What changed in this filing

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Item 1. Financial Statements

2022-11-16 compared with 2022-08-17 · 218 added, 139 removed, 497 unchanged (42% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

OCTOBER 2, 2022 (UNAUDITED) AND APRIL 3, 2022

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

October 2, 2022

April 3, 2022

3 unchanged sentences

$ 1,598  

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

Accounts receivable (net of allowances of $ 1,274 at October 2, 2022 and $ 945 at April 3, 2022):

Due from factor

45 unchanged sentences

Common stock - $ 0.01 par value per share;

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

Authorized 40,000,000 shares at October 2, 2022 and April 3, 2022;

Issued 13,011,814 shares at October 2, 2022 and 12,944,918 shares at April 3, 2022

Additional paid-in capital

1 unchanged sentence

55,925  

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

Treasury stock - at cost - 2,894,242 shares at October 2, 2022 and 2,864,698 shares at April 3, 2022

( 15,803 )  

6 unchanged sentences

$ 60,155  

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

THREE- AND SIX-MONTH PERIODS ENDED OCTOBER 2, 2022 AND SEPTEMBER 26, 2021

(amounts in thousands, except per share amounts)

Three-Month Periods Ended

June 27, 2021

Six-Month Periods Ended

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

$ 18,726  

$ 20,220  

$ 34,436  

$ 38,932  

Cost of products sold

1 unchanged sentence

14,152  

23,837  

28,208  

10,599  

10,724  

Marketing and administrative expenses

1 unchanged sentence

Other (expense) income:

Interest expense - net of interest income

Interest income - net of interest expense

Gain on extinguishment of debt

Gain on insurance proceeds received for damage to equipment

Gain on sale of property, plant and equipment

Gain (loss) on sale of property, plant and equipment

Income before income tax expense

2 unchanged sentences

$ 2,386  

$ 3,474  

$ 5,051  

Weighted average shares outstanding:

1 unchanged sentence

10,053  

10,085  

10,028  

Effect of dilutive securities

1 unchanged sentence

10,094  

10,107  

10,071  

Earnings per share -- basic and diluted

1 unchanged sentence

$ 0.24  

See notes to unaudited condensed consolidated financial statements.

$ 0.34  

$ 0.50  

CROWN CRAFTS, INC.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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

THREE- AND SIX-MONTH PERIODS ENDED OCTOBER 2, 2022 AND SEPTEMBER 26, 2021

Common Shares

Treasury Shares

Shareholders'

Number of Shares

Paid-in Capital

Retained Earnings

Shareholders' Equity

(Dollar amounts in thousands)

Balances - March 28, 2021

Three-Month Periods

Balances - June 27, 2021

12,864,753  

12 unchanged sentences

( 806 )  

Balances - June 27, 2021

Balances - September 26, 2021

12,924,918  

4 unchanged sentences

$ 45,600  

Balances - April 3, 2022

Balances - July 3, 2022

12,959,918  

12 unchanged sentences

( 809 )  

Balances - July 3, 2022

Balances - October 2, 2022

13,011,814  

4 unchanged sentences

$ 48,160  

See notes to unaudited condensed consolidated financial statements.

Six-Month Periods

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

( 38,400 )  

( 296 )  

Dividends declared on common stock - $ 0.16 per share

( 1,608 )  

Balances - September 26, 2021

12,924,918  

( 2,849,846 )  

$ ( 15,498 )  

$ 55,335  

$ 5,634  

$ 45,600  

Balances - April 3, 2022

12,944,918  

( 2,864,698 )  

$ ( 15,614 )  

$ 55,925  

$ 5,361  

$ 45,801  

Issuance of shares

66,896  

Stock-based compensation

Acquisition of treasury stock

( 29,544 )  

( 189 )  

Dividends declared on common stock - $ 0.16 per share

( 1,615 )  

Balances - October 2, 2022

13,011,814  

( 2,894,242 )  

$ ( 15,803 )  

$ 56,613  

$ 7,220  

$ 48,160  

CROWN CRAFTS, INC.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

SIX-MONTH PERIODS ENDED OCTOBER 2, 2022 AND SEPTEMBER 26, 2021

(amounts in thousands)

Three-Month Periods Ended

June 27, 2021

Six-Month Periods Ended

October 2, 2022

September 26, 2021

Operating activities:

$ 1,434  

$ 2,665  

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of property, plant and equipment

4 unchanged sentences

Gain on insurance proceeds received for damage to equipment

( 34 )  

Gain on sale of property, plant and equipment

(Gain) loss on sale of property, plant and equipment

Reserve for unrecognized tax liabilities

2 unchanged sentences

Accounts receivable

( 5,697 )  

Prepaid expenses

( 197 )  

Lease liabilities

( 480 )  

Accounts payable

Accrued liabilities

( 1,544 )  

Net cash provided by operating activities

1 unchanged sentence

Capital expenditures for property, plant and equipment

( 95 )  

Insurance proceeds received for damage to equipment

1 unchanged sentence

Net cash used in investing activities

( 59 )  

Financing activities:

2 unchanged sentences

Purchase of treasury stock from related parties

( 162 )  

Issuance of common stock

Dividends paid

( 808 )  

Net cash used in financing activities

( 896 )  

Net increase in cash and cash equivalents

1 unchanged sentence

Cash and cash equivalents at end of period

$ 4,141  

$ 4,702  

Supplemental cash flow information:

3 unchanged sentences

Property, plant and equipment purchased but unpaid

( 16 )  

Dividends declared but unpaid

( 824 )  

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

FOR THE THREE- AND SIX-MONTH PERIODS ENDED OCTOBER 2, 2022 AND SEPTEMBER 26, 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 July 3, 2022 and the results of its operations and cash flows for the periods presented.

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 October 2, 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 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.

Operating results for the quarter ended October 2, 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.

27 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.

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.

The Company has determined that all other ASUs issued which had become effective as of October 2, 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 $ 124,000 and $ 221,000 for the three -month periods ended July 3, 2022 and June 27, 2021, respectively.

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $ 123,000 and $ 129,000 for the three -month periods ended October 2, 2022 and September 26, 2021, respectively, and amounted to $ 247,000 and $ 350,000 for the six -month periods ended October 2, 2022 and September 26, 2021, respectively.

Note 3 –

2 unchanged sentences

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):

Net sales of bedding, blankets and accessories and net sales of bibs, toys and disposable products for the three - and six -month periods ended October 2, 2022 and September 26, 2021 are as follows (in thousands):

Three-Month Periods Ended

June 27, 2021

Six-Month Periods Ended

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

Bedding, blankets and accessories

1 unchanged sentence

$ 11,101  

$ 17,001  

$ 21,058  

Bibs, toys and disposables products

17,435  

17,874  

Total net sales

1 unchanged sentence

$ 20,220  

$ 34,436  

$ 38,932  

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 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.

Royalty expense is included in cost of products sold in the accompanying unaudited condensed consolidated statements of income and amounted to $ 1.2 million and $ 1.4 million for the three months ended October 2, 2022 and September 26, 2021, respectively, and amounted to $ 2.3 million and $ 2.7 million for the six months ended October 2, 2022 and September 26, 2021, respectively.

Note 5 –

2 unchanged sentences

The statute of limitations varies by jurisdiction;

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.

tax years open to examination or other adjustment as of October 2, 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 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.

The Company recorded discrete income tax charges of $ 5,000 and $ 6,000 during the three - and six -month periods ended October 2, 2022, respectively, and 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 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.

Note 6 –

Carousel Designs

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.

The accompanying unaudited condensed consolidated statements of income for the three - and six -month periods ended September 26, 2021 include income, expenses and losses associated with 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 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 -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.

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 7 –

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 $ 68,000 and $ 64,000 during the three -month periods ended July 3, 2022 and June 27, 2021, respectively.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $ 79,000 and $ 85,000 for the three -month periods ended October 2, 2022 and September 26, 2021, respectively, and amounted to $ 147,000 and $ 149,000 for the six -month periods ended October 2, 2022 and September 26, 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 Company’s credit facility as of October 2, 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.

At October 2, 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 4.25 % as of October 2, 2022, on daily negative balances, if any, held at CIT.

As of October 2, 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 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.

The Company believes it was in compliance with these covenants as of October 2, 2022.

Credit Concentration:

The Company’s accounts receivable as of October 2, 2022 amounted to $ 17.6 million, net of allowances of $ 1.3 million.

Of this amount, $ 16.2 million was due from CIT under the factoring agreements;

an additional amount of $ 2.3 million was due from CIT as a negative balance outstanding under the revolving line of credit.

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 as of April 3, 2022 amounted to $ 23.2 million, net of allowances of $ 945,000 .

The combined amount of $ 18.5 million represented the maximum loss that the Company could have incurred as of October 2, 2022 if CIT had failed completely to perform its obligations under the factoring agreements and the revolving line of credit.

The Company’s accounts receivable at 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 $ 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.

The combined amount of $ 22.6 million represented the maximum loss that the Company could have incurred as of April 3, 2022 if CIT had failed completely to perform its obligations under the factoring agreements and the revolving line of credit.

