What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-02-14 compared with 2023-11-15 · 259 added, 431 removed, 299 unchanged (70% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

OCTOBER 1, 2023 (UNAUDITED) AND APRIL 2, 2023

DECEMBER 31, 2023 (UNAUDITED) AND APRIL 2, 2023

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

October 1, 2023

December 31, 2023

April 2, 2023

1 unchanged sentence

Cash and cash equivalents

$ 1,851  

$ 1,742  

Accounts receivable (net of allowances of $ 2,410 at October 1, 2023 and $ 1,474 at April 2, 2023):

$ 683 $ 1,742

Accounts receivable (net of allowances of $ 2,456 at December 31, 2023 and $ 1,474 at April 2, 2023):

Due from factor

17,091  

20,740  

35,257  

34,211  

17,636 20,740

34,935 34,211

Prepaid expenses

Total current assets

58,872  

60,375  

60,406 60,375

Operating lease right of use assets

15,733  

17,305  

15,813 17,305

Property, plant and equipment - at cost:

9 unchanged sentences

Finite-lived intangible assets - gross

12,940  

12,940 12,940

Less accumulated amortization

Finite-lived intangible assets - net

$ 87,682  

$ 90,972  

Deferred income taxes

$ 89,304 $ 90,972

LIABILITIES AND SHAREHOLDERS' EQUITY

1 unchanged sentence

Accounts payable

$ 7,490  

$ 7,548  

$ 7,508 $ 7,548

Accrued wages and benefits

4 unchanged sentences

Total current liabilities

13,755  

13,057  

14,630 13,057

Non-current liabilities:

Long-term debt

12,674  

10,014 12,674

Deferred income taxes

Operating lease liabilities, noncurrent

13,306  

14,889  

13,056 14,889

Reserve for unrecognized tax liabilities

Total non-current liabilities

23,774  

28,701  

23,449 28,701

Shareholders' equity:

Common stock - $ 0.01 par value per share;

Authorized 40,000,000 shares at October 1, 2023 and April 2, 2023;

Issued 13,138,226 shares at October 1, 2023 and 13,051,814 shares at April 2, 2023

Authorized 40,000,000 shares at December 31, 2023 and April 2, 2023;

Issued 13,138,226 shares at December 31, 2023 and 13,051,814 shares at April 2, 2023

Additional paid-in capital

57,509  

57,126  

Treasury stock - at cost - 2,897,507 shares at October 1, 2023 and April 2, 2023

( 15,821 )  

57,699 57,126

Treasury stock - at cost - 2,897,507 shares at December 31, 2023 and April 2, 2023

( 15,821 ) ( 15,821 )

Retained Earnings

Total shareholders' equity

50,153  

49,214  

51,225 49,214

Total Liabilities and Shareholders' Equity

$ 87,682  

$ 90,972  

$ 89,304 $ 90,972

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE- AND SIX-MONTH PERIODS ENDED OCTOBER 1, 2023 AND OCTOBER 2, 2022

THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 31, 2023 AND JANUARY 1, 2023

(amounts in thousands, except per share amounts)

Three-Month Periods Ended

Six-Month Periods Ended

October 1, 2023

October 2, 2022

October 1, 2023

October 2, 2022

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Cost of products sold

2 unchanged sentences

Other (expense) income:

Interest expense - net of interest income

Interest (expense) income - net of interest income

Gain on insurance proceeds received for damage to equipment

Gain on sale of property, plant and equipment

Other (expense) income - net

Income before income tax expense

7 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

THREE- AND SIX-MONTH PERIODS ENDED OCTOBER 1, 2023 AND OCTOBER 2, 2022

THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 31, 2023 AND JANUARY 1, 2023

Common Shares

2 unchanged sentences

Number of Shares

Paid-in Capital

Retained Earnings

2 unchanged sentences

Three-Month Periods

Balances - July 3, 2022

12,959,918  

( 2,890,165 )  

$ ( 15,776 )  

$ 56,331  

$ 5,989  

$ 46,674  

Issuance of shares

51,896  

Balances - October 2, 2022

13,011,814 $ 130 ( 2,894,242 ) $ ( 15,803 ) $ 56,613 $ 7,220 $ 48,160

Stock-based compensation

Acquisition of treasury stock

( 4,077 )  

( 27 )  

- - - - 253 - 253

- - - - - 1,348 1,348

Dividend declared on common stock - $ 0.08 per share

( 809 )  

- - - - - ( 809 ) ( 809 )

Balances - January 1, 2023

13,011,814 $ 130 ( 2,894,242 ) $ ( 15,803 ) $ 56,866 $ 7,759 $ 48,952

Balances - October 1, 2023

13,011,814  

( 2,894,242 )  

$ ( 15,803 )  

$ 56,613  

$ 7,220  

$ 48,160  

Balances - July 2, 2023

13,051,814  

( 2,897,507 )  

$ ( 15,821 )  

$ 57,317  

$ 7,332  

$ 48,959  

Issuance of shares

86,412  

13,138,226 $ 131 ( 2,897,507 ) $ ( 15,821 ) $ 57,509 $ 8,334 $ 50,153

Stock-based compensation

- - - - 190 - 190

- - - - - 1,702 1,702

Dividend declared on common stock - $ 0.08 per share

( 820 )  

Balances - October 1, 2023

13,138,226  

( 2,897,507 )  

$ ( 15,821 )  

$ 57,509  

$ 8,334  

$ 50,153  

Six-Month Periods

- - - - - ( 820 ) ( 820 )

Balances - December 31, 2023

13,138,226 $ 131 ( 2,897,507 ) $ ( 15,821 ) $ 57,699 $ 9,216 $ 51,225

Nine-Month Periods

Balances - April 3, 2022

12,944,918  

( 2,864,698 )  

$ ( 15,614 )  

$ 55,925  

$ 5,361  

$ 45,801  

12,944,918 $ 129 ( 2,864,698 ) $ ( 15,614 ) $ 55,925 $ 5,361 $ 45,801

Issuance of shares

66,896  

66,896 1 - - 97 - 98

Stock-based compensation

- - - - 844 - 844

Acquisition of treasury stock

( 29,544 )  

( 189 )  

- - ( 29,544 ) ( 189 ) - - ( 189 )

- - - - - 4,822 4,822

Dividend declared on common stock - $ 0.24 per share

( 1,615 )  

Balances - October 2, 2022

13,011,814  

( 2,894,242 )  

$ ( 15,803 )  

$ 56,613  

$ 7,220  

$ 48,160  

- - - - - ( 2,424 ) ( 2,424 )

Balances - January 1, 2023

13,011,814 $ 130 ( 2,894,242 ) $ ( 15,803 ) $ 56,866 $ 7,759 $ 48,952

Balances - April 2, 2023

13,051,814  

( 2,897,507 )  

$ ( 15,821 )  

$ 57,126  

$ 7,778  

$ 49,214  

13,051,814 $ 131 ( 2,897,507 ) $ ( 15,821 ) $ 57,126 $ 7,778 $ 49,214

Issuance of shares

86,412  

86,412 - - - - - -

Stock-based compensation

- - - - 573 - 573

- - - - - 3,890 3,890

Dividends declared on common stock - $ 0.24 per share

( 1,632 )  

Balances - October 1, 2023

13,138,226  

( 2,897,507 )  

$ ( 15,821 )  

$ 57,509  

$ 8,334  

$ 50,153  

- - - - - ( 2,452 ) ( 2,452 )

Balances - December 31, 2023

13,138,226 $ 131 ( 2,897,507 ) $ ( 15,821 ) $ 57,699 $ 9,216 $ 51,225

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX-MONTH PERIODS ENDED OCTOBER 1, 2023 AND OCTOBER 2, 2022

NINE-MONTH PERIODS ENDED DECEMBER 31, 2023 AND JANUARY 1, 2023

(amounts in thousands)

Six-Month Periods Ended

October 1, 2023

October 2, 2022

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

Operating activities:

28 unchanged sentences

Net cash used in financing activities

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

10 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE- AND SIX-MONTH PERIODS ENDED OCTOBER 1, 2023 AND OCTOBER 2, 2022

Note 1 –

Interim Financial Statements

FOR THE THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 31, 2023 AND JANUARY 1, 2023

Note 1 – Interim Financial Statements

Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements include the accounts of Crown Crafts, Inc.

(the “Company”) and its subsidiaries and have been prepared pursuant to accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information as promulgated by the Financial Accounting Standards Board (“FASB”).

Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements.

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 unaudited condensed consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of October 1, 2023 and the results of its operations and cash flows for the periods presented.

In the opinion of the Company’s management, the unaudited condensed consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of December 31, 2023 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 six -month periods ended October 1, 2023 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending March 31, 2024.

For further information, refer to the Company’s consolidated financial statements and notes thereto for the fiscal year ended April 2, 2023, included in the Company’s Annual Report on Form 10 -K filed with the United States Securities and Exchange Commission (the “SEC”).

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

References herein to “fiscal year 2024”

or “2024”

represent the 52 -week period ending March 31, 2024 and references herein to “fiscal year 2023”

or “2023”

represent the 52 -week period ended April 2, 2023.

Operating results for the three - and nine -months ended December 31, 2023 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending March 31, 2024.

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

References herein to “fiscal year 2024” or “2024” represent the 52 -week period ending March 31, 2024 and references herein to “fiscal year 2023” or “2023” represent the 52 -week period ended April 2, 2023.

Recently-Issued Accounting Standards:

In June 2016, the FASB issued ASU No.

2016 - 13, Financial Instruments –

Credit Losses (Topic 326 ):

2016 - 13, Financial Instruments – Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments, the objective of which is to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by an entity.

Current GAAP requires an “incurred loss”

methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred.

Because this methodology restricted the recognition of credit losses that are expected, but did not yet meet the “probable”

threshold, ASU No.

Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred.

Because this methodology restricted the recognition of credit losses that are expected, but did not yet meet the “probable” threshold, ASU No.

2016 - 13 was issued to require the consideration of a broader range of reasonable and supportable information when determining estimates of credit losses.

2 unchanged sentences

2016 - 13 was required to be adopted no later than the fiscal year beginning after December 15, 2019, but on November 15, 2019, the FASB issued ASU No.

2019 - 10, Financial Instruments –

Credit Losses (Topic 326 ), Derivatives and Hedging (Topic 815 ), and Leases (Topic 842 ):

2019 - 10, Financial Instruments – Credit Losses (Topic 326 ), Derivatives and Hedging (Topic 815 ), and Leases (Topic 842 ):

Effective Dates , which provided for the deferral of the effective date of ASU No.

3 unchanged sentences

Because the Company assigns the majority of its trade accounts receivable under factoring agreements with The CIT Group/Commercial Services, Inc.

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

In October 2023, the FASB issued ASU No.

2023 - 06, Disclosure Improvements –

Codification Amendments in Response to the SEC ’

s Disclosure Update and Simplification Initiative , the objective of which is to clarify or improve disclosure and presentation requirements and to align the requirements in the FASB ASC with the SEC’s regulations.

2023 - 06, Disclosure Improvements – Codification Amendments in Response to the SEC ’ s Disclosure Update and Simplification Initiative , the objective of which is to clarify or improve disclosure and presentation requirements and to align the requirements in the FASB ASC with the SEC’s regulations.

In August 2018, the SEC issued Release No.

1 unchanged sentence

The amendments in ASU No.

2023 - 06 are the result of the FASB’s decision to incorporate into the FASB ASC 14 of the 27 disclosures referred by the SEC.

The FASB noted that the disclosure requirements in the SEC’s guidance and the FASB ASC should not be duplicated in both places.

2023 - 06 are the result of the FASB’s decision to incorporate into the FASB ASC 14 of the 27 disclosures referred by the SEC.

The FASB noted that the disclosure requirements in the SEC’s guidance and the FASB ASC should not be duplicated in both places.

Accordingly, although the ASU was required to be adopted upon issuance, each amendment to the FASB ASC included in the ASU will not become effective until the effective date upon which the related SEC disclosure is no longer required.

1 unchanged sentence

The Company does not anticipate that the adoption of ASU No.

2023 - 06 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 October 1, 2023, 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 –

Advertising Costs

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 $ 172,000 and $ 123,000 for the three -month periods ended October 1, 2023 and October 2, 2022, respectively, and amounted to $ 364,000 and $ 247,000 for the six -month periods ended October 1, 2023 and October 2, 2022, respectively.

Note 3 –

Segment and Related Information

2023 - 06 will have a significant impact on the Company’s financial position, results of operations and related disclosures.

In November 2023, the FASB issued ASU No.

2023 - 07, Segment Reporting (Topic 280 ) – Improvements to Reportable Segment Disclosures , the objective of which is to improve the disclosures about a public entity’s reportable segments by providing more detailed information about a reportable segment’s expenses.

For disclosures associated with annual and interim periods, the amendments in ASU No.

2023 - 07 are required to be adopted for fiscal years beginning after December 15, 2023 and December 15, 2024, respectively, and early adoption is permitted.

Upon adoption, a public entity must apply the amendments in ASU No.

2023 - 07 retrospectively to disclosures of all prior periods presented.

The Company intends to adopt ASU No.

2023 - 07 effective as of April 1, 2024 and is evaluating the guidance of the ASU against its existing disclosures related to segment reporting.

In December 2023, the FASB issued ASU No.

2023 - 09, Income Taxes (Topic 740 ) – Improvements to Income Tax Disclosures , the objective of which is to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in ASU No.

2023 - 09 are required to be adopted for fiscal years beginning after December 15, 2024 and early adoption is permitted.

The Company is evaluating the guidance of the ASU No.

2023 - 09 against its existing disclosures related to income tax disclosures.

The Company has determined that all other ASUs issued which had become effective as of December 31, 2023, 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 – Advertising Costs

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $ 267,000 and $ 123,000 for the three -month periods ended December 31, 2023 and January 1, 2023, respectively, and amounted to $ 631,000 and $ 370,000 for the nine -month periods ended December 31, 2023 and January 1, 2023, respectively.

Note 3 – Segment and Related Information

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

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 - and six -month periods ended October 1, 2023 and October 2, 2022 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 nine -month periods ended December 31, 2023 and January 1, 2023 are as follows (in thousands):

Three-Month Periods Ended

Six-Month Periods Ended

October 1, 2023

October 2, 2022

October 1, 2023

October 2, 2022

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Bedding, blankets and accessories

$ 8,996 $ 9,005 $ 24,345 $ 26,006

Bibs, toys and disposable products

14,805 9,999 40,708 27,434

Total net sales

Note 4 –

Licensing Agreements

$ 23,801 $ 19,004 $ 65,053 $ 53,440

Note 4 – Licensing Agreements

The Company has entered into licensing agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts.

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 $ 1.5 million and $ 1.2 million for the three months ended October 1, 2023 and October 2, 2022, respectively, and amounted to $ 2.5 million and $ 2.3 million for the six months ended October 1, 2023 and October 2, 2022, respectively.

Note 5 –

Royalty expense is included in cost of products sold in the accompanying unaudited consolidated statements of income and amounted to $ 1.3 million and $ 1.2 million for the three months ended December 31, 2023 and January 1, 2023, respectively, and amounted to $ 3.8 million and $ 3.5 million for the nine months ended December 31, 2023 and January 1, 2023, respectively.

Note 5 – Income Taxes

The Company files income tax returns in the many jurisdictions in which it operates, including the U.S., several U.S.

states and the People’s Republic of China.

The statute of limitations varies by jurisdiction;

tax years open to examination or other adjustment as of October 1, 2023 were the fiscal years ended April 2, 2023, April 3, 2022, March 28, 2021, March 29, 2020 and March 31, 2019.

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

On May 30, 2023, the Company and the FTB entered into an agreement to settle (the “Settlement Agreement”) the FTB’s proposed assessment of additional income tax in respect of these consolidated income tax returns under examination for the amount of $ 442,000 , which included interest expense of $ 86,000 , payment of which was made by the Company to the FTB on May 31, 2023.

tax years open to examination or other adjustment as of December 31, 2023 were the fiscal years ended April 2, 2023, April 3, 2022, March 28, 2021, March 29, 2020 and March 31, 2019.

Because the examination was ongoing as of April 2, 2023, and because the Settlement Agreement was entered into prior to the issuance of the consolidated financial statements as of and for the fiscal year ended April 2, 2023, the Company recorded the effect of the Settlement Agreement in the consolidated balance sheet as of April 2, 2023 and the consolidated statement of income for the fiscal year ended April 2, 2023.

1 unchanged sentence

Such adjustment could also lead to adjustments to one or more other state income tax returns, or to income tax returns for subsequent fiscal years, or both.

To the extent that the Company’s reserve for unrecognized tax liabilities is not adequate to support the cumulative effect of such adjustments, the Company could experience a material adverse impact on its future results of operations.

Conversely, to the extent that the calculations and positions taken by the Company on the filed income tax returns under examination are sustained, the reversal of all or a portion of the Company’s reserve for unrecognized tax liabilities could result in a favorable impact on its future results of operations.

Note 6 –

As of October 1, 2023 and April 2, 2023, the Company’s balances of inventory were $ 35.3 million and $ 34.2 million, respectively, nearly all of which were finished goods.

Note 7 –

On March 17, 2023 ( the “Closing Date”), the Company acquired Manhattan Group, LLC (“Manhattan”) and Manhattan Toy Europe Limited (“MTE”), Manhattan’s wholly-owned subsidiary, from H Enterprises International, LLC (“HEI”) (the “Manhattan Acquisition”), for a purchase price of $ 17.0 million, subject to adjustments for cash at the Closing Date and to the extent that actual net working capital as of the Closing Date differs from target net working capital of $ 13.75 million (the “Aggregate Adjustment”).

The Manhattan Acquisition was funded with cash available on the Closing Date and borrowings under the Company’s revolving line of credit with CIT.

Note 6 – Inventories

As of December 31, 2023 and April 2, 2023, the Company’s balances of inventory were $ 34.9 million and $ 34.2 million, respectively, nearly all of which were finished goods.

Note 7 – Acquisition

On March 17, 2023 ( the “Closing Date”), the Company acquired Manhattan Group, LLC (“Manhattan”) and Manhattan Toy Europe Limited (“MTE”), Manhattan’s wholly-owned subsidiary, from H Enterprises International, LLC (“HEI”) (the “Manhattan Acquisition”), for a purchase price of $ 17.0 million, subject to adjustments for cash at the Closing Date and to the extent that actual net working capital as of the Closing Date differed from target net working capital of $ 13.75 million (the “Aggregate Adjustment”).

The Manhattan Acquisition was funded with cash available on the Closing Date and borrowings under the Company’s revolving line of credit with CIT.

On September 29, 2023, the Company and HEI agreed to a settlement of the Aggregate Adjustment, pursuant to which HEI paid $ 509,000 to the Company, which included interest income of $ 21,000 .

The Manhattan Acquisition has been accounted for in accordance with FASB ASC Topic 805, Business Combinations .

The Manhattan Acquisition was accounted for in accordance with FASB ASC Topic 805, Business Combinations .

The Company is currently determining the allocation of the acquisition cost with the assistance of an independent third party.

1 unchanged sentence

The estimated useful lives of the identifiable intangible assets acquired were determined based upon the remaining time that these assets are expected to directly or indirectly contribute to the future cash flow of the Company.

Certain data necessary to complete the acquisition cost allocation is not yet available, including the final appraisals and valuations of the assets acquired and liabilities assumed.

Certain data necessary to complete the acquisition cost allocation is not yet available, including the valuations of the assets acquired and liabilities assumed.

The Company has not finalized its measurement of working capital items and goodwill.

The acquisition cost paid on the Closing Date amounted to $ 17.4 million, which included an estimate for cash as of the Closing Date and an estimate for the net working capital acquired.

The settlement of the Aggregate Adjustment decreased the acquisition cost to $ 16.9 million.

The following table represents the Company’s preliminary allocation of this acquisition cost (in thousands) to the identifiable assets acquired and the liabilities assumed based on their respective estimated fair values as of the Closing Date.

The excess of the acquisition cost over the estimated fair value of the identifiable net assets acquired is reflected as goodwill.

21 unchanged sentences

Based upon the preliminary allocation of the acquisition cost, the Company recognized $ 787,000 of goodwill as of the Closing Date, the entirety of which was assigned to the reporting unit of the Company that produces and markets infant and toddler bibs, developmental toys, feeding, bath care and disposable products, and the entirety of which is expected to be deductible for income tax purposes.

The following table represents the adjustments made to the amount of goodwill during the six -month period ended October 1, 2023.

The following table represents the adjustments made to the amount of goodwill during the nine -month period ended December 31, 2023.

Amount of goodwill recognized based upon the preliminary allocation of the acquisition cost

$ 787,000  

Adjustments made during the six-month period ended October 1, 2023:

Adjustments made during the nine-month period ended December 31, 2023:

Settlement of the Aggregate Adjustment

Resolution of pre-acquisition accounts receivable

Revaluation of inventory as of the Closing Date

387,000  

Resolution of pre-acquisition accounts payable

64,000  

Net adjustments made during the six-month period ended October 1, 2023

Amount of goodwill recognized as of October 1, 2023

$ 750,000  

The Manhattan Acquisition resulted in net sales of $ 4.8 million and $ 8.5 million of developmental toy, feeding and baby care products for the three - and six -month periods ended October 1, 2023, respectively.

Manhattan recorded amortization expense associated with the acquired amortizable intangible assets of $ 33,000 and $ 58,000 during the three and six months ended October 1, 2023, respectively, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income.

Net adjustments made during the nine-month period ended December 31, 2023

Amount of goodwill recognized as of December 31, 2023

The Manhattan Acquisition resulted in net sales of $ 6.0 million and $ 14.5 million of developmental toy, feeding and baby care products for the three and nine months ended December 31, 2023, respectively.

Manhattan recorded amortization expense associated with the acquired amortizable intangible assets of $ 32,000 and $ 90,000 during the three and nine months ended December 31, 2023, respectively, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income.

Amortization is computed using the straight-line method over the estimated useful lives of the assets, which are 15 years for the tradename, 10 years for the customer and licensing relationships and 11 years on a weighted-average basis for the grouping taken together.

The Company has determined, on a pro forma basis, that the combined net sales and the combined net income of the Company and Manhattan, giving effect to the Manhattan Acquisition as if it had been completed on April 4, 2022, would have been $ 25.8 million and $ 1.3 million, respectively, for the three -month period ended October 2, 2022, and would have been $ 48.5 million and $ 2.1 million, respectively, for the six -month period ended October 2, 2022.

The Company has determined, on a pro forma basis, that the combined net sales and the combined net income of the Company and Manhattan, giving effect to the Manhattan Acquisition as if it had been completed on April 4, 2022, would have been $ 26.0 million and $ 646,000 , respectively, for the three months ended January 1, 2023, and would have been $ 74.5 million and $ 2.7 million, respectively, for the nine months ended January 1, 2023.

The combined net income includes adjustments related to the amortization of the amortizable intangible assets acquired and estimates of the interest expense and income tax expense or benefit that would have been incurred, but otherwise do not reflect the costs of any integration activities or benefits that may result from the realization of future cost savings from operating efficiencies, or any revenue, tax or other synergies that may result from the Manhattan Acquisition.

Note 8 –

Financing Arrangements

Note 8 – Financing Arrangements

Factoring Agreements:

5 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 $ 92,000 and $ 79,000 for the three months ended October 1, 2023 and October 2, 2022, respectively, and amounted to $ 159,000 and $ 147,000 for the six months ended October 1, 2023 and October 2, 2022, respectively.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited consolidated statements of income, amounted to $ 106,000 and $ 77,000 for the three months ended December 31, 2023 and January 1, 2023, respectively, and amounted to $ 265,000 and $ 224,000 for the nine months ended December 31, 2023 and January 1, 2023, respectively.

Credit Facility:

The Company’s credit facility as of October 1, 2023 consisted of a revolving line of credit under a financing agreement with CIT of up to $ 35.0 million, which includes a $ 1.5 million sub-limit for letters of credit.

The financing agreement matures on July 11, 2028, bears interest at prime minus 0.5 % or the Secured Overnight Financing Rate (“SOFR”) plus 1.6 %, and is secured by a first lien on all assets of the Company.

At October 1, 2023, the Company had elected to pay interest on balances owed under the revolving line of credit under the SOFR option, which was 6.9 %.

The Company’s credit facility as of December 31, 2023 consisted of a revolving line of credit under a financing agreement with CIT of up to $ 35.0 million, which includes a $ 1.5 million sub-limit for letters of credit.

At December 31, 2023, the Company had elected to pay interest on balances owed under the revolving line of credit under the SOFR option, which was 6.9 %.

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

As of October 1, 2023 and April 2, 2023, the balances on the revolving line of credit were $ 9.8 million and $ 12.7 million, respectively, there was no letter of credit outstanding and $ 20.2 million and $ 20.0 million, respectively, was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

At December 31, 2023 and April 2, 2023, the balances on the revolving line of credit were $ 10.0 million and $ 12.7 million, respectively, there was no letter of credit outstanding and $ 19.8 million and $ 20.0 million, respectively, 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 October 1, 2023.

The Company believes it was in compliance with these covenants as of December 31, 2023.

Credit Concentration:

The Company’s accounts receivable as of October 1, 2023 amounted to $ 20.3 million, net of allowances of $ 2.4 million.

The Company’s accounts receivable at December 31, 2023 amounted to $ 22.0 million, net of allowances of $ 2.5 million.

Of this amount, $ 17.6 million was due from CIT under the factoring agreements, which represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations under the factoring agreements.

The Company’s accounts receivable as of April 2, 2023 amounted to $ 22.8 million, net of allowances of $ 1.5 million.

The Company’s accounts receivable at April 2, 2023 amounted to $ 22.8 million, net of allowances of $ 1.5 million.

Of this amount, $ 20.7 million was due from CIT under the factoring agreements, which represented the maximum loss that the Company could have incurred if CIT had failed completely to perform its obligations under the factoring agreements.

Note 9 –

Note 9 – Goodwill

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in business combinations.

1 unchanged sentence

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 Company’s reporting units have recognized goodwill as of October 1, 2023 and April 2, 2023 of $ 30.8 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 $ 7.9 million.

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

The Company’s reporting units have recognized goodwill as of December 31, 2023 and April 2, 2023 of $ 30.8 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 $ 7.9 million.

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

An additional interim measurement for impairment is performed during the year whenever an event or change in circumstances occurs that suggests that the fair value of either of the reporting units of the Company has more likely than not (defined as having a likelihood of greater than 50% ) fallen below its carrying value.

2 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 April 3, 2023, 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 10 –

Other Intangible Assets

Other intangible assets as of October 1, 2023 and April 2, 2023 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 1, 2023 and April 2, 2023 and the amortization expense for the three and six months ended October 1, 2023 and October 2, 2022, the entirety of which has been included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, are as follows (in thousands):

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 10 – Other Intangible Assets

Other intangible assets as of December 31, 2023 and April 2, 2023 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 31, 2023 and April 2, 2023 and the amortization expense for the three - and nine -month periods ended December 31, 2023 and January 1, 2023, the entirety of which has been included in marketing and administrative expenses in 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

Nine-Month Periods Ended

Tradename and trademarks

$ 2,867 $ 2,867 $ 2,145 $ 2,025 $ 42 $ 35 $ 120 $ 105

Non-compete covenants

98 98 98 98 - - - -

1,601 1,601 1,094 1,055 13 13 39 39

Customer relationships

8,174 8,174 6,566 6,289 92 72 277 217

Licensing relationships

200 200 15 - 5 - 15 -

Total other intangible assets

Note 11 –

The Company made cash payments related to its recognized operating leases of $ 993,000 and $ 488,000 during the three months ended October 1, 2023 and October 2, 2022, respectively, and $ 1.4 million and $ 969,000 for the six months ended October 1, 2023 and October 2, 2022, respectively.

$ 12,940 $ 12,940 $ 9,918 $ 9,467 $ 152 $ 120 $ 451 $ 361

Note 11 – Leases

During the three - and nine -month periods ended December 31, 2023, the Company recognized operating lease obligations as right of use assets and recognized corresponding lease liabilities in the amount of $ 959,000 , and entered into no such transactions during the three - and nine -month periods ended January 1, 2023.

The Company made cash payments related to its recognized operating leases of $ 1.1 million and $ 492,000 during the three -month periods ended December 31, 2023 and January 1, 2023, respectively, and $ 2.5 million and $ 1.5 million for the nine -month periods ended December 31, 2023 and January 1, 2023, 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.

The Company recognized noncash reductions to its operating right of use assets resulting from reductions to its lease liabilities in the amount of $ 249,000 and $ 20,000 during the three -month periods ended October 1, 2023 and October 2, 2022, respectively, and $ 503,000 and $ 43,000 during the six -month periods ended October 1, 2023 and October 2, 2022, respectively.

As of October 1, 2023 and April 2, 2023, the Company’s operating leases had weighted-average remaining lease terms of 

4.5 years and 5.0 years, respectively, and weighted-average discount rates of 

During the three - and six -month periods ended October 1, 2023 and October 2, 2022, the Company classified its operating lease costs within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

The Company recognized noncash reductions to its operating right of use assets resulting from reductions to its lease liabilities in the amount of $ 254,000 and $ 16,000 during the three -month periods ended December 31, 2023 and January 1, 2023, respectively, and $ 757,000 and $ 59,000 during the nine -month periods ended December 31, 2023 and January 1, 2023, respectively.

As of December 31, 2023 and April 2, 2023, the Company’s operating leases had weighted-average remaining lease terms of 4.2 years and 5.0 years, respectively, and weighted-average discount rates of 6.0 % and 5.9 %, respectively.

During the three - and nine -month periods ended December 31, 2023 and January 1, 2023, the Company classified its operating lease costs within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Three-Month Periods Ended

Six-Month Periods Ended

October 1, 2023

October 2, 2022

October 1, 2023

October 2, 2022

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Cost of products sold

$ 1,880  

$ 1,037 $ 403 $ 2,917 $ 1,205

Marketing and administrative expenses

97 43 291 125

Total operating lease costs

$ 1,037  

$ 2,074  

The maturities of the Company’s operating lease liabilities as of October 1, 2023 are as follows (in thousands):

$ 1,980  

$ 1,134 $ 446 $ 3,208 $ 1,330

The maturities of the Company’s operating lease liabilities as of December 31, 2023 are as follows (in thousands):

Total undiscounted operating lease payments

18,816  

Less imputed interest

Operating lease liabilities - net

$ 16,402  

Note 12 –

Stock-based Compensation

The Company has three incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”), the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”) and the 2021 Incentive Plan (the “2021 Plan”), although grants may no longer be issued under either the 2006 Plan or the 2014 Plan.

As of October 1, 2023, 559,000 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 $ 192,000 and $ 258,000 during the three -month periods ended October 1, 2023 and October 2, 2022, respectively, and $ 383,000 and $ 591,000 during the six -month periods ended October 1, 2023 and October 2, 2022, respectively.

Note 12 – Stock-based Compensation

As of December 31, 2023, 549,000 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 $ 190,000 and $ 253,000 during the three -month periods ended December 31, 2023 and January 1, 2023, respectively, and $ 573,000 and $ 844,000 during the nine -month periods ended December 31, 2023 and January 1, 2023, 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 October 1, 2023.

No stock-based compensation costs were capitalized as part of the cost of an asset as of December 31, 2023.

Stock Options:

The following table represents stock option activity for the six -month periods ended October 1, 2023 and October 2, 2022:

Six-Month Periods Ended

October 1, 2023

October 2, 2022

The following table represents stock option activity for the nine -month periods ended December 31, 2023 and January 1, 2023:

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

Outstanding at Beginning of Period

$ 7.32  

735,500  

$ 7.39  

635,500  

120,000  

( 10,000 )  

$ 7.32 735,500 $ 7.39 635,500

5.18 130,000 6.54 120,000

- - 4.92 ( 20,000 )

6.14 ( 10,000 ) - -

Outstanding at End of Period

845,500  

735,500  

7.01 855,500 7.32 735,500

Exercisable at End of Period

665,500  

499,000  

As of October 1, 2023, the outstanding and exercisable stock options had no intrinsic value.

There were no stock options exercised during the six -month period ended October 1, 2023.

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.

The Company did not receive any cash from the exercise of stock options during the three - and six -month periods ended October 2, 2022.

7.41 665,500 7.42 499,000

As of December 31, 2023, the intrinsic value of the outstanding and exercisable stock options was $ 19,000 and $ 11,000 , respectively.

There were no stock options exercised during the nine months ended December 31, 2023 or the three months ended January 1, 2023.

The intrinsic value of the stock options exercised during the nine months ended January 1, 2023 was $ 28,000 .

The Company received no cash from the stock options exercised during the nine months ended January 1, 2023.

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.

The effect on the cash flow of the Company from these “cashless”

option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations.

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

option exercises of $ 2,000 and $ 10,000 during the three and six months ended October 2, 2022, respectively.

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

Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement.

The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations.

The Company used cash to remit the required income tax withholding amounts from “cashless” option exercises of $ 10,000 during the nine months ended January 1, 2023.

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement.

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 six -month periods ended October 1, 2023 and October 2, 2022, which stock options vest over a two -year period, assuming continued service.

Six-Month Periods Ended

October 1, 2023

October 2, 2022

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 31, 2023 and January 1, 2023, which stock options vest over a two -year period, assuming continued service.

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

Number of options issued

120,000  

10,000 120,000 120,000

November 14, 2023

June 21, 2023

Dividend yield

6.08 %  

7.60 % 6.08 % 4.89 %

Expected volatility

25.00 %  

20.00 % 25.00 % 30.00 %

Risk free interest rate

4.29 %  

4.56 % 4.29 % 2.95 %

Contractual term (years)

10.00 10.00 10.00

Expected term (years)

3.00 3.00 4.00

Forfeiture rate

5.00 %  

5.00 % 5.00 % 5.00 %

Exercise price (grant-date closing price) per option

$ 5.26  

$ 6.54  

$ 4.21 $ 5.26 $ 6.54

Fair value per option

$ 0.46  

$ 0.90  

During the three -month periods ended October 1, 2023 and October 2, 2022, 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 1, 2023

Three-Month Period Ended October 2, 2022

$ 0.20 $ 0.46 $ 0.90

During the three - and nine -month periods ended December 31, 2023 and January 1, 2023, 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 31, 2023

Three-Month Period Ended January 1, 2023

Administrative

1 unchanged sentence

Options Granted in Fiscal Year

$ - $ - $ - $ - $ 11 $ 11

- - - 9 20 29

5 7 12 6 7 13

Total stock option compensation

During the six -month periods ended October 1, 2023 and October 2, 2022, the Company classified its compensation expense associated with stock options within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Six-Month Period Ended October 1, 2023

Six-Month Period Ended October 2, 2022

$ 8 $ 11 $ 19 $ 15 $ 38 $ 53

Nine-Month Period Ended December 31, 2023

Nine-Month Period Ended January 1, 2023

Administrative

1 unchanged sentence

Options Granted in Fiscal Year

$ - $ - $ - $ 3 $ 37 $ 40

10 21 31 31 66 97

17 24 41 12 17 29

Total stock option compensation

As of October 1, 2023, total unrecognized stock option compensation expense amounted to $ 86,000 , which will be recognized as the underlying stock options vest over a weighted-average period of 12.5 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.

$ 33 $ 53 $ 86 $ 46 $ 120 $ 166

As of December 31, 2023, total unrecognized stock option compensation expense amounted to $ 69,000 , which will be recognized as the underlying stock options vest over a weighted-average period of 9.9 months.

Non-vested Stock Granted to Directors:

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

Number of Shares

2 unchanged sentences

60,412 $4.85 August 15, 2023

   6.65

46,896 6.65 August 16, 2022

   7.47

40,165 7.47 August 11, 2021

   5.79

41,452 5.79 August 12, 2020

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.

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 of Directors of the Company (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 non-vested stock granted on August 16, 2022 included 11,724 shares granted to Sidney Kirschner, a director of the Company since 2001.

Upon the death of Mr.

Kirschner on February 21, 2023, the vesting of these 11,724 shares was accelerated, with such shares having an aggregate value on such date of $ 67,000 .

In August 2023 and August 2022, 35,172 shares and 52,856 shares, respectively, that had been granted to the Company’s directors vested, having an aggregate value of $ 168,000 and $ 331,000 , respectively.

Kirschner on February 21, 2023, the vesting of these 11,724 shares was accelerated, with such shares having an aggregate value on such date of $ 67,000 .

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

Non-vested Stock Granted to Employees:

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

Number of Shares

2 unchanged sentences

August 14, 2024

   5.85

40,000 5.85 March 21, 2023

March 21, 2025

   7.98

   7.60

25,000 7.98 June 9, 2021

10,000 7.60 February 22, 2021

February 22, 2023

   4.92

20,000 4.92 June 10, 2020

1 unchanged sentence

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 common 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 common stock equals or exceeds $ 9.00  on 

ten  trading days within any period of 

twenty  consecutive trading days prior to 

March 1, 2027. 

On March 1, 2022, performance awards were granted to certain of the Company’s executive officers, consisting of 187,500 shares of the Company’s common stock, of which:

(a) 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 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 common 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 date on which the shares are earned;

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

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

and (iii) 

one - third  shall vest on the 

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

(i) one - third of the shares that are earned shall vest on the date on which the shares are earned;

(ii) one - third of the shares that are earned shall vest on the first anniversary of the date on which the shares are earned;

and (iii) 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 - and six -month periods ended October 1, 2023 and October 2, 2022, 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):

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 - and nine -month periods ended December 31, 2023 and January 1, 2023, 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

Nine-Month Periods Ended

Stock Granted in Fiscal Year

October 1, 2023

October 2, 2022

October 1, 2023

October 2, 2022

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

$ - $ 9 $ - $ 76

37 113 147 472

23 78 160 130

Total stock grant compensation

As of October 1, 2023, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $ 662,000 , 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 9.0 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 –

Subsequent Events

The Company has evaluated all other events which have occurred between October 1, 2023 and the date that the accompanying unaudited condensed consolidated financial statements were issued, and has determined that there are no other material subsequent events that require disclosure.

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

FORWARD-LOOKING INFORMATION

Certain of the statements made in this Quarterly Report on Form 10-Q (this “Quarterly Report”) within this Item 2.

and elsewhere, including information incorporated herein by reference to other documents, are “forward-looking statements”

within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995.

Such statements are based upon management’s current expectations, projections, estimates and assumptions.

Words such as “expects,”

“believes,”

“anticipates,”

“estimates,”

“predicts,”

“forecasts,”

“plans,”

“projects,”

“targets,”

“should,”

“potential,”

“continue,”

“aims,”

“intends,”

“may,”

“will,”

“could,”

“would”

and variations of such words and similar expressions may identify such forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements.

These risks include, among others, general economic conditions, including changes in interest rates, in the overall level of consumer spending and in the price of oil, cotton and other raw materials used in the Company’s products, changing competition, changes in the retail environment, the Company’s ability to successfully integrate newly acquired businesses, the level and pricing of future orders from the Company’s customers, the Company’s dependence upon third-party suppliers, including some located in foreign countries with unstable political situations, the Company’s ability to successfully implement new information technologies, customer acceptance of both new designs and newly-introduced product lines, actions of competitors that may impact the Company’s business, disruptions to transportation systems or shipping lanes used by the Company or its suppliers, and the Company’s dependence upon licenses from third parties.

Reference is also made to the Company’s periodic filings with the SEC for additional factors that may impact the Company’s results of operations and financial condition.

The Company does not undertake to update the forward-looking statements contained herein to conform to actual results or changes in the Company’s expectations, whether as a result of new information, future events or otherwise.

DESCRIPTION OF BUSINESS

The Company was originally formed as a Georgia corporation in 1957 and was reincorporated as a Delaware corporation in 2003.

The Company operates indirectly through its four wholly-owned subsidiaries, NoJo Baby & Kids, Inc., Sassy Baby, Inc., Manhattan Group, LLC and Manhattan Toy Europe Limited in the infant, toddler and juvenile products segment within the consumer products industry.

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 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.

The Company makes sourcing decisions based on quality, timeliness of delivery and price, including the impact of ocean freight and duties.

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.

The Company’s products are warehoused and distributed domestically from leased facilities located in Compton, California and Eden Valley, Minnesota and internationally from third-party logistics warehouses in Belgium and England.

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- and six-month periods ended October 1, 2023 and October 2, 2022 and the dollar and percentage changes for those periods (in thousands, except percentages):

Three-Month Periods Ended

Six-Month Periods Ended

October 1, 2023

October 2, 2022

October 1, 2023

October 2, 2022

Net sales by category:

Bedding, blankets and accessories

Bibs, toys and disposable products

Total net sales

Cost of products sold

% of net sales

Marketing and administrative expenses

% of net sales

Interest (expense) income - net

Other (expense) income - net

Income tax expense

% of net sales

Sales increased to $24.1 million for the three months ended October 1, 2023, compared with $18.7 million for the three months ended October 2, 2022, an increase of $5.4 million, or 28.9%.

Sales of bedding, blankets and accessories increased by $273,000, and sales of bibs, toys and disposable products increased by $5.1 million.

Sales increased due to the Manhattan Acquisition, which generated net sales of $4.8 million of developmental toy, feeding and baby care products during the three-month period ended October 1, 2023.

Sales increased to $41.3 million for the six months ended October 1, 2023, compared with $34.4 million for the six months ended October 2, 2022, an increase of $6.8 million, or 19.8%.

Sales of bibs, toys and disposable products increased by $8.5 million due to the Manhattan Acquisition.

These increases were offset by lower sales of bedding, blankets and accessories, which decreased by $1.7 million, due to the continued impact of retailers that have been managing inventory levels, consumers that have lowered their spending due to inflationary pressures and continued overall softness in the infant and toddler bedding and blankets market.

Also, sales declined in the current year due to the recent bankruptcy of a retail customer.

Gross Profit:

Gross profit increased in amount by $1.2 million due to the Manhattan Acquisition, but decreased from 29.1% of net sales for the three-month period ended October 2, 2022 to 27.3% of net sales for the three-month period ended October 1, 2023.

Gross profit increased in amount by $739,000, but decreased from 30.8% of net sales for the six-month period ended October 2, 2022 to 27.5% of net sales for the six-month period ended October 1, 2023.

The Manhattan Acquisition contributed $2.3 million to the increase, which was partially offset by an increase in operating lease costs in the current year period, including $311,000 in operating lease costs of Manhattan.

These increased operating lease costs also led to the decline in the gross profit percentage.

Marketing and Administrative Expenses:

Marketing and administrative expenses increased by $1.3 million, and increased from 14.6% of net sales for the three-month period ended October 2, 2022 to 16.7% of net sales for the three-month period ended October 1, 2023.

The increases in the current-year period consisted primarily of $896,000 for charges incurred by Manhattan and MTE.

Marketing and administrative expenses increased by $1.9 million, and increased from 17.9% of net sales for the six months ended October 2, 2022 to 19.6% of net sales for the six months ended October 1, 2023.

The increases in the current-year period were the result of $2.0 million for charges incurred by Manhattan and MTE.

Income Tax Expense:

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 21.6% for the six-month period ended October 1, 2023, as compared with an estimated annual ETR from continuing operations of 23.5% for the six-month period ended October 2, 2022.

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 $20,000 and $27,000 during the three months ended October 1, 2023 and October 2, 2022, respectively, and $25,000 and $46,000 during the six months ended October 1, 2023 and October 2, 2022, respectively, in the unaudited condensed consolidated statements of income.

The Company also recorded discrete income tax charges of $16,000 and $5,000 for the three-month periods ended October 1, 2023 and October 2, 2022, respectively, and $43,000 and $6,000 during the six-month periods ended October 1, 2023 and October 2, 2022, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise and expiration of stock options and the vesting of non-vested stock.

The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of 24.0% and 24.7% for the six-month periods ended October 1, 2023 and October 2, 2022, respectively.

Although the Company does not anticipate a material change to the ETR from continuing operations for the remainder of fiscal year 2024, 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 increased from $2.7 million for the six-month period ended October 2, 2022 to $4.7 million for the six-month period ended October 1, 2023.

The increase in the current year was partially the result of an increase in inventory in the current year that was $5.6 million lower than the increase in the prior year.

This increase was partially offset by a decrease in accounts receivable in the current year that was $3.1 million lower than the decrease in the prior year.

Net cash used in investing activities decreased from $191,000 in the prior year to $51,000 in the current year.

In the current year period, the Company received $488,000 from the settlement of the Aggregate Adjustment from the Manhattan Acquisition, which was offset by an increase in the current year of $312,000 in capital expenditures for property, plant and equipment.

Net cash used in financing activities, which were primarily associated with net repayments under the revolving line of credit, increased by $2.8 million from the prior year to the current year.

As of October 1, 2023, the balance on the revolving line of credit was $9.8 million, there was no letter of credit outstanding and $20.2 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

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

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

As such, the Company does not take advances on the factoring agreements.

CIT bears credit losses with respect to assigned accounts receivable from approved shipments, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts.

CIT may at any time terminate or limit its approval of shipments to a particular customer.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $92,000 and $79,000 for the three-month periods ended October 1, 2023 and October 2, 2022, respectively, and amounted to $159,000 and $147,000 for the six-month periods ended October 1, 2023 and October 2, 2022, respectively.

The Company’s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control.

Based upon the current level of operations, the Company believes that its cash flow from operations and funds available under the revolving line of credit will be adequate to meet its liquidity needs.

$ 171 $ 200 $ 487 $ 678

As of December 31, 2023, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $ 491,000 , 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 6.8 months.

Note 13 – Subsequent Events

The Company has evaluated all other events which have occurred between December 31, 2023 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.

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