CROWN CRAFTS INC

Crown Crafts, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note1 – Description of Business

Crown Crafts, Inc. (the “Company”) was originally formed as a Georgia corporation in1957 and was reincorporated as a Delaware corporation in2003. The Company operates indirectly throughfour of its wholly-owned subsidiaries, NoJo Baby & Kids, Inc. (“NoJo”), Sassy Baby, Inc. (“Sassy”), Manhattan Group, LLC (“Manhattan”) and Manhattan Toy Europe Limited (“MTE”) in the infant, toddler and juvenile products segment within the consumer products industry. The infant, toddler and juvenile products segment consists of infant and toddler bedding and blankets, bibs, soft bath products, disposable products, developmental toys and accessories. Most sales of the Company’s products are generally made directly to retailers, such as mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers. Manhattan also sells direct to consumer through its website, www.manhattantoy.com. The Company’s products are marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label goods.

The Company's fiscal year ends on the Sunday nearest to or on* March 31.References herein to “fiscal year2024”* or*“2024”* represent the52-week period ended* March 31, 2024,and references herein to “fiscal year2023”* or*“2023”* represent the52-week period ended* April 2, 2023.*

Note2 - Summary of Significant Accounting Policies

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

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the periods presented on the consolidated statements of income and cash flows. Significant estimates are made with respect to:

Actual results could differ materially from these estimates.

Cash and Cash Equivalents:The Company’s credit facility consists of a revolving line of credit under a financing agreement with The CIT Group/Commercial Services (“CIT”). The Company classifies a negative balance outstanding under this revolving line of credit as cash and cash equivalents, as these amounts are legally owed to the Company and are immediately available to be drawn upon by the Company. There areno compensating balance requirements or other restrictions on the transfer of amounts associated with the Company’s depository accounts.

Financial Instruments: For short-term instruments such as cash and cash equivalents, accounts receivable and accounts payable, the Company uses carrying value as a reasonable estimate of fair value. Additionally, the Company’s long-term debt is a revolving credit facility whereby the Company uses carrying value as a reasonable estimate of fair value.

Segments and Related Information: The Company operates primarily inone principal segment, infant, toddler and juvenile products. These products consist of infant and toddler bedding and blankets, bibs, soft bath products, disposable products, developmental and bath toys and accessories. Net sales of bedding, blankets and accessories and net sales of bibs, bath and disposable products for the fiscal years ended* March 31, 2024and April 2, 2023*are as follows (in thousands):

F-7

Revenue Recognition: Revenue is recognized upon the satisfaction of all contractual performance obligations and the transfer of control of the products sold to the customer. The majority of the Company’s sales consists of single performance obligation arrangements for which the transaction price for a given product sold is equivalent to the price quoted for the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product as directed by the customer. Shipping and handling costs that are charged to customers are included in net sales, and the Company’s costs associated with shipping and handling activities are included in cost of products sold.

Revenue from sales made directly to consumers is recorded when the shipped products have been received by customers, and excludes sales taxes collected on behalf of governmental entities. Revenue from sales made to retailers is recorded when legal title has been passed to the customer based upon the terms of the customer’s purchase order, the Company’s sales invoice, or other associated relevant documents. Such terms usually stipulate that legal title will pass when the shipped products areno longer under the control of the Company, such as when the products are picked up at the Company’s facility by the customer or by a common carrier. Payment terms can vary from prepayment for sales made directly to consumers to payment due in arrears (generally,60 days of being invoiced) for sales made to retailers.

*Allowances Against Accounts Receivable:*The Company estimates certain allowances from revenues recognized through sales made to its customers. These allowances include anticipated returns and claims, expected credit losses, chargebacks related to negotiated customer terms and discounts, cooperative advertising allowances, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances.

The allowance for anticipated returns and claims is estimated based upon the Company’s historical experience with actual returns and claims, combined with the consideration of events that could result in a change from historical rates on a per-customer basis. The allowance for anticipated returns and claims is recorded as a reduction of net sales in the reporting period within which the related sales are recorded.

To reduce the Company’s exposure to expected credit losses, and to enhance the predictability of its cash flows, the Company assigns substantially all of its receivables under factoring agreements with CIT. In the event that a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. With respect to the receivables that arenot assigned under factoring agreements with CIT, the Company addresses this credit risk by establishing an allowance that is intended to represent the Company’s best estimate of the expected credit losses for such receivables. In the development of this estimate, the Company makes a number of judgements utilizing the Current Expected Credit Losses (“CECL”) methodology, which requires the Company to estimate lifetime expected credit losses by specifically analyzing the receivables. This analysis incorporates an aging of the receivables, relevant payment history and historical loss experience, as well as the consideration of customer concentrations, customer creditworthiness, negotiated changes to the payment terms of customers, recent economic trends, and expectations regarding economic conditions over a reasonable and supportable future period. The allowance for expected credit losses is included in marketing and administrative expenses in the accompanying consolidated statements of income.

The allowance for chargebacks related to negotiated customer terms and discounts, cooperative advertising, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances is recorded commensurate with sales activity or using the straight-line method, as appropriate. The majority of the Company’s allowances for such chargebacks occurs on a per-invoice basis. When a customer requests to have an agreed-upon deduction applied against the customer’s outstanding balance due to the Company, the allowances are correspondingly reduced to reflect such payments or credits issued against the customer’s account balance. The Company analyzes the components of the allowances for customer chargebacks monthly and adjusts the allowances to appropriate levels. Since allowances associated with cooperative advertising are accrued commensurate with sales activity or using the straight-line method, as appropriate, the timing of funding requests for cooperative advertising* mayresult in fluctuations in the allowance from period to period, although such timing shouldnot* have a material impact on the consolidated statements of income. The allowance for cooperative advertising is included in marketing and administrative expenses in the consolidated statements of income. All other allowances for chargebacks related to negotiated customer terms and discounts, warehouse allowances, placement fees, volume rebates, coupons and discounts are recorded as a reduction of net sales in the reporting period within which the related sales are recorded.

The Company’s actual experience associated with its allowances against accounts receivable in a future period* maydiffer from the judgements, estimates, analysis and considerations employed in the development of these allowances. Thus, the Company’s allowances against accounts receivable at any point in time may*be over-funded or under-funded.

F-8

Credit Concentration: The Company’s accounts receivable at* March 31, 2024amounted to $22.4 million, net of allowances of $1.5 million. Of this amount, $18.6 million was due from CIT under the factoring agreements, which represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations under the factoring agreements. The Company’s accounts receivable at April 2, 2023*amounted to $22.8 million, net of allowances of $1.5 million. Of this amount, $20.7 million was due from CIT under the factoring agreements, which represents the maximum loss that the Company could have incurred if CIT had failed completely to perform its obligations under the factoring agreements.

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

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

On a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical deterioration, changes in price levels and the existence of quantities on hand which* maynot* reasonably be expected to be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwiseno longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is established or increased during an accounting period, an expense is recorded in cost of products sold in the Company’s consolidated statements of income. Only when inventory for which an allowance has been established is later sold or is otherwise disposed is the allowance reduced accordingly. Significant management judgment is required in determining the amount and adequacy of this allowance. In the event that actual results differ from management’s estimates or these estimates and judgments are revised in future periods, the Company* maynot* fully realize the carrying value of its inventory or* may*need to establish additional allowances, either of which could materially impact the Company’s financial position and results of operations.

Leases:The Company capitalizes most of its operating lease obligations as right of use assets and recognizes corresponding lease liabilities. The Company elects to use the practical expedient that permits the Company to exclude short-term agreements of less than12 months from capitalization. The Company is a party to various operating leases for offices, warehousing facilities and certain office equipment. The leases expire at various dates, have varying options to renew and cancel, and* maycontain escalation provisions. The Company recognizes as expense non-variable lease payments ratably over the lease term. The key estimates for the Company’s leases include the discount rate used to discount the unpaid lease payment to present value and the lease term. The Company’s leases generally donot* include a readily determinable implicit rate; therefore, management determined the incremental borrowing rate to discount the lease payment based on the information available at lease commencement. For purposes of such estimates, a lease term includes the noncancellable period under the applicable lease.

Depreciation and Amortization: The accompanying consolidated balance sheets reflect property, plant and equipment, and certain intangible assets at cost less accumulated depreciation or amortization. The Company capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which arethree toeight years for property, plant and equipment, andfive totwenty years for intangible assets other than goodwill. The Company amortizes improvements to its leased facilities over the term of the lease or the estimated useful life of the asset, whichever is shorter.

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

F-9

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

Royalty Payments:The Company has entered into agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts. These royalty amounts are accrued based upon historical sales rates adjusted for current sales trends by customers. Royalty expense is included in cost of products sold in the accompanying consolidated statements of income and amounted to $5.3 million and $5.2 million for the fiscal years ended March 31, 2024and* April 2, 2023,*respectively.

Provision for Income Taxes: The Company’s provision for income taxes includes all currently payable federal, state, local and foreign taxes and is based upon the Company’s effective tax rate, which is based on the Company’s pre-tax income, as adjusted for certain expenses within the consolidated statements of income that will never be deductible on the Company’s tax returns and certain charges expected to be deducted on the Company’s tax returns that will never be deducted on the consolidated statements of income, multiplied by the statutory tax rates for the various jurisdictions in which the Company operates and reduced by certain anticipated tax credits. The Company files income tax returns in the many jurisdictions in which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations varies by jurisdiction; taxable years open to examination as of* March 31, 2024were the fiscal years ended March 31, 2024,** April 2, 2023,** April 3, 2022,** March 28, 2021,** March 29, 2020and March 31, 2019.*

Management evaluates items of income, deductions and credits reported on the Company’s various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely thannot to be sustained. The Company applies the provisions of accounting guidelines that require a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. Recognized income tax positions are measured at the largest amount that has a greater than50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

After considering all relevant information regarding the calculation of the state portion of its income tax provision, the Company believes that the technical merits of the tax position that the Company has taken with respect to state apportionment percentages would more likely thannot be sustained. However, the Company also realizes that the ultimate resolution of such tax position could result in a tax charge that is more than the amount realized based upon the application of the tax position taken. Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities during the fiscal years ended* March 31, 2024and April 2, 2023*of $43,000 and $73,000, respectively, in the accompanying 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. During the fiscal years ended* March 31, 2024and April 2, 2023,*the Company accrued $28,000 and $45,000, respectively, for interest expense and penalties on the portion of the unrecognized tax liabilities for which the relevant statute of limitations remained unexpired.

