CULP INC

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Culp, Inc. and its majority-owned subsidiaries (the “company”) include all adjustments that are, in the opinion of management, necessary for fair presentation of the results of operations and financial position. All these adjustments are of a normal recurring nature. Results of operations for interim periods may not be indicative of future results. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements that are included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 17, 2026, for the fiscal year ended May 3, 2026.

The company's three months ended August 2, 2026, and August 3, 2025, represent 13-week and 14-week periods, respectively.

2. Significant Accounting Policies

As of August 2, 2026, there were no changes in the nature of our significant accounting policies or the application of those policies from those reported in our Annual Report on Form 10-K for the year then ended May 3, 2026.

Recently Adopted Accounting Pronouncements

There were no recently adopted accounting pronouncements during the first quarter of fiscal 2027.

Recently Issued Accounting Pronouncements

On November 4, 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (“ASU 2024-03”), which is an update to Topic 220, Income Statement - Reporting Comprehensive Income. ASU 2024-03 enhances transparency and decision usefulness of expense disclosures in response to investors' requests for more detailed, disaggregated expense information, enabling a clearer understanding of a public business entity's performance and cost structure. The amendments improve disclosure requirements in the notes to the financial statements for specific expense categories including: (i) inventory purchases, (ii) employee compensation, (iii) depreciation, and (iv) intangible asset amortization, as well as (v) the total amount of selling expenses, and in annual reporting periods, the entity's definition of selling expense. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, (i.e., our fiscal 2028 annual report) and interim reporting periods beginning after December 15, 2027 (i.e., first quarter of fiscal 2029 interim report). Early adoption is permitted. The company is currently evaluating ASU 2024-03 to determine the impact it will have on its consolidated financial statements and related disclosures.

We reviewed all other newly issued accounting pronouncements and concluded that they are either not applicable to our business or are not expected to have a material effect on our consolidated financial statements as a result of future adoption.

3. Allowance for Doubtful Accounts

A summary of the activity in the allowance for doubtful accounts follows:

As of August 2, 2026, and August 3, 2025, we assessed the credit risk of our customers within our accounts receivable portfolio. Our risk assessment includes the respective customers’: (i) financial position; (ii) past payment history; (iii) management’s general ability to operate its business; and (iv) historical loss experience; as well as any other ongoing economic conditions. After our risk assessment was completed, we assigned credit grades to our customers, which, in turn, were used to determine our allowance for doubtful accounts totaling $592,000 and $723,000 as of August 2, 2026, and August 3, 2025, respectively.

4. Revenue from Contracts with Customers

Nature of Performance Obligations

Our operations are classified intotwo business segments: bedding and upholstery. The bedding segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. The upholstery segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality furniture manufacturers.

In addition, the upholstery segment includes Read Window Products LLC (“Read”), a wholly owned subsidiary that provides window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation services to customers in the hospitality and commercial markets. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

Our primary performance obligations include the sale of bedding and upholstery products, as well as the performance of customized fabrication and installation services associated with window treatments.

Contract Assets & Liabilities

Certain contracts relating to customized fabrication and installation services associated with Read require upfront customer deposits that result in a contract liability that is recorded in the Consolidated Balance Sheets as deferred revenue. Revenue on contract liabilities associated with customized fabrication and installation services is generally recognized within one year, as the satisfaction of performance obligations is generally one year or less. If upfront deposits or prepayments are not required, customers may be granted terms that generally range from 15 to 60 days. Our terms are customary within the industries in which we operate and are not considered financing arrangements.

We elected the practical expedient to not adjust the transaction price for the effects of a significant financing component because the performance obligation is part of a contract that has an original expected duration of one year or less. We did not disclose the value of unsatisfied performance obligations as substantially all of any unsatisfied performance obligations as of August 2, 2026, will be satisfied within one year or less.

There wereno contract assets recognized as of August 2, 2026 or August 3, 2025.

A summary of the activity associated with deferred revenue follows:

As of August 2, 2026, deferred revenue of $203,000 pertained to upfront customer deposits associated with customized fabrication and installation services. As of August 3, 2025, deferred revenue of $485,000 pertained to: (i) upfront customer deposits associated with customized fabrication and installation services relating to Read totaling $422,000; and (ii) an upfront license fee paid to us for the licensing of a certain trademark to be used by an upholstery customer totaling $63,000.

Revenue recognized during the three-month periods ended August 2, 2026 and August 3, 2025, that was included in the deferred revenue balance at the beginning of each period was $187,000 and $437,000, respectively.

Disaggregation of Revenue

The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the three-month period ended August 2, 2026:

The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the three-month period ended August 3, 2025:

5. Inventories

Inventories are carried at the lower of cost or net realizable value. Cost is determined using the FIFO (first-in, first-out) method.

A summary of inventories follows:

6. Intangible Assets

A summary of intangible assets follows:

Customer Relationships

A summary of the change in the carrying amount of our customer relationships follows:

During the three-month period ended August 2, 2026, our customer relationships related to our bedding segment were amortized on a straight-line basis over a useful life of 17 years. During the three-month period ended August 3, 2025, our customer relationships related to our bedding segment and Read were amortized on a straight-line basis over useful lives of 17 andnine years, respectively.

As of February 1, 2026 (third quarter of fiscal 2026), management performed a qualitative assessment of Read's customer relationships, as certain indicators of impairment existed, and accordingly, we believed it was more-likely-than-not the fair value of Read's customer relationships were less than its carrying amount. Management's conclusion was based on a significant decline in net sales during the first nine months of fiscal 2026 that was more than anticipated. Read's net sales during the first nine months offiscal 2026 totaled $4.8 million, a decrease of $4.9 million, or 50.8%, compared with net sales of $9.7 million during the first nine months of fiscal 2025. In addition, the declines in Read's net sales and profitability during the first nine months of fiscal 2026 were also attributable to the closure of Read's facility located in Knoxville, Tennessee, and the transition of certain production activities to our manufacturing facility located in Stokesdale, North Carolina, as well as strategically sourcing production and materials with long-standing supply partners. Based on this uncertainty, we recorded an asset impairment charge totaling $291,000 which represented the entire carrying value of Read's customer relationships. This charge was classified within restructuring credit within our fiscal 2026 Consolidated Statement of Net Loss.

The gross carrying amount of our customer relationships was $868,000, $3.1 million, and $868,000 as of August 2, 2026, August 3, 2025, and May 3, 2026, respectively. Accumulated amortization for our customer relationships was $677,000, $2.5 million, and $664,000 as of August 2, 2026, August 3, 2025, and May 3, 2026, respectively.

The remaining amortization expense for each of the next four fiscal years is as follows: FY 2027 - $38,000; FY 2028 - $51,000; FY 2029 - $51,000; and FY 2030 - $51,000.

The weighted average amortization period for our customer relationships was 3.8 years as of August 2, 2026.

Non-Compete Agreement

A summary of the change in the carrying amount of our non-compete agreement follows:

Our non-compete agreement is associated with a prior acquisition by our bedding segment and is amortized on a straight-line basis over the 15-year life of the agreement.

The gross carrying amount of our non-compete agreement was $2.0 million as of August 2, 2026, August 3, 2025, and May 3, 2026. Accumulated amortization for our non-compete agreement was $1.9 million as of August 2, 2026, August 3, 2025, and May 3, 2026.

The remaining amortization expense for each of the next two fiscal years is as follows: FY 2027 - $57,000; and FY 2028 - $75,000.

The weighted average amortization period for the non-compete agreement was 1.8 years as of August 2, 2026.

Impairment of Definite Lived Assets - Bedding Segment

As of August 2, 2026, management reviewed the long-lived assets associated with our bedding segment, which consisted of property, plant, and equipment and definite-lived intangible assets (collectively known as the "Bedding Asset Group"), for impairment, as events and changes in circumstances occurred that indicated the carrying amount of the Bedding Asset Group may not be recoverable. This segment has experienced a recent history of significant cumulative operating losses due to unfavorable macroeconomic conditions in the bedding and home furnishings industries.

Based on the above evidence, we were required to determine the recoverability of the Bedding Asset Group, which is classified as held and used, by comparing the carrying amount of the Bedding Asset Group to the sum of the future undiscounted cash flows expected to result from its use and eventual disposition. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the excess of the carrying amount over the fair value of the asset group. The carrying amount of the Bedding Asset Group totaled $19.4 million, which represents property, plant, and equipment of $19.0 million, customer relationships of $191,000, and a non-compete agreement of $132,000. The total carrying amount of the Bedding Asset Group did not exceed the sum of its expected future undiscounted cash flows from its use and disposition. As a result, we determined there was no impairment associated with the Bedding Asset Group as of August 2, 2026.

7. Notes Receivable

Culp, Inc.(U.S. Parent)

Effective January 24, 2023, Culp Upholstery Fabrics - Haiti, Ltd. ("CUF Haiti") entered into an agreement to terminate a lease ("CUF Termination Agreement") of a facility located in Ouanaminthe, Haiti. Pursuant to the terms of the CUF Termination Agreement, the original lease agreement (the "Original Lease") was formally terminated when CUF Haiti vacated and returned possession of the leased facility to the lessor. Subsequently, a third party (the "Lessee") took possession of this facility and agreed to pay CUF Haiti $2.4 million in the form of a note receivable over a period commencing on April 1, 2023 and ending on December 31, 2029, based on the terms stated in the CUF Termination Agreement. In addition, as described in the CUF Termination Agreement, an affiliate of the Lessee guaranteed payment in full of all amounts due and payable to CUF Haiti by the Lessee, and CUF Haiti was fully and unconditionally discharged from all of its remaining obligations under the Original Lease.

The initial gross carrying amount of this note receivable was $2.4 million and was recorded at its fair value of $2.0 million, which represented the present value of future discounted cash flows based on the payment amounts and timing of such payments due from the Lessee as stated in the CUF Termination Agreement. We used an interest rate of 6% to determine the present value of the future discounted cash flows, based on significant unobservable inputs and assumptions determined by management such as: (i) the credit characteristics of the Lessee and guarantor of the CUF Termination Agreement; (ii) the length of the payment terms as defined in the CUF Termination Agreement; (iii) the payment terms as defined in the CUF Termination Agreement are denominated in USD; and (iv) the fact that the facility is located in, and the Lessee and guarantor conduct business in, Haiti, a foreign country. Since management used significant unobservable inputs and assumptions to determine the fair value of this note receivable, this note receivable was classified as Level 3 within the fair value hierarchy (see Note 12 of the consolidated financial statements for further explanation of the fair value hierarchy).

Effective May 1, 2023, CUF Haiti formally assigned this note receivable to Culp, Inc. (its U.S. parent).

The following table represents the remaining future principal payments for Culp, Inc. (U.S. Parent) notes receivable as of August 2, 2026:

As of August 2, 2026, this note receivable totaled $1.1 million, of which $328,000 and $788,000 were classified as short-term notes receivable and long-term notes receivable, respectively. As of August 3, 2025, this note receivable totaled $1.4 million, of which $286,000 and $1.1 million were classified as short-term notes receivable and long-term notes receivable, respectively. As of May 3, 2026, this note receivable totaled $1.2 million, of which $297,000 and $885,000 were classified as short-term notes receivable and long-term notes receivable, respectively. We classified amortization of unearned interest income totaling $22,000 within interest income in our consolidated statements of net income (loss) during the three-month periods ended August 2, 2026, and August 3, 2025, respectively.

As of August 2, 2026, we believe there is no expected credit loss related to the collectability of this note receivable, as the Lessee has made all required payments stated in the CUF Termination Agreement. We will continue to evaluate the facts and circumstances at the end of each reporting period to determine if an expected credit loss is deemed necessary.

Rayonese Textile, Inc.

In connection with the sale of the company's manufacturing facility and related land (collectively referred to as the "Property") located in Quebec, Canada, we entered into an amended agreement, effective April 2, 2025, which incorporated an original agreement and a prior amendment (collectively referred to as the "Sales Agreement"), to sell our Property to a third party (the "Buyer") with a closing date of April 30, 2025. Pursuant to the Sales Agreement, the total sales price for the Property was $8.6 million CAD ($6.2 million USD as of April 30, 2025), with $2.0 million CAD ($1.4 million USD as of April 30, 2025) paid prior to and at closing, and the remaining balance of $6.6 million CAD ($4.8 million USD as of April 30, 2025) due by April 30, 2026. Interest was earned on a note receivable at rates ranging from 6% to 10% and collected monthly as specified in the Sales Agreement. As of August 3, 2025, the outstanding balance of this note receivable was $6.6 million CAD ($4.8 million USD as of August 3, 2025) and was classified as short-term notes receivable within the respective consolidated balance sheet.

During the fourth quarter of fiscal 2026 we received cash proceeds for the remaining balance of $6.6 million CAD ($4.7 million USD). Accordingly, there wasno notes receivable balance regarding this agreement as of August 2, 2026 and May 3, 2026.

Refer to Notes 8 and 10 of the consolidated financial statements for further details of the sale of the Property and a description of our restructuring activities.

8. Assets Held for Sale

As of August 2, 2026, and May 3, 2026, no assets were classified as held for sale as a result of the completion of our restructuring activities during fiscal 2026 (see Note 10 to the consolidated financial statements for a description of the restructuring activities announced on May 1, 2024, and April 24, 2025).

In connection with our restructuring activity announced on May 1, 2024, we classified certain assets as held for sale totaling $2.2 million as of April 27, 2025, which mostly related to the Property associated with the closure of our operations located in Quebec, Canada. We determined that the fair value of the Property exceeded its carrying value, and therefore no impairment charge was recorded during fiscal 2025. The fair value of the Property was based on quoted market prices from third party sales offers, which we believe are significant observable inputs, and therefore we believe this information is classified as Level 2 within the fair value hierarchy (see Note 12 to the consolidated financial statements for further explanation of the fair value

hierarchy).

During the first quarter of fiscal 2026, we sold the Property and recognized a gain from this sale totaling $4.0 million that was classified within restructuring credit in the Consolidated Statement of Net Loss for the three-month period ended August 3, 2025. See notes 7 and 10 to the consolidated financial statements for further details regarding the Sales Agreement associated with the sale of the Property and description of the restructuring announced on May 1, 2024.

In connection with our restructuring activities announced on April 24, 2025 (see Note 10 of the consolidated financial statements for description of this restructuring activity), equipment with a fair value totaling $40,000 was classified as held for sale as of August 3, 2025. We determined that the carrying value of $296,000 was higher than its fair value of $40,000, and accordingly, we recorded an impairment charge of $256,000 during the first quarter of fiscal 2026. This impairment charge was classified within restructuring credit in the Consolidated Statement of Net Loss for the three-month period ended August 3, 2025. The fair value of this equipment was based on quoted market prices from dealers of this type of equipment, which prices are either directly or indirectly observable, and therefore we believe this information is classified as level 2 within the fair value hierarchy (see Note 12 of the consolidated financial statements for further explanation of the fair value hierarchy).

9. Accrued Expenses

A summary of accrued expenses follows:

10. Restructuring Activities

On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to: (i) consolidate the company's North American bedding operations, including the closure and sale of the Property located in Quebec, Canada; (ii) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada, to the company's manufacturing facility located in Stokesdale, North Carolina; (iii) transition the bedding segment's weaving operation to a strategic sourcing model through the company's long-standing supply partners; (iv) consolidate the company's sewn mattress cover operation located in Ouanaminthe, Haiti, from two leased facilities into one building and reduce other operating expenses at this location; as well as (v) reduce unallocated corporate and shared service expenses.

These restructuring activities were completed by the end of the second quarter of fiscal 2026, including the sale of the Property located in Quebec, Canada. Accordingly, we recorded a gain from the sale of this Property totaling $4.0 million that was classified within restructuring credit in the Consolidated Statement of Net Loss for the three-month period ended August 3, 2025. See notes 7 and 8 of the consolidated financial statements for further details regarding the Sales Agreement associated with the sale of the Property and determination of its fair value.

Since inception of this restructuring initiative, we incurred cumulative restructuring and restructuring related charges totaling $5.3 million, most of which is related to the bedding segment. Of this total $5.3 million, $7.2 million represents a cash restructuring and restructuring related charge partially offset by a $(1.9) million non-cash restructuring credit.

On April 24, 2025 (fourth quarter of fiscal 2025), the company announced a strategic transformation of its operating model that combined certain activities within the bedding and upholstery segments and created one integrated Culp-branded business. As part of this strategic transformation, we closed a leased facility located in Burlington, North Carolina, and a leased facility located in Knoxville, Tennessee, each operated by our upholstery segment, and transitioned their production and distribution activities to a shared management model within our owned facility located in Stokesdale, North Carolina, which had historically been operated solely by our bedding segment.

These restructuring activities were completed by the end of the fourth quarter of fiscal 2026. Since inception of this restructuring initiative, we have incurred cumulative restructuring and restructuring related charges totaling $2.7 million, of which $1.4 million represents a cash restructuring and restructuring related charge and $1.3 million represents a non-cash restructuring charge.

The following summarizes restructuring credit associated with the above announcements for the three-month period ended August 3, 2025:

(1)The total $3.5 million credit was classified within restructuring credit in the Consolidated Statement of Net Loss for the three-month period ended August 3, 2025 and mostly related to the bedding segment.

The following summarizes the activity in accrued restructuring costs for the three-month period ended August 2, 2026:

The following summarizes the activity in accrued restructuring costs for the three-month period ended August 3, 2025:

11. Lines of Credit

The summary of outstanding borrowings under our lines of credit follows:

(1)As of August 2, 2026, all $13.3 million was recorded within lines of credit - current within the Consolidated Balance Sheet.

As of August 3, 2025, $11.1 million and $7.0 million were recorded within lines of credit - current and line of credit - long-term, respectively. As of May 3, 2026, $12.1 million and $7.0 million were recorded within lines of credit - current and line of credit - long-term, respectively.

Revolving Credit Agreement – United States

On June 12, 2025, Culp, Inc., as borrower (the “Company”), and Read and Culp Fabrics Global, LLC, each a wholly owned domestic subsidiary of the Company, as guarantors (collectively, the “Guarantors”), entered into a Third Amendment to the Second Amended and Restated Credit Agreement (the “Third Amendment”), by and among the Company, the Guarantors and Wells Fargo Bank, National Association, as lender (the “Lender”). The Third Amendment amends the Second Amended and Restated Credit Agreement dated as of January 19, 2023, (as amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”), an asset-based revolving credit facility (the “ABL Facility”). Proceeds from the ABL Facility may be used to pay fees and expenses related to the ABL Facility and to provide funding for ongoing working capital and general corporate purposes.

The Credit Agreement amended, restated, superseded, and served as a replacement for, the Amended and Restated Credit Agreement dated as of June 24, 2022, as amended, by and between the Company and the Lender.

Pursuant to the Third Amendment, the term of the ABL Facility was extended forthree years and now matures on June 12, 2028.

Pursuant to the Credit Agreement, the ABL Facility contains the following terms:

The ABL Facility may be used for revolving credit loans and letters of credit from time to time up to a maximum principal amount of $30.0 million, which may be increased upon mutual agreement by up to $10.0 million via an accordion feature, subject to the limitations described below.

On November 4, 2025 (third quarter of fiscal 2026), the Company entered intoa Fourth Amendment to the Second Amended and Restated Credit Agreement which increased the aggregate amount of letters of credit that could be issued by the Company from $2.0 million to $3.0 million.

The amount available under the ABL Facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves, as follows:

•

85% of eligible accounts receivable, plus

•

the least of:

i) the sum of:

▪

lesser of (i)65% of eligible inventory valued at cost based on a first-in first-out basis (net of intercompany profits) and (ii)85% of the net-orderly-liquidation value percentage of eligible inventory, plus

▪

the least of (i)65% of eligible in-transit inventory valued at cost based on a first-in first-out basis (net of intercompany profits), (ii)85% of the net-orderly-liquidation value percentage of eligible in-transit inventory, and (iii) $4.0 million, plus

▪

the lesser of (i)65% of eligible raw material inventory valued at cost based on a first-in first-out basis (net of intercompany profits) and (ii)85% of the net-orderly-liquidation value percentage of eligible raw material inventory.

In each case, the net-orderly-liquidation value is calculated based on the lower of (i) a first-in first-out basis and (ii) market value, and is (A) net of intercompany profits, (B) net of write-ups and write-downs in value with respect to foreign currency exchange rates and (C) consistent with most recent appraisals received and acceptable to Lender.

ii) $20.0 million; and

iii) An amount equal to 200% of eligible accounts receivable,

•

minus applicable reserves.

The ABL Facility permits both base rate borrowings and borrowings that bear interest at an annual rate equal to daily simple SOFR (the secured overnight financing rate administered by the Federal Reserve Bank of New York (or its successor)), in each case, plus an Applicable Margin equal to: (i)75 basis points for base rate borrowings and 175 basis points for SOFR-based borrowings (if the average monthly excess availability under the ABL Facility is greater than 66 2/3%), (ii)100 basis points for base rate borrowings and 200 basis points for SOFR-based borrowings (if the average monthly excess availability under the ABL Facility is less than or equal to 66 2/3% and greater than 33 1/3%), or (iii)125 basis points for base rate borrowings and 225 basis points for SOFR-based borrowings (if the average monthly excess availability under the ABL Facility is less than or equal to 33 1/3%), as applicable, with a fee on unutilized commitments at an annual rate of 37.5 basis points (if usage is equal to or greater than 50% of the maximum credit available under the ABL Facility) or 50 basis points (if usage is less than 50% of the maximum credit available under the ABL Facility).

Outstanding balances associated with the ABL Facility may be prepaid from time to time, in whole or in part, without a prepayment penalty or premium. In addition, customary mandatory prepayments of the loans under the ABL Facility are required upon the occurrence of certain events including, without limitation, outstanding borrowing exposures exceeding the borrowing base and certain dispositions of assets outside of the ordinary course of business. Accrued interest is payable monthly in arrears.

The Company’s obligations under the ABL Facility (and certain related obligations) are: (i) guaranteed by the Guarantors and each of the Company’s future domestic subsidiaries is required to guarantee the ABL Facility on a senior secured basis (such guarantors and the Company, the “Loan Parties”), and (ii) secured by all assets of the Loan Parties, subject to certain exceptions. The liens and other security interests granted by the Loan Parties on collateral for the benefit of the Lender under the ABL Facility are, subject to certain permitted liens, first priority.

Cash Dominion. Under the terms of the ABL Facility, if: (i) an event of default has occurred or (ii) excess borrowing availability under the ABL Facility (based on the lesser of $30.0 million and the borrowing base) (the "Excess Availability") falls below $6.0 million at such time, the Loan Parties will become subject to cash dominion, which will require prepayment of loans under the ABL Facility with the cash deposited in certain deposit accounts of the Loan Parties, including a concentration account, and will restrict the Loan Parties' ability to transfer cash from their concentration account. Such cash dominion period ("a dominion period) shall end when Excess Availability shall be equal to or greater than $6.0 million for a period of 60 consecutive days and no event of default is continuing.

Financial Covenants. The ABL Facility contains a springing covenant requiring that the Company's fixed charge coverage ratio be no less than 1.10 to 1.00 during any period that: (i) an event of default has occurred or (ii) Excess Availability under the ABL Facility falls below $4.5 million at such time. Such compliance period shall end when Excess Availability shall be equal to or greater than $4.5 million for a period of 60 consecutive days and no event of default is continuing.

Affirmative and Restrictive Covenants. The Credit Agreement governing the ABL Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of default, including covenants that limit the Company's ability to, among other things:

•

incur additional indebtedness;

•

make investments;

•

pay dividends and make other restricted payments;

•

sell certain assets;

•

create liens;

•

consolidate, merge, sell or otherwise dispose of all or substantially all of the Company's assets; and

•

enter into transactions with affiliates

The applicable interest rate under the ABL Facility was 5.65%,6.11%, and 5.64% as of August 2, 2026, August 3, 2025, and May 3, 2026, respectively.

There were $2.8 million, $925,000, and $2.8 million of outstanding letters of credit provided by the ABL Facility as of August 2, 2026, August 3, 2025, and May 3, 2026, respectively. As of August 2, 2026, we had $225,000 remaining for the issuance of additional letters of credit based on an aggregate letter of credit amount not to exceed $3.0 million as stated in the Fourth Amendment to the Credit Agreement.

As of August 2, 2026, our available borrowings calculated under the provisions of the Credit Agreement totaled $17.7 million.

Credit Agreements - China Operations

Agricultural Bank of China ("ABC") Agreements

Supplier Financing Arrangements

Based on the company's request, certain suppliers entered into supply chain financing arrangements. As a result, we were able to extend our payment terms beyond those that are normal and customary. The suppliers that entered into these supply chain financing arrangements assigned their receivables due from the company to ABC, under a reverse factoring agreement with no recourse, and, in turn, received payments from ABC under terms that are normal and customary. As of August 2, 2026, August 3, 2025, and May 3, 2026, interest was charged at fixed rates of 2.42%,2.72% and 2.42%, respectively. The outstanding balances of 20.0 million RMB ($3.0 million USD),20.0 million RMB ($2.8 million USD), and 12.9 million RMB ($1.9 million USD) were recorded within lines of credit - current in the Consolidated Balance Sheet as of August 2, 2026, August 3, 2025, and May 3, 2026, respectively.

The following summarizes the activity associated with our supply chain financing arrangements for the three-month periods ended August 2, 2026, and August 3, 2025:

ABC - Working Capital Loans

21.0 Million RMB Loan Agreement

During the first quarter of fiscal 2026, we entered into unsecured loan agreements totaling 21.0 million RMB ($3.1 million USD as of May 3, 2026), which agreements expired on dates ranging from May 7, 2026, through May 25, 2026 and were paid in full prior thereto. Interest charged under these agreements was based on fixed rates that ranged from 2.5% to 2.6%. The outstanding balance associated with these agreements was $2.9 million USD and $3.1 million USD and was classified as lines of credit - current within the Consolidated Balance Sheets as of August 3, 2025 and May 3, 2026, respectively.

During the first quarter of fiscal 2027, we entered into new unsecured loan agreements totaling 21.0 million RMB ($3.1 million USD as of August 2, 2026), which agreements expire on dates ranging from May 20, 2027, through May 25, 2027. Interest charged under these agreements is based on a fixed interest rate of 2.3%. The outstanding balance associated with these agreements was $3.1 million USD and was classified as lines of credit - current within the Consolidated Balance Sheet as of August 2, 2026.

29.0 Million RMB Loan Agreement

Effective March 3, 2026, we entered into an unsecured loan agreement totaling 29.0 million RMB ($4.3 million USD as of August 2, 2026), which agreement is set to expire on March 1, 2027. Interest charged under this agreement is based on an applicable interest rate of 2.4%. The outstanding balance under this agreement was $4.3 million USD and $4.2 million USD and was classified as lines of credit - current within the Consolidated Balance Sheets as of August 2, 2026 and May 3, 2026, respectively.

ABC- Unsecured Credit Agreement

Effective March 5, 2025, we entered into an unsecured credit agreement that provided for a line of credit up to 29.0 million RMB ($4.0 million USD on March 5, 2025) that expired and was paid in full on March 3, 2026. Interest charged under this agreement was based on a fixed interest rate of 2.6%. This agreement didnot have an outstanding balance as of August 2, 2026, or May 3, 2026. This agreement had an outstanding balance of $4.0 million USD as of August 3, 2025, and was classified as lines of credit - current within the respective Consolidated Balance Sheet.

Bank of China "BOC" - Credit Agreement

Effective November 5, 2024, we entered into a credit agreement that provided for a 10.0 million RMB ($1.4 million USD as of November 5, 2024) unsecured working capital loan and 25.0 million RMB ($3.5 million USD as of November 5, 2024) for letters of credit, guarantees, and other financing arrangements secured by trade accounts receivable associated with the company’s operations located in China. The working capital loan and letters of credit expired on November 6, 2025. Interest was charged under this agreement at a fixed interest rate of 2.6%. The outstanding balance under this agreement was $1.4 million USD and was classifiedas lines of credit-current in the Consolidated Balance Sheets as of August 3, 2025. In addition, as of August 3, 2025, there wereno outstanding letters of credit under this agreement.

On November 6, 2025 (third quarter of fiscal 2026), we paid in full the outstanding balance of 10.0 million RMB ($1.4 million USD) due pursuant to the above-referenced unsecured working capital loan. Effective November 7, 2025, we entered into a new credit agreement that provides for a 10.0 million RMB ($1.5 million USD as of August 2, 2026) unsecured working capital loan and 25.0 million RMB ($3.7 million USD as of August 2, 2026) for letters of credit, guarantees, and other financing arrangements secured by trade accounts receivable associated with the company’s operations located in China. The working capital loan and letters of credit expire on November 11, 2026. Interest is charged under this agreement is based on a fixed rate of 2.5%. The outstanding balance under this agreement was $1.5 million USD and was classified as lines of credit-current in the Consolidated Balance Sheets as of August 2, 2026 and May 3, 2026. In addition, as of August 2, 2026 and May 3, 2026, there wereno outstanding letters of credit under this agreement.

China Construction Bank Corporation ("CCB")

On March 17, 2026, CCB approved total borrowings of 30.0 million RMB ($4.4 million USD as of August 2, 2026), which includes 20.0 million RMB ($3.0 million USD as of August 2, 2026) that can be used in the form of a working capital loan and supplier financing agreements, as well as a 10.0 million RMB ($1.5 million USD as of August 2, 2026) for letters of credit. This agreement is set to expire on March 16, 2027, with interest charged at a fixed rate of 2.3%. The outstanding balance under this agreement was 10.0 million RMB ($1.5 million USD) and was classified as lines of credit-current in the Consolidated Balance Sheets as of August 2, 2026 and May 3, 2026, respectively.

General - Lines of Credit

All of our outstanding lines of credit totaling $13.3 million will mature within one year.

Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of August 2, 2026, we were in compliance with our financial covenants.

Interest payments totaled $153,000 and $185,000 for the three-month periods ended August 2, 2026 and August 3, 2025, respectively.

12. Fair Value

ASC Topic 820 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the company’s assumptions (unobservable inputs). Determining where an asset or liability falls within that hierarchy depends on the lowest level input that is significant to the fair value measurement as a whole. An adjustment to the pricing method used within either Level 1 or Level 2 inputs could generate a fair value measurement that effectively falls to a lower level in the hierarchy.

The hierarchy consists of three broad levels as follows:

Level 1 – Quoted market prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than Level 1 inputs that are either directly or indirectly observable; and

Level 3 – Unobservable inputs developed using the company’s estimates and assumptions, which reflect those that market participants would use.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter based on various factors, and it is possible that an asset or liability may be classified differently from reporting period to reporting period. However, we expect that changes in classifications between different levels will be rare.

Recurring Basis

The following tables present information about assets measured at fair value on a recurring basis:

Investments - Rabbi Trust

We have a rabbi trust to set aside funds for participants in our deferred compensation plan (the “Plan”) that enables participants to credit their contributions to various investment options under the Plan. The investments associated with the rabbi trust consist of a money market fund and various mutual funds that are classified as available-for-sale.

As of August 2, 2026, our rabbi trust investments totaled $6.3 million, of which $1.5 million and $4.8 million were classified as short-term and long-term, respectively. As of August 3, 2025, our rabbi trust investments totaled $7.1 million, of which $1.4 million and $5.7 million were classified as short-term and long-term, respectively. As of May 3, 2026, our rabbi trust investments totaled $6.5 million, of which $1.5 million and $5.0 million were classified as short-term and long-term, respectively. As of August 2, 2026, August 3, 2025, and May 3, 2026, these investments had accumulated unrealized gains of $345,000, $292,000, and $319,000, respectively.

As of August 2, 2026, August 3, 2025, and May 3, 2026, the cost basis of these investments was $5.9 million, $6.8 million, and $6.1 million, respectively.

Other

The carrying amount of our cash and cash equivalents, accounts receivable, other current assets, lines of credit - current, accounts payable, and accrued expenses approximates their fair value because of the short maturity of these financial instruments. The carrying amount of our line of credit - long-term approximates its fair value as the variable rates of interest associated with the respective line of credit are comparable with the market rate of interest.

13. Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of shares outstanding during the period. Diluted net income (loss) per share uses the weighted-average number of shares outstanding during the period plus the dilutive effect of stock-based compensation calculated using the treasury stock method.

Weighted average shares used in the computation of basic and diluted net income per share were 12,673,000 and 12,821,000 for the three months ended August 2, 2026. Weighted average shares used in the computation of basic and diluted net loss per share was 12,570,000 for the three months ended August 3, 2025.

Shares of unvested common stock that were not included in the computation of diluted net loss per share consist of the following:

14. Segment Information

During the first quarter of fiscal 2026, we renamed ourtwo reportable segments to better reflect our product offerings. Our former mattress fabrics segment is now known as the bedding segment and our former upholstery fabrics segment is now known as the upholstery segment. The bedding segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. The upholstery segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality furniture manufacturers.

In addition, the upholstery segment includes Read, a wholly owned subsidiary that provides window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation services to customers in the hospitality and commercial markets. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows. On April 24, 2025 (the fourth quarter of fiscal 2025), the company announced a strategic transformation of its operating model that combined certain activities within the bedding and upholstery business segments and created one integrated Culp-branded business. As part of this strategic transformation, we closed a leased facility in Burlington, North Carolina, and a leased facility in Knoxville, Tennessee, each operated by our upholstery segment, and transitioned their production and distribution activities to a shared management model within our owned facility located in Stokesdale, North Carolina. See Note 10 to the consolidated financial statements for further details regarding this strategic transformation initiative.

Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer ("CEO"), who regularly reviews the financial results of the company on a consolidated and segment basis for the purpose of evaluating financial and operating performance and allocation of resources to the individual segments noted above. Beginning in the first quarter of fiscal 2026, the CODM decided to use net sales and gross profit, excluding items that are not expectedto occur on a regular basis (e.g., restructuring activities and tariff refunds), as the primary measure of segment profit or loss. Previously, segment performance was primarily evaluated based on net sales and income (loss) from operations before unallocated corporate expenses and other items that are not expected to occur on a regular basis (e.g., restructuring activities and tariff refunds). This change was made to align with internal management reporting and the decision-making processes affected by the strategic transformation of the company's operating model announced on April 24, 2025, which combined certain activities within the bedding and upholstery segments and created one integrated Culp-branded business. The CODM evaluates segment performance based on: (i) net sales, (ii) cost of sales, (iii) gross profit excluding items that are not expected to occur on a regular basis (e.g., restructuring related charges and credits and tariff refunds), (iv) assets usedin operations, which generally include accounts receivable, inventory, property, plant, and equipment, right of use assets, and assets held for sale; and (v) capital spending.

Cost of sales for each segment includes costs to develop, manufacture, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead, and incoming freight charges. Intangible assets are not included in segment assets, as these assets are not used by the CODM to evaluate the respective segment’s operating performance and allocate resources to the individual segments.

Statements of operations for our segments are as follows:

(1) During the three-month period ended August 2, 2026, the $6.9 million represents the amount received from the U.S. Customs and Border Protection Agency as a recovery of previously incurred tariff expenses under the International Emergency Economic Powers Act ("IEEPA"). The $6.9 million excludes interest and was recorded within cost of sales in the Consolidated Statement of Net Income for the three months ended August 2, 2026. See Note 18 to the consolidated financial statements for further details.

(2)For the three-month period ended August 3, 2025, the $3.5 million restructuring credit mostly represented a gain from the sale of Property, totaling $4.0 million, partially offset by charges related to activities to transform our operating model and reduce fixed costs. See Note 10 to the consolidated financial statements for further details and a description of our restructuring activities.

Balance sheet information for our segments follows:

(1)

The $19.0 million as of August 2, 2026, represents property, plant, and equipment of $18.1 million and $855,000 located in the U.S. and Haiti, respectively. The $22.1 million as of August 3, 2025, represents property, plant, and equipment of $21.2 million and $888,000 located in the U.S. and Haiti, respectively. The $19.8 million as of May 3, 2026, represents property, plant, and equipment of $18.9 million, and $825,000 located in the U.S. and Haiti, respectively.

(2)

The $50,000 as of August 3, 2025, represents a right of use asset in Haiti.

(3)

The $40,000 as of August 3, 2025, represents assets held for sale located in the U.S.

(4)

The $641,000 as of August 2, 2026, represents property, plant, and equipment of $590,000, $30,000 and $21,000 located in the U.S., Vietnam, and China, respectively. The $956,000 as of August 3, 2025, represents property, plant, and equipment of $897,000 and $59,000 located in the U.S. and China, respectively. The $708,000 as of May 3, 2026, represents property, plant, and equipment of $642,000, $37,000, and $29,000 located in the U.S., Vietnam, and China, respectively.

(5)

The $312,000 as of August 2, 2026, represents right of use assets of $265,000 and $47,000 located in China and the U.S., respectively. The $2.2 million as of August 3, 2025, represents right of use assets of $1.4 million and $771,000 located in China and the U.S., respectively. The $496,000 as of May 3, 2026, represents right of use assets of $421,000 and $75,000 located in China and the U.S., respectively.

(6)

The $508,000, $535,000, and $550,000 as of August 2, 2026, August 3, 2025, and May 3, 2026, respectively, represent property, plant, and equipment located in the U.S.

(7)

The $2.3 million, $3.0 million, and $2.5 million as of August 2, 2026, August 3, 2025, and May 3, 2026, respectively, represent right of use assets located in the U.S.

Capital expenditures and depreciation expense information for our segments follows:

(1)

Capital expenditure amounts are stated on an accrual basis. See Consolidated Statements of Cash Flows for capital expenditure amounts on a cash basis.

(2)

During the three-month period ended August 3, 2025, accelerated depreciation expense totaling $22,000 related to the upholstery segment and was classified within restructuring credit in the Consolidated Statements of Net Loss. The accelerated depreciation expense pertained to the shortening of useful lives of equipment related to the consolidation of distribution activities from our Burlington, North Carolina facility to our manufacturing and distribution center located in Stokesdale, North Carolina.

15. Income Taxes

Effective Income Tax Rate

Our consolidated effective income tax rates for the three-month periods ended August 2, 2026, and August 3, 2025, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. When calculating the annual estimated effective income tax rates for the three-month periods ended August 2, 2026, and August 3, 2025, we were subject to loss limitation rules. These loss limitation rules require any pre-tax loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. The effective income tax rate can be impacted over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.

We recorded income tax expense of $868,000, or 12.7% of income before income taxes, for the three-month period ended August 2, 2026, compared with income tax expense of $1.4 million, or 120.3% of income before income taxes, for the three-month period ended August 3, 2025. The primary factors that decreased the company's effective income tax rate for the three months ended August 2, 2026, compared with August 3, 2025, follows:

•

During the first quarter of fiscal 2027, we experienced pre-tax income from our U.S. operations that mostly related to tariff refunds totaling $6.9 million (see note 18 to the consolidated financial statements for further details). As a result, we partially reversed our full U.S. valuation allowance, which decreased the effective income tax rate by 12.9%. In comparison, during the first quarter of fiscal 2026, we experienced a pre-tax loss from our U.S. operations that mostly related to our recent restructuring activities (see note 10 to the consolidated financial statements for further details). Accordingly, a full U.S. allowance was applied against the fiscal 2026 loss carryforward, which led to an increase in the effective income tax rate of 60.4%.

•

During the first quarter of fiscal 2026, we recognized a gain from the closure and sale of our manufacturing facility located in Quebec, Canada, which increased the effective income tax rate by 15.9%. No such transactions occurred during the first quarter of fiscal 2027.

•

As of the end of the first quarter of fiscal 2027, we determined that our foreign operations were expected to meet the high tax exception test related to Net CFC Tested Income (NCTI) for the full year fiscal 2027, and therefore the company currently expects not to have a NCTI inclusion and incur income tax. Accordingly, there was no impact on the effective income tax rate for the first quarter of fiscal 2027. In comparison, as of the end of the first quarter of fiscal 2026, we determined that certain foreign jurisdictions were not expected to meet the high tax exception test related to NCTI for the full year fiscal 2026, and therefore, the company had a NCTI inclusion and incurred income taxes, which led to an increase in the effective income tax rate of 12.6%.

•

During the first quarter of fiscal 2027, we reported a higher consolidated pre-tax income totaling $6.8 million, compared with $1.1 million during the first quarter of fiscal 2026. Accordingly, the principal differences between our income tax expense at the U.S. Federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced during the first quarter of fiscal 2026, compared with the first quarter of fiscal 2027.

U.S. Valuation Allowance

We evaluate the realizability of our U.S. net deferred income tax assets to determine if a valuation allowance is required. We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.

As of August 2, 2026, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was required. Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses in that we experienced U.S. pre-tax losses during each of the last three fiscal years from 2024 through 2026, as well as a moderate level of projected fiscal 2027 U.S. pre-tax income, which mostly relates to the tariff refunds totaling $6.9 million received during the first quarter. As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S. net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets.

Based on our assessments as of August 2, 2026, August 3, 2025, and May 3, 2026, valuation allowances applied against our U.S. net deferred income tax assets totaled $27.7 million, $27.0 million, and $28.7 million, respectively.

Undistributed Earnings

We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company and whether we are required to record a deferred income tax liability for those undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. As of August 2, 2026, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings and profits from our foreign subsidiaries would not be reinvested indefinitely and would eventually be distributed to our U.S. parent company. The conclusion reached from this assessment was consistent with prior reporting periods.

A U.S. corporation is allowed a 100% dividend-received deduction for earnings and profits received from a 10% or more owned foreign corporation. Therefore, a deferred income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S. parent company. As a result, as of August 2, 2026, August 3, 2025, and May 3, 2026, we recorded a deferred income tax liability of $3.6 million, $5.3 million, and $4.9 million, respectively. The decrease in this deferred income tax liability as of August 2, 2026, compared with August 3, 2025 and May 3, 2026, relates to withholding tax payments totaling $1.3 million that are related to the closure of the manufacturing facility located in Quebec, Canada.

Uncertain Income Tax Positions

An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.

As of August 2, 2026, our gross unrecognized income tax benefit of $1.1 million as of August 2, 2026, relates to an income tax position for which significant change is currently not expected within the next year.

Income Taxes Paid

The following table sets forth income taxes paid by jurisdiction:

(1) Amount related to Canada Federal represents withholding tax payments associated with the closure of our manufacturing facility located in Quebec, Canada.

16. Stock-Based Compensation

Equity Incentive Plan Description

On September 16, 2015, our shareholders approved an equity incentive plan titled the Culp, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan authorizes the grant of stock options intended to qualify as incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, time-based restricted stock units, performance-based restricted stock units, and other equity and cash related awards as determined by the Compensation Committee of our board of directors. An aggregate of 1,200,000 shares of common stock were authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan. Effective September 27,

2023, our shareholders approved an amendment and restatement of the 2015 Plan (the "Amended and Restated Plan"). The Amended and Restated Plan authorizes the issuance of an additional 960,000 shares of common stock in addition to the shares of common stock still available for issuance under the 2015 Plan. The Amended and Restated Plan also removed certain sub-limits that previously applied with respect to specific types of awards that may be issued under the plan.

As of August 2, 2026, there were 392,017 shares available for future equity-based grants under the Amended and Restated Plan.

Performance-Based Restricted Stock Units

On August 7, 2025, we granted senior executives performance-based restricted stock units that could earn up to a certain number of shares of common stock if performance targets related to adjusted EBITDA were met over the performance period defined in the related restricted stock unit award agreements. The number of shares of common stock that are earned based on performance targets that have been achieved are not adjusted based on a market-based total shareholder return component. Accordingly, fair market value was measured based on the closing price of our common stock on the date of grant.

On August 8, 2024, we granted senior executives performance-based restricted stock units that could earn up to a certain number of shares of common stock if performance targets related to operating income were met over performance periods defined in the related restricted stock unit award agreements. The number of shares of common stock that are earned based on performance targets that have been achieved may be adjusted based on a market-based total shareholder return component as defined in the related restricted stock unit award agreements. Accordingly, fair market value was measured using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock for the performance-based component on the date of grant.

The following table provides assumptions used to determine the fair market value of the market-based total shareholder return component using the Monte Carlo simulation model on our outstanding performance-based restricted stock units granted to senior executives on August 8, 2024:

The following table summarizes information related to our grants of performance-based restricted stock units associated with senior executives that were unvested as of August 2, 2026:

(1)

Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met as defined in the related restricted stock unit agreements as of the date of grant.

(2)

Compensation cost is based on an assessment each reporting period to determine the probability of whether or not certain performance targets will be met and how many shares are expected to be earned as of the end of the vesting period. These amounts represent the number of shares that are expected to vest as of August 2, 2026.

(3)

Price per share represents the closing price of our common stock on the date the respective award was granted.

(4)

Price per share represents the fair market value per share ($1.15 per $1, or an increase of $0.70 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($4.65) for the performance-based component of the performance-based restricted stock units granted to senior executives on August 8, 2024.

During the three-month period August 2, 2026, performance-based restricted stock units totaling 3,475 vested at a fair value of $13,000, or $3.70 per share. No performance- based restricted stock units vested during the three-month period ended August 3, 2025.

We recorded compensation expense of $19,000 and $3,000 within selling, general, and administrative expenses associated with our performance-based restricted stock unit awards for the three-month periods ended August 2, 2026, and August 3, 2025, respectively. Compensation expense is recorded based on an assessment each reporting period to determine the probability of whether or not certain performance targets will be met and how many shares are expected to be earned as of the end of the vesting period. If certain performance goals are not expected to be achieved, compensation expense would not be recorded, and any previously recognized compensation expense would be reversed.

As of August 2, 2026, the remaining unrecognized compensation expense related to our performance-based restricted stock units was $167,000, which is expected to be recognized over a weighted average vesting period of 2.0 years. As of August 2, 2026, performance-based restricted stock units that are expected to vest had a fair value of $208,000.

Time-Based Restricted Stock Units

The following table summarizes information related to our grants of time-based restricted stock unit awards associated with senior executives, key employees, and outside directors that were unvested as of August 2, 2026:

(1)

Price per share represents the closing price of our common stock on the date the respective award was granted.

(2)

Time-based restricted stock units awarded to outside directors.

(3)

Time-based restricted stock units awarded to senior executives and key employees.

During the three-month period ended August 2, 2026, time-based restricted stock units totaling 96,909 vested at a fair value of $359,000, or $3.70 weighted average per share.

We recorded compensation expense of $131,000 and $153,000 within selling, general, and administrative expenses associated with our time-based restricted stock unit awards for the three-month periods ended August 2, 2026, and August 3, 2025, respectively.

As of August 2, 2026, the remaining unrecognized compensation expense related to our time-based restricted stock units was $160,000, which is expected to be recognized over a weighted average vesting period of 1.1 years. As of August 2, 2026, the time-based restricted stock units that are expected to vest had a fair value totaling $400,000.

17. Leases

Overview

We lease manufacturing facilities, showroom and office space, distribution centers, and equipment under operating lease arrangements. Our operating leases have remaining lease terms of 3 months tofive years, with renewal options for additional periods ranging up to 12 years.

Balance Sheet

The right of use assets and lease liabilities associated with our operating leases as of August 2, 2026, August 3, 2025 and May 3, 2026, are as follows:

Supplemental Cash Flow Information

Operating lease expense for the three-month periods ended August 2, 2026, and August 3, 2025, was $378,000 and$735,000, respectively. Short-term lease costs for the three-month periods ended August 2, 2026, and August 3, 2025, was $127,000 and$0, respectively. No variable lease costs were incurred for the three-month periods ended August 2, 2026, and August 3, 2025.

Other Information

Maturity of our operating lease liabilities for the remainder of fiscal 2027, the subsequent four fiscal years, and thereafter follows:

As of August 2, 2026, the weighted average remaining lease term and discount rate for our operating leases follows:

18. Commitments and Contingencies

Tariff Refunds

During fiscal 2025 and early fiscal 2026, the company incurred import duties pursuant to IEEPA. On February 20, 2026, the U.S. Supreme Court ruled that such tariffs were not authorized, and on March 4, 2026, the U.S. Court of International Trade (“CIT”) ordered U.S. Customs and Border Protection to refund certain tariffs collected under IEEPA.

As of May 3, 2026, the company identified certain potential refunds of previously paid tariffs in accordance with the ruling by the CIT. The company estimated the total potential recovery to be approximately $6.9 million, which remained subject to administrative review and final liquidation of the underlying customs entries by U.S. Customs and Border Protection. Accordingly, this potential recovery was considered a gain contingency in accordance with ASC Topic 450, and therefore the company did not recognize a receivable related to potential tariff refunds as of May 3, 2026.

During the first quarter of fiscal 2027, the company received the entire $6.9 million in cash proceeds (excluding interest), representing the final approval of these tariff refund claims. The $6.9 million was recorded within cost of sales in the first quarter of fiscal 2027 Consolidated Statement of Net Income.

Legal Matters

The company is from time-to-time involved in legal proceedings and claims which arise in the ordinary course of business. Management has determined that any such current matters, when ultimately concluded or settled, will not have a material adverse effect on the company's financial position, results of operations, or cash flows.

During the first quarter of fiscal 2027, the company received in insurance proceeds of $814,000 in connection with the resolution of a legal matter. The $814,000 was classified within other income in the consolidated statement of net income for the three-month period ended August 2, 2026.

Purchase Commitments - Capital Expenditures

As of August 2, 2026, we had open purchase commitments to acquire equipment for our bedding operations totaling $484,000.

19. Statutory Reserves

Our subsidiary located in China was required to transfer 10% of its net income, as determined in accordance with the People’s Republic of China (PRC) accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reached 50% of the company’s registered capital. As of August 2, 2026, the statutory surplus reserve fund represents the 50%registered capital requirement, and therefore, our subsidiary located in China is no longer required to transfer 10% of its net income in accordance with PRC accounting rules and regulations.

The transfer to this reserve fund must be made before distributions of any dividend to shareholders. As of August 2, 2026, the company’s statutory surplus reserve was $4.3 million. The statutory surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any. The statutory surplus reserve fund may be utilized for business. expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

The company’s subsidiary located in China can transfer funds to the parent company, except for the statutory surplus reserve of $4.3 million, to assist with debt repayment, capital expenditures, and other expenses of the company’s business.

20. Common Stock Repurchase Program

In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. Under this common stock repurchase program, shares may be purchased from time to time in open-market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The number of shares purchased and the timing of such purchases are based on working capital requirements, market and general business conditions, and other factors.

We didnot repurchase any shares of common stock during the three-month periods ended August 2, 2026, and August 3, 2025, respectively. As of August 2, 2026, $3.2 million is available for additional repurchases of our common stock.