What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-02-14 · 89 added, 355 removed, 203 unchanged (69% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

JUNE 30, 2024 (UNAUDITED) AND MARCH 31, 2024

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

December 31, 2023

April 2, 2023

June 30, 2024

March 31, 2024

Current assets:

1 unchanged sentence

$ 1,103 $ 829

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

Accounts receivable (net of allowances of $ 1,631 at June 30, 2024 and $ 1,486 at March 31, 2024):

Due from factor

19 unchanged sentences

Less accumulated amortization

10,216 10,068

Finite-lived intangible assets - net

14 unchanged sentences

Long-term debt

10,014 12,674

Deferred income taxes

Operating lease liabilities, noncurrent

5 unchanged sentences

Common stock - $ 0.01 par value per share;

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

Authorized 40,000,000 shares at June 30, 2024 and March 31, 2024;

Issued 13,208,226 shares at June 30, 2024 and March 31, 2024

Additional paid-in capital

58,090 57,888

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

Treasury stock - at cost - 2,897,507 shares at June 30, 2024 and March 31, 2024

( 15,821 ) ( 15,821 )

7 unchanged sentences

AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE-MONTH PERIODS ENDED JUNE 30, 2024 AND JULY 2, 2023

(amounts in thousands, except per share amounts)

Three-Month Periods Ended

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

June 30, 2024

$ 16,212 $ 17,123

Cost of products sold

12,246 12,381

Marketing and administrative expenses

Income from operations

(Loss) income from operations

Other (expense) 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

Income tax expense

Interest expense - net of interest income

( 101 ) ( 188 )

Other income (expense) - net

(Loss) income before income tax expense

Income tax (benefit) expense

Net (loss) income

$ ( 322 ) $ 366

Weighted average shares outstanding:

10,311 10,154

Effect of dilutive securities

Earnings per share - basic and diluted

10,311 10,163

Basic (loss) earnings per share

$ ( 0.03 ) $ 0.04

Diluted (loss) earnings per share

$ ( 0.03 ) $ 0.04

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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

THREE-MONTH PERIODS ENDED JUNE 30, 2024 AND JULY 2, 2023

Common Shares

6 unchanged sentences

(Dollar amounts in thousands)

Three-Month Periods

Balances - October 2, 2022

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

Stock-based compensation

- - - - 253 - 253

- - - - - 1,348 1,348

Dividend declared on common stock - $ 0.08 per share

- - - - - ( 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

13,138,226 $ 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 ) ( 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 2, 2023

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

Issuance of shares

66,896 1 - - 97 - 98

Stock-based compensation

- - - - 191 - 191

Acquisition of treasury stock

- - - - - 366 366

- - - - - 4,822 4,822

Dividend declared on common stock - $ 0.08 per share

- - - - - ( 812 ) ( 812 )

Balances - January 1, 2023

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

Balances - April 2, 2023

Balances - July 2, 2023

13,051,814 $ 131 ( 2,897,507 ) $ ( 15,821 ) $ 57,317 $ 7,332 $ 48,959

Issuance of shares

Balances - March 31, 2024

13,208,226 $ 132 ( 2,897,507 ) $ ( 15,821 ) $ 57,888 $ 9,402 $ 51,601

4 unchanged sentences

- - - - - ( 825 ) ( 825 )

Balances - December 31, 2023

Balances - June 30, 2024

13,208,226 $ 132 ( 2,897,507 ) $ ( 15,821 ) $ 58,090 $ 8,255 $ 50,656

3 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

THREE-MONTH PERIODS ENDED JUNE 30, 2024 AND JULY 2, 2023

(amounts in thousands)

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

Three-Month Periods Ended

June 30, 2024

Operating activities:

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

Net (loss) income

$ ( 322 ) $ 366

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation of property, plant and equipment

Amortization of intangibles

Amortization of right of use assets

Reduction in the carrying amount of right of use assets

Deferred income taxes

Gain on insurance proceeds received for damage to equipment

Gain on sale of property, plant and equipment

( 304 ) ( 324 )

Reserve for unrecognized tax liabilities

2 unchanged sentences

Accounts receivable

( 901 ) ( 3,513 )

Prepaid expenses

Lease liabilities

( 1,103 ) ( 424 )

Accounts payable

Accrued liabilities

( 159 ) ( 210 )

Net cash provided by operating activities

Cash used in investing activities:

Investing activities:

Capital expenditures for property, plant and equipment

Insurance proceeds received for damage to equpment

Proceeds from sale of property, plant and equipment

Aggregate adjustment from the Manhattan and MTE acquisition

( 284 ) ( 355 )

Net cash used in investing activities

( 284 ) ( 355 )

Financing activities:

Repayments under revolving line of credit

( 21,329 ) ( 20,427 )

Borrowings under revolving line of credit

Purchase of treasury stock from related parties

Issuance of common stock

14,683 14,262

Dividends paid

( 809 ) ( 806 )

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

( 7,455 ) ( 6,971 )

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

$ 1,103 $ 765

Supplemental cash flow information:

4 unchanged sentences

Dividends declared but unpaid

( 858 ) ( 821 )

See notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2024 AND JULY 2, 2023

Note 1 – Interim Financial Statements

4 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 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.

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 June 30, 2024 and the results of its operations and cash flows for the periods presented.

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

Operating results for the three - and nine -months ended December 31, 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”).

Operating results for the three -months ended June 30, 2024 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending March 30, 2025.

For further information, refer to the Company’s consolidated financial statements and notes thereto for the fiscal year ended March 31, 2024, 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.

References herein to “fiscal year 2025” or “2025” represent the 52 -week period ending March 30, 2025 and references herein to “fiscal year 2024” or “2024” represent the 52 -week period ended March 31, 2024.

Recently-Issued Accounting Standards:

In June 2016, the FASB issued ASU No.

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.

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

The ASU is to be applied using a modified retrospective approach, and the ASU could have been early-adopted in the fiscal year that began after December 15, 2018.

When issued, ASU No.

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 ):

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

2016 - 13 for a registrant that is a smaller reporting company to the first interim period of the fiscal year beginning after December 15, 2022.

Accordingly, the Company adopted ASU No.

2016 - 13 effective as of April 3, 2023.

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.

In August 2018, the SEC issued Release No.

33 - 10532, in which the SEC referred certain of its disclosure requirements that overlap with GAAP to the FASB for potential incorporation into the FASB ASC.

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.

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.

The amendments in this ASU are to be applied prospectively, and early application of the amendments is prohibited.

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.

In November 2023, the FASB issued ASU No.

4 unchanged sentences

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

The Company intends to adopt ASU No.

The Company has adopted 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

5 unchanged sentences

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.

The Company has determined that all other ASUs issued which had become effective as of June 30, 2024, or which will become effective at some future date, are not expected to have a material impact on the Company’s consolidated financial statements.

Earnings (Loss) Per Share:

Due to the net loss incurred by the Company in the three -month period ended June 30, 2024, diluted shares used in the calculation of the diluted loss per share represented basic shares because the inclusion of the potentially dilutive effect of the exercisable stock options would have resulted in anti-dilution.

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 $ 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.

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and amounted to $ 127,000 and $ 192,000 for the three months ended June 30, 2024 and July 2, 2023, respectively.

Note 3 – Segment and Related Information

1 unchanged sentence

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

Net sales of bedding, blankets and accessories and net sales of bibs, toys and disposable products for the three months ended June 30, 2024 and July 2, 2023 are as follows (in thousands):

Three-Month Periods Ended

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

June 30, 2024

Bedding, blankets and accessories

1 unchanged sentence

Bibs, toys and disposable products

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

Total net sales

3 unchanged sentences

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

Royalty expense is included in cost of products sold in the accompanying unaudited consolidated statements of income and amounted to $ 1.3 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.

Royalty expense is included in cost of products sold in the accompanying unaudited condensed consolidated statements of operations and amounted to $ 1.1 million and $ 977,000 for the three months ended June 30, 2024 and July 2, 2023, respectively.

Note 5 – Income Taxes

2 unchanged sentences

The statute of limitations varies by jurisdiction;

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.

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.

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.

tax years open to examination or other adjustment as of June 30, 2024 were the fiscal years ended March 31, 2024, April 2, 2023, April 3, 2022, March 28, 2021, and March 29, 2020.

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

3 unchanged sentences

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 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.

The identifiable assets acquired were recorded at their estimated fair value, which has been preliminarily determined based on available information and the use of multiple valuation approaches.

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 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.

Tangible assets:

Cash and cash equivalents

Accounts receivable

Prepaid expenses

Operating lease right of use assets

Property, plant and equipment

Total tangible assets

Amortizable intangible assets:

Licensing relationships

Customer relationships

Total amortizable intangible assets

Total acquired assets

Liabilities assumed:

Accounts payable

Accrued wages and benefits

Operating lease liabilities, current

Other accrued liabilities

Operating lease liabilities, noncurrent

Total liabilities assumed

Net acquisition cost

The Company expects to complete the acquisition cost allocation during the 12 -month period following the Closing Date, during which time the values of the assets acquired and liabilities assumed, including the goodwill, may need to be revised as appropriate.

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 nine -month period ended December 31, 2023.

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

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

Resolution of pre-acquisition accounts payable

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 $ 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.

As of June 30, 2024 and March 31, 2024, the Company’s balances of inventory were $ 30.6 million and $ 29.7 million, respectively, nearly all of which were finished goods.

Note 7 – Financing Arrangements

Factoring Agreements:

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

To reduce its exposure to credit losses, the Company assigns the majority of its trade accounts receivable to The CIT Group/Commercial Services, Inc.

("CIT"), a subsidiary of First Citizens Bank, pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing agreement described below.

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

3 unchanged sentences

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

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited 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.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of operations, amounted to $ 74,000 and $ 67,000 for the three -month period ended June 30, 2024 and July 2, 2023, respectively.

Credit Facility:

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.

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 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 Company’s credit facility as of June 30, 2024 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, bearing 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 June 30, 2024, 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.

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 was scheduled to mature on July 11, 2028, but was amended on July 19, 2024 to extend the maturity date to July 19, 2029 and to increase the borrowing capacity on revolving line of credit to $ 40.0 million.

At June 30, 2024 and March 31, 2024, the balances on the revolving line of credit were $ 1.5 million and $ 8.1 million, respectively, there was no letter of credit outstanding and $ 17.6 million and $ 19.2 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 December 31, 2023.

The Company believes it was in compliance with these covenants as of June 30, 2024.

Credit Concentration:

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

The Company’s accounts receivable at June 30, 2024 amounted to $ 15.8 million, net of allowances of $ 1.6 million.

Of this amount, $ 11.2 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 at April 2, 2023 amounted to $ 22.8 million, net of allowances of $ 1.5 million.

The Company’s accounts receivable at March 31, 2024 amounted to $ 22.4 million, net of allowances of $ 1.5 million.

Of this amount, $ 18.6 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.

3 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 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’s reporting units have recognized goodwill as of June 30, 2024 and March 31, 2024 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.

5 unchanged sentences

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

Accumulated Amortization

Three-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

$ 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 $ 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

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Cost of products sold

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

Marketing and administrative expenses

97 43 291 125

Total operating lease costs

$ 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

Less imputed interest

Operating lease liabilities - net

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 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 December 31, 2023.

Stock Options:

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

5.18 130,000 6.54 120,000

- - 4.92 ( 20,000 )

6.14 ( 10,000 ) - -

Outstanding at End of Period

7.01 855,500 7.32 735,500

Exercisable at End of Period

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 $ 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 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

10,000 120,000 120,000

November 14, 2023

June 21, 2023

Dividend yield

7.60 % 6.08 % 4.89 %

Expected volatility

20.00 % 25.00 % 30.00 %

Risk free interest rate

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 %

Exercise price (grant-date closing price) per option

$ 4.21 $ 5.26 $ 6.54

Fair value per option

$ 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

Options Granted in Fiscal Year

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

- - - 9 20 29

5 7 12 6 7 13

Total stock option compensation

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

Nine-Month Period Ended December 31, 2023

Nine-Month Period Ended January 1, 2023

Administrative

Options Granted in Fiscal Year

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

10 21 31 31 66 97

17 24 41 12 17 29

Total stock option compensation

$ 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.

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

Non-vested Stock Granted to Directors:

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

Number of Shares

Fair Value per Share

Vesting Period (Years)

60,412 $4.85 August 15, 2023

46,896 6.65 August 16, 2022

40,165 7.47 August 11, 2021

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.

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

Fair Value per Share

26,000 $4.77 August 14, 2023

August 14, 2024

40,000 5.85 March 21, 2023

March 21, 2025

25,000 7.98 June 9, 2021

10,000 7.60 February 22, 2021

February 22, 2023

20,000 4.92 June 10, 2020

June 10, 2022

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:

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:

(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 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

Nine-Month Periods Ended

Stock Granted in Fiscal Year

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

$ 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.

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 9 – 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.

On July 19, 2024 ( the “Closing Date”), NoJo Baby & Kids, Inc.

("NoJo"), a wholly-owned subsidiary of the Company, acquired substantially all of the assets, and assumed certain specified liabilities, of Baby Boom Consumer Products, Inc.

(the “Baby Boom Acquisition”), for a purchase price of $ 18.0 million, subject to adjustments to the extent that actual net working capital as of the Closing Date differs from target net working capital of $ 6.5 million.

The purchase price was funded by the Company using proceeds of an $ 8.0 million term loan from CIT and additional borrowings under the Company’s revolving line of credit.

The Company and CIT also on July 19, 2024 amended the financing agreement to (i) provide for the $ 8.0 million term loan mentioned above, which is payable by the Company in 48 equal monthly installments and which bears interest at SOFR plus 2.25%;

(ii) extend the maturity date from July 11, 2028 to July 19, 2029;

and (iii) increase the borrowing capacity on the revolving line of credit from $ 35.0 million to $ 40.0 million.

The Company is in the process of obtaining all relevant information relating to the Baby Boom Acquisition.

As a result, the Company is not able to provide certain disclosures required by FASB ASC Topic 805.

The initial accounting for the acquisition was incomplete at the time of the financial statements.

The Company has evaluated all other events which have occurred between June 30, 2024 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.

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