NATIONAL HOLDINGS CORPORATION The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This Report may contain certain statements of a forward-looking nature relating to future events or future business performance. Any such statements that refer to our estimated or anticipated future results or other non-historical facts are forward-looking and reflect our current perspective of existing trends and information. These statements involve risks and uncertainties that cannot be predicted or quantified and, consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, risks and uncertainties detailed under the section titled "Risks Factors" of our Form 10-K for the year endedSeptember 30, 2019 . Any forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date of this Report. We undertake no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. OVERVIEW We are engaged in independent brokerage and advisory services and asset management services, investment banking, equity research and institutional sales and trading, through our broker-dealer subsidiaries, NSC and WEC. We are committed to establishing a significant presence in the financial services industry by meeting the varying investment needs of our retail, corporate and institutional clients. Our wholly-owned subsidiary, NAM, is a federally-registered investment adviser that provides asset management advisory services to clients for a fee based upon a percentage of assets managed. We also provide tax preparation services through National Tax, which provides tax preparation services to individuals, predominantly in the middle and upper income tax brackets and accounting services to small and midsize companies. NSC and WEC are subject to regulation by, among others, theSEC ,FINRA and is a member of theSIPC . In addition, NSC is licensed to conduct its brokerage activities in all 50 states, plus theDistrict of Columbia andPuerto Rico and theU.S. Virgin Islands . National Tax is also subject to regulation by, among others, the Internal Revenue Service. OnDecember 31, 2019 , we completed our previously announced acquisition of all of the outstanding equity interests ofWinslow Evans & Crocker, Inc. , aMassachusetts corporation ("WEC"), Winslow,Evans & Crocker Insurance Agency, Inc. , aMassachusetts corporation ("WIA"), andWinslow Financial, Inc. , aMassachusetts corporation ("WF"). See Note 7 of the notes to the condensed consolidated financial statements for additional information. As ofMarch 31, 2020 , we had approximately 1,000 associated personnel serving retail and institutional customers, trading and investment banking clients. In addition to our 30 Company offices located inNew York ,New Jersey ,Florida ,Texas ,Massachusetts andWashington , we had approximately 100 other registered offices, owned and operated by independent owners who maintain all appropriate licenses and are responsible for all office overhead and expenses. Our registered representatives offer a broad range of investment products and services. These products and services allow us to generate both commissions (from transactions in securities and other investment products) and fee income (for providing investment advisory services, namely managing clients' accounts). The investment products and services offered include but are not limited to stocks, bonds, mutual funds, annuities, insurance, and managed money accounts.
COVID-19 Update and Action
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic. Almost every individual and entity throughout the world, regardless of age, status, function or industry, has been adversely impacted either emotionally, physically, or both in the few short months of this global pandemic. The Company and its subsidiaries are no exception. The COVID-19 outbreak has caused significant disruption in business activity and the financial markets both globally and inthe United States . As a result of the spread of COVID-19, economic uncertainties have arisen which have negatively impacted and are likely to continue to negatively impact our businesses, financial condition, results of operations, cash flows, strategies and prospects. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and impact on our clients, employees, vendors and the markets in which we operate our businesses, all of which are uncertain at this time and cannot be predicted. The extent to which COVID-19 may impact our financial condition or results of operations cannot be reasonably estimated at this time. 33
-------------------------------------------------------------------------------- In early March, our management recognized the potential gravity of this pandemic and engaged the entire organization to execute our business continuity plans to ensure that our employees, independent registered representatives and clients could operate, and be properly supported, remotely, enabling the continued operation of our business and service of our clients. Our investments in technology and infrastructure over recent years have allowed our team to function normally, as connectivity issues have proven minimal. Our executives are in constant contact to address issues and direct the evolution of our continuity plans, and our technology team continues to execute and support our associates exceedingly well. Recognizing that business would be interrupted to a potentially significant extent, cost-savings plans were immediately put into effect to mitigate the cash drain that downward pressure on our business might create. Accordingly, we have made the very difficult decision to downsize our staff, reduce remaining salaries across the board at percentages appropriate for our various salary categories, and implement other moratoriums in variable spending categories. These measures are intended to significantly reduce cash outflows for quarters beginning with our third fiscal quarter, which beganApril 1, 2020 . Certain of our subsidiaries have applied for and received loans from theSmall Business Administration's Payroll Protection Plan program, a significant part of theU.S. government's pandemic stimulus. We anticipate that the use of proceeds from the PPP loans will result in repayment of the loans being forgiven. See Note 22 of the notes to the condensed consolidated financial statements for additional information.
All of these actions have been taken to enhance the ongoing viability and strength of our organization, preparing the Company for the challenges of the COVID-19 disruption and business growth opportunities in the future.
B. Riley Proposal
OnApril 30, 2020 ,B. Riley and the Company entered into a waiver of certain provisions of the B. Riley Agreement and in connection therewith,B. Riley amended its Schedule 13D filing relating to the Company and sent the Board a letter containing a proposal regarding the Company. The Company's Board formed a Special Committee of non-executive, independent directors to review theB. Riley proposal. The Company does not anticipate having any further comment unless and until a definitive agreement is reached.
RESULTS OF OPERATIONS
Three Months Ended
Summary
Our second quarter endedMarch 31, 2020 resulted in a 17% increase in revenues and a 14% increase in operating expenses as compared to the comparative period last year. The COVID-19 outbreak has had a negative impact on our investment banking and private shares businesses in the current quarter endedMarch 31, 2020 . Revenues Total revenues increased$7,834,000 , or 17%, to$54,534,000 , in the current quarter as compared to$46,700,000 recorded in the comparative period last year. Three Months Ended March 31, Increase (Decrease) 2020 2019 Amount Percent Commissions$ 31,153,000 $ 22,801,000 $ 8,352,000 37 % Net dealer inventory (losses) gains (1,220,000 ) 1,269,000 (2,489,000 ) (196 ) Investment banking 7,557,000 9,797,000 (2,240,000 ) (23 ) Investment advisory 9,273,000 5,514,000 3,759,000 68 Interest and dividends 1,125,000 1,412,000 (287,000 ) (20 ) Transaction fees and clearing services 2,180,000 1,588,000 592,000 37 Tax preparation and accounting 4,308,000 4,122,000 186,000 5 Other 158,000 197,000 (39,000 ) (20 ) Total Revenues$ 54,534,000 $ 46,700,000 $ 7,834,000 17 % 34
-------------------------------------------------------------------------------- Commissions increased$8,352,000 , or 37%, to$31,153,000 in the current quarter as compared to$22,801,000 recorded in the comparative period last year. This was mainly attributable to an increase in trading commission revenue and$1.1 million in incremental revenue due to the Winslow acquisition. Customer trading volumes across the industry (according to Bloomberg) increased 46% for the three months endedMarch 31, 2020 compared to the prior year period. Net dealer inventory (losses) gains, decreased$2,489,000 , or 196%, to$(1,220,000) in the current quarter as compared to a gain of$1,269,000 recorded in the comparative period last year. Due to the COVID-19 outbreak, asset values have been negatively impacted in most every industry segment, resulting in significant investment losses incurred during the current quarter. Unrealized losses on the firm's warrant portfolio in the current period were$1.2 million compared to unrealized gains in the prior year period of$0.3 million . Investment banking fees decreased$2,240,000 , or 23%, to$7,557,000 in the current quarter as compared to$9,797,000 recorded in the comparative period last year. The prior year quarter was not particularly strong in either our investment banking or our private shares businesses, which underscores that due to the COVID-19 outbreak, anticipated investment banking deals have been delayed, deferred and/or canceled. Investment advisory fees increased$3,759,000 , or 68%, to$9,273,000 in the current quarter as compared to$5,514,000 recorded in the comparative period last year. A net increase in assets under management, due to increased registered representative recruiting, market valuation levels, and the continuing reallocation of some client assets to our investment advisory business contributed to the increase. In addition,$1.4 million in incremental revenue is due to the Winslow acquisition. Interest and dividend income decreased$287,000 , or 20%, to$1,125,000 in the current quarter as compared to$1,412,000 recorded in the comparative period last year. This was attributable to the drop in the Federal funds rate. Transaction fees and clearing services increased$592,000 , or 37%, to$2,180,000 in the current quarter as compared to$1,588,000 recorded in the comparative period last year. This was attributable to an increase in customer trading volumes as noted above. Tax preparation and accounting fees increased$186,000 , or 5%, to$4,308,000 in the current quarter as compared to$4,122,000 recorded in the comparative period last year. The current period increase is attributable to revenue generated by new business acquisitions, however due to the extension of the tax filing deadline as a result of the COVID-19 outbreak, some revenue generation has been delayed and is expected to be generated in subsequent quarters. Other revenue decreased$39,000 , or 20%, to$158,000 in the current quarter as compared to$197,000 recorded in the comparative period last year. This decrease is due to a decline of client participation in our fully paid stock lending program. Client participation in this program varies quarter to quarter.
Operating Expenses
Total operating expenses increased$7,150,000 , or 14%, to$57,749,000 in the current quarter as compared to$50,599,000 recorded in the comparative period last year. Three Months Ended March 31, Increase (Decrease) 2020 2019 Amount Percent Commissions, compensation and fees$ 49,343,000 $ 40,633,000 $ 8,710,000 21 % Clearing fees 754,000 530,000 224,000 42 Communications 1,099,000 697,000 402,000 58 Occupancy 1,225,000 980,000 245,000 25 License and registration 958,000 747,000 211,000 28 Professional fees 1,877,000 1,733,000 144,000 8 Interest 24,000 10,000 14,000 140 Depreciation and amortization 812,000 461,000 351,000 76 Other administrative expenses 1,657,000 4,808,000 (3,151,000 ) (66 ) Total Operating Expenses$ 57,749,000 $ 50,599,000 $ 7,150,000 14 % 35
-------------------------------------------------------------------------------- Commissions, compensation, and fees increased$8,710,000 , or 21%, to$49,343,000 in the current quarter as compared to$40,633,000 recorded in the comparative period last year. Commissions, compensation, and fees include expenses based on commission revenue earned, investment banking and investment advisory revenues, as well as compensation to our non-broker employees. The increase is primarily related to higher commissions revenue and therefore higher variable compensation expense. Commissions is our lowest margin business. In addition,$2 million in incremental expense is due to the Winslow acquisition. Clearing fees increased$224,000 , or 42%, to$754,000 in the current quarter as compared to$530,000 recorded in the comparative period last year. The increase is primarily due to the incremental expense as a result of the Winslow acquisition. Communications expenses increased$402,000 , or 58%, to$1,099,000 in the current quarter as compared to$697,000 recorded in the comparative period last year. The increase is primarily due to the incremental expense as a result of the Winslow acquisition.
Occupancy expenses increased
License and registration expense increased by$211,000 , or 28%, to$958,000 in the current quarter as compared to$747,000 recorded in the comparative period last year. This increase is attributable to new licenses for software applications as we continue to invest in and implement technology enhancements.
Professional fees increased by
Interest expense increased by
Depreciation and amortization expenses increased$351,000 , or 76% to$812,000 in the current quarter as compared to$461,000 recorded in the comparative period last year due to higher amortization expense for new customer list intangibles as a result of new business acquisitions. Other administrative expenses decreased$3,151,000 , or 66%, to$1,657,000 in the current quarter as compared to$4,808,000 recorded in the comparative period last year. This decrease as compared to the prior year quarter, is primarily due to higher costs for arbitration settlements recorded in the prior year quarter.
Six Months Ended
Summary
Our six months endedMarch 31, 2020 resulted in a 1% increase in revenues and 4% increase in operating expenses as compared to the comparative period last year. We estimate that$7 million of revenue was lost in the current period due to investment banking and private share deal postponements and cancellations.
Revenues
Total revenues increased
36
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Six Months Ended
March 31, Increase (Decrease)
2020 2019 Amount Percent
Commissions $ 54,320,000 $ 43,812,000 $ 10,508,000 24 %
Net dealer inventory (losses) gains (28,000 ) 766,000 (794,000 ) (104 )
Investment banking 22,785,000 36,868,000 (14,083,000 ) (38 )
Investment advisory 16,662,000 11,372,000 5,290,000 47
Interest and dividends 2,519,000 2,996,000 (477,000 ) (16 )
Transaction fees and clearing services 3,954,000 3,737,000 217,000 6
Tax preparation and accounting 5,239,000 4,897,000 342,000 7
Other 274,000 359,000 (85,000 ) (24 )
Total Revenues $ 105,725,000 $ 104,807,000 $ 918,000 1 %
Commissions increased $10,508,000 , or 24%, to $54,320,000 in the six months
ended March 31, 2020 as compared to $43,812,000 recorded in the comparative
period last year. Retail commissions increased due to higher customer trading
volumes in the current quarter and $1.1 million in incremental revenue due to
the Winslow acquisition, compared to the slower period a year ago which was
impacted by interest rate concerns, volatile markets and the impending
government shutdown.
Net dealer inventory (losses) gains decreased $794,000 , or 104%, to $(28,000) in
the six months ended March 31, 2020 as compared to $766,000 recorded in the
comparative period last year. Due to the COVID-19 outbreak, asset values have
been negatively impacted in most every industry segment, resulting in
significant investment losses incurred during the current quarter.
Investment banking fees decreased $14,083,000 , or (38)%, to $22,785,000 in the
six months ended March 31, 2020 as compared to $36,868,000 recorded in the
comparative period last year. The prior year was particularly strong in both our
traditional investment banking business as well as our private shares business.
Additionally due to the COVID-19 outbreak, investment banking and private share
deals have been delayed, deferred and/or canceled.
Investment advisory fees increased $5,290,000 , or 47%, to $16,662,000 in the six
months ended March 31, 2020 as compared to $11,372,000 recorded in the
comparative period last year. A net increase in assets under management, due to
increased registered representative recruiting, market valuation levels, and the
continuing reallocation of some client assets to our investment advisory
business contributed to the increase. In addition, $1.4 million in incremental
revenue is due to the Winslow acquisition.
Interest and dividends decreased
Transaction fees and clearing services increased$217,000 , or 6%, to$3,954,000 in the six months endedMarch 31, 2020 as compared to$3,737,000 recorded in the comparative period last year. This increase is primarily attributable to an increase in customer trading volumes. Tax preparation and accounting fees increased$342,000 , or 7%, to$5,239,000 in the six months endedMarch 31, 2020 as compared to$4,897,000 recorded in the comparative period last year. The current period increase is attributable to revenue generated by new business acquisitions, however due to the extension of the tax filing deadline as a result of the COVID-19 outbreak, some revenue generation has been delayed and expected to be generated in subsequent quarters. Other revenue decreased$85,000 , or 24%, to$274,000 in the six months endedMarch 31, 2020 from$359,000 recorded in the comparative period last year. This decrease is due to a decline of client participation in our fully paid stock lending program. Client participation in this program varies quarter to quarter.
Operating Expenses
Total operating expenses increased
37
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Six Months Ended
March 31, Increase (Decrease)
2020 2019 Amount Percent
Commissions, compensation and fees $ 94,642,000 $ 90,043,000 $ 4,599,000 5 %
Clearing fees 1,078,000 1,289,000 (211,000 ) (16 )
Communications 1,773,000 1,519,000 254,000 17
Occupancy 2,393,000 1,906,000 487,000 26
License and registration 1,983,000 1,326,000 657,000 50
Professional fees 4,071,000 3,717,000 354,000 10
Interest 38,000 18,000 20,000 111
Depreciation and amortization 1,342,000 858,000 484,000 56
Other administrative expenses 3,960,000 6,713,000 (2,753,000 ) (41 )
Total Operating Expenses $ 111,280,000 $ 107,389,000 $ 3,891,000 4 %
Commissions, compensation, and fees increased $4,599,000 , or 5%, to $94,642,000
in the six months ended March 31, 2020 as compared to $90,043,000 recorded in
the comparative period last year. Commissions, compensation, and fees include
expenses based on commission revenue, net dealer inventory gains, investment
banking and investment advisory, as well as compensation to our non-broker
employees. The increase is primarily related to higher commissions revenue and
therefore higher variable compensation expense. Commissions is our lowest margin
business. In addition, $2 million in incremental expense is due to the Winslow
acquisition.
Clearing fees decreased $211,000 , or 16%, to $1,078,000 in the six months ended
March 31, 2020 , as compared to $1,289,000 recorded in the comparative period
last year. This decrease is primarily due to higher charge backs to registered
representatives for clearing fees offset in part by the incremental expense as a
result of the Winslow acquisition.
Communications expenses increased $254,000 , or 17%, to $1,773,000 in the six
months ended March 31, 2020 , as compared to $1,519,000 recorded in the
comparative period last year. The increase is primarily due to the incremental
expense as a result of the Winslow acquisition.
Occupancy expenses increased $487,000 , or 26%, to $2,393,000 in the six months
ended March 31, 2020 , as compared to $1,906,000 recorded in the comparative
period last year; The increase is primarily due to several small locations
opened later in fiscal year 2019 as part of the company's geographical expansion
as well as the incremental expense as a result of the Winslow acquisition.
License and registration fees increased
Professional fees increased
Interest expense increased
Depreciation and amortization expenses increased$484,000 , or 56%, to$1,342,000 in the six months endedMarch 31, 2020 , as compared to$858,000 recorded in the comparative period last year. Higher amortization expense for new customer list intangibles as a result of new business acquisitions contributed to the majority of the increase. Other administrative expenses decreased$2,753,000 , or 41%, to$3,960,000 in the six months endedMarch 31, 2020 , as compared to$6,713,000 recorded in the comparative period last year. This decrease as compared to the prior year period, is primarily due to higher costs for arbitration settlements recorded in the prior year period. 38
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NON-GAAP INFORMATION
Management considers earnings before interest, taxes, depreciation and amortization, or EBITDA, as adjusted, an important indicator in evaluating our business on a consistent basis across various periods. Due to the significance of non-recurring items, EBITDA, as adjusted, enables our Board and management to monitor and evaluate our business on a consistent basis. We use EBITDA, as adjusted, as a primary measure, among others, to analyze and evaluate financial and strategic planning decisions regarding future operating investments and potential acquisitions. We believe that EBITDA, as adjusted, eliminates items that are not part of our core operations, such as interest expense and amortization expense associated with intangible assets, or items that do not involve a cash outlay, such as stock-related compensation. EBITDA, as adjusted should be considered in addition to, rather than as a substitute for pre-tax income (loss), net income (loss) and cash flows from operating activities. For the three months endedMarch 31, 2020 and 2019, EBITDA, as adjusted, was$253,000 and$(2,077,000) , respectively. The increase of$2,330,000 , or 112%, resulted primarily from higher revenue generation in the current quarter. For the six months endedMarch 31, 2020 and 2019, EBITDA, as adjusted, was$(648,000) and$2,164,000 , respectively. The decrease of$2,812,000 , or 130%, resulted primarily from lower profitability and losses incurred on investment positions in the current period. The following table presents a reconciliation of EBITDA, as adjusted, to net income (loss) as reported in accordance with generally accepted accounting principles, or GAAP: Three Months Ended Six Months Ended March 31, March 31, 2020 2019 2020 2019 Net income (loss) attributable to common shareholders, as reported$ (1,763,000 ) $ (2,785,000 ) $ (3,356,000 ) $ (1,829,000 ) Interest expense 24,000 10,000 38,000 18,000 Income taxes (453,000 ) (1,108,000 ) (1,178,000 ) (741,000 ) Depreciation 252,000 172,000 495,000 341,000 Amortization 560,000 289,000 847,000 517,000 EBITDA (1,380,000 ) (3,422,000 ) (3,154,000 ) (1,694,000 ) Non-cash compensation expense 538,000 1,480,000 1,445,000 2,802,000 Forgivable loan amortization 224,000 162,000 387,000 333,000 Unrealized loss (gain) on the firm's warrant portfolio 1,168,000 (297,000 ) 971,000 723,000 Gain on disposal of National Tax branch (297,000 ) - (297,000 ) - EBITDA, as adjusted$ 253,000 $ (2,077,000 )
EBITDA, adjusted for non-cash compensation expense, forgivable loan
amortization, unrealized loss (gain) on the firm's warrant portfolio and gain on
disposal of National Tax branch, is a key metric we use in evaluating our
business. EBITDA and EBITDA, as adjusted, are considered non-GAAP financial
measure as defined by Regulation G, promulgated by the
39
--------------------------------------------------------------------------------Liquidity and Capital Resources
Average balance during the
Ending balance at first six months of fiscal year
March 31, ending September 30,
2020 2019 2020 2019
Cash $ 18,847,000 $ 25,881,000 $ 23,704,000 $ 28,205,000
Receivables from broker-dealers and
clearing organizations 4,638,000 3,451,000 3,373,000 3,390,000
Securities owned (excludes warrants) 2,897,000 1,905,000 5,018,000 1,794,000
Accrued commissions and payroll payable, accounts payable and accrued expenses 20,146,000 21,151,000 22,492,000 21,060,000 AtMarch 31, 2020 and 2019 respectively, 28% and 45% of our total assets consisted of cash, securities owned and receivables from clearing brokers and other broker-dealers. The level of cash used in each asset class is subject to fluctuation based on market volatility, revenue production and trading activity in the marketplace. NSC is subject to the Net Capital Rule, which, among other things, requires the maintenance of minimum net capital. AtMarch 31, 2020 , NSC had net capital of$2,100,158 which was$1,100,158 in excess of its required minimum net capital of$1,000,000 . NSC is exempt from the provisions of the Customer Protection Rule since it is an introducing broker-dealer that clears all transactions on a fully disclosed basis and promptly transmits all customer funds and securities to clearing brokers. WEC is also subject to the Net Capital Rule, which, among other things, requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined under the Net Capital Rule, shall not exceed 15 to 1. AtMarch 31, 2020 , WEC had net capital of$1,086,934 which was$986,934 in excess of its required net capital of$100,000 . WEC's ratio of aggregate indebtedness to net capital was 0.7 to 1. WEC is exempt from the provisions of Rule 15c3-3 since it is an introducing broker-dealer that clears all transactions on a fully disclosed basis and promptly transmits all customer funds and securities to clearing brokers. Advances, dividend payments and other equity withdrawals from NSC and WEC are restricted by the regulations of theSEC , and other regulatory agencies. These regulatory restrictions may limit the amounts that NSC and WEC may dividend or advance to us. During the first three and six months of fiscal 2020 and 2019, NSC and WEC were in compliance with the rules governing dividend payments and other equity withdrawals. We extend unsecured credit in the normal course of business to our brokers. The determination of the appropriate amount of the reserve for uncollectible accounts is based upon a review of the amount of credit extended, the length of time each receivable has been outstanding, and the specific individual brokers from whom the receivables are due. The objective of liquidity management is to ensure that we have ready access to sufficient funds to meet commitments, fund deposit withdrawals and efficiently provide for the credit needs of customers. Our primary sources of liquidity include our cash flow from operations and the sale of our securities and other financing activities. We believe that we have sufficient funds from operations to fund our ongoing operating requirements for at least the next twelve months. However, we may need to raise funds to enhance our working capital and for strategic purposes. We do not have any material commitments for capital expenditures. We routinely purchase computer equipment and technology to maintain or enhance the productivity of our employees and such capital expenditures amounted to$111,000 and$1,000,000 during the first six months of fiscal 2020 and 2019, respectively. 40
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Cash Flows - Operating Activities
Net cash (used in) provided by operating activities was
During the six months ended
•
consisting primarily of (i)
expense, (ii)
(iii)
were partially offset by
• Changes in operating assets and liabilities consisting primarily of (i) a
$7,175,000 decrease in accounts payable, accrued expenses and other liabilities, (ii) a$2,288,000 increase in other receivables, (iii) a$2,803,000 increase in forgivable loans receivable, (iv) a$511,000
increase in prepaid expenses and (v) a
from broker dealers and clearing organizations. These items were partially
offset by (i) a
During the six months ended
•
consisting primarily of (i)
expense, (ii)
• Changes in operating assets and liabilities consisting primarily of (i) a
receivables, (iii) a
(iv) a
offset by (i) a
clearing organizations, and (ii) a
Cash Flow - Investing Activities
Net cash used in investing activities was$2,091,000 and$1,065,000 for the six months endedMarch 31, 2020 and 2019, respectively. Net cash used in investing activities during the six months endedMarch 31, 2020 was primarily attributable to the acquisition of businesses and during the six months endedMarch 31, 2019 , was primarily attributable to the acquisition of businesses and the purchase of fixed assets.
Cash Flow - Financing Activities
Net cash used in financing activities was$727,000 and$456,000 for the six months endedMarch 31, 2020 and 2019, respectively. Net cash used in financing activities for the six months endedMarch 31, 2020 , was primarily attributable to (i)$270,000 for the repurchase of common stock for tax withholding, (ii)$176,000 of contingent considerations payments and (iii)$165,000 for principal payments under finance obligations. Net cash used in financing activities for the six months endedMarch 31, 2019 , was primarily attributable to the repurchase of common stock for tax withholding and principal payments under finance obligations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
INFLATION
We believe inflation has not had a material effect on our financial condition as ofMarch 31, 2020 , andSeptember 30, 2019 , or on our results of operations and cash flows for the six months endedMarch 31, 2020 and 2019. 41
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