In* August 2020,the Company received notification from the Franchise Tax Board of the State of California (the “FTB”) of its intention to examine the Company’s California consolidated income tax returns that the Company had filed for the fiscal years ended April 2, 2017,** April 1, 2018and March 31, 2019.On May 30, 2023,the Company and the FTB entered into an agreement to settle (“Settlement Agreement”) the FTB’s proposed assessment of additional income tax in respect of these consolidated income tax returns under examination for the amount of $442,000, payment of which was made by the Company to the FTB on May 31, 2023.Because the examination was ongoing as of April 2, 2023,and because the Settlement Agreement was entered into prior to the issuance of the accompanying consolidated financial statements for the fiscal year ended April 2, 2023,the Company recorded the effect of the Settlement Agreement in the accompanying consolidated balance sheet as of April 2, 2023and the consolidated statement of income for the fiscal year ended April 2, 2023.The Company’s adjustment to its reserve for unrecognized tax liabilities associated with the tax returns under examination resulted in a discrete income tax benefit during the fiscal year ended April 2, 2023,*net of the impact of federal income tax, of $81,000, and a net decrease to interest expense of $86,000.

In* February 2021,the Company was notified by the U.S. Internal Revenue Service (the “IRS”) that it had selected for examination the Company’s original and amended federal consolidated income tax returns that the Company had filed for its fiscal year ended April 2, 2017.On March 15, 2023,the Company agreed to accept the proposal by the IRS to disallow the Company’s claim for refund in the amount of $81,000 that was associated with the Company’s amended federal consolidated income tax return for the fiscal year ended April 2, 2017,which amount was recorded as a discrete income tax charge during the fiscal year ended April 2, 2023.*

F-10

Although management believes that the calculations and positions taken on its filed income tax returns are reasonable and justifiable, the outcome of an examination could result in an adjustment to the position that the Company took on such income tax returns. Such adjustment could also lead to adjustments toone or more other state income tax returns, or to income tax returns for subsequent fiscal years, or both. To the extent that the Company’s reserve for unrecognized tax liabilities isnot adequate to support the cumulative effect of such adjustments, the Company could experience a material adverse impact on its future results of operations. Conversely, to the extent that the calculations and positions taken by the Company on the filed income tax returns under examination are sustained, the reversal of all or a portion of the Company’s reserve for unrecognized tax liabilities could result in a favorable impact on its future results of operations.

Advertising Costs: The Company’s advertising costs are primarily associated with cooperative advertising arrangements with certain of the Company’s customers and are recognized using the straight-line method based upon aggregate annual estimated amounts for these customers, with periodic adjustments to the actual amounts of authorized agreements. Advertising expense is included in marketing and administrative expenses in the consolidated statements of income and amounted to $572,000 and $422,000 for the fiscal years ended* March 31, 2024and April 2, 2023,*respectively.

Business Combinations:The Company accounts for acquisitions using the acquisition method of accounting in accordance with FASB ASC Topic805, Business Combinations. An acquisition is accounted for as a purchase and the appropriate account balances and operating activities are recorded in the Company’s consolidated financial statements as of the acquisition date and thereafter. Assets acquired, liabilities assumed and noncontrolling interests, if any, are measured at fair value as of the acquisition date using the appropriate valuation method. The Company* mayengage an independentthird* party to assist with these measurements. Goodwill resulting from an acquisition is recognized for the excess of the purchase price over the fair value of the tangible and identifiable intangible assets, less the liabilities assumed.

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

Recently-Issued Accounting Standards:In June 2016,the FASB issued ASUNo. 2016-13, Financial Instruments–* Credit Losses (Topic326): 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 didnot yet meet the “probable” threshold, ASUNo. 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, ASUNo.* 2016-13 was required to be adoptedno later than the fiscal year beginning after* December 15, 2019,but on November 15, 2019,the FASB issued ASUNo.* 2019-10, Financial Instruments–* Credit Losses (Topic326), Derivatives and Hedging (Topic815), and Leases (Topic842): Effective Dates*, which provided for the deferral of the effective date of ASUNo. 2016-13 for a registrant that is a smaller reporting company to thefirst interim period of the fiscal year beginning after* December 15, 2022.Accordingly, the Company adopted ASUNo.* 2016-13 effective as of* April 3, 2023.Because the Company assigns substantially all of its trade accounts receivable under factoring agreements with CIT, the adoption of the ASU hasnot* had a significant impact on the Company’s financial position, results of operations and related disclosures.

