CROWN CRAFTS INC

CROWN CRAFTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2024 (UNAUDITED) AND MARCH 31, 2024

(amounts in thousands, except share and per share amounts)

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE-MONTH PERIODS ENDED JUNE 30, 2024 AND JULY 2, 2023

(amounts in thousands, except per share amounts)

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

THREE-MONTH PERIODS ENDED JUNE 30, 2024 AND JULY 2, 2023

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE-MONTH PERIODS ENDED JUNE 30, 2024 AND JULY 2, 2023

(amounts in thousands)

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED* JUNE 30, 2024AND JULY 2, 2023*

Note1 – Interim Financial Statements

Basis of Presentation:The accompanying unaudited condensed consolidated financial statements include the accounts of Crown Crafts, Inc. (the “Company”) and its subsidiaries and have been prepared pursuant to accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information as promulgated by the Financial Accounting Standards Board (“FASB”). Accordingly, they donot include all of the information and disclosures required by GAAP for complete financial statements. References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”), which the FASB periodically revises through the issuance of an Accounting Standards Update (“ASU”) and which has been established by the FASB as the authoritative source for GAAP recognized by the FASB to be applied by nongovernmental entities.

In the opinion of the Company’s management, the unaudited condensed consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of* June 30, 2024and the results of its operations and cash flows for the periods presented. Such adjustments include normal, recurring accruals, as well as the elimination of all significant intercompany balances and transactions. Operating results for thethree*-months ended* June 30, 2024arenot* necessarily indicative of the results that* maybe expected by the Company for its fiscal year ending March 30, 2025.For further information, refer to the Company’s consolidated financial statements and notes thereto for the fiscal year ended March 31, 2024,included in the Company’s Annual Report on Form10*-K filed with the United States Securities and Exchange Commission (the “SEC”).

Fiscal Year: The Company’s fiscal year ends on the Sunday that is nearest to or on* March 31.References herein to “fiscal year2025”* or*“2025”* represent the52-week period ending* March 30, 2025and references herein to “fiscal year2024”* or*“2024”* represent the52-week period ended* March 31, 2024.*

Recently-Issued Accounting Standards: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 has adopted 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 ASUNo. 2023-09 are required to be adopted for fiscal years beginning after* December 15, 2024and early adoption is permitted. The Company is evaluating the guidance of the ASUNo.* 2023-09 against its existing disclosures related to income tax disclosures.

The Company has determined that all other ASUs issued which had become effective as of* June 30, 2024,or which will become effective at some future date, arenot* expected to have a material impact on the Company’s consolidated financial statements.

Earnings (Loss) Per Share:Due to the net loss incurred by the Company in thethree-month period ended* June 30, 2024,*diluted shares used in the calculation of the diluted loss per share represented basic shares because the inclusion of the potentially dilutive effect of the exercisable stock options would have resulted in anti-dilution.

Note2 – Advertising Costs

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and amounted to $127,000 and $192,000 for thethree months ended* June 30, 2024and July 2, 2023,*respectively.

Note3 – Segment and Related Information

The Company operates primarily inone principal segment, infant, toddler and juvenile products. These products consist of infant and toddler bedding, blankets, accessories, bibs, toys and disposable products. Net sales of bedding, blankets and accessories and net sales of bibs, toys and disposable products for thethree months ended* June 30, 2024and July 2, 2023*are as follows (in thousands):

Note4 – Licensing Agreements

The Company has entered into licensing agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts. These royalty amounts are accrued based upon historical sales rates adjusted for current sales trends by customers. Royalty expense is included in cost of products sold in the accompanying unaudited condensed consolidated statements of operations and amounted to $1.1 million and $977,000 for thethree months ended* June 30, 2024and July 2, 2023,*respectively.

Note5 – Income Taxes

The Company files income tax returns in the many jurisdictions in which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations varies by jurisdiction; tax years open to examination or other adjustment as of* June 30, 2024were the fiscal years ended March 31, 2024,** April 2, 2023,** April 3, 2022,** March 28, 2021,and March 29, 2020.*

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.

Note6 – Inventories

As of* June 30, 2024and March 31, 2024,*the Company’s balances of inventory were $30.6 million and $29.7 million, respectively, nearly all of which were finished goods.

Note7 – Financing Arrangements

Factoring Agreements: To reduce its exposure to credit losses, the Company assigns the majority of its trade accounts receivable to The CIT Group/Commercial Services, Inc. ("CIT"), a subsidiary of First Citizens Bank, pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing agreement described below. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT. As such, the Company doesnot take advances on the factoring agreements. CIT bears credit losses with respect to assigned accounts receivable from approved shipments, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT* mayat any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, then the Company either assumes (and 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 unaudited condensed consolidated statements of operations, amounted to $74,000 and $67,000 for thethree*-month period ended* June 30, 2024and July 2, 2023,*respectively.

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Credit Facility: The Company’s credit facility as of* June 30, 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, bearing interest at prime minus 0.5% or the Secured Overnight Financing Rate (“SOFR”) plus 1.6%, and is secured by afirst* lien on all assets of the Company. At* June 30, 2024,the Company had elected to pay interest on balances owed under the revolving line of credit under the SOFR option, which was 6.9%. The financing agreement also provides for the payment by CIT to the Company of interest at prime as of the beginning of the calendar month minus 2.0% on daily negative balances, if any, held at CIT. The financing agreement was scheduled to mature on July 11, 2028,but was amended on July 19, 2024to extend the maturity date to July 19, 2029*and to increase the borrowing capacity on revolving line of credit to $40.0 million.

At* June 30, 2024and March 31, 2024,the balances on the revolving line of credit were $1.5 million and $8.1 million, respectively, there wasno letter of credit outstanding and $17.6 million and $19.2 million, respectively, was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances. The financing agreement contains usual and customary covenants for agreements of that type, including limitations on other indebtedness, liens, transfers of assets, investments and acquisitions, merger or consolidation transactions, transactions with affiliates, and changes in or amendments to the organizational documents for the Company and its subsidiaries. The Company believes it was in compliance with these covenants as of June 30, 2024.*

Credit Concentration:The Company’s accounts receivable at June 30, 2024amounted to $15.8 million, net of allowances of $1.6 million. Of this amount, $11.2 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* March 31, 2024*amounted 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 represented the maximum loss that the Company could have incurred if CIT had failed completely to perform its obligations under the factoring agreements.

Note8 – 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, toys and disposable products. The Company’s reporting units have recognized goodwill as of* June 30, 2024and March 31, 2024*of $30.8 million, which is reflected in the accompanying condensed consolidated balance sheets net of accumulated impairment charges of $22.9 million, for a net reported balance of $7.9 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 1, 2024,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.

Note9 – Subsequent Events

On* July 19, 2024 (*the “Closing Date”), NoJo Baby & Kids, Inc. ("NoJo"), a wholly-owned subsidiary of the Company, acquired substantially all of the assets, and assumed certain specified liabilities, of Baby Boom Consumer Products, Inc. (the “Baby Boom Acquisition”), for a purchase price of $18.0 million, subject to adjustments to the extent that actual net working capital as of the Closing Date differs from target net working capital of $6.5 million. The purchase price was funded by the Company using proceeds of an $8.0 million term loan from CIT and additional borrowings under the Company’s revolving line of credit.

The Company and CIT also on* July 19, 2024amended the financing agreement to (i) provide for the $8.0 million term loan mentioned above, which is payable by the Company in 48 equal monthly installments and which bears interest at SOFR plus 2.25%; (ii) extend the maturity date from July 11, 2028to July 19, 2029;*and (iii) increase the borrowing capacity on the revolving line of credit from $35.0 million to $40.0 million.

The Company is in the process of obtaining all relevant information relating to the Baby Boom Acquisition. As a result, the Company isnot able to provide certain disclosures required by FASB ASC Topic805. The initial accounting for the acquisition was incomplete at the time of the financial statements.

The Company has evaluated all other events which have occurred between* June 30, 2024and the date that the accompanying unaudited condensed consolidated financial statements were issued, and has determined that there areno* other material subsequent events that require disclosure.