TOY firm Hornby has vowed to improve after recording £1.2m losses.
The group, whose brands include Airfix, Scalextric and Corgi, says the deficit will be £200,000 more than expected due to foreign exchange losses.
Its troubles stem from supply chain woes involving a major model railway maker in China.
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However, bosses said they expect a gradual improvement from July.
The firm said it broke even in the year to March 31, when excluding the foreign exchange impact, which relates to the value of currency held to purchase its products.
Net debt has risen to about £7.3m from £6.5m at the end of December, with the outcome of talks with lenders over new banking facilities due to be revealed in June.
It said: "The groups plans for the new financial year are well advanced and with the main obstacle to an improved and efficient supply chain out of the way, we expect a gradual improvement in its reliability and quality.
"As a result, we look forward to improved trading next year."
The firm was first left with a supply squeeze in 2012 after its then biggest manufacturer shut a factory producing the groups model railways in a year that also saw it suffer slower-than-expected demand for Olympic-themed products.
The companys Airfix range includes military aircraft, ships and cars, with its Scalextric division famous for miniature Formula One, rally and sports cars for its electric tracks.