836       20,567   Inventories     92,865       78,004   Recoverable income taxes     1,724       8,379   Current assets of discontinued operations held for sale     -       11,064   Retail real estate held for sale     3,623       -   Other current assets     11,349       10,181   Total current assets     221,722       180,284                     Property and equipment, net     73,706       69,168                     Deferred income taxes     6,985       3,189   Goodwill and other intangible assets     14,326       14,354   Right of use assets under operating leases     91,256       95,955   Long-term assets of discontinued operations held for sale     -       52,757   Other     5,758       5,953   Total long-term assets     118,325       172,208   Total assets   $ 413,753     $ 421,660                     Liabilities and Stockholders ’ Equity                 Current liabilities                 Accounts payable   $ 26,952     $ 23,988   Accrued compensation and benefits     12,620       12,639   Customer deposits     46,391       51,492   Current portion operating lease obligations     20,291       20,235   Current liabilities of discontinued operations held for sale     -       16,095   Other current liabilites and accrued expenses     14,832       9,770   Total current liabilities     121,086       134,219                     Long-term liabilities                 Post employment benefit obligations     13,055       12,968   Long-term portion of operating lease obligations     88,803       94,845   Long-term liabilities of discontinued operations held for sale     -       16,210   Other long-term liabilities     668       686   Total long-term liabilities     102,526       124,709                     Stockholders ’ equity                 Common stock     46,396       48,811   Retained earnings     145,471       115,631   Additional paid-in capital     -       113   Accumulated other comprehensive loss     ( 1,726 )     ( 1,823 ) Total stockholders' equity     190,141       162,732   Total liabilities and stockholders ’ equity   $ 413,753     $ 421,660     The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.   Page 5 of 37       PART I – FINANCIAL INFORMATION – CONTINUED ITEM 1. FINANCIAL STATEMENTS BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED MAY 28, 2022 AND MAY 29, 2021 – UNAUDITED (In thousands)       Six Months Ended       May 28, 2022     May 29, 2021   Operating activities:                 Net income   $ 52,691     $ 9,985   Adjustments to reconcile net income to net cash provided by (used in) operating activities:                 Depreciation and amortization     6,065       6,893   Gain on disposal of discontinued operations     ( 53,254 )     -   Deferred income taxes     ( 3,796 )     1,201   Other, net     915       255   Changes in operating assets and liabilities:                 Accounts receivable     ( 1,829 )     ( 3,442 ) Inventories     ( 14,861 )     ( 12,415 ) Other current assets     6,421       25   Right of use assets under operating leases     11,153       12,558   Customer deposits     ( 5,101 )     8,149   Accounts payable and other liabilities     4,891       2,775   Obligations under operating leases     ( 12,241 )     ( 13,934 ) Net cash provided by (used in) operating activities     ( 8,946 )     12,050                     Investing activities:                 Purchases of property and equipment     ( 12,638 )     ( 3,483 ) Proceeds from sales of property and equipment     9       96   Proceeds from the disposal of discontinued operations, net     85,521       -   Other     ( 538 )     ( 335 ) Net cash provided by (used in) investing activities     72,354       ( 3,722 )                   Financing activities:                 Cash dividends     ( 17,170 )     ( 4,954 ) Proceeds from the exercise of stock options     -       42   Other issuance of common stock     177       172   Repurchases of common stock     ( 8,642 )     ( 2,925 ) Taxes paid related to net share settlement of equity awards     -       ( 219 ) Repayments of finance lease obligations     ( 537 )     ( 467 ) Net cash used in financing activities     ( 26,172 )     ( 8,351 ) Change in cash and cash equivalents     37,236       ( 23 ) Cash and cash equivalents - beginning of period     34,374       45,799   Cash and cash equivalents - end of period   $ 71,610     $ 45,776     The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements.   Page 6 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (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 represent VIEs. We are the primary beneficiary of one VIE by virtue of our control over the activities that most significantly impact the entity’s economic performance. This VIE was created to effect the purchase of real property in the state of Florida (see Note 12, Discontinued Operations & Assets Held for Sale – Retail Real Estate Held for Sale).   Revenue from the sale of furniture and accessories is reported in the accompanying condensed consolidated statements of income net of estimates for returns and allowances.   On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of our wholly-owned subsidiary, Zenith Freight Lines, LLC (“Zenith”) to J.B. Hunt Transport Services, Inc. (“J.B. Hunt”). The sale was completed on February 28, 2022. Accordingly, the operations of our logistical services segment as well as the gain realized upon disposal are presented in the accompanying condensed consolidated statements of income as discontinued operations, and the assets sold to and liabilities assumed by J.B. Hunt are presented in the accompanying condensed consolidated balance sheet as of November 27, 2021 as assets and liabilities of discontinued operations held for sale. See Note 12, Discontinued Operations & Assets Held for Sale, for additional information. Costs incurred by Bassett for logistical services performed for Bassett by Zenith are included in selling, general and administrative expenses.   Recently Adopted Accounting Pronouncements   Effective as of the beginning of fiscal 2022, we have adopted Accounting Standards Update No. 2019-12 – Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. 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 became effective for us as of the beginning of our 2022 fiscal year. We adopted ASU 2019-12 on a prospective basis and the adoption did not have a material impact upon our financial condition or results of operations.   Certain prior year amounts have been reclassified to conform with the current year presentation.     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 28, 2022 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 27, 2021.   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 rate was 26.0 % for both the three and six months ended May 28, 2022, and 25.8 % and 27.3 % for the three and six months ended May 29, 2021, respectively. These effective rates differ from the federal statutory rate of 21 % primarily due to the effects of state income taxes and various permanent differences, including tax of $ 552 for the three and six months ended May 28, 2022 associated with non-deductible goodwill written off in connection with our sale of Zenith and included in income tax on discontinued operations, and tax benefits (deficiencies) of $ 18 and ($ 117 ) during the three and six months ended May 29, 2021 arising from stock-based compensation.   Page 7 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   Cash paid for income taxes, net of refunds, during the six months ended May 28, 2022 was $ 14,663 , including approximately one half of the estimated tax payable on the taxable gain realized on our sale of Zenith. Cash paid for income taxes, net of refunds, during the six months ended May 29, 2021 was $ 626 . These cash payments for income taxes are included in cash flows from operating activities in the accompanying condensed consolidated statement of cash flows.   Net recoverable income taxes at May 28, 2022 of $ 1,724 include a federal claim for refund of $ 8,511 arising from the carryback of our fiscal 2020 net operating loss (NOL) partially offset by an accrual for the remainder of the estimated tax payable on the taxable gain realized on our sale of Zenith. Net recoverable income taxes at November 27, 2021 of $ 8,379 consisted primarily of the federal claim for refund due to the 2020 NOL carryback.     3. Financial Instruments and Investments   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 28, 2022 and November 27, 2021 consisted of CDs. At May 28, 2022, the CDs had original terms averaging eight months, bearing interest at rates ranging from 0.05 % to 1.50 %. At May 28, 2022, the weighted average remaining time to maturity of the CDs was approximately three months and the weighted average yield of the CDs was approximately 0.26 %. 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 28, 2022 and November 27, 2021 approximates their fair value.       4. Accounts Receivable   Accounts receivable consists of the following:       May 28, 2022     November 27, 2021   Gross accounts receivable   $ 23,595     $ 21,134   Allowance for doubtful accounts     ( 759 )     ( 567 ) Accounts receivable, net   $ 22,836     $ 20,567     We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. The allowance for credit losses 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.   Page 8 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   Activity in the allowance for credit losses for the three and six months ended May 28, 2022 was as follows:   Balance at November 27, 2021   $ 567   Additions charged to expense     180   Write-offs against allowance     12   Balance at May 28, 2022   $ 759     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.     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 28, 2022     November 27, 2021   Wholesale finished goods   $ 52,430     $ 40,254   Work in process     610       482   Raw materials and supplies     22,560       21,653   Retail merchandise     34,290       30,914   Total inventories on first-in, first-out method     109,890       93,303   LIFO adjustment     ( 11,650 )     ( 10,483 ) Reserve for excess and obsolete inventory     ( 5,375 )     ( 4,816 )     $ 92,865     $ 78,004     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.   Page 9 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   Activity in the reserves for excess quantities and obsolete inventory by segment are as follows:       Wholesale Segment     Retail Segment     Total                             Balance at November 27, 2021   $ 3,683     $ 1,133     $ 4,816   Additions charged to expense     1,115       518       1,633   Write-offs     ( 568 )     ( 506 )     ( 1,074 ) Balance at May 28, 2022   $ 4,230     $ 1,145     $ 5,375     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 2022 and do not anticipate that our methodology is likely to change in the future.     6. Goodwill and Other Intangible Assets   Goodwill and other intangible assets consisted of the following:       May 28, 2022       Gross Carrying Amount     Accumulated Amortization     Intangible Assets, Net   Intangibles subject to amortization                         Customer relationships   $ 512     $ ( 251 )   $ 261                             Intangibles not subject to amortization:                         Trade names                     6,848   Goodwill                     7,217                             Total goodwill and other intangible assets                   $ 14,326         November 27, 2021       Gross Carrying Amount     Accumulated Amortization     Intangible Assets, Net   Intangibles subject to amortization                         Customer relationships   $ 512     $ ( 223 )   $ 289                             Intangibles not subject to amortization:                         Trade names                     6,848   Goodwill                     7,217                             Total goodwill and other intangible assets                   $ 14,354     Page 10 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   The carrying amounts of goodwill by reportable segment at both May 28, 2022 and November 27, 2021 are as follows:       Original     Accumulated               Recorded     Impairment     Carrying       Value     Losses     Amount                             Wholesale   $ 9,188     $ ( 1,971 )   $ 7,217   Retail     1,926       ( 1,926 )     -   Total goodwill   $ 11,114     $ ( 3,897 )   $ 7,217     Goodwill and other intangible assets associated with our logistical services segment totaling $ 9,094 at November 27, 2021 are included in assets of discontinued operations held for sale in the accompanying balance sheet (see Note 12).   Amortization expense associated with intangible assets during the three and six months ended May 28, 2022 and May 29, 2021 was as follows:       Quarter Ended     Six Months Ended       May 28, 2022     May 29, 2021     May 28, 2022     May 29, 2021                                     Intangible asset amortization expense   $ 14     $ 14     $ 28     $ 28     Estimated future amortization expense for intangible assets that exist at May 28, 2022 is as follows:   Remainder of fiscal 2022   $ 28   Fiscal 2023     57   Fiscal 2024     57   Fiscal 2025     57   Fiscal 2026     57   Fiscal 2027     5   Total   $ 261       7. Bank Credit Facility   Our bank credit facility provides for a line of credit of up to $ 25,000. At May 28, 2022, we had $ 3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of $ 21,069. In addition, we had outstanding standby letters of credit with another bank totaling $ 325 at May 28, 2022. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5 % and is unsecured. Our bank charges a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis:     ● Consolidated fixed charge coverage ratio of not less than 1.4 times,     ● Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and     ● Minimum tangible net worth of $ 140,000 .   We were in compliance with these covenants at May 28, 2022 and expect to remain in compliance for the foreseeable future. The credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.   Page 11 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)     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 $ 9,105 and $ 9,192 as of May 28, 2022 and November 27, 2021, 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 $ 1,543 and $ 1,548 as of May 28, 2022 and November 27, 2021, respectively.   The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets:       May 28, 2022     November 27, 2021   Accrued compensation and benefits   $ 913     $ 913   Post employment benefit obligations     9,735       9,827                     Total pension liability   $ 10,648     $ 10,740       Components of net periodic pension costs for our defined benefit plans for the three and six months ended May 28, 2022 and May 29, 2021 are as follows:       Quarter Ended     Six Months Ended       May 28, 2022     May 29, 2021     May 28, 2022     May 29, 2021   Service cost   $ 9     $ 31     $ 18     $ 60   Interest cost     58       48       115       98   Amortization of prior service costs     31       31       63       63   Amortization of loss     33       15       67       30                                     Net periodic pension cost   $ 131     $ 125     $ 263     $ 251     The components of net periodic pension cost other than the service cost component, which is included in selling, general and administrative expenses, 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 $ 1,652 and $ 1,648 as of May 28, 2022 and November 27, 2021, 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 $ 1,964 and $ 1,789 as of May 28, 2022 and November 27, 2021, respectively.   Page 12 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   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 28, 2022     November 27, 2021   Accrued compensation and benefits   $ 296     $ 296   Post employment benefit obligations     3,320       3,142                     Total deferred compensation liability   $ 3,616     $ 3,437     We recognized expense under our deferred compensation arrangements during the three and six months ended May 28, 2022 and May 29, 2021 as follows:       Quarter Ended     Six Months Ended       May 28, 2022     May 29, 2021     May 28, 2022     May 29, 2021   Deferred compensation expense   $ 7     $ 202     $ 61     $ 355       9. 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.     10. 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 $ 1,863 and $ 1,845 at May 28, 2022 and November 27, 2021, 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 28, 2022 and November 27, 2021 was not material.   Page 13 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)     11. Earnings Per Share   The following reconciles basic and diluted earnings per share:       Net Income     Weighted Average Shares     Net Income Per Share   For the quarter ended May 28, 2022:                                                   Basic earnings per share - continuing operations   $ 7,743       9,521,085     $ 0.81   Add effect of dilutive securities:                         Restricted shares     -       12,938       -   Diluted earnings per share - continuing operations   $ 7,743       9,534,023     $ 0.81                             Basic earnings per share - discontinued operations   $ 39,375       9,521,085     $ 4.14   Add effect of dilutive securities:                         Restricted shares     -       12,938       ( 0.01 ) Diluted earnings per share - discontinued operations   $ 39,375       9,534,023     $ 4.13                             For the quarter ended May 29, 2021:                                                   Basic earnings per share - continuing operations   $ 5,077       9,894,627     $ 0.51   Add effect of dilutive securities:                         Options and restricted shares     -       5,476       -   Diluted earnings per share - continuing operations   $ 5,077       9,900,103     $ 0.51                             Basic earnings per share - discontinued operations   $ 897       9,894,627     $ 0.09   Add effect of dilutive securities:                         Options and restricted shares     -       5,476       -   Diluted earnings per share - discontinued operations   $ 897       9,900,103     $ 0.09                             For the six months ended May 28, 2022:                                                   Basic earnings per share - continuing operations   $ 12,034       9,636,813     $ 1.25   Add effect of dilutive securities:                         Restricted shares     -       2,917       -   Diluted earnings per share - continuing operations   $ 12,034       9,639,730     $ 1.25                             Basic earnings per share - discontinued operations   $ 40,657       9,636,813     $ 4.22   Add effect of dilutive securities:                         Restricted shares     -       2,917       -   Diluted earnings per share - discontinued operations   $ 40,657       9,639,730     $ 4.22                             For the six months ended May 29, 2021:                                                   Basic earnings per share - continuing operations   $ 8,774       9,907,073     $ 0.89   Add effect of dilutive securities:                         Options and restricted shares     -       12,629       -   Diluted earnings per share - continuing operations   $ 8,774       9,919,702     $ 0.89                             Basic earnings per share - discontinued operations   $ 1,211       9,907,073     $ 0.12   Add effect of dilutive securities:                         Options and restricted shares     -       12,629       -   Diluted earnings per share - discontinued operations   $ 1,211       9,919,702     $ 0.12     Page 14 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   For the three and six months ended May 28, 2022 and May 29, 2021, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive:       Quarter Ended     Six Months Ended       May 28, 2022     May 29, 2021     May 28, 2022     May 29, 2021                                     Unvested shares     15,799       -       67,099       7,105       12. Discontinued Operations & Assets Held for Sale   Discontinued Operations   On January 31, 2022, we entered into a definitive agreement to sell substantially all of the assets of Zenith to J.B. Hunt. The sale was completed on February 28, 2022, at which time we received the following net proceeds:   Sales price prior to post-closing working capital adjustment   $ 86,939   Less:         Amount held in escrow for contingencies related to representations and warranties (1)     1,000   Seller expenses paid at closing     418             Net proceeds from the sale (2)   $ 85,521       (1) To be held in escrow until the first anniversary of the sale, at which time any amount not distributed or reserved for specified claims will be released to the Company. This amount is included in other current assets in the accompanying condensed consolidated balance sheet at May 28, 2022.     (2) Included in cash flows from investing activities in the accompanying condensed consolidated statement of cash flows for the six months ended May 28, 2022.   The sales price is subject to a customary post-closing working capital adjustment which will be paid during the third quarter of fiscal 2022. Including the estimated effect of the working capital adjustment, we recognized a pre-tax gain from the sale of Zenith of $ 53,254.   The operations of our logistical services segment, which consisted entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of income as discontinued operations, and the assets sold to and liabilities assumed by J.B. Hunt are presented in the accompanying condensed consolidated balance sheet as assets and liabilities of discontinued operations held for sale as of November 27, 2021.   Page 15 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   The following table summarizes the major classes of assets and liabilities of the discontinued operations held for sale as reported in the condensed consolidated balance sheet as of November 27, 2021:       November 27, 2021   Carrying amounts of major classes of assets included as part of discontinued operations:         Accounts receivable, net   $ 7,601   Other current assets     3,463   Property and equipment, net     24,898   Goodwill and other intangible assets     9,094   Right of use assets under operating leases     18,193   Other     572       $ 63,821             Balance sheet classification:         Current assets of discontinued operations held for sale   $ 11,064   Long-term assets of discontinued operations held for sale     52,757   Total assets of discontinued operations held for sale   $ 63,821             Carrying amounts of major classes of liabilities included as part of discontinued operations:         Accounts payable   $ 4,336   Accrued compensation and benefits     3,295   Current portion operating lease obligations     7,458   Other current liabilites and accrued expenses     1,006   Long-term portion of operating lease obligations     10,996   Other long-term liabilities     5,214       $ 32,305             Balance sheet classification:         Current liabilities of discontinued operations held for sale   $ 16,095   Long-term liabilities of discontinued operations held for sale     16,210   Total liabilities of discontinued operations held for sale   $ 32,305     Following the sale of Zenith, certain of Zenith’s liabilities primarily representing reserves and accrued liabilities for pre-disposal workers’ compensation, health insurance, auto liability claims and certain accrued compensation and benefits were retained by Bassett. These reserves and accruals total $ 1,390 at May 28, 2022 and are included in other current liabilities and accrued expenses in the accompanying condensed consolidated balance sheet.   Page 16 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   The following table summarizes the major classes of line items constituting income of the discontinued operations, as reported in the condensed consolidated statements of income for the three and six months ended May 28, 2022 and May 29, 2021:       Quarter Ended     Six Months Ended       May 28, 2022     May 29, 2021     May 28, 2022     May 29, 2021   Major line items constituting pretax income of discontinued operations:                                 Logistical services revenue   $ -     $ 14,062     $ 16,776     $ 26,080   Cost of logistical services     -       12,768       15,001       24,327   Other loss, net     -       ( 72 )     ( 63 )     ( 109 )                                   Income from operations of logistical services     -       1,222       1,712       1,644   Gain on disposal     53,254       -       53,254       -   Pretax income of discontinued operations     53,254       1,222       54,966       1,644   Income tax expense     13,879       325       14,309       433                                     Income from discontinued operations, net of tax   $ 39,375     $ 897     $ 40,657     $ 1,211     The amounts for revenue and costs of logistical services shown above represent the results of Zenith’s business transactions with third parties. Zenith also charged Bassett for logistical services provided to our wholesale segment in the amount of $ 9,121 during the six months ended May 28, 2022, and $ 8,182 and $ 16,245, respectively, for the three and six months ended May 29, 2021. We have entered into a service agreement with J.B. Hunt for the continuation of these services for a period of seven years following the sale of Zenith. Subsequent to the sale, we incurred $ 9,546 of expense during the three months ended May 28, 2022 for the performance of logistical services of which $7,893 had been paid in cash as of May 28, 2022.   Included in other loss, net, is interest arising from finance leases assumed by J.B. Hunt as part of the transaction. Such interest amounted to $ 78 for the six months ended May 28, 2022, and $ 78 and $ 121, respectively, for the three and six months ended May 29, 2021.   The following table summarizes the cash flows generated by discontinued operations during the six months ended May 28, 2022 and May 29, 2021:       Six Months Ended       May 28, 2022     May 29, 2021   Cash provided by operating activities   $ 1,681     $ 3,646   Cash used in investing activities     ( 81 )     ( 1,138 ) Cash used in financing activities     ( 371 )     ( 467 )                   Net cash provided by discontinued operations   $ 1,229     $ 2,041     Retail Real Estate Held for Sale   During the second quarter of fiscal 2022, we entered into a contract to sell one of our Company-owned store locations in Houston, Texas for approximately $ 8,200 net of closing costs. Accordingly, the $ 3,623 carrying value of the real property at that location is classified as retail real estate held for sale in the accompanying condensed consolidated balance sheet as of May 28, 2022. The sale closed on June 24, 2022, and we expect to vacate the premises by the end of the third quarter of fiscal 2022. This store will be relocated to a new leased store in the Houston market that we expect to open during the second quarter of fiscal 2023.   This sale, together with our recent purchase of real property in Tampa, Florida for $ 7,668 in cash during the second quarter of fiscal 2022 will be treated as an exchange of like-kind property under Section 1031 of the Internal Revenue Code of 1986, as amended, for the purpose of deferring the majority of the taxable gain of approximately $ 4,800 arising from the sale of the Houston property. A VIE was established during the second quarter of fiscal 2022 for purposes of acquiring the Tampa, Florida property, of which the Company is the primary beneficiary by virtue of our control over the activities that most significantly impact the entity's economic performance. We plan to remodel the Tampa property and open as a Company-owned store in the second quarter of fiscal 2023.   Page 17 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)     13. Segment Information   We have strategically aligned our business into two 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 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.   Inter-company net sales elimination represents the elimination of wholesale sales to our Company-owned stores. 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.   Our former logistical services segment which represented the operations of Zenith is now presented as a discontinued operation in the accompanying condensed consolidated balances sheets and statements of income (see Note 12).   Page 18 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   The following table presents our segment information:       Quarter Ended     Six Months Ended       May 28, 2022     May 29, 2021     May 28, 2022     May 29, 2021   Sales Revenue                                 Wholesale sales of furniture and accessories   $ 87,501     $ 76,034     $ 170,986     $ 146,298   Less: Sales to retail segment     ( 34,415 )     ( 28,520 )     ( 64,143 )     ( 57,524 ) Wholesale sales to external customers     53,086       47,514       106,843       88,774   Retail sales of furniture and accessories     75,620       62,483       139,727       122,878   Consolidated net sales of furniture and accessories   $ 128,706     $ 109,997     $ 246,570     $ 211,652                                     Income from Operations                                 Wholesale   $ 3,434     $ 5,359     $ 6,819     $ 10,156   Retail - Company-owned stores     7,875       1,652       11,225       2,746   Inter-company elimination     ( 297 )     74       ( 554 )     ( 255 ) Consolidated   $ 11,012     $ 7,085     $ 17,490     $ 12,647                                     Depreciation and Amortization                                 Wholesale   $ 931     $ 823     $ 1,825     $ 1,621   Retail - Company-owned stores     1,479       1,581       2,974       3,097   Consolidated   $ 2,410     $ 2,404     $ 4,799     $ 4,718                                     Capital Expenditures                                 Wholesale   $ 9,578     $ 1,409     $ 11,905     $ 2,166   Retail - Company-owned stores     717       119       733       137   Consolidated   $ 10,295     $ 1,528     $ 12,638     $ 2,303         As of     As of       May 28, 2022     November 27, 2021   Identifiable Assets                 Wholesale   $ 248,046     $ 196,853   Retail - Company-owned stores     165,707       160,986   Discontinued Operations     -       63,821   Consolidated   $ 413,753     $ 421,660     See Note 14, Revenue Recognition, for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments.     14. 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 $ 46,391 and $ 51,492 as of May 28, 2022 and November 27, 2021, respectively. Approximately 90 % of the customer deposits held at November 27, 2021 related to performance obligations that were satisfied during the current year-to-date period and have therefore been recognized in revenue for the three and six months ended May 28, 2022.   Sales commissions are expensed as part of selling, general and administrative expenses at the time revenue is recognized because the amortization period would have been one year or less. Sales commissions at wholesale are accrued upon the shipment of goods. Sales commissions at retail are accrued at the time a sale is written (i.e. – when the customer’s order is placed) and are carried as prepaid commissions in other current assets until the goods are delivered and revenue is recognized. At May 28, 2022 and November 27, 2021, our balance of prepaid commissions included in other current assets was $ 5,258 and $ 6,221, respectively.   Page 19 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)   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 28, 2022 and May 29, 2021, excluding intercompany transactions between our segments, is a follows:       Quarter Ended       May 28, 2022     May 29, 2021       Wholesale     Retail     Total     Wholesale     Retail     Total   Bassett Custom Upholstery   $ 33,838     $ 45,376     $ 79,214     $ 25,960     $ 35,378     $ 61,338   Bassett Leather     9,859       292       10,151       10,201       228       10,429   Bassett Custom Wood     5,660       11,237       16,897       6,839       7,624       14,463   Bassett Casegoods     3,729       9,188       12,917       4,514       10,704       15,218   Accessories, mattresses and other (1)     -       9,527       9,527       -       8,549       8,549   Consolidated net sales of furniture and accessories   $ 53,086     $ 75,620     $ 128,706     $ 47,514     $ 62,483     $ 109,997         Six Months Ended       May 28, 2022     May 29, 2021       Wholesale     Retail     Total     Wholesale     Retail     Total   Bassett Custom Upholstery   $ 65,750     $ 83,194     $ 148,944     $ 50,858     $ 69,839     $ 120,697   Bassett Leather     22,821       532       23,353       17,756       480       18,236   Bassett Custom Wood     11,643       20,644       32,287       12,176       13,082       25,258   Bassett Casegoods     6,629       17,480       24,109       7,984       21,781       29,765   Accessories, mattresses and other (1)     -       17,877       17,877       -       17,696       17,696   Consolidated net sales of furniture and accessories   $ 106,843     $ 139,727     $ 246,570     $ 88,774     $ 122,878     $ 211,652     (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.   Page 20 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)     15. Changes to Stockholders ’ Equity   The following changes in our stockholders’ equity occurred during the three and six months ended May 28, 2022 and May 29, 2021:       Quarter Ended     Six Months Ended       May 28, 2022     May 29, 2021     May 28, 2022     May 29, 2021   Common Stock:                                                                   Beginning of period   $ 48,640     $ 49,567     $ 48,811     $ 49,714   Issuance of common stock     70       89       124       120   Purchase and retirement of common stock     ( 2,314 )     ( 394 )     ( 2,539 )     ( 572 ) End of period   $ 46,396     $ 49,262     $ 46,396     $ 49,262                                     Common Shares Issued and Outstanding:                                                                   Beginning of period     9,727,932       9,913,496       9,762,125       9,942,787   Issuance of common stock     14,180       17,815       24,976       24,036   Purchase and retirement of common stock     ( 462,844 )     ( 78,952 )     ( 507,833 )     ( 114,464 ) End of period     9,279,268       9,852,359       9,279,268       9,852,359                                     Additional Paid-in Capital:                                                                   Beginning of period   $ -     $ -     $ 113     $ -   Issuance of common stock     13       42       52       94   Purchase and retirement of common stock     ( 155 )     ( 90 )     ( 422 )     ( 156 ) Stock based compensation     142       48       257       62   End of period   $ -     $ -     $ -     $ -                                     Retained Earnings:                                                                   Beginning of period   $ 119,557     $ 109,493     $ 115,631     $ 109,710   Net income for the period     47,118       5,974       52,691       9,985   Purchase and retirement of common stock     ( 5,408 )     ( 1,907 )     ( 5,681 )     ( 2,415 ) Cash dividends declared     ( 15,796 )     ( 1,235 )     ( 17,170 )     ( 4,955 ) End of period   $ 145,471     $ 112,325     $ 145,471     $ 112,325                                     Accumulated Other Comprehensive Loss:                                                                   Beginning of period   $ ( 1,774 )   $ ( 1,359 )   $ ( 1,823 )   $ ( 1,394 ) Amortization of pension costs, net of tax     48       34       97       69   End of period   $ ( 1,726 )   $ ( 1,325 )   $ ( 1,726 )   $ ( 1,325 )   Page 21 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED MAY 28, 2022 (Dollars in thousands except share and per share data)     16. Recent Accounting Pronouncements   In October 2021, the FASB issued Accounting Standards Update No. 2021-08– Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in ASU 2021-08 require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in ASU 2021-08 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted, including adoption in any interim period. We do not expect that this guidance will have a material impact upon our financial position and results of operations.   In March 2022, the FASB issued Accounting Standards Update No. 2022-02 – Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, to address certain concerns identified in the Post-Implementation Review process for ASU Topic 326. The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings by creditors in ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments in ASU 2022-02 require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost. The amendments in ASU 2022-02 will become effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted. We expect that the adoption of this standard will primarily impact our disclosures but do not expect that this guidance will have a material impact upon our financial position and results of operations.   Page 22 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)     Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   Safe-harbor, forward-looking statements:   This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of Bassett Furniture Industries, Incorporated and subsidiaries. Such forward-looking statements are identified by use of forward-looking words such as “ anticipates ”, “ believes ”, “ plans ”, “ estimates ”, “ expects ”, “ aims ” and “ intends ” or words or phrases of similar expression. These forward-looking statements involve certain risks and uncertainties. No assurance can be given that any such matters will be realized. Important factors that could cause actual results to differ materially from those contemplated by such forward-looking statements include:   • fluctuations in the cost and availability of raw materials, fuel, labor, delivery costs and sourced products, including those which may result from general price inflation, supply chain disruptions and the imposition of new or increased duties, tariffs, retaliatory tariffs and trade limitations with respect to foreign-sourced products   • competitive conditions in the home furnishings industry   • overall retail traffic levels in stores and on the web and consumer demand for home furnishings   • ability of our customers and consumers to obtain credit   • the profitability of the Bassett stores (independent licensees and Company-owned retail stores) which may result in future store closings   • ability to implement our Company-owned retail strategies and realize the benefits from such strategies, including our initiatives to expand and improve our digital marketing capabilities, as they are implemented   • results of marketing and advertising campaigns   • effectiveness and security of our information and technology systems and possible disruptions due to cybersecurity threats, including any impacts from a network security incident; and the sufficiency of our insurance coverage, including cybersecurity insurance   • future tax legislation, or regulatory or judicial positions   • ability to efficiently manage the import supply chain to minimize business interruption   • concentration of domestic manufacturing, particularly of upholstery products, and the resulting exposure to business interruption from accidents, weather and other events and circumstances beyond our control   • the impact of the COVID-19 pandemic and resulting supply chain disruptions upon our ability to maintain normal operations at our retail stores and manufacturing facilities, and the resulting effects any future interruption of those operations may have upon our financial condition, results of operations and liquidity, as well as the impact of the pandemic upon general economic conditions, including consumer spending and the strength of the housing market in the United States   Additionally, other risks that could cause actual results to differ materially from those contemplated by such forward-looking statements are set forth in Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended November 27, 2021.   You should keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as of the date on which such forward-looking statement is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that the events described in any forward-looking statement made in this report or elsewhere, might not occur.   Page 23 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Overview   Bassett is a leading retailer, manufacturer and marketer of branded home furnishings. Our products are sold primarily through a network of Company-owned and licensee-owned branded stores under the Bassett Home Furnishings (“BHF”) name, with additional distribution through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We also sell our products through our website at www.bassettfurniture.com . We were founded in 1902 and incorporated under the laws of Virginia in 1930. Our rich 120-year history has instilled the principles of quality, value, and integrity in everything we do, while simultaneously providing us with the expertise to respond to ever-changing consumer tastes and meet the demands of a global economy.   With 96 BHF stores at May 28, 2022, we have leveraged our strong brand name in furniture into a network of Company-owned and licensed stores that focus on providing consumers with a friendly and casual environment for buying furniture and accessories.  Our store program is designed to provide a single source home furnishings retail store that provides a unique combination of stylish, quality furniture and accessories with a high level of customer service.  In order for the Bassett brand to reach markets that cannot be effectively served by our retail store network, we also distribute our products through other wholesale channels including multi-line furniture stores, many of which feature Bassett galleries or design centers. We use a network of over 30 independent sales representatives who have stated geographical territories. These sales representatives are compensated based on a standard commission rate. We believe this blended strategy provides us the greatest ability to effectively distribute our products throughout the United States and ultimately gain market share.     The BHF stores feature custom order furniture, free in-home or virtual design visits (“home makeovers”) and coordinated decorating accessories.  Our philosophy is based on building strong long-term relationships with each customer.  Sales people are referred to as “Design Consultants” and are trained to evaluate customer needs and provide comprehensive solutions for their home decor.  Until a rigorous training and design certification program is completed, Design Consultants are not authorized to perform in-home or virtual design services for our customers.   In the quarter ended May 28, 2022, we opened our first regional fulfillment center in Orlando, Florida where we are stocking our best sellers for much quicker delivery. This will add an element of immediacy to our proven platform of made to order custom furniture that has driven our strategy for the past two decades.  We plan to roll this out nationwide over the near term with the next center to be opened in New Jersey in the early fall.   In 2018, we added outdoor furniture to our offerings with the acquisition of the Lane Venture brand. Our strategy is to distribute these products outside of our BHF store network through a network of over 15 independent sales representatives. Using Lane Venture as a platform, we developed the Bassett Outdoor brand that is only marketed through the BHF store network. This allows Bassett branded product to move from inside the home to outside the home to capitalize on the growing trend of outdoor living.   We have factories in Newton, North Carolina that manufacture both stationary and motion upholstered furniture for inside the home along with our outdoor furniture offerings. We also have factories in Martinsville and Bassett, Virginia that assemble and finish our custom bedroom and dining offerings. We currently lease a facility in Haleyville, Alabama where we manufacture aluminum frames for our outdoor furniture. Our manufacturing team takes great pride in the breadth of its options, the precision of its craftsmanship, and the speed of its manufacturing process. In addition to the furniture that we manufacture domestically, we source most of our formal bedroom and dining room furniture (casegoods) and certain leather upholstery offerings from several foreign plants, primarily in Vietnam, Thailand and China. Over 75% of the products we currently sell are manufactured in the United States.   We consider our website to be the front door to our brand experience where customers can research our furniture and accessory offerings and subsequently buy online or engage with an in-store design consultant. Customer acquisition resulting from our digital outreach strategies has significantly increased our traffic to the website since 2019. The migration to digital brand research has caused us to comprehensively evaluate all of our American made custom products. While our Bench Made line of custom upholstery and custom bedroom and dining products continue to be our most successful offerings, most of these items must be purchased in a store as they are not conducive to web transactions due to the number of options available. Consequently, we will continue to methodically re-design each one of these important lines to best serve our customers online, in the store or wherever our customer might be. Our intent is to continue to offer the consumer custom options that will help them personalize their home but to do so in an edited fashion that will provide a better web experience in the research phase and will also allow the final purchase to be made either on the web or in the store. While we work to make it easier to purchase either in store or on-line, we will not compromise our in-store experience or the quality of our in-home makeover capabilities.   Page 24 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   We are engaged in a multi-year cross-functional digital transformation initiative with the first phase consisting of the examination and improvement of our underlying data management processes. During the second quarter of 2022, we implemented a comprehensive Product Information Management system which will allow us to enhance and standardize our product development and data management and governance processes during the second half of 2022. This will result in more consistent data that our merchandizing and sales teams can use in analyzing various product and sales trends in order to make better informed decisions. We are also in the process of implementing a new eCommerce platform that we plan to introduce in 2023.  The new web platform will leverage world class features including enhanced customer research capabilities and streamlined navigation that we believe will result in increased web traffic and sales.  We expect to spend between $3,000 and $4,000 this fiscal year on these efforts.   Company-owned Retail Stores   As we continually monitor the performance of our Company-owned retail store locations, we may occasionally determine that it is necessary to close underperforming stores in certain markets. During the first quarter of fiscal 2022 we closed one retail store in Ontario, California, and we plan to close our store in Wichita, Kansas, during the third quarter of fiscal 2022. We also plan to close our store in Farmingdale, New York, in the first quarter of fiscal 2023 and consolidate its operations with our existing store in nearby Westbury, New York. All of the above-mentioned closures are occurring at or near the lease expirations.   During the second quarter of 2022, we acquired a 25,000 square foot store property in Tampa, Florida for $7,668. We are currently in the process of developing plans for store buildout and upfit with a planned opening date in the second quarter of 2023.   We also may occasionally identify opportunities to enhance our presence in existing markets by relocating existing stores to better locations within the same market. Subsequent to the end of the second quarter of fiscal 2022 we sold the store property of one of our Houston, Texas locations for $8,200, net of closing costs, which will result in a gain of approximately $4,600 in the third quarter of 2022. For tax purposes, the sale of the Houston store and the purchase of the Tampa store will be treated as a 1031 exchange where the majority of the gain will not be taxed. We are currently running a store closure sale that will end later in the third quarter at which time the store will officially close. We expect to open a new leased store in a more upscale shopping area in the vicinity of the closed store in the second quarter of 2023. During the fourth quarter of fiscal 2022 at the end of the lease term, we expect to close our Dallas, Texas store located at the intersection of McKinney and Knox streets. We plan to open a replacement store in the nearby iconic Inwood Village shopping center during the fourth quarter of 2022.   We currently have 62 Corporate-owned stores operating and expect to end fiscal 2022 with 58 stores.   Sale of the Assets of Zenith Freight Lines, LLC   During the first quarter of 2022, we entered into a definitive agreement to sell substantially all of the assets of our wholly-owned subsidiary, Zenith Freight Lines, LLC (“Zenith”) to J.B. Hunt Transport Services, Inc. (“J.B. Hunt”) for $86,939 in cash. On February 28, 2022 the transaction was completed with us receiving $85,521 after the payment of $418 in certain transaction costs and the funding of $1,000 held in escrow. The final purchase price is subject to a customary post-closing working capital adjustment, for which we have accrued an estimate of $1,003 due back to J.B. Hunt. In the second quarter of 2022, we recognized a pre-tax gain of $53,254 on this transaction. As a result of the sale, the operations of our former logistical services segment, which consisted entirely of the operations of Zenith, are presented in the accompanying condensed consolidated statements of income and in the following discussion as discontinued operations.   Page 25 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Results of Continuing Operations – Periods ended May 28, 2022 compared with the periods ended May 29, 2021:   Consolidated results of continuing operations for the three and six months ended May 28, 2022 and May 29, 2021 are as follows:       Quarter Ended     Change     Six Months Ended     Change       May 28, 2022     May 29, 2021     Dollars     Percent     May 28, 2022     May 29, 2021     Dollars     Percent                                                                                                     Net sales of furniture and accessories   $ 128,706       100.0 %   $ 109,997       100.0 %   $ 18,709       17.0 %   $ 246,570       100.0 %   $ 211,652       100.0 %   $ 34,918       16.5 % Cost of furniture and accessories sold     62,767       48.8 %     52,911       48.1 %     9,856       18.6 %     123,239       50.0 %     101,163       47.8 %     22,076       21.8 % Gross profit     65,939       51.2 %     57,086       51.9 %     8,853       15.5 %     123,331       50.0 %     110,489       52.2 %     12,842       11.6 % SG&A expenses     54,927       42.7 %     50,001       45.5 %     4,926       9.9 %     105,841       42.9 %     97,842       46.2 %     7,999       8.2 %                                                                                                   Income from operations   $ 11,012       8.6 %   $ 7,085       6.4 %   $ 3,927       55.4 %   $ 17,490       7.2 %   $ 12,647       6.0 %   $ 4,843       38.3 %   Analysis of Quarterly Results:   Total sales revenue for the three ended May 28, 2022 increased $18,709 from the prior year period primarily due to a 10% increase in wholesale shipments to the open market, along with a 21% increase in retail sales.   Gross margins for the three months ended May 28, 2022 decreased 70 basis points from 2021 primarily due to rising raw material and inbound freight costs, including the impact of rising fuel prices, partially offset by greater fixed cost leverage from increased sales. While these rising costs have been somewhat mitigated by price increases implemented since the first quarter of 2021, the increase in order backlogs and order fulfillment times limited our ability to match revised pricing to manufacturing costs. Another wholesale price increase was implemented during the second quarter of fiscal 2022, and we will continue to monitor our costs to determine if additional price increases are warranted.   Selling, general and administrative (“SG&A”) expenses as a percentage of sales for the three months ended May 28, 2022 decreased 280 basis points from 2021 primarily due to improved leverage of fixed costs due to higher sales levels.   Analysis of Year-to-Date Results:   Total sales revenue for the six months ended May 28, 2022 increased $34,918 from the prior year period primarily due to an 18% increase in wholesale shipments to the open market, along with a 14% increase in retail sales.   