UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 33-13110-NY

Regional Brands Inc.

(Exact name of registrant as specified in its charter)

DELAWARE	11-2831380
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6060 Parkland Boulevard Cleveland, Ohio	44124
(Address of principal executive offices)	(Zip Code)

(216) 825-4000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Exchange Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (Note: The registrant is a voluntary filer and not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. Although not subject to these filing requirements, the registrant has filed all reports that would have been required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months had the registrant been subject to such requirements.) Yes ¨ No x

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company x

Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s Common Stock, $0.00001 par value per share, was 1,274,603 as of October 31, 2019.

REGIONAL BRANDS INC.

INDEX

		Page

PART I - FINANCIAL INFORMATION:

Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to The Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	18

PART II - OTHER INFORMATION:		20

Item 1.	Legal Proceedings	20

Item 1A.	Risk Factors	20

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3.	Defaults Upon Senior Securities	20

Item 4.	Mine Safety Disclosures	20

Item 5.	Other Information	20

Item 6.	Exhibits	20

SIGNATURES		21

- 1 -

REGIONAL BRANDS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of
	September 30,			December 31,
	2019			2018
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	5,543,910		$	5,207,517
Short-term investments		2,048,103			2,194,216
Accounts receivable, net of allowance for doubtful accounts		9,776,046			7,773,564
Inventories, net		1,675,374			1,163,866
Costs and estimated earnings in excess of billings on uncompleted contracts		2,666,768			1,329,640
Prepaid expenses and other current assets		410,601			478,859
Total current assets		22,120,802			18,147,662

Equipment, net		1,171,406			1,027,812
Right-of-use assets-leases		1,218,163			-
Intangible assets, net		2,500,000			3,400,000
Goodwill		3,045,481			3,045,481
Deferred income taxes		381,729			349,339
Other assets		354,079			297,174
Total assets	$	30,791,660		$	26,267,468
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	2,667,645		$	1,495,549
Accrued expenses and other current liabilities		528,500			806,281
Line of credit		4,432,419			2,691,376
Current portion of lease liability		429,829			-
Current portion of senior subordinated note		28,680			28,680
Current portion of subordinated term note		250,000			250,000
Billings in excess of costs and estimated earnings on uncompleted contracts		934,998			515,242
Total current liabilities		9,272,071			5,787,128

Lease liability		788,334			-
Senior subordinated note, net		239,388			220,529
Subordinated term note		2,000,000			2,187,500
Total liabilities		12,299,793			8,195,157

Stockholders’ equity:
Preferred stock, issued and outstanding-none		-			-
Common stock, issued and outstanding-1,274,603 shares		13			13
Additional paid-in capital		20,469,489			20,428,933
Accumulated deficit		(1,812,802	)		(2,183,276	)
Total Regional Brands, Inc. stockholders' equity		18,656,700			18,245,670
Noncontrolling interest in consolidated subsidiary		(164,833	)		(173,359	)
Total stockholders’ equity		18,491,867			18,072,311
Total liabilities and stockholders' equity	$	30,791,660		$	26,267,468

The accompanying notes are an integral part of the condensed consolidated financial statements.

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REGIONAL BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2019			2018			2019			2018
Net Sales	$	11,489,491		$	10,317,136		$	30,530,819		$	30,400,766
Cost of sales		8,514,012			7,700,107			22,094,746			22,170,043
Gross profit		2,975,479			2,617,029			8,436,073			8,230,723

Operating expenses:
Selling		1,257,061			1,082,977			3,582,303			3,347,164
General and administrative		1,166,319			1,032,462			3,478,487			3,023,524
Amortization of intangible assets		300,000			331,344			900,000			943,079
Total operating expenses		2,723,380			2,446,783			7,960,790			7,313,767

Operating income		252,099			170,246			475,283			916,956

Other income (expense):
Other income		48,182			32,064			231,014			151,643
Interest expense		(88,958	)		(78,530	)		(219,965	)		(193,227	)
Interest income		6,345			6,345			19,035			18,831
		(34,431	)		(40,121	)		30,084			(22,753	)

Income before income taxes		217,668			130,125			505,367			894,203

Income tax expense		49,820			19,235			119,574			193,147

Net income		167,848			110,890			385,793			701,056

Less income allocated to noncontrolling interest		7,369			3,586			15,319			31,835

Income attributable to common stockholders		160,479			107,304			370,474			669,221
Distributions to certain noncontrolling interests		-			(16,729	)		-			(63,664	)
Income available to common stockholders	$	160,479		$	90,575		$	370,474		$	605,557

Income per common share- basic and diluted	$	0.13		$	0.07		$	0.29		$	0.48

Weighted average common shares outstanding - basic and diluted		1,274,603			1,274,603			1,274,603			1,274,603

The accompanying notes are an integral part of the condensed consolidated financial statements.

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REGIONAL BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

	Common Stock				Additional		Accumulated			Noncontrolling			Stockholders'
	Shares		Amount		Paid-in Capital		Deficit			Interest			Equity
Balance at January 1, 2019		1,274,603	$	13	$	20,428,933	$	(2,183,276	)	$	(173,359	)	$	18,072,311
Stock based compensation				-		13,878		-			-			13,878
Net loss for period				-		-		(274,984	)		(21,842	)		(296,826	)
Noncontrolling interest distribution				-		-		-			(3,640	)		(3,640	)
Balance at March 31, 2019		1,274,603		13		20,442,811		(2,458,260	)		(198,841	)		17,785,723
Stock based compensation				-		13,878		-			-			13,878
Net income for period				-		-		484,979			29,792			514,771
Balance at June 30, 2019		1,274,603		13		20,456,689		(1,973,281	)		(169,049	)		18,314,372
Stock based compensation						12,800								12,800
Net income for the period								160,479			7,369			167,848
Noncontrolling interest distribution						-		-			(3,153	)		(3,153	)
Balance at September 30, 2019		1,274,603	$	13	$	20,469,489	$	(1,812,802	)	$	(164,833	)	$	18,491,867

Balance January 1, 2018		1,274,603	$	13	$	20,373,257	$	(3,203,781	)	$	(87,406	)	$	17,082,083
Stock based compensation				-		14,042		-			-			14,042
Net loss for period				-		-		(44,806	)		(6,685	)		(51,491	)
Balance at March 31, 2018		1,274,603		13		20,387,299		(3,248,587	)		(94,091	)		17,044,634
Stock based compensation				-		13,878		-			-			13,878
Net income for period				-		-		606,723			34,934			641,657
Noncontrolling interest distribution				-		-		-			(50,080	)		(50,080	)
Balance at June 30, 2018		1,274,603		13		20,401,177		(2,641,864	)		(109,237	)		17,650,089
Stock based compensation						13,878		-			-			13,878
Net income for period						-		107,304			3,586			110,890
Noncontrolling interest distribution						-		-			(27,841	)		(27,841	)
Balance at September 30, 2018	$	1,274,603	$	13	$	20,415,055	$	(2,534,560	)	$	(133,492	)	$	17,747,016

The accompanying notes are an integral part of the condensed consolidated financial statements.

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REGIONAL BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the			For the
	nine months			nine months
	ended			ended
	September 30, 2019			September 30, 2018
Cash flows from operating activities:
Net income	$	385,793		$	701,056
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Stock based compensation		40,556			41,798
Depreciation and amortization		194,283			126,728
Amortization of debt issuance costs		18,859			18,859
Amortization of intangibles		900,000			943,079
Deferred income taxes		(32,390	)		(54,950	)
Unrealized loss (gain) on investments		3,721			(63,064	)
Gain on sale of equipment		(4,006	)		-
Change in inventory obsolescence reserve		41,500			6,500
Changes in operating assets and liabilities:
Accounts receivable		(2,002,482	)		(1,402,277	)
Inventories		(553,008	)		(331,946	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(1,337,128	)		(1,398,039	)
Prepaid expenses and other assets		11,352			(262,685	)
Accounts payable		1,172,096			728,626
Accrued expenses and other current liabilities		(266,664	)		(193,706	)
Billings in excess of costs and estimated earnings on uncompleted contracts		419,756			1,161,629
Net cash (used) provided by operating activities		(1,007,762	)		21,608

Cash flows from investment activities:
Purchase of equipment		(339,571	)		(387,519	)
Business acquisitions		-			(203,216	)
Equipment sales proceeds		5,700			25,000
Sale (purchase) of short-term investments		142,393			(234,302	)
Net cash used by investment activities		(191,478	)		(800,037	)

Cash flows from financing activities:
Distribution to noncontrolling interest		(17,910	)		(55,861	)
Borrowings from line of credit, net		1,741,043			1,033,880
Payments under subordinated term note		(187,500	)		-
Net cash provided by financing activities		1,535,633			978,019
Net increase in cash and cash equivalents		336,393			199,590

Cash and cash equivalents at beginning of period		5,207,517			4,353,567

Cash and cash equivalents at end of period	$	5,543,910		$	4,553,157

Cash paid for:
Income taxes	$	185,000		$	91,000
Interest	$	212,000		$	179,000

- 5 -

REGIONAL BRANDS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited)

	For the nine months ended September 30, 2019		For the nine months ended September 30, 2018
Noncash transactions:
Accrued distribution to noncontrolling interest	$	-	$	22,000

Noncash transactions include the recording of a right-of-use asset and related lease liability of approximately $1.2 million upon the adoption of the new lease accounting standard effective January 1, 2019 and $0.3 million for leases entered into during the nine months ended September 30, 2019.

The accompanying notes are an integral part of the condensed consolidated financial statements.

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REGIONAL BRANDS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Regional Brands Inc. (“the Company”, “we” and “us”) is a holding company formed to acquire substantial ownership in regional companies with strong brand recognition, stable revenues and profitability. The Company has been pursuing a business strategy whereby it is seeking to engage in an acquisition, merger or other business combination transaction with undervalued businesses (each, a “Target Company”) with a history of operating revenues in markets that provide opportunities for growth.

On November 1, 2016, the Company's majority-owned subsidiary, B.R. Johnson, LLC (“BRJ LLC”) acquired (the “Acquisition”) substantially all of the assets of B.R. Johnson, Inc. (“BRJ Inc.”), a seller and distributor of windows, doors and related hardware as well as specialty products for use in commercial and residential buildings (the “Business”). Following the Acquisition, BRJ LLC carried on the business and operations of BRJ Inc.

