ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Organization ALJ Regional Holdings, Inc. (including subsidiaries, referred to collectively herein as ALJ or Company) is a holding company. As of December 31, 2019, ALJ consisted of the following wholly owned subsidiaries:  Faneuil, Inc. (including its subsidiaries, Faneuil). Faneuil is a leading provider of call center services, back-office operations, staffing services, and toll collection services to government and regulated commercial clients across the United States, focusing on the healthcare, utility, consumer goods, toll and transportation industries. Faneuil is headquartered in Hampton, Virginia. ALJ acquired Faneuil in October 2013.  Floors-N-More, LLC, d/b/a, Carpets N More (Carpets) . Carpets is one of the largest floor covering retailers in Las Vegas, Nevada, and a provider of multiple products for the commercial, retail and home builder markets including all types of flooring, countertops, cabinets, window coverings and garage/closet organizers, with two retail locations, as well as a stone and solid surface fabrication facility. ALJ acquired Carpets in April 2014.  Phoenix Color Corp. (including its subsidiaries, Phoenix). Phoenix is a leading manufacturer of book components, educational materials and related products producing value-added components, heavily illustrated books and specialty commercial products using a broad spectrum of materials and decorative technologies. Phoenix is headquartered in Hagerstown, Maryland. ALJ acquired Phoenix in August 2015. ALJ has organized its business and corporate structure along the following business segments: Faneuil, Carpets, and Phoenix. Basis of Presentation The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The Condensed Consolidated Financial Statements and footnotes thereto are unaudited. In the opinion of the Companys management, the Condensed Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, that are necessary for a fair presentation of the Companys interim financial results. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue and expenses that are reported in the Condensed Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates. Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2019, filed with the SEC on December 23, 2019. Revision of Previously Reported Financial Information The Company has historically classified expenses incurred by the Faneuil reportable segment as either cost of revenue or selling, general, and administrative expense based on whether such expenses represented salaries and wages or an expense other than salary and wages. Faneuil is a labor intensive business with labor representing the majority of the cost of revenue. Management determined that certain costs classified as cost of revenue should be classified as selling, general, and administrative expense, while other costs classified as selling, general, and administrative expense should be classified as cost of revenue. Accordingly, the accompanying Condensed Consolidated Statement of Operations for the three months ended December 31, 2018 has been revised to correct the amounts previously reported as cost of revenue and selling, general, and administrative expense as applicable. In accordance with Accounting Standards Codification ASC 250 (Securities and Exchange Commission (SEC) Staff Accounting Bulletin 99, Assessing Materiality ), the Company concluded that the reclassifications between cost of revenue and selling, general, and administrative expense were not material to any of its previously issued annual or interim financial statements. The following tables presents the impact of Faneuils reclassification on the Condensed Consolidated Statement of Operations for the three months ended December 31, 2018 and the year ended September 30, 2019: Three Months Ended December 31, 2018 ( in thousands, except per share amounts ) As Previously Reported Revisions As Revised Net revenue $ 93,784 $  $ 93,784 Costs and expenses: Cost of revenue 72,827 1,819 74,646 Selling, general, and administrative expense 17,466 (1,819 ) 15,647 (Gain) loss on disposal of assets and other gain, net (223 )  (223 ) Total operating expenses 90,070  90,070 Operating income 3,714  3,714 Other (expense) income: Interest expense, net (2,715 )  (2,715 ) Total other expense (2,715 )  (2,715 ) Income before income taxes 999 999 Provision for income taxes (288 )  (288 ) Net income $ 711 $  $ 711 Basic earnings per share of common stock $ 0.02 $  $ 0.02 Diluted earnings per share of common stock $ 0.02 $  $ 0.02 Basic 38,047  38,047 Diluted 38,097  38,097 Year Ended September 30, 2019 ( in thousands, except per share amounts ) As Previously Reported Revisions As Revised Net revenue $ 354,997 $  $ 354,997 Costs and expenses: Cost of revenue 277,454 6,422 283,876 Selling, general, and administrative expense 72,375 (6,422 ) 65,953 Impairment of intangible assets 746  746 (Gain) loss on disposal of assets and other gain, net (216 )  (216 ) Total operating expenses 350,359  350,359 Operating income 4,638  4,638 Other (expense) income: Interest expense, net (10,611 )  (10,611 ) Total other expense, net (10,611 )  (10,611 ) Loss before income taxes (5,973 )  (5,973 ) Provision for income taxes (10,006 )  (10,006 ) Net loss $ (15,979 ) $  $ (15,979 ) Loss per share of common stockbasic and diluted $ (0.41 ) $  $ (0.41 ) Weighted-average shares of common stock outstanding basic and diluted 38,710  38,710 The correction of these previously reported amounts had no impact on the Companys consolidated income (loss) before income taxes, net income (loss), financial position, or cash flows. In addition, corresponding revisions had no impact to Reportable Segments or Geographic disclosures.