1.	Preparation of Interim Unaudited Consolidated Financial Statements

The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles in the United States have been either condensed or omitted pursuant to SEC rules and regulations. However, we believe that the disclosures made are adequate for a fair presentation of results of operations and financial position. Operating results for the interim periods reported herein

may

not

be indicative of the results expected for the year. We suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in our latest Annual Report on Form

-K.

Recent Accounting Pronouncements

March 2017,

the FASB issued ASU

2017

07,

Compensation – Retirement Benefits (Topic

715

): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

(“ASU

2017

). Currently, net benefit cost is reported as an employee cost within operating income (or capitalized into assets where appropriate). The amendment requires the bifurcation of net benefit cost. The service cost component will be presented with the other employee compensation costs in operating income (or capitalized in assets). The other components will be reported separately outside of operations, and will

not

be eligible for capitalization. The amendment is effective for public entities for annual reporting periods beginning after

December 15, 2017.

Early adoption will be permitted as of the beginning of an annual reporting period for which financial statements have

not

been issued or made available for issuance. The guidance is required to be applied on a retrospective basis for the presentation of the service cost component and the other components of net benefit cost (including gains and losses on curtailments and settlements, and termination benefits paid through plans), and on a prospective basis for the capitalization of only the service cost component of net benefit cost. Amounts capitalized into assets prior to the date of adoption should

not

be adjusted through a cumulative effect adjustment, but should continue to be recognized in the normal course, as for example, inventory is sold or fixed assets are depreciated. The Company has

service cost component in its net benefit cost. The impact of adopting this amendment will be the movement of approximately

$330,000

of net benefit cost from within operating income to a separate expense outside of operations.

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments – Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

(“ASU

2016

13”

). The amendments in ASU

2016

require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU

2016

amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after

December 15, 2019,

however early application is permitted for reporting periods beginning after

December 15, 2018.

The Company does

not

anticipate ASU

2016

to have a material impact to the consolidated financial statements.

February 2016,

the FASB issued its final lease accounting standard, FASB Accounting Standard Codification ("ASC"),

Leases

(Topic

842

) (“ASU

2016

02”

), which requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC

840,

requiring leases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC

840

) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC

840

). Our leases as of

July 1, 2017,

principally relate to real estate leases for corporate office, showrooms and warehousing.

The new standard will be effective for the

first

quarter of our fiscal year ending

December 31, 2019.

Early adoption is permitted. We are evaluating the effect that ASU

2016

will have on the consolidated financial statements and related disclosures by reviewing all long-term leases and determining the potential impact. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.

March 2016,

the FASB issued ASU

2016

09,

Improvements to Employee Share-Based Payment Accounting

(“ASU

2016

09”

). The amendments in ASU

2016

simplify several aspects of the accounting for share-based payment transactions. The new guidance requires that excess tax benefits (which represent the excess of actual tax benefits receive at the date of vesting or settlement over the benefits recognized over the vesting period or upon issuance of share-based payments) be recorded in the income statement as a reduction of income or income taxes when the awards vest or are settled. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. The adoption of these amendments in the

first

quarter of this year had

material impact on the Company’s financial statements. The Company has elected to maintain its practice of estimating forfeitures when recognizing expense for share-based payment awards.

August 2016,

FASB issued ASU

2016

15,

Statement of Cash Flows

(Topic

230

). The guidance is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard will be effective for the

first

quarter of our fiscal year ending

December 31, 2018.

Early adoption is permitted, provided all amendments are adopted in the same period. In

November 2016,

FASB issued ASU

2016

18,

Statement of Cash Flows

(Topic

230

)

: Restricted

Cash. We have reviewed the standard and determined that our statement of cash flows will include changes in restricted cash with related disclosures. The guidance requires application using a retrospective transition method. We do

not

anticipate ASU

2016

or ASU

2016

to have a material impact to our consolidated financial statements.

July 2015,

the FASB issued ASU

2015

11,

Inventory (Topic

330

): Simplifying the Measurement of Inventory

(“ASU

2015

11”

). The amendments in ASU

2015

require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in,

first

-out (“LIFO”) or the retail inventory method. The amendments do

not

apply to LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using

first

-in,

first

-out (“FIFO”) or average cost. The adoption of these amendments in the

first

quarter of this year had

material impact on the Company’s financial statements.

May 2014,

the FASB issued ASU

2014

09,

Revenue from Contracts with Customers (Topic

606

This standard is intended to improve, and converge with international standards, the financial reporting requirements for revenue from contracts with customers. The new standard will be effective for the

first

quarter of our fiscal year ending

December 31, 2018.

Early adoption is permitted but we do

not

expect to early adopt this new accounting pronouncement. In preparation for this new standard, we are identifying all forms of agreements with our customers and will begin to evaluate the provisions in such agreements in light of the

five

-step model specified by the new guidance. The

five

-step model includes:

) determination of whether a contract – an agreement between

two

or more parties that creates legally enforceable rights and obligations exists;

) identification of the performance obligations in the contract;

) determination of the transaction price;

) allocation of the transaction price to the performance obligations in the contract; and

) recognition of revenue when (or as) the performance obligation is satisfied. We are also evaluating the impact of the new standard on certain common practices currently employed by us and others in our industry, such as co-operative advertising, pricing allowances and consumer coupons. We are in the initial phases and have

not

yet determined the impact of the new standard on our financial statements or whether we will adopt on a full or modified retrospective basis in the

first

quarter of our fiscal year ending

December 31, 2018.