In* October 2023,the FASB issued ASUNo.* 2023-06, Disclosure Improvements–* Codification Amendments in Response to the SEC*’s Disclosure Update and Simplification Initiative, the objective of which is to clarify or improve disclosure and presentation requirements and to align the requirements in the FASB ASC with the SEC’s regulations. In* August 2018,the SEC issued guidance in which the SEC referred certain of its disclosure requirements that overlap with GAAP to the FASB for potential incorporation into the FASB ASC. The amendments in ASUNo.* 2023-06 are the result of the FASB’s decision to incorporate into the FASB ASC14 of the27 disclosures referred by the SEC. The FASB noted that the disclosure requirements in the SEC’s guidance and the FASB ASC shouldnot be duplicated in both places. Accordingly, although the ASU was required to be adopted upon issuance, each amendment to the FASB ASC included in the ASU willnot become effective until the effective date upon which the related SEC disclosure isno longer required. The amendments in this ASU are to be applied prospectively, and early application of the amendments is prohibited. The Company doesnot anticipate that the adoption of ASUNo. 2023-06 will have a significant impact on the Company’s financial position, results of operations and related disclosures.

F-11

In* November 2023,the FASB issued ASUNo.* 2023-07, Segment Reporting (Topic280*)– Improvements to Reportable Segment Disclosures*, the objective of which is to improve the disclosures about a public entity’s reportable segments by providing more detailed information about a reportable segment’s expenses. For disclosures associated with annual and interim periods, the amendments in ASUNo. 2023-07 are required to be adopted for fiscal years beginning after* December 15, 2023and December 15, 2024,respectively, and early adoption is permitted. Upon adoption, a public entity must apply the amendments in ASUNo.* 2023-07 retrospectively to disclosures of all prior periods presented. The Company intends to adopt ASUNo. 2023-07 effective as of* April 1, 2024*and is evaluating the guidance of the ASU against its existing disclosures related to segment reporting.

In* December 2023,the FASB issued ASUNo.* 2023-09, Income Taxes (Topic740*)– Improvements to Income Tax Disclosures*, the objective of which is to enhance the transparency and decision usefulness of income tax disclosures. The amendments in the ASU are required to be adopted for fiscal years beginning after* December 15, 2024and early adoption is permitted. The Company is evaluating the guidance of ASUNo.* 2023-09 against its existing disclosures related to income tax disclosures.

The Company has determined that all other ASU’s issued which had become effective as of* March 31, 2024,or which will become effective at some future date, arenot* expected to have a material impact on the Company’s consolidated financial statements.

Note3 – Inventories

As of* March 31, 2024and April 2, 2023,*the Company’s balances of inventory were $29.7 million and $34.2 million, respectively, nearly all of which were finished goods.

Note4 – Acquisition

On the* March 17, 2023 (the “Closing Date”), the Company acquired Manhattan and MTE, Manhattan’s wholly-owned subsidiary, from H Enterprises International, LLC (“HEI”) (“the Manhattan Acquisition”), for a purchase price of $17.0 million, subject to adjustments for cash as of the Closing Date and to the extent that actual net working capital as of the Closing Date differed from target net working capital of $13.75 million (the “Aggregate Adjustment”). The Manhattan Acquisition was funded with cash available on the Closing Date and borrowings under the Company’s revolving line of credit with CIT. On September 29, 2023,*the Company and HEI agreed to a settlement of the Aggregate Adjustment, pursuant to which HEI paid $509,000 to the Company, which included interest income of $21,000.

The Manhattan Acquisition was accounted for in accordance with FASB ASC Topic805, Business Combinations. The Company determined the allocation of the acquisition cost with the assistance of an independentthird party. The identifiable assets acquired were recorded at their estimated fair value, which was determined based on available information and the use of multiple valuation approaches. The estimated useful lives of the identifiable intangible assets acquired were determined based upon the remaining time that these assets are expected to directly or indirectly contribute to the future cash flow of the Company.

F-12

The acquisition cost paid on the Closing Date amounted to $17.4 million, which included an estimate for cash as of the Closing Date and an estimate for the net working capital acquired. The settlement of the Aggregate Adjustment resulted in a decrease of the acquisition cost to $16.9 million. The following table represents the Company’s allocation of this acquisition cost (in thousands) to the identifiable assets acquired and the liabilities assumed based on their respective estimated fair values as of the acquisition date. The excess of the acquisition cost over the estimated fair value of the identifiable net assets acquired is reflected as goodwill.

