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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2023

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____to_____

 

 

Commission File No. 1-7604

 

Crown Crafts, Inc. 
(Exact name of registrant as specified in its charter)

 

Delaware 58-0678148 
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
   
916 South Burnside Avenue, Gonzales, LA 70737
(Address of principal executive offices) (Zip Code)
   

 

 

(225) 647-9100
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CRWS

Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                           Yes ☑         No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                                         Yes ☑         No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer

☐

Accelerated filer

☐

Non-Accelerated filer

☑

Smaller Reporting Company

☑

 

 

Emerging Growth Company☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

The number of shares of common stock, $0.01 par value, of the registrant outstanding as of January 30, 2024 was 10,240,719.

 

 
 
 

  

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CROWN CRAFTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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

 

  

December 31, 2023

  

April 2, 2023

 
         

ASSETS

 

Current assets:

        

Cash and cash equivalents

 $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

  17,636   20,740 

Other

  4,408   2,068 

Inventories

  34,935   34,211 

Prepaid expenses

  2,744   1,614 

Total current assets

  60,406   60,375 
         

Operating lease right of use assets

  15,813   17,305 
         

Property, plant and equipment - at cost:

        

Vehicles

  -   182 

Leasehold improvements

  480   473 

Machinery and equipment

  4,928   4,333 

Furniture and fixtures

  476   408 

Property, plant and equipment - gross

  5,884   5,396 

Less accumulated depreciation

  4,188   3,677 

Property, plant and equipment - net

  1,696   1,719 
         

Finite-lived intangible assets - at cost:

        

Customer relationships

  8,174   8,174 

Other finite-lived intangible assets

  4,766   4,766 

Finite-lived intangible assets - gross

  12,940   12,940 

Less accumulated amortization

  9,918   9,467 

Finite-lived intangible assets - net

  3,022   3,473 
         

Goodwill

  7,874   7,912 

Deferred income taxes

  291   - 

Other

  202   188 

Total Assets

 $89,304  $90,972 
         

LIABILITIES AND SHAREHOLDERS' EQUITY

 

Current liabilities:

        

Accounts payable

 $7,508  $7,548 

Accrued wages and benefits

  1,013   1,087 

Accrued royalties

  1,030   614 

Dividends payable

  833   815 

Operating lease liabilities, current

  3,480   2,427 

Other accrued liabilities

  766   566 

Total current liabilities

  14,630   13,057 
         

Non-current liabilities:

        

Long-term debt

  10,014   12,674 

Deferred income taxes

  -   815 

Operating lease liabilities, noncurrent

  13,056   14,889 

Reserve for unrecognized tax liabilities

  379   323 

Total non-current liabilities

  23,449   28,701 
         

Shareholders' equity:

        

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

  131   131 

Additional paid-in capital

  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

  9,216   7,778 

Total shareholders' equity

  51,225   49,214 

Total Liabilities and Shareholders' Equity

 $89,304  $90,972 

 

See notes to unaudited condensed consolidated financial statements.

 

1
 
 

 

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

  
                                 

Net sales

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

Cost of products sold

     17,367       14,498       47,281       38,335  

Gross profit

     6,434       4,506       17,772       15,105  

Marketing and administrative expenses

     4,107       2,742       12,189       8,891  

Income from operations

     2,327       1,764       5,583       6,214  

Other (expense) income:

                                

Interest (expense) income - net of interest income

     (208 )     5       (560 )     6  

Gain on insurance proceeds received for damage to equipment

     -       -       -       34  

Gain on sale of property, plant and equipment

     58       -       58       2  

Other (expense) income - net

     17       (1 )     (9 )     123  

Income before income tax expense

     2,194       1,768       5,072       6,379  

Income tax expense

     492       420       1,182       1,557  

Net income

   $ 1,702     $ 1,348     $ 3,890     $ 4,822  
                                 

Weighted average shares outstanding:

                                

Basic

     10,241       10,118       10,198       10,096  

Effect of dilutive securities

     -       15       2       20  

Diluted

     10,241       10,133       10,200       10,116  
                                 

Earnings per share - basic and diluted

   $ 0.17     $ 0.13     $ 0.38     $ 0.48  

 

See notes to unaudited condensed consolidated financial statements.

 

2
 
 

 

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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

 

  

Common Shares

  

Treasury Shares

  

Additional

      

Total

 
  

Number of Shares

  

Amount

  

Number of Shares

  

Amount

  

Paid-in Capital

  

Retained Earnings

  

Shareholders' Equity

 
  

(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 

Net income

  -   -   -   -   -   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 

Net income

  -   -   -   -   -   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 3, 2022

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

Issuance of shares

  66,896   1   -   -   97   -   98 

Stock-based compensation

  -   -   -   -   844   -   844 

Acquisition of treasury stock

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

Net income

  -   -   -   -   -   4,822   4,822 

Dividend declared on common stock - $0.24 per share

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

Issuance of shares

  86,412   -   -   -   -   -   - 

Stock-based compensation

  -   -   -   -   573   -   573 

Net income

  -   -   -   -   -   3,890   3,890 

Dividends declared on common stock - $0.24 per share

  -   -   -   -   -   (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.

 

3
 
 

 

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(amounts in thousands)

 

   

Nine-Month Periods Ended

  
   

December 31, 2023

    

January 1, 2023

  

Operating activities:

                

Net income

   $ 3,890     $ 4,822  

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

                

Depreciation of property, plant and equipment

     647       499  

Amortization of intangibles

     451       361  

Amortization of right of use assets

     3,208       1,330  

Deferred income taxes

     (1,106 )     195  

Gain on insurance proceeds received for damage to equipment

     -       (34 )

Gain on sale of property, plant and equipment

     (58 )     (2 )

Reserve for unrecognized tax liabilities

     56       98  

Stock-based compensation

     573       844  

Changes in assets and liabilities:

                

Accounts receivable

     765       4,352  

Inventories

     (1,112 )     (5,129 )

Prepaid expenses

     (1,130 )     (470 )

Other assets

     (14 )     2  

Lease liabilities

     (2,497 )     (1,461 )

Accounts payable

     (113 )     (39 )

Accrued liabilities

     542       (998 )

Net cash provided by operating activities

     4,102       4,370  

Cash used in investing activities:

                

Capital expenditures for property, plant and equipment

     (662 )     (399 )

Insurance proceeds received for damage to equpment

     -       34  

Proceeds from sale of property, plant and equipment

     105       2  

Aggregate adjustment from the Manhattan and MTE acquisition

     488       -  

Net cash used in investing activities

     (69 )     (363 )

Financing activities:

                

Repayments under revolving line of credit

     (55,099 )     -  

Borrowings under revolving line of credit

     52,440       -  

Purchase of treasury stock from related parties

     -       (189 )

Issuance of common stock

     -       98  

Dividends paid

     (2,433 )     (2,438 )

Net cash used in financing activities

     (5,092 )     (2,529 )

Net (decrease) increase in cash and cash equivalents

     (1,059 )     1,478  

Cash and cash equivalents at beginning of period

     1,742       1,598  

Cash and cash equivalents at end of period

   $ 683     $ 3,076  
                 

Supplemental cash flow information:

                

Income taxes paid

   $ 1,628     $ 130  

Interest paid

     650       7  
                 

Noncash activities:

                

Property, plant and equipment purchased but unpaid

     (9 )     (55 )

Dividends declared but unpaid

     (833 )     (813 )

 

See notes to unaudited condensed consolidated financial statements.

 

4
 

 

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED 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 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 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”).

 

Fiscal Year: 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): 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.

 

5
 
 

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

 

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.

  
 

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

 

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

 $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 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 December 31, 2023 were the fiscal years ended April 2, 2023, April 3, 2022, March 28, 2021, March 29, 2020 and March 31, 2019.

 

6
 
 

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.

 

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. 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 – 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.

 

7
 
 

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

 $1,270 

Accounts receivable

  3,113 

Inventories

  12,578 

Prepaid expenses

  350 

Other assets

  91 

Operating lease right of use assets

  1,009 

Property, plant and equipment

  194 

Total tangible assets

  18,605 

Amortizable intangible assets:

    

Tradename

  300 

Licensing relationships

  200 

Customer relationships

  800 

Total amortizable intangible assets

  1,300 

Goodwill

  749 

Total acquired assets

  20,654 
     

Liabilities assumed:

    

Accounts payable

  2,048 

Accrued wages and benefits

  370 

Operating lease liabilities, current

  226 

Other accrued liabilities

  308 

Operating lease liabilities, noncurrent

  783 

Total liabilities assumed

  3,735 

Net acquisition cost

 $16,919 

 

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

 $787,000 

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

    

Settlement of the Aggregate Adjustment

  (488,000)

Resolution of pre-acquisition accounts receivable

  (1,000)

Revaluation of inventory as of the Closing Date

  387,000 

Resolution of pre-acquisition accounts payable

  64,000 

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

  (38,000)
     

Amount of goodwill recognized as of December 31, 2023

 $749,000 

 

8
 
 

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.

  
 

Note 8 – 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. 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. 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.

 

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 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 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.

 

Credit Concentration: 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 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.

 

9
 
  
 

Note 9 – Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in business combinations. For the purpose of presenting and measuring for the impairment of goodwill, the Company has two reporting units: one that produces and markets infant and toddler bedding, blankets and accessories and another that produces and markets infant and toddler bibs, 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 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. The annual or interim measurement for impairment is performed by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such qualitative factors so indicate, then the measurement for impairment is continued by calculating an estimate of the fair value of each reporting unit and comparing the estimated fair value to the carrying value of the reporting unit. 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 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

 
  

Gross Amount

  

Accumulated Amortization

  

Three-Month Periods Ended

  

Nine-Month Periods Ended

 
  

December 31,

  

April 2,

  

December 31,

  

April 2,

  

December 31,

  

January 1,

  

December 31,

  

January 1,

 
  

2023

  

2023

  

2023

  

2023

  

2023

  

2023

  

2023

  

2023

 

Tradename and trademarks

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

Non-compete covenants

  98   98   98   98   -   -   -   - 

Patents

  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.

 

10
 
 

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):

 

Fiscal Year

    

2024

 $1,073 

2025

  4,408 

2026

  4,510 

2027

  4,189 

2028

  3,952 

2029

  663 

Total undiscounted operating lease payments

  18,795 

Less imputed interest

  2,259 

Operating lease liabilities - net

 $16,536 

  
 

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

 
  

Weighted-

      

Weighted-

     
  

Average

  

Number of

  

Average

  

Number of

 
  

Exercise

  

Options

  

Exercise

  

Options

 
  

Price

  

Outstanding

  

Price

  

Outstanding

 

Outstanding at Beginning of Period

 $7.32   735,500  $7.39   635,500 

Granted

  5.18   130,000   6.54   120,000 

Exercised

  -   -   4.92   (20,000)

Expired

  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 

 

11
 
 

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 

Grant date

 

November 14, 2023

  

June 21, 2023

  

June 7, 2022

 

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

 
  

Cost of

  

Marketing &

      

Cost of

  

Marketing &

     
  

Products

  

Administrative

  

Total

  

Products

  

Administrative

  

Total

 

Options Granted in Fiscal Year

 

Sold

  

Expenses

  

Expense

  

Sold

  

Expenses

  

Expense

 

2021

 $-  $-  $-  $-  $11  $11 

2022

  -   -   -   9   20   29 

2023

  5   7   12   6   7   13 

2024

  3   4   7   -   -   - 
                         

Total stock option compensation

 $8  $11  $19  $15  $38  $53 

 

  

Nine-Month Period Ended December 31, 2023

  

Nine-Month Period Ended January 1, 2023

 
  

Cost of

  

Marketing &

      

Cost of

  

Marketing &

     
  

Products

  

Administrative

  

Total

  

Products

  

Administrative

  

Total

 

Options Granted in Fiscal Year

 

Sold

  

Expenses

  

Expense

  

Sold

  

Expenses

  

Expense

 

2021

 $-  $-  $-  $3  $37  $40 

2022

  10   21   31   31   66   97 

2023

  17   24   41   12   17   29 

2024

  6   8   14   -   -   - 
                         

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.

 

12
 
 

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

 

Grant Date

 

Vesting Period (Years)

60,412   $4.85 

August 15, 2023

 

One

46,896   6.65 

August 16, 2022

 

One

40,165   7.47 

August 11, 2021

 

One

41,452   5.79 

August 12, 2020

 

Two

 

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

 

Grant Date

 

Vesting Date

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

 

June 9, 2022

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.

 

13
 
 

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

 

2021

 $-  $9  $-  $76 

2022

  37   113   147   472 

2023

  23   78   160   130 

2024

  111   -   180   - 
                 

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 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.

  
 

ITEM 2. 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 and MTE 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.

 

14
 

 

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 nine-month periods ended December 31, 2023 and January 1, 2023 and the dollar and percentage changes for those periods (in thousands, except percentages):

 

   

Three-Month Periods Ended

    

Change

   

Nine-Month Periods Ended

    

Change

 
   

December 31, 2023

    

January 1, 2023

    

$

    

%

    

December 31, 2023

    

January 1, 2023

    

$

    

%

  

Net sales by category: