BASSETT FURNITURE INDUSTRIES INC 10-Q

ITEM 1. FINANCIAL STATEMENTS BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS ENDED MAY 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)