Based upon the allocation of the acquisition cost, the Company recognized $787,000 of goodwill as of the Closing Date, the entirety of which was assigned to the reporting unit of the Company that produces and markets infant and toddler bibs, developmental toys, feeding, bath care and disposable products, and the entirety of which is expected to be deductible for income tax purposes. In accordance with FASB ASC Topic805, The financial statements as of and for the fiscal year ended* April 2, 2023werenot* retrospectively adjusted for any measurement-period adjustments that occurred during the fiscal year ended* March 31, 2024.Rather, the adjustments to provisional amounts that were identified during the measurement period were recorded during the fiscal year ended March 31, 2024,which is the reporting period in which the adjustments were determined. The Company considers the measurement period to have ended as of March 31, 2024and further considers all measurement period adjustments to be final. The following table represents the adjustments made to the amount of goodwill during the fiscal year ended March 31, 2024.*

The Manhattan Acquisition resulted in net sales of $18.5 million and $773,000 of developmental toy, feeding and baby care products during the fiscal years ended* March 31, 2024and April 2, 2023,respectively. Manhattan recorded amortization expense associated with the acquired amortizable intangible assets of $120,000 during the fiscal year ended March 31, 2024,*which is included in marketing and administrative expenses in the consolidated statements of income. Amortization is computed using the straight-line method over the estimated useful lives of the assets, which are 15 years for the tradename,10 years for the customer and licensing relationships and 11 years on a weighted-average basis for the grouping taken together.

F-13

The Company determined, on a pro forma basis, that the combined net sales of the Company and Manhattan, giving effect to the Manhattan Acquisition as if it had been completed on* March 29, 2021,is $100.8 million for the fiscal year ended April 2, 2023,and the combined net income for the fiscal year ended April 2, 2023is $2.8 million. These amounts combine the net sales and net income (or loss, as applicable) from the Company’s consolidated statements of income for the fiscal year ended April 2, 2023with the respective amounts from Manhattan’s consolidated statements of operations for its fiscal year ended December 31, 2022.The combined amounts of net income or loss include adjustments related to the amortization of the amortizable intangible assets acquired and estimates of the interest expense and income tax expense or benefit that would have been incurred, but otherwise donot* reflect the costs of any integration activities or benefits that* mayresult from the realization of future cost savings from operating efficiencies, or any revenue, tax or other synergies that may*result from the Manhattan Acquisition.

Note5 – Financing Arrangements

*Factoring Agreements:*To reduce its exposure to credit losses, the Company assigns substantially all 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.

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* mayat any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, the Company either assumes (and mayseek to mitigate) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying consolidated statements of income, were $353,000 and $287,000 during the fiscal years ended March 31, 2024and April 2, 2023,respectively. There wereno advances on the factoring agreements at March 31, 2024or April 2, 2023.*

Credit Facility:The Company’s credit facility at March 31, 2024consisted of a revolving line of credit under a financing agreement with CIT of up to $35.0 million, which includes a $1.5 million sub-limit for letters of credit. The financing agreement matures on* July 11, 2028,bears interest at the rate of prime minus 0.5% or the Secured Overnight Financing Rate (“SOFR”) plus 1.6%, and which is secured by afirst* lien on all assets of the Company. At* March 31, 2024,*the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the SOFR option, which was 6.9%. The financing agreement also provides for the payment by CIT to the Company of interest on daily negative balances, if any, held by CIT at the rate of prime as of the beginning of the calendar month minus 2.0%.

As of* March 31, 2024,there was a balance of $8.1 million owed on the revolving line of credit, there wasno letter of credit outstanding and $19.2 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances. As of April 2, 2023,*there was a balance of $12.7 million owed on the revolving line of credit, there wasno letter of credit outstanding and $20.0 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 material compliance with these covenants as of* March 31, 2024.*

Note6 – Retirement Plan

The Company sponsors a defined contribution retirement savings plan with a cash or deferred arrangement (the*“401*(k) Plan”), as provided by Section401(k) of the Internal Revenue Code (the “Code”). The401(k) Plan covers substantially all employees, who* mayelect to contribute a portion of their compensation to the401*(k) Plan, subject to maximum amounts and percentages as prescribed in the Code. Each calendar year, the Board determines the portion, if any, of employee contributions that will be matched by the Company.

For calendar years2024, 2023 and2022, the Board established the employer matching contributions at 100% of thefirst 2% of employee contributions and 50% of the next 3% of employee contributions to the401(k) Plan. If an employee separates from the Company prior to the full vesting of the funds in their account, then the unvested portion of the matching employer amount in their account is forfeited when the employee receives a distribution from their account. The Company utilizes such forfeitures as an offset to the aggregate matching contributions. The Company’s matching contributions to the401(k) Plan, net of the utilization of forfeitures, were $320,000 and $293,000 for the fiscal years ended* March 31, 2024and April 2, 2023,*respectively.

F-14

Note7 – Goodwill, Customer Relationships and Other Intangible Assets

Goodwill: Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in business combinations. For the purpose of presenting and measuring for the impairment of goodwill, the Company hastwo reporting units:one that produces and markets infant and toddler bedding, blankets and accessories and another that produces and markets infant and toddler bibs, developmental toys, bath care and disposable products. The goodwill of the reporting units of the Company as of* March 31, 2024and April 2, 2023*amounted to $30.8 million, which is reflected in the accompanying consolidated balance sheets net of accumulated impairment charges of $22.9 million, for a net reported balance of $7.9 million.

The Company measures for impairment the goodwill within its reporting units annually as of thefirst 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 thannot (defined as having a likelihood of greater than50%) fallen below its carrying value. The annual or interim measurement for impairment is performed byfirst assessing qualitative factors to determine whether it is more likely thannot that the fair value of a reporting unit is less than its carrying amount. If such qualitative factors so indicate, then the measurement for impairment is continued by calculating an estimate of the fair value of each reporting unit and comparing the estimated fair value to the carrying value of the reporting unit. If the carrying value exceeds the estimated fair value of the reporting unit, then an impairment charge is calculated as the difference between the carrying value of the reporting unit and its estimated fair value,not to exceed the goodwill of the reporting unit.

On* April 3, 2023,the Company performed a qualitative assessment to determine if it is more likely thannot* that the fair values of the Company’s reporting units are less than their carrying values by evaluating relevant events and circumstances, including financial performance, market conditions and share price. Based on this assessment, the Company concluded that the goodwill for each of the Company’s reporting units wasnot considered at risk of impairment.

Other Intangible Assets: Other intangible assets as of* March 31, 2024and April 2, 2023consisted primarily of the fair value of identifiable assets acquired in business combinations other than tangible assets and goodwill. The gross amount and accumulated amortization of the Company’s other intangible assets as of March 31, 2024and April 2, 2023,the amortization expense for the fiscal years ended March 31, 2024and April 2, 2023,*the entirety of which has been included in marketing and administrative expenses in the accompanying consolidated statements of income, are as follows (in thousands):

The Company estimates that its amortization expense will be $537,000, $422,000, $395,000, $349,000 and $211,000 in fiscal years2025, 2026, 2027, 2028 and2029, respectively.

Note8 – Leases

During the fiscal years ended* March 31, 2024and April 2, 2023,the Company capitalized operating lease obligations as right of use assets and recognized corresponding lease liabilities in the amount of $993,000 and $17.3 million. The Company made cash payments related to its recognized operating leases of $3.6 million and $2.3 million during the fiscal years ended March 31, 2024and April 2, 2023,respectively. Such payments reduced the operating lease liabilities and were included in the cash flows provided by operating activities in the accompanying consolidated statements of cash flows. The Company recognized noncash reductions to its operating right of use assets resulting from reductions to its lease liabilities in the amount of $1.0 million and $224,000 during the fiscal years ended March 31, 2024and April 2, 2023,respectively. As of March 31, 2024and April 2, 2023,*the Company’s operating leases had weighted-average discount rates of 6.0% and 5.9%, respectively, and weighted-average remaining lease terms of 3.9 years and 5.0 years, respectively.

F-15

During the fiscal years ended* March 31, 2024and April 2, 2023,*the Company classified its operating lease costs within the accompanying consolidated statements of income as follows (in thousands):

The maturities of the Company’s operating lease liabilities as of* March 31, 2024*are as follows (in thousands):

Note9 – Stock-based Compensation

The Company hasthree incentive stock plans, the2006 Omnibus Incentive Plan (the*“2006* Plan”), the2014 Omnibus Equity Compensation Plan (the*“2014* Plan”) and the2021 Incentive Plan (the*“2021* Plan”). As a result of the approval of the2014 Plan by the Company’s stockholders at the Company’s2014 annual meeting, and the2021 Plan by the Company’s stockholders at the Company’s2021 annual meeting, grants* may**no* longer be issued under either the2006 Plan or the2014 Plan.

The Company believes that awards of long-term, equity-based incentive compensation will attract and retain directors, officers and employees of the Company and will encourage these individuals to contribute to the successful performance of the Company, which will lead to the achievement of the Company’s overall goal of increasing stockholder value. Awards granted under the2021 Plan* maybe in the form of incentive stock options, non-qualified stock options, shares of restricted or unrestricted stock, stock units, stock appreciation rights, or other stock-based awards. Awards maybe granted subject to the achievement of performance goals or other conditions, and certain awards maybe payable in stock or cash, or a combination of the two. The2021* Plan is administered by the Compensation Committee of the Board, which selects eligible employees, non-employee directors and other individuals to participate in the2021 Plan and determines the type, amount, duration (such durationnot to exceed a term often (10) years for grants of stock options) and other terms of individual awards. At* March 31, 2024,439,000 shares of the Company’s common stock were available for future issuance under the2021* Plan, which* may*be issued from authorized and unissued shares of the Company’s common stock or treasury shares.

Stock-based compensation is calculated according to FASB ASC Topic718, Compensation–* Stock Compensation*, which requires stock-based compensation to be accounted for using a fair-value-based measurement. During fiscal years2024 and2023, the Company recorded $763,000 and $1.1 million of stock-based compensation, respectively. The Company records the compensation expense associated with stock-based awards granted to individuals in the same expense classifications as the cash compensation paid to those same individuals. No stock-based compensation costs were capitalized as part of the cost of an asset as of* March 31, 2024.*

Stock Options: The following table represents stock option activity for fiscal years2024 and2023:

F-16

At* March 31, 2024,the intrinsic value of the outstanding and exercisable stock options was $33,000 and $24,000, respectively. There wereno stock options exercised during the fiscal year ended March 31, 2024.The intrinsic value of the stock options exercised during the fiscal year ended April 2, 2023was $127,000. The Company didnot receive any cash from the exercise of stock options during the fiscal year ended April 2, 2023.Upon the exercise of stock options, participants maychoose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise. The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations. The Company used cash to remit the required income tax withholding amounts from “cashless” option exercises of $10,000 during fiscal year2023.* As of* April 2, 2023,*the intrinsic value of both the outstanding and exercisable stock options was $87,000.

Stock-based compensation is calculated according to FASB ASC Topic718, Compensation–* Stock Compensation*, which requires stock-based compensation to be accounted for using a fair-value-based measurement. To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value. The following table sets forth the assumptions used to determine the fair value of the non-qualified stock options awarded to certain employees during fiscal years2024 and2023, which options vest over atwo-year period, assuming continued service.

For the fiscal years ended* March 31, 2024and April 2, 2023,*the Company recognized compensation expense associated with stock options as follows (in thousands):

F-17

A summary of stock options outstanding and exercisable as of* March 31, 2024*is as follows:

As of* March 31, 2024,*total unrecognized stock-option compensation costs amounted to $63,000, which will be recognized as the underlying stock options vest over a weighted-average period of 8.8 months. The amount of future stock-option compensation expense could be affected by any future stock option grants and by the separation from the Company of any employee or director who has stock options that are unvested as of such individual’s separation date.

*Non-vested Stock Granted to Directors:*The following shares of non-vested stock were granted to the Company’s directors:

The fair value of the non-vested stock granted to the Company’s directors was based on the closing price of the Company’s common stock on the date of each grant.

The non-vested stock granted on* August 11, 2021included 8,033 shares granted to E. Randall Chestnut, formerly the Company’s Chairman, President and Chief Executive Officer. On May 1, 2022,*upon the resignation of Mr. Chestnut from the Board and his retirement from all positions that he held within the Company, the vesting of these 8,033 shares was accelerated, with such shares having an aggregate value on such date of $50,000.

The non-vested stock granted on* August 16, 2022included 11,724 shares granted to Sidney Kirschner, a director of the Company since2001.* Upon Mr. Kirschner’s death on* February 21, 2023,*the vesting of these 11,724 shares was accelerated, with such shares having an aggregate value on such date of $67,000.

In* August 2023and August 2022,*35,172 shares and 52,856 shares, respectively, that had been granted to the Company’s directors vested, having an aggregate value of $168,000 and $331,000, respectively. The remaining shares set forth above will vest over the periods indicated, assuming continued service.

Non-vested Stock Granted to Employees: The following shares of non-vested stock were granted to certain of the Company’s employees:

These shares vest on the dates indicated, assuming continued service. In* June 2022and February 2023,*45,000 shares and 10,000 shares, respectively, that had been granted to certain of the Company’s employees vested, having an aggregate value of $293,000 and $57,000 respectively.

F-18

Performance Award Shares: On* March 1, 2022,performance awards were granted to certain of the Company’s executive officers, consisting of 187,500 shares, of which: (a)75,000 shares shall be earned if the closing price per share of the Company’s common stock equals or exceeds $8.00 onten trading days within any period oftwenty* consecutive trading days prior to* March 1, 2027;and (b)112,500 shares shall be earned if the closing price per share of the Company’s common stock equals or exceeds $9.00 onten trading days within any period oftwenty* consecutive trading days prior to* March 1, 2027.Upon the achievement of each applicable stock hurdle described above: (i)one-third of the shares that are earned shall vest on the later of the date on which the shares are earned and March 1, 2023; (ii)one-third of the shares that are earned shall vest on thefirst* anniversary of the date on which the shares are earned; and (iii)one-third shall vest on thesecond anniversary of the date on which the shares are earned. All shares that are non-earned or non-vested will be forfeited upon the termination of service. The Company, with the assistance of an independentthird party, determined that the grant date fair value of the awards amounted to $732,000.

For the fiscal years ended* March 31, 2024and April 2, 2023,*the Company recognized compensation expense associated with non-vested stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

As of* March 31, 2024,*total unrecognized compensation expense related to the Company’s non-vested stock grants was $689,000, which will be recognized over the remaining portion of the respective vesting periods associated with each block of grants, such grants having a weighted average vesting term of 10.3 months. The amount of future compensation expense related to non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has unearned or unvested grants as of such individual’s separation date.

Note10 – Income Taxes

The Company’s income tax provision for fiscal years2024 and2023 is summarized below (in thousands):

F-19

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of* March 31, 2024and April 2, 2023*are as follows (in thousands):

In assessing the probability that the Company’s deferred tax assets will be realized, management of the Company has considered whether it is more likely thannot that some portion or all of the deferred tax assets willnot be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the future periods in which the temporary differences giving rise to the deferred tax assets will become deductible. The Company has also considered the scheduled inclusion into taxable income in future periods of the temporary differences giving rise to the Company’s deferred tax liabilities. The valuation allowance as of* March 31, 2024and April 2, 2023was related to state net operating loss carryforwards that the Company doesnot* expect to be realized. Based upon the Company’s expectations of the generation of sufficient taxable income during future periods, the Company believes that it is more likely thannot that the Company will realize its deferred tax assets, net of the valuation allowance and the deferred tax liabilities.

The following table sets forth the reconciliation of the beginning and ending amounts of unrecognized tax liabilities for fiscal years ended* March 31, 2024and April 2, 2023 (*in thousands):

In* August 2020,the Company received notification from the FTB of its intention to examine the Company’s California consolidated income tax returns that the Company had filed for the fiscal years ended April 2, 2017,** April 1, 2018and March 31, 2019.On May 30, 2023,the Company and the FTB entered into an agreement to settle (“Settlement Agreement”) the FTB’s proposed assessment of additional income tax in respect of these consolidated income tax returns under examination for the amount of $442,000, payment of which was made by the Company to the FTB on May 31, 2023.Because the examination was ongoing as of April 2, 2023,and because the Settlement Agreement was entered into prior to the issuance of the accompanying consolidated financial statements for the fiscal year ended April 2, 2023,the Company recorded the effect of the Settlement Agreement in the accompanying consolidated balance sheet as of April 2, 2023and the consolidated statement of income for the fiscal year ended April 2, 2023.The Company’s adjustment to its reserve for unrecognized tax liabilities associated with the tax returns under examination resulted in a discrete income tax benefit during fiscal year2023,* net of the impact of federal income tax, of $81,000, and a net decrease to interest expense of $86,000.

F-20

In* February 2021,the Company was notified by the IRS that it had selected for examination the Company’s original and amended federal consolidated income tax returns that the Company had filed for its fiscal year ended April 2, 2017.On March 15, 2023,the Company agreed to accept the proposal by the IRS to disallow the Company’s claim for refund in the amount of $81,000 that was associated with the Company’s amended federal consolidated income tax return for the fiscal year ended April 2, 2017,which amount was recorded as a discrete income tax charge during the fiscal year ended April 2, 2023.*

During fiscal years2024 and2023, the Company recorded discrete income tax charges of $26,000 and $6,000, respectively, to reflect the effect of the tax shortfall arising from the exercise of stock options and the vesting of non-vested stock during the periods.

The Company’s provision for income taxes is based upon effective tax rates of 21.4% and 23.9% in the fiscal years ended* March 31, 2024and April 2, 2023,*respectively. These effective tax rates are the sum of the top U.S. statutory federal income tax rate and a composite rate for state income taxes, net of federal tax benefit, in the various states in which the Company operates, plus the net effect of various discrete items.

The following table reconciles income tax expense on income from continuing operations at the U.S. federal income tax statutory rate to the net income tax provision reported for fiscal years2024 and2023 (amounts in thousands):

State and foreign income taxes consist primarily of amounts paid to the State of California and the People’s Republic of China, respectively.

Note11 – Shareholders’** Equity**

Dividends: The holders of shares of the Company’s common stock are entitled to receive dividends when and as declared by the Board. Cash dividends of $0.32 per share were declared during each of fiscal years2024 and2023, amounting to $3.3 million and $3.2 million, respectively. The Company’s financing agreement with CIT permits the payment by the Company of cash dividends on its common stock without limitation, provided there isno default before or as a result of the payment of such dividends.

Stock Repurchases:The Company acquired treasury shares by way of the surrender to the Company from several employees shares of common stock to satisfy the exercise price and income tax withholding obligations relating to the exercise of stock options and the vesting of stock. In this manner, the Company acquired 33,000 treasury shares during the fiscal year ended April 2, 2023at a weighted-average market value of $6.31 per share. There wereno such transactions during the fiscal year ended* March 31, 2024.*

Note12 – Major Customers

The table below sets forth those customers that represented more than10% of the Company’s gross sales during the fiscal years ended* March 31, 2024and April 2, 2023.*

Note13 – Commitments and Contingencies

Royalty expense amounted to $5.3 million and $5.2 million during fiscal years2024 and2023, respectively. The Company’s commitment for the nextfive fiscal years for minimum guaranteed royalty payments under its license agreements as of* March 31, 2024is $3.0 million, consisting of $2.5 million, $351,000, $90,000, $48,000 and $48,000 due in fiscal years2025,* 2026, 2027, 2028 and2029, respectively.

F-21

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

Note14 – Subsequent Events

The Company has evaluated events that have occurred between* March 31, 2024and the date that the accompanying financial statements were issued, and has determined that there areno* material subsequent events that require disclosure.

F-22

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: