crws20210926

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX-MONTH PERIODS ENDED SEPTEMBER 26, 2021 AND SEPTEMBER 27, 2020

(amounts in thousands)

crws20210926_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 26, 2021

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

For the transition period from to

Commission File No. 1-7604

Crown Crafts, Inc.

(Exact name of registrant as specified in its charter)

Delaware		58-0678148
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)



916 South Burnside Avenue, Gonzales, LA		70737
(Address of principal executive offices)		(Zip Code)

(225) 647-9100

Registrant’s telephone number, including area code

Former name, former address and former fiscal year, if changed since last report

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CRWS	Nasdaq Capital Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-Accelerated filer	☑	Smaller Reporting Company	☑
		Emerging Growth Company	☐

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

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

The number of shares of common stock, $0.01 par value, of the registrant outstanding as of October 25, 2021 was 10,077,570.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROWN CRAFTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 26, 2021 (UNAUDITED) AND MARCH 28, 2021
(amounts in thousands, except share and per share amounts)

	September 26, 2021			March 28, 2021

*ASSETS*
Current assets:
Cash and cash equivalents	$	1,904		$	613
Accounts receivable (net of allowances of $1,490 at September 26, 2021 and $723 at March 28, 2021):
Due from factor		17,221			18,604
Other		1,264			734
Inventories		24,234			20,335
Prepaid expenses		716			1,184
Total current assets		45,339			41,470

Operating lease right of use assets		3,249			4,068

Property, plant and equipment - at cost:
Vehicles		171			171
Leasehold improvements		429			425
Machinery and equipment		3,442			3,152
Furniture and fixtures		345			345
Property, plant and equipment - gross		4,387			4,093
Less accumulated depreciation		2,946			2,635
Property, plant and equipment - net		1,441			1,458

Finite-lived intangible assets - at cost:
Customer relationships		7,374			7,374
Other finite-lived intangible assets		4,266			4,266
Finite-lived intangible assets - gross		11,640			11,640
Less accumulated amortization		8,736			8,477
Finite-lived intangible assets - net		2,904			3,163

Goodwill		7,125			7,125
Deferred income taxes		429			706
Other		89			92
Total Assets	$	60,576		$	58,082

*LIABILITIES AND SHAREHOLDERS' EQUITY*
Current liabilities:
Accounts payable	$	7,499		$	5,539
Accrued wages and benefits		1,207			2,216
Accrued royalties		1,078			410
Dividends payable		806			800
Operating lease liabilities, current		1,800			1,802
Other accrued liabilities		152			215
Current maturities of long-term debt		-			1,964
Total current liabilities		12,542			12,946

Non-current liabilities:
Operating lease liabilities, noncurrent		1,733			2,641
Reserve for unrecognized tax liabilities		701			630
Total non-current liabilities		2,434			3,271

Shareholders' equity:
Common stock - $0.01 par value per share; Authorized 40,000,000 shares at September 26, 2021 and March 28, 2021; Issued 12,924,918 shares at September 26, 2021 and 12,809,753 shares at March 28, 2021		129			128
Additional paid-in capital		55,335			54,748
Treasury stock - at cost - 2,849,846 shares at September 26, 2021 and 2,811,446 shares at March 28, 2021		(15,498	)		(15,202	)
Retained Earnings		5,634			2,191
Total shareholders' equity		45,600			41,865
Total Liabilities and Shareholders' Equity	$	60,576		$	58,082

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 26, 2021 AND SEPTEMBER 27, 2020
(amounts in thousands, except per share amounts)


	Three-Month Periods Ended						Six-Month Periods Ended
	September 26, 2021			September 27, 2020			September 26, 2021			September 27, 2020

Net sales	$	20,220		$	21,659		$	38,932		$	37,864
Cost of products sold		14,152			14,565			28,208			25,747
Gross profit		6,068			7,094			10,724			12,117
Marketing and administrative expenses		3,164			3,802			6,530			7,182
Income from operations		2,904			3,292			4,194			4,935
Other (expense) income:
Interest expense - net of interest income		(3	)		(1	)		(16	)		(5	)
Gain on extinguishment of debt		-			-			1,985			-
Loss on sale of property, plant and equipment		(3	)		-			(3	)		-
Other - net		80			(1	)		92			-
Income before income tax expense		2,978			3,290			6,252			4,930
Income tax expense		592			803			1,201			1,228
Net income	$	2,386		$	2,487		$	5,051		$	3,702

Weighted average shares outstanding:
Basic		10,053			10,208			10,028			10,189
Effect of dilutive securities		41			6			43			4
Diluted		10,094			10,214			10,071			10,193

Earnings per share - basic and diluted	$	0.24		$	0.24		$	0.50		$	0.36

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 26, 2021 AND SEPTEMBER 27, 2020

	Common Shares				Treasury Shares						Additional					Total
	Number of Shares		Amount		Number of Shares			Amount			Paid-in Capital		Retained Earnings			Shareholders' Equity
	(Dollar amounts in thousands)

	Three-Month Periods
Balances - June 28, 2020		12,623,301	$	126		(2,436,494	)	$	(12,408	)	$	53,696	$	2,323		$	43,737

Issuance of shares		41,452		1		-			-			-		-			1
Stock-based compensation		-		-		-			-			100		-			100
Acquisition of treasury stock																	-
Net income		-		-		-			-			-		2,487			2,487
Dividend declared on common stock - $0.08 per share		-		-		-			-			-		(818	)		(818	)
Balances - September 27, 2020		12,664,753	$	127		(2,436,494	)	$	(12,408	)	$	53,796	$	3,992		$	45,507

Balances - June 27, 2021		12,864,753	$	129		(2,834,434	)	$	(15,381	)	$	55,024	$	4,054		$	43,826

Issuance of shares		60,165		-		-			-			103		-			103
Stock-based compensation		-		-		-			-			208		-			208
Acquisition of treasury stock		-		-		(15,412	)		(117	)		-		-			(117	)
Net income		-		-		-			-			-		2,386			2,386
Dividend declared on common stock - $0.08 per share		-		-		-			-			-		(806	)		(806	)
Balances - September 26, 2021		12,924,918	$	129		(2,849,846	)	$	(15,498	)	$	55,335	$	5,634		$	45,600

	Six-Month Periods
Balances - March 29, 2020		12,603,301	$	126		(2,436,494	)	$	(12,408	)	$	53,610	$	1,108		$	42,436

Issuance of shares		61,452		1		-			-			-		-			1
Stock-based compensation		-		-		-			-			186		-			186
Net income		-		-		-			-			-		3,702			3,702
Dividend declared on common stock - $0.08 per share		-		-		-			-			-		(818	)		(818	)
Balances - September 27, 2020		12,664,753	$	127		(2,436,494	)	$	(12,408	)	$	53,796	$	3,992		$	45,507

Balances - March 28, 2021		12,809,753	$	128		(2,811,446	)	$	(15,202	)	$	54,748	$	2,191		$	41,865

Issuance of shares		115,165		1		-			-			247		-			248
Stock-based compensation		-		-		-			-			340		-			340
Acquisition of treasury stock		-		-		(38,400	)		(296	)		-		-			(296	)
Net income		-		-		-			-			-		5,051			5,051
Dividends declared on common stock - $0.16 per share		-		-		-			-			-		(1,608	)		(1,608	)
Balances - September 26, 2021		12,924,918	$	129		(2,849,846	)	$	(15,498	)	$	55,335	$	5,634		$	45,600

See notes to unaudited condensed consolidated financial statements.

	Six-Month Periods Ended
	September 26, 2021			September 27, 2020
Operating activities:
Net income	$	5,051		$	3,702
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		311			370
Amortization of intangibles		259			403
Amortization of right of use assets		893			949
Deferred income taxes		277			(28	)
Gain on extinguishment of debt		(1,985	)		-
Loss on sale of property, plant and equipment		3			-
Reserve for unrecognized tax liabilities		71			64
Stock-based compensation		340			186
Changes in assets and liabilities:
Accounts receivable		853			(994	)
Inventories		(3,899	)		(1,459	)
Prepaid expenses		468			499
Other assets		3			-
Lease liabilities		(984	)		(811	)
Accounts payable		1,916			5,041
Accrued liabilities		(383	)		366
Net cash provided by operating activities		3,194			8,288
Cash used in investing activities:
Capital expenditures for property, plant and equipment		(273	)		(312	)
Proceeds from sale of property, plant and equipment		20			-
Net cash used in investing activities		(253	)		(312	)
Financing activities:
Repayments under revolving line of credit		(5,809	)		(4,598	)
Borrowings under revolving line of credit		5,809			2,020
Proceeds from long-term debt		-			1,964
Purchase of treasury stock from related parties		(296	)		-
Issuance of common stock		248			1
Dividends paid		(1,602	)		(813	)
Net cash used in financing activities		(1,650	)		(1,426	)
Net increase in cash and cash equivalents		1,291			6,550
Cash and cash equivalents at beginning of period		613			282
Cash and cash equivalents at end of period	$	1,904		$	6,832

Supplemental cash flow information:
Income taxes paid	$	932		$	1,447
Interest paid		6			14

Noncash activities:
Property, plant and equipment purchased but unpaid		(44	)		(40	)
Dividends declared but unpaid		(806	)		(818	)

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 26, 2021 AND SEPTEMBER 27, 2020

Note 1 – Interim Financial Statements

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements include the accounts of Crown Crafts, Inc. (the “Company”) and its subsidiaries and have been prepared pursuant to accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information as promulgated by the Financial Accounting Standards Board (“FASB”). Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”), which the FASB periodically revises through the issuance of an Accounting Standards Update (“ASU”) and which has been established by the FASB as the authoritative source for GAAP recognized by the FASB to be applied by nongovernmental entities.

In the opinion of the Company’s management, the interim unaudited consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of September 26, 2021 and the results of its operations and cash flows for the periods presented. Such adjustments include normal, recurring accruals, as well as the elimination of all significant intercompany balances and transactions. Operating results for the three and six-month periods ended September 26, 2021 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending April 3, 2022. For further information, refer to the Company’s consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended March 28, 2021.

Fiscal Year: The Company’s fiscal year ends on the Sunday that is nearest to or on March 31. References herein to “fiscal year 2022” or “2022” represent the 53-week period ending April 3, 2022 and references herein to “fiscal year 2021” or “2021” represent the 52-week period ended March 28, 2021.

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.

Recently-Issued Accounting Standards: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the objective of which is to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by an entity. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. Because this methodology restricted the recognition of credit losses that are expected, but did not yet meet the “probable” threshold, ASU No. 2016-13 was issued to require the consideration of a broader range of reasonable and supportable information when determining estimates of credit losses. The ASU is to be applied using a modified retrospective approach, and the ASU could have been early-adopted in the fiscal year that began after December 15, 2018. When issued, ASU No. 2016-13 was required to be adopted no later than the fiscal year beginning after December 15, 2019, but on November 15, 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which provided for the deferral of the effective date of ASU No. 2016-13 for a registrant that is a smaller reporting company to the first interim period of the fiscal year beginning after December 15, 2022. Accordingly, the Company 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 The CIT Group/Commercial Services, Inc. (“CIT”), a subsidiary of CIT Group Inc., 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.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, the objective of which is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU amended the FASB ASC in order to improve the consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The amendments contained in the ASU are required to be adopted for public entities in the first interim period of the fiscal year beginning after December 15, 2020. Accordingly, the Company adopted ASU No. 2019-12 effective as of March 29, 2021, which did not have a significant impact on the Company’s financial position, results of operations and related disclosures.

The Company has determined that all other ASUs issued which had become effective as of September 26, 2021, or which will become effective at some future date, are not expected to have a material impact on the Company’s consolidated financial statements.

Note 2 – Advertising Costs

The Company’s advertising costs are primarily associated with cooperative advertising arrangements with certain of the Company’s customers and are recognized using the straight-line method based upon aggregate annual estimated amounts for these customers, with periodic adjustments to the actual amounts of authorized agreements. Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $129,000 and $314,000 for the three months ended September 26, 2021 and September 27, 2020, respectively, and amounted to $350,000 and $659,000 for the six months ended September 26, 2021 and September 27, 2020, respectively.

Note 3 – Other Accrued Liabilities

Amounts of $152,000 and $215,000 were recorded as other accrued liabilities at September 26, 2021 and March 28, 2021, respectively. Of these amounts, $63,000 and $85,000 at September 26, 2021 and March 28, 2021, respectively, reflected unearned revenue recorded for payments from customers that were received before the products ordered were received by the customers.

Note 4 – Segment 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, developmental toy, feeding, baby care and disposable products for the three and six-month periods ended September 26, 2021 and September 27, 2020 are as follows (in thousands):

	Three-Month Periods Ended				Six-Month Periods Ended
	September 26, 2021		September 27, 2020		September 26, 2021		September 27, 2020
Bedding, blankets and accessories	$	11,101	$	13,042	$	21,058	$	23,059
Bibs, bath, developmental toy, feeding, baby care and disposable products		9,119		8,617		17,874		14,805
Total net sales	$	20,220	$	21,659	$	38,932	$	37,864

Note 5 – Licensing Agreements

The Company has entered into licensing agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts. These royalty amounts are accrued based upon historical sales rates adjusted for current sales trends by customers. Royalty expense is included in cost of products sold in the accompanying unaudited consolidated statements of income and amounted to $1.4 million and $1.6 million for the three-month periods ended September 26, 2021 and September 27, 2020, respectively, and amounted to $2.7 million and $2.8 million for the six-month periods ended September 26, 2021 and September 27, 2020, respectively.

Note 6 – Income Taxes

The Company files income tax returns in the many jurisdictions in which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations varies by jurisdiction; tax years open to federal or state audit or other adjustment as of September 26, 2021 were the fiscal years ended March 28, 2021, March 29, 2020, March 31, 2019, April 1, 2018 and April 2, 2017.

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 of $22,000 and $20,000 during the three months ended September 26, 2021 and September 27, 2020, respectively, and $45,000 and $33,000 during the six months ended September 26, 2021 and September 27, 2020, respectively, in the accompanying unaudited condensed consolidated statements of income.

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. The Company accrued interest expense and penalties on the unrecognized tax liabilities for which the relevant statute of limitations remained unexpired of $12,000 and $14,000 during the three-month periods ended September 26, 2021 and September 27, 2020, respectively, and $26,000 and $31,000 during the six-month periods ended September 26, 2021 and September 27, 2020, respectively, in the accompanying unaudited condensed consolidated statements.

In August 2020, the Company was notified by the Franchise Tax Board of the State of California of its intention to examine the Company’s California income tax returns for the fiscal years ended March 31, 2019, April 1, 2018 and April 2, 2017. Further, in February 2021, the Company was notified by the U.S. Internal Revenue Service of its intention to examine the Company’s amended federal income tax return for the fiscal year ended April 2, 2017. The ultimate resolution of these examinations could include administrative or legal proceedings. Although management believes that the calculations and positions taken on these income tax returns and all other filed income tax returns are reasonable and justifiable, the outcome of these or any other examination could result in an adjustment to the position that the Company took on such income tax returns.

The Company recorded discrete income tax benefits of $28,000 and $72,000 during the three and six-month periods ended September 26, 2021, respectively, to reflect the aggregate effect of the excess tax benefits arising from the exercise of stock options and the vesting of non-vested stock. The Company recorded discrete income tax charges of $4,000 during each of the three and six-month periods ended September 27, 2020 to reflect the net effects of the tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock.

Note 7 – Carousel Designs

The accompanying unaudited condensed consolidated statements of income include income, expenses and losses recognized in respect of the operating activities of Carousel Designs, LLC (“Carousel”), a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia. On May 5, 2021, the Company’s Board of Directors (the “Board”) approved the closure of Carousel due to its high costs, declining sales and operating and cash flow losses, as well as management’s determination that, due to post-COVID-19 competitive pressures in the infant, toddler and juvenile products segment within the consumer products industry, such losses were likely to continue. Accordingly, the operations of Carousel ceased on May 21, 2021.

During the three and six-month periods ended September 26, 2021, Carousel experienced a gross loss of $41,000 and $688,000, respectively. The gross loss was the result of the sale of inventory below cost and, for the three-month period ended June 27, 2021 and the six-month period ended September 26, 2021, the recognition of charges of $334,000 related to the settlement with a supplier of a commitment to purchase fabric and $265,000 associated with the liquidation of Carousel’s remaining inventory upon the closure of the business.

Note 8 – Financing Arrangements

Factoring Agreements: To reduce its exposure to credit losses, the Company assigns the majority of its trade accounts receivable to CIT pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing agreement described below. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT. As such, the Company does not take advances on the factoring agreements.

CIT bears credit losses with respect to assigned accounts receivable from approved shipments, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, then the Company either assumes (and may seek to mitigate) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $85,000 during each of the three-month periods ended September 26, 2021 and September 27, 2020, and $149,000 and $130,000 during the six-month periods ended September 26, 2021 and September 27, 2020, respectively.

Credit Facility: The Company’s credit facility as of September 26, 2021 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 1.0% or LIBOR plus 1.5%, and which is secured by a first lien on all assets of the Company. On May 13, 2021, the Company and CIT entered into an agreement whereby CIT’s lien on Carousel’s assets will be automatically released upon the sale of such assets.

The financing agreement was scheduled to mature on July 11, 2022, but on May 31, 2021 the financing agreement was amended to extend the maturity date to July 11, 2025 and to change the interest rates as reflected in the preceding paragraph. The financing agreement was also amended to provide for a transition from the LIBOR reference rate to its replacement at the appropriate time. At September 26, 2021, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the LIBOR option, which was 1.58% as of September 26, 2021. 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 1.25% as of September 26, 2021, on daily negative balances, if any, held at CIT.

At September 26, 2021 and March 28, 2021, there was no balance owed on the revolving line of credit, there was no letter of credit outstanding and $26.0 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 September 26, 2021.

Credit Concentration: The Company’s accounts receivable as of September 26, 2021 amounted to $18.5 million, net of allowances of $1.5 million. Of this amount, $17.2 million was due from CIT under the factoring agreements; an additional amount of $1.8 million was due from CIT as a negative balance outstanding under the revolving line of credit. The combined amount of $19.0 million represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations under the factoring agreements and the revolving line of credit. The Company’s accounts receivable at March 28, 2021 amounted to $19.3 million, net of allowances of $723,000. Of this amount, $18.6 million was due from CIT under the factoring agreements; an additional amount of $602,000 was due from CIT as a negative balance outstanding under the revolving line of credit. The combined amount of $19.2 million represented the maximum loss that the Company could have incurred if CIT had failed completely to perform its obligations under the factoring agreements and the revolving line of credit.

Paycheck Protection Program Loan: On April 19, 2020, the Company executed a Note (the “Note”) in connection with a loan made pursuant to the Paycheck Protection Program (the “PPP Loan”), which is administered by the U.S. Small Business Administration (the “SBA”) under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and the Paycheck Protection Program Flexibility Act of 2020. The Note was entered into with CIT Bank, N.A. (the “Lender”) for the principal amount of $1,963,800 and accrued interest at 1.0% per year.

As authorized by the provisions of the CARES Act, the Company applied to the Lender for forgiveness of all or a portion of the PPP Loan. The Note would have matured on April 20, 2022, but on May 20, 2021, the PPP Loan was forgiven in full and the SBA remitted to the Lender on that date the principal amount of the Note of $1,963,800 and interest of $21,000 that had accrued from the funding date of April 20, 2020 through the forgiveness date of May 20, 2021. During the three months ended June 27, 2021 and the six months ended September 26, 2021, the Company recorded a gain on extinguishment of debt in the amount of $1,985,000 associated with the forgiveness of the PPP Loan, which has been presented below income from operations in the accompanying unaudited condensed consolidated statements of income.

Note 9 – Goodwill

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in business combinations. For the purpose of presenting and measuring for the impairment of goodwill, the Company has two reporting units: one that produces and markets infant and toddler bedding, blankets and accessories and another that produces and markets infant and toddler bibs, developmental toys, bath care and disposable products. The goodwill of the reporting units of the Company as of September 26, 2021 and March 28, 2021 amounted to $30.0 million, which is reflected in the accompanying condensed consolidated balance sheets net of accumulated impairment charges of $22.9 million, for a net reported balance of $7.1 million.

The Company measures for impairment the goodwill within its reporting units annually as of the first day of the Company’s fiscal year. An additional interim measurement for impairment is performed during the year whenever an event or change in circumstances occurs that suggests that the fair value of either of the reporting units of the Company has more likely than not (defined as having a likelihood of greater than 50%) fallen below its carrying value. The annual or interim measurement for impairment is performed by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such qualitative factors so indicate, then the measurement for impairment is continued by calculating an estimate of the fair value of each reporting unit and comparing the estimated fair value to the carrying value of the reporting unit. If the carrying value exceeds the estimated fair value of the reporting unit, then an impairment charge is calculated as the difference between the carrying value of the reporting unit and its estimated fair value, not to exceed the goodwill of the reporting unit.

On March 29, 2021, the Company performed the annual measurement for impairment of the goodwill of its reporting units and concluded that the estimated fair value of each of the Company’s reporting units exceeded their carrying values, and thus the goodwill of the Company’s reporting units was not impaired as of that date.

Note 10 – Other Intangible Assets

Other intangible assets as of September 26, 2021 and March 28, 2021 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 September 26, 2021 and March 28, 2021, the amortization expense for the three and six-month periods ended September 26, 2021 and September 27, 2020, and the classification of such amortization expense within the accompanying unaudited condensed consolidated statements of income are as follows (in thousands):

Amortization Expense

Gross Amount

Accumulated Amortization

Three-Month Periods Ended

Six-Month Periods Ended

September

March

September

March

September

SEC Form 10-Q filed by Crown Crafts, Inc.