What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-11 · 203 added, 110 removed, 483 unchanged (39% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 27, 2021 (UNAUDITED) AND MARCH 28, 2021

SEPTEMBER 26, 2021 (UNAUDITED) AND MARCH 28, 2021

(amounts in thousands, except share and per share amounts)

June 27, 2021

September 26, 2021

March 28, 2021

2 unchanged sentences

$ 1,904  

Accounts receivable (net of allowances of $ 974 at June 27, 2021 and $ 723 at March 28, 2021):

Accounts receivable (net of allowances of $ 1,490 at September 26, 2021 and $ 723 at March 28, 2021):

Due from factor

46 unchanged sentences

Common stock - $ 0.01 par value per share;

Authorized 40,000,000 shares at June 27, 2021 and March 28, 2021;

Issued 12,864,753 shares at June 27, 2021 and 12,809,753 shares at March 28, 2021

Authorized 40,000,000 shares at September 26, 2021 and March 28, 2021;

Issued 12,924,918 shares at September 26, 2021 and 12,809,753 shares at March 28, 2021

Additional paid-in capital

1 unchanged sentence

54,748  

Treasury stock - at cost - 2,834,434 shares at June 27, 2021 and 2,811,446 shares at March 28, 2021

Treasury stock - at cost - 2,849,846 shares at September 26, 2021 and 2,811,446 shares at March 28, 2021

( 15,498 )  

10 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE-MONTH PERIODS ENDED JUNE 27, 2021 AND JUNE 28, 2020

THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 26, 2021 AND SEPTEMBER 27, 2020

(amounts in thousands, except per share amounts)

Three-Month Periods Ended

June 27, 2021

June 28, 2020

Six-Month Periods Ended

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Cost of products sold

4 unchanged sentences

Gain on extinguishment of debt

Loss on sale of property, plant and equipment

Income before income tax expense

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

THREE-MONTH PERIODS ENDED JUNE 27, 2021 AND JUNE 28, 2020

THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 26, 2021 AND SEPTEMBER 27, 2020

Common Shares

Treasury Shares

Number of Shares

Shareholders'

(Dollar amounts in thousands)

Balances - March 29, 2020

Three-Month Periods

Balances - June 28, 2020

12,623,301  

7 unchanged sentences

Stock-based compensation

Acquisition of treasury stock

Dividend declared on common stock - $ 0.08 per share

( 818 )  

Balances - September 27, 2020

12,664,753  

( 2,436,494 )  

$ ( 12,408 )  

$ 53,796  

$ 3,992  

$ 45,507  

Balances - June 27, 2021

5 unchanged sentences

$ 43,826  

Issuance of shares

60,165  

Stock-based compensation

Acquisition of treasury stock

( 15,412 )  

( 117 )  

Dividend declared on common stock - $ 0.08 per share

( 806 )  

Balances - September 26, 2021

12,924,918  

( 2,849,846 )  

$ ( 15,498 )  

$ 55,335  

$ 5,634  

$ 45,600  

Six-Month Periods

Balances - March 29, 2020

8 unchanged sentences

Stock-based compensation

Dividend declared on common stock - $ 0.08 per share

( 818 )  

Balances - September 27, 2020

12,664,753  

( 2,436,494 )  

$ ( 12,408 )  

$ 53,796  

$ 3,992  

$ 45,507  

Balances - March 28, 2021

12,809,753  

( 2,811,446 )  

$ ( 15,202 )  

$ 54,748  

$ 2,191  

$ 41,865  

Issuance of shares

115,165  

Stock-based compensation

Acquisition of treasury stock

1 unchanged sentence

( 296 )  

Dividend declared on common stock - $ 0.08 per share

Dividends declared on common stock - $ 0.16 per share

( 1,608 )  

Balances - June 27, 2021

Balances - September 26, 2021

12,924,918  

8 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE-MONTH PERIODS ENDED JUNE 27, 2021 AND JUNE 28, 2020

SIX-MONTH PERIODS ENDED SEPTEMBER 26, 2021 AND SEPTEMBER 27, 2020

(amounts in thousands)

Three-Month Periods Ended

June 27, 2021

June 28, 2020

Six-Month Periods Ended

September 26, 2021

September 27, 2020

Operating activities:

5 unchanged sentences

Gain on extinguishment of debt

Loss on sale of property, plant and equipment

Reserve for unrecognized tax liabilities

9 unchanged sentences

Capital expenditures for property, plant and equipment

Proceeds from sale of property, plant and equipment

Net cash used in investing activities

Financing activities:

12 unchanged sentences

Interest paid

Noncash financing activities:

Noncash activities:

Property, plant and equipment purchased but unpaid

4 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED JUNE 27, 2021 AND JUNE 28, 2020

FOR THE THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 26, 2021 AND SEPTEMBER 27, 2020

Note 1 –

5 unchanged sentences

References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”), which the FASB periodically revises through the issuance of an Accounting Standards Update (“ASU”) and which has been established by the FASB as the authoritative source for GAAP recognized by the FASB to be applied by nongovernmental entities.

In the opinion of the Company’s management, the interim unaudited condensed consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of June 27, 2021 and the results of its operations and cash flows for the periods presented.

In the opinion of the Company’s management, the interim unaudited consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of September 26, 2021 and the results of its operations and cash flows for the periods presented.

Such adjustments include normal, recurring accruals, as well as the elimination of all significant intercompany balances and transactions.

Operating results for the three months ended June 27, 2021 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending April 3, 2022.

Operating results for the three and six -month periods ended September 26, 2021 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending April 3, 2022.

For further information, refer to the Company’s consolidated financial statements and notes thereto included in the Company’s annual report on Form 10 -K for the fiscal year ended March 28, 2021.

32 unchanged sentences

2019 - 12, Income Taxes (Topic 740 ) –

Simplifying the Accounting for Income Taxes , the objective of which was to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

Simplifying the Accounting for Income Taxes , the objective of which is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The ASU amended the FASB ASC in order to improve the consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending the existing guidance.

2 unchanged sentences

2019 - 12 effective as of March 29, 2021, which did not have a significant impact on the Company’s financial position, results of operations and related disclosures.

The Company has determined that all other ASUs issued which had become effective as of June 27, 2021, or which will become effective at some future date, are not expected to have a material impact on the Company’s consolidated financial statements.

The Company has determined that all other ASUs issued which had become effective as of September 26, 2021, or which will become effective at some future date, are not expected to have a material impact on the Company’s consolidated financial statements.

Note 2 –

1 unchanged sentence

The Company’s advertising costs are primarily associated with cooperative advertising arrangements with certain of the Company’s customers and are recognized using the straight-line method based upon aggregate annual estimated amounts for these customers, with periodic adjustments to the actual amounts of authorized agreements.

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $ 221,000 and $ 345,000 for the three months ended June 27, 2021 and June 28, 2020, respectively.

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $ 129,000 and $ 314,000 for the three months ended September 26, 2021 and September 27, 2020, respectively, and amounted to $ 350,000 and $ 659,000 for the six months ended September 26, 2021 and September 27, 2020, respectively.

Note 3 –

Other Accrued Liabilities

Amounts of $ 341,000 and $ 215,000 were recorded as other accrued liabilities at June 27, 2021 and March 28, 2021, respectively.

Of these amounts, $ 24,000 and $ 85,000 at June 27, 2021 and March 28, 2021, respectively, reflected unearned revenue recorded for payments from customers that were received before the products ordered were received by the customers.

Amounts of $ 152,000 and $ 215,000 were recorded as other accrued liabilities at September 26, 2021 and March 28, 2021, respectively.

Of these amounts, $ 63,000 and $ 85,000 at September 26, 2021 and March 28, 2021, respectively, reflected unearned revenue recorded for payments from customers that were received before the products ordered were received by the customers.

Note 4 –

2 unchanged sentences

These products consist of infant and toddler bedding, bibs, soft bath products, disposable products, developmental and bath toys and accessories.

Net sales of bedding, blankets and accessories and net sales of bibs, bath, developmental toy, feeding, baby care and disposable products for the three -month periods ended June 27, 2021 and June 28, 2020 are as follows (in thousands):

Net sales of bedding, blankets and accessories and net sales of bibs, bath, developmental toy, feeding, baby care and disposable products for the three and six -month periods ended September 26, 2021 and September 27, 2020 are as follows (in thousands):

Three-Month Periods Ended

June 27, 2021

June 28, 2020

Six-Month Periods Ended

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Bedding, blankets and accessories

5 unchanged sentences

These royalty amounts are accrued based upon historical sales rates adjusted for current sales trends by customers.

Royalty expense is included in cost of products sold in the accompanying unaudited condensed consolidated statements of income and amounted to $ 1.3 million and $ 1.2 million for the three months ended June 27, 2021 and June 28, 2020, respectively.

Royalty expense is included in cost of products sold in the accompanying unaudited consolidated statements of income and amounted to $ 1.4 million and $ 1.6 million for the three -month periods ended September 26, 2021 and September 27, 2020, respectively, and amounted to $ 2.7 million and $ 2.8 million for the six -month periods ended September 26, 2021 and September 27, 2020, respectively.

Note 6 –

2 unchanged sentences

The statute of limitations varies by jurisdiction;

tax years open to federal or state audit or other adjustment at June 27, 2021 were the tax years ended March 28, 2021, March 29, 2020, March 31, 2019, April 1, 2018 and April 2, 2017.

tax years open to federal or state audit or other adjustment as of September 26, 2021 were the fiscal years ended March 28, 2021, March 29, 2020, March 31, 2019, April 1, 2018 and April 2, 2017.

After considering all relevant information regarding the calculation of the state portion of its income tax provision, the Company believes that the technical merits of the tax position that the Company has taken with respect to state apportionment percentages would more likely than not be sustained.

However, the Company also realizes that the ultimate resolution of such tax position could result in a tax charge that is more than the amount realized based upon the application of the tax position taken.

Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities of $ 23,000 and $ 13,000 during the three -month periods ended June 27, 2021 and June 28, 2020, respectively, in the accompanying unaudited condensed consolidated statements of income.

Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities of $ 22,000 and $ 20,000 during the three months ended September 26, 2021 and September 27, 2020, respectively, and $ 45,000 and $ 33,000 during the six months ended September 26, 2021 and September 27, 2020, respectively, in the accompanying unaudited condensed consolidated statements of income.

The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax liabilities as a charge to interest expense in the Company’s consolidated statements of income.

The Company accrued interest and penalties associated with its reserve for unrecognized tax liabilities during the three -month periods ended June 27, 2021 and June 28, 2020 of $ 14,000 and $ 17,000 , respectively, in the accompanying unaudited condensed consolidated statements of income for interest expense and penalties on the unrecognized tax liabilities for which the relevant statute of limitations remained unexpired.

The Company accrued interest expense and penalties on the unrecognized tax liabilities for which the relevant statute of limitations remained unexpired of $ 12,000 and $ 14,000 during the three -month periods ended September 26, 2021 and September 27, 2020, respectively, and $ 26,000 and $ 31,000 during the six -month periods ended September 26, 2021 and September 27, 2020, respectively, in the accompanying unaudited condensed consolidated statements.

In August 2020, the Company was notified by the Franchise Tax Board of the State of California of its intention to examine the Company’s California income tax returns for the fiscal years ended March 31, 2019, April 1, 2018 and April 2, 2017.

3 unchanged sentences

Although management believes that the calculations and positions taken on these income tax returns and all other filed income tax returns are reasonable and justifiable, the outcome of these or any other examination could result in an adjustment to the position that the Company took on such income tax returns.

The Company recorded a discrete income tax benefit of $ 44,000 during the three -month period ended June 27, 2021 to reflect the aggregate effect of the excess tax benefits arising from the vesting of non-vested stock and the exercise of stock options.

The Company recorded no such income tax benefit during the three -month period ended June 28, 2020.

The Company recorded discrete income tax benefits of $ 28,000 and $ 72,000 during the three and six -month periods ended September 26, 2021, respectively, to reflect the aggregate effect of the excess tax benefits arising from the exercise of stock options and the vesting of non-vested stock.

The Company recorded discrete income tax charges of $ 4,000 during each of the three and six -month periods ended September 27, 2020 to reflect the net effects of the tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock.

Note 7 –

3 unchanged sentences

Accordingly, the operations of Carousel ceased on May 21, 2021.

During the three -month period ended June 27, 2021, Carousel experienced a gross loss of $ 647,000 resulting from the sale of inventory below cost and the recognition of charges of $ 344,000 associated with the settlement with a supplier of a commitment to purchase fabric and $ 265,000 associated with the liquidation of Carousel’s remaining inventory upon the closure of the business.

During the three and six -month periods ended September 26, 2021, Carousel experienced a gross loss of $ 41,000 and $ 688,000 , respectively.

The gross loss was the result of the sale of inventory below cost and, for the three -month period ended June 27, 2021 and the six -month period ended September 26, 2021, the recognition of charges of $ 334,000 related to the settlement with a supplier of a commitment to purchase fabric and $ 265,000 associated with the liquidation of Carousel’s remaining inventory upon the closure of the business.

Note 8 –

7 unchanged sentences

If such a termination or limitation occurs, then the Company either assumes (and may seek to mitigate) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $ 64,000 and $ 45,000 for the three -month periods ended June 27, 2021 and June 28, 2020, respectively.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $ 85,000 during each of the three -month periods ended September 26, 2021 and September 27, 2020, and $ 149,000 and $ 130,000 during the six -month periods ended September 26, 2021 and September 27, 2020, respectively.

Credit Facility:

         The Company’s credit facility as of June 27, 2021 consisted of a revolving line of credit under a financing agreement with CIT of up to $ 26.0 million, which includes a $ 1.5 million sub-limit for letters of credit, bearing interest at the rate of prime minus 1.0 % or LIBOR plus 1.5 %, and which is secured by a first lien on all assets of the Company.

         The Company’s credit facility as of September 26, 2021 consisted of a revolving line of credit under a financing agreement with CIT of up to $ 26.0 million, which includes a $ 1.5 million sub-limit for letters of credit, bearing interest at the rate of prime minus 1.0 % or LIBOR plus 1.5 %, and which is secured by a first lien on all assets of the Company.

On May 13, 2021, the Company and CIT entered into an agreement whereby CIT’s lien on Carousel’s assets will be automatically released upon the sale of such assets.

1 unchanged sentence

The financing agreement was also amended to provide for a transition from the LIBOR reference rate to its replacement at the appropriate time.

At June 27, 2021, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the LIBOR option, which was 1.59 % as of June 27, 2021.

The financing agreement also provides for the payment by CIT to the Company of interest at the rate of prime as of the beginning of the calendar month minus 2.0 %, which was 1.25 % as of June 27, 2021, on daily negative balances, if any, held at CIT.

At June 27, 2021 and March 28, 2021, there was no balance owed on the revolving line of credit, there was no letter of credit outstanding and $ 26.0 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

At September 26, 2021, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the LIBOR option, which was 1.58 % as of September 26, 2021.

The financing agreement also provides for the payment by CIT to the Company of interest at the rate of prime as of the beginning of the calendar month minus 2.0 %, which was 1.25 % as of September 26, 2021, on daily negative balances, if any, held at CIT.

At September 26, 2021 and March 28, 2021, there was no balance owed on the revolving line of credit, there was no letter of credit outstanding and $ 26.0 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

The financing agreement contains usual and customary covenants for agreements of that type, including limitations on other indebtedness, liens, transfers of assets, investments and acquisitions, merger or consolidation transactions, transactions with affiliates, and changes in or amendments to the organizational documents for the Company and its subsidiaries.

The Company believes it was in compliance with these covenants as of June 27, 2021.

The Company believes it was in compliance with these covenants as of September 26, 2021.

Credit Concentration:

The Company’s accounts receivable as of June 27, 2021 amounted to $ 17.5 million, net of allowances of $ 974,000 .

The Company’s accounts receivable as of September 26, 2021 amounted to $ 18.5 million, net of allowances of $ 1.5 million.

Of this amount, $ 17.2 million was due from CIT under the factoring agreements;

12 unchanged sentences

The Note would have matured on April 20, 2022, but on May 20, 2021, the PPP Loan was forgiven in full and the SBA remitted to the Lender on that date the principal amount of the Note of $ 1,963,800 and interest of $ 21,000 that had accrued from the funding date of April 20, 2020 through the forgiveness date of May 20, 2021.

During the three months ended June 27, 2021, the Company recorded a gain on extinguishment of debt in the amount of $ 1,985,000 associated with the forgiveness of the PPP Loan, which has been presented below income from operations in the accompanying unaudited condensed consolidated statements of income.

During the three months ended June 27, 2021 and the six months ended September 26, 2021, the Company recorded a gain on extinguishment of debt in the amount of $ 1,985,000 associated with the forgiveness of the PPP Loan, which has been presented below income from operations in the accompanying unaudited condensed consolidated statements of income.

Note 9 –

2 unchanged sentences

one that produces and markets infant and toddler bedding, blankets and accessories and another that produces and markets infant and toddler bibs, developmental toys, bath care and disposable products.

The goodwill of the reporting units of the Company as of June 27, 2021 and March 28, 2021 amounted to $ 30.0 million, which is reflected in the accompanying condensed consolidated balance sheets net of accumulated impairment charges of $ 22.9 million, for a net reported balance of $ 7.1 million.

The goodwill of the reporting units of the Company as of September 26, 2021 and March 28, 2021 amounted to $ 30.0 million, which is reflected in the accompanying condensed consolidated balance sheets net of accumulated impairment charges of $ 22.9 million, for a net reported balance of $ 7.1 million.

The Company measures for impairment the goodwill within its reporting units annually as of the first day of the Company’s fiscal year.

6 unchanged sentences

Other Intangible Assets

Other intangible assets as of June 27, 2021 and March 28, 2021 consisted primarily of the fair value of identifiable assets acquired in business combinations other than tangible assets and goodwill.

The gross amount and accumulated amortization of the Company’s other intangible assets as of June 27, 2021 and March 28, 2021, the amortization expense for the three -month periods ended June 27, 2021 and June 28, 2020, and the classification of such amortization expense within the accompanying unaudited condensed consolidated statements of income are as follows (in thousands):

Other intangible assets as of September 26, 2021 and March 28, 2021 consisted primarily of the fair value of identifiable assets acquired in business combinations other than tangible assets and goodwill.

The gross amount and accumulated amortization of the Company’s other intangible assets as of September 26, 2021 and March 28, 2021, the amortization expense for the three and six -month periods ended September 26, 2021 and September 27, 2020, and the classification of such amortization expense within the accompanying unaudited condensed consolidated statements of income are as follows (in thousands):

Amortization Expense

1 unchanged sentence

Three-Month Periods Ended

Six-Month Periods Ended

Tradename and trademarks

9 unchanged sentences

Major classes of inventory were as follows (in thousands):

June 27, 2021

September 26, 2021

March 28, 2021

4 unchanged sentences

Note 12 –

The Company made cash payments related to its recognized operating leases of $ 497,000 and $ 408,000 during the three months ended June 27, 2021 and June 28, 2020, respectively.

The Company made cash payments related to its recognized operating leases of $ 487,000 and $ 403,000 during the three months ended September 26, 2021 and September 27, 2020, respectively, and $ 984,000 and $ 811,000 during the six months ended September 26, 2021 and September 27, 2020, respectively.

Such payments reduced the operating lease liabilities and were included in the cash flows provided by operating activities in the accompanying unaudited condensed consolidated statements of cash flows.

As of June 27, 2021, the Company’s operating leases have a weighted-average remaining lease term of 

As of September 26, 2021, the Company’s operating leases have a weighted-average remaining lease term of 

2.2 years and the weighted-average discount rate is 

During the three -month periods ended June 27, 2021 and June 28, 2020, the Company classified its operating lease costs within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

During the three and six -month periods ended September 26, 2021 and September 27, 2020, the Company classified its operating lease costs within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Three-Month Periods Ended

June 27, 2021

June 28, 2020

Six-Month Periods Ended

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Cost of products sold

1 unchanged sentence

Total operating lease costs

The maturities of the Company’s operating lease liabilities as of June 27, 2021 are as follows (in thousands):

The maturities of the Company’s operating lease liabilities as of September 26, 2021 are as follows (in thousands):

Total undiscounted operating lease payments

3 unchanged sentences

Stock-based Compensation

The Company has two incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”) and the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”).

As a result of the approval of the 2014 Plan by the Company’s stockholders at the Company’s 2014 annual meeting, grants may no longer be issued under the 2006 Plan.

At June 27, 2021, 49 shares of the Company’s common stock were available for future issuance under the 2014 Plan, which may be issued from authorized and unissued shares of the Company’s common stock or treasury shares.

During the three -month periods ended June 27, 2021 and June 28, 2020, the Company recorded stock-based compensation expense of $ 132,000 and $ 86,000 , respectively.

The Company has three incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”), the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”) and the 2021 Incentive Plan (the “2021 Plan”).

As a result of the approval of the 2014 Plan by the Company’s stockholders at the Company’s 2014 annual meeting and the 2021 Plan by the Company’s stockholders at the Company’s 2021 annual meeting, grants may no longer be issued under either the 2006 Plan or the 2014 Plan.

At September 26, 2021, 1,159,835 shares of the Company’s common stock were available for future issuance under the 2021 Plan, which may be issued from authorized and unissued shares of the Company’s common stock or treasury shares.

The Company recorded stock-based compensation expense of $ 208,000 and $ 100,000 during the three -month periods ended September 26, 2021 and September 27, 2020, respectively, and $ 340,000 and $ 186,000 during the six -month periods ended September 26, 2021 and September 27, 2020, respectively.

The Company records the compensation expense associated with stock-based awards granted to individuals in the same expense classifications as the cash compensation paid to those same individuals.

No stock-based compensation costs were capitalized as part of the cost of an asset as of June 27, 2021.

No stock-based compensation costs were capitalized as part of the cost of an asset as of September 26, 2021.

Stock Options:

The following table represents stock option activity for the three -month periods ended June 27, 2021 and June 28, 2020:

Three-Month Periods Ended

June 27, 2021

June 28, 2020

The following table represents stock option activity for the six -month periods ended September 26, 2021 and September 27, 2020:

Six-Month Periods Ended

September 26, 2021

September 27, 2020

Outstanding at Beginning of Period

6 unchanged sentences

( 50,000 )  

( 5,000 )  

Outstanding at End of Period

4 unchanged sentences

455,000  

As of June 27, 2021, the intrinsic value of the outstanding and exercisable stock options was $ 527,000 and $ 358,000 , respectively.

The intrinsic value of the stock options exercised during the three -month period ended June 27, 2021 was $ 89,000 .

The Company did not receive any cash from the exercise of stock options during the three -month period ended June 27, 2021.

As of September 26, 2021, the intrinsic value of the outstanding and exercisable stock options was $ 429,000 and $ 292,000 , respectively.

The intrinsic value of the stock options exercised during the three and six months ended September 26, 2021 was $ 49,000 and $ 138,000 , respectively.

The Company did not receive any cash from the exercise of stock options during either of the three or six -month periods ended September 26, 2021.

Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise.

2 unchanged sentences

The Company used cash to remit the required income tax withholding amounts from “cashless”

option exercises of $ 34,000 during the three -month periods ended June 27, 2021.

There were no stock options exercised during the three -month period ended June 28, 2020.

option exercises of $ 14,000 and $ 48,000 during the three and six -month periods ended September 26, 2021, respectively.

There were no stock options exercised during either of the three or six -month periods ended September 27, 2020.

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation –

1 unchanged sentence

To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value.

The following table sets forth the assumptions used to determine the fair value of the non-qualified stock options that were awarded to certain employees during the three -month periods ended June 27, 2021 and June 28, 2020, which options vest over a two -year period, assuming continued service.

Three-Month Periods Ended

June 27, 2021

June 28, 2020

The following table sets forth the assumptions used to determine the fair value of the non-qualified stock options that were awarded to certain employees during the six months ended September 26, 2021 and September 27, 2020, which options vest over a two -year period, assuming continued service.                  

Six-Month Periods Ended

September 26, 2021

September 27, 2020

Number of options issued

18 unchanged sentences

$ 0.56  

During the three -month periods ended June 27, 2021 and June 28, 2020, the Company classified its compensation expense associated with stock options within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Three-Month Period Ended June 27, 2021

Three-Month Period Ended June 28, 2020

During the three -month periods ended September 26, 2021 and September 27, 2020, the Company classified its compensation expense associated with stock options within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Three-Month Period Ended September 26, 2021

Three-Month Period Ended September 27, 2020

Administrative

2 unchanged sentences

Total stock option compensation

As of June 27, 2021, total unrecognized stock option compensation expense amounted to $ 352,000 , which will be recognized as the underlying stock options vest over a weighted-average period of 14.9 months.

During the six -month periods ended September 26, 2021 and September 27, 2020, the Company classified its compensation expense associated with stock options within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Six-Month Period Ended September 26, 2021

Six-Month Period Ended September 27, 2020

Administrative

Options Granted in Fiscal Year

Total stock option compensation

As of September 26, 2021, total unrecognized stock option compensation expense amounted to $ 303,000 , which will be recognized as the underlying stock options vest over a weighted-average period of 15.0 months.

The amount of future stock option compensation expense could be affected by any future stock option grants and by the separation from the Company of any individual who has received stock options that are unvested as of such individual’s separation date.

Non-vested Stock Granted to Non-employee Directors:

The following shares of non-vested stock were granted to the Company’s non-employee directors:

Non-vested Stock Granted to Directors:

The following shares of non-vested stock were granted to the Company’s directors:

Number of Shares

Fair Value per Share

Vesting Period (Years)

40,165  

5 unchanged sentences

August 14, 2019

These shares vest over a two -year period, assuming continued service.

The fair value of the non-vested stock granted to the Company’s non-employee directors was based on the closing price of the Company’s common stock on the date of each grant.

28,000  

August 8, 2018

These shares vest over the periods indicated, assuming continued service.

The fair value of the non-vested stock granted to the Company’s directors was based on the closing price of the Company’s common stock on the date of each grant.

In August 2021 and August 2020, 43,984 and 37,256 shares that had been granted to the Company’s directors vested, having an aggregate value of $ 327,000 and $ 179,000 , respectively.

Non-vested Stock Granted to Employees:

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25,000  

During the three -month periods ended June 27, 2021 and June 28, 2020, the Company recorded compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, as follows (in thousands):

Three-Month Period Ended June 27, 2021

Three-Month Period Ended June 28, 2020

During the three and six -month periods ended September 26, 2021 and September 27, 2020, the Company recorded compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, as follows (in thousands):

Three-Month Periods Ended

Six-Month Periods Ended

Stock Granted in Fiscal Year

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Total stock grant compensation

As of June 27, 2021, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $ 431,000 , which will be recognized over the respective vesting terms associated with each block of non-vested stock indicated above, such grants having an aggregate weighted-average vesting term of 7.7 months.

As of September 26, 2021, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $ 570,000 , which will be recognized over the respective vesting terms associated with each block of non-vested stock indicated above, such grants having an aggregate weighted-average vesting term of 10.2 months.

The amount of future compensation expense related to the Company’s non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has non-vested stock grants as of such individual’s separation date.

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Subsequent Events

The Company has evaluated all events which have occurred between June 27, 2021 and the date that the accompanying consolidated financial statements were issued, and has determined that there are no material subsequent events that require disclosure.

The Company has evaluated all events which have occurred between September 26, 2021 and the date that the accompanying unaudited condensed consolidated financial statements were issued, and has determined that there are no material subsequent events that require disclosure.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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RESULTS OF OPERATIONS

The following table contains the results of operations for the three-month periods ended June 27, 2021 and June 28, 2020 and the dollar and percentage changes for those periods (in thousands, except percentages):

The following table contains the results of operations for the three and six-month periods ended September 26, 2021 and September 27, 2020 and the dollar and percentage changes for those periods (in thousands, except percentages):

Three-Month Periods Ended

June 27, 2021

June 28, 2020

Six-Month Periods Ended

September 26, 2021

September 27, 2020

September 26, 2021

September 27, 2020

Net sales by category:

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% of net sales

Sales increased to $18.7 million for the three-month period ended June 27, 2021, compared with $16.2 million for the three-month period ended June 28, 2020, an increase of $2.5 million, or 15.5%.

Sales of bibs, bath, developmental toys, feeding, baby care and disposable products increased by $2.6 million and overall sales of bedding, blankets and accessories decreased by $60,000, which included a decrease of $863,000 due to the closure of Carousel.

The increase in sales is due to higher sales at a major brick-and-mortar retailer, which has been partially offset by declines at an online retailer as consumers have begun to return to stores that previously had been impacted by the COVID-19 pandemic.

Sales decreased to $20.2 million for the three months ended September 26, 2021, compared with $21.7 million for the three months ended September 27, 2020, a decrease of $1.4 million, or 6.6%.

Sales of bedding, blankets and accessories decreased by $1.9 million, which included a decrease of $1.5 million due to the closure of Carousel.

These decreases were partially offset by an increase of $502,000 in sales of bibs, bath, developmental toys, feeding, baby care and disposable products.

Sales increased to $38.9 million for the six-month period ended September 26, 2021, compared with $37.9 million for the six-month period ended September 27, 2020, an increase of $1.1 million, or 2.8%.

Sales of bibs, bath, developmental toys, feeding, baby care and disposable products increased by $3.1 million.

This increase was partially offset by a decrease of $2.0 million in sales of bedding, blankets and accessories, which included a decrease of $2.3 million due to the closure of Carousel.

The increases in sales during the comparable six-month periods are due to a strong new modular set and higher replenishment orders at a major retailer.

Gross Profit:

Gross profit decreased by $367,000 and decreased from 31.0% of net sales for the three-month period ended June 28, 2020 to 24.9% of net sales for the three-month period ended June 27, 2021.

The decrease in gross profit included the effect of a gross loss of $647,000 experienced by Carousel, which was the result of the sale of inventory below cost and the recognition of charges of $344,000 associated with the settlement with a supplier of a commitment to purchase fabric and $265,000 associated with the liquidation of Carousel’s remaining inventory upon the closure of the business.

The Company’s gross profit has also decreased because of increases in ocean-going freight costs.

The effect of these decreases have been partially offset by the impact of the overall increase in net sales.

Gross profit decreased by $1.0 million and decreased from 32.8% of net sales for the three-month period ended September 27, 2020 to 30.0% of net sales for the three-month period ended September 26, 2021.

The decrease in gross profit included the effect of the closure of Carousel, which recognized a gross profit of $629,000 in the prior year period.

Gross profit decreased by $1.4 million and decreased from 32.0% of net sales for the six-month period ended September 27, 2020 to 27.5% of net sales for the six-month period ended September 26, 2021.

The closure of Carousel resulted in a $1.9 million decrease in gross profit, which in the current year period included the sale of inventory below cost and the recognition of charges of $334,000 associated with the settlement with a supplier of a commitment to purchase fabric and $265,000 associated with the liquidation of Carousel’s remaining inventory upon the closure of the business.

The Company’s gross profit has also been impacted in both the three and six-month periods of the current year because of increases in ocean-going freight costs.

Marketing and Administrative Expenses:

Marketing and administrative expenses were flat at $3.4 million for both the current and prior year three-month periods, but decreased to 18.0% of net sales for the three-month period ended June 27, 2021 from 20.9% of net sales for the three-month period ended June 28, 2020.

As compared with the prior year period, the Company incurred in the current year period higher overall compensation costs of $154,000 and higher costs for outside services of $47,000, which were offset by lower costs for Carousel, including lower advertising costs of $149,000, and the elimination of $64,000 in amortization costs.

Marketing and administrative expenses decreased by $638,000, and decreased from 17.6% of net sales for the three-month period ended September 27, 2020 to 15.6% of net sales for the three-month period ended September 26, 2021.

Marketing and administrative expenses decreased by $652,000, and decreased from 19.0% of net sales for the six months ended September 27, 2020 to 16.8% of net sales for the six months ended September 26, 2021.

The decrease in amounts for the current year periods included lower charges incurred by Carousel of $547,000 for the three-month period and $807,000 for the six-month period.

Gain on extinguishment of debt:

On May 20, 2021, the PPP Loan was forgiven in full, which resulted in a gain on extinguishment of debt in the amount of $1,985,000 during the three-month period ended June 27, 2021.

On May 20, 2021, the PPP Loan was forgiven in full, which resulted in a gain on extinguishment of debt in the amount of $1,985,000 during the three-month period ended June 27, 2021 and the six-month period ended September 26, 2021.

Income Tax Expense:

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 19.2% for the three-month period ended June 27, 2021.

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 19.6% for the six-month period ended September 26, 2021.

This estimated annual ETR includes no income tax expense from the gain on extinguishment of debt associated with the forgiveness of the PPP Loan, which will be permitted to be excluded from taxable income, the effect of which is expected to lower the estimated annual ETR for fiscal year 2022 by approximately four percentage points.

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Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities of $23,000 and $13,000 during the three-month periods ended June 27, 2021 and June 28, 2020, respectively, in the accompanying unaudited condensed consolidated statements of income.

The Company recorded a discrete income tax benefit of $44,000 during the three-month period ended June 27, 2021 to reflect the aggregate effect of the excess tax benefits arising from the vesting of non-vested stock and the exercise of stock options.

The Company recorded no such income tax benefit during the three-month period ended June 28, 2020.

The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of 18.6% and 25.9% for the three-month periods ended June 27, 2021 and June 28, 2020, respectively.

Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities of $22,000 and $20,000 during the three-month periods ended September 26, 2021 and September 27, 2020, respectively, and $45,000 and $33,000 during the six-month periods ended September 26, 2021 and September 27, 2020, respectively, in the accompanying unaudited condensed consolidated statements of income.

The Company recorded discrete income tax benefits of $28,000 and $72,000 during the three and six-month periods ended September 26, 2021, respectively, to reflect the aggregate effect of the excess tax benefits arising from the exercise of stock options and the vesting of non-vested stock.

The Company recorded discrete income tax charges of $4,000 during each of the three and six-month periods ended September 27, 2020 to reflect the net effects of the tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock.

The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of 19.2% and 24.9% for the six-month periods ended September 26, 2021 and September 27, 2020, respectively.

Although the Company does not anticipate a material change to the ETR from continuing operations for the remainder of fiscal year 2022, several factors could impact the ETR, including variations from the Company’s estimates of the amount and source of its pre-tax income, and the actual ETR for the year could differ materially from the Company’s estimates.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities decreased from $7.9 million for the three-month period ended June 28, 2020 to $5.0 million for the three-month period ended June 27, 2021.

The decrease in the current year was the result of an increase of inventory in the current year of $1.6 million compared with a decrease of $402,000 in the prior year, as well as the non-cash gain on extinguishment of debt of $1,985,000 in the current year that was associated with the forgiveness of the PPP Loan and a decrease in accounts receivable in the current year that was of $863,000 lower than the decrease in the prior year.

These decreases were offset by an increase in net income of $1.5 million and an increase in accounts payable in the current year that was $707,000 higher than the increase in the prior year.

Net cash used in investing activities increased from $50,000 in the prior year to $75,000 in the current year, due to higher capital expenditures.

Net cash used in financing activities decreased from $1.4 million in the prior year to $834,000 in the current year, due to financing activities that occurred in the prior year and were not repeated in the current year, primarily net repayments under the revolving line of credit of $2.6 million and the receipt of $1,964,000 in proceeds from the PPP Loan.

At June 27, 2021, there was no balance owed on the Company’s revolving line of credit with CIT, there was no letter of credit outstanding and $26.0 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

Net cash provided by operating activities decreased from $8.3 million for the six-month period ended September 27, 2020 to $3.2 million for the six-month period ended September 26, 2021.

The decrease in the current year was the result of an increase in accounts payable in the current year that was $3.1 million lower than the increase in the prior year;

an increase of inventory in the current year that was $2.4 million higher than the increase the prior year;

and the non-cash gain on extinguishment of debt of $1,985,000 in the current year that was associated with the forgiveness of the PPP Loan.

These decreases were offset by an increase in accounts receivable in the current year of $853,000 compared with a decrease in the prior year of $994,000, and an increase in net income of $1.3 million.

Net cash used in investing activities was nearly flat, decreasing from $312,000 in the prior year to $253,000 in the current year.

Net cash used in financing activities increased from $1.4 million in the prior year to $1.7 million in the current year.

Financing activities in the prior year included the receipt of $1,964,000 in proceeds from the PPP Loan that were not repeated in the current year.

Also, dividends paid in the current year were $789,000 higher than in the prior year.

These financing activities were offset by net repayments under the revolving line of credit in the prior year of $2.6 million that were not repeated in the current year.

At September 26, 2021, there was no balance owed on the Company’s revolving line of credit with CIT, there was no letter of credit outstanding and $26.0 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

To reduce its exposure to credit losses and to enhance the predictability of its cash flow, the Company assigns the majority of its trade accounts receivable to CIT under factoring agreements.

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If such a termination or limitation were to occur, then the Company must choose to either assume the credit risk for shipments after the date of such termination or limitation or discontinue shipments to the customer.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $64,000 and $45,000 for the three-month periods ended June 27, 2021 and June 28, 2020, respectively.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $85,000 during each of the three-month periods ended September 26, 2021 and September 27, 2020, and $149,000 and $130,000 during the six-month periods ended September 26, 2021 and September 27, 2020, respectively.

The Company continues to monitor the impact of the COVID-19 pandemic on its supply chain, manufacturing and distribution operations, customers and employees, as well as the U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements