Crown Crafts Inc Annual Report 2020

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FY2020 Annual Report · Crown Crafts Inc

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Crown Crafts Incorporated

916 S. Burnside Avenue

Gonzales, Louisiana 70737

800-433-9560 225-647-9100

www.crowncrafts.com

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This year I celebrated my 25th anniversary with Crown

Crafts. As I look back on these years, I am amazed by

all of our accomplishments. I took over as President

and Chief Executive Officer in 2001 as the Company

was transforming from an adult bedding and home

furnishings manufacturer to focusing solely on infant

and juvenile consumer products. Some of the highlights

of my tenure with the Company that I am very proud

of are the retirement of a tremendous amount of debt,

the consummation of several key acquisitions, the

Company’s listing on Nasdaq, the resumption of dividend

payments, and most importantly, consistent profitability.

Since 2010, we have returned more than $41 million to

We have been experiencing a continuing shift of sales

stockholders through the payment of regular quarterly

from traditional “brick and mortar” stores to internet

dividends as well as several special dividends. Fiscal

sales. In fiscal 2020, internet sales were approximately

2020 included a special dividend of $0.25 per share, for

one-third of our sales. The Company was ahead of the

a total of $5.8 million paid in fiscal 2020. These dividend

curve with the capability to ship direct to consumers

payments reflect our Board’s confidence in the strength

on behalf of our customers, which has allowed us to

of the Company and its cash flow generation.

maintain our leading market share in many of our

What I am most proud of is that we have been

consistently profitable every year since the 2001

reorganization and fiscal 2020 is no exception. The

product categories. Through the acquisition of Carousel

Designs in 2017, we also sell directly to consumers

through our own website, www.babybedding.com.

biggest challenge we faced this year was increased

As we were closing this fiscal year, our nation was

duties on products imported from China. We reacted

facing the global pandemic associated with COVID-19.

quickly and were able to offset the increased costs

We have continued shipping to our customers and we

with a combination of price increases to our customers

are confident that our conservative fiscal policies will

and decreased costs from our suppliers. This resulted

allow us to persevere through these uncertain times.

in a slightly improved fiscal 2020 gross margin as a

percentage of net sales as compared to fiscal 2019.

One of my greatest pleasures during these years has

been the great relationships I have built with all of you

– our stockholders, customers, suppliers and especially

our employees. I thank you for your support and look

forward to more exciting opportunities in the future.

Sincerely,

Board of Directors

Independent Registered

Stockholder Information

Public Accountant

and Form 10-K

KPMG LLP

One American Place

301 Main Street

Suite 2150

Baton Rouge, Louisiana 70801

Annual Meeting

The Annual Meeting of Stockholders

will take place on Tuesday, August 11,

Corporate Headquarters, 916 South

Burnside Avenue, Gonzales, Louisiana.

A copy of the Company’s Annual Report

on Form 10-K as filed with the Securities

and Exchange Commission may be

obtained without charge by contacting:

Crown Crafts, Inc.

Investor Relations Department

P.O. Box 1028

Gonzales, Louisiana 70707-1028

e-mail: investor@crowncrafts.com

2020, at 10 a.m. CDT at the Company’s

Phone: (225) 647-9100

Stock Listing

The Company’s common stock is listed

2140 Lake Park Blvd.

on The NASDAQ Capital Market under

Suite 112

the trading symbol “CRWS.”

Investor Relations Counsel

Halliburton Investor Relations

Richardson, Texas 75080

Phone: (972) 458-8000

www.halliburtonir.com

Twitter: HIR_Group

Transfer Agent and

Registrar

Broadridge Corporate Issuer Solutions

1155 Long Island Avenue

Edgewood, New York 11717

Phone: (877) 830-4936

E. Randall Chestnut

Chairman of the Board, President and

Chief Executive Officer

Crown Crafts, Inc.

Zenon S. Nie

Lead Independent Director

Chairman of the Board and Chief

Executive Officer

The C.E.O. Advisory Board

Sidney Kirschner

Executive Vice President

Piedmont Healthcare

Chief Philanthropy Officer

Piedmont Healthcare Foundation

Donald Ratajczak

Consulting Economist - Retired

Patricia Stensrud

Managing Director

Avalon Net Worth

Founder and Managing Partner

Hudson River Partners LLC

Executive Officers

E. Randall Chestnut

President and Chief Executive Officer

Olivia W. Elliott

Vice President and Chief Financial Officer

Donna Sheridan

President and Chief Executive Officer

NoJo Baby & Kids, Inc.

Crown Crafts on

the Internet

Quarterly and annual financial

information and company information

may be accessed at

www.crowncrafts.com.

E. Randall Chestnut

Chairman, President and Chief Executive Officer

Cover Design by

Nicole Raines,

Carousel Designs

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
(cid:1408) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Form 10-K

For the fiscal year ended March 29, 2020

(cid:1407) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-7604

Crown Crafts, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State of Incorporation)

916 S. Burnside Ave.
Gonzales, Louisiana
(Address of principal executive offices)

58-0678148
(I.R.S. Employer Identification No.)

70737
(Zip Code)

Registrant's Telephone Number, including area code: (225) 647-9100

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

Title of class
Common Stock, $0.01 par value

Trading Symbol(s)
CRWS

Name of exchange on which registered

Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1407) No (cid:1408)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act. Yes (cid:1407) No (cid:1408)
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 (cid:1408) No (cid:1407)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes (cid:1408) No (cid:1407)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer (cid:1407)
Non-Accelerated filer
(cid:1408)

Accelerated filer

Smaller Reporting Company
Emerging Growth Company

(cid:1407)
(cid:1408)
(cid:1407)

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. (cid:1407)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1407) No (cid:1408)
The approximate aggregate market value of the voting stock held by non-affiliates of the registrant as of September 27, 2019 (the last
business day of the registrant’s most recently completed second fiscal quarter) was $52.0 million.

As of May 18, 2020, 10,166,807 shares of the registrant’s common stock were outstanding.

Documents Incorporated by Reference:

Portions of the registrant’s Proxy Statement for its 2020 Annual Meeting of Stockholders are incorporated into Part III hereof by
reference.

TABLE OF CONTENTS

PART I

Item 1.
Business. .......................................................................................................................................................................................
Item 1A. Risk Factors. ................................................................................................................................................................................
Item 1B. Unresolved Staff Comments. ................................................................................................................................................
Properties. ...................................................................................................................................................................................
Item 2.
Item 3.
Legal Proceedings. ...................................................................................................................................................................
Item 4. Mine Safety Disclosures. .........................................................................................................................................................

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities. ....................................................................................................................................................................................
Item 6.
Selected Financial Data...........................................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. ..........................
Financial Statements and Supplementary Data. ............................................................................................................
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. ......................
Item 9A. Controls and Procedures. .......................................................................................................................................................
Item 9B. Other Information. ....................................................................................................................................................................

Item 10. Directors, Executive Officers and Corporate Governance. ..........................................................................................
Item 11. Executive Compensation. ......................................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ..
Item 13. Certain Relationships and Related Transactions, and Director Independence. ..................................................
Item 14. Principal Accountant Fees and Services. ..........................................................................................................................

PART III

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Item 15. Exhibits and Financial Statement Schedules. ..................................................................................................................

PART IV

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Cautionary Notice Regarding Forward-Looking Statements

Certain of the statements made herein under the caption “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and elsewhere, including information incorporated herein by reference to other
documents, are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans,
objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve
known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may
cause the actual results, performance or achievements of Crown Crafts, Inc. (the “Company”) to be materially different
from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking. Such
statements are based upon management’s current expectations, projections, estimates and assumptions, and may be
identified as forward-looking through the Company’s use of words such as “may,” “will,” “anticipate,” “indicate,” “assume,”
“could,” “should,” “would,” “expect,” “believe” and “intend.” Forward-looking statements involve known and unknown
risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking
statements. These risks include those described in Part I, Item 1A. “Risk Factors,” and elsewhere in this report and those
described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”) of
additional factors that may impact the Company’s results of operations and financial condition.

All written or oral forward-looking statements that are made by or are attributable to the Company are expressly
qualified in their entirety by this cautionary notice. The Company’s forward-looking statements apply only as of the date
of this report or the respective date of the document from which they are incorporated herein by reference. The Company
has no obligation and does not undertake to update, revise or correct any of the forward-looking statements after the
date of this report, or after the respective dates on which such statements are otherwise made, whether as a result of new
information, future events or otherwise.

ITEM 1. Business

Description of Business

PART I

The Company was incorporated as a Georgia corporation in 1957 and was reincorporated as a Delaware
corporation in 2003. The Company’s executive offices are located at 916 South Burnside Avenue, Suite 300, Gonzales,
Louisiana 70737, its telephone number is (225) 647-9100 and its internet address is www.crowncrafts.com.

The Company operates indirectly through its wholly-owned subsidiaries, Sassy Baby, Inc. (formerly known as
Hamco, Inc.) (“Sassy”), NoJo Baby & Kids, Inc. (formerly known as Crown Crafts Infant Products, Inc.) (“NoJo”) and Carousel
Designs, LLC (“Carousel”), in the infant, toddler and juvenile products segment within the consumer products industry.
The infant, toddler and juvenile products segment consists of infant and toddler bedding and blankets, bibs, soft bath
products, disposable products, developmental toys and accessories. Sales of the Company’s products are generally made
directly to retailers, such as mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel
stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers, as well as directly to consumers
through www.babybedding.com. The Company’s products are marketed under a variety of Company-owned
trademarks, under trademarks licensed from others and as private label goods.

The Company's fiscal year ends on the Sunday nearest to or on March 31. References to “fiscal year 2020” or
“2020” represent the 52-week period ended March 29, 2020 and “fiscal year 2019” or “2019” represent the 52-week period
ended March 31, 2019.

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available
free of charge on its website at www.crowncrafts.com as soon as reasonably practicable after such material has been
electronically filed with the SEC. These reports are also available without charge on the SEC’s website at www.sec.gov.

International Sales

Sales to customers in countries other than the U.S. represented 6% and 4% of the Company’s total gross sales
during fiscal years 2020 and 2019, respectively, which included 2% of sales to the customers set forth below that
represented at least 10% of the Company’s gross sales during fiscal year 2020. International sales are based upon the
location that predominately represents what the Company believes to be the final destination of the products delivered
to the Company’s customers.

Company Response to COVID-19

In late January 2020, the Company began to monitor the global effects of “COVID-19,” an infectious disease
caused by Severe Acute Respiratory Syndrome Coronavirus 2 (SARS CoV-2) that was first detected in November 2019 in
the city of Wuhan, China.

The subsequent spread of COVID-19 to the U.S. and many other parts of the world led the World Health
Organization to characterize COVID-19 as a pandemic on March 11, 2020. Thereafter, most U.S. states imposed “stay-at-
home” orders on their populations to stem the spread of COVID-19. Of specific interest to the Company, stay-at-home
orders were imposed in the states of California and Louisiana on March 20, 2020 and March 23, 2020, respectively.

The stay-at-home orders generally required the closure of businesses that did not provide essential functions.
Because the Company’s operations at its distribution center in Compton, California and its manufacturing operations in
Douglasville, Georgia provide essential functions, the Company has continued shipping, receiving and manufacturing
activities at these facilities. The Company advised all other employees that could perform their job functions remotely to
do so. As of May 18, 2020, the Company’s Compton, California and Gonzales, Louisiana facilities were fully operational.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (the “CARES Act”),
which, among other things, outlines the provisions of the Paycheck Protection Program (the “PPP”). The Company
determined that it met the criteria to be eligible to obtain a loan under the PPP because, among other reasons, in light of
the COVID-19 outbreak and the uncertainty of economic conditions related thereto, the loan was necessary to support
the Company’s ongoing operations. Under the PPP, the Company could obtain a U.S. Small Business Administration loan
in an amount equal to the average of the Company’s monthly payroll costs (as defined under the PPP) for calendar 2019
multiplied by 2.5 (approximately 10 weeks of payroll costs). Section 1106 of the CARES Act contains provisions for the
forgiveness of all or a portion of a PPP loan, subject to the satisfaction of certain requirements. The amount eligible for
forgiveness is, subject to certain limitations, the sum of the Company’s payroll costs, rent and utilities paid by the
Company during the eight-week period beginning on the funding date of the PPP loan.

On April 19, 2020, the Company closed on a PPP loan in the amount of $1,963,800, which was funded on April
20, 2020 and which was transferred by the Company into an account dedicated to allowable uses of the PPP loan
proceeds.

The COVID-19 outbreak and the uncertainty of economic conditions relating thereto may negatively impact the
Company’s results of operations, cash flows and financial position; however, the overall financial impact cannot be
reasonably estimated at this time. Based on the operational and financial plans that management has developed, the
Company expects to be able to meet its obligations as they become due over the next twelve months.

Competition

The infant and toddler consumer products industry is highly competitive. The Company competes with a variety
of distributors and manufacturers (both branded and private label), including large infant and juvenile product
companies and specialty infant and juvenile product manufacturers, on the basis of quality, design, price, brand name
recognition, service and packaging. The Company’s ability to compete depends principally on styling, price, service to
the retailer and continued high regard for the Company’s products and trade names.

Employees

As of May 18, 2020, the Company had 138 employees, none of whom is represented by a labor union or is
otherwise a party to a collective bargaining agreement. The Company attracts and maintains qualified personnel by
paying competitive salaries and benefits and offering opportunities for advancement. The Company considers its
relationship with its employees to be good.

Seasonality and Inventory Management

There are no significant variations in the seasonal demand for the Company’s products from year to year. Sales
are generally higher in periods when customers take initial shipments of new products, as these orders typically include
enough products for initial sets for each store and additional quantities for the customer’s distribution centers. The timing
of these initial shipments varies by customer and depends on when the customer finalizes store layouts for the upcoming
year and whether the customer has any mid-year introductions of products. Sales may also be higher or lower, as the
case may be, in periods when customers are restricting internal inventory levels. Consistent with the expected
introduction of specific product offerings, the Company carries necessary levels of inventory to meet the anticipated
delivery requirements of its customers. Customer returns of merchandise shipped are historically less than 1% of gross
sales.

Trademarks, Copyrights and Patents

The Company considers its intellectual property to be of material importance to its business. Sales of products
marketed under the Company’s trademarks, including NoJo®, Neat Solutions®, Carousel Designs® and Sassy®, accounted
for 36% and 38% of the Company’s total gross sales during fiscal years 2020 and 2019, respectively. Protection for these
trademarks is obtained through domestic and foreign registrations. The Company also markets designs which are subject
to copyrights and design patents owned by the Company.

Products

The Company's primary focus is on infant, toddler and juvenile products, including the following:

room décor
reusable and disposable bibs

infant and toddler bedding
(cid:404)
(cid:404) blankets and swaddle blankets
(cid:404) nursery and toddler accessories
(cid:404)
(cid:404)
(cid:404) burp cloths
(cid:404) hooded bath towels and washcloths
(cid:404)
(cid:404) disposable toilet seat covers and changing mats
(cid:404) developmental toys
(cid:404)
(cid:404) other infant, toddler and juvenile soft goods

feeding and care goods

reusable and disposable placemats and floor mats

Customers

The Company's customers consist principally of mass merchants, mid-tier retailers, juvenile specialty stores,
value channel stores, grocery and drug stores, restaurants, internet accounts and wholesale clubs. The Company does
not enter into long-term or other purchase agreements with its customers. The table below sets forth those customers
that represented at least 10% of the Company’s gross sales in fiscal years 2020 and 2019.

Walmart Inc. .........................................................................................................................
Amazon.com, Inc. ...............................................................................................................
Target Corporation ............................................................................................................

Fiscal Year

2020
42%
20%
*

2019
41%
16%
10%

* Amount represented less than 10% of the Company's gross sales for this fiscal year.

Sales and Marketing

The Company’s products are marketed through a national sales force consisting of salaried sales executives and
employees located in Compton, California; Gonzales, Louisiana; Grand Rapids, Michigan; and Bentonville, Arkansas and
by independent commissioned sales representatives located throughout the United States. Products are also marketed
directly to consumers from a Company facility in Douglasville, Georgia. The Company's subsidiaries introduce new
products throughout the year and participate at the Kind + Jugend international trade fair for premium baby and toddler
products in Cologne, Germany. Due to COVID-19, the Company will not participate at this trade fair in calendar 2020;
however, it is expected that the Company will attend in calendar 2021.

Government Regulation and Environmental Control

The Company is subject to various federal, state and local environmental laws and regulations, which regulate,
among other things, product safety and the discharge, storage, handling and disposal of a variety of substances and
wastes, and to laws and regulations relating to employee safety and health, principally the Occupational Safety and
Health Administration Act and regulations thereunder. The Company believes that it currently complies in all material
respects with applicable environmental, health and safety laws and regulations and that future compliance with such
existing laws or regulations will not have a material adverse effect on its capital expenditures, earnings or competitive
position. However, there is no assurance that such requirements will not become more stringent in the future or that the
Company will not have to incur significant costs to comply with such requirements.

Product Sourcing

Foreign and domestic contract manufacturers produce most of the Company’s products, with the largest
concentration being in China. The Company makes sourcing decisions on the basis of quality, timeliness of delivery and
price, including the impact of ocean freight and duties. Although the Company maintains relationships with a limited
number of suppliers, the Company believes that its products may be readily manufactured by several alternative sources
in quantities sufficient to meet the Company's requirements. The Company’s management and quality assurance
personnel visit the third-party facilities regularly to monitor and audit product quality and to ensure compliance with
labor requirements and social and environmental standards. In addition, the Company closely monitors the currency
exchange rate. The impact of future fluctuations in the exchange rate or changes in safeguards cannot be predicted with
certainty. The Company also produces some of its products domestically at a Company facility located in Douglasville,
Georgia.

The Company maintains a foreign representative office located in Shanghai, China, which is responsible for the
coordination of production, purchases and shipments, seeking out new vendors and overseeing inspections for social
compliance and quality.

The Company’s products are warehoused and distributed from leased facilities located in Compton, California

and Douglasville, Georgia.

Product Design and Styling

The Company believes that its creative team is one of its key strengths. The Company’s product designs are
primarily created internally and are supplemented by numerous additional sources, including independent artists,
decorative fabric manufacturers and apparel designers. Ideas for product design creations are drawn from various
sources and are reviewed and modified by the design staff to ensure consistency within the Company’s existing product
offerings and the themes and images associated with such existing products. In order to respond effectively to changing
consumer preferences, the Company’s designers and stylists attempt to stay abreast of emerging lifestyle trends in color,
fashion and design. When designing products under the Company’s various licensed brands, the Company’s designers
coordinate their efforts with the licensors’ design teams to provide for a more fluid design approval process and to
effectively incorporate the image of the licensed brand into the product. The Company’s designs include traditional,
contemporary, textured and whimsical patterns across a broad spectrum of retail price points. Utilizing state of the art
computer technology, the Company continually develops new designs throughout the year for all of its product groups.
This continual development cycle affords the Company design flexibility, multiple opportunities to present new products
to customers and the ability to provide timely responses to customer demands and changing market trends. The

Company also creates designs for exclusive sale by certain of its customers under the Company’s brands, as well as the
customers’ private label brands.

Licensed Products

Certain products are manufactured and sold pursuant to licensing agreements for trademarks. Also, many of the
designs used by the Company are copyrighted by other parties, including trademark licensors, and are available to the
Company through copyright license agreements. The licensing agreements are generally for an initial term of one to
three years and may or may not be subject to renewal or extension. Sales of licensed products represented 40% of the
Company’s gross sales in fiscal year 2020, which included 30% of sales under the Company's license agreements with
affiliated companies of The Walt Disney Company (“Disney”), which expire as set forth below:

License Agreement
Infant Bedding .....................................................................................................................................................
Infant Feeding and Bath...................................................................................................................................
Toddler Bedding .................................................................................................................................................
STAR WARS Toddler Bedding .........................................................................................................................

Expiration
December 31, 2020
December 31, 2021
December 31, 2021
December 31, 2021

ITEM 1A. Risk Factors

The following risk factors as well as the other information contained in this report and other filings made by the
Company with the SEC should be considered in evaluating the Company’s business. Additional risks and uncertainties that are
not presently known or that are not currently considered material may also impair the Company’s business operations. If any
of the following risks actually occur, operating results may be affected in future periods.

The outbreak of COVID-19 may adversely affect the Company’s business operations, employee availability,
financial condition, liquidity and cash flow.

The COVID-19 outbreak, and the government and private sector responses thereto, has negatively impacted
certain of the Company’s customers who have been forced to temporarily close retail stores or have seen a significant
decline in their sales. As a result, the Company experienced a decrease in sales to these customers beginning in March
2020. This decrease, however, has been somewhat offset by higher sales to other customers and sales in other channels,
such as e-commerce. The Company cannot predict with certainty when or if these customers will reopen their retail stores
or if demand from consumers will return to the same level as it was prior to the COVID-19 outbreak. If the Company’s
customers experience financial difficulties as a result of the COVID-19 outbreak, they may close their retail stores
permanently, reduce orders, file for bankruptcy or liquidate, any of which may negatively impact the Company’s sales.

In addition, beginning in February 2020 the Company experienced supply chain disruption because nearly all of
the Company’s products are imported from China. While the Company’s product supply from Chinese manufacturers has
begun to return to normal levels, the supply chain could again be disrupted if there is another outbreak of COVID-19 in
China. As of May 18, 2020, the majority of the Company’s foreign suppliers have returned to full capacity.

As discussed above, the Company has continued to operate its distribution center in Compton, California and
its manufacturing operations in Douglasville, Georgia. While the Company has implemented additional safety measures
for its workers in these facilities, the Company may be required to temporarily close these facilities if there are confirmed
cases of COVID-19 at the facilities, which would impact the Company’s ability to timely ship products to its customers.

In addition to the specific risks described above, the Company may also be subject to the effects that the COVID-
19 outbreak will have on the U.S. economy in general, including high rates of unemployment and a potential economic
recession. These effects may reduce consumers’ discretionary spending and, accordingly, the demand for the Company’s
products.

and widespread nature of the COVID-19 outbreak, the Company cannot currently predict the long-term impact on its
operations and financial results. The uncertainties associated with the COVID-19 outbreak include potential adverse
effects on the overall economy, the Company’s supply chain, transportation services, employees and customers,
consumer sentiment in general, and traffic within the retail stores that carry the Company’s products. The COVID-19
outbreak could adversely affect the Company’s revenues, earnings, liquidity and cash flows and may require significant
actions in response, including employee furloughs, closings of Company facilities, expense reductions or discounts of the
pricing of the Company’s products, all in an effort to mitigate such effects. Conditions surrounding COVID-19 change
rapidly, and additional impacts of which the Company is not currently aware may arise.

The loss of one or more of the Company’s key customers could result in a material loss of revenues.

The Company’s top two customers represented approximately 62% of gross sales in fiscal year 2020. Although
the Company does not enter into contracts with its key customers, it expects its key customers to continue to be a
significant portion of its gross sales in the future. The loss of, or a decline in orders from, one or more of these customers
could result in a material decrease in the Company’s revenue and operating income.

The loss of one or more of the Company’s licenses could result in a material loss of revenues.

Sales of licensed products represented 40% of the Company’s gross sales in fiscal year 2020, which included 30%
of sales associated with the Company’s license agreements with Disney. The Company could experience a material loss
of revenues if it is unable to renew its major license agreements or obtain new licenses. The volume of sales of licensed
products is inherently tied to the success of the characters, films and other licensed programs of the Company’s licensors.
A decline in the popularity of these licensed programs or the inability of the licensors to develop new properties for
licensing could also result in a material loss of revenues to the Company. Additionally, the Company’s license agreements
with Disney and others require a material amount of minimum guaranteed royalty payments. The failure by the Company
to achieve the sales envisioned by the license agreements could result in the payment by the Company of shortfalls in
the minimum guaranteed royalty payments, which would adversely impact the Company’s operating results.

The strength of the Company’s competitors may impact the Company’s ability to maintain and grow its sales,
which could decrease the Company’s revenues.

The infant and toddler consumer products industry is highly competitive. The Company competes with a variety
of distributors and manufacturers, both branded and private label. The Company’s ability to compete successfully
depends principally on styling, price, service to the retailer and continued high regard for the Company’s products and
trade names. Several of these competitors are larger than the Company and have greater financial resources than the
Company, and some have experienced financial challenges from time to time, including servicing significant levels of
debt. Those facing financial pressures could choose to make particularly aggressive pricing decisions in an attempt to
increase revenue. The effects of increased competition could result in a material decrease in the Company’s revenues.

The Company’s business is impacted by general economic conditions and related uncertainties, including a
declining birthrate, affecting markets in which the Company operates.

The Company’s growth is largely dependent upon growth in the birthrate, and in particular, the rate of first
births. Economic conditions, including the real and perceived threat of a recession, could lead individuals to decide to
forgo or delay having children. Even under optimal economic conditions, shifts in demographic trends and preferences
could have the consequence of individuals starting to have children later in life and/or having fewer children. In recent
years, the birthrate in the United States has steadily declined. These conditions could result in reduced demand for some
of the Company’s products, increased order cancellations and returns, an increased risk of excess and obsolete
inventories and increased pressure on the prices of the Company’s products. Also, although the Company’s use of a
commercial factor significantly reduces the risk associated with collecting accounts receivable, the factor may at any time
terminate or limit its approval of shipments to a particular customer, and the likelihood of the factor doing so may
increase due to a change in economic conditions. Such an action by the factor could result in the loss of future sales to
the affected customer.

The Company’s success is dependent upon retaining key management personnel.

Certain of the Company’s executive management and other key personnel have been integral to the Company’s
operations and the execution of its growth strategy. The departure from the Company of one or more of these individuals,
along with the inability of the Company to attract qualified and suitable individuals to fill the Company’s open positions,
could adversely impact the Company’s growth and operating results.

The Company may need to write down or write off inventory.

If product programs end before the inventory is completely sold, then the remaining inventory may have to be
sold at less than carrying value. The market value of certain inventory items could drop to below carrying value after a
decline in sales, at the end of programs, or when management makes the decision to exit a product group. Such inventory
would then need to be written down to the lower of carrying or market value, or possibly completely written off, which
would adversely affect the Company’s operating results.

Recalls or product liability claims could increase costs or reduce sales.

The Company must comply with the Consumer Product Safety Improvement Act, which imposes strict standards
to protect children from potentially harmful products and which requires that the Company’s products be tested to
ensure that they are within acceptable levels for lead and phthalates. The Company must also comply with related
regulations developed by the Consumer Product Safety Commission and similar state regulatory authorities. The
Company’s products could be subject to involuntary recalls and other actions by these authorities, and concerns about
product safety may lead the Company to voluntarily recall, accept returns or discontinue the sale of select products.
Product liability claims could exceed or fall outside the scope of the Company’s insurance coverage. Recalls or product
liability claims could result in decreased consumer demand for the Company’s products, damage to the Company’s
reputation, a diversion of management’s attention from its business and increased customer service and support costs,
any or all of which could adversely affect the Company’s operating results.

Disruptions to the Company’s information technology systems could negatively affect the Company’s results of
operations.

The Company’s operations are highly dependent upon computer hardware and software systems, including
customized information technology systems and cloud-based applications. The Company also employs third-party
systems and software that are integral to its operations. These systems are vulnerable to cybersecurity incidents,
including disruptions and security breaches, which can result from unintentional events or deliberate attacks by insiders
or third parties, such as cybercriminals, competitors, nation-states, computer hackers and other cyber terrorists. The
Company faces an evolving landscape of cybersecurity threats in which evildoers use a complex array of means to
perpetrate attacks, including the use of stolen access credentials, malware, ransomware, phishing, structured query
language injection attacks and distributed denial-of-service attacks. The Company has implemented security measures
to securely maintain confidential and proprietary information stored on the Company’s information systems and
continually invests in maintaining and upgrading the systems and applications to mitigate these risks. There can be no
assurance that these measures and technology will adequately prevent an intrusion or that a third party that is relied
upon by the Company will not suffer an intrusion, that unauthorized individuals will not gain access to confidential or
proprietary information or that any such incident will be timely detected and effectively countered. A significant data
security breach could result in negative consequences, including a disruption to the Company’s operations and
substantial remediation costs, such as liability for stolen assets or information, repairs of system damage, and incentives
to customers or other business partners in an effort to maintain relationships after an attack. An assault against the
Company’s information technology infrastructure could also lead to other adverse impacts to its results of operations
such as increased future cybersecurity protection costs, which may include the costs of making organizational changes,
deploying additional personnel and protection technologies, and engaging third-party experts and consultants.

Economic conditions could result in an increase in the amounts paid for the Company’s products.

Significant increases in the price of raw materials that are components of the Company’s products, including
cotton, oil and labor, could adversely affect the amounts that the Company must pay its suppliers for its finished goods.
If the Company is unable to pass these cost increases along to its customers, its profitability could be adversely affected.

The Company’s ability to successfully identify, consummate and integrate acquisitions, divestitures and other
significant transactions could have an adverse impact on the Company’s financial results, business and prospects.

As part of its business strategy, the Company has made acquisitions of businesses, divestitures of businesses and
assets, and has entered into other transactions to further the interests of the Company’s business and its stockholders.
Risks associated with such activities include the following, any of which could adversely affect the Company’s financial
results:

(cid:404) The active management of acquisitions, divestitures and other significant transactions requires varying
levels of Company resources, including the efforts of the Company’s key management personnel, which
could divert attention from the Company’s ongoing business operations.

(cid:404) The Company may not fully realize the anticipated benefits and expected synergies of any particular
acquisition or investment, or may experience a prolonged timeframe for realizing such benefits and
synergies.
Increased or unexpected costs, unanticipated delays or failure to meet contractual obligations could make
acquisitions and investments less profitable or unprofitable.

(cid:404)

(cid:404) The failure to retain executive management members and other key personnel of the acquired business
that may have been integral to the operations and the execution of the growth strategy of the acquired
business.

The Company could experience losses associated with its intellectual property.

The Company relies upon the fair interpretation and enforcement of patent, copyright, trademark and trade
secret laws in the U.S., similar laws in other countries, and agreements with employees, customers, suppliers, licensors
and other parties. Such reliance serves to establish and maintain the intellectual property rights associated with the
products that the Company develops and sells. However, the laws and courts of certain countries at times do not protect
intellectual property rights or respect contractual agreements to the same extent as the laws of the U.S. Therefore, in
certain jurisdictions the Company may not be able to protect its intellectual property rights against counterfeiting or
enforce its contractual agreements with other parties. In addition, another party could claim that the Company is
infringing upon such party’s intellectual property rights, and claims of this type could lead to a civil complaint.

An unfavorable outcome in litigation involving intellectual property could result in any or all of the following: (i)
civil judgments against the Company, which could require the payment of royalties on both past and future sales of
certain products, as well as plaintiff’s attorneys’ fees and other litigation costs; (ii) impairment charges of up to the
carrying value of the Company’s intellectual property rights; (iii) restrictions on the ability of the Company to sell certain
of its products; (iv) legal and other costs associated with investigations and litigation; and (v) adverse effects on the
Company’s competitive position.

A significant disruption to the Company’s distribution network or to the timely receipt of inventory could
adversely impact sales or increase transportation costs, which would decrease the Company’s profits.

Nearly all of the Company’s products are imported from China into the Port of Long Beach in Southern California.
There are many links in the distribution chain, including the availability of ocean freight, cranes, dockworkers, containers,
tractors, chassis and drivers. The timely receipt of the Company’s products is also dependent upon efficient operations
at the Port of Long Beach. Any shortages in the availability of any of these links or disruptions in port operations, including
strikes, lockouts or other work stoppages or slowdowns, could cause bottlenecks and other congestion in the distribution
network, which could adversely impact the Company’s ability to obtain adequate inventory on a timely basis and result
in lost sales, increased transportation costs and an overall decrease of the Company’s profits.

The Company’s sourcing and marketing operations in foreign countries are subject to anti-corruption laws.

The Company’s foreign operations are subject to laws prohibiting improper payments and bribery, including
the U.S. Foreign Corrupt Practices Act and similar laws and regulations in foreign jurisdictions, which apply to the
Company’s directors, officers, employees and agents acting on behalf of the Company. Failure to comply with these laws
could result in damage to the Company’s reputation, a diversion of management’s attention from its business, increased
legal and investigative costs, and civil and criminal penalties, any or all of which could adversely affect the Company’s
operating results.

Customer pricing pressures could result in lower selling prices, which could negatively affect the Company’s
operating results.

The Company’s customers could place pressure on the Company to reduce the prices of its products. The
Company continuously strives to stay ahead of its competition in sourcing, which allows the Company to obtain lower
cost products while maintaining high standards for quality. There can be no assurance that the Company could respond
to a decrease in sales prices by proportionately reducing its costs, which could adversely affect the Company’s operating
results.

The Company’s inability to anticipate and respond to consumers’ tastes and preferences could adversely affect
the Company’s revenues.

Sales are driven by consumer demand for the Company’s products. There can be no assurance that the demand
for the Company’s products will not decline or that the Company will be able to anticipate and respond to changes in
demand related to consumers’ tastes and preferences. The Company’s failure to adapt to these changes could lead to
lower sales and excess inventory, which could have a material adverse effect on the Company’s financial condition and
operating results.

Changes in international trade regulations and other risks associated with foreign trade could adversely affect
the Company’s sourcing.

The Company sources its products primarily from foreign contract manufacturers, with the largest concentration
being in China. Difficulties encountered by these suppliers, such as fires, accidents, natural disasters, outbreaks of
infectious diseases (including the COVID-19 outbreak) and the instability inherent in operating within an authoritarian
political structure, could halt or disrupt production and shipment of the Company’s products. The Chinese government
could make allegations against the Company of corruption or antitrust violations, or could adopt regulations related to
the manufacture of products within China, including quotas, duties, taxes and other charges or restrictions on the
exportation of goods produced in China. Alternatively, the U.S. government could impose similar actions on the
importation of goods manufactured in China. Any of these actions could result in an increase in the cost of the Company’s
products. Also, an arbitrary strengthening of the Chinese currency versus the U.S. Dollar could increase the prices at which
the Company purchases finished goods. In addition, changes in U.S. customs procedures or delays in the clearance of
goods through customs could result in the Company being unable to deliver goods to customers in a timely manner or
the potential loss of sales altogether. The occurrence of any of these events could adversely affect the Company’s
profitability.

The Company could experience adjustments to its effective tax rate or its prior tax obligations, either of which
could adversely affect its results of operations.

The Company is subject to income taxes in the many jurisdictions in which it operates, including the U.S., several
U.S. states and China. At any particular point in time, several tax years are subject to general examination or other
adjustment by these various jurisdictions. In December 2016, the Company received notification from the Franchise Tax
Board of the State of California (the “FTB”) of its intention to examine the Company’s claims for refund made in connection
with amended consolidated income tax returns that the Company had filed for the fiscal years ended April 3, 2011, April
1, 2012, March 31, 2013 and March 30, 2014. On July 31, 2019, the FTB notified the Company that it would take no further
action with regard to the claims for refund for fiscal years ended April 3, 2011, April 1, 2012 and March 31, 2013. The
ultimate resolution of the claim for refund for the fiscal year ended March 30, 2014 could include administrative or legal
proceedings. Although the Company believes that the calculations and positions taken on its original and amended filed
returns are reasonable and justifiable, negotiations or litigation leading to the final outcome of any examination or claim
for refund could result in an adjustment to the position that the Company has taken. Such adjustment could result in
further adjustment to one or more income tax returns for other jurisdictions, or to income tax returns for prior or
subsequent tax years, or both. To the extent that the Company’s reserve for unrecognized tax benefits is not adequate
to support the cumulative effect of such adjustments, the Company could experience a material adverse impact on
operating results. The Company’s provision for income taxes is based on its effective tax rate, which in any given financial
statement period could fluctuate based on changes in tax laws or regulations, changes in the mix and level of earnings
by taxing jurisdiction, changes in the amount of certain expenses within the consolidated statements of income that will
never be deductible on the Company’s income tax returns and certain charges deducted on the Company’s income tax
returns that are not included within the consolidated statements of income. These changes could cause fluctuations in

the Company’s effective tax rate either on an absolute basis, or in relation to varying levels of the Company’s pre-tax
income. Such fluctuations in the Company’s effective tax rate could adversely affect its results of operations.

The Company’s ability to comply with its credit facility is subject to future performance and other factors.

The Company’s ability to make required payments of principal and interest on its debts, to refinance its maturing
indebtedness, to fund capital expenditures or to comply with its debt covenants will depend upon future performance.
The Company’s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative,
regulatory and other factors beyond its control. The breach of any of the debt covenants could result in a default under
the Company’s credit facility. Upon the occurrence of an event of default, the Company’s lender could make an
immediate demand of the amount outstanding under the credit facility. If a default was to occur and such a demand was
to be made, there can be no assurance that the Company’s assets would be sufficient to repay the indebtedness in full.

The Company’s debt covenants may affect its liquidity or limit its ability to pursue acquisitions, incur debt, make
investments, sell assets or complete other significant transactions.

The Company’s credit facility contains usual and customary covenants regarding significant transactions,
including restrictions 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. Unless waived by the Company’s lender, these covenants could limit the Company’s
ability to pursue opportunities to expand its business operations, respond to changes in business and economic
conditions and obtain additional financing, or otherwise engage in transactions that the Company considers beneficial.

Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by the
Company to adequately comply with new laws and regulations could substantially harm its results of operations.

The Company is subject to laws and regulations governing the Internet and e-commerce. On June 21, 2018, the
U.S. Supreme Court issued its decision in South Dakota v. Wayfair, Inc., et al. The Court held that a state may require a
business to collect and remit sales taxes even if the business has no physical presence within the state. In response, most
states have enacted laws or otherwise issued administrative guidance regarding their intent to require the collection and
remittance of sales tax on orders of products that are made through the Internet and are subsequently shipped to
customers within their states. The Company routinely makes shipments of its products into thousands of jurisdictions
throughout the U.S. within which the Company does not have a physical presence. The Wayfair decision is central to an
evolving framework of laws and regulations that is subject to interpretation and application in a manner that is
inconsistent from one jurisdiction to another. The Company cannot assure that its practices have complied, are currently
complying, or will comply fully and adequately with all such laws and regulations. Any failure to comply with any of these
laws or regulations could result in damage to the Company’s reputation or a loss or reduction of orders. As the Company
complies with such laws and regulations by charging, collecting and remitting sales tax, its customers will see an
immediate and significant increase in the total order cost of the Company’s products as such taxes are imposed, which
will make the pricing of the Company’s products less competitive when compared with a business that might not be
required to charge, collect and remit sales taxes. Also, the Company’s application for registration for sales tax within a
jurisdiction will often trigger obligations for other licensing and filing requirements within the jurisdiction. Compliance
with such laws and regulations will place an additional burden on the Company by requiring a significant investment
and continuing costs, as well as efforts of the Company’s key management personnel. Also, the Company at any time
could be subjected to examinations by any of the jurisdictions into which the Company may have at one time or another
shipped its products, which could result in the assessment on the Company of a significant accumulation of uncollected
taxes, along with penalties and interest. The occurrence of any of these events could adversely affect the Company’s
financial position and operating results.

A stockholder could lose all or a portion of his or her investment in the Company.

The Company’s common stock has historically experienced a degree of price variability, and the price could be
subject to rapid and substantial fluctuations. The Company’s common stock has also historically been thinly traded, a
circumstance that exists when there is a relatively small volume of buy and sell orders for the Company’s common stock
at any given point in time. In such situations, a stockholder may be unable to liquidate his or her position in the
Company’s common stock at the desired price. Also, as an equity investment, a stockholder’s investment in the Company

is subordinate to the interests of the Company’s creditors, and a stockholder could lose all or a substantial portion of his
or her investment in the Company in the event of a voluntary or involuntary bankruptcy filing or liquidation.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

The Company's headquarters are located in Gonzales, Louisiana. The Company rents 17,761 square feet at this
location under a lease that expires January 31, 2021. Management believes that its properties are suitable for the
purposes for which they are used, are in generally good condition and provide adequate capacity for current and
anticipated future operations. The table below sets forth certain information regarding the Company's principal real
property as of May 18, 2020.

Location

Use

Gonzales, Louisiana ....................................... Administrative and sales office ...............................
Compton, California ...................................... Offices, warehouse and distribution center .......
Douglasville, Georgia .................................... Offices, manufacturing and warehouse ..............
Grand Rapids, Michigan ............................... Product design offices ...............................................
Bentonville, Arkansas .................................... Sales office .....................................................................
Shanghai, People’s Republic of China ..... Office ...............................................................................

Approximate
Square Feet
17,761
157,400
23,800
3,600
1,376
1,912

Owned/
Leased
Leased
Leased
Leased
Leased
Leased
Leased

ITEM 3. Legal Proceedings

The Company is, from time to time, involved in various legal proceedings relating to claims arising in the ordinary
course of its business. Neither the Company nor any of its subsidiaries is a party to any such legal proceeding the outcome
of which, individually or in the aggregate, is expected to have a material adverse effect on the Company’s financial
position, results of operations or cash flows.

ITEM 4. Mine Safety Disclosures

Not applicable.

PART II

ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

The Company's common stock is traded on the Nasdaq Capital Market under the symbol “CRWS”. As of May 18,

2020, there were 152 record holders of the Company’s common stock.

The Company has historically paid cash dividends. The Company’s payment of dividends is and will continue to
be restricted by or subject to, among other limitations, applicable provisions of federal and state laws, the Company’s
earnings and various business considerations, including the Company’s financial condition, results of operations, cash
flow, level of capital expenditures, future business prospects and such other matters as the Company’s Board of Directors
(the “Board”) deems relevant. The Company’s credit facility permits the Company to pay cash dividends on its common
stock without limitation, provided there is no default under the credit facility before or as a result of the payment of such
dividends.

For information regarding securities of the Company that have been authorized for issuance under equity
compensation plans, refer to “Securities Authorized for Issuance under Equity Compensation Plans” in Item 12. of Part III
of this Annual Report on Form 10-K.

ITEM 6. Selected Financial Data

The information set forth below is not necessarily indicative of the Company’s future financial position or
operating results and should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the consolidated financial statements and notes thereto included in this Annual
Report on Form 10-K.

2020

Fiscal Years
2018
(amounts in thousands, except per share amounts)

2017

2019

2016

Operating results:
Net sales ........................................................................... $
Gross profit ......................................................................
Gross profit percentage ..............................................
Income from operations .............................................
Income before income tax expense ........................
Income tax expense......................................................
Net income ......................................................................
Basic earnings per share ............................................. $
Diluted earnings per share ......................................... $
Cash dividends declared per share ......................... $

Financial position at year-end:
Cash and cash equivalents ......................................... $
Accounts receivable, net of allowances .................
Inventories .......................................................................
Total current assets .......................................................
Finite-lived intangible assets – net ..........................
Goodwill ...........................................................................
Total assets ......................................................................

73,396 $
21,590
29.4%
7,737
7,768
1,207
6,561
0.65 $
0.65 $
0.57 $

76,381 $
22,307
29.2%
7,113
6,791
1,772
5,019
0.50 $
0.50 $
0.32 $

70,270 $
19,779
28.1%
5,507
5,421
2,400
3,021
0.30 $
0.30 $
0.32 $

65,978 $
19,411
29.4%
8,700
8,796
3,224
5,572
0.56 $
0.55 $
0.72 $

84,342
23,813
28.2%
10,788
10,744
3,915
6,829
0.68
0.68
0.57

282 $
17,803
17,732
37,041
5,577
7,125
57,173

143 $
17,772
19,534
38,679
6,432
7,125
54,779

215 $
18,498
19,788
39,754
7,272
7,125
56,581

7,892 $
15,614
15,821
41,110
3,128
1,126
47,184

7,574
20,796
14,785
45,732
3,882
1,126
52,415

Total current liabilities .................................................
Long-term debt ..............................................................

6,479
2,578

7,711
4,486

6,788
9,458

7,573
-

12,185
-

Shareholders’ equity ....................................................
Total liabilities and shareholders’ equity ............... $

42,436
57,173 $

41,388
54,779 $

39,318
56,581 $

38,923
47,184 $

40,019
52,415

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to provide information concerning certain factors that management
considers important in reviewing the Company’s results of operations, financial position, liquidity and capital resources.
This discussion should be read in conjunction with the consolidated financial statements and notes thereto included
elsewhere in this Annual Report on Form 10-K.

Results of Operations

The following table contains results of operations for fiscal years 2020 and 2019 and the dollar and percentage

changes for those periods (in thousands, except percentages).

Net sales by category:

Bedding, blankets and accessories ............................................... $
Bibs, bath, developmental toy, feeding, baby care and
disposable products ........................................................................
Total net sales ...........................................................................................
Cost of products sold .............................................................................
Gross profit ................................................................................................
% of net sales .............................................................................................
Marketing and administrative expenses .........................................
% of net sales .............................................................................................
Interest expense - net of interest income .......................................
Other income ............................................................................................
Income tax expense................................................................................
Net income ................................................................................................
% of net sales .............................................................................................

Net Sales:

2020

2019

Change

38,065 $

40,690 $

(2,625)

-6.5%

35,331
73,396
51,806
21,590
29.4%
13,853
18.9%
2
33
1,207
6,561
8.9%

35,691
76,381
54,074
22,307
29.2%
15,194
19.9%
325
3
1,772
5,019
6.6%

(360)
(2,985)
(2,268)
(717)

-1.0%
-3.9%
-4.2%
-3.2%

(1,341)

-8.8%

(323)
30
(565)
1,542

-99.4%
1000.0%
-31.9%
30.7%

Sales of $73.4 million for 2020 were $3.0 million lower than 2019, a decrease of 3.9%, primarily due to the timing
of shipments to certain retailers as well as a program that was discontinued during the second quarter of 2020. Sales of
bibs, bath, developmental toys, feeding, baby care and disposable products in the current year decreased by $360,000
over the prior year, while sales of bedding, blankets and accessories in the current year decreased by $2.6 million.

Gross Profit:

Gross profit decreased by $717,000 and increased from 29.2% of net sales for 2019 to 29.4% of net sales for 2020.

The decrease in amount is primarily due to lower sales in the current year.

Marketing and Administrative Expenses:

Marketing and administrative expenses decreased by $1.3 million for fiscal year 2020 compared with fiscal year
2019, which included a decrease in the current year of $525,000 in overall compensation costs as compared to the prior
year. In addition, charges in the current year for outside services and advertising decreased by $284,000 and $122,000,
respectively, as compared to the prior year. Finally, the prior year included $210,000 in charges incurred that were
associated with transferring most of the Sassy-branded developmental toy, feeding and baby care product line inventory
from Grand Rapids, Michigan to the Company’s distribution facility in Compton, California.

Income Tax Expense:

The Company’s provision for income taxes is based upon an annual effective tax rate (“ETR”) on continuing

operations, which decreased from 24.4% during 2019 to 24.0% in 2020.

Management evaluates items of income, deductions and credits reported on the Company’s various federal and
state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those
positions are more likely than not to be sustained. The Company applies the provisions of accounting guidelines that
require a minimum recognition threshold that a tax benefit must meet before being recognized in the financial
statements. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood
of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs.

After considering all relevant information regarding the calculation of the state portion of its income tax
provision, the Company believes that the technical merits of the tax position that the Company has taken with respect
to state apportionment percentages would more likely than not be sustained. However, the Company also realizes that
the ultimate resolution of such tax position could result in a tax charge that is more than the amount realized based upon
the application of the tax position taken. Therefore, the Company’s measurement regarding the tax impact of the revised
state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities
during fiscal years 2020 and 2019 of $58,000 and $87,000, respectively, in the accompanying consolidated statements of
income.

In December 2016, the Company was notified by the FTB of its intention to examine the Company’s claims for
refund made in connection with amended consolidated income tax returns that the Company had filed for the fiscal
years ended March 30, 2014, March 31, 2013, April 1, 2012 and April 3, 2011. On July 31, 2019, the FTB notified the
Company that it would take no further action with regard to the fiscal years ended March 31, 2013, April 1, 2012 and April
3, 2011. In addition, on January 7, 2020, the Company’s California consolidated income tax return for the fiscal year ended
March 29, 2015 became closed to examination or other adjustment. Accordingly, the Company reversed the reserves for
unrecognized tax liabilities that it had previously recorded for these fiscal years, which resulted in the recognition of a
discrete income tax benefit of $444,000 during the fiscal year ended March 29, 2020 in the accompanying consolidated
statements of income.

During the fiscal year ended March 29, 2020, the Company recorded a discrete income tax benefit of $274,000
to reflect the aggregate effect of certain tax credits claimed on amended and original consolidated federal income tax
returns.

During the fiscal years ended March 29, 2020 and March 31, 2019, the Company recorded discrete income tax
charges of $5,000 and $12,000, respectively, to reflect the effects of the excess tax benefits and tax shortfalls arising from
the exercise of stock options and the vesting of non-vested stock during the periods.

The ETR on continuing operations and the discrete income tax charges and benefits discussed above

contributed to an overall provision for income taxes of 15.5% and 26.1% for fiscal years 2020 and 2019, respectively.

Known Trends and Uncertainties

The Company’s financial results are closely tied to sales to the Company’s top two customers, which represented
approximately 62% of the Company’s gross sales in fiscal year 2020. A significant downturn experienced by any or all of
these customers could lead to pressure on the Company’s revenues.

During fiscal years 2020 and 2019, the Company at times faced higher costs associated with the Company’s
sourcing activities in China, including higher duties on some products. Future increases in these costs could adversely
affect the profitability of the Company if it cannot pass the cost increases along to its customers in the form of price
increases or if the timing of price increases does not closely match the cost increases.

The COVID-19 outbreak, and the government and private sector responses thereto, has negatively impacted
certain of the Company’s customers who have been forced to temporarily close retail stores or have seen a significant
decline in their sales. As a result, the Company experienced a decrease in sales to these customers beginning in March
2020. This decrease, however, has been somewhat offset by higher sales to other customers and sales in other channels,
such as e-commerce. The Company cannot predict with certainty when or if these customers will reopen their retail stores
or if demand from consumers will return to the same level as it was prior to the COVID-19 outbreak. If the Company’s
customers experience financial difficulties as a result of the COVID-19 outbreak, they may cause them to close their retail
stores permanently, reduce orders, file for bankruptcy or liquidate, any of which may negatively impact the Company’s
sales.

The Company continues to monitor the impact of the COVID-19 outbreak on its supply chain, manufacturing
and distribution operations, customers and employees, as well as the U.S. economy in general. However, due to the
uncertainty as to when governmental restrictions on business will be fully lifted, the impact thereof, and the duration
and widespread nature of the COVID-19 outbreak, the Company cannot currently predict the long-term impact on its
operations and financial results. The uncertainties associated with the COVID-19 outbreak include potential adverse
effects on the overall economy, the Company’s supply chain, transportation services, employees and customers,
consumer sentiment in general, and traffic within the retail stores that carry the Company’s products. The COVID-19
outbreak could adversely affect the Company’s revenues, earnings, liquidity and cash flows and may require significant
actions in response, including employee furloughs, closings of Company facilities, expense reductions or discounts of the
pricing of the Company’s products, all in an effort to mitigate such effects.

For an additional discussion of trends, uncertainties and other factors that could impact the Company’s

operating results, refer to “Risk Factors” in Item 1A. of Part I. of this Annual Report on Form 10-K.

Financial Position, Liquidity and Capital Resources

Net cash provided by operating activities decreased from $9.0 million for the fiscal year ended March 31, 2019
to $8.5 million for the fiscal year ended March 29, 2020. In the current year, the Company experienced a decrease in its
accounts payable balances that was $1.7 million higher than the increase in the prior year, an increase in its accounts
receivable balances that was $757,000 higher than the decrease in the prior year and a decrease in its reserve for
unrecognized tax liabilities that was $650,000 higher than the increase in the prior year. As offsets to these decreases in
cash provided by operating activities, the Company in the current year experienced a decrease in its inventory balances
that was $1.5 million higher than the decrease in the prior year and an increase its net income in the current year that
was $1.5 million higher than in the prior year.

Net cash used in investing activities was $678,000 in fiscal year 2020 compared with $751,000 in fiscal year 2019.
The decrease in fiscal year 2020 was due primarily to lower payments in the current year for expenditures for property,
plant and equipment.

Net cash used in financing activities decreased from $8.3 million in fiscal 2019 to $7.7 million in fiscal 2019. In
the current year, the Company experienced net repayments under its revolving line of credit that were $3.1 million lower
than the prior year. Offsetting this decrease in cash used in financing activities were dividend payments that were $2.6
million higher in the current year than the prior year, due primarily to the payment in the current year of a special dividend
in the amount of $2.5 million.

The Company’s future performance is, to a certain extent, subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control. Based upon the current level of operations, the Company
believes that its cash flow from operations and the availability on its revolving line of credit will be adequate to meet its
liquidity needs.

The Company’s credit facility at March 29, 2020 consisted of a revolving line of credit under a financing
agreement with The CIT Group/Commercial Services, Inc. (“CIT”), a subsidiary of CIT Group Inc., of up to $26.0 million,
which includes a $1.5 million sub-limit for letters of credit, bearing interest at the rate of prime minus 0.5% or LIBOR plus
1.75%. The financing agreement matures on July 11, 2022 and is secured by a first lien on all assets of the Company. As
of March 29, 2020, the Company had elected to pay interest on balances owed under the revolving line of credit under
the LIBOR option, which was 3.27% as of March 29, 2020. The financing 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 2.75%
as of March 29, 2020, on daily negative balances, if any, held at CIT.

As of March 29, 2020, there was a balance of $2.6 million owed on the revolving line of credit, there was no letter
of credit outstanding and $20.1 million was available under the revolving line of credit based on the Company’s eligible
accounts receivable and inventory balances. As of March 31, 2019, there was a balance of $4.5 million owed on the
revolving line of credit, there was no letter of credit outstanding and $19.4 million was available under the revolving line
of credit based on the Company’s eligible accounts receivable and inventory balances.

The financing agreement contains usual and customary covenants for agreements of that type, including
limitations on other indebtedness, liens, transfers of assets, investments and acquisitions, merger or consolidation
transactions, transactions with affiliates, and changes in or amendments to the organizational documents for the
Company and its subsidiaries. The Company believes it was in compliance with these covenants as of March 29, 2020.

To reduce its exposure to credit losses, the Company assigns the majority of its trade accounts receivable to CIT
pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing
agreement described above. Under the terms of the factoring agreements, CIT remits customer payments to the
Company as such payments are received by CIT.

CIT bears credit losses with respect to assigned accounts receivable from approved shipments, while the
Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts.
CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation
occurs, the Company either assumes (and may seek to mitigate) the credit risk for shipments to the customer after the
date of such termination or limitation or discontinues shipments to the customer. Factoring fees, which are included in
marketing and administrative expenses in the accompanying consolidated statements of income, were $255,000 and
$261,000 during fiscal years 2020 and 2019, respectively. There were no advances on the factoring agreements at March
29, 2020 or March 31, 2019.

Critical Accounting Policies and Estimates

The Company prepares its financial statements to conform with accounting principles generally accepted in the
U.S. (“GAAP”) as promulgated by the Financial Accounting Standards Board (“FASB”). References herein to GAAP are to
topics within the FASB Accounting Standards Codification (the “FASB ASC”), which the FASB periodically revises through
the issuance of an Accounting Standards Update (“ASU”) and which has been established by the FASB as the authoritative
source for GAAP recognized by the FASB to be applied by nongovernmental entities.

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 disclosure of contingent
assets and liabilities at the date of the consolidated balance sheets and the reported amounts of revenues and expenses
during the reporting period. The listing below, while not inclusive of all of the Company's accounting policies, sets forth
those accounting policies which the Company's management believes embody the most significant judgments due to
the uncertainties affecting their application and the likelihood that materially different amounts would be reported under
different conditions or using different assumptions.

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 to payment due in arrears (generally, 60 days of being invoiced) for sales made to retailers.

Allowances Against Accounts Receivable: 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 using 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.

Valuation of Long-Lived Assets and Identifiable Intangible Assets: In addition to the systematic annual depreciation
and amortization of the Company’s fixed assets and identifiable intangible assets, the Company reviews for impairment
long-lived assets and identifiable intangible assets whenever events or changes in circumstances indicate that the
carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to its fair
market value. Assets to be disposed of, if any, are recorded at the lower of net book value or fair market value, less
estimated costs to sell at the date management commits to a plan of disposal, and are classified as assets held for sale on
the consolidated balance sheets.

Inventory Valuation: On a periodic basis, management reviews its inventory quantities on hand for obsolescence,
physical deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be
expected to be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed
to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no

longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this
allowance is established or increased during an accounting period, an expense is recorded in cost of products sold in the
Company's consolidated statements of income. Only when inventory for which an allowance has been established is later
sold or is otherwise disposed is the allowance reduced accordingly. Significant management judgment is required in
determining the amount and adequacy of this allowance. In the event that actual results differ from management's
estimates or these estimates and judgments are revised in future periods, the Company may not fully realize the carrying
value of its inventory or may need to establish additional allowances, either of which could materially impact the
Company's financial position and results of operations.

ITEM 8. Financial Statements and Supplementary Data

Refer to pages 22 and F-1 through F-23 hereof.

ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

ITEM 9A. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the
reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time
period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is
accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report,
the Company carried out an evaluation, under the supervision and with the participation of the Company’s management,
including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures. Based upon and as of the date of that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining for the Company adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act (“ICFR”).
With the participation of the Chief Executive Officer and the Chief Financial Officer, management conducted an
evaluation of the effectiveness of internal control over financial reporting based on the framework and the criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on management’s evaluation of ICFR, management has concluded that internal control
over financial reporting was effective as of March 29, 2020.

The Company’s internal control system has been designed to provide reasonable assurance to the Company’s
management and the Board regarding the reliability of financial reporting and the preparation and fair presentation of
financial statements in accordance with GAAP. All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can provide only a reasonable, rather than absolute,
assurance that the Company’s financial statements are free of any material misstatement, whether caused by error or
fraud.

Changes in Internal Control over Financial Reporting

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the Company’s ICFR as required by Rule 13a-15(d) under the Exchange Act
and, in connection with such evaluation, determined that no changes occurred during the Company’s fiscal quarter
ended March 29, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR.

ITEM 9B. Other Information

Not applicable.

ITEM 10. Directors, Executive Officers and Corporate Governance

PART III

The information with respect to the Company's directors and executive officers will be set forth in the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held in 2020 (the "Proxy Statement") under the captions
"Proposal 1 – Election of Directors" and “Executive Compensation - Executive Officers” and is incorporated herein by
reference. The information with respect to Item 405 of Regulation S-K will be set forth in the Proxy Statement under the
caption "Delinquent Section 16(a) Reports " and is incorporated herein by reference. The information with respect to Item
406 of Regulation S-K will be set forth in the Proxy Statement under the caption “Corporate Governance - Code of
Business Conduct and Ethics; Code of Conduct for Directors” and is incorporated herein by reference. The information
with respect to Item 407 of Regulation S-K will be set forth in the Proxy Statement under the captions “Corporate
Governance - Board Committees” and “Report of the Audit Committee” and is incorporated herein by reference.

ITEM 11. Executive Compensation

The information set forth under the caption "Executive Compensation" in the Proxy Statement is incorporated

herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management"

in the Proxy Statement is incorporated herein by reference.

Securities Authorized for Issuance under Equity Compensation Plans

The table below sets forth information regarding shares of the Company’s common stock that may be issued
upon the exercise of options, warrants and other rights granted to employees, consultants or directors under all of the
Company’s existing equity compensation plans as of March 29, 2020.

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

Plan Category

Equity compensation plans approved by security
holders:

2006 Omnibus Incentive Plan ..................................................

97,500 $

2014 Omnibus Equity Compensation Plan..........................

420,000 $

6.87

6.86

439,501

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

The information set forth under the captions “Corporate Governance - Director Independence” and "Certain

Relationships and Related Transactions" in the Proxy Statement is incorporated herein by reference.

ITEM 14. Principal Accountant Fees and Services

The information set forth under the caption “Proposal 2 – Ratification of Appointment of Independent

Registered Public Accounting Firm” in the Proxy Statement is incorporated herein by reference.

ITEM 15. Exhibits and Financial Statement Schedules

(a)(1). Financial Statements

PART IV

The following consolidated financial statements of the Company are filed with this report and included in Part

II, Item 8.:

- Report of Independent Registered Public Accounting Firm
- Consolidated Balance Sheets as of March 29, 2020 and March 31, 2019
- Consolidated Statements of Income for the Fiscal Years Ended March 29, 2020 and March 31, 2019
- Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended March 29, 2020 and March 31,

2019

- Consolidated Statements of Cash Flows for the Fiscal Years Ended March 29, 2020 and March 31, 2019
- Notes to Consolidated Financial Statements

(a)(2). Financial Statement Schedule

The following financial statement schedule of the Company is filed with this report:

Schedule II — Valuation and Qualifying Accounts ................................................................................................................. Page 22

All other schedules not listed above have been omitted because they are not applicable or the required

information is included in the financial statements or notes thereto.

Column A

CROWN CRAFTS, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

SCHEDULE II

Valuation and Qualifying Accounts
Column B Column C Column D Column E

Balance at
Beginning Charged to

of Period Expenses Deductions

(in thousands)

Balance at
End of
Period

Accounts Receivable Valuation Accounts:

Year Ended March 31, 2019
Allowance for customer deductions .......................................... $

565 $

3,629 $

3,787 $

407

Year Ended March 29, 2020
Allowance for customer deductions .......................................... $

407 $

3,776 $

3,653 $

530

(a)(3). Exhibits

Exhibits required to be filed by Item 601 of SEC Regulation S-K are included as Exhibits to this report and listed

below.

In reviewing the agreements included as exhibits to this report, investors are reminded that the agreements are
included to provide information regarding their terms and are not intended to provide any other factual or disclosure
information about the Company or the other parties to the agreements. Some of the agreements contain representations
and warranties made by each of the parties to the applicable agreement. These representations and warranties have
been made solely for the benefit of the other parties to the applicable agreement and:

(cid:404) Should not in all instances be treated as categorical statements of fact, but rather as a
way of allocating the risk to one of the parties if those statements prove to be inaccurate;
(cid:404) Have been qualified by the disclosures that were made to the other party in connection
with the negotiation of the applicable agreement, which disclosures are not necessarily
reflected in the agreement;

(cid:404) May apply standards of materiality in a way that is different from what may be viewed as

material to you or other investors; and

(cid:404) Were made only as of the date of the applicable agreement or such other date or dates
may be specified in the agreement and are subject to more recent developments.

Accordingly, the representations and warranties may not describe the actual state of affairs as of the date they
were made or at any other time. Additional information about the Company may be found elsewhere in this report and
the Company’s other public filings with the SEC.

Exhibit
Number Description of Exhibits

3.1 — Amended and Restated Certificate of Incorporation of the Company. (2)
3.2 — Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company. (12)
3.3 — Bylaws of the Company, as amended and restated through November 15, 2016. (22)
4.1 * — Crown Crafts, Inc. 2006 Omnibus Incentive Plan (As Amended August 14, 2012). (15)
4.2 * — Form of Non-Qualified Stock Option Agreement (Employees). (5)
4.3 * — Crown Crafts, Inc. 2014 Omnibus Equity Compensation Plan. (17)
4.4 * — Form of Incentive Stock Option Grant Agreement. (18)
4.5 * — Form of Non-Qualified Stock Option Grant Agreement. (18)
4.6 * — Form of Restricted Stock Grant Agreement. (18)
4.7 — Description of Capital Stock (28)
10.1 * — Employment Agreement dated July 23, 2001 by and between the Company and E. Randall Chestnut. (1)
10.2 * — Amended and Restated Severance Protection Agreement dated April 20, 2004 by and between the Company

and E. Randall Chestnut. (3)

10.3 * — Amended and Restated Employment Agreement dated April 20, 2004 by and between the Company and

Nanci Freeman. (3)

10.4 — Financing Agreement dated as of July 11, 2006 by and among the Company, Churchill Weavers, Inc., Hamco,

Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (4)

10.5 — Stock Pledge Agreement dated as of July 11, 2006 by and among the Company, Churchill Weavers, Inc.,
Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (4)
10.6 — First Amendment to Financing Agreement dated as of November 5, 2007 by and among the Company,
Churchill Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial
Services, Inc. (6)

10.7 * — Employment Agreement dated November 6, 2008 by and between the Company and Olivia W. Elliott (7)
10.8 * — First Amendment to Employment Agreement dated November 6, 2008 by and between the Company and E.

Randall Chestnut. (8)

10.9 * — First Amendment to Amended and Restated Severance Protection Agreement dated November 6, 2008 by and

between the Company and E. Randall Chestnut. (8)

10.10 * — First Amendment to Amended and Restated Employment Agreement dated November 6, 2008 by and

between the Company and Nanci Freeman. (8)

10.11 — Third Amendment to Financing Agreement dated as of July 2, 2009 by and among the Company, Churchill

Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (9)

10.12 — Sixth Amendment to Financing Agreement dated as of March 5, 2010 by and among the Company, Churchill
Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (10)
10.13 — Seventh Amendment to Financing Agreement dated as of May 27, 2010 by and among the Company, Churchill
Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (11)
10.14 — Eighth Amendment to Financing Agreement dated as of March 26, 2012 by and among the Company, Churchill
Weavers, Inc., Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (13)
10.15 * — Second Amendment to Amended and Restated Employment Agreement dated March 26, 2012 by and

between the Company and Nanci Freeman. (14)

10.16 — Ninth Amendment to Financing Agreement dated May 21, 2013 by and among the Company, Hamco, Inc.,

Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (16)

10.17 — Tenth Amendment to Financing Agreement dated as of December 28, 2015 by and among the Company,
Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (19)
10.18 — Eleventh Amendment to Financing Agreement dated as of March 31, 2016 by and among the Company,
Hamco, Inc., Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services, Inc. (20)

10.19 * — Amendment No. 1 to the Crown Crafts, Inc. 2014 Omnibus Equity Compensation Plan. (21)
10.20 * — Form of Incentive Stock Option Grant Agreement (effective November 2016). (21)
10.21 * — Form of Nonqualified Stock Option Grant Agreement (effective November 2016). (21)
10.22 * — Form of Restricted Stock Grant Agreement (effective November 2016). (21)
10.23 — Joinder Agreement, dated as of August 4, 2017, by and among the Company, Hamco, Inc., Crown Crafts Infant

Products, Inc., Carousel Acquisition, LLC and The CIT Group/Commercial Services, Inc. (23)

10.24 — Twelfth Amendment to Financing Agreement dated as of December 15, 2017 by and among the Company,
Hamco, Inc., Carousel Designs, LLC, Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services,
Inc. (24)

10.25 — Thirteenth Amendment to Financing Agreement dated as of August 7, 2018 by and among the Company,
Hamco, Inc., Carousel Designs, LLC, Crown Crafts Infant Products, Inc. and The CIT Group/Commercial Services,
Inc. (25)

10.26 * — Employment Agreement dated January 18, 2019 by and between NoJo Baby & Kids, Inc. and Donna Sheridan

(26)

10.27 — Note dated as of April 19, 2020 made by the Company in favor of CIT Bank, N.A. (27)
10.28 — Conditional Consent to Paycheck Protection Program Loan dated as of April 19, 2020 by and between the

Company, Sassy Baby, Inc., Carousel Designs, LLC, NoJo Baby & Kids, Inc. and The CIT Group/Commercial. (27)

14.1 — Code of Ethics. (3)
21.1 — Subsidiaries of the Company. (28)
23.1 — Consent of KPMG LLP. (28)
31.1 — Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer. (28)
31.2 — Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer. (28)
32.1 — Section 1350 Certification by the Company’s Chief Executive Officer. (29)
32.2 — Section 1350 Certification by the Company’s Chief Financial Officer. (29)
101 — The following information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended
March 29, 2020, formatted as interactive data files in XBRL (eXtensible Business Reporting Language):

(i) Consolidated Statements of Income;
(ii) Consolidated Balance Sheets;
(iii) Consolidated Statements of Changes in Shareholders’ Equity;
(iv) Consolidated Statements of Cash Flows; and
(v) Notes to Consolidated Financial Statements.

_______________

* Management contract or a compensatory plan or arrangement.

(1)
(2)

(3)

(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)

(18)
(19)
(20)
(21)

(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)

Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated July 23, 2001.
Incorporated herein by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended December
28, 2003.
Incorporated herein by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended March 28,
2004.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated July 17, 2006.
Incorporated herein by reference to Registrant’s Registration Statement on Form S-8 dated August 24, 2006.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated November 9, 2007.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K/A dated November 7, 2008.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated November 7, 2008.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated July 6, 2009.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated March 8, 2010.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated May 27, 2010.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated August 9, 2011.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated March 27, 2012.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated March 30, 2012.
Incorporated herein by reference to Registrant’s Registration Statement on Form S-8 dated August 14, 2012.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated May 21, 2013.
Incorporated herein by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A
filed on June 27, 2014.
Incorporated herein by reference to Registrant’s Registration Statement on Form S-8 dated November 10, 2014.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated December 28, 2015.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated April 4, 2016.
Incorporated herein by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 2,
2016.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated November 16, 2016.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated August 7, 2017.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated December 18, 2017.
Incorporated herein by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated January 22, 2019.
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated April 23, 2020.
Filed herewith.
Furnished herewith.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has

duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

CROWN CRAFTS, INC.

By: /s/ E. Randall Chestnut
E. Randall Chestnut
Chairman of the Board, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the

following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signatures

Title

Date

/s/ E. Randall Chestnut
E. Randall Chestnut

/s/ Olivia W. Elliott
Olivia W. Elliott

/s/ Sidney Kirschner
Sidney Kirschner

/s/ Zenon S. Nie
Zenon S. Nie

/s/ Donald Ratajczak
Donald Ratajczak

/s/ Patricia Stensrud
Patricia Stensrud

Chairman of the Board, President and Chief Executive Officer

June 10, 2020

(Principal Executive Officer)

Vice President and Chief Financial Officer

June 10, 2020

(Principal Financial Officer and Principal Accounting Officer)

Director

June 10, 2020

ITEM 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Financial Statements:

Report of Independent Registered Public Accounting Firm ............................................................................................
Consolidated Balance Sheets as of March 29, 2020 and March 31, 2019 .....................................................................
Consolidated Statements of Income for the Fiscal Years Ended March 29, 2020 and March 31, 2019 .............
Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended March 29, 2020
and March 31, 2019 ........................................................................................................................................................................
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 29, 2020 and March 31, 2019 ......
Notes to Consolidated Financial Statements ........................................................................................................................

Page

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Crown Crafts, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Crown Crafts, Inc. and subsidiaries (the Company) as
of March 29, 2020 and March 31, 2019, the related consolidated statements of income, changes in shareholders’ equity,
and cash flows for each of the years in the two-year period ended March 29, 2020, and the related notes and financial
statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of March 29, 2020 and March
31, 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended March 29,
2020, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for
leases as of April 1, 2019, due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2009.

Baton Rouge, Louisiana
June 10, 2020

F-1

CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 29, 2020 AND MARCH 31, 2019
(amounts in thousands, except share and per share amounts)

March 29, 2020

March 31, 2019

ASSETS

Current assets:
Cash and cash equivalents .......................................................................................................................................................... $
Accounts receivable (net of allowances of $530 at March 29, 2020 and $407 at March 31, 2019):

Due from factor ....................................................................................................................................................................
Other ........................................................................................................................................................................................
Inventories ........................................................................................................................................................................................
Prepaid expenses ...........................................................................................................................................................................
Total current assets .....................................................................................................................................................

282 $

17,072
731
17,732
1,224
37,041

Operating lease right of use assets ......................................................................................................................................

4,896

Property, plant and equipment - at cost:
Vehicles ..............................................................................................................................................................................................
Leasehold improvements ............................................................................................................................................................
Machinery and equipment ..........................................................................................................................................................
Furniture and fixtures ...................................................................................................................................................................
Property, plant and equipment – gross .............................................................................................................................
Less accumulated depreciation .................................................................................................................................................
Property, plant and equipment – net .................................................................................................................

Finite-lived intangible assets - at cost:
Tradename and trademarks ........................................................................................................................................................
Customer relationships ................................................................................................................................................................
Other finite-lived intangible assets ..........................................................................................................................................
Finite-lived intangible assets – gross .................................................................................................................................
Less accumulated amortization .................................................................................................................................................
Finite-lived intangible assets – net ......................................................................................................................

Goodwill ............................................................................................................................................................................................
Deferred income taxes .................................................................................................................................................................
Other ...................................................................................................................................................................................................
Total Assets .......................................................................................................................................................................... $

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable ........................................................................................................................................................................... $
Accrued wages and benefits ......................................................................................................................................................
Accrued royalties ............................................................................................................................................................................
Dividends payable .........................................................................................................................................................................
Operating lease liabilities, current ............................................................................................................................................
Other accrued liabilities ...............................................................................................................................................................
Total current liabilities ..............................................................................................................................................

Non-current liabilities:
Long-term debt ...............................................................................................................................................................................
Operating lease liabilities, noncurrent ....................................................................................................................................
Reserve for unrecognized tax liabilities ..................................................................................................................................
Total non-current liabilities ....................................................................................................................................

Shareholders' equity:
Common stock - $0.01 par value per share; Authorized 40,000,000 shares at March 29, 2020 and March
31, 2019; Issued 12,603,301 shares at March 29, 2020 and 12,546,789 shares at March 31, 2019 ......................
Additional paid-in capital ............................................................................................................................................................
Treasury stock - at cost - 2,436,494 shares at March 29, 2020 and 2,424,231 shares at March 31, 2019 ...........
Retained Earnings ..........................................................................................................................................................................
Total shareholders' equity .......................................................................................................................................
Total Liabilities and Shareholders' Equity ............................................................................................................. $

See notes to consolidated financial statements.

F-2

246
404
3,991
793
5,434
3,434
2,000

3,667
7,374
3,159
14,200
8,623
5,577

7,125
439
95
57,173 $

2,972 $
1,781
370
813
191
352
6,479

2,578
4,959
721
8,258

126
53,610
(12,408)
1,108
42,436
57,173 $

143

17,250
522
19,534
1,230
38,679

323
282
4,269
799
5,673
3,751
1,922

3,667
7,374
3,159
14,200
7,768
6,432

7,125
524
97
54,779

4,201
1,819
398
810
-
483
7,711

4,486
-
1,194
5,680

125
53,251
(12,326)
338
41,388
54,779

CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS ENDED MARCH 29, 2020 AND MARCH 31, 2019
(amounts in thousands, except per share amounts)

2020

2019

Net sales ................................................................................................................................................... $
Cost of products sold ...........................................................................................................................
Gross profit ..............................................................................................................................................
Marketing and administrative expenses .......................................................................................
Income from operations .....................................................................................................................
Other income (expense):

Interest expense - net of interest income .............................................................................
Gain on sale of property, plant and equipment .................................................................
Other – net ......................................................................................................................................
Income before income tax expense ................................................................................................
Income tax expense..............................................................................................................................
Net income .............................................................................................................................................. $

73,396 $
51,806
21,590
13,853
7,737

(2)
15
18
7,768
1,207
6,561 $

Weighted average shares outstanding:

Basic .......................................................................................................................................................
Effect of dilutive securities .............................................................................................................
Diluted ..................................................................................................................................................

10,149
1
10,150

Earnings per share:

Basic ....................................................................................................................................................... $

0.65 $

Diluted .................................................................................................................................................. $

0.65 $

76,381
54,074
22,307
15,194
7,113

(325 )
-
3
6,791
1,772
5,019

10,092
2
10,094

0.50

See notes to consolidated financial statements.

F-3

CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED MARCH 29, 2020 AND MARCH 31, 2019

(Accumulated

Common Shares
Number of
Shares

Amount

Treasury Shares
Number of
Shares

Amount

Additional Deficit)
Retained
Earnings

Paid-in
Capital

Total
Shareholders'
Equity

(Dollar amounts in thousands)

Balances - April 1, 2018 ................. 12,493,789 $

125 (2,408,025) $ (12,231) $ 52,874 $

(1,450) $

39,318

Issuance of shares ..............................
Stock-based compensation ............
Acquisition of treasury stock ..........
Net income ...........................................
Dividends declared on common
stock - $0.32 per share ....................

53,000

-
377

(16,206)

(95)

-
377
(95 )
5,019

5,019

(3,231)

(3,231 )

Balances - March 31, 2019 ............ 12,546,789 $

125 (2,424,231) $ (12,326) $ 53,251 $

338 $

41,388

56,512

62
297

(12,263)

(82)

63
297
(82 )
6,561

6,561

(5,791)

(5,791 )

Balances - March 29, 2020 ............ 12,603,301 $

126 (2,436,494) $ (12,408) $ 53,610 $

1,108 $

42,436

See notes to consolidated financial statements.

F-4

CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 29, 2020 AND MARCH 31, 2019
(amounts in thousands)

Operating activities:
Net income .............................................................................................................................................. $
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of property, plant and equipment ...............................................................
Amortization of intangibles ......................................................................................................
Amortization of right of use assets .........................................................................................
Deferred income taxes ................................................................................................................
Gain on sale of property, plant and equipment .................................................................
Reserve for unrecognized tax liabilities ................................................................................
Stock-based compensation .......................................................................................................
Changes in assets and liabilities:

Accounts receivable ................................................................................................................
Inventories ..................................................................................................................................
Prepaid expenses .....................................................................................................................
Other assets ................................................................................................................................
Lease liabilities ..........................................................................................................................
Accounts payable .....................................................................................................................
Accrued liabilities .....................................................................................................................
Net cash provided by operating activities ..............................................................................
Investing activities:
Capital expenditures for property, plant and equipment .......................................................
Proceeds from sale of property, plant and equipment ............................................................
Net cash used in investing activities ..........................................................................................
Financing activities:
Repayments under revolving line of credit ..................................................................................
Borrowings under revolving line of credit ....................................................................................
Purchase of treasury stock .................................................................................................................
Issuance of common stock .................................................................................................................
Dividends paid .......................................................................................................................................
Net cash used in financing activities ..........................................................................................
Net increase (decrease) in cash and cash equivalents .......................................................
Cash and cash equivalents at beginning of period ...................................................................
Cash and cash equivalents at end of period ........................................................................... $

2020

2019

6,561 $

5,019

716
855
1,593
85
(15)
(473)
297

(31)
1,802
6
2
(1,438)
(1,330)
(98)
8,532

(705)
27
(678)

(50,955)
49,047
(82)
63
(5,788)
(7,715)
139
143
282 $

640
840
-
8
-
177
377

726
254
23
23
-
402
485
8,974

(751 )
-
(751 )

(63,134 )
58,162
(95 )
-
(3,228 )
(8,295 )
(72 )
215
143

Supplemental cash flow information:
Income taxes paid ................................................................................................................................. $
Interest paid ............................................................................................................................................

1,680 $
80

1,673
237

Noncash financing activities:
Property, plant and equipment purchased but unpaid ...........................................................
Dividends declared but unpaid ........................................................................................................

(101)
(813)

(33 )
(810 )

See notes to consolidated financial statements.

F-5

Crown Crafts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 1 – Description of Business

Crown Crafts, Inc. (the “Company”) was originally formed as a Georgia corporation in 1957 and was
reincorporated as a Delaware corporation in 2003. The Company operates indirectly through its wholly-owned
subsidiaries, NoJo Baby & Kids, Inc. (formerly known as Crown Crafts Infant Products, Inc.) (“NoJo”), Sassy Baby, Inc.
(formerly known as Hamco, Inc.) (“Sassy Baby”) and Carousel Designs, LLC (“Carousel”) in the infant, toddler and juvenile
products segment within the consumer products industry. The infant, toddler and juvenile products segment consists of
infant and toddler bedding and blankets, bibs, soft bath products, disposable products, developmental toys and
accessories. Sales of the Company’s products are generally made directly to retailers, which are primarily mass merchants,
mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs
and internet-based retailers, as well as directly to consumers through www.babybedding.com. The Company’s products
are marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label
goods.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation: The accompanying consolidated financial statements include the accounts of the Company
and have been prepared pursuant to accounting principles generally accepted in the U.S. (“GAAP”) as promulgated by
the Financial Accounting Standards Board (“FASB”). References herein to GAAP are to topics within the FASB Accounting
Standards Codification (the “FASB ASC”), which the FASB periodically revises through the issuance of an Accounting
Standards Update (“ASU”) and which has been established by the FASB as the authoritative source for GAAP recognized
by the FASB to be applied by nongovernmental entities.

Reclassifications: The Company has classified certain prior year information to conform to the amounts presented
in the current year. None of the changes impact the Company’s previously reported financial position or results of
operations.

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

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 disclosure of contingent assets
and liabilities as of the date of the consolidated balance sheets and the reported amounts of revenues and expenses
during the periods presented on the 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 goods which necessitates the establishment
of inventory reserves that are highly subjective. Actual results could differ materially from those estimates.

Cash and Cash Equivalents: The Company’s credit facility consists of a revolving line of credit under a financing
agreement with The CIT Group/Commercial Services, Inc. (“CIT”), a subsidiary of CIT Group Inc. The Company classifies a
negative balance outstanding under this 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 fair value.

F-6

Segments and Related Information: The Company operates primarily in one principal segment, infant and toddler
products. These products consist of infant and toddler bedding, bibs, soft bath products, disposable products,
developmental and bath toys and accessories. Net sales of bedding, blankets and accessories and net sales of bibs, bath
and disposable products for fiscal years ended March 29, 2020 and March 31, 2019 are as follows (in thousands):

Bedding, blankets and accessories ........................................................................................ $
Bibs, bath, developmental toy, feeding, baby care and disposable products ........
Total net sales .................................................................................................................. $

38,065 $
35,331
73,396 $

40,690
35,691
76,381

2020

2019

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 to payment due in arrears (generally, 60
days of being invoiced) for sales made to retailers.

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 receivables under factoring agreements with CIT. In the event a factored
receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. The Company recognizes revenue
net of the amount that is expected to be uncollectible on accounts receivable, if any, 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 bad debts, customer concentrations,
customer creditworthiness, current economic trends and changes in its customers’ payment terms.

F-7

Credit Concentration: The Company’s accounts receivable at March 29, 2020 amounted to $17.8 million, net of
allowances of $530,000. Of this amount, $17.1 million was due from CIT under the factoring agreements, which amount
represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations under the
factoring agreements. The Company’s accounts receivable at March 31, 2019 amounted to $17.8 million, net of
allowances of $407,000. Of this amount, $17.3 million was due from CIT under the factoring agreements, which amount
represented the maximum loss that the Company could have incurred if CIT failed completely to perform its obligations
under the factoring agreements.

Other Accrued Liabilities: An amount of $352,000 was recorded as other accrued liabilities as of March 29, 2020.
Of this amount, $155,000 reflected unearned revenue recorded for payments from customers that were received before
the products ordered were received by the customers. Other accrued liabilities as of March 29, 2020 also includes a
reserve for customer returns of $16,000 and unredeemed store credits and gift certificates totaling $8,000. An amount of
$483,000 was recorded as other accrued liabilities as of March 31, 2019. Of this amount, $241,000 reflected unearned
revenue recorded for payments from customers that were received before the products ordered were received by the
customers. Other accrued liabilities as of March 31, 2019 also included a reserve for customer returns of $6,000 and
unredeemed store credits and gift certificates totaling $19,000.

Inventory Valuation: The preparation of the Company's financial statements requires careful determination of
the appropriate value of the Company's inventory balances. Such amounts are presented as a current asset in the
accompanying consolidated balance sheets and are a direct determinant of cost of products sold in the accompanying
consolidated statements of income and, therefore, have a significant impact on the amount of net income reported in
the accounting periods. The basis of accounting for inventories is cost, which includes the direct supplier acquisition cost,
duties, taxes and freight, and the indirect costs to design, develop, source and store the product until it is sold. Once cost
has been determined, the Company’s inventory is then stated at the lower of cost or net realizable value, with cost
determined using the first-in, first-out ("FIFO") method, which assumes that inventory quantities are sold in the order in
which they are acquired, and the average cost method for a portion of the Company’s inventory.

The determination of the indirect charges and their allocation to the Company's finished goods inventories is
complex and requires significant management judgment and estimates. If management made different judgments or
utilized different estimates, then differences would result in the valuation of the Company's inventories and in the
amount and timing of the Company's cost of products sold and the resulting net income for the reporting period.

On a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical
deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected to
be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed to exist or
the market value of the inventory expected to be realized in the ordinary course of business is otherwise no longer as
great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is
established or increased during an accounting period, an expense is recorded in cost of products sold in the Company's
consolidated statements of income. Only when inventory for which an allowance has been established is later sold or is
otherwise disposed is the allowance reduced accordingly. Significant management judgment is required in determining
the amount and adequacy of this allowance. In the event that actual results differ from management's estimates or these
estimates and judgments are revised in future periods, the Company may not fully realize the carrying value of its
inventory or may need to establish additional allowances, either of which could materially impact the Company's
financial position and results of operations.

Royalty Payments: The Company has entered into agreements that provide for royalty payments based on a
percentage of sales with certain minimum guaranteed amounts. These royalty amounts are accrued based upon
historical sales rates adjusted for current sales trends by customers. Royalty expense is included in cost of products sold
in the accompanying consolidated statements of income and amounted to $4.9 million and $5.2 million for fiscal years
2020 and 2019, respectively.

Depreciation and Amortization: The accompanying consolidated balance sheets reflect property, plant and
equipment, and certain intangible assets at cost less accumulated depreciation or amortization. The Company capitalizes
additions and improvements and expenses maintenance and repairs as incurred. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the assets, which are three to eight years for
property, plant and equipment, and five to twenty years for intangible assets other than goodwill. The Company

F-8

amortizes improvements to its leased facilities over the term of the lease or the estimated useful life of the asset,
whichever is shorter.

Valuation of Long-Lived Assets and Identifiable Intangible Assets: In addition to the depreciation and amortization
procedures set forth above, the Company reviews for impairment long-lived assets and certain identifiable intangible
assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be
recoverable. In the event of impairment, the asset is written down to its fair market value.

Patent Costs: The Company incurs certain legal and related costs in connection with patent applications. The
Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic
benefit is anticipated from the resulting patent or an alternative future use is available to the Company. The Company
also capitalizes legal and other costs incurred in the protection or defense of the Company’s patents when it is believed
that the future economic benefit of the patent will be maintained or increased and a successful defense is probable.
Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s
assessment of future economic benefit of its patents involves considerable management judgment, and a different
conclusion could result in a material impairment charge up to the carrying value of these assets.

Leases: The Company capitalizes most of its operating lease obligations as right-of-use assets and recognizes
corresponding liabilities. The Company elects to use the practical expedient that permits the Company to exclude short-
term agreements of less than 12 months from capitalization. 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 recognizes as expense non-variable lease
payments ratably over the lease term. The key estimates for the Company’s leases include the discount rate used to
discount the unpaid lease payment to present value and 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. For purposes of such estimates, a lease term
includes the noncancellable period under the applicable lease.

Provision for Income Taxes: The Company’s provision for income taxes includes all currently payable federal, state,
local and foreign taxes and is based upon the Company’s estimated annual effective tax rate, which is based on the
Company’s forecasted annual pre-tax income, as adjusted for certain expenses within the consolidated statements of
income that will never be deductible on the Company’s tax returns and certain charges expected to be deducted on the
Company’s tax returns that will never be deducted on the consolidated statements of income, multiplied by the statutory
tax rates for the various jurisdictions in which the Company operates and reduced by certain anticipated tax credits.

The Company files income tax returns in the many jurisdictions in which it operates, including the U.S., several
U.S. states and the People’s Republic of China. The statute of limitations varies by jurisdiction; tax years open to federal
or state audit or other adjustment as of March 29, 2020 were the tax years ended March 29, 2020, March 31, 2019, April
1, 2018, April 2, 2017, April 3, 2016, March 29, 2015 and March 30, 2014.

F-9

The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized
tax liabilities as a charge to interest expense in the Company’s consolidated statements of income. During fiscal years
2020 and 2019, the Company accrued $76,000 and $90,000, respectively, for interest expense and penalties on the
portion of the unrecognized tax liabilities that has been refunded to the Company but for which the relevant statute of
limitations remained unexpired. No interest expense or penalties are accrued with respect to estimated unrecognized
tax liabilities that are associated with state income tax overpayments that remain receivable.

In December 2016, the Company was notified by the Franchise Tax Board of the State of California (the “FTB”) of
its intention to examine the Company’s claims for refund made in connection with amended consolidated income tax
returns that the Company had filed for the fiscal years ended March 30, 2014, March 31, 2013, April 1, 2012 and April 3,
2011. On July 31, 2019, the FTB notified the Company that it would take no further action with regard to the fiscal years
ended March 31, 2013, April 1, 2012 and April 3, 2011. In addition, on January 7, 2020, the Company’s California
consolidated income tax return for the fiscal year ended March 29, 2015 became closed to examination or other
adjustment. Accordingly, the Company reversed the reserves for unrecognized tax liabilities that it had previously
recorded for these fiscal years, which resulted in the recognition of a discrete income tax benefit of $444,000 during the
fiscal year ended March 29, 2020 in the accompanying consolidated statements of income. The Company also reversed
the interest expense and penalties that it had accrued in respect of the unrecognized tax liabilities for these fiscal years,
which resulted in the recognition of a credit to interest expense of $163,000 during the fiscal year ended March 29, 2020.

As of April 20, 2020, the status of the Company’s claim for refund made in connection with the amended
consolidated income tax return that the Company filed for the fiscal year ended March 30, 2014 was not resolved. The
ultimate resolution of this claim for refund could include administrative or legal proceedings. Although management
believes that the calculations and positions taken on the amended consolidated income tax return and all other filed
income tax returns are reasonable and justifiable, the outcome of this or any other examination could result in an
adjustment to the position that the Company took on such income tax returns. Such adjustment could also lead to
adjustments to one or more other state income tax returns, or to income tax returns for subsequent fiscal years, or both.
To the extent that the Company’s reserve for unrecognized tax liabilities is not adequate to support the cumulative effect
of such adjustments, the Company could experience a material adverse impact on its future results of operations.
Conversely, to the extent that the calculations and positions taken by the Company on the filed income tax returns under
examination are sustained, another reversal of all or a portion of the Company’s reserve for unrecognized tax liabilities
could result in a favorable impact on its future results of operations.

Advertising Costs: The Company’s advertising costs are primarily associated with cooperative advertising
arrangements with certain of the Company’s customers and are recognized using the straight-line method based upon
aggregate annual estimated amounts for these customers, with periodic adjustments to the actual amounts of
authorized agreements. Costs associated with advertising on websites such as Facebook and Google and which are
associated with the Company’s online business are recorded as incurred. Advertising expense is included in other
marketing and administrative expenses in the consolidated statements of income and amounted to $1.1 million and $1.3
million for fiscal years 2020 and 2019, respectively.

Earnings Per Share: The Company calculates basic earnings per share by using a weighted average of the number
of shares outstanding during the reporting periods. Diluted shares outstanding are calculated in accordance with the
treasury stock method, which assumes that the proceeds from the exercise of all exercisable options would be used to
repurchase shares at market value. The net number of shares issued after the exercise proceeds are exhausted represents
the potentially dilutive effect of the exercisable options, which are added to basic shares to arrive at diluted shares.

Recently-Issued Accounting Standards: On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842),
which was intended to increase transparency and comparability by requiring an entity to recognize lease assets and lease
liabilities on its balance sheet and by requiring the disclosure of key information about its leasing arrangements. Upon

F-10

adoption, the Company was required under the provisions of ASU No. 2016-02 to capitalize most of its current operating
lease obligations as right-of-use assets with corresponding liabilities based upon the present value of the future cash
outflows associated with such operating lease obligations. The ASU was required to be adopted effective for the first
interim period of the fiscal year beginning after December 15, 2018.

When issued, ASU No. 2016-02 was to have been applied using a modified retrospective approach, but on July
30, 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which allowed for an alternative
optional transition method with which to adopt ASU No. 2016-02. Upon adoption, in lieu of the modified retrospective
approach, an entity was allowed to recognize a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption.

Although early adoption of ASU No. 2016-02 (as modified by ASU No. 2018-11) was permitted, the Company
adopted the ASU effective as of April 1, 2019. ASU No. 2016-02 contains a number of optional practical expedients
available to be used in transition. 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 to use the practical expedient that permits the Company to exclude short-term
agreements of less than 12 months from capitalization. The Company used the modified retrospective approach upon
the adoption of ASU No. 2016-02, which resulted in the recognition by the Company of operating lease liabilities and
corresponding right-of-use assets of $1.9 million based on the present value of the then-remaining minimum rental
payments under the Company’s operating leases.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments, the objective of which is to provide financial statement users with more information
about the expected credit losses on financial instruments and other commitments to extend credit held by an entity.
Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is
probable that a loss has been incurred. Because this methodology restricted the recognition of credit losses that are
expected, but did not yet meet the “probable” threshold, ASU No. 2016-13 was issued to require the consideration of a
broader range of reasonable and supportable information when determining estimates of credit losses.

ASU No. 2016-13 is to be applied using a modified retrospective approach, and the ASU could have been early-
adopted in the fiscal year that began after December 15, 2018. When issued, ASU No. 2016-13 was required to be adopted
no later than the fiscal year beginning after December 15, 2019, but on November 15, 2019, the FASB issued ASU No.
2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):
Effective Dates, which provided for the deferral of the effective date of ASU No. 2016-13 for registrants that are a smaller
reporting company to the first interim period of the fiscal year beginning after December 15, 2022. Accordingly, the
Company intends to adopt ASU No. 2016-13 effective as of April 3, 2023. Although the Company has not determined the
full impact of the adoption of ASU No. 2016-13, because the Company assigns the majority of its trade accounts
receivable under factoring agreements with CIT, the Company does not believe that the adoption of the ASU will have a
significant impact on the Company’s financial position, results of operations and related disclosures.

The Company has determined that all other ASU’s issued which had become effective as of April 20, 2020, or
which will become effective at some future date, are not expected to have a material impact on the Company’s
consolidated financial statements.

Note 3 - Financing Arrangements

Factoring Agreements: To reduce its exposure to credit losses, The Company assigns the majority of its trade
accounts receivable to CIT pursuant to factoring agreements, which have expiration dates that are coterminous with that
of the financing agreement described below. Under the terms of the factoring agreements, CIT remits customer
payments to the Company as such payments are received by CIT.

F-11

marketing and administrative expenses in the accompanying consolidated statements of income, were $255,000 and
$261,000 during fiscal years 2020 and 2019, respectively. There were no advances on the factoring agreements at March
29, 2020 or March 31, 2019.

Credit Facility: The Company’s credit facility at March 29, 2020 consisted of a revolving line of credit under a
financing agreement with CIT of up to $26.0 million, which includes a $1.5 million sub-limit for letters of credit, bearing
interest at the rate of prime minus 0.5% or LIBOR plus 1.75%. The financing agreement matures on July 11, 2022 and is
secured by a first lien on all assets of the Company. At March 29, 2020, the Company had elected to pay interest on
balances owed under the revolving line of credit under the LIBOR option, which was 3.27% as of March 29, 2020. The
financing 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 2.75% as of March 29, 2020, on daily negative balances, if any,
held by CIT.

Note 4 – Leases

Effective as of 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 then-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 Company was not required to recognize a cumulative-effect adjustment to the
opening balance of the Company’s retained earnings 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 recognizes as expense non-variable lease payments ratably over the lease term. The key
estimates for the Company’s leases include the discount rate used to discount the unpaid lease payment to present value
and 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. For purposes of such estimates, a lease term includes the noncancellable period under
the applicable lease.

Subsequent to the Company’s recognition of operating lease liabilities of $1.9 million on April 1, 2019, the
Company made cash payments related to its recognized operating leases of $1.4 million during the fiscal year ended
March 29, 2020. Such payments reduced the operating lease liabilities and were included in the cash flows provided by
operating activities in the accompanying consolidated statements of cash flows.

F-12

During the fiscal year ended March 29, 2020, the Company classified its operating lease costs within the

accompanying consolidated statements of income as follows (in thousands):

Cost of products sold ..................................................................................................................................................... $
Marketing and administrative expenses .................................................................................................................
Total operating lease costs ............................................................................................................................. $

1,383
210
1,593

The Company’s operating leases have a weighted-average remaining lease term of 3.0 years. The weighted-
average discount rate for the operating leases is 3.82%. The following table represents the maturities of the Company’s
operating lease liabilities as of March 29, 2020 (in thousands):

Fiscal Year
2021 ..................................................................................................................................................................................... $
2022 .....................................................................................................................................................................................
2023 .....................................................................................................................................................................................
2024 .....................................................................................................................................................................................
Total undiscounted operating lease payments ....................................................................................................
Imputed interest ..............................................................................................................................................................
Total operating lease liabilities .............................................................................................................................. $

1,777
1,726
1,685
280
5,468
(318)
5,150

The following table represents the Company’s commitment for minimum guaranteed rental payments under its

lease agreements as of March 31, 2019 (in thousands):

Fiscal Year
2020 ..................................................................................................................................................................................... $
2021 .....................................................................................................................................................................................
2022 .....................................................................................................................................................................................
Total ................................................................................................................................................................................. $

1,406
497
42
1,945

Note 5 – Retirement Plan

The Company sponsors a defined contribution retirement savings plan with a cash or deferred arrangement (the
“401(k) Plan”), as provided by Section 401(k) of the Internal Revenue Code (“Code”). The 401(k) Plan covers substantially
all employees, who may elect to contribute a portion of their compensation to the 401(k) Plan, subject to maximum
amounts and percentages as prescribed in the Code. Each calendar year, the Company’s Board of Directors (the “Board”)
determines the portion, if any, of employee contributions that will be matched by the Company. For calendar years 2020,
2019 and 2018, the Board established the employer matching contributions at 100% of the first 2% of employee
contributions and 50% of the next 3% of employee contributions to the 401(k) Plan. If an employee separates from the
Company prior to the full vesting of the funds in their account, then the unvested portion of the matching employer
amount in their account is forfeited when the employee receives a distribution from their account. The Company utilizes
such forfeitures as an offset to the aggregate matching contributions. The Company's matching contributions to the
401(k) Plan, net of the utilization of forfeitures, were $291,000 and $284,000 for fiscal years 2020 and 2019, respectively.

Note 6 – 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, developmental toys, bath care and disposable products.
The goodwill of the reporting units of the Company as of March 29, 2020 and March 31, 2019 amounted to $30.0 million,
which is reflected in the accompanying consolidated balance sheets net of accumulated impairment charges of $22.9
million, for a net reported balance of $7.1 million.

F-13

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 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.

Other Intangible Assets: Other intangible assets as of March 29, 2020 and March 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 March 29, 2020 and March 31,
2019, the amortization expense for fiscal years 2020 and 2019 and the classification of such amortization expense within
the accompanying consolidated statements of income are as follows (in thousands):

Accumulated
Amortization
March 29, March 31, March 29, March 31, March 29, March 31,

Amortization Expense
Fiscal Year Ended

Gross Amount

2020

2019

2020

2019

2020

2019

Tradename and trademarks .......... $
Developed technology ....................
Non-compete covenants ................
Patents ..................................................
Customer relationships ...................
Total other intangible assets . $

3,667 $
1,100
458
1,601
7,374
14,200 $

1,747 $
293
278
889
5,416
8,623 $

1,501 $
183
200
781
5,103
7,768 $

246 $
110
78
108
313
855 $

231
110
78
108
313
840

Classification within the

accompanying consolidated
statements of income:

Cost of products sold ...............
Marketing and

administrative expenses ....
Total amortization

expense ...............................

6 $

849

834

855 $

840

The Company estimates that its amortization expense will be $790,000, $765,000, $689,000, $665,000 and

$600,000 in fiscal years 2021, 2022, 2023, 2024 and 2025, respectively.

Note 7 – Inventories

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

Raw Materials ...................................................................................................................... $
Work in Process ...................................................................................................................
Finished Goods ...................................................................................................................
Total inventory ................................................................................................................ $

597 $
23
17,112
17,732 $

617
56
18,861
19,534

March 29, 2020

March 31, 2019

F-14

Note 8 – 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 Board,
which selects eligible employees, non-employee directors and other individuals to participate in the 2014 Plan and
determines the type, amount, duration (such duration not to exceed a term of ten (10) years for grants of options) and
other terms of individual awards. At March 29, 2020, 440,000 shares of the Company’s common stock were available for
future issuance under the 2014 Plan, which may be issued from authorized and unissued shares of the Company’s
common stock or treasury shares.

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation,
which requires stock-based compensation to be accounted for using a fair-value-based measurement. During fiscal years
2020 and 2019, the Company recorded $297,000 and $377,000 of stock-based compensation, respectively. The Company
records the compensation expense associated with stock-based awards granted to individuals in the same expense
classifications as the cash compensation paid to those same individuals. No stock-based compensation costs were
capitalized as part of the cost of an asset as of March 29, 2020.

Stock Options: The following table represents stock option activity for fiscal years 2020 and 2019:

Fiscal Years Ended

March 29, 2020

March 31, 2019

Weighted-
Average Number of Average Number of
Exercise Options

Exercise Options

Weighted-

Price

Outstanding

Price

Outstanding at Beginning of Period ................................................... $
Granted .........................................................................................................
Exercised ......................................................................................................
Forfeited .......................................................................................................
Outstanding at End of Period ................................................................
Exercisable at End of Period ..................................................................

7.45
4.76
6.20
7.07
6.86
7.74

457,500 $
125,000
(10,000)
(55,000)
517,500
347,500

Outstanding
395,000
110,000
-
(47,500)
457,500
292,500

7.93
5.90
-
7.83
7.45
8.03

As of March 29, 2020, none of the outstanding or exercisable stock options held any intrinsic value. The Company
did not receive any cash from the exercise of stock options during fiscal year 2020. Upon the exercise of stock options,
participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the
exercise amount and their income tax withholding obligations that arise from the option exercise. The effect on the cash
flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant
to satisfy his or her income tax withholding obligations. The Company used cash to remit the required income tax
withholding amounts from “cashless” option exercises of $3,000 during fiscal year 2020. There were no stock options
exercised during fiscal year 2019. As of March 31, 2019, the intrinsic value of the outstanding and exercisable stock
options was each $2,000.

F-15

To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton
valuation formula, which is a closed-form model that uses an equation to estimate fair value. The following table sets
forth the assumptions used to determine the fair value of the non-qualified stock options awarded to certain employees
during fiscal years 2020 and 2019, which options vest over a two-year period, assuming continued service.

Fiscal Year Ended
March 29, 2020 March 31, 2019
110,000
June 13, 2018

Number of options issued .......................................................................................................
Grant date .....................................................................................................................................
Dividend yield .............................................................................................................................
Expected volatility ......................................................................................................................
Risk free interest rate .................................................................................................................
Contractual term (years) ..........................................................................................................
Expected term (years) ...............................................................................................................
Forfeiture rate ..............................................................................................................................
Exercise price (grant-date closing price) per option ...................................................... $
Fair value per option ................................................................................................................. $

125,000
June 13, 2019
6.72%
25.00%
1.81%
10.00
4.00
5.00%
4.76 $
0.39 $

5.42%
25.00%
2.78%
10.00
4.00
5.00%
5.90
0.49

For the fiscal years ended March 29, 2020 and March 31, 2019, the Company recognized compensation expense

associated with stock options as follows (in thousands):

Options Granted in Fiscal Year

2018 ..................................................................... $
2019 .....................................................................
2020 .....................................................................

Total stock option compensation

Options Granted in Fiscal Year

2017 ..................................................................... $
2018 .....................................................................
2019 .....................................................................

Total stock option compensation

Fiscal Year Ended March 29, 2020

Cost of
Products
Sold

Marketing &
Administrative
Expenses

Total
Expense

5 $
10
7

22 $

1 $
8
11

20 $

Fiscal Year Ended March 31, 2019

Cost of
Products
Sold

Marketing &
Administrative
Expenses

Total
Expense

6 $
17
7

30 $

4 $
26
13

43 $

6
18
18

10
43
20

F-16

A summary of stock options outstanding and exercisable as of March 29, 2020 is as follows:

Exercise
Price

Number
of Options
Outstanding

Weighted-
Avg. Remaining
Contractual
Life in Years

Weighted-
Avg. Exercise

Price of
Options

Outstanding

Weighted-
Avg. Exercise

Price of
Options
Exercisable

Number
of Options
Exercisable

$4.00 - 4.99
$5.00 - 5.99
$6.00 - 6.99
$7.00 - 7.99
$8.00 - 8.99
$9.00 - 9.99

130,000
105,000
25,000
132,500
55,000
70,000
517,500

8.90 $
7.06 $
4.11 $
6.02 $
5.20 $
6.19 $
6.80 $

4.76
5.81
6.21
7.81
8.38
9.60
6.86

5,000 $
60,000 $
25,000 $
132,500 $
55,000 $
70,000 $
347,500 $

4.81
5.74
6.21
7.81
8.38
9.60
7.74

As of March 29, 2020, total unrecognized stock-option compensation costs amounted to $37,000, which will be
recognized as the underlying stock options vest over a weighted-average period of 6.9 months. The amount of future
stock-option compensation expense could be affected by any future stock option grants and by the separation from the
Company of any employee or director who has stock options that are unvested as of such individual’s separation date.

Non-vested Stock Granted to Non-Employee Directors: The Board granted the following shares of non-vested stock

to the Company’s non-employee directors:

Number
of Shares
46,512
28,000
28,000
28,000

Fair Value
per Share

Grant Date

5.16 August 14, 2019
5.43 August 8, 2018
5.50 August 9, 2017
10.08 August 10, 2016

These shares vest over a two-year period, assuming continued service. The fair value of non-vested stock granted
to the Company’s non-employee directors was based on the closing price of the Company’s common stock on the date
of each grant. In each of August 2019 and 2018, 28,000 shares that had been granted to the Company’s non-employee
directors vested, having an aggregate value of $135,000 and $151,000, respectively.

Non-vested Stock Granted to Employees: On January 18, 2019, upon the appointment of Donna Sheridan to
serve as the President and Chief Executive Officer of NoJo, the Board granted 25,000 shares of non-vested stock to Ms.
Sheridan. These shares will vest on January 18, 2021, assuming continued service. The fair value of the non-vested stock
granted to Ms. Sheridan is $5.86 per share, which was based on the closing price of the Company’s common stock on the
date of the grant.

Performance Bonus Plan: The Company maintains a performance bonus plan for certain executive officers that
provides for awards of cash or shares of common stock in the event that the aggregate average market value of the
common stock during the relevant fiscal year, plus the amount of cash dividends paid in respect of the common stock
during such period, increases. These individuals may instead be awarded cash, if and to the extent that an insufficient
number of shares of common stock are available for issuance from all shareholder-approved, equity-based plans or
programs of the Company in effect. The performance bonus plan also imposes individual limits on awards and provides
that shares of common stock that may be awarded will vest over a two-year period. Thus, compensation expense
associated with performance bonus plan awards are recognized over a three-year period – the fiscal year in which the
award is earned, plus the two-year vesting period.

No shares were granted in fiscal years 2020 or 2019 in connection with the performance bonus plan. The
Company recorded compensation expense during fiscal year 2019 of $116,000 related to shares granted in fiscal year
2018 that were earned in fiscal year 2017.

F-17

The table below sets forth the vesting of shares granted under the performance bonus plan, as well as the
number of shares surrendered to the Company to satisfy the income tax withholding obligations that arose from the
vesting of the shares and the taxes remitted to the appropriate taxing authorities on behalf of such individuals.

Vesting of shares during the fiscal years ended

Fiscal
Year
Granted
2017 ...........................
2018 ...........................

Shares
Shares
Granted Vested

41,205
42,250

- $
21,125

March 29, 2020
Aggregate
Value

Taxes

Shares
Remitted Vested
- $
109,000

-
17,000

20,601 $
21,125

March 31, 2019
Aggregate
Value

Taxes
Remitted
39,000
56,000

122,000 $
124,000

Total

21,125 $

109,000 $

17,000

41,726 $

246,000 $

95,000

For the fiscal years ended March 29, 2020 and March 31, 2019, the Company recognized compensation expense
associated with non-vested stock grants, which is included in marketing and administrative expenses in the
accompanying consolidated statements of income, as follows (in thousands):

Stock Granted in Fiscal Year

2018 ............................................................ $
2019 ............................................................
2020 ............................................................

Total stock grant compensation ............................................. $

Stock Granted in Fiscal Year

2017 .......................................................... $
2018 ..........................................................
2019 ..........................................................

Total stock grant compensation ............................................ $

Fiscal Year Ended March 29, 2020
Non-employee
Directors

Total
Expense

Employees

- $
73
-

73 $

26 $
76
80

182 $

Fiscal Year Ended March 31, 2019
Non-employee
Directors

Total
Expense

Employees

- $
116
13

129 $

47 $
77
51

175 $

26
149
80

255

47
193
64

304

As of March 29, 2020, total unrecognized compensation expense related to the Company’s non-vested stock
grants was $246,000, which will be recognized over the remaining portion of the respective vesting periods associated
with each block of grants, such grants having a weighted average vesting term of 9.3 months. The amount of future
compensation expense related to non-vested stock grants could be affected by any future non-vested stock grants and
by the separation from the Company of any individual who has unvested grants as of such individual’s separation date.

F-18

Note 9 – Income Taxes

The Company’s income tax provision for the fiscal years ended March 29, 2020 and March 31, 2019 is summarized

below (in thousands):

1,464
387
10
1,861

(386)
(273)

5
(654)
1,207

1,343
305
11
1,659

87
14

12
113
1,772

Fiscal year ended March 29, 2020
Deferred

Total

Current

Income tax expense on current year income:

Federal ................................................................................................ $
State .....................................................................................................
Foreign................................................................................................
Total income tax expense on current year income .................
Income tax expense (benefit) - discrete items:

Reserve for unrecognized tax benefits ....................................
Adjustment to prior year provision ...........................................
Net excess tax benefit related to stock-based

compensation ..............................................................................
Income tax benefit - discrete items ...............................................
Total income tax expense ................................................................. $

1,385 $
381
10
1,776

(386)
(273)

5
(654)
1,122 $

79 $
6
-
85

-
-

-
-
85 $

Fiscal year ended March 31, 2019
Deferred

Total

Current

Income tax expense on current year income:

Reserve for unrecognized tax benefits ....................................
Adjustment to prior year provision ...........................................
Net excess tax shortfall related to stock-based

compensation ..............................................................................
Income tax expense (benefit) - discrete items ..........................
Total income tax expense ................................................................. $

1,282 $
287
11
1,580

87
85

12
184
1,764 $

61 $
18
-
79

-
(71)

-
(71)
8 $

F-19

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and

deferred tax liabilities as of March 29, 2020 and March 31, 2019 are as follows (in thousands):

March 29, 2020 March 31, 2019

Deferred tax assets:

Employee wage and benefit accruals .............................................................................. $
Accounts receivable and inventory reserves .................................................................
Deferred rent ............................................................................................................................
Operating lease liabilities .....................................................................................................
Intangible assets ......................................................................................................................
State net operating loss carryforwards ............................................................................
Accrued interest and penalty on unrecognized tax liabilities .................................
Stock-based compensation .................................................................................................
Total gross deferred tax assets .......................................................................................
Less valuation allowance .................................................................................................
Deferred tax assets after valuation allowance ..........................................................

Deferred tax liabilities:

Prepaid expenses ....................................................................................................................
Operating lease right of use assets ...................................................................................
Intangible assets ......................................................................................................................
Property, plant and equipment ..........................................................................................
Total deferred tax liabilities .............................................................................................
Net deferred income tax assets ..................................................................................... $

428 $
188
-
1,275
-
713
43
165
2,812
(713)
2,099

(191)
(1,212)
(18)
(239)
(1,660)
439 $

441
129
25
-
184
710
55
148
1,692
(710)
982

(175)
-
-
(283)
(458)
524

In assessing the probability that the Company’s deferred tax assets will be realized, management of the
Company has considered whether it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the
future periods in which the temporary differences giving rise to the deferred tax assets will become deductible. The
Company has also considered the scheduled inclusion into taxable income in future periods of the temporary differences
giving rise to the Company’s deferred tax liabilities. The valuation allowance as of March 29, 2020 and March 31, 2019
was related to state net operating loss carryforwards that the Company does not expect to be realized. Based upon the
Company’s expectations of the generation of sufficient taxable income during future periods, the Company believes that
it is more likely than not that the Company will realize its deferred tax assets, net of the valuation allowance and the
deferred tax liabilities.

F-20

The following table sets forth the reconciliation of the beginning and ending amounts of unrecognized tax

liabilities for fiscal years 2020 and 2019 (in thousands):

Fiscal Year

2020

2019

Balance at beginning of period ........................................................................................................ $
Additions related to current year positions..................................................................................
Additions related to prior year positions ......................................................................................
Revaluations due to change in enacted tax rates ......................................................................
Reductions for tax positions of prior years ...................................................................................
Reductions due to lapses of the statute of limitations .............................................................
Payments pursuant to judgements and settlements ...............................................................
Balance at end of period ..................................................................................................................... $

1,194 $
58
76
-
-
(607)
-
721 $

1,017
87
90
-
-
-
-
1,194

F-21

The Company's provision for income taxes is based upon effective tax rates of 15.5% and 26.1% in fiscal years
2020 and 2019, respectively. These effective tax rates are the sum of the top U.S. statutory federal income tax rate and a
composite rate for state income taxes, net of federal tax benefit, in the various states in which the Company operates,
plus the net effect of various discrete items.

The following table reconciles income tax expense on income from continuing operations at the U.S. federal

income tax statutory rate to the net income tax provision reported for fiscal years 2020 and 2019 (in thousands):

Federal statutory rate ................................................................................................................
Tax expense at federal statutory rate .................................................................................. $
State income taxes, net of Federal income tax benefit .................................................
Tax credits .....................................................................................................................................
Discrete items ..............................................................................................................................
Other - net, including foreign ................................................................................................
Income tax expense................................................................................................................... $

21%
1,631 $
306
(85)
(654)
9
1,207 $

21%

1,426
241
(11)
113
3
1,772

2020

2019

Note 10 – Shareholders’ Equity

Dividends: The holders of shares of the Company’s common stock are entitled to receive dividends when and as
declared by the Board. Aggregate cash dividends of $0.57 and $0.32 per share, amounting to $5.8 million and $3.2 million,
were declared during fiscal years 2020 and 2019, respectively. Cash dividends declared during fiscal year 2020 included
a special cash dividend of $0.25 per share. The Company’s financing agreement with CIT permits the payment by the
Company of cash dividends on its common stock without limitation, provided there is no default before or as a result of
the payment of such dividends.

Stock Repurchases: The Company acquired treasury shares by way of the surrender to the Company from several
employees shares of common stock to satisfy the income tax withholding obligations relating to the vesting of stock. In
this manner, the Company acquired 12,000 treasury shares during the fiscal year ended March 29, 2020 at a weighted-
average market value of $6.63 per share and acquired 16,000 treasury shares during the fiscal year ended March 31, 2019
at a weighted-average market value of $5.87 per share.

Note 11 - Major Customers

The table below sets forth those customers that represented more than 10% of the Company’s gross sales during

fiscal years ended March 29, 2020 and March 31, 2019.

Walmart Inc. ........................................................................................................................
Amazon.com, Inc. ..............................................................................................................
Target Corporation ...........................................................................................................

42%
20%
*

41%
16%
10%

2020

2019

* Amount represented less than 10% of the Company's gross sales for this fiscal year.

F-22

Note 12 – Commitments and Contingencies

Total royalty expense amounted to $4.9 million and $5.2 million for fiscal years 2020 and 2019, respectively. The
Company’s commitment for minimum guaranteed royalty payments under its license agreements as of March 29, 2020
is $4.2 million, consisting of $2.6 million, $1.6 million and $8,000 due in fiscal years 2021, 2022 and 2023, respectively.

Note 13 – Subsequent Events

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (the “CARES Act”),
which, among other things, outlines the provisions of the Paycheck Protection Program (the “PPP”). The Company
determined that it met the criteria to be eligible to obtain a loan under the PPP because, among other reasons, in light of
COVID-19 outbreak and the uncertainty of economic conditions related thereto, the loan was necessary to support the
Company’s ongoing operations. Under the PPP, the Company could obtain a U.S. Small Business Administration loan in
an amount equal to the average of the Company’s monthly payroll costs (as defined under the PPP) for calendar 2019
multiplied by 2.5 (approximately 10 weeks of payroll costs). Section 1106 of the CARES Act contains provisions for the
forgiveness of all or a portion of a PPP loan, subject to the satisfaction of certain requirements. The amount eligible for
forgiveness is, subject to certain limitations, the sum of the Company’s payroll costs, rent and utilities paid by the
Company during the eight-week period beginning on the funding date of the PPP loan.

The Company has evaluated events that have occurred between March 29, 2020 and the date that the
accompanying financial statements were issued, and has determined that there are no other material subsequent events
that require disclosure.

F-23

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This year I celebrated my 25th anniversary with Crown

Crafts. As I look back on these years, I am amazed by

all of our accomplishments. I took over as President

and Chief Executive Officer in 2001 as the Company

was transforming from an adult bedding and home

furnishings manufacturer to focusing solely on infant

and juvenile consumer products. Some of the highlights

of my tenure with the Company that I am very proud

of are the retirement of a tremendous amount of debt,

the consummation of several key acquisitions, the

Company’s listing on Nasdaq, the resumption of dividend

payments, and most importantly, consistent profitability.

Since 2010, we have returned more than $41 million to

We have been experiencing a continuing shift of sales

stockholders through the payment of regular quarterly

from traditional “brick and mortar” stores to internet

dividends as well as several special dividends. Fiscal

sales. In fiscal 2020, internet sales were approximately

2020 included a special dividend of $0.25 per share, for

one-third of our sales. The Company was ahead of the

a total of $5.8 million paid in fiscal 2020. These dividend

curve with the capability to ship direct to consumers

payments reflect our Board’s confidence in the strength

on behalf of our customers, which has allowed us to

of the Company and its cash flow generation.

maintain our leading market share in many of our

What I am most proud of is that we have been

consistently profitable every year since the 2001

reorganization and fiscal 2020 is no exception. The

product categories. Through the acquisition of Carousel

Designs in 2017, we also sell directly to consumers

through our own website, www.babybedding.com.

biggest challenge we faced this year was increased

As we were closing this fiscal year, our nation was

duties on products imported from China. We reacted

facing the global pandemic associated with COVID-19.

quickly and were able to offset the increased costs

We have continued shipping to our customers and we

with a combination of price increases to our customers

are confident that our conservative fiscal policies will

and decreased costs from our suppliers. This resulted

allow us to persevere through these uncertain times.

in a slightly improved fiscal 2020 gross margin as a

percentage of net sales as compared to fiscal 2019.

One of my greatest pleasures during these years has

been the great relationships I have built with all of you

– our stockholders, customers, suppliers and especially

our employees. I thank you for your support and look

forward to more exciting opportunities in the future.

Sincerely,

Independent Registered
Public Accountant
KPMG LLP
One American Place
301 Main Street
Suite 2150
Baton Rouge, Louisiana 70801

Annual Meeting
The Annual Meeting of Stockholders
will take place on Tuesday, August 11,
2020, at 10 a.m. CDT at the Company’s
Corporate Headquarters, 916 South
Burnside Avenue, Gonzales, Louisiana.

Stock Listing
The Company’s common stock is listed
on The NASDAQ Capital Market under
the trading symbol “CRWS.”

Transfer Agent and
Registrar
Broadridge Corporate Issuer Solutions
1155 Long Island Avenue
Edgewood, New York 11717
Phone: (877) 830-4936

Stockholder Information
and Form 10-K
A copy of the Company’s Annual Report
on Form 10-K as filed with the Securities
and Exchange Commission may be
obtained without charge by contacting:

Crown Crafts, Inc.
Investor Relations Department
P.O. Box 1028
Gonzales, Louisiana 70707-1028
Phone: (225) 647-9100
e-mail: investor@crowncrafts.com

Investor Relations Counsel
Halliburton Investor Relations
2140 Lake Park Blvd.
Suite 112
Richardson, Texas 75080
Phone: (972) 458-8000
www.halliburtonir.com
Twitter: HIR_Group

N
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Board of Directors

E. Randall Chestnut
Chairman of the Board, President and
Chief Executive Officer
Crown Crafts, Inc.

Zenon S. Nie
Lead Independent Director
Chairman of the Board and Chief
Executive Officer
The C.E.O. Advisory Board

Sidney Kirschner
Executive Vice President
Piedmont Healthcare
Chief Philanthropy Officer
Piedmont Healthcare Foundation

Donald Ratajczak
Consulting Economist - Retired

Patricia Stensrud
Managing Director
Avalon Net Worth
Founder and Managing Partner
Hudson River Partners LLC

Executive Officers

E. Randall Chestnut
President and Chief Executive Officer

Olivia W. Elliott
Vice President and Chief Financial Officer

Donna Sheridan
President and Chief Executive Officer
NoJo Baby & Kids, Inc.

Crown Crafts on
the Internet
Quarterly and annual financial
information and company information
may be accessed at
www.crowncrafts.com.

E. Randall Chestnut

Chairman, President and Chief Executive Officer

Cover Design by
Nicole Raines,
Carousel Designs

Crown Crafts Incorporated
916 S. Burnside Avenue
Gonzales, Louisiana 70737
800-433-9560 225-647-9100
www.crowncrafts.com