Note 1 – Interim Financial Statements

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements include the accounts of Crown Crafts, Inc. and its subsidiaries (the “Company”) and have been prepared pursuant to accounting principles generally accepted in the United States (“GAAP”) applicable to interim financial information as promulgated by the Financial Accounting Standards Board (“FASB”). Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “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 September 27, 2026 and the results of its operations and cash flows for the periods presented. Such adjustments include normal, recurring accruals, as well as the elimination of all significant intercompany balances and transactions. Operating results for the three- and six-month periods ended September 27, 2026 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending March 28, 2027. For further information, refer to the Company’s consolidated financial statements and notes thereto for the fiscal year ended March 29, 2026, included in the Company’s Annual Report on Form 10-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 year 2027” or “2027” represent the 52-week period ending March 28, 2027 and references herein to “fiscal year 2026” or “2026” represent the 52-week period ended March 29, 2026.

Recently-Issued Accounting Standards:

In  November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive – Expense Disaggregation Disclosures (Subtopic 220-40) – Disaggregation of Income Statement Expenses ("ASU No. 2024-03"), the objective of which is to enhance the transparency and usefulness of financial statements by requiring public entities to provide more detailed disclosures about their expenses. The amendments in ASU No. 2024-03 are required to be adopted for annual reporting periods beginning after  December 15, 2026, and for interim periods within annual reporting periods beginning after  December 15, 2027, and early adoption is permitted. The Company is evaluating the guidance of ASU No. 2024-03 against its existing disclosures related to income statement expenses.

The Company has determined that all other ASUs issued which had become effective as of September 27, 2026, or which will become effective at some future date, are not expected to have a material impact on the Company’s consolidated financial statements.

Note 2 – Segment Reporting

The Company’s operations are managed and reported to its Chief Executive Officer, the Company’s chief operating decision maker (“CODM”), on a consolidated basis. The Company operates in one principal segment, infant, toddler and juvenile products. These products consist of infant and toddler bedding, diaper bags, bibs, plush, dolls, disposables, toys and feeding products. The CODM assesses performance and allocates resources based on the Company’s consolidated statements of income, which requires the CODM to manage and evaluate the results of the Company in a consolidated manner to drive efficiencies and develop uniform strategies. Segment asset information is not used by the CODM to allocate resources.

As a single reportable segment entity, the Company’s segment performance measure is net income. The following table presents information about the Company’s reportable segment (in thousands):

Included in the profit or loss measure above are the following: depreciation expense and amortization expense were $184 thousand and $187 thousand, respectively, for the three months ended September 27, 2026 while for the three months ended September 28, 2025, depreciation and amortization expenses were $191 thousand and $187 thousand, respectively. Depreciation expense and amortization expense were $369 thousand and $374 thousand, respectively, for the six months ended September 27, 2026 while for the six months ended September 28, 2025 depreciation and amortization expenses were $389 thousand and $401 thousand, respectively.

Note 3 – Licensing Agreements

The Company has entered into licensing agreements that provide for royalty payments based on a percentage of the sales of products covered by the license agreements, subject to certain minimum guaranteed amounts. Royalty expense is calculated based upon sales at contractual rates under the licensing agreements and any applicable minimum guaranteed amounts. Royalty expense is included in cost of products sold in the accompanying unaudited condensed consolidated statements of income and amounted to $1.7 million and $1.9 million for the three months ended September 27, 2026 and September 28, 2025, respectively, and amounted to $3.0 million and $2.9 million for the six months ended September 27, 2026 and September 28, 2025, respectively.

Note 4 – Concentrations

Product Sourcing: Foreign and domestic contract manufacturers produce most of the Company’s products, with the largest concentration being in China. The Company makes sourcing decisions on the basis of quality, timeliness of delivery and price, including the impact of ocean freