UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended JulyJune 130, 20189

For the transition period from _____to_____

Commission File No. 1-7604

Registrant’s telephone number, including area code: (225) 647-9100

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

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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

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 August 7, 2018July 31, 2019 was 10,069,558.10,119,355.

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements include the accounts of Crown Crafts, Inc. (the “Company”) and its subsidiaries and have been prepared in accordance with 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 has been established by the FASB as the authoritative source for GAAP to be applied by nongovernmental entities.

In the opinion of management, the interim unaudited consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of July 1, 2018June 30, 2019 and the results of its operations and cash flows for the period presented. Such adjustments include normal, recurring accruals, as well as the elimination of all significant intercompany balances and transactions. Operating results for the three-month period ended July 1, 2018June 30, 2019 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending March 31, 2019.29, 2020. For further information, refer to the Company’s consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended April 1, 2018.March 31, 2019.

Fiscal Year: The Company’s fiscal year ends on the Sunday that is nearest to or on March 31. References herein to “fiscal year 2020” or “2020” represent the 52-week period ending March 29, 2020 and references herein to “fiscal year 2019” or “2019” represent the 52-week period endingended March 31, 2019 and references herein2019.

Reclassifications:The Company has classified certain prior year information to “fiscal year 2018”conform to the amounts presented in the current year. None of the changes impact the Company’s previously reported financial position or “2018” represent the 52-week period ended April 1, 2018.results of operations.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the accompanying condensed consolidated balance sheets and the reported amounts of revenues and expenses during the periods presented on the accompanying unaudited consolidated statements of income and cash flows. Significant estimates are made with respect to the allowances related to accounts receivable for customer deductions for returns, allowances and disputes. The Company also has a certain amount of discontinued finished productsgoods which necessitates the establishment of inventory reserves and allocates indirect costs to inventory based on an estimated percentage of the supplier purchase price, each of which isthat are highly subjective. The Company has also established estimated reserves in connection with the uncertainty concerning the amount of income tax recognized. Actual results could differ materially from those estimates.

Cash and Cash Equivalents: The Company considers highly-liquid investments, if any, purchased with original maturities of three months or less to be cash equivalents.

The Company’s credit facility consists of a revolving line of credit under a certain Financing Agreement between the Company, its wholly-owned subsidiaries (togetherfinancing agreement with the Company, the “Borrowers”) and The CIT Group/Commercial Services, Inc. (“CIT”), a subsidiary of CIT Group Inc. (as amended from time to time, the “CIT Financing Agreement”). The Company classifies a negative balance outstanding under thethis revolving line of credit as cash, as these amounts are legally owed to the Company and are immediately available to be drawn upon by the Company. There are no compensating balance requirements or other restrictions on the transfer of amounts associated with the Company’s depository accounts.

Financial Instruments: For short-term instruments such as cash and cash equivalents, accounts receivable and accounts payable, the Company uses carrying value as a reasonable estimate of the fair value.

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 those customers, with periodic adjustments to the actual amounts of authorized agreements. Costs associated with advertising on websites such as Facebook and Google and which are related to the Company’s online business are recorded as incurred. Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $325,000$284,000 and $219,000$325,000 for the three-month periods ended June 30, 2019 and July 1, 2018, and July 2, 2017, respectively.

Revenue Recognition: Revenue is recognized upon the satisfaction of all contractual performance obligations and the transfer of control of the products sold to the customer. The majority of the Company’s sales consists of single performance obligation arrangements for which the transaction price for a given product sold is equivalent to the price quoted for the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product as directed by the customer. Shipping and handling costs that are charged to customers are included in net sales, and the Company’s costs associated with shipping and handling activities are included in cost of products sold.

A provision for anticipated returns, which are based upon historical returns and claims, is provided through a reduction of net sales and cost of products sold in the reporting period within which the related sales are recorded. Actual returns and claims experienced in a future period may differ from historical experience, and thus, the Company’s provision for anticipated returns at any given point in time may be over-funded or under-funded.

The Company recognizes revenue associated with unredeemed store credits and gift certificates at the earlier of their redemption by customers, their expiration or when their likelihood of redemption becomes remote, which is generally two years from the date of issuance.

Revenue from sales made directly to consumers is recorded when the shipped products have been received by customers, and excludes sales taxes collected on behalf of governmental entities. Revenue from sales made to retailers is recorded when legal title has been passed to the customer based upon the terms of the customer’s purchase order, the Company’s sales invoice, or other associated relevant documents. Such terms usually stipulate that legal title will pass when the shipped products are no longer under the control of the Company, such as when the products are picked up at the Company’s facility by the customer or by a common carrier. Payment terms can vary from prepayment for sales made directly to consumers and some international sales to payment due in arrears (generally, 60 days of being invoiced) for sales made to retailers. A disaggregation of the Company’s revenue is set forth below under the heading “Segment and Related Information” in this Note 1 disclosure.1.

Allowances Against Accounts ReceivableReceivable::     Revenue from sales made to retailers is reported net of allowances for anticipated returns and other allowances, including cooperative advertising allowances, warehouse allowances, placement fees, volume rebates, coupons and discounts. Such allowances are recorded commensurate with sales activity or usingapplying the straight-line method, as appropriate, and the cost of such allowances is netted against sales in reporting the results of operations. The provision for the majority of the Company’s allowances occurs on a per-invoice basis. When a customer requests to have an agreed-upon deduction applied against the customer’s outstanding balance due to the Company, the allowances are correspondingly reduced to reflect such payments or credits issued against the customer’s account balance. The Company analyzes the components of the allowances for customer deductions monthly and adjusts the allowances to the appropriate levels. The timing of funding requests for advertising support can cause the net balance in the allowance account to fluctuate from period to period. The timing of such funding requests should have no impact on the consolidated statements of income since such costs are accrued commensurate with sales activity or using the straight-line method, as appropriate.

Uncollectible Accounts:     To reduce the exposure to credit losses and to enhance the predictability of its cash flows, the Company assigns the majority of its trade accounts receivablereceivables under factoring agreements with CIT. In the eventIf a factored receivable becomes uncollectible due to creditworthiness, then CIT bears the risk of loss. For reporting periods beginning on or after April 2, 2018, theThe Company recognizes revenue net of the amount of its non-factored accounts receivable that is expected to be uncollectible which is estimatedon any accounts receivable that are not assigned under the factoring agreements with CIT. The Company’s management makes estimates of the uncollectiblity of its non-factored accounts receivable by specifically analyzing the accounts receivable, historical trends of uncollected accounts,bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in its customers’ payment terms. For reporting periods that ended prior to April 2, 2018, the Company instead recorded a provision for its expected uncollectible accounts in the form of a bad debt expense, which was included in marketing and administrative expenses in the unaudited condensed consolidated statements of income. However, the Company did not record such a charge for bad debt expense during the three-month period ended July 2, 2017.

Credit Concentration: The Company’s accounts receivable as of July 1, 2018 was $14.5June 30, 2019 amounted to $12.5 million, net of allowances of $543,000.$541,000. Of this amount, $10.7$11.4 million was due from CIT under the factoring agreements whichand $3.4 million was due from CIT as a negative balance outstanding under the revolving line of credit. The combined amount of $14.8 million represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations thereunder.under the factoring agreements and the revolving line of credit.

Other Accrued Liabilities:     An amount of $516,000$646,000 was recorded as other accrued liabilities as of July 1, 2018.June 30, 2019. Of this amount, $293,000$180,000 reflected unearned revenue recorded for payments from customers that were received before the products ordered were shipped.received by the customers. Other accrued liabilities as of July 1, 2018June 30, 2019 also includes a reserve for anticipatedcustomer returns of $9,000$16,000 and unredeemed store credits and gift certificates totaling $19,000.$11,000.

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, bibs, soft bath products, disposable products and accessories. Net sales of bedding, blankets and accessories and net sales of bibs, bath, developmental toy, feeding, baby care and disposable products for the three-month periods ended June 30, 2019 and July 1, 2018 and July 2, 2017 are as follows (in thousands):

Note 2 – Acquisitions

Carousel: On August 4, 2017, Carousel Acquisition, LLC, a wholly-owned subsidiary of the Company, acquired substantially all of the assets and business, and assumed certain specified liabilities, of a privately held manufacturer and online retailer of premium infant and toddler bedding and nursery décor based in Douglasville, Georgia, which was at the time named Carousel Designs, LLC (the “Carousel Acquisition”). On August 11, 2017, the seller of such assets having relinquished its rights to its name under the terms of the acquisition, Carousel Acquisition, LLC changed its name to Carousel Designs, LLC (“Carousel”).

The Company anticipates that certain synergies, including administrative and capital efficiencies, may be achieved as a result of the Company’s control of the combined assets and that the Company will benefit from the direct-to-consumer opportunities that will result from the Carousel Acquisition. Carousel paid an acquisition cost of $8.7 million from cash on hand and assumed certain specified liabilities relating to the business. In connection with the Carousel Acquisition, Carousel paid off capital leases amounting to $845,000 that were associated with certain fixed assets that were acquired.

The Carousel Acquisition has been accounted for as a business combination in accordance with FASB ASC Topic 805, Business Combinations. The Company has determined the preliminary 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 was determined based upon the remaining time that these assets are expected to directly or indirectly contribute to the future cash flow of the Company.

The Company expects to complete the acquisition cost allocation during the 12-month period following the acquisition 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 has recognized of $5.7 million of goodwill, the entirety of which has been assigned to the reporting unit of the Company that produces and markets infant and toddler bedding, blankets and accessories, and the entirety of which is expected to be deductible for income tax purposes.

The following table represents the Company’s preliminary allocation of the acquisition cost (in thousands) to the identifiable assets acquired and the liabilities assumed based on their respective estimated fair values as of the acquisition date. The excess of the acquisition cost over the estimated fair value of the identifiable net assets acquired is reflected as goodwill.

The Carousel Acquisition resulted in net sales of $1.8 million of infant and toddler bedding, blankets and accessories during the three-month period ended July 1, 2018. Carousel recorded amortization expense associated with the acquired amortizable intangible assets of $50,000 during the three-month period ended July 1, 2018, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income. Amortization is computed for the acquired amortizable intangible assets using the straight-line method over the estimated useful lives of the assets, which are 15 years for the tradename, 10 years for the developed technology, 5 years for the non-compete agreements and 11 years on a weighted-average basis for the grouping taken together.

Sassy: On December 15, 2017, Hamco, Inc. (“Hamco”), a wholly-owned subsidiary of the Company, acquired certain assets associated with the Sassy®-branded developmental toy, feeding and baby care product line from Sassy 14, LLC and assumed certain related liabilities (the “Sassy Acquisition”). Hamco paid an acquisition cost of $6.5 million from a combination of cash on hand and the revolving line of credit. The Company has achieved certain administrative and capital efficiencies as a result of its acquisition of the Sassy product line. For example, synergies were attained in April 2018 when the Company transferred the remaining inventory acquired in the Sassy Acquisition from Grand Rapids, Michigan to the Company’s distribution facility in Compton, California. The Company anticipates that it will benefit from the diversity added to the Company’s portfolio of products and that the Sassy Acquisition will strengthen the Company’s overall position in the infant and juvenile products market.

The Sassy Acquisition has been accounted for as a business combination 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 was 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 valuation of pre-acquisition contingencies and the final appraisals and valuations of assets acquired and liabilities assumed.

The following table represents the Company’s preliminary allocation of the acquisition cost (in thousands) to the identifiable assets acquired and the liabilities assumed based on their respective estimated fair values as of the acquisition date. The excess of the acquisition cost over the estimated fair value of the identifiable net assets acquired is reflected as goodwill.

The Company expects to complete the acquisition cost allocation during the 12-month period following the acquisition 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 has recognized $320,000 of goodwill, the entirety of which has been assigned to the reporting unit of the Company that produces and markets infant and toddler bibs, bath, developmental toys, feeding, baby care and disposable products, and the entirety of which is expected to be deductible for income tax purposes. The Sassy Acquisition resulted in net sales of $2.2 million of developmental toy, feeding and baby care products during the three-month period ended July 1, 2018. Hamco recorded amortization expense associated with the amortizable intangible assets acquired in the Sassy Acquisition in the amount of $56,000 during the three-month period ended July 1, 2018, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income. Amortization is computed for the acquired amortizable intangible assets 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 relationships and 11 years on a weighted-average basis for the grouping taken together.

Note 32 – Goodwill, Customer Relationships and Other Intangible Assets

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, bath, developmental toys, feeding, babybath care and disposable products. The goodwill of the reporting units of the Company as of July 1, 2018June 30, 2019 and April 1, 2018March 31, 2019 amounted to $30.0 million, which is reflected in the accompanying condensed consolidated balance sheets net of accumulated impairment charges of $22.9 million, for a net reported balance of $7.1 million.

The Company measures for impairment the goodwill within its reporting units annually as of the first day of the Company’s fiscal year. 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 2, 2018,1, 2019, the Company performed the annual measurement for impairment of the goodwill of its reporting units and concluded that the estimated fair value of each of the Company’s reporting units exceeded their carrying values, and thus the goodwill of the Company’s reporting units was not impaired as of that date.

Note 3 – Other Intangible Assets:Assets

Other intangible assets as of July 1, 2018June 30, 2019 and April 1, 2018March 31, 2019 consisted primarily of the fair value of identifiable assets acquired in business combinations other than tangible assets and goodwill. The gross amount and accumulated amortization of the Company’s other intangible assets as of July 1, 2018June 30, 2019 and April 1, 2018,March 31, 2019, the amortization expense for the three-month periods ended June 30, 2019 and July 1, 2018 and July 2, 2017 and the classification of such amortization expense within the accompanying unaudited condensed consolidated statements of income are as follows (in thousands):

Note 4 – Inventories

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

Note 5 – Financing Arrangements

Master Stand-by Claims Purchase Agreements: On May 16, 2017, the Company entered into an agreement (the “First Agreement”) with JPMorgan Chase Bank, N.A. (“Chase”) wherein the Company had the right to sell, and Chase had the obligation to purchase, certain claims that could arise if accounts receivable amounts owed by Toys “R” Us-Delaware, Inc. (“Toys-Delaware”), an affiliated company of Toys “R” Us, Inc. (“TRU”), to the Company became uncollectible. The First Agreement would have expired on September 20, 2018 and carried a fee of 1.65% per month of the limit of $1.8 million of accounts receivable due from Toys-Delaware. On September 18, 2017, TRU and Toys-Delaware filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Filing”). Pursuant to the terms of the First Agreement, the Bankruptcy Filing allowed the Company to exercise its right to sell to Chase the claim that arose as a result of the Bankruptcy Filing, which amounted to $866,000 payable to the Company (the “First Exercise”). Of this amount, $746,000 remained payable to the Company by Chase as of July 1, 2018 under customary closing procedures and has been classified as other accounts receivable in the accompanying condensed consolidated balance sheets. The First Exercise resulted in the acceleration of the recognition of the remaining unpaid fees owed under the First Agreement. During the three-month period ended July 2, 2017, the Company recorded $64,000 in fees under the First Agreement, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income.

On September 19, 2017, the Company entered into an agreement (the “Second Agreement”) with Chase wherein the Company has the right to sell, and Chase has the obligation to purchase, certain accounts receivable claims that could arise if TRU converts its Chapter 11 case to Chapter 7 of the U.S. Bankruptcy Code or takes other specified actions. The Second Agreement would have expired on March 31, 2018 and carried a fee of 1.50% per month of the limit of $1.8 million of accounts receivable due from Toys-Delaware. On March 14, 2018, TRU filed a motion with the Court seeking authority to close the remaining Toys-Delaware stores and distribution centers in the U.S., and to otherwise discontinue, liquidate and wind-down all U.S. operations of Toys-Delaware.

Pursuant to the terms of the Second Agreement, the liquidation filing allowed the Company to exercise its right to sell to Chase the claim that arose as a result of the liquidation filing, which amounted to $1.8 million payable to the Company, the entirety of which remained payable to the Company by Chase as of July 1, 2018 under customary closing procedures and has been classified as other accounts receivable in the accompanying condensed consolidated balance sheets.

Factoring Agreements:     The Company assigns the majority of its trade accounts receivable to CIT underpursuant to factoring agreements, whosewhich have expiration dates that are coterminous with that of the CIT Financing Agreement.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.

Credit losses are borne by CIT bears credit losses with respect to assigned accounts receivable from approved customers that are within approved credit limits,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 suchthe customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted towere $51,000 and $56,000 and $65,000 for the three-month periods ended June 30, 2019 and July 1, 2018, and July 2, 2017, respectively.

Credit Facility:     The Company’s credit facility at July 1, 2018June 30, 2019 consisted of a revolving line of credit under thea financing agreement with CIT Financing Agreement of up to $26.0 million, which includes a $1.5 million sub-limit for letters of credit, with anbearing interest at the rate of prime minus 0.5% or LIBOR plus 2.0%,1.75%. The financing agreement matures on July 11, 2022 and which is secured by a first lien on all assets of the Company. The CIT Financing Agreement was scheduled to mature on July 11, 2019, but on August 7, 2018 the CIT Financing Agreement was amended to extend the maturity date to July 11, 2022 and to lower the interest rate margin under the LIBOR option to 1.75%, effective as of August 1, 2018. As of July 1, 2018,June 30, 2019, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the LIBOR option, which was 4.0%4.18% as of July 1, 2018.June 30, 2019. The CIT Financing Agreementfinancing agreement also provides for the payment by CIT to the Company of interest at the rate of prime as of the beginning of the calendar month minus 2.0%, which was 3.5% as of June 30, 2019, on daily cashnegative balances held at CIT.

At July 1, 2018, As of June 30, 2019, there was ano balance dueowed on the revolving line of credit, of $3.8 million, the entirety of which will mature during fiscal year 2023. Therethere was no letter of credit outstanding and $17.9$19.2 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances. At April 1, 2018,As of March 31, 2019, there was a balance dueof $4.5 million owed on the revolving line of credit, of $9.5 million, there was no letter of credit outstanding and $13.2$19.4 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

The CIT Financing Agreement for the revolving line of creditfinancing agreement contains usual and customary covenants for agreements of that type, including limitations on other indebtedness, liens, transfers of assets, investments and acquisitions, merger or consolidation transactions, transactions with affiliates, and changes in or amendments to the organizational documents for the Company and its subsidiaries. The Company believes it was in compliance with these covenants as of July 1, 2018.June 30, 2019.

Note 6 – Leases

On April 1, 2019, the Company commenced its initial application of the provisions of FASB ASC Topic 842, Leases (“Topic 842”), under which the Company has capitalized most of its current operating lease obligations as right-of-use assets and recognized corresponding liabilities. The Company has used a modified retrospective transition approach permitted by Topic 842.  The Company elected to use the “package of practical expedients,” which permitted the Company to avoid a reassessment of prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the practical expedient that permitted the Company to exclude short-term agreements of less than 12 months from capitalization.

In its initial application of Topic 842, the Company recognized operating lease liabilities and corresponding right-of-use assets of $1.9 million based on the present value of the remaining minimum rental payments under the Company’s operating leases. In addition to the recognition of operating lease liabilities and right-of-use assets, the Company also reclassified its deferred rent liability as of April 1, 2019 of $99,000 as an offset to the amount of its initial operating lease right-of-use assets.  The recognition of a cumulative-effect adjustment to the opening balance of the Company’s retained earnings was not required as a result of the initial application of Topic 842.

The Company is a party to various operating leases for offices, warehousing facilities and certain office equipment. The leases expire at various dates, have varying options to renew and cancel, and may contain escalation provisions. The Company expenses non-variable lease payments ratably over the lease term.

The key estimates for the Company’s leases include:     (1) the discount rate used to discount the unpaid lease payment to present value, and (2) the lease term. The Company’s leases generally do not include a readily determinable implicit rate; therefore, management determined the incremental borrowing rate to discount the lease payment based on the information available at lease commencement. The lease terms include the noncancellable periods.

Subsequent to the Company’s recognition of operating lease liabilities of $1.9 million on April 1, 2019, the Company made cash payments associated with its recognized operating leases of $352,000 during the three months ended June 30, 2019. 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. During the three months ended June 30, 2019, the Company classified its operating lease costs within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

The Company’s operating leases have a weighted-average remaining lease term of 17.0 months. The weighted-average discount rate for the operating leases is 4.59%.

The following table represents the maturities of the Company’s operating lease liabilities as of June 30, 2019 (in thousands):

The following table represents the Company’s commitment for minimum guaranteed rental payments under its lease agreements as of March 31, 2019 (in thousands):

Note 7 – Stock-based Compensation

The Company has two incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”) and the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”). As a result of the approval of the 2014 Plan by the Company’s stockholders at the Company’s 2014 annual meeting, grants may no longer be issued under the 2006 Plan.

The Company believes that awards of long-term, equity-based incentive compensation will attract and retain directors, officers and employees of the Company and will encourage these individuals to contribute to the successful performance of the Company, which will lead to the achievement of the Company’s overall goal of increasing stockholder value. Awards granted under the 2014 Plan may be in the form of incentive stock options, non-qualified stock options, shares of restricted or unrestricted stock, stock units, stock appreciation rights, or other stock-based awards. Awards may be granted subject to the achievement of performance goals or other conditions, and certain awards may be payable in stock or cash, or a combination of the two. The 2014 Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Board”), which selects eligible employees, non-employee directors and other individuals to participate in the 2014 Plan and determines the type, amount, duration (not(such duration not to exceed a term of ten (10) years for grants of options) and other terms of individual awards. Grants under the 2014 Plan are settled primarily through the issuance of newAt June 30, 2019, 486,000 shares of the Company’s common stock 562,000 shares of which were available for future issuance under the 2014 Plan, aswhich may be issued from authorized and unissued shares of July 1, 2018.the Company’s common stock or treasury shares.

Stock-based compensation expense is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation expense to be accounted for using a fair-value-based measurement. The Company recorded stock-based compensation expense of $110,000During the three-month periods ended June 30, 2019 and $142,000 for the three months ended July 1, 2018, the Company recorded $65,000 and July 2, 2017,$110,000 of stock-based compensation, respectively. The Company records the compensation expense related toassociated with stock-based awards granted to individuals in the same expense classifications in the accompanying unaudited condensed consolidated statements of income as the cash compensation paid to those same individuals. No stock-based compensation costs have beenwere capitalized as part of the cost of an asset as of July 1, 2018.June 30, 2019.

Stock Options: The following table represents stock option activity for the three-month periods ended June 30, 2019 and July 1, 2018 and July 2, 2017:2018: