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 AUGUST 31, 2024 AND AUGUST 26, 2023 – UNAUDITED (In thousands) Nine Months Ended August 31, 2024 August 26, 2023 Operating activities: Net income (loss) $ ( 12,899 ) $ 930 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 7,613 7,502 Asset impairment charges 5,515 - Gain on revaluation of contingent consideration - ( 1,013 ) Inventory valuation charges 4,954 3,814 Deferred income taxes ( 2,765 ) 473 Other, net 937 1,781 Changes in operating assets and liabilities: Accounts receivable 762 2,499 Inventories 1,890 14,797 Other current assets ( 1,213 ) ( 289 ) Right of use assets under operating leases 13,029 13,668 Customer deposits 912 ( 12,337 ) Accounts payable and other liabilities ( 5,364 ) ( 6,586 ) Obligations under operating leases ( 15,694 ) ( 14,990 ) Net cash provided by (used in) operating activities ( 2,323 ) 10,249 Investing activities: Purchases of property and equipment ( 4,720 ) ( 14,657 ) Proceeds from the disposal of discontinued operations, net - 1,000 Other ( 909 ) ( 1,664 ) Net cash used in investing activities ( 5,629 ) ( 15,321 ) Financing activities: Cash dividends ( 4,909 ) ( 4,406 ) Other issuance of common stock 275 275 Repurchases of common stock ( 1,127 ) ( 4,056 ) Taxes paid related to net share settlement of equity awards ( 161 ) ( 109 ) Repayments of finance lease obligations ( 210 ) ( 208 ) Net cash used in financing activities ( 6,132 ) ( 8,504 ) Effect of exchange rate changes on cash and cash equivalents 6 ( 37 ) Change in cash and cash equivalents ( 14,078 ) ( 13,613 ) Cash and cash equivalents - beginning of period 52,407 61,625 Cash and cash equivalents - end of period $ 38,329 $ 48,012 The accompanying notes to condensed consolidated financial statements are an integral part of the condensed consolidated financial statements. 6 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (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. Revenue from the sale of furniture and accessories is reported in the accompanying condensed consolidated statements of operations net of estimates for returns and allowances. Our fiscal year, which ends on the last Saturday of November, periodically results in a 53-week year instead of the normal 52 weeks. The current fiscal year ending November 30, 2024 is a 53-week year, with the additional week being included in our first fiscal quarter. Accordingly, the information presented below includes 40 weeks of operations for the nine months ended August 31, 2024 as compared with 39 weeks included in the nine months ended August 26, 2023. Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation with no effect on previously reported net income or Stockholders' equity. 2. Interim Financial Presentation and Other Information All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the three and nine months ended August 31, 2024 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 25, 2023. Income Taxes We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income or loss and use that effective tax rate to record our year-to-date income tax provision. Any change in annual projections of pretax income or loss could have a significant impact on our effective tax rate for the respective quarter. Our effective tax rate was 22.0 % and 17.3 % for the three and nine months ended August 31, 2024, respectively. The effective rates for the three and nine months ended August 31, 2024 differ from the federal statutory rate of 21 % primarily due to increases in the valuation allowance placed on deferred tax assets associated with Noa Home Inc. (“Noa Home”), the effects of state income taxes and various permanent differences. Our effective tax rate was 18.8 % and 43.3 % for the three and nine months ended August 26, 2023, respectively. The effective rates for the three and nine months ended August 26, 2023 differ from the federal statutory rate of 21 % primarily due to the non-taxable gain on revaluation of contingent consideration associated with the acquisition of Noa Home (see Note 9), increases in the valuation allowance placed on deferred tax assets associated with Noa Home and the effects of state income taxes and various permanent differences. Non-cash Investing and Financing Activity During the nine months ended August 31, 2024 and August 26, 2023, $ 3,476 and $ 6,026 , respectively, of lease right-of-use assets were added through the recognition of the corresponding lease obligations. 7 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) 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 $ 17,834 and $ 17,775 at August 31, 2024 and November 25, 2023, respectively, consisted of CDs. At August 31, 2024, the CDs had original terms averaging seven months, bearing interest at rates ranging from 0.7 % to 5.4 % and the weighted average remaining time to maturity was approximately five months and the weighted average yield of the CDs was approximately 4.69 %. 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 August 31, 2024 and November 25, 2023 approximates their fair value. 4. Accounts Receivable Accounts receivable consists of the following: August 31, 2024 November 25, 2023 Gross accounts receivable $ 14,026 $ 14,271 Allowance for doubtful accounts ( 1,052 ) ( 535 ) Accounts receivable, net $ 12,974 $ 13,736 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 collectability 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. 8 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) Activity in the allowance for credit losses for the nine months ended August 31, 2024 was as follows: Balance at November 25, 2023 $ 535 Additions charged to expense 595 Write-offs against allowance ( 78 ) Balance at August 31, 2024 $ 1,052 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 . 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: August 31, 2024 November 25, 2023 Wholesale finished goods $ 24,188 $ 27,521 Work in process 453 637 Raw materials and supplies 16,223 18,655 Retail merchandise 33,285 33,090 Total inventories on first-in, first-out method 74,149 79,903 LIFO adjustment ( 11,942 ) ( 11,738 ) Reserve for excess and obsolete inventory ( 6,069 ) ( 5,183 ) $ 56,138 $ 62,982 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. 9 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (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 Corporate & Other (1) Total Balance at November 25, 2023 $ 4,145 $ 1,038 $ - $ 5,183 Additions charged to expense 3,930 524 500 4,954 Write-offs ( 3,700 ) ( 368 ) - ( 4,068 ) Balance at August 31, 2024 $ 4,375 $ 1,194 $ 500 $ 6,069 (1) Consists of a $500 reserve established against the retail inventory held by Noa Home due to our decision to cease operations by selling the remaining inventory in an orderly fashion over the next several months. 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 2024 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: August 31, 2024 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net Intangibles subject to amortization Customer relationships $ 512 $ ( 379 ) $ 133 Intangibles not subject to amortization: Trade names 6,849 Goodwill 7,217 Total goodwill and other intangible assets $ 14,199 November 25, 2023 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net Intangibles subject to amortization Customer relationships $ 512 $ ( 337 ) $ 175 Intangibles not subject to amortization: Trade names 8,675 Goodwill 7,217 Total goodwill and other intangible assets $ 16,067 See Note 9 regarding the impairment of the trade name intangible asset for Noa Home. There were no changes in the carrying amounts of goodwill during the nine months ended August 31, 2024. 10 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) The carrying amounts of goodwill by reportable segment, including accumulated impairment losses, at both August 31, 2024 and November 25, 2023 were as follows: Original Accumulated Recorded Impairment Carrying Value Losses Amount Wholesale $ 9,188 $ ( 1,971 ) $ 7,217 Retail 1,926 ( 1,926 ) - Corporate and other 5,409 ( 5,409 ) - Total goodwill $ 16,523 $ ( 9,306 ) $ 7,217 Amortization expense associated with intangible assets during the three and nine months ended August 31, 2024 and August 26, 2023 was as follows: Quarter Ended Nine Months Ended August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Intangible asset amortization expense $ 14 $ 14 $ 43 $ 43 Estimated future amortization expense for intangible assets that exist at August 31, 2024 is as follows: Remainder of fiscal 2024 $ 14 Fiscal 2025 57 Fiscal 2026 57 Fiscal 2027 5 Fiscal 2028 - Fiscal 2029 - Total $ 133 7. Bank Credit Facility On May 15, 2024, we entered into the Eighth Amended and Restated Credit Agreement with our bank (the “Credit Facility”). This credit facility provides for a line of credit of up to $ 25,000 . At August 31, 2024, we had $ 6,013 outstanding under standby letters of credit against our line. The line bears interest at the One-Month Term Secured Overnight Financing Rate (“One-Month Term SOFR”) plus 1.75 % and is secured by our accounts receivable and inventory. Our bank charges a fee of 0.25 % on the daily unused balance of the line, payable quarterly. Under the terms of the Credit Facility, Consolidated Minimum Tangible Net Worth (as defined in the Credit Facility) shall at no time be less than $ 120,000 . In addition, we must maintain the following financial covenants, measured quarterly on a rolling twelve-month basis and commencing as of the end of the first fiscal quarter after the first date that the used commitment (the sum of any outstanding advances plus standby letters of credit) equals or exceeds $ 8,250 : ● Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.2 times and ● Consolidated Lease Adjusted Leverage to EBITDAR Ratio (as defined in the Credit Facility) not to exceed 3.35 times. Since our used commitment was less than $ 8,250 at August 31, 2024, we were not required to test the Consolidated Fixed Charge Coverage Ratio or the Consolidated Lease Adjusted Leverage to EBITDAR Ratio. Had we been required to test those ratios, we would not have been able to achieve the required levels for either of these ratios. Consequently, our availability under the Credit Facility is currently limited to an additional $2,237. 11 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (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 $ 5,851 and $ 5,778 as of August 31, 2024 and November 25, 2023, 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 five management employees in the amount of $ 400 each. We are accounting for the LTC Awards as a defined benefit pension plan. Currently, two of those employees have retired and are receiving benefits. The liability for the LTC Awards was $ 1,221 and $ 1,234 as of August 31, 2024 and November 25, 2023, respectively. The combined pension liability for the Supplemental Plan and LTC Awards is recorded as follows in the condensed consolidated balance sheets: August 31, 2024 November 25, 2023 Accrued compensation and benefits $ 792 $ 792 Post employment benefit obligations 6,280 6,220 Total pension liability $ 7,072 $ 7,012 Components of net periodic pension costs for our defined benefit plans for the three and nine months ended August 31, 2024 and August 26, 2023 are as follows: Quarter Ended Nine Months Ended August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Service cost $ 3 $ 7 $ 10 $ 20 Interest cost 98 93 293 278 Amortization of prior service costs 26 31 77 94 Amortization of loss ( 16 ) - ( 48 ) - Net periodic pension cost $ 111 $ 131 $ 332 $ 392 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 $ 1,657 and $ 1,655 as of August 31, 2024 and November 25, 2023, 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 $ 3,277 and $ 2661 as of August 31, 2024 and November 25, 2023, respectively. 12 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (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: August 31, 2024 November 25, 2023 Accrued compensation and benefits $ 329 $ 329 Post employment benefit obligations 4,605 3,987 Total deferred compensation liability $ 4,934 $ 4,316 We recognized expense under our deferred compensation arrangements during the three and nine months ended August 31, 2024 and August 26, 2023 as follows: Quarter Ended Nine Months Ended August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Deferred compensation expense (benefit) $ 255 $ 166 $ 881 $ 363 9. Other Gains and Losses Fiscal 2024 During the three and nine months ended August 31, 2024, we recognized a charge of $ 1,240 to accrue the remaining minimum charges payable under a contract for logistical services which our wholesale segment ceased utilizing during the third fiscal quarter of 2024. These minimum payments will continue through January of 2026. During the nine months ended August 31, 2024, we recognized non-cash charges for asset impairments totaling $ 5,515 which consisted of the following: ● $ 2,887 in our retail segment which included $ 1,978 related to the impairment of leasehold improvements and $ 750 from the impairment of right-of-use assets at certain underperforming retail stores, as well as $ 159 for the impairment of right-of-use assets at certain warehouse locations resulting from the consolidation of our retail warehouses. ● $ 727 for the impairment of plant and equipment in our wholesale segment related to the consolidation of our domestic wood production facilities. ● $ 1,901 for the impairment of long-lived assets at Noa Home. During the second quarter we concluded that Noa Home was not likely to achieve profitability in the foreseeable future and have decided to cease operations by selling the remaining inventory in an orderly fashion over the next several months. $ 1,827 of these charges are for the full impairment of the Noa Home trade name intangible asset, and $ 74 relates to the full impairment of customized software used in the Noa Home operations. Our estimates of the fair value of the impaired right-of-use assets included estimates of discounted cash flows based upon current market rents and other inputs which we consider to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurement and Disclosure. Fiscal 2023 During the nine months ended August 26, 2023, we recognized a non-cash gain of $ 1,013 resulting from the write-down of our contingent consideration obligation to the former owners of Noa Home. Subsequent to the acquisition of Noa Home on September 2, 2022, the parties concluded that the revenue and EBITDA targets originally set forth in the purchase agreement by which the Noa Home co-founders were to earn the contingent consideration were likely not to be met within the originally anticipated time frame and therefore agreed to replace the contingent consideration payable that was recognized at the acquisition date with two fixed payments of C$ 200 each. The first payment was made in June of 2023 and the second payment will be made in December of 2024. 13 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) 10. 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. Lease Guarantees We were contingently liable under licensee lease obligation guarantees in the amounts of $ 5,226 and $ 1,845 at August 31, 2024 and November 25, 2023, respectively. The remaining term under these lease guarantees extends for six years. In the event of default by the licensee, 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 licensee 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 obligation, net of recorded reserves. The fair value of these lease guarantees (an estimate of the cost to the Company to perform on the guarantee) at August 31, 2024 and November 25, 2023 was not material. 14 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) 11. Earnings (Loss) Per Share The following reconciles basic and diluted earnings (loss) per share: Net Income (Loss) Weighted Average Shares Net Income (Loss) Per Share For the quarter ended August 31, 2024: Basic loss per share $ ( 4,505 ) 8,725,008 $ ( 0.52 ) Add effect of dilutive securities: Restricted shares* - - - Diluted loss per share - continuing operations $ ( 4,505 ) 8,725,008 $ ( 0.52 ) For the quarter ended August 26, 2023: Basic earnings per share $ ( 2,591 ) 8,736,096 $ ( 0.30 ) Add effect of dilutive securities: Restricted shares* - - - Diluted earnings per share $ ( 2,591 ) 8,736,096 $ ( 0.30 ) For the nine months ended August 31, 2024: Basic earnings per share - continuing operations $ ( 12,899 ) 8,742,766 $ ( 1.48 ) Add effect of dilutive securities: Restricted shares* - - - Diluted earnings per share - continuing operations $ ( 12,899 ) 8,742,766 $ ( 1.48 ) For the nine months ended August 26, 2023: Basic earnings per share - continuing operations $ 930 8,804,718 $ 0.11 Add effect of dilutive securities: Restricted shares - 15,934 - Diluted earnings per share - continuing operations $ 930 8,820,652 $ 0.11 * Due to the net loss for the period, potentially dilutive securities would have been anti-dilutive and are therefore excluded. For the three and nine months ended August 31, 2024 and August 26, 2023, the following potentially dilutive shares were excluded from the computations as their effect was anti-dilutive: Quarter Ended Nine Months Ended August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Unvested shares 64,409 100,313 64,409 66,113 15 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) 12. 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 includes Lane Venture. ● 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. In addition to the two reportable segments described above, we include our remaining business activities and assets in a reconciling category known as Corporate and other. This category includes the shared costs of corporate functions such as treasury and finance, information technology, accounting, human resources, legal and others, including certain product development and marketing functions benefitting both wholesale and retail operations. In addition to property and equipment and various other assets associated with the shared corporate functions, the identifiable assets of Corporate and other include substantially all of our cash and our investments in CDs. We consider our corporate functions to be other business activities and have aggregated them with any of our operating segments that do not meet the requirements to be reportable segments. As of and for the periods ended August 31, 2024 and August 26, 2023, the only such operating segment included in Corporate and other is Noa Home, which was acquired on September 2, 2022. All sales reported in our Corporate and other category are attributable to Noa Home, which generates substantially all of its sales outside of the United States. During the second fiscal quarter of 2024 we concluded that Noa Home was not likely to achieve profitability in the foreseeable future and have decided to cease operations by selling the remaining inventory in an orderly fashion over the next several months. 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. 16 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) The following table presents our segment information: Quarter Ended Nine Months Ended August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Sales Revenue Wholesale sales of furniture and accessories $ 47,828 $ 56,660 $ 155,138 $ 188,318 Less: Sales to retail segment ( 20,453 ) ( 23,503 ) ( 64,967 ) ( 77,932 ) Wholesale sales to external customers 27,375 33,157 90,171 110,386 Retail sales of furniture and accessories 47,256 52,264 151,478 178,004 Corporate and other - Noa Home 988 1,796 3,934 7,044 Consolidated net sales of furniture and accessories $ 75,619 $ 87,217 $ 245,583 $ 295,434 Income (Loss) before Income Taxes: Income (loss) from operations: Wholesale $ 4,440 $ 6,340 $ 16,886 $ 22,339 Retail - Company-owned stores ( 2,840 ) ( 3,036 ) ( 6,674 ) ( 751 ) Net expenses - Corporate and other ( 6,963 ) ( 7,420 ) ( 21,500 ) ( 22,140 ) Inter-company elimination 246 312 867 917 Asset impairment charges (see Note 9) - - ( 5,515 ) - Loss on contract abandonment (see Note 9) ( 1,240 ) - ( 1,240 ) Gain on revaluation of contingent consideration (see Note 9) - - - 1,013 Consolidated income (loss) from operations ( 6,357 ) ( 3,804 ) ( 17,176 ) 1,378 Interest income 692 923 2,075 1,644 Other loss, net ( 109 ) ( 309 ) ( 489 ) ( 1,381 ) Consolidated income (loss) before income taxes $ ( 5,774 ) $ ( 3,190 ) $ ( 15,590 ) $ 1,641 Depreciation and Amortization Wholesale $ 587 $ 618 $ 1,835 $ 1,838 Retail - Company-owned stores 1,073 1,335 3,790 4,167 Corporate and other 662 640 1,988 1,497 Consolidated $ 2,322 $ 2,593 $ 7,613 $ 7,502 Capital Expenditures Wholesale $ 385 $ 715 $ 919 $ 2,064 Retail - Company-owned stores 510 4,776 2,680 7,798 Corporate and other 142 1,761 1,121 4,795 Consolidated $ 1,037 $ 7,252 $ 4,720 $ 14,657 As of As of August 31, 2024 November 25, 2023 Identifiable Assets Wholesale $ 88,835 $ 99,004 Retail - Company-owned stores 155,271 166,604 Corporate and other 91,756 104,816 Consolidated $ 335,862 $ 370,424 See Note 13, Revenue Recognition, for disaggregated revenue information regarding sales of furniture and accessories by product type for the wholesale and retail segments. 17 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) 13. 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 at the time delivery is scheduled. These customer deposits are carried on our balance sheet as a current liability until delivery is fulfilled and amounted to $ 23,700 and $ 22,788 as of August 31, 2024 and November 25, 2023, respectively. Substantially all of the customer deposits held as of November 25, 2023 related to performance obligations that were satisfied during the current year-to-date period and have therefore been recognized in revenue for the nine months ended August 31, 2024. 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 August 31, 2024 and November 25, 2023, our balance of prepaid commissions included in other current assets was $ 2,559 and $ 2,245 , respectively. 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 nine months ended August 31, 2024 and August 26, 2023, excluding intercompany transactions between our segments, is a follows: Quarter Ended August 31, 2024 August 26, 2023 Wholesale Retail Corporate & Other (2) Total Wholesale Retail Corporate & Other Total Bassett Custom Upholstery $ 17,854 $ 25,631 $ - $ 43,485 $ 19,985 $ 30,177 $ - $ 50,162 Bassett Leather 3,730 1,229 - 4,959 6,743 337 - 7,080 Bassett Custom Wood 2,748 7,617 - 10,365 3,564 7,697 - 11,261 Bassett Casegoods 3,043 5,909 - 8,952 2,865 7,027 - 9,892 Accessories, mattresses and other (1) - 6,870 988 7,858 - 7,026 1,796 8,822 Consolidated net sales of furniture and accessories $ 27,375 $ 47,256 $ 988 $ 75,619 $ 33,157 $ 52,264 $ 1,796 $ 87,217 Nine Months Ended August 31, 2024 August 26, 2023 Wholesale Retail Corporate & Other (2) Total Wholesale Retail Corporate & Other Total Bassett Custom Upholstery $ 60,046 $ 82,690 $ - $ 142,736 $ 68,641 $ 101,047 $ - $ 169,688 Bassett Leather 11,254 3,173 - 14,427 19,630 1,408 - 21,038 Bassett Custom Wood 9,933 24,336 - 34,269 12,642 27,164 - 39,806 Bassett Casegoods 8,938 19,684 - 28,622 9,473 24,848 - 34,321 Accessories, mattresses and other (1) - 21,595 3,934 25,529 - 23,537 7,044 30,581 Consolidated net sales of furniture and accessories $ 90,171 $ 151,478 $ 3,934 $ 245,583 $ 110,386 $ 178,004 $ 7,044 $ 295,434 (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. (2) Corporate and other for the three and nine months ended August 31, 2024 and August 26, 2023 includes the sales of Noa Home. 18 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) 14. Changes to Stockholders ’ Equity The following changes in our stockholders’ equity occurred during the three and nine months ended August 31, 2024 and August 26, 2023: Quarter Ended Nine Months Ended August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Common Stock: Beginning of period $ 43,808 $ 43,900 $ 43,842 $ 44,759 Issuance of common stock 100 101 291 288 Purchase and retirement of common stock ( 234 ) ( 201 ) ( 459 ) ( 1,247 ) End of period $ 43,674 $ 43,800 $ 43,674 $ 43,800 Common Shares Issued and Outstanding: Beginning of period 8,761,332 8,779,912 8,768,221 8,951,839 Issuance of common stock 20,139 19,996 58,256 57,406 Purchase and retirement of common stock ( 46,843 ) ( 40,143 ) ( 91,849 ) ( 249,480 ) End of period 8,734,628 8,759,765 8,734,628 8,759,765 Additional Paid-in Capital: Beginning of period $ 52 $ - $ 93 $ - Issuance of common stock ( 4 ) ( 2 ) ( 16 ) ( 12 ) Purchase and retirement of common stock ( 246 ) ( 210 ) ( 671 ) ( 624 ) Stock based compensation 198 212 594 636 End of period $ - $ - $ - $ - Retained Earnings: Beginning of period $ 127,807 $ 149,393 $ 139,354 $ 150,800 Net income (loss) for the period ( 4,505 ) ( 2,591 ) ( 12,899 ) 930 Purchase and retirement of common stock ( 158 ) ( 196 ) ( 158 ) ( 2,293 ) Cash dividends declared ( 1,756 ) ( 1,575 ) ( 4,909 ) ( 4,406 ) End of period $ 121,388 $ 145,031 $ 121,388 $ 145,031 Accumulated Other Comprehensive Loss: Beginning of period $ ( 7 ) $ ( 108 ) $ 152 $ 50 Cumulative translation adjustments, net of tax ( 24 ) 31 ( 198 ) ( 174 ) Amortization of pension costs, net of tax 6 23 21 70 End of period $ ( 25 ) $ ( 54 ) $ ( 25 ) $ ( 54 ) The balance of cumulative translation adjustments, net of tax, was a net loss of $ 684 and $ 486 at August 31, 2024 and November 25, 2023, respectively. 19 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES, INCORPORATED AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED AUGUST 31, 2024 (Dollars in thousands except share and per share data) 15. Recent Accounting Pronouncements In June 2022, the FASB issued Accounting Standards Update No. 2022-03 – Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to clarify the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. In addition, the amendments in ASU 2022-03 require certain additional disclosures related to investments in equity securities subject to contractual sale restrictions. The amendments in ASU 2022-03 will become effective for us as of the beginning of our 2025 fiscal year. Early adoption is permitted. As of August 31, 2024 we do not hold any investments in equity securities, therefore we do not currently expect that this guidance will have a material impact upon our financial position and results of operations. In November 2023, the FASB issued Accounting Standards Update 2023-07 – Segment Reporting (Topic ASC 740) Improvements to Reportable Segment Disclosures. The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update require: that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss (collectively referred to as the “significant expense principle”); and that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss. The amendments in ASU 2022-03 will become effective for us for our 2025 fiscal year and for interim periods beginning with our 2026 fiscal year. Early adoption is permitted. We do not expect that this guidance will have a material impact upon our financial position and results of operations. In December 2023, the FASB issued Accounting Standards Update 2023-09 – Income Taxes (Topic ASC 740) Income Taxes. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2022-03 will become effective for us as of the beginning of our 2026 fiscal year. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We do not expect that this guidance will have a material impact upon our financial position and results of operations. 20 of 37 PART I-FINANCIAL INFORMATION-CONTINUED BASSETT FURNITURE INDUSTRIES INCORPORATED AND SUBSIDIARIES AUGUST 31, 2024 (Dollars in thousands except share and per share data)