Gross margins for the six months ended May 28, 2022 decreased 220 basis points from 2021 primarily due to rising raw material and inbound freight costs, including the impact of rising fuel prices, partially offset by greater fixed cost leverage from increased sales. While these rising costs have been somewhat mitigated by price increases implemented since the first quarter of 2021, the increase in order backlogs and order fulfillment times limited our ability to match revised pricing to manufacturing costs. Another wholesale price increase was implemented during the second quarter of fiscal 2022, and we will continue to monitor our costs to determine if additional price increases are warranted.   SG&A expenses as a percentage of sales for the six months ended May 28, 2022 decreased 330 basis points from 2021 primarily due to improved leverage of fixed costs through higher sales levels.   Page 26 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Segment Information   We have strategically aligned our business into two reportable segments 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. We eliminate the sales between our wholesale and retail segments as well as the imbedded profit in the retail inventory for the consolidated presentation in our financial statements. Also included in our wholesale segment are our short-term investments and our holdings of retail real estate previously leased as licensee stores. The earnings and costs associated with these assets are included in other 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 (including real estate) and capital expenditures directly related to these stores and the Company-owned distribution network utilized to deliver products to our retail customers.   Our former logistical services segment which represented the operations of Zenith is now presented as discontinued operations.   Page 27 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Reconciliation of Segment Results to Consolidated Results of Operations   To supplement the financial measures prepared in accordance with GAAP, we present gross profit by segment inclusive of the effects of intercompany sales by our wholesale segment to our retail segment. Because these intercompany transactions are not eliminated from our segment presentations and because we do not present gross profit as a measure of segment profitability in the accompanying condensed consolidated financial statements, the presentation of gross profit by segment is considered to be a non-GAAP financial measure. The reconciliation of this non-GAAP financial measure to the most directly comparable financial measure calculated and presented in accordance with GAAP is presented below along with the effects of various other intercompany eliminations on our consolidated results of operations.       Quarter Ended May 28, 2022       Non-GAAP Presentation               GAAP Presentation       Wholesale     Retail     Eliminations       Consolidated                                       Net sales of furniture and accessories   $ 87,501     $ 75,620     $ (34,415 ) (1)   $ 128,706   Cost of furniture and accessories sold     61,129       35,439       (33,801 ) (2)     62,767   Gross profit     26,372       40,181       (614 )       65,939   SG&A expense     22,938       32,306       (317 ) (3)     54,927   Income from operations   $ 3,434     $ 7,875     $ (297 )     $ 11,012         Quarter Ended May 29, 2021       Non-GAAP Presentation               GAAP Presentation       Wholesale     Retail     Eliminations       Consolidated                                       Net sales of furniture and accessories   $ 76,034     $ 62,483     $ (28,520 ) (1)   $ 109,997   Cost of furniture and accessories sold     50,858       30,319       (28,266 ) (2)     52,911   Gross profit     25,176       32,164       (254 )       57,086   SG&A expense     19,817       30,512       (328 ) (3)     50,001   Income from operations   $ 5,359     $ 1,652     $ 74       $ 7,085         Six Months Ended May 28, 2022       Non-GAAP Presentation               GAAP Presentation       Wholesale     Retail     Eliminations       Consolidated                                       Net sales of furniture and accessories   $ 170,986     $ 139,727     $ (64,143 ) (1)   $ 246,570   Cost of furniture and accessories sold     120,792       65,390       (62,943 ) (2)     123,239   Gross profit     50,194       74,337       (1,200 )       123,331   SG&A expense     43,375       63,112       (646 ) (3)     105,841   Income from operations   $ 6,819     $ 11,225     $ (554 )     $ 17,490         Six Months Ended May 29, 2021       Non-GAAP Presentation               GAAP Presentation       Wholesale     Retail     Eliminations       Consolidated                                       Net sales of furniture and accessories   $ 146,298     $ 122,878     $ (57,524 ) (1)   $ 211,652   Cost of furniture and accessories sold     98,146       59,628       (56,611 ) (2)     101,163   Gross profit     48,152       63,250       (913 )       110,489   SG&A expense     37,996       60,504       (658 ) (3)     97,842   Income from operations   $ 10,156     $ 2,746     $ (255 )     $ 12,647     Page 28 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Notes to segment consolidation table:     (1) Represents the elimination of sales from our wholesale segment to our Company-owned BHF stores.   (2) Represents the elimination of purchases by our Company-owned BHF stores from our wholesale segment, as well as the change for the period in the elimination of intercompany profit in ending retail inventory.   (3) Represents the elimination of rent paid by our retail stores occupying Company-owned real estate.   Wholesale Segment   Results for the wholesale segment for the periods ended May 28, 2022 and May 29, 2021 are as follows:       Quarter Ended     Change     Six Months Ended     Change       May 28, 2022     May 29, 2021     Dollars     Percent     May 28, 2022     May 29, 2021     Dollars     Percent                                                                                                     Net sales   $ 87,501       100.0 %   $ 76,034       100.0 %   $ 11,467       15.1 %   $ 170,986       100.0 %   $ 146,298       100.0 %   $ 24,688       16.9 % Gross profit (1)     26,372       30.1 %     25,176       33.1 %     1,196       4.8 %     50,194       29.4 %     48,152       32.9 %     2,042       4.2 % SG&A expenses     22,938       26.2 %     19,817       26.1 %     3,121       15.7 %     43,375       25.4 %     37,996       26.0 %     5,379       14.2 %                                                                                                   Income from operations   $ 3,434       3.9 %   $ 5,359       7.0 %   $ (1,925 )     -35.9 %   $ 6,819       4.0 %   $ 10,156       6.9 %   $ (3,337 )     -32.9 %     (1) Gross profit at the segment level is considered a Non-GAAP financial measure due to the included effects of intercompany transactions. Refer to the reconciliation of gross profit by segment to consolidated gross profit presented under the Reconciliation of Segment Results to Consolidated Results of Operations above.   Wholesale sales by major product category are as follows:       Quarter Ended       May 28, 2022     May 29, 2021     Total Change       External     Intercompany     Total     External     Intercompany     Total     Dollars     Percent   Bassett Custom Upholstery   $ 33,838     $ 23,339     $ 57,177       65.3 %   $ 25,960     $ 17,070     $ 43,030       56.6 %   $ 14,147       32.9 % Bassett Leather     9,859       11       9,870       11.3 %     10,201       16       10,217       13.4 %     (347 )     -3.4 % Bassett Custom Wood     5,660       6,671       12,331       14.1 %     6,839       6,461       13,300       17.5 %     (969 )     -7.3 % Bassett Casegoods     3,729       4,394       8,123       9.3 %     4,514       4,973       9,487       12.5 %     (1,364 )     -14.4 % Total   $ 53,086     $ 34,415     $ 87,501       100.0 %   $ 47,514     $ 28,520     $ 76,034       100.0 %   $ 11,467       15.1 %       Six Months Ended       May 28, 2022     May 29, 2021     Total Change       External     Intercompany     Total     External     Intercompany     Total     Dollars     Percent   Bassett Custom Upholstery   $ 65,750     $ 43,435     $ 109,185       63.9 %   $ 50,858     $ 35,526     $ 86,384       59.0 %   $ 22,801       26.4 % Bassett Leather     22,821       23       22,844       13.4 %     17,756       45       17,801       12.2 %     5,043       28.3 % Bassett Custom Wood     11,643       12,932       24,575       14.4 %     12,176       12,666       24,842       17.0 %     (267 )     -1.1 % Bassett Casegoods     6,629       7,753       14,382       8.4 %     7,984       9,287       17,271       11.8 %     (2,889 )     -16.7 % Total   $ 106,843     $ 64,143     $ 170,986       100.0 %   $ 88,774     $ 57,524     $ 146,298       100.0 %   $ 24,688       16.9 %   Analysis of Quarterly Results – Wholesale   Net sales for the three months ended May 28, 2022 increased $11,467 from the prior year period due primarily to a 10% increase in shipments to the open market along with an 17% increase in shipments to the BHF store network. Gross margins for the three months ended May 28, 2022 declined 300 basis points compared to the prior year period as we have experienced significant increases in material and other production costs, partially offset by greater leverage of fixed costs due to higher sales volumes. SG&A expenses as a percentage of sales were flat due primarily to increased marketing and incentive and other compensation costs largely offset by greater leverage of fixed costs from increased sales volumes.   Page 29 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Analysis of Year-to-Date Results - Wholesale   Net sales for the six months ended May 28, 2022 increased $24,688 from the prior year period due primarily to an 18% increase in shipments to the open market along with an 11% increase in shipments to the BHF store network. Gross margins for the six months ended May 28, 2022 declined 350 basis points compared to the prior year period as we have experienced significant increases in material and other production costs, partially offset by greater leverage of fixed costs due to higher sales volumes. SG&A expenses as a percentage of sales decreased due primarily to greater leverage of fixed costs from increased sales volumes partially offset by increased marketing and incentive and other compensation costs.   Wholesale Backlog   Since the beginning of the COVID pandemic in early 2020, Bassett and most of the home furnishings industry have been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs. During the second quarter of fiscal 2022, we continued to make progress in decreasing these backlogs and expect them to continue decreasing as our ability to manufacture and ship product has improved coupled with a slower rate of new orders. At May 28, 2022, the wholesale backlog totaled $60,134 as compared to $78,135 at February 26, 2022, $90,057 at November 27, 2021, and 86,693 at May 29, 2021. At February 29, 2020, the end of our last fiscal quarter prior to the impact of the COVID pandemic upon our operations and the overall economy, our wholesale backlog was $14,617.   Retail – Company-owned Stores Segment   Results for the retail segment for the periods ended May 28, 2022 and May 29, 2021 are as follows:       Quarter Ended     Change     Six Months Ended     Change       May 28, 2022     May 29, 2021     Dollars     Percent     May 28, 2022     May 29, 2021     Dollars     Percent                                                                                                     Net sales   $ 75,620       100.0 %   $ 62,483       100.0 %   $ 13,137       21.0 %   $ 139,727       100.0 %   $ 122,878       100.0 %   $ 16,849       13.7 % Gross profit (1)     40,181       53.1 %     32,164       51.5 %     8,017       24.9 %     74,337       53.2 %     63,250       51.5 %     11,087       17.5 % SG&A expenses     32,306       42.7 %     30,512       48.8 %     1,794       5.9 %     63,112       45.2 %     60,504       49.2 %     2,608       4.3 % Income (loss) from operations   $ 7,875       10.4 %   $ 1,652       2.6 %   $ 6,223     N/M     $ 11,225       8.0 %   $ 2,746       2.2 %   $ 8,479       308.8 %     (1) Gross profit at the segment level is considered a Non-GAAP financial measure due to the included effects of intercompany transactions. Refer to the reconciliation of gross profit by segment to consolidated gross profit presented under the Reconciliation of Segment Results to Consolidated Results of Operations above.   Retail sales by major product category are as follows:       Quarter Ended     Change     Six Months Ended     Change       May 28, 2022     May 29, 2021     Dollars     Percent     May 28, 2022     May 29, 2021     Dollars     Percent                                                                                                     Bassett Custom Upholstery   $ 45,376       60.0 %   $ 35,378       56.6 %   $ 9,998       28.3 %   $ 83,194       59.5 %   $ 69,839       56.8 %   $ 13,355       19.1 % Bassett Leather     292       0.4 %     228       0.4 %     64       28.1 %     532       0.4 %     480       0.4 %     52       10.8 % Bassett Custom Wood     11,237       14.9 %     7,624       12.2 %     3,613       47.4 %     20,644       14.8 %     13,082       10.6 %     7,562       57.8 % Bassett Casegoods     9,188       12.2 %     10,704       17.1 %     (1,516 )     -14.2 %     17,480       12.5 %     21,781       17.7 %     (4,301 )     -19.7 % Accessories, mattresses and other (1)     9,527       12.6 %     8,549       13.7 %     978       11.4 %     17,877       12.8 %     17,696       14.4 %     181       1.0 % Total   $ 75,620       100.0 %   $ 62,483       100.0 %   $ 13,137       21.0 %   $ 139,727       100.0 %   $ 122,878       100.0 %   $ 16,849       13.7 %     (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.   Page 30 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Quarterly Analysis of Results - Retail   Net sales for the three months ended May 28, 2022 increased $13,137 from the prior year period. Written sales (the value of sales orders taken but not delivered) declined 13% from the second quarter of 2021. Gross margins for the three months ended May 28, 2022 increased by 160 basis points, primarily driven by improved pricing strategies, lower levels of promotional activity and increased margins on clearance activity. Selling, general and administrative expenses for the three months ended May 28, 2022 as a percentage of sales decreased as compared to the second quarter of 2021 primarily due to greater leverage on fixed costs from higher sales volumes coupled with lower overall advertising spend.   Year-to-Date Analysis of Results - Retail   Net sales for the six months ended May 28, 2022 increased $16,849 from the prior year period. Written sales (the value of sales orders taken but not delivered) declined 7.9% from the first half of 2021. Gross margins for the six months ended May 28, 2022 increased by 170 basis points, primarily driven by improved pricing strategies, lower levels of promotional activity and increased margins on clearance activity. Selling, general and administrative expenses for the six months ended May 28, 2022 as a percentage of sales decreased as compared to the first half of 2021 primarily due to greater leverage on fixed costs from higher sales volumes coupled with lower overall advertising spend.   Retail Backlog   As previously discussed, since the beginning of the COVID pandemic in early 2020, Bassett and most of the home furnishings industry have been faced with continuing logistical challenges from COVID-related labor shortages and supply chain disruptions creating significant delays in order fulfillment and increasing backlogs. During the second quarter of fiscal 2022, we began to make progress in decreasing our retail backlog and expect it to continue decreasing as our ability to manufacture and ship product from our wholesale segment has improved coupled with slower written sales at retail. At May 28, 2022, retail backlog totaled $71,073 as compared to $84,685 at February 26, 2022, $82,894 at November 27, 2021, and $73,489 at May 29, 2021. At February 29, 2020, the end of our last fiscal quarter prior to the impact of the COVID pandemic upon our operations and the overall economy, our retail backlog was $29,775.   Discontinued Operations – Logistical Services   Results for the operations of Zenith, which was sold to J.B. Hunt subsequent to the end of the first quarter, for the periods ended May 28, 2022 and May 29, 2021 are as follows:       Quarter Ended     Change     Six Months Ended     Change       May 28, 2022     May 29, 2021     Dollars     Percent     May 28, 2022     May 29, 2021     Dollars     Percent                                                                                                     Logistical services revenue   $ -       0.0 %   $ 14,062       100.0 %   $ (14,062 )     -100.0 %   $ 16,776       100.0 %   $ 26,080       100.0 %   $ (9,304 )     -35.7 % Cost of logistical services     -       0.0 %     12,768       90.8 %     (12,768 )     -100.0 %     15,001       89.4 %     24,327       93.3 %     (9,326 )     -38.3 % Other loss, net     -       0.0 %     (72 )     -0.5 %     72       -100.0 %     (63 )             (109 )                                                                                                                           Income from discontinued operations before tax   $ -       0.0 %   $ 1,222       8.7 %   $ (1,222 )     -100.0 %   $ 1,712       10.2 %   $ 1,644       6.3 %   $ 68       4.1 %   The amounts shown above represent the results of Zenith’s business transactions with third parties. Because the sale of Zenith was closed on the first business day of the second fiscal quarter of 2022, operating results for that period are insignificant.   Zenith also charged Bassett $9,121 for logistical services provided to our wholesale segment during the six months ended May 28, 2022, and $8,182 and $16,245 for the three and six months ended May 29, 2021. These shipping and handling costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income. We have entered into a service agreement with J.B. Hunt for the continuation of these services for a period of seven years following the sale of Zenith. Subsequent to the sale, we incurred $9,543 of expense during the three months ended May 28, 2022 for the performance of logistical services by J.B. Hunt.   Page 31 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Other Items Affecting Net Income   Other Loss, Net   Other loss, net, for the three and six months ended May 28, 2022 was $627 and $1,256, respectively, compared to $259 and $560 for the three and six months ended May 29, 2021, a net increase of $368 over the prior year quarter and $696 over the prior year to date. The net change was primarily due to higher net costs of Company-owned life insurance.   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 rate was 26.0% for both the three and six months ended May 28, 2022, and 25.8% and 27.3% for the three and six months ended May 29, 2021, respectively. These effective rates differ from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences, including tax of $550 for the three and six months ended May 28, 2022 associated with non-deductible goodwill written off in connection with our sale of Zenith, and tax benefits (deficiencies) of $18 and ($117) during the three and six months ended May 29, 2021 arising from stock-based compensation.   Liquidity and Capital Resources   Cash Flows   Cash used in operations for the first half of fiscal 2022 was $8,946 compared to cash provided by operations of $12,050 for the first half of fiscal 2021, representing a decrease of $20,996 in cash flows from operations. Cash provided by the operating activities of our discontinued operations was $1,681 for the first half of fiscal 2022 compared to $3,646 for the prior year period, a decline of $1,965 as Zenith only operated during the first quarter of fiscal 2022. Excluding the decline in operating cash flow from discontinued operations, cash flows from continuing operations declined $19,031 from the prior year period. Cash flows from operating activities during the first half of fiscal 2022 included the payment of $14,663 in estimated taxes compared with only $626 for the prior year period, the increase primarily related to the taxable gain on the sale of Zenith. In addition, cash flows from the collection of retail customer deposits declined $13,250 compared to the first half of 2021 as the pace of written orders has slowed compared to the prior year and we have begun to reduce our retail order backlog. Changes in working capital for the first half of fiscal 2022 include increases in our investment in inventory as compared to the prior year period as well as increases in accounts receivable arising from strong sales in our wholesale segment.   Our overall cash position increased by $37,236 during the first half of fiscal 2022, compared to a decline of $23 during the first half of fiscal 2021, an increase of $37,259 from the prior year period. Excluding the decline in overall cash flow from discontinued operations of $812, overall cash flow from continuing operations increased $38,048 from the prior year period. Offsetting the decline in cash flows from operations, net cash flows from investing activities during the first half of fiscal 2022 increased $78,076 to $72,354 of cash provided by investing activities compared to net cash used in investing activities of $3,722 for the prior year period. This increase was primarily due to net proceeds of $85,521 received from the sale of Zenith, partially offset by a $9,155 increase in capital expenditures over the prior year, including our purchase of our new retail store site in Tampa, Florida. Net cash used in financing activities during the first half of 2022 increased $17,821 to a net use of $26,172 as compared to a net use of $8,351 for the prior year period, primarily due to a special dividend of $14,494 declared and paid during the second quarter of 2022 and a $5,717 increase in share repurchases to $8,642 during the first half of fiscal 2022 as compared to $2,925 repurchased during the first half of fiscal 2021. On March 9, 2022, our Board of Directors increased the amount authorized under our existing share repurchase plan to $40,000, of which $32,448 remains available for future purchases as of May 28, 2022. With cash and cash equivalents and short-term investments totaling $89,325 on hand at May 28, 2022, expected future operating cash flows and the availability under our credit line noted below, we believe we have sufficient liquidity to fund operations for the foreseeable future.   Page 32 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Debt and Other Obligations   Our bank credit facility provides for a line of credit of up to $25,000. At May 28, 2022, we had $3,931 outstanding under standby letters of credit against our line, leaving availability under our credit line of $21,069. In addition, we had outstanding standby letters of credit with another bank totaling $325 at May 28, 2022. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.5% and is unsecured. Our bank charges a fee of 0.25% on the daily unused balance of the line, payable quarterly. Under the terms of the facility, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis:     ● Consolidated fixed charge coverage ratio of not less than 1.4 times,     ● Consolidated lease-adjusted leverage ratio not to exceed 3.0 times, and     ● Minimum tangible net worth of $140,000.   We were in compliance with these covenants at May 28, 2022 and expect to remain in compliance for the foreseeable future. The credit facility will mature on January 27, 2025, at which time any amounts outstanding under the facility will be due.   We lease land and buildings that are used in the operation of our Company-owned retail stores as well as in the operation of certain of our licensee-owned stores, and we lease land and buildings used in our wholesale manufacturing operations. We also lease local delivery trucks used in our retail segment. The present value of our obligations for leases with terms in excess of one year at May 28, 2022 is $110,002 and is included in our accompanying condensed consolidated balance sheet at May 28, 2022. We were contingently liable under licensee lease obligation guarantees in the amount of $1,863 at May 28, 2022. Remaining terms under these lease guarantees range from approximately one to three years. See Note 10 to our condensed consolidated financial statements for additional details regarding our lease guarantees.   Investment in Retail Real Estate   We have a substantial investment in real estate acquired for use as retail locations and occupied by Company-owned retail stores, including a site in Tampa, Florida recently purchased for $7,668 which is expected to open for business during the second quarter of fiscal 2023. Such real estate is included in property and equipment, net, in the accompanying condensed consolidated balance sheets and consists of eight properties with an aggregate square footage of 203,465 and a net book value of $21,236 at May 28, 2022.   During the second quarter of fiscal 2022, we entered into a contract to sell one of our Company-owned store locations in Houston, Texas for approximately $8,200 net of closing costs. Accordingly, the $3,146 carrying value of the real property at that location is classified as retail real estate held for sale in the accompanying condensed consolidated balance sheet as of May 28, 2022. The sale closed on June 24, 2022, and we expect to vacate the premises by the end of the third quarter of fiscal 2022. This sale, together with our recent purchase of real property in Tampa, Florida, will be treated as an exchange of like-kind property under Section 1031 of the Internal Revenue Code of 1986, as amended, for the purpose of deferring the taxable gain of approximately $4,800 arising from the sale of the Houston property.   Critical Accounting Policies and Estimates   There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the fiscal year ended November 27, 2021.   Off-Balance Sheet Arrangements   We utilize stand-by letters of credit in the procurement of certain goods in the normal course of business. In addition, we have guaranteed certain lease obligations of licensee operators for some of their store locations. See Note 10 to our condensed consolidated financial statements for further discussion of lease guarantees, including descriptions of the terms of such commitments and methods used to mitigate risks associated with these arrangements.   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, it is our opinion that the final resolution of these matters will not have a material adverse effect on our financial position or future results of operations. See Note 9 to our condensed consolidated financial statements for further information regarding certain contingencies as of May 28, 2022.   Page 33 of 37     PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Item 3. Quantitative and Qualitative Disclosure about Market Risk:   We are exposed to market risk from changes in the value of foreign currencies. Substantially all of our imports purchased outside of North America are denominated in U.S. dollars. Therefore, we believe that gains or losses resulting from changes in the value of foreign currencies relating to foreign purchases not denominated in U.S. dollars would not be material to our results from operations in fiscal 2022.   We are exposed to market risk from changes in the cost and availability of raw materials used in our manufacturing processes, principally wood, woven fabric, and foam products.  The cost of foam products, which are petroleum-based, is sensitive to changes in the price of oil.   We have potential exposure to market risk related to conditions in the commercial real estate market. Our retail real estate holdings of $21,236 at May 28, 2022 for Company-owned stores could suffer significant impairment in value if we are forced to close additional stores and sell or lease the related properties during periods of weakness in certain markets. Additionally, if we are required to assume responsibility for payment under the lease obligations of $1,863 which we have guaranteed on behalf of licensees as of May 28, 2022 we may not be able to secure sufficient sub-lease income in the current market to offset the payments required under the guarantees. We are also exposed to risk related to conditions in the commercial real estate rental market with respect to the right-of-use assets we carry on our balance sheet for leased retail store locations, manufacturing and warehouse facilities. At May 28, 2022, the unamortized balance of such right-of-use assets used in continuing operations totaled $90,417. Should we have to close or otherwise abandon one of these leased locations, we could incur additional impairment charges if rental market conditions do not support a fair value for the right of use asset in excess of its carrying value.   Item 4. Controls and Procedures:   The Company’s principal executive officer and principal financial officer have evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective. There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.   Page 34 of 37     PART II - OTHER INFORMATION BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Item 1. Legal Proceedings   None   Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities   The following table summarizes the stock repurchase activity by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act, for the three and six months ended May 28, 2022 and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program:       Total  Shares  Purchased     Average  Price Paid     Total Number of Shares  Purchased as Part of  Publicly Announced Plans  or Programs (1)     Approximate Dollar Value of  Shares that May Yet Be  Purchased Under the Plans  or Programs (1)                                     February 27 - April 2, 2022     94,000     $ 17.66       94,000     $ 38,695   April 3 - April 30, 2022     218,374     $ 17.16       218,374     $ 34,948   May 1 - May 28, 2022     150,470     $ 16.42       150,470     $ 32,448     (1) The Company is authorized to repurchase Company stock under a plan which was originally announced in 1998. On March 9, 2022, the Board of Directors increased the remaining limit of the repurchase plan to $40,000. At May 28, 2022, $32,448 remained available for share repurchases under the plan.   Item 3. Defaults Upon Senior Securities   None.   Page 35 of 37     PART II - OTHER INFORMATION BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES MAY 28, 2022 (Dollars in thousands except share and per share data)   Item 6. Exhibits   a. Exhibits:   Exhibit 3a – Articles of Incorporation as amended to date are incorporated herein by reference to the Exhibit to Form 10-Q for the fiscal quarter ended February 28, 1994.   Exhibit 3b – By-laws as amended to date are incorporated herein by reference to Exhibit 3 to Form 8-K filed with the SEC on January 19, 2021.   Exhibit 4 – Registrant hereby agrees to furnish the SEC, upon request, other instruments defining the rights of holders of long-term debt of the Registrant.   Exhibit 31a – Chief Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   Exhibit 31b – Chief Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   Exhibit 32a – Chief Executive Officer’s certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   Exhibit 32b – Chief Financial Officer’s certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   Exhibit 101.INS Inline XBRL Instance   Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema   Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation   Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition   Exhibit 101.LAB Inline XBRL Taxonomy Extension Labels   Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation   Exhibit 104. Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).   Page 36 of 37     SIGNATURES     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.     BASSETT FURNITURE INDUSTRIES, INCORPORATED     /s/ Robert H. Spilman, Jr.   Robert H. Spilman, Jr., Chairman and Chief Executive Officer June 30, 2022       /s/ J. Michael Daniel   J. Michael Daniel, Senior Vice President and Chief Financial Officer June 30, 2022   Page 37 of 37