Paycheck Protection Program Loan:

10 unchanged sentences

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’s reporting units have recognized goodwill as of October 2, 2022 and April 3, 2022 of $ 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.

7 unchanged sentences

Other Intangible Assets

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):

Other intangible assets as of October 2, 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 October 2, 2022 and April 3, 2022, the amortization expense for the three - and six -month periods ended October 2, 2022 and September 26, 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

Six-Month Periods Ended

September 26,

Tradename and trademarks

$ 2,567  

$ 1,920  

$ 1,885  

Non-compete covenants

1 unchanged sentence

Total other intangible assets

$ 11,640  

$ 9,106  

$ 8,986  

Classification within the accompanying unaudited condensed consolidated statements of income:

4 unchanged sentences

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

October 2, 2022

April 3, 2022

1 unchanged sentence

Finished Goods

26,322  

20,625  

Total inventory

$ 26,350  

$ 20,653  

Note 11 –

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.

The Company made cash payments related to its recognized operating leases of $ 488,000 and $ 487,000 during the three months ended October 2, 2022 and September 26, 2021, respectively, and $ 968,000 and $ 984,000 during the six months ended October 2, 2022 and September 26, 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 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 -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):

At October 2, 2022, the Company’s operating leases had a weighted-average remaining lease term of 

1.6 years and a weighted-average discount rate of 

During the three - and six -month periods ended October 2, 2022 and September 26, 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

June 27, 2021

Six-Month Periods Ended

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

Cost of products sold

1 unchanged sentence

Total operating lease costs

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 October 2, 2022 are as follows (in thousands):

Total undiscounted operating lease payments

1 unchanged sentence

Operating lease liabilities - net

$ 2,332  

Note 12 –

2 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.

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.

As of October 2, 2022, 805,439 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 $ 258,000 and $ 208,000 during the three -month periods ended October 2, 2022 and September 26, 2021, respectively, and recorded $ 591,000 and $ 340,000 during the six -month periods ended October 2, 2022 and September 26, 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 July 3, 2022.

No stock-based compensation costs were capitalized as part of the cost of an asset as of October 2, 2022.

Stock Options:

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

The following table represents stock option activity for the six -month periods ended October 2, 2022 and September 26, 2021:

Six-Month Periods Ended

October 2, 2022

September 26, 2021

Outstanding at Beginning of Period

12 unchanged sentences

387,500  

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 .

As of October 2, 2022, the intrinsic value of the outstanding and exercisable stock options was $ 89,000 .

The intrinsic value of the stock options exercised during the three - and six -month periods ended October 2, 2022 was $ 8,000 and $ 28,000 , respectively.

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

option exercises of $ 2,000 and $ 14,000 during the three -month periods ended October 2, 2022 and September 26, 2021, respectively, and $ 10,000 and $ 48,000 during the six -month periods ended October 2, 2022 and September 26, 2021, respectively.

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 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

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 -month periods ended October 2, 2022 and September 26, 2021, which options vest over a two -year period, assuming continued service.

Six-Month Periods Ended

October 2, 2022

September 26, 2021

Number of options issued

17 unchanged sentences

$ 1.61  

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

During the three - and six -month periods ended October 2, 2022 and September 26, 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 October 2, 2022

Three-Month Period Ended September 26, 2021

Administrative

2 unchanged sentences

Total stock option compensation

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.

Six-Month Period Ended October 2, 2022

Six-Month Period Ended September 26, 2021

Administrative

Options Granted in Fiscal Year

Total stock option compensation

As of October 2, 2022, total unrecognized stock option compensation expense amounted to $ 196,000 , which will be recognized as the underlying stock options vest over a weighted-average period of 10.4 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.

11 unchanged sentences

August 12, 2020

46,512  

August 14, 2019

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.

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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.

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

In August 2022 and August 2021, 52,856 shares and 43,984 shares, respectively, that had been granted to the Company’s directors vested, having an aggregate value of $ 331,000 and $ 327,000 , respectively.

Non-vested Stock Granted to Employees:

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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 

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

ten  trading days within any period of 

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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 

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

ten  trading days within any period of 

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

and (iii) 

one - third  shall vest on the 

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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

During the three - and six -month periods ended October 2, 2022 and September 26, 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 Periods Ended

Six-Month Periods Ended

Stock Granted in Fiscal Year

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

Total stock grant compensation

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.

As of October 2, 2022, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $ 743,000 , 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 14.7 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 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.

The Company has evaluated all events which have occurred between October 2, 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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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 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.

The accompanying unaudited condensed consolidated statements of income for the three- and six-month periods ended September 26, 2021 include income, expenses and losses associated with 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.

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Although the Company maintains relationships with a limited number of suppliers, the Company believes that its products may be readily manufactured by several alternative sources in quantities sufficient to meet the Company's requirements.

A summary of certain factors that management considers important in reviewing the Company’s results of operations, financial position, liquidity and capital resources is set forth below, which should be read in conjunction with the accompanying consolidated financial statements and related notes included in the preceding sections of this Quarterly Report.

A summary of certain factors that management considers important in reviewing the Company’s results of operations, financial position, liquidity and capital resources is set forth below, which should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included in the preceding sections of this Quarterly Report.

RESULTS OF OPERATIONS

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):

The following table contains the results of operations for the three- and six-month periods ended October 2, 2022 and September 26, 2021 and the dollar and percentage changes for those periods (in thousands, except percentages):

Three-Month Periods Ended

June 27, 2021

Six-Month Periods Ended

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

Net sales by category:

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% of net sales

Interest expense - net of interest income

Interest income - net of interest expense

Gain on extinguishment of debt

Other income - net

Other income (expense) - net

Income tax expense

% of net sales

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’

Sales decreased to $18.7 million for the three months ended October 2, 2022, compared with $20.2 million for the three months ended September 26, 2021, a decrease of $1.5 million, or 7.4%.

Sales of bedding, blankets and accessories decreased by $1.6 million, which was offset by an increase in sales of bibs, toys and disposable products of $104,000.

Sales decreased to $34.4 million for the six months ended October 2, 2022, compared with $38.9 million for the six months ended September 26, 2021, a decrease of $4.5 million, or 11.5%.

Sales of bedding, blankets and accessories decreased by $4.1 million, and sales of bibs, toys and disposable products decreased by $439,000.

The decreases in sales are primarily due to lower replenishment orders at retailers.

Also, during the current-year periods, 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.

response to macroeconomic conditions.

Gross Profit:

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.

Gross profit decreased by $622,000 and decreased from 30.0% of net sales for the three-month period ended September 26, 2021 to 29.1% of net sales for the three-month period ended October 2, 2022.

Gross profit decreased by $125,000 but increased from 27.5% of net sales for the six-month period ended September 26, 2021 to 30.8% of net sales for the six-month period ended October 2, 2022.

The decrease in the gross profit amount is net of the positive impact of the closure of Carousel, which in the prior-year period recognized a gross loss of $688,000, including losses from 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.

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 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.

Marketing and administrative expenses decreased by $428,000, and decreased from 15.6% of net sales for the three-month period ended September 26, 2021 to 14.6% of net sales for the three-month period ended October 2, 2022.

The prior-year period included $85,000 for charges incurred by Carousel.

Marketing and administrative expenses decreased by $381,000 but increased from 16.8% of net sales for the six-month period ended September 26, 2021 to 17.9% of net sales for the six-month period ended October 2, 2022.

The prior-year period included $495,000 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.

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 months ended June 27, 2021 and the six months 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 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 Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 23.5% for the six-month period ended October 2, 2022, as compared with an estimated annual ETR from continuing operations of 19.6% for the six-month period ended September 26, 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.

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 $27,000 and $22,000 during the three-month periods ended October 2, 2022 and September 26, 2021, respectively, and $46,000 and $45,000 during the six-month periods ended October 2, 2022 and September 26, 2021, respectively, in the accompanying unaudited condensed consolidated statements of income.

The Company also recorded discrete income tax charges of $5,000 and $6,000 during the three- and six-month periods ended October 2, 2022, respectively, and 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 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 24.7% and 19.2% for the six-month periods ended October 2, 2022 and September 26, 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 $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.

Net cash provided by operating activities decreased from $3.2 million for the six-month period ended September 26, 2021 to $2.7 million for the six-month period ended October 2, 2022.

The decrease in the current year was the result of an increase in inventory in the current year that was $3.2 million higher than the increase in the prior year and a $1.6 million decrease in net income from the prior year to the current year.

There was also an increase in accounts payable in the current year that was $1.6 million lower than the increase in the prior year.

There was a decrease in accrued liabilities in the current year that was $619,000 lower than the decrease in the prior year.

These decreases were offset by a decrease in accounts receivable in the current year that was $4.8 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 $253,000 in the prior year to $191,000 in the current year.

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.

Net cash used in financing activities, which were primarily associated with the payment of dividends, increased by $73,000 from the prior year to the current year.

As of October 2, 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 $68,000 and $64,000 during the three-month periods ended July 3, 2022 and June 27, 2021, respectively.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $79,000 and $85,000 for the three-month periods ended October 2, 2022 and September 26, 2021, respectively, and amounted to $147,000 and $149,000 for the six-month periods ended October 2, 2022 and September 26, 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