Basis of Presentation - The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management, the accompanying condensed consolidated balance sheets and related condensed consolidated statements of income, changes in stockholders’ equity and cash flows include all adjustments, consisting only of normal recurring items necessary for their fair presentation in accordance with U.S. GAAP. Interim results are not necessarily indicative of results expected for a full year. For further information regarding the Company’s accounting policies, please refer to the audited consolidated financial statements and footnotes for the year ended December 31, 2018 included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2019.

Principles of Consolidation - The consolidated financial statements include the accounts of Regional Brands Inc. and its majority-owned subsidiary, BRJ LLC. All intercompany balances and transactions have been eliminated in consolidation. The Company has a controlling interest in its subsidiary, BRJ LLC. BRJ LLC has preferred and common membership interests that are not controlled by the Company. Earnings and losses of BRJ LLC are attributed to the noncontrolling interests and distributions are made in accordance with the B.R. Johnson LLC Limited Liability Company Agreement.

Use of Estimates - The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates and be based on events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating, therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained. We believe the most significant estimates and judgments are associated with revenue recognition for our customer contracts in process, including estimating costs and the recognition of unapproved change orders and claims.

Inventories - Inventory is comprised of purchased materials and other materials that have been assigned to a job deemed to be work-in-process. As of September 30, 2019 and December 31, 2018, the work-in-process inventory was $889,000 and $414,000, respectively and is included in inventories in the accompanying consolidated balance sheets. We maintain an inventory allowance for slow-moving and unused inventories based on historical trends and estimates. The allowance was $111,000 and $69,500 at September 30, 2019 and December 31, 2018, respectively.

Revenue Recognition - We recognize revenue when the following criteria are met: 1) A contract with the customer has been identified; 2) Performance obligations in the contract have been identified; 3) The transaction price has been determined; 4) The transaction price has been allocated to the performance obligations; and 5) Revenue is recognized when (or as) performance obligations are satisfied.

- 7 -

A portion of our revenue is derived from long-term contracts and is recognized using the percentage of completion (“POC”) method, primarily based on the percentage that actual costs-to-date bear to total estimated costs to complete each contract. We utilize the cost-to-cost approach to estimate POC as we believe this method is less subjective than relying on assessments of physical progress. Under the cost-to-cost approach, the use of estimated costs to complete each contract is a significant variable in the process of determining recognized revenue and is a significant factor in the accounting for contracts. Significant estimates that impact the cost to complete each contract are costs of materials, components, equipment, labor and subcontracts; labor productivity; schedule durations, including subcontractor or supplier progress; liquidated damages; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. The portion of the business utilizing the POC method is related to the distribution and installation of commercial windows and specialty products which are supported by specific written contracts which include contract price, scope and payment terms and are signed by both parties. Our contract price is fixed for the scope of work specified and we generally have no variable consideration. We frequently negotiate change orders for additional work to be performed which typically relate to the initial performance obligation. Our customer payment terms are typical for our industry. For most contracts under the POC method, progress payments, less retainage, are made shortly after the contractor receives payments from the owner. For the remainder of our business, standard terms require that amounts due are paid 30 days after invoice date. For the business accounted for using the POC method, we have determined that we have one performance obligation due to the high degree of inter-dependability and highly integrated nature of the work. Performance obligations for the remainder of our business are generally supported by written contracts or purchase orders which require the delivery of goods or services and the revenue is recognized upon shipment of those goods or performance of the services. The majority of our performance obligations are typically completed within one year.

We have elected the practical expedients for not adjusting the promised amount of consideration for the effects of financing components when, at contract inception, the period between the transfer of good or service and when the customer pays is expected to be less than one year and for recognizing incremental costs of obtaining a contract as incurred as they would otherwise have been amortized over one year or less.

We have made an accounting policy election to treat any common carrier shipping and handling activities as a fulfillment cost, rather than a separate obligation or promised service.

Sales and usage taxes are excluded from revenues. Costs incurred on jobs in process include all direct material and labor costs and certain indirect costs. General and administrative and precontract costs are charged to expense as incurred.

Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates. Revisions in estimated profits for contracts accounted for under the POC method are made in the period in which circumstances requiring the revision become known. During the three and nine months ended September 30, 2019, the effect of changes in estimated contract costs decreased gross profit by approximately $320,000 and $398,000, respectively, decreased net income by approximately $236,000 and $294,000, respectively, and decreased income per common share (net of income taxes) by $0.19 and $0.23, respectively. During the three and nine months ended September 30, 2018, the effect of changes in estimated contract costs decreased gross profit by approximately $200,000 and $230,000, respectively, decreased net income by approximately $148,000 and $170,000, respectively, and decreased income per common share (net of income taxes) by $0.12 and $0.13, respectively.

Common Shares Issued and Earnings (Loss) Per Share - Common shares issued are recorded based on the value of the shares issued or consideration received, including cash, services rendered or other non-monetary assets, whichever is more readily determinable. The Company presents basic and diluted earnings (loss) per share. Basic earnings (loss) per share reflect the actual weighted average number of shares issued and outstanding during the period. Diluted earnings (loss) per share is computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued, such as those issuable upon exercise of outstanding stock options or conversion of convertible securities. In a loss period, the calculation for basic and diluted loss per share is considered to be the same, as the impact of the issuance of any potential common shares would be anti-dilutive. During the three and nine months ended September 30, 2019 and 2018, since the exercise prices of the outstanding stock options were above the average market price of our common stock during the period, the outstanding stock options were considered anti-dilutive. In calculating income per common share, income attributable to common stockholders is reduced by distributions made to certain noncontrolling interests in the Company’s consolidated subsidiary (There were no such distributions made or accrued through September 30, 2019 and $16,729 and $63,664 was accrued or paid during the three and nine month periods ended September 30, 2018, respectively).

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Fair Value of Financial Instruments - Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, and line of credit. Fair values were assumed to approximate carrying values for these financial instruments because of their immediate or short-term maturity and the fair value of the line of credit approximates the carrying value as the stated interest rate approximates market rates currently available to the Company.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The Company’s valuation techniques used to measure the fair value of money market funds, certificate of deposits, and certain marketable equity securities were derived from quoted prices in active markets for identical assets or liabilities.

In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eligible financial instruments.

Our short-term investments consist of investments in marketable equity related securities and money market funds. All of these marketable securities are accounted for as available-for-sale securities, which are carried at fair value using quoted market prices in active markets for each marketable security. All of our marketable equity securities and money market funds are carried at fair value and unrealized gains or losses on the securities are recognized as a component of other income included in our condensed consolidated statements of income.

The table below presents the Company's assets and liabilities measured at fair value aggregated by the level in the fair value hierarchy within which those measurements fall.

Assets	Level 1		Level 2		Level 3		Balance at September 30, 2019
Marketable Equity Securities	$	2,048,103	$	-	$	-	$	2,048,103
Money Market Funds	$	5,543,910	$	-	$	-	$	5,543,910

Assets	Level 1		Level 2		Level 3		Balance at December 31, 2018
Marketable Equity Securities	$	2,194,216	$	-	$	-	$	2,194,216
Money Market Funds	$	5,207,517	$	-	$	-	$	5,207,517

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New Accounting Pronouncements Adopted - We adopted Accounting Standard Update ASU 2016-02 (Topic ASC 842), “Leases”, as required, effective January 1, 2019, using the modified retrospective approach without adjusting comparative periods. ASC 842 retains the two-model approach to classifying leases as operating or finance leases (formerly, capital leases); however, most leases, regardless of classification type, are recorded on the balance sheet. When a lessee records a lease on the balance sheet, it will recognize a lease liability based on the present value of the future lease payments, with an offsetting entry to recognize a right-of-use (ROU) asset. A lessee uses a discount rate to determine the present value based on the rate implicit in the lease, if readily determinable, or the lessee’s incremental borrowing rate.

We utilized the practical expedients provided by the guidance including the package of practical expedients to not reassess whether contracts contain a lease, lease classification, and direct costs. Since our current lease agreements, which include real estate and vehicles, are operating leases, they will continue to be accounted for as operating leases under the new standard. Accordingly, lease expense is recognized on a straight-line basis over the lease term. We have elected not to record leases with terms of 12 months or less on the balance sheet.

We adopted ASU 2018-07, "Compensation - Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting" effective January 1, 2019, as required. The FASB issued this update as part of its simplification initiative. The amendments in this update expand the scope of Topic 718 to include share-based payments for acquiring goods and services from nonemployees. Since we have issued a relatively small number of stock options to nonemployees, the adoption of this standard on our condensed consolidated financial statements and related disclosures was not material.

New Accounting Pronouncements Issued - In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses”. This ASU requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. The standard will be effective for our fiscal year beginning in 2023, including interim periods within such fiscal years. Early adoption is permitted. The Company is currently assessing the effect that this ASU will have on its financial position, results of operations, and disclosures. No other recently issued or effective ASUs had, or are expected to have, a material effect on the Company's results of operations, financial condition, or liquidity.

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NOTE 2. REVENUES AND CONTRACTS IN PROCESS

The following table presents our revenues disaggregated by contracts accounted for using the percentage of completion method:

	Three Months Ended September 30,
	2019		2018
Contracts under percentage of completion	$	6,254,573	$	5,383,752
All other		5,234,918		4,933,384
Total revenue	$	11,489,491	$	10,317,136

	Nine Months Ended September 30,
	2019		2018
Contracts under percentage of completion	$	17,746,187	$	16,269,054
All other		12,784,632		14,131,712
Total revenue	$	30,530,819	$	30,400,766

Projects with costs and estimated earnings recognized to date in excess of cumulative billings are reported on the accompanying condensed consolidated balance sheet as an asset referred to as Costs and estimated earnings in excess of billings. Projects with cumulative billings in excess of costs and estimated earnings recognized to date are reported on the accompanying condensed consolidated balance sheet as a liability referred to as Billings in excess of costs and estimated earnings. The following is information with respect to uncompleted contracts:

	September 30, 2019			December 31, 2018
Costs incurred on uncompleted contracts	$	18,990,775		$	9,619,587
Estimated earnings		7,539,340			3,499,758
		26,350,115			13,119,345
Less billings to date		24,618,345			12,304,947
	$	1,731,770		$	814,398

Included on balance sheet as follows:
Under current assets
Costs and estimated earnings in excess of billings on uncompleted contracts	$	2,666,768		$	1,329,640
Under current liabilities
Billings in excess of costs and estimated earnings on uncompleted contracts	$	(934,998	)	$	(515,242	)
	$	1,731,770		$	814,398

The Company had unbilled revenues of approximately $1.8 million and $0.9 million at the end of September 30, 2019 and December 31, 2018, respectively, which are included in Cost and estimated earnings in excess of billings on the condensed consolidated balance sheet.

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed. As of September 30, 2019, the aggregate amount of the transaction prices allocated to the remaining performance obligations, for contracts to be recognized using the percentage of completion method, was $18.5 million.

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NOTE 3. DEBT

BRJ LLC has a Credit and Security Agreement with KeyBank, N.A., dated November 1, 2016 (“Credit Facility”) that includes revolving loans and letters of credit with a sublimit of $500,000 for letters of credit. On September 5, 2019, BRJ LLC entered into a First Amendment Agreement (the “Amendment”) which amended the Credit Facility. The Amendment provides for, among other things, an increase in the maximum borrowing amount available pursuant to the revolving credit facility under the Credit Facility from $6,000,000 to (1) $8,000,000 for the period beginning September 5, 2019 and ending December 31, 2019 and (2) $7,000,000 on January 1, 2020 and thereafter.

The Credit Facility is payable upon demand of KeyBank, N.A., or the lenders, or upon acceleration as a result of an event of default.

Interest under the Credit Facility is payable monthly and accrues pursuant to the “base rate” of interest, which is equal to the highest of (a) KeyBank, N.A.’s prime rate, (b) one-half of one percent (0.50%) in excess of the Federal Funds Effective Rate of the Federal Reserve Bank of New York, and (c) one hundred (100) basis points in excess of the London Interbank Offered Rate for loans in Eurodollars with an interest period of one month, plus any applicable margin. The Credit Facility also requires the payment of certain fees, including, but not limited to, letter of credit fees.

The Credit Facility is secured by substantially all of BRJ LLC’s assets. The Credit Facility contains customary financial and other covenant requirements, including, but not limited to, a covenant requiring BRJ LLC’s consolidated fixed charge coverage ratio to not exceed 1.15 to 1.00. The Credit Facility also contains customary events of default. For the nine months ended September 30, 2019, the Company was in compliance with these covenants.

The effective interest rate on borrowings under the Credit Facility at September 30, 2019 was 4.38%. The aggregate borrowings outstanding under the Credit Facility at September 30, 2019 were $4,432,419. In addition, the bank has issued letters of credit on behalf of the Company in the amount of $250,000 that expires on December 1, 2019 and $100,000 that expires on May 1, 2020.

NOTE 4. STOCKHOLDERS’ EQUITY

The Company’s authorized capital consists of 3,000,000 shares of common stock, par value $0.00001 per share, and 50,000 shares of preferred stock, par value $0.01 per share.

The Company recorded stock compensation expense for options vesting during the three month periods ended September 30, 2019 and 2018 of $12,800 and $13,878, respectively, and during the nine month periods ended September 30, 2019 and 2018 of $40,556 and $41,798, respectively.

NOTE 5. RELATED PARTY TRANSACTIONS

The Company has a Management Services Agreement (the “MSA”) with Ancora Advisors, LLC, whereby Ancora Advisors, LLC provides specified services to the Company in exchange for a quarterly management fee in an amount equal to 0.14323% of the Company’s stockholders’ equity (excluding cash and cash equivalents) as shown on the Company’s condensed consolidated balance sheet as of the end of each fiscal quarter of the Company. The management fee with respect to each fiscal quarter of the Company is paid no later than 10 days following the issuance of the Company’s financial statements for such fiscal quarter, and in any event no later than 60 days following the end of each fiscal quarter. For the nine months ended September 30, 2019 and 2018, Ancora Advisors, LLC agreed to waive payment of the management fee, but reserves the right to institute payment of the management fee at its discretion.

BRJ LLC has a Management Services Agreement (the “BRJ MSA”) with Lorraine Capital, LLC (“Lorraine”), a member of BRJ LLC, whereby Lorraine provides specified management, financial and reporting services to us in exchange for an annual management fee in an amount equal to the greater of (i) $75,000 or (ii) five percent (5%) of the annual EBITDA (as defined in the BRJ MSA) of BRJ LLC, payable quarterly in arrears and subject to certain adjustments and offsets set forth in the BRJ MSA. The BRJ MSA may be terminated by BRJ LLC, Lorraine or Regional Brands at any time upon 60 days’ prior written notice and also terminates upon the consummation of a sale of BRJ LLC. BRJ LLC recorded expenses for Lorraine management fees in the amount of approximately $1,000 and $55,000 for the three and nine months ended September 30, 2018, respectively. There were no expenses for such fees during the three and nine months ended September 30, 2019, respectively. As of September 30, 2019 there were no amounts payable and at December 31, 2018, $39,000 was payable to Lorraine under the BRJ MSA.

BRJ LLC has a relationship with a union qualified commercial window subcontractor, Airways Door Service, Inc. (“ADSI”), which is advantageous to us in situations that require union installation and repair services. Individuals affiliated with Lorraine acquired 57% of ADSI’s common stock; the remaining common stock is owned by three of BRJ LLC’s employees. BRJ LLC paid ADSI for its services approximately $812,000 and $547,000 for the three months ended September 30, 2019 and 2018, respectively and $2,096,000 and $1,370,000 for the nine months ended September 30, 2019 and 2018, respectively. In addition, we provide ADSI services utilizing an agreed-upon fee schedule. These services include accounting, warehousing, equipment use, employee benefit administration, risk management coordination and clerical functions. The fee for these services was approximately $38,000 and $15,000 during the three months ended September 30, 2019 and 2018, respectively and $96,000 and $45,000 during the nine months ended September 30, 2019 and 2018, respectively.

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NOTE 6. INCOME TAXES

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that may be in effect when the differences are expected to reverse. The Company periodically evaluates the likelihood of realization of deferred tax assets, and provides for a valuation allowance when necessary.

The Company had an effective income tax rate of 22.9% and 23.7% for the three and nine months ended September 30, 2019, respectively, and 14.8% and 21.6% for the three and nine months ended September 30, 2018, respectively. The effective income tax rate was greater than the federal statutory rate of 21% for the three and nine months ended September 30, 2019 due primarily to state income taxes. The effective income tax rate for the three months ended September 30, 2018 is lower than the 2018 federal statutory rate of 21% due primarily to adjustments resulting from the filing of the 2017 federal income tax return. The effective income tax rate for the nine months ended September 30, 2018 approximates the 2018 federal statutory rate of 21%.

NOTE 7. LEASES

Lease expense was approximately $127,500 and $101,100 for the three months ended September 30, 2019 and 2018, respectively, and $368,800 and $291,300 for the nine months ended September 30, 2019 and 2018, respectively. The right-of-use assets and related lease liability was approximately $1.2 million as of January 1, 2019. The lease terms range in length from 36 to 72 months. Certain leases contain renewal options that we are not reasonably certain to exercise and therefore have been excluded from the future minimum lease payments. The weighted-average remaining lease term as of January 1, 2019 was 3.9 years and at September 30, 2019 was 3.4 years. The weighted-average discount rate used to determine the present value of future lease payments is 4.9%. Because the implicit rate in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of lease payments.

The future minimum lease payments under the lease agreements for the rest of 2019 and yearly thereafter and a reconciliation to the amount of the net present value of such payments at September 30, 2019 are as follows:

2019	$	120,027
2020		480,108
2021		434,108
2022		123,492
2023		108,592
2024		51,956
Total		1,318,283
Discount on future lease payments		(100,120	)
Lease Liability at September 30, 2019		1,218,163
Less amount classified as current		(429,829	)
	$	788,334

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

FORWARD-LOOKING STATEMENTS

Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). The Company desires to avail itself of certain “safe harbor” provisions of the 1995 Reform Act and is therefore including this note to enable it to do so. Except for the historical information contained herein, this report contains forward-looking statements (identified by the words “estimate,” “project,” “anticipate,” “plan,” “expect,” “intend,” “believe,” “hope,” “strategy” and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements, including, without limitation, those discussed under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, as they may be updated or supplemented from time to time under Part II, Item 1A “Risk Factors” in our Quarterly Reports on Form 10-Q, and those described herein.

The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition and should be read in conjunction with the financial statements and footnotes that appear elsewhere in this report.

Nature of Business

All of our business operations are being conducted through our consolidated subsidiary BRJ LLC.

Items Affecting the Comparability of Our Financial Results

Comparisons presented in the Results of Operations sections discussed below are with respect to the same period of the prior year, unless otherwise noted. The industry we operate in is highly competitive and accordingly our pricing and margins, especially on larger projects, can vary depending on multiple factors including the customer or general contractor relationship. These variances, which we call project mix, can impact the comparability of gross margins from period to period.

Results of Operations for the three months ended September 30, 2019 and 2018

Net Sales: Net sales were $11,489,491 for the three months ended September 30, 2019, an increase of $1,172,355, or 11.4%, when compared to $10,317,136 for 2018. Sales of commercial windows were up by approximately $1 million, while sales of other products were up by approximately $0.2 million.

Cost of sales: Cost of sales were $8,514,012 for the three months ended September 30, 2019, an increase of $813,905 or 10.6%, when compared to $7,700,107 for 2018. The primary reason for the increase was due to the corresponding increase in net sales.

Gross profit: Gross profit was $2,975,479 or 25.9% of net sales for the three months ended September 30, 2019 compared to $2,617,029 or 25.4% of net sales for 2018. The increase of $358,450 gross profit is primarily related to higher sales volumes and improved margins as a percent of sales on the sale of our door, frame, hardware and aftermarket products.

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Selling expenses: Selling expenses were $1,257,061 for the three months ended September 30, 2019, an increase of $174,084, or 16.1%, when compared to $1,082,977 for 2018. The increase is primarily due to higher commission expense related to higher sales of our specialty products.

General and administrative expenses: General and administrative expenses were $1,166,319 for the three months ended September 30, 2019, an increase of $133,857, or 13.0%, when compared to $1,032,462 for 2018. The increase is primarily due to planned higher wages, costs associated with the enterprise resource planning system that was placed in service in the second quarter of 2019, including depreciation expense and costs associated with our new office in Buffalo and our facility from our R&D acquisition, partially offset by a lower bonus expense and professional fees.

Amortization of intangible assets: Amortization of intangible assets was $300,000 for the three months ended September 30, 2019 compared to $331,344 for 2018. Certain intangible assets arising from the R&D acquisition were fully amortized by the end of 2018, which is the primary reason for less amortization expense in 2019.

Other income: Other income was $48,182 for the three months ended September 30, 2019, an increase of $16,118 when compared to $32,064 for 2018. The increase was primarily related to increased realized gains on the sale of investments and dividends, including dividends received related to the Company’s investment in a captive insurance entity, partially offset by unrealized losses in the market value of our investments in marketable equity securities.

Interest Expense: Interest expense for the three months ended September 30, 2019 was $88,958 compared to $78,530 for 2018. The increase was due to increased debt levels to fund working capital needs for operations.

Income tax expense: Income tax expense for the three months ended September 30, 2019 of $49,820 was $30,585 higher than income tax expense of $19,235 for 2018 due primarily to higher income before income taxes in 2019. The effective income tax rate was 22.9% and 14.8% for the three months ended September 30, 2019 and 2018, respectively. The effective income tax rate for 2019 differed from the federal statutory rate of 21% due primarily to state income taxes. The 2018 effective income tax rate is lower than the federal statutory rate of 21% due primarily to adjustments resulting from the filing of the 2017 federal income tax return.

Net income: As a result of the foregoing, net income for the three months ended September 30, 2019 increased by $56,958 to $167,848 compared to $110,890 for 2018.

Results of Operations for the nine months ended September 30, 2019 and 2018

Net Sales: Net sales were $30,530,819 for the nine months ended September 30, 2019, which are comparable to net sales of $30,400,766 for 2018. Sales of commercial windows and specialty products were up by approximately $1.9 million, but were offset by a decline in sales of door, frame and hardware products.

Cost of sales: Cost of sales was $8,514,012 for the three months ended September 30, 2019, an increase of $813,905 or 10.6%, when compared to $7,700,107 for 2018. The primary reason for the increase was due to the corresponding increase in net sales.

Gross profit: Gross profit was $8,436,073 or 27.6% of net sales for the nine months ended September 30, 2019 compared to $8,230,723 or 27.1% of net sales for 2018. Gross profit increased by $205,350 in 2019 primarily due to the increase in net sales when compared to 2018 and the improvement in gross profit as a percentage of sales in our higher margin commercial windows products.

Selling expenses: Selling expenses were $3,582,303 for the nine months ended September 30, 2019, an increase of $235,139, or 7.0%, compared to $3,347,164 for 2018. The increase was primarily due to higher commission expense on higher sales of specialty products and planned higher wages.

General and administrative expenses: General and administrative expenses were $1,166,319 for the three months ended September 30, 2019, an increase of $133,857, or 13.0%, when compared to $1,032,462 for 2018. The increase is primarily due to planned higher wages, costs associated with the enterprise resource planning system that was placed in service in the second quarter of 2019, including depreciation expense and costs associated with our new office in Buffalo, partially offset by a lower bonus expense and professional fees.

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Amortization of intangible assets: Amortization of intangible assets was $900,000 for the nine months ended September 30, 2019 compared to $943,079 for 2018. Certain intangible assets arising from the R&D acquisition were fully amortized by the end of 2018, which is the primary reason for less amortization expense in 2019.

Other income: Other income was $231,014 for the nine months ended September 30, 2019, an increase of $79,371 when compared to $151,643 for 2018. The increase was primarily related to increased realized gains on the sale of investments and dividends, including dividends received related to the Company’s investment in a captive insurance entity, partially offset by unrealized losses in the market value of our investments in marketable equity securities.

Interest Expense: Interest expense for the nine months ended September 30, 2019 was $219,965 compared to $193,227 for 2018. The increase was due to increased debt levels to fund working capital needs for operations.

Income tax expense: Income tax expense for the nine months ended September 30, 2019 of $119,574 was $73,573 lower than income tax expense of $193,147 for 2018 due primarily to lower income before income taxes in 2019. The effective income tax rate was 23.7% and 21.6% for the nine months ended September 30, 2019 and 2018, respectively. The effective income tax rate differed from the federal statutory rate of 21% in both periods due primarily to state income taxes and in 2018, the rate was somewhat offset by adjustments resulting from the filing of the 2017 federal income tax return.

Net income: As a result of the foregoing, net income for the nine months ended September 30, 2019 decreased by $315,263 to $385,793 compared to $701,056 for 2018.

Liquidity and Capital Resources

At September 30, 2019, we had working capital of $12,848,731 compared to working capital of $12,360,534 at December 31, 2018. During the nine months ended September 30, 2019, our operating activities used cash of $1,007,762 compared to $21,608 of cash provided by our operating activities in 2018. The primary reason for the use of cash by operating activities was due to the increase in our net operating assets included in working capital somewhat offset by non-cash expenses related to depreciation and amortization of equipment and intangible assets.

Cash used in investment activities was $191,478 for the nine months ended September 30, 2019 compared to $800,037 for the comparable period in 2018. The primary uses of cash by investment activities in 2019 was for the purchase of equipment, somewhat offset by the proceeds from the sale of short-term investments and in 2018 the purchase of equipment, certain assets of R&D Fabricators, Inc. and short-term investments. The major reasons for the purchases of equipment in each period relates to the cost of the implementation of our enterprise resource planning system that was placed into service in the second quarter of 2019.

Cash provided by financing activities was $1,535,633 and $978,019 for the nine months ended September 30, 2019 and 2018, respectively. Line of credit borrowings provided cash in both periods and in 2019, required payments under the subordinated term loan were made. Line of credit borrowings in both periods were used to fund operating working capital needs.

BRJ LLC has a Credit and Security Agreement with KeyBank, N.A., dated November 1, 2016 (“Credit Facility”). On September 5, 2019, BRJ LLC entered into a First Amendment Agreement (the “Amendment”) which amended the Credit Facility. The Amendment provides for, among other things, an increase in the maximum borrowing amount available pursuant to the revolving credit facility under the Credit Facility from $6,000,000 to (1) $8,000,000 for the period beginning September 5, 2019 and ending December 31, 2019 and (2) $7,000,000 on January 1, 2020 and thereafter. The Credit Facility also includes a sublimit of $500,000 for letters of credit.

The Credit Facility is payable upon demand of KeyBank, N.A., or the lenders, or upon acceleration as a result of an event of default.

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The effective interest rate on outstanding borrowings under the Credit Facility at September 30, 2019 was 4.38%. The aggregate borrowings outstanding under the Credit Facility at September 30, 2019 were $4,432,419 compared to $2,691,376 at December 31, 2018. In addition, the bank has issued letters of credit on behalf of the Company in the amount of $250,000 that expires on December 1, 2019 and $100,000 that expires on May 1, 2020.

Based on current plans, management anticipates that the cash on hand, the expected cash flows from our majority-owned subsidiary BRJ LLC, and the availability under the Credit Facility will satisfy our capital requirements and fund our operations for at least the next 12 months.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.

Inflation

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the last two years.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. The financial statements as of December 31, 2018 describe the significant accounting policies and methods used in the preparation of the financial statements. Additionally, we adopted Accounting Standard Update (ASU) 2016-02 (Topic ASC 842), “Leases”, as required, effective January 1, 2019, using the modified retrospective approach without adjusting comparative periods. ASC 842 retains the two-model approach to classifying leases as operating or finance leases (formerly, capital leases); however, most leases, regardless of classification type, are recorded on the balance sheet. When a lease is recorded on our balance sheet, we recognize a lease liability based on the present value of the future lease payments, with an offsetting entry to recognize a right-of-use (ROU) asset. We use a discount rate to determine the present value based on the rate implicit in the lease, if readily determinable, or our incremental borrowing rate. Actual results could differ materially from those estimates and be based on events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating, therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained. Critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our financial statements. A discussion of such critical accounting policies can be found in our Annual Report on Form 10-K for the year ended December 31, 2018. Other than the adoption of Topic ASC 842, there have been no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company has established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and, as such, is accumulated and communicated to the Company’s management, including our principal executive and financial officer, to allow timely decisions regarding required disclosure. Management, together with our principal executive and financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the evaluation of management, including the principal executive and financial officer, due to material weaknesses in our internal control over financial reporting related to an insufficient compliment of qualified accounting personnel and ineffective controls associated with segregation of duties, our disclosure controls and procedures were not effective as of September 30, 2019. In light of the material weaknesses in internal control over financial reporting, we performed additional analyses and other post-closing procedures and utilized more resources to ensure that our financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Notwithstanding these material weaknesses, management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, result of operations and cash flows for the periods presented.

Remediation of the Material Weaknesses

The Company is in the process of remediating the material weaknesses in order to strengthen our overall internal controls. Such remediation plan includes the following:

A consultant with specific accounting and financial reporting expertise was hired during the second quarter of 2018, which provides the Company with additional resources.

Enhancing the timeliness, formality and rigor of our financial statement preparation, review and reporting process.

Enhancing our review process for significant accounts, transactions and reconciliations to provide controls to mitigate segregation of duties issues.

In the second quarter of 2019, we implemented a new accounting system at our operating subsidiary, B.R. Johnson, LLC, that has certain built in internal controls.

The Company is committed to maintaining a strong internal control environment and believes that these remediation efforts will represent significant improvements in our controls. The Company is in the process of implementing these steps, however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and tested, the material weaknesses described above will continue to exist.

Changes in Internal Control Over Financial Reporting

While changes in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2019 as the Company is in the process of implementing the remediation steps described above, we believe that there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2019, that have materially affected the Company’s internal control over financial reporting.

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Inherent Limitations on Effectiveness of Controls

The Company’s management, including the principal executive and financial officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all errors and all fraud. A control system, regardless of how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the following:

	·	Judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes.

	·	Controls can be circumvented by individuals, acting alone or in collusion with each other, or by management override.

	·	The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

	·	Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings .

There are currently no pending or threatened material legal proceedings against us.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2018, except for the following which supplements our previously disclosed risk factors.

Difficulties in implementing our enterprise resource planning system may disrupt our business.

We placed into service an enterprise resource planning, or “ERP”, system at our operating subsidiary in the second quarter of 2019. The complexities and business process changes associated with such an ERP implementation can result in various difficulties including problems processing and fulfilling orders, customer disruptions and lost business. While we believe the potential difficulties associated with implementing our ERP system have been addressed or can be mitigated, there can be no assurance that we will not experience disruptions or inefficiencies in our business operations as a result of the implementation, which could have a material adverse effect on our business, financial condition or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

ITEM 6 – EXHIBITS

10.1		First Amendment Agreement, dated as of September 5, 2019, to the Credit and Security Agreement by and among B.R. Johnson, LLC, the lenders which are party thereto, and KeyBank National Association, as agent (including the form of related Revolving Credit Note) (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on September 12, 2019).

31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Principal Executive and Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

* This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		REGIONAL BRANDS INC.

November 8, 2019	By:	/s/ Fred DiSanto
		Fred DiSanto
		Chief Executive Officer
		(Principal Executive, Financial and Accounting Officer)

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Regional Brands Inc. 10-Q