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Item 1. Financial Statements

2022-08-17 compared with 2022-02-09 · 152 added, 284 removed, 484 unchanged (47% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

JULY 3, 2022 (UNAUDITED) AND APRIL 3, 2022

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

December 26, 2021

March 28, 2021

April 3, 2022

Current assets:

1 unchanged sentence

$ 4,141  

Accounts receivable (net of allowances of $1,525 at December 26, 2021 and $723 at March 28, 2021):

$ 1,598  

Accounts receivable (net of allowances of $1,103 at July 3, 2022 and $945 at April 3, 2022):

Due from factor

23 unchanged sentences

Finite-lived intangible assets - net

Deferred income taxes

$ 62,559  

10 unchanged sentences

Other accrued liabilities

Current maturities of long-term debt

Total current liabilities

2 unchanged sentences

Non-current liabilities:

Deferred income taxes

Operating lease liabilities, noncurrent

3 unchanged sentences

Common stock - $0.01 par value per share;

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

Issued 12,944,918 shares at December 26, 2021 and 12,809,753 shares at March 28, 2021

Authorized 40,000,000 shares at July 3, 2022 and April 3, 2022;

Issued 12,959,918 shares at July 3, 2022 and 12,944,918 shares at April 3, 2022

Additional paid-in capital

1 unchanged sentence

55,925  

Treasury stock - at cost - 2,864,698 shares at December 26, 2021 and 2,811,446 shares at March 28, 2021

Treasury stock - at cost - 2,890,165 shares at July 3, 2022 and 2,864,698 shares at April 3, 2022

( 15,776 )  

10 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 26, 2021 AND DECEMBER 27, 2020

THREE-MONTH PERIODS ENDED JULY 3, 2022 AND JUNE 27, 2021

(amounts in thousands, except per share amounts)

Three-Month Periods Ended

Nine-Month Periods Ended

December 26, 2021

December 27, 2020

December 26, 2021

December 27, 2020

$ 22,742  

$ 19,476  

June 27, 2021

$ 15,710  

3 unchanged sentences

14,056  

44,780  

39,070  

16,894  

18,270  

Marketing and administrative expenses

10,602  

Income from operations

1 unchanged sentence

Interest expense - net of interest income

( 14 )  

( 30 )  

Gain on extinguishment of debt

Loss on sale of property, plant and equipment

( 25 )  

Gain on insurance proceeds received for damage to equipment

Gain on sale of property, plant and equipment

Income before income tax expense

2 unchanged sentences

$ 2,665  

$ 7,483  

$ 5,843  

Weighted average shares outstanding:

1 unchanged sentence

10,004  

10,045  

10,195  

Effect of dilutive securities

1 unchanged sentence

10,056  

10,075  

10,200  

Earnings per share -- basic and diluted

1 unchanged sentence

$ 0.27  

$ 0.74  

$ 0.57  

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 26, 2021 AND DECEMBER 27, 2020

THREE-MONTH PERIODS ENDED JULY 3, 2022 AND JUNE 27, 2021

Common Shares

2 unchanged sentences

(Dollar amounts in thousands)

Three-Month Periods

Balances - September 27, 2020

12,664,753  

( 2,436,494 )  

$ ( 12,408 )  

$ 53,796  

$ 3,992  

$ 45,507  

Issuance of shares

95,000  

Stock-based compensation

Acquisition of treasury stock

( 330,095 )  

( 2,450 )  

Dividend declared on common stock - $0.33 per share

( 3,380 )  

Balances - December 27, 2020

12,759,753  

( 2,766,589 )  

$ ( 14,858 )  

$ 54,418  

$ 2,753  

$ 42,441  

Balances - September 26, 2021

12,924,918  

( 2,849,846 )  

$ ( 15,498 )  

$ 55,335  

$ 5,634  

$ 45,600  

Issuance of shares

20,000  

Stock-based compensation

Acquisition of treasury stock

( 14,852 )  

( 116 )  

Dividend declared on common stock - $0.43 per share

( 4,334 )  

Balances - December 26, 2021

12,944,918  

( 2,864,698 )  

$ ( 15,614 )  

$ 55,655  

$ 3,732  

$ 43,902  

Nine-Month Periods

Balances - March 28, 2021

13 unchanged sentences

( 802 )  

Balances - December 27, 2020

Balances - June 27, 2021

12,864,753  

4 unchanged sentences

$ 43,826  

Balances - March 28, 2021

Balances - April 3, 2022

12,944,918  

10 unchanged sentences

( 162 )  

Dividends declared on common stock - $0.59 per share

Dividend declared on common stock - $0.08 per share

( 806 )  

Balances - December 26, 2021

Balances - July 3, 2022

12,959,918  

8 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE-MONTH PERIODS ENDED DECEMBER 26, 2021 AND DECEMBER 27, 2020

THREE-MONTH PERIODS ENDED JULY 3, 2022 AND JUNE 27, 2021

(amounts in thousands)

Nine-Month Periods Ended

December 26, 2021

December 27, 2020

Three-Month Periods Ended

June 27, 2021

Operating activities:

7 unchanged sentences

Gain on extinguishment of debt

Gain on insurance proceeds received for damage to equipment

( 34 )  

Loss on sale of property, plant and equipment

Gain on sale of property, plant and equipment

Reserve for unrecognized tax liabilities

3 unchanged sentences

( 5,697 )  

( 4,132 )  

Prepaid expenses

4 unchanged sentences

Accrued liabilities

( 1,544 )  

Net cash provided by operating activities

2 unchanged sentences

( 95 )  

Insurance proceeds received for damage to equipment

Proceeds from sale of property, plant and equipment

3 unchanged sentences

Repayments under revolving line of credit

( 5,809 )  

Borrowings under revolving line of credit

Proceeds from long-term debt

Purchase of treasury stock from related parties

12 unchanged sentences

Income taxes paid

$ 1,959  

Interest paid

8 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 26, 2021 AND DECEMBER 27, 2020

FOR THE THREE-MONTH PERIODS ENDED JULY 3, 2022 AND JUNE 27, 2021

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 consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of December 26, 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 July 3, 2022 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 and nine months ended December 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.

Operating results for the quarter ended July 3, 2022 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending April 2, 2023.

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 April 3, 2022.

The Company’s fiscal year ends on the Sunday that is nearest to or on March 31.

3 unchanged sentences

or “2022”

represent the 52 -week period ended March 28, 2021.

Reclassifications:

The Company has classified certain prior year information to conform to the amounts presented in the current year.

None of the changes impact the Company’s previously reported financial position or results of operations.

represent the 53 -week period ended April 3, 2022.

Recently-Issued Accounting Standards:

20 unchanged sentences

(“CIT”), a subsidiary of CIT Group Inc., the Company does not believe that the adoption of the ASU will have a significant impact on the Company’s financial position, results of operations and related disclosures.

In December 2019, the FASB issued ASU No.

2019 - 12, Income Taxes (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.

The amendments contained in the ASU are required to be adopted for public entities in the first interim period of the fiscal year beginning after December 15, 2020.

Accordingly, the Company adopted ASU No.

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 December 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.

The Company has determined that all other ASUs issued which had become effective as of July 3, 2022, 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 $ 105,000 and $ 283,000 for the three months ended December 26, 2021 and December 27, 2020, respectively, and amounted to $ 455,000 and $ 942,000 for the nine months ended December 26, 2021 and December 27, 2020, respectively.

Note 3 –

Other Accrued Liabilities

Amounts of $ 612,000 and $ 215,000 were recorded as other accrued liabilities at December 26, 2021 and March 28, 2021, respectively.

Of these amounts, $ 26,000 and $ 85,000 at December 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.

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $ 124,000 and $ 221,000 for the three -month periods ended July 3, 2022 and June 27, 2021, respectively.

Note 3 –

1 unchanged sentence

The Company operates primarily in one principal segment, infant, toddler and juvenile products.

These products consist of infant and toddler bedding and blankets, 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 - and nine -month periods ended December 26, 2021 and December 27, 2020 are as follows (in thousands):

These products consist of infant and toddler bedding, blankets, accessories, bibs, toys and disposable products.

Net sales of bedding, blankets and accessories and net sales of bibs, toys and disposable products for the three months ended July 3, 2022 and June 27, 2021 are as follows (in thousands):

Three-Month Periods Ended

Nine-Month Periods Ended

December 26, 2021

December 27, 2020

December 26, 2021

December 27, 2020

June 27, 2021

Bedding, blankets and accessories

1 unchanged sentence

$ 9,957  

$ 32,838  

$ 34,490  

Bibs, bath, developmental toy, feeding, baby care and disposable products

10,962  

28,836  

22,850  

Bibs, toys and disposables products

Total net sales

1 unchanged sentence

$ 18,712  

$ 61,674  

$ 57,340  

Note 4 –

2 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 consolidated statements of income and amounted to $ 1.5 million and $ 1.4 million for the three months ended December 26, 2021 and December 27, 2020, respectively, and amounted to $ 4.2 million for each of the nine months ended December 26, 2021 and December 27, 2020.

Royalty expense is included in cost of products sold in the accompanying unaudited condensed consolidated statements of income and amounted to $ 1.1 million and $ 1.3 million for the three months ended July 3, 2022 and June 27, 2021, respectively.

Note 5 –

2 unchanged sentences

The statute of limitations varies by jurisdiction;

tax years open to audit or other adjustment as of December 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 $ 22,000 and $ 25,000 during the three months ended December 26, 2021 and December 27, 2020, respectively, and $ 67,000 and $ 58,000 during the nine months ended December 26, 2021 and December 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 expense and penalties on the unrecognized tax liabilities for which the relevant statute of limitations remained unexpired of $ 11,000 and $ 15,000 during the three -month periods ended December 26, 2021 and December 27, 2020, respectively, and $ 37,000 and $ 46,000 during the nine -month periods ended December 26, 2021 and December 27, 2020, respectively, in the accompanying unaudited condensed consolidated statements of income.

tax years open to audit or other adjustment as of July 3, 2022 were the fiscal years ended April 3, 2022, March 28, 2021, March 29, 2020, March 31, 2019, April 1, 2018 and April 2, 2017.

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 discrete income tax benefits of $ 11,000 and $ 16,000 during the three -month periods ended December 26, 2021 and December 27, 2020, respectively, and $ 83,000 and $ 12,000 during the nine -month periods ended December 26, 2021 and December 27, 2020, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock.

The Company recorded a discrete income tax charge of $ 1,000 and a discrete income tax benefit of $ 44,000 during the three -month periods ended July 3, 2022 and June 27, 2021, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock.

Note 6 –

Carousel Designs

The accompanying unaudited condensed consolidated statements of income include income, expenses and losses recognized in respect of the operating activities of Carousel Designs, LLC (“Carousel”), a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia.

The accompanying unaudited condensed consolidated statement of income for the three -month period ended June 27, 2021 includes income, expenses and losses recognized in respect of the operating activities of Carousel Designs, LLC (“Carousel”), a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia.

On May 5, 2021, the Company’s Board of Directors (the “Board”) approved the closure of Carousel due to its high costs, declining sales and operating and cash flow losses, as well as management’s determination that, due to post-COVID- 19 competitive pressures in the infant, toddler and juvenile products segment within the consumer products industry, such losses were likely to continue.

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

During the three - and nine -month periods ended December 26, 2021, Carousel experienced a gross loss of $ 1,000 and $ 689,000 , 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 nine -month period ended December 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.

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 $ 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 7 –

Financing Arrangements

Factoring Agreements:

    To reduce its exposure to credit losses, the Company assigns substantially all of its trade accounts receivable to CIT pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing agreement described below.

Factoring Agreements: 

Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT.

3 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 $ 99,000 and $ 79,000 during the three -month periods ended December 26, 2021 and December 27, 2020, respectively, and $ 248,000 and $ 209,000 during the nine -month periods ended December 26, 2021 and December 27, 2020, respectively.

Credit Facility:

 The Company’s credit facility as of December 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 would be automatically released upon the sale of such assets.

The financing agreement was scheduled to mature on July 11, 2022, but on May 31, 2021 the financing agreement was amended to extend the maturity date to July 11, 2025 and to change the interest rates as reflected in the preceding paragraph.

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

At December 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 1.59 % as of December 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 December 26, 2021, on daily negative balances, if any, held at CIT.

At December 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.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $ 68,000 and $ 64,000 during the three -month periods ended July 3, 2022 and June 27, 2021, respectively.

Credit Facility: 

The Company’s credit facility as of July 3, 2022 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.

The financing agreement will mature on July 11, 2025, bears interest at the rate of prime minus 1.0 % or the Secured Overnight Financing Rate (“SOFR”) plus 1.6 %, and is secured by a first lien on all assets of the Company.

