Crown Crafts(CRWS) - 2025 Q4 - Annual Report

Part I Business Overview Crown Crafts, Inc. operates in infant, toddler, and juvenile products, acquiring Baby Boom for $18.0 million in FY2025, with key sales from licensed products and major retailers like Walmart and Amazon - Crown Crafts, Inc. operates through subsidiaries NoJo Baby & Kids, Sassy Baby, and Manhattan Toy Europe, selling infant and juvenile products directly to retailers[19] - On July 19, 2024, NoJo acquired Baby Boom Consumer Products for $18.0 million in cash, funded by an $8.0 million term loan and revolving credit[21] International and Trademark Sales (% of gross sales) | Metric | Fiscal Year 2025 | Fiscal Year 2024 | | :---------------------------------------- | :--------------- | :--------------- | | International Sales | 8% | 8% | | Sales under Company-owned trademarks | 39% | 38% | | Sales of licensed products | 50% | - | | Sales under Disney license agreements | 21% | - | - Primary product sourcing is from foreign contract manufacturers, mainly in China, leading to increased costs due to new U.S. tariffs[27][29] Major Customer Gross Sales Contribution (%) | Customer | 2025 | 2024 | | :---------------- | :---- | :---- | | Walmart Inc. | 47% | 42% | | Amazon.com, Inc. | 19% | 19% | - As of May 31, 2025, the company had 168 full-time employees, none unionized, maintaining good relations through competitive compensation and advancement opportunities[25] Risk Factors The company faces significant risks from customer and licensing concentration, geopolitical tensions, declining birthrates, increased tariffs, and cybersecurity threats, potentially impacting demand and profitability - The top two customers accounted for approximately 66% of gross sales in fiscal year 2025, indicating significant revenue concentration risk[43] - Licensed products generated 50% of gross sales in fiscal year 2025, with 21% from Disney agreements, creating vulnerability to license non-renewal or declining popularity[44] - Reliance on Chinese sourcing and new U.S. tariffs increase product costs, potentially impacting financial results if not passed to customers or mitigated by sourcing changes[45] - Geopolitical tensions, climate change, and a declining U.S. birthrate could reduce product demand, negatively impacting business, cash flow, operations, and financial condition[46][47][50][51] - Cybersecurity incidents and evolving AI risks could disrupt IT systems, leading to operational disruptions, substantial remediation costs, and increased protection expenses[64][65] Unresolved Staff Comments The company has no unresolved staff comments - The company has no unresolved staff comments[73] Cybersecurity The company maintains a comprehensive cybersecurity risk management strategy, overseen by the VP of IT and the Board, with no material threats identified as of May 31, 2025 - Cybersecurity measures include a comprehensive risk management strategy covering assessment, policies, training, auditing, threat hunting, and incident response[74][75] - The Vice President of Information Technology, with over 30 years of experience, leads cybersecurity strategy and reports directly to the CEO[80] - The Board of Directors oversees cybersecurity risk, receiving periodic reports, and as of May 31, 2025, no material threats have been identified[77][78] Properties The company operates from leased administrative, sales, design, warehouse, and distribution facilities across multiple states and China, with all leases expiring by fiscal year 2029 - All company facilities are rented under leases expiring through fiscal year 2029[81] Company Facilities | Location | Use | Approximate Square Feet | Owned/Leased | | :----------------------------------- | :------------------------------------ | :---------------------- | :----------- | | Gonzales, Louisiana | Administrative and sales office | 15,598 | Leased | | Compton, California | Offices, warehouse and distribution center | 157,400 | Leased | | Minneapolis, Minnesota | Product design and sales office | 16,837 | Leased | | Eden Valley, Minnesota | Warehouse and distribution center | 128,074 | Leased | | Grand Rapids, Michigan | Product design office | 9,100 | Leased | | Newark, New Jersey | Product design office | 2,048 | Leased | | Shanghai, People's Republic of China | Office | 1,912 | Leased | | Shenzhen, People's Republic of China | Office | 4,205 | Leased | Legal Proceedings The company is involved in ordinary course legal proceedings, none expected to materially affect financial position, operations, or cash flows - The company is involved in various legal proceedings in the ordinary course of business, but none are expected to have a material adverse effect on its financial position, operations, or cash flows[83] Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[84] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "CRWS", with 160 record holders as of May 31, 2025, and historical cash dividends permitted by its credit facility - The company's common stock trades on the Nasdaq Capital Market under symbol "CRWS", with 160 record holders as of May 31, 2025[86] - Cash dividends are historically paid, subject to legal provisions, earnings, and credit facility terms, which permit dividends if no default occurs[87] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition, operations, and cash flows for FY2025 and FY2024, highlighting a net sales decrease, gross profit decline, net loss due to goodwill impairment, and significant cash outflow for the Baby Boom acquisition Objective This discussion aims to provide material information for assessing the company's financial condition, operations, and cash flows, highlighting future impact events and uncertainties - The discussion provides material information for assessing financial condition, operations, and cash flows, detailing events and uncertainties impacting future performance[89] Results of Operations FY2025 net sales slightly decreased to $87.3 million, gross profit declined by 7.5% to $21.3 million, and a net loss of $9.4 million was reported, primarily due to a $13.8 million goodwill impairment charge Consolidated Statements of Operations (in thousands, except percentages) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :----------------------------------- | :---------- | :---------- | :---------- | :---------- | | Net sales by category: | | | | | | Bedding and diaper bags | $41,083 | $32,036 | $9,047 | 28.2% | | Bibs, toys and disposable products | $46,167 | $55,596 | $(9,429) | -17.0% | | Total net sales | $87,250 | $87,632 | $(382) | -0.4% | | Cost of products sold | $65,985 | $64,632 | $1,353 | 2.1% | | Gross profit | $21,265 | $23,000 | $(1,735)| -7.5% | | % of net sales | 24.4% | 26.2% | | | | Marketing and administrative expenses| $18,690 | $16,105 | $2,585 | 16.1% | | % of net sales | 21.4% | 18.4% | | | | Interest (expense) income - net | $(1,173) | $(734) | $(439) | 59.8% | | Other (expense) income - net | $(49) | $67 | $(116) | -173.1% | | Income tax (benefit) expense | $(3,057) | $1,334 | $(4,391) | -329.2% | | Net (loss) income | $(9,356)| $4,894 | $(14,250)| -291.2% | | % of net sales | -10.7% | 5.6% | | | - The Baby Boom Acquisition contributed $11.9 million in net sales for bedding and diaper bags in fiscal year 2025[92] - Gross profit decreased due to increased royalty expense, a $600,000 increase in Compton facility rent, and $324,000 in higher tariffs on Chinese imports[93] - Marketing and administrative expenses rose due to $244,000 from UK subsidiary closure, $1.2 million from Baby Boom Acquisition costs, and a $342,000 increase in advertising[94] Known Trends and Uncertainties Financial results are highly dependent on top two customers (66% of gross sales), while macroeconomic conditions and tariffs on Chinese imports pose risks to future sales and profitability - Financial results are closely tied to sales to the top two customers, representing approximately 66% of gross sales in fiscal year 2025[96] - Macroeconomic conditions and inflation in fiscal year 2025 led consumers to trade down or reduce purchases, potentially impacting future sales and profitability[97] - U.S. tariffs on Chinese imports increase product costs, and the inability to pass these to customers could materially affect business, cash flow, operations, and financial condition[98] Financial Position, Liquidity and Capital Resources Operating cash flow increased to $9.8 million in FY2025, while investing activities used $17.2 million for the Baby Boom acquisition, and financing provided $7.0 million through new debt, with $13.8 million available on the revolving credit facility Cash Flow Summary (in thousands) | Cash Flow Activity | FY2025 | FY2024 | Change ($) | | :---------------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $9,821 | $7,084 | $2,737 | | Net cash used in investing activities | $(17,168) | $(193) | $(16,975) | | Net cash provided (used in) by financing activities | $7,039 | $(7,804) | $14,843 | | Net decrease in cash and cash equivalents | $(308) | $(913) | $605 | | Cash and cash equivalents at end of period | $521 | $829 | $(308) | - Operating cash flow increased due to a $1.2 million higher decrease in accounts receivable, a $3.3 million higher increase in accounts payable, and a $2.5 million higher increase in accrued liabilities[100] - Net cash used in investing activities significantly increased due to the $16.3 million payment for the Baby Boom Acquisition[101] - Financing activities included $3.8 million in net borrowings under the revolving line of credit and an $8.0 million term loan, primarily for the acquisition[102] Credit Facility Balances (in thousands) | Metric | March 30, 2025 | March 31, 2024 | | :----------------------------------- | :------------- | :------------- | | Revolving line of credit balance | $11,900 | $8,100 | | Available under revolving line of credit | $13,800 | $19,200 | | Term loan balance | $6,700 | - | - The financing agreement with CIT was amended to waive the fixed charge coverage ratio for FY2025 and FY2026 and increase required Excess Availability[245] Critical Accounting Policies and Estimates Financial statements rely on significant management estimates for revenue recognition, accounts receivable allowances, inventory valuation, long-lived asset and goodwill impairment, and business combinations, which could materially impact results if actuals differ - Financial statement preparation requires significant management estimates and assumptions, which, if differing from actual results, could materially impact reported amounts[110] Revenue Recognition Revenue is recognized when performance obligations are satisfied and product control transfers, with direct-to-consumer sales recorded upon receipt and retailer sales upon legal title transfer - Revenue is recognized upon satisfaction of contractual performance obligations and transfer of product control to the customer[112] - Direct-to-consumer sales revenue is recorded upon customer receipt, while retailer sales are recorded when legal title passes, typically upon customer or carrier pickup[113] Allowances Against Accounts Receivable Allowances for returns, claims, and expected credit losses are estimated based on historical experience and CECL methodology, while other chargebacks are recorded commensurate with sales or on a per-invoice basis - Allowances for anticipated returns and claims are estimated based on historical experience and recorded as a reduction of net sales[115] - Expected credit losses for non-factored receivables are estimated using the Current Expected Credit Losses methodology, considering various factors, and are included in marketing and administrative expenses[116] - Other chargeback allowances, such as for cooperative advertising and rebates, are recorded commensurate with sales or on a straight-line, per-invoice basis[117] Inventory Valuation Inventory is valued at the lower of cost or net realizable value using FIFO, with allowances established for obsolescence, deterioration, or price changes, expensed in cost of products sold - Inventory is valued at the lower of cost or net realizable value using the FIFO method, including direct and indirect costs[119] - Management periodically reviews inventory for obsolescence, deterioration, price changes, and quantities not expected to be sold, establishing allowances expensed in cost of products sold[119] Valuation of Long-Lived Assets and Identifiable Intangible Assets Long-lived and identifiable intangible assets are reviewed for impairment when carrying amounts may not be recoverable, with losses recognized if carrying amount exceeds fair value Goodwill Goodwill impairment is measured annually and on an interim basis, involving qualitative and quantitative assessments to compare fair value to carrying value, with charges recognized for any difference - Goodwill impairment is measured annually and on an interim basis if triggering events occur, involving qualitative and quantitative assessments of fair value versus carrying value[121] Business Combinations Acquisitions are accounted for using the acquisition method, recording assets and liabilities at fair value, with goodwill recognized as the excess purchase price, requiring significant judgment in valuation - Acquisitions are accounted for using the acquisition method, measuring acquired assets and assumed liabilities at fair value[122] - Goodwill is recognized as the excess of purchase price over the fair value of tangible and identifiable intangible assets, less assumed liabilities[122] - Valuation methods for intangible assets require significant management judgment on projected revenues, costs, growth rates, and discount rates, with potential material impact if actual results differ[122] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate, commodity price, and significant market concentration risks from top customers and licensed products, exacerbated by tariffs on Chinese imports - As of March 30, 2025, $18.5 million in variable-rate debt means a one percentage point interest rate increase would decrease annual net income by approximately $139,000[124] - Commodity price risk from cotton, oil, and Chinese labor costs, plus a strengthening Chinese Yuan, could increase finished goods prices, which may not be passed to customers[125] - Market concentration risk is significant, with 66% of gross sales from top two customers and 50% from licensed products (21% from Disney), creating vulnerability to customer or license loss[126] - Tariffs on Chinese imports continue to increase product costs, and the inability to pass these to customers could impact profitability[127] Financial Statements and Supplementary Data This section refers to the company's audited consolidated financial statements and supplementary data, located on pages 23 and F-1 through F-22 of this Annual Report - The audited consolidated financial statements and supplementary data are located on pages 23 and F-1 through F-22 of this Annual Report[128] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[129] Controls and Procedures Disclosure controls and procedures were ineffective as of March 30, 2025, due to a material weakness in ICFR regarding manual journal entry review, though financial statements are fairly presented, and remediation efforts are ongoing - The company's disclosure controls and procedures were not effective as of March 30, 2025, due to a material weakness in internal control over financial reporting[130] - The material weakness identified is the ineffective design and maintenance of controls for reviewing and approving all manual journal entries[134] - Despite the material weakness, management believes the consolidated financial statements fairly present the company's financial condition, operations, and cash flows in accordance with GAAP[131][135] - Remediation efforts include improving internal control policies for segregation of duties regarding manual journal entries and enhancing the review process with strengthened documentation and timely supervisory reviews[137][141] Other Information On June 23, 2025, the company amended its CIT financing agreement to modify the Excess Availability covenant and reinstate the fixed charge coverage ratio with a waiver condition - On June 23, 2025, the company amended its financing agreement with CIT to modify the Excess Availability covenant and reinstate the fixed charge coverage ratio, with a waiver condition[138] - No directors or officers reported adopting, modifying, or terminating Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended March 30, 2025[139] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to the company[140] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement[143] Executive Compensation Information on executive compensation is incorporated by reference from the 2025 Proxy Statement - Information on executive compensation is incorporated by reference from the 2025 Proxy Statement[143] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and related stockholder matters are incorporated by reference from the Proxy Statement, with 763,000 stock options outstanding and 179,000 shares available under the 2021 Incentive Plan as of March 30, 2025 - Information on security ownership and related stockholder matters is incorporated by reference from the Proxy Statement[144] Equity Compensation Plan Information | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :-------------------------------------- | :------------------------------------------------------------------------ | :------------------------------------------------------------------------ | :----------------------------------------------------------------------------------------- | | 2014 Omnibus Equity Compensation Plan | 508,000 | $7.16 | 0 | | 2021 Incentive Plan | 280,000 | $5.66 | 178,851 | Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement[148] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the Proxy Statement[148] Part IV Exhibits and Financial Statement Schedules This section lists consolidated financial statements, a schedule for Valuation and Qualifying Accounts, and SEC Regulation S-K exhibits, cautioning investors that exhibit representations are for party benefit - The section includes the company's consolidated financial statements and a schedule for Valuation and Qualifying Accounts[151][152] - Exhibits required by SEC Regulation S-K are listed, including agreements, corporate documents, equity compensation plans, and certifications[156][159] - Investors are reminded that representations and warranties in exhibits are for the benefit of the parties and may not describe the actual state of affairs[157][158] Accounts Receivable Valuation Accounts (in thousands) | Column A | Column B (Balance at Beginning of Period) | Column C (Charged to Expenses) | Column D (Deductions) | Column E (Balance at End of Period) | | :----------------------------- | :---------------------------------------- | :----------------------------- | :-------------------- | :---------------------------------- | | Year Ended March 31, 2024 | | | | | | Allowance for customer deductions | $1,474 | $6,139 | $6,443 | $1,170 | | Allowance for expected credit losses | $0 | $316 | $0 | $316 | | Year Ended March 30, 2025 | | | | | | Allowance for customer deductions | $1,170 | $7,480 | $7,201 | $1,449 | | Allowance for expected credit losses | $316 | $0 | $42 | $274 | Form 10-K Summary This item is not applicable - Form 10-K Summary is not applicable[165] ITEM 8. Financial Statements and Supplementary Data Audited Financial Statements This section lists the audited consolidated financial statements, including the Independent Auditor's Report, Balance Sheets, Statements of Operations, Shareholders' Equity, Cash Flows, and Notes - The audited financial statements include the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Statements of Changes in Shareholders' Equity, Statements of Cash Flows, and Notes[168] Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on Crown Crafts, Inc.'s consolidated financial statements for FY2025 and FY2024, with critical audit matters including fair value of licensing relationships and assessment of various allowances - KPMG LLP issued an unqualified opinion on the consolidated financial statements, affirming fair presentation in conformity with U.S. GAAP for FY2025 and FY2024[170] - Critical audit matters included evaluating the fair value of licensing relationships intangible assets from the Baby Boom acquisition and assessing allowances for returns, claims, and credit losses, both requiring subjective judgment[174][175][178] Consolidated Balance Sheets As of March 30, 2025, total assets decreased to $81.2 million, goodwill was fully impaired, total liabilities increased to $41.5 million, and shareholders' equity significantly decreased to $39.6 million due to net loss and dividends Consolidated Balance Sheets (amounts in thousands) | ASSETS | March 30, 2025 | March 31, 2024 | | :----------------------------------------- | :------------- | :------------- | | Cash and cash equivalents | $521 | $829 | | Accounts receivable (net) | $24,508 | $22,403 | | Inventories | $27,800 | $29,709 | | Total current assets | $55,303 | $54,824 | | Operating lease right of use assets | $12,253 | $14,949 | | Property, plant and equipment - net | $1,888 | $1,656 | | Finite-lived intangible assets - net | $7,050 | $2,872 | | Goodwill | $- | $7,926 | | Deferred income taxes | $4,508 | $277 | | Total Assets | $81,154 | $82,706 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Accounts payable | $5,225 | $4,502 | | Accrued royalties | $1,507 | $290 | | Current maturities of long-term debt | $1,990 | $- | | Total current liabilities | $15,505 | $10,461 | | Long-term debt | $16,512 | $8,112 | | Operating lease liabilities, noncurrent | $9,107 | $12,138 | | Total non-current liabilities | $26,030 | $20,644 | | Common stock | $135 | $132 | | Additional paid-in capital | $58,637 | $57,888 | | Treasury stock | $(15,880) | $(15,821) | | Retained Earnings (accumulated deficit) | $(3,273) | $9,402 | | Total shareholders' equity | $39,619 | $51,601 | | Total Liabilities and Shareholders' Equity | $81,154 | $82,706 | Consolidated Statements of Operations FY2025 saw a net loss of $9.4 million (down from $4.9 million net income in FY2024), with flat net sales, a 7.5% gross profit decrease, and a $13.8 million goodwill impairment charge leading to an operating loss Consolidated Statements of Operations (amounts in thousands, except per share amounts) | Metric | 2025 | 2024 | | :----------------------------------- | :---------- | :---------- | | Net sales | $87,250 | $87,632 | | Cost of products sold | $65,985 | $64,632 | | Gross profit | $21,265 | $23,000 | | Marketing and administrative expenses| $18,690 | $16,105 | | Goodwill impairment charge | $13,766 | $- | | (Loss) income from operations | $(11,191)| $6,895 | | Interest expense - net | $(1,173) | $(734) | | Other (expense) income - net | $(49) | $67 | | (Loss) income before income tax expense| $(12,413)| $6,228 | | Income tax (benefit) expense | $(3,057) | $1,334 | | Net (loss) income | $(9,356)| $4,894 | | Basic (loss) earnings per share | $(0.90) | $0.48 | | Diluted (loss) earnings per share | $(0.90) | $0.48 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $51.6 million to $39.6 million due to a $9.4 million net loss and $3.3 million in dividends declared in FY2025, despite $752,000 from stock-based compensation Consolidated Statements of Changes in Shareholders' Equity (Dollar amounts in thousands) | Metric | Balances - March 31, 2024 | Issuance of shares | Stock-based compensation | Acquisition of treasury stock | Net loss | Dividends declared on common stock | Balances - March 30, 2025 | | :----------------------------------- | :------------------------ | :----------------- | :----------------------- | :---------------------------- | :---------- | :--------------------------------- | :------------------------ | | Common Shares (Number) | 13,208,226 | 270,176 | - | - | - | - | 13,478,402 | | Common Shares (Amount) | $132 | $3 | - | - | - | - | $135 | | Treasury Shares (Number) | (2,897,507) | - | - | (13,352) | - | - | (2,910,859) | | Treasury Shares (Amount) | $(15,821) | - | - | $(59) | - | - | $(15,880) | | Additional Paid-in Capital | $57,888 | $(3) | $752 | - | - | - | $58,637 | | Retained Earnings (Accumulated Deficit)| $9,402 | - | - | - | $(9,356) | $(3,319) | $(3,273) | | Total Shareholders' Equity | $51,601 | - | $752 | $(59) | $(9,356)| $(3,319) | $39,619 | Consolidated Statements of Cash Flows Operating cash flow increased to $9.8 million in FY2025, investing activities used $17.2 million for the Baby Boom acquisition, and financing provided $7.0 million through new debt, resulting in a $308,000 decrease in cash Consolidated Statements of Cash Flows (amounts in thousands) | Cash Flow Activity | 2025 | 2024 | | :---------------------------------------- | :---------- | :---------- | | Net cash provided by operating activities | $9,821 | $7,084 | | Net cash used in investing activities | $(17,168) | $(193) | | Net cash provided (used in) by financing activities | $7,039 | $(7,804) | | Net decrease in cash and cash equivalents | $(308) | $(913) | | Cash and cash equivalents at beginning of period | $829 | $1,742 | | Cash and cash equivalents at end of period | $521 | $829 | | Supplemental cash flow information: | | | | Income taxes paid | $633 | $2,747 | | Interest paid | $1,046 | $818 | - Adjustments reconciling net loss to operating cash flow in FY2025 included a $13.8 million goodwill impairment charge and a $4.6 million reduction in right-of-use assets[191] - The significant increase in cash used in investing activities was primarily due to the $16.3 million payment for the Baby Boom acquisition[191] - Financing activities in FY2025 included $85.8 million in borrowings and $82.1 million in repayments under the revolving line of credit, and $7.96 million in proceeds from a term loan[191] Notes to Consolidated Financial Statements These notes detail the company's business, significant accounting policies (revenue, allowances, inventory, assets, goodwill, business combinations), the Baby Boom acquisition, financing, retirement plan, stock-based compensation, income taxes, shareholders' equity, and major concentrations Note 1 – Description of Business Crown Crafts, Inc. operates in the infant, toddler, and juvenile products segment through its subsidiaries, selling bedding, diaper bags, bibs, toys, and feeding products under various labels, with its fiscal year ending near March 31 - Crown Crafts, Inc. operates in the infant, toddler, and juvenile products segment through its wholly-owned subsidiaries: NoJo Baby & Kids, Sassy Baby, and Manhattan Toy Europe Limited[193] - Products are marketed under company-owned, licensed, and private labels, primarily sold directly to retailers[193] - The fiscal year ends on the Sunday nearest to March 31; FY2025 ended March 30, 2025, and FY2024 ended March 31, 2024[194] Note 2 - Summary of Significant Accounting Policies This note outlines significant accounting policies, including GAAP basis, management estimates, single operating segment, revenue recognition, allowances, inventory valuation, asset capitalization, goodwill impairment, and recently issued accounting standards - Consolidated financial statements are prepared in conformity with U.S. GAAP, requiring significant management estimates and assumptions[195][196] - The company operates primarily in one principal segment: infant, toddler, and juvenile products, with net sales categorized into bedding/diaper bags and bibs/toys/disposable products[199] Net Sales by Product Category (in thousands) | Category | 2025 | 2024 | | :------------------------------- | :---------- | :---------- | | Bedding and diaper bags | $41,083 | $32,036 | | Bibs, toys and disposable products | $46,167 | $55,596 | | Total net sales | $87,250 | $87,632 | - Revenue is recognized upon satisfaction of performance obligations and transfer of control, with allowances for returns, credit losses, and chargebacks estimated based on historical experience and economic conditions[201][203][205] - Inventory is valued at the lower of cost or net realizable value using the FIFO method, with allowances established for obsolescence or market value declines[209][211] - Goodwill impairment is measured annually and on an interim basis, involving qualitative and quantitative assessments to determine if fair value is below carrying value[217] - The company adopted ASU No. 2023-07 (Segment Reporting) effective April 1, 2024, and is evaluating ASU No. 2023-09 (Income Taxes) and ASU No. 2024-03 (Income Statement Expenses) for future adoption[227][228][229] Note 3 – Segment Reporting The company operates as a single segment for infant, toddler, and juvenile products, reporting a $9.4 million net loss in FY2025, including $704,000 depreciation and $14.5 million amortization (with a $13.8 million goodwill impairment charge) - The company operates primarily in one principal segment: infant, toddler, and juvenile products, with the CEO managing and evaluating results on a consolidated basis[231] Reportable Segment Information (in thousands) | Metric | 2025 | 2024 | | :----------------------------------- | :---------- | :---------- | | Net sales | $87,250 | $87,632 | | Cost of products sold | $65,985 | $64,632 | | Marketing and administrative expenses| $18,690 | $16,105 | | Goodwill impairment charge | $13,766 | $- | | Interest expense, net and other | $1,222 | $667 | | Income tax expense (benefit) | $(3,057) | $1,334 | | Segment net income | $(9,356)| $4,894 | | Depreciation expense | $704 | $835 | | Amortization expense (incl. goodwill impairment) | $14,500 | $601 | Note 4 – Inventories As of March 30, 2025, inventory decreased to $27.8 million from $29.7 million at March 31, 2024, with nearly all consisting of finished goods Inventory Balances (in millions) | Metric | March 30, 2025 | March 31, 2024 | | :-------- | :------------- | :------------- | | Inventories | $27.8 | $29.7 | - Nearly all of the company's inventory consisted of finished goods[233] Note 5 – Acquisition On July 19, 2024, NoJo acquired Baby Boom for $16.3 million cash, funded by an $8.0 million term loan, recognizing $5.8 million goodwill, and generating $11.9 million in net sales from acquired assets by March 30, 2025 - On July 19, 2024, NoJo acquired Baby Boom Consumer Products for a net acquisition cost of $16.3 million in cash, funded by an $8.0 million term loan and revolving credit[234][236][237] Allocation of Acquisition Cost (in thousands) | Acquired Assets and Liabilities | Amount | | :------------------------------ | :----- | | Tangible assets | $6,107 | | Amortizable intangible assets | $4,950 | | Goodwill | $5,840 | | Liabilities assumed | $(601) | | Net acquisition cost | $16,296 | - Goodwill of $5.8 million was recognized and assigned to the infant and toddler bedding and diaper bags reporting unit, expected to be income tax deductible[237] - Acquired assets generated $11.9 million in net sales of bedding and diaper bag products from the closing date to March 30, 2025[237] Pro Forma Combined Financials (unaudited, in millions) | Metric | FY2025 (Pro Forma) | FY2024 (Pro Forma) | | :--------------- | :----------------- | :----------------- | | Net sales | $92.3 | $109.9 | | Net (loss) income| $(8.6) | $4.9 | Note 6 – Financing Arrangements The company uses factoring agreements with CIT and a credit facility including a $40 million revolving line and an $8.0 million term loan, with $11.9 million outstanding on the revolver and $6.7 million on the term loan as of March 30, 2025 - The company assigns most trade accounts receivable to CIT under factoring agreements, with factoring fees of $386,000 in FY2025 and $353,000 in FY2024[239][240] - The credit facility includes a $40 million revolving line of credit (maturing July 19, 2029) and an $8.0 million term loan (issued July 19, 2024)[241][243] Credit Facility Balances (in millions) | Metric | March 30, 2025 | March 31, 2024 | | :----------------------------------- | :------------- | :------------- | | Revolving line of credit balance | $11.9 | $8.1 | | Available under revolving line of credit | $13.8 | $19.2 | | Term loan balance | $6.7 | - | - The financing agreement was amended in January and February 2025 to waive the fixed charge coverage ratio for FY2025 and FY2026 and increase the required Excess Availability[244][245] Fair Value of Debt (in thousands) as of March 30, 2025 | Debt Type | Fair Value | Fair Value Measurement Using Significant Other Observable Inputs (Level 2) | | :--------------------- | :--------- | :----------------------------------------------------------------------- | | Term loan | $6,652 | $6,652 | | Revolving line of credit | $11,627 | $11,627 | | Total debt | $18,279| $18,279 | Aggregate Maturities of Long-Term Debt (in millions) | Fiscal Year | Amount | | :---------- | :----- | | 2026 | $2.0 | | 2027 | $2.0 | | 2028 | $2.2 | | 2029 | $0.5 | | 2030 | $11.9 | Note 7 – Retirement Plan The company sponsors a 401(k) Plan for most employees, with matching contributions of $359,000 in FY2025 and $320,000 in FY2024, based on a 100% match for the first 2% and 50% for the next 3% of employee contributions - The company sponsors a 401(k) Plan for substantially all employees[250] - Employer matching contributions for 2023-2025 were 100% of the first 2% and 50% of the next 3% of employee contributions[251] 401(k) Matching Contributions (in thousands) | Fiscal Year | Matching Contributions (net of forfeitures) | | :---------- | :---------------------------------------- | | 2025 | $359 | | 2024 | $320 | Note 8 – Goodwill, Customer Relationships and Other Intangible Assets Goodwill impairment is measured annually and on an interim basis; a $13.8 million non-cash impairment charge was recorded in FY2025, reducing net goodwill to $0, while other intangible assets totaled $17.9 million gross with $772,000 amortization expense - Goodwill impairment is measured annually and on an interim basis, using income and market approaches for fair value determination[252][253][254] - A non-cash goodwill impairment charge of $13.8 million was recorded in FY2025, reducing net goodwill to $0 at March 30, 2025, due to fair values being lower than carrying values[257] Goodwill Carrying Amounts (in thousands) | Metric | As of April 3, 2023 | March 31, 2024 | March 30, 2025 | | :----------------------------------- | :------------------ | :------------- | :------------- | | Gross goodwill | $30,838 | $30,838 | $36,678 | | Accumulated impairment losses | $(22,912) | $(22,912) | $(36,678) | | Net goodwill | $7,926 | $7,926 | $- | | Additions | - | $5,840 | - | | Impairment charge | - | $(13,766) | - | Other Intangible Assets (in thousands) | Intangible Asset | Gross Amount (March 30, 2025) | Gross Amount (March 31, 2024) | Accumulated Amortization (March 30, 2025) | Accumulated Amortization (March 31, 2024) | Amortization Expense (2025) | Amortization Expense (2024) | | :--------------------- | :---------------------------- | :---------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------------- | :-------------------------- | | Tradename and trademarks | $3,217 | $2,867 | $2,316 | $2,185 | $131 | $160 | | Non-compete covenants | $98 | $98 | $98 | $98 | $- | $- | | Patents | $1,601 | $1,601 | $1,160 | $1,107 | $53 | $52 | | Customer relationships | $8,174 | $8,174 | $7,007 | $6,658 | $349 | $369 | | Licensing relationships| $4,800 | $200 | $259 | $20 | $239 | $20 | | Total other intangible assets | $17,890 | $12,940 | $10,840 | $10,068 | $772 | $601 | Estimated Amortization Expense for Other Intangible Assets (in thousands) | Fiscal Year | Estimated Amortization Expense | | :---------- | :----------------------------- | | 2026 | $774 | | 2027 | $747 | | 2028 | $701 | | 2029 | $563 | | 2030 | $563 | Note 9 – Leases The company capitalizes most operating leases as right-of-use assets, with $4.5 million in cash payments in FY2025, a 6.0% weighted-average discount rate, and total undiscounted payments of $14.5 million - The company capitalizes most operating lease obligations as right-of-use assets and recognizes corresponding lease liabilities, excluding short-term agreements[258] Operating Lease Metrics | Metric | FY2025 | FY2024 | | :----------------------------------- | :---------- | :---------- | | Cash payments related to operating leases (in millions) | $4.5 | $3.6 | | Weighted-average discount rates | 6.0% | 6.0% | | Weighted-average remaining lease terms (years) | 3.2 | 3.9 | Operating Lease Costs (in thousands) | Cost Classification | 2025 | 2024 | | :--------------------------------- | :---------- | :---------- | | Cost of products sold | $4,202 | $3,956 | | Marketing and administrative expenses| $386 | $388 | | Total operating lease costs | $4,588 | $4,344 | Maturities of Operating Lease Liabilities as of March 30, 2025 (in thousands) | Fiscal Year | Total Undiscounted Operating Lease Payments | | :---------- | :---------------------------------------- | | 2026 | $4,703 | | 2027 | $4,384 | | 2028 | $4,135 | | 2029 | $850 | | 2030 | $192 | | 2031 | $148 | | 2032 | $48 | | Total undiscounted operating lease payments | $14,460 | Note 10 – Stock-based Compensation The company has three incentive stock plans, with $752,000 in stock-based compensation expense in FY2025, 763,000 stock options outstanding, and $1.1 million in unrecognized compensation expense for non-vested stock as of March 30, 2025 - The company has three incentive stock plans (2006, 2014, and 2021 Plans), with new grants exclusively under the 2021 Plan[260][261] Stock-based Compensation Expense (in thousands) | Fiscal Year | Stock-based Compensation | | :---------- | :----------------------- | | 2025 | $752 | | 2024 | $763 | Stock Option Activity | Metric | 2025 (Number of Options Outstanding) | 2025 (Weighted-Average Exercise Price) | 2024 (Number of Options Outstanding) | 2024 (Weighted-Average Exercise Price) | | :--------------------------- | :----------------------------------- | :------------------------------------- | :----------------------------------- | :------------------------------------- | | Outstanding at Beginning of Period | 895,500 | $6.93 | 735,500 | $7.32 | | Granted | 30,000 | $5.03 | 170,000 | $5.20 | | Expired | (52,500) | $7.90 | (10,000) | $6.14 | | Forfeited | (110,000) | $- | - | $- | | Outstanding at End of Period | 763,000 | $6.84 | 895,500 | $6.93 | | Exercisable at End of Period | 658,000 | $7.11 | 665,500 | $7.41 | - As of March 30, 2025, total unrecognized stock-option compensation costs amounted to $19,000, to be recognized over a weighted-average period of 6.4 months[266] Non-vested Stock Granted to Directors | Number of Shares | Fair Value per Share | Grant Date | Vesting Period (Years) | | :--------------- | :------------------- | :------------- | :--------------------- | | 81,176 | $4.68 | August 15, 2024| One | | 60,412 | $4.85 | August 15, 2023| One | Non-vested Stock Granted to Employees | Number of Shares | Fair Value per Share | Grant Date | Vesting Date | | :--------------- | :------------------- | :------------- | :------------- | | 179,000 | $3.82 | March 26, 2025 | March 26, 2028 | | 70,000 | $5.27 | March 26, 2024 | March 26, 2027 | | 26,000 | $4.77 | August 14, 2023| August 14, 2024| | 40,000 | $5.85 | March 21, 2023 | March 21, 2025 | - Performance awards of 187,500 shares were granted to executive officers on March 1, 2022, contingent on stock price hurdles ($8.00 and $9.00) by March 1, 2027, with vesting over two years after earning[269] - Total unrecognized compensation expense for non-vested stock grants was $1.1 million as of March 30, 2025, with a weighted-average vesting term of 16.3 months[270] Note 11 – Income Taxes The FY2025 income tax provision was a $3.1 million benefit (vs. $1.3 million expense in FY2024), with net deferred income tax assets increasing to $4.5 million, and an effective tax rate of 24.6% Income Tax Provision (in thousands) | Income Tax Component | FY2025 | FY2024 | | :----------------------------------- | :---------- | :---------- | | Total income tax expense (benefit) on current year income | $(3,121) | $1,333 | | Income tax expense - discrete items | $64 | $1 | | Total income tax expense (benefit) | $(3,057)| $1,334 | Deferred Income Tax Assets and Liabilities (in thousands) | Deferred Tax Item | March 30, 2025 | March 31, 2024 | | :------------------------------------- | :------------- | :------------- | | Total gross deferred income tax assets | $8,905 | $6,059 | | Less valuation allowance | $(704) | $(704) | | Deferred income tax assets after valuation allowance | $8,201 | $5,355 | | Total deferred income tax liabilities | $(3,693) | $(5,078) | | Net deferred income tax assets | $4,508 | $277 | - The valuation allowance relates to state net operating loss carryforwards not expected to be realized[273] Reconciliation of Unrecognized Tax Liabilities (in thousands) | Metric | 2025 | 2024 | | :----------------------------------- | :---------- | :---------- | | Balance at beginning of period | $394 | $323 | | Additions related to current year positions | $22 | $43 | | Additions related to prior year positions | $81 | $28 | | Reductions due to lapses of the statute of limitations | $(86) | $- | | Balance at end of period | $411 | $394 | Effective Tax Rates | Fiscal Year | Effective Tax Rate | | :---------- | :----------------- | | 2025 | 24.6% | | 2024 | 21.4% | Note 12 – Shareholders' Equity Cash dividends of $0.32 per share (totaling $3.3 million annually) were declared in FY2025 and FY2024, and 13,000 treasury shares were acquired in FY2025 through employee stock surrenders - Cash dividends of $0.32 per share were declared in both FY2025 and FY2024, amounting to approximately $3.3 million annually[277] - The company acquired 13,000 treasury shares in FY2025 at a weighted-average market value of $4.44 per share through employee stock surrenders for stock option exercise and tax withholding[278] Note 13 – Major Customers and Concentrations The company primarily sources from China, facing tariff-induced cost increases, and has high customer concentration with Walmart (47%) and Amazon (19%) of gross sales, alongside 50% of gross sales from licensed products - The company primarily sources products from foreign contract manufacturers, with the largest concentration in China, facing increased costs due to U.S. tariffs[279][281] - Sales of licensed products represented 50% of gross sales in fiscal year 2025, including 21% from Disney license agreements, which are expected to be renewed[283] Major Customer Gross Sales Contribution (%) | Customer | 2025 | 2024 | | :---------------- | :---- | :---- | | Walmart Inc. | 47% | 42% | | Amazon.com, Inc. | 19% | 19% | Note 14 – Commitments and Contingencies Royalty expense was $6.7 million in FY2025, with minimum guaranteed royalty payments totaling $2.4 million over the next five years, and no material adverse effects expected from legal proceedings Royalty Expense (in millions) | Fiscal Year | Royalty Expense | | :---------- | :-------------- | | 2025 | $6.7 | | 2024 | $5.3 | Minimum Guaranteed Royalty Payments (in millions) | Fiscal Year | Commitment | | :---------- | :--------- | | 2026 | $1.4 | | 2027 | $0.64 | | 2028 | $0.19 | | 2029 | $0.146 | | 2030 | $0.056 | | Total | $2.4 | - The company is involved in various legal proceedings, but none are expected to have a material adverse effect on its financial position, operations, or cash flows[287] Note 15 – Subsequent Events On June 23, 2025, the company and CIT amended their financing agreement, modifying the Excess Availability covenant and reinstating the fixed charge coverage ratio with a waiver condition, with the company in compliance as of March 30, 2025 - On June 23, 2025, the company and CIT amended their financing agreement to modify the Excess Availability covenant and reinstate the fixed charge coverage ratio, with a waiver condition[288] - As of March 30, 2025, the company had complied with the Excess Availability requirements[288]