At July 3, 2022, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the SOFR option.

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 2.75 % as of July 3, 2022, on daily negative balances, if any, held at CIT.

As of July 3, 2022 and April 3, 2022, 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 December 26, 2021.

Credit Concentration:

The Company’s accounts receivable as of December 26, 2021 amounted to $ 21.0 million, net of allowances of $ 1.5 million.

The Company believes it was in compliance with these covenants as of July 3, 2022.

Credit Concentration: 

The Company’s accounts receivable as of July 3, 2022 amounted to $ 17.6 million, net of allowances of $ 1.1 million.

Of this amount, $ 15.6 million was due from CIT under the factoring agreements;

1 unchanged sentence

The combined amount of $ 18.6 million represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations under the factoring agreements and the revolving line of credit.

The Company’s accounts receivable at March 28, 2021 amounted to $ 19.3 million, net of allowances of $ 723,000 .

The Company’s accounts receivable as of April 3, 2022 amounted to $ 23.2 million, net of allowances of $ 945,000 .

Of this amount, $ 21.1 million was due from CIT under the factoring agreements;

an additional amount of $ 602,000 was due from CIT as a negative balance outstanding under the revolving line of credit.

an additional amount of $ 1.5 million was due from CIT as a negative balance outstanding under the revolving line of credit.

The combined amount of $ 22.6 million represented the maximum loss that the Company could have incurred if CIT had failed completely to perform its obligations under the factoring agreements and the revolving line of credit.

6 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 and the nine months ended December 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.

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.

Note 8 –

1 unchanged sentence

For the purpose of presenting and measuring for the impairment of goodwill, the Company has two reporting units:

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 December 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.

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

The goodwill of the Company’s reporting units at July 3, 2022 and April 3, 2022 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.

3 unchanged sentences

If the carrying value exceeds the estimated fair value of the reporting unit, then an impairment charge is calculated as the difference between the carrying value of the reporting unit and its estimated fair value, not to exceed the goodwill of the reporting unit.

On March 29, 2021, the Company performed the annual measurement for impairment of the goodwill of its reporting units and concluded that the estimated fair value of each of the Company’s reporting units exceeded their carrying values, and thus the goodwill of the Company’s reporting units was not impaired as of that date.

On April 4, 2022, the Company performed a qualitative assessment to determine if it is more likely than not that the fair values of the Company’s reporting units are less than their carrying values by evaluating relevant events and circumstances, including financial performance, market conditions and share price.

Based on this assessment, the Company concluded that the goodwill for each of the Company’s reporting units was not considered at risk of impairment.

Note 9 –

Other Intangible Assets

Other intangible assets as of December 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 December 26, 2021 and March 28, 2021, the amortization expense for the three - and nine -month periods ended December 26, 2021 and December 27, 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 July 3, 2022 and April 3, 2022 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 July 3, 2022 and April 3, 2022, the amortization expense for the three months ended July 3, 2022 and June 27, 2021, 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

Nine-Month Periods Ended

Tradename and trademarks

3 unchanged sentences

$ 1,885  

Developed technology

Non-compete covenants

11 unchanged sentences

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

December 26, 2021

March 28, 2021

April 3, 2022

Raw Materials

Work in Process

Finished Goods

5 unchanged sentences

Note 11 –

The Company made cash payments related to its recognized operating leases of $ 460,000 and $ 493,000 during the three months ended December 26, 2021 and December 27, 2020, respectively, and $ 1.4 million and $ 1.3 million during the nine months ended December 26, 2021 and December 27, 2020, respectively.

The Company made cash payments related to its recognized operating leases of $ 480,000 and $ 497,000 during the three months ended July 3, 2022 and June 27, 2021, 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 December 26, 2021, the Company’s operating leases have a weighted-average remaining lease term of 

As of July 3, 2022, the Company’s operating leases have a weighted-average remaining lease term of 

1.7 years and the weighted-average discount rate is 

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

During the three -month periods ended July 3, 2022 and June 27, 2021, the Company classified its operating lease costs within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Three-Month Periods Ended

Nine-Month Periods Ended

December 26, 2021

December 27, 2020

December 26, 2021

December 27, 2020

June 27, 2021

Cost of products sold

$ 1,197  

$ 1,269  

Marketing and administrative expenses

Total operating lease costs

$ 1,320  

The maturities of the Company’s operating lease liabilities as of July 3, 2022 are as follows (in thousands):

$ 1,465  

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

Total undiscounted operating lease payments

6 unchanged sentences

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 December 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 $ 224,000 and $ 103,000 during the three -month periods ended December 26, 2021 and December 27, 2020, respectively, and $ 564,000 and $ 289,000 during the nine -month periods ended December 26, 2021 and December 27, 2020, respectively.

As of July 3, 2022, 852,335 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 $ 333,000 and $ 132,000 during the three months ended July 3, 2022 and June 27, 2021, 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 December 26, 2021.

No stock-based compensation costs were capitalized as part of the cost of an asset as of July 3, 2022.

Stock Options:

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

Nine-Month Periods Ended

December 26, 2021

December 27, 2020

The following table represents stock option activity for the three -month periods ended July 3, 2022 and June 27, 2021:

Three-Month Periods Ended

June 27, 2021

Outstanding at Beginning of Period

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( 15,000 )  

( 20,000 )  

Outstanding at End of Period

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407,500  

As of December 26, 2021, the intrinsic value of the outstanding and exercisable stock options was $ 283,000 and $ 177,000 , respectively.

The intrinsic value of the stock options exercised during the three and nine months ended December 26, 2021 was $ 58,000 and $ 196,000 , respectively.

The Company did not receive any cash from the exercise of stock options during any of the three - or nine -month periods ended December 26, 2021 and December 27, 2020.

As of July 3, 2022, the intrinsic value of the outstanding and exercisable stock options was $ 152,000 .

The intrinsic value of the stock options exercised during the three -month period ended July 3, 2022 was $ 20,000 .

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.

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

option exercises of $ 19,000 and $ 67,000 during the three - and nine -month periods ended December 26, 2021, respectively, and $ 43,000 during each of the three - and nine -month periods ended December 27, 2020.

option exercises of $ 8,000 and $ 34,000 during the three months ended July 3, 2022 and June 27, 2021, respectively.

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

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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 nine months ended December 26, 2021 and December 27, 2020, which options vest over a two -year period, assuming continued service.                  

Nine-Month Periods Ended

December 26, 2021

December 27, 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 three -month periods ended July 3, 2022 and June 27, 2021, which options vest over a two -year period, assuming continued service.

Three-Month Periods Ended

June 27, 2021

Number of options issued

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158,000  

June 10, 2020

Dividend yield

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$ 1.61  

During the three - and nine -month periods ended December 26, 2021 and December 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 December 26, 2021

Three-Month Period Ended December 27, 2020

Administrative

Options Granted in Fiscal Year

Total stock option compensation

Nine-Month Period Ended December 26, 2021

Nine-Month Period Ended December 27, 2020

During the three -month periods ended July 3, 2022 and June 27, 2021, 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 July 3, 2022

Three-Month Period Ended June 27, 2021

Administrative

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Total stock option compensation

As of December 26, 2021, total unrecognized stock option compensation expense amounted to $ 256,000 , which will be recognized as the underlying stock options vest over a weighted-average period of 9.0 months.

As of July 3, 2022, total unrecognized stock option compensation expense amounted to $ 249,000 , which will be recognized as the underlying stock options vest over a weighted-average period of 13.4 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.

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August 14, 2019

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, respectively, that had been granted to the Company’s directors vested, having an aggregate value of $ 327,000 and $ 179,000 , respectively.

The non-vested stock granted on August 11, 2021 included 8,033 shares granted to E.

Randall Chestnut, formerly the Company’s Chairman, President and Chief Executive Officer.

On May 1, 2022, upon the resignation of Mr.

Chestnut from the Board and his retirement from all positions that he held within the Company, the vesting of these 8,033 shares was accelerated, with such shares having an aggregate value on such date of $ 50,000 .

The remaining shares set forth above otherwise vest over the periods indicated, assuming continued service.

Non-vested Stock Granted to Employees:

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$ 4.92  

January 18, 2019

January 18, 2021

20,000  

June 10, 2020

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25,000  

During the three - and nine -month periods ended December 26, 2021 and December 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

Nine-Month Periods Ended

These shares vest on the dates indicated, assuming continued service.

In June 2022, 45,000 shares that had been granted to certain of the Company’s employees vested, having an aggregate value on their respective vesting dates of $ 293,000 .

Performance Award Shares:

March 1, 2022, 

performance awards were granted to certain of the Company’s executive officers, consisting of 

187,500  shares, of which:

75,000  shares shall be earned if the closing price per share of the Company’s stock equals or exceeds $ 8.00  on 

ten  trading days within any period of 

twenty  consecutive trading days prior to 

March 1, 2027; 

and (b) 

112,500  shares shall be earned if the closing price per share of the Company’s stock equals or exceeds $ 9.00  on 

ten  trading days within any period of 

twenty  consecutive trading days prior to 

March 1, 2027. 

Upon the achievement of each applicable stock hurdle described above:

one - third  of the shares that are earned shall vest on the later of the date on which the shares are earned and 

March 1, 2023;

one - third  of the shares that are earned shall vest on the 

first  anniversary of the date on which the shares are earned;

one - third  shall vest on the 

second  anniversary of the date on which the shares are earned.

All shares that are non-earned or non-vested will be forfeited upon the termination of service.

The Company, with the assistance of an independent 

third  party, determined that the grant date fair value of the awards amounted to $ 732,000 .

During the three -month periods ended July 3, 2022 and June 27, 2021, 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 July 3, 2022

Three-Month Period Ended June 27, 2021

Stock Granted in Fiscal Year

December 26, 2021

December 27, 2020

December 26, 2021

December 27, 2020

Total stock grant compensation

As of December 26, 2021, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $ 393,000 , 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 7.3 months.

As of July 3, 2022, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $ 636,000 , 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 15.0 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.

Note 13 –

Related Party Transaction

On December 16, 2020, the Company purchased 250,000 shares of its common stock from E.

Randall Chestnut, the Company’s Chief Executive Officer.

The shares were purchased at a purchase price of $ 7.5435 per share, which represented the trailing 10 -trading day volume weighted average closing price of the Company’s common stock ending, and including December 16, 2020.

Note 15 –

Subsequent Events

The Company has evaluated all events which have occurred between December 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.

The Company has evaluated all events which have occurred between July 3, 2022 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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and Sassy Baby, Inc., in the infant, toddler and juvenile products segment within the consumer products industry.

The infant, toddler and juvenile products segment consists of infant, toddler and juvenile bedding and blankets, bibs, soft bath products, disposable products, developmental toys and accessories.

The infant, toddler and juvenile products segment consists of infant and toddler bedding and blankets, bibs, disposables, toys and feeding products.

The Company’s products are marketed under Company-owned trademarks, under trademarks licensed from others and as private label goods.

Sales of the Company’s products are made directly to retailers, such as mass merchants, large chain stores, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers.

The accompanying unaudited condensed consolidated statements of income include income, expenses and losses recognized in respect of the operating activities of Carousel, a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia.

The accompanying unaudited condensed consolidated statement of income for the three-month period ended June 27, 2021 includes income, expenses and losses recognized in respect of the operating activities of Carousel, a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia.

On May 5, 2021, the Board approved the closure of Carousel due to a history of high costs, declining sales and operating and cash flow losses, as well as management’s determination that such losses were likely to continue.

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

The Company’s products are marketed to retailers through a national sales force consisting of salaried sales executives and employees located in Compton, California;

Gonzales, Louisiana;

Grand Rapids, Michigan;

and Bentonville, Arkansas and by independent commissioned sales representatives located throughout the United States.

The infant, toddler and juvenile consumer products industry is highly competitive.

The Company competes with a variety of distributors and manufacturers (both branded and private label), including large infant, toddler and juvenile product companies and specialty infant, toddler and juvenile product manufacturers, on the basis of quality, design, price, brand name recognition, service and packaging.

The Company’s ability to compete depends principally on styling, price, service to the retailer and continued high regard for the Company’s products and trade names.

Foreign and domestic contract manufacturers produce most of the Company’s products, with the largest concentration being in China.

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RESULTS OF OPERATIONS

The following table contains the results of operations for the three- and nine-month periods ended December 26, 2021 and December 27, 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-month periods ended July 3, 2022 and June 27, 2021 and the dollar and percentage changes for those periods (in thousands, except percentages):

Three-Month Periods Ended

Nine-Month Periods Ended

December 26, 2021

December 27, 2020

December 26, 2021

December 27, 2020

June 27, 2021

Net sales by category:

Bedding, blankets and accessories

Bibs, bath, developmental toy, feeding, baby care and disposable products

Bibs, toys and disposable products

Total net sales

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Gain on extinguishment of debt

Other expense (income) - net

Other income - net

Income tax expense

% of net sales

Sales increased to $22.7 million for the three months ended December 26, 2021, compared with $19.5 million for the three months ended December 27, 2020, an increase of $3.3 million, or 16.8%.

Sales of bedding, blankets and accessories increased by $349,000, which is net of a decrease of $1.1 million due to the closure of Carousel.

Sales of bibs, bath, developmental toys, feeding, baby care and disposable products increased by $2.9 million.

During the nine-month period ended December 26, 2021, sales increased to $61.7 million, compared with $57.3 million for the nine-month period ended December 27, 2020, an increase of $4.3 million, or 7.6%.

Sales of bibs, bath, developmental toys, feeding, baby care and disposable products increased by $6.0 million.

This increase was partially offset by a decrease of $1.7 million in sales of bedding, blankets and accessories, which included a decrease of $3.5 million due to the closure of Carousel.

The increases in sales during the comparable three- and nine-month periods are partially due to a strong new modular set and higher replenishment orders at a major retailer, and are somewhat offset by declines in sales to online retailers as consumers have begun to return to stores.

Sales decreased to $15.7 million for the three-month period ended July 3, 2022, compared with $18.7 million for the three-month period ended June 27, 2021, a decrease of $3.0 million, or 16.0%.

Sales of bedding, blankets and accessories decreased by $2.5 million, which includes a decrease of $631,000 due to the closure of Carousel.

Sales of bibs, toys and disposable products decreased by $543,000.

The decreases in sales are primarily due to lower replenishment orders at a major retailer.

Also, during the current-year period, the Company’s customers began to reduce their purchases as their inventories increased, which the Company believes resulted from customers’

excessive inventory purchases during the first quarter of calendar 2022 and consumers’

response to rising inflation.

Finally, in advance of the expectation that shipments to customers from the Company’s Compton warehouse would be suspended during the first days of April 2022 due to the Company’s annual count of its inventory, customers were encouraged to place their orders earlier than they ordinarily would have.

As a result, the Company estimates that approximately $700,000 of sales were made in the fourth quarter of fiscal 2022 that would have otherwise been made in the first quarter of fiscal 2023.

Gross Profit:

Gross profit increased slightly in amount but decreased from 31.6% of net sales for the three-month period ended December 27, 2020 to 27.1% of net sales for the three-month period ended December 26, 2021.

The increase in the gross profit amount is net of the effect of the closure of Carousel, which recognized a gross profit of $319,000 in the prior-year period.

Gross profit decreased by $1.4 million and decreased from 31.9% of net sales for the nine-month period ended December 27, 2020 to 27.4% of net sales for the nine-month period ended December 26, 2021.

The closure of Carousel resulted in a $2.2 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 nine-month periods of the current year by increases in costs across the entire supply chain.

Gross profit increased by $497,000 and increased from 24.9% of net sales for the three-month period ended June 27, 2021 to 32.8% of net sales for the three-month period ended July 3, 2022.

The increase in the gross profit amount includes the effect of the closure of Carousel, which recognized a gross loss of $647,000 in the prior-year period and 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.

Also, although the gross profit in the prior-year period was impacted by increases in costs across the entire supply chain, the Company in the current-year has realized some stabilization in its input costs.

Finally, the Company also expects to benefit in future periods from recent increases in the selling prices of its products.

Marketing and Administrative Expenses:

Marketing and administrative expenses decreased by $326,000, and decreased from 17.6% of net sales for the three-month period ended December 27, 2020 to 13.6% of net sales for the three-month period ended December 26, 2021.

Marketing and administrative expenses decreased by $978,000, and decreased from 18.5% of net sales for the nine months ended December 27, 2020 to 15.6% of net sales for the nine months ended December 26, 2021.

The decrease in amounts for the current-year periods included lower charges incurred by Carousel of $494,000 for the three-month period and $1.3 million for the nine-month period.

Marketing and administrative expenses increased by $47,000, and increased from 18.0% of net sales for the three-month period ended June 27, 2021 to 21.7% of net sales for the three-month period ended July 3, 2022.

The prior-year period included $410,000 for charges incurred by Carousel.

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 and the nine-month period ended December 26, 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.

Income Tax Expense:

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 20.0% for the nine-month period ended December 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 lowers the estimated annual ETR for fiscal year 2022 by approximately four percentage points.

The Company applies the provisions of FASB ASC Sub-topic 740-10-25, which requires a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements.

Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized.

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

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 $25,000 during the three months ended December 26, 2021 and December 27, 2020, respectively, and $67,000 and $58,000 during the nine months ended December 26, 2021 and December 27, 2020, respectively, in the accompanying unaudited condensed consolidated statements of income.

The Company recorded discrete income tax benefits of $11,000 and $16,000 during the three-month periods ended December 26, 2021 and December 27, 2020, respectively, and $83,000 and $12,000 during the nine-month periods ended December 26, 2021 and December 27, 2020, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock.

The Company recorded a discrete income tax benefit of $33,000 during each of the three- and nine-month periods ended

December 26, 2021, and $74,000 during each of the three- and nine-month periods ended December 27, 2020, to reflect the

aggregate effect of certain tax credits.

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 19.4% and 23.7% for the nine-month periods ended December 26, 2021 and December 27, 2020, respectively.

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 23.5% for the three-month period ended July 3, 2022, as compared with an estimated annual ETR from continuing operations of 19.2% for the three-month period ended June 27, 2021.

The gain on extinguishment of debt associated with the forgiveness of the PPP Loan was permitted to be excluded from taxable income, the effect of which lowered the ETR for the prior-year period by approximately four percentage points.

As a result of the consideration of the relevant information regarding the state portion of its income tax provision, the Company recorded discrete reserves for unrecognized tax liabilities of $19,000 and $23,000 during the three-month periods ended July 3, 2022 and June 27, 2021, respectively, in the accompanying unaudited condensed consolidated statements of income.

The Company also recorded a discrete income tax charge of $1,000 and a discrete income tax benefit of $44,000 during the three-month periods ended July 3, 2022 and June 27, 2021, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock during the periods.

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 24.5% and 18.6% for the three-month periods ended July 3, 2022 and June 27, 2021, respectively.

Although the Company does not anticipate a material change to the ETR from continuing operations for the remainder of fiscal year 2023, 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 $8.1 million for the nine-month period ended December 27, 2020 to $4.3 million for the nine-month period ended December 26, 2021.

The decrease in the current year was the result of an increase in accounts payable in the current year that was $3.7 million lower than the increase in the prior year;

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 an increase in accounts receivable in the current year that was $1.2 million higher than the increase in the prior year.

These items were partially offset by an increase in net income of $1.6 million and an increase of inventory in the current year that was $978,000 lower than the increase the prior year.

Net cash provided by operating activities decreased from $5.0 million for the three-month period ended June 27, 2021 to $3.5 million for the three-month period ended July 3, 2022.

The decrease in the current year was the result of an increase in inventory in the current year that was $4.1 million higher than the increase in the prior year and a decrease in accrued liabilities in the current year that was $2.9 million lower than the increase in the prior year.

These decreases were offset by a decrease in accounts receivable in the current year that was $3.7 million higher than the decrease in the prior year and the gain on extinguishment of debt of $1,985,000 in the prior year that was associated with the forgiveness of the PPP Loan.

Net cash used in investing activities, which were primarily associated with capital expenditures for property, plant and equipment, decreased from $75,000 in the prior year to $59,000 in the current year.

Net cash used in financing activities decreased from $4.2 million in the prior year to $2.5 million in the current year.

Financing activities included net repayments under the revolving line of credit in the prior year of $2.6 million that were not repeated in the current year and the purchase of treasury stock in the prior year from a related party amounting to $1.9 million that was not repeated in the current year.

These financing activities were partially offset by the receipt in the prior year of $1,964,000 in proceeds from the PPP Loan that was not repeated in the current year and dividends paid in the current year were $772,000 higher than in the prior year.

At December 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.

Net cash used in financing activities, which were primarily associated with the payment of dividends, increased from $834,000 in the prior year to $896,000 in the current year.

As of July 3, 2022, 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 substantially all 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 $99,000 and $79,000 during the three-month periods ended December 26, 2021 and December 27, 2020, respectively, and $248,000 and $209,000 during the nine-month periods ended December 26, 2021 and December 27, 2020, respectively.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $68,000 and $64,000 during the three-month periods ended July 3, 2022 and June 27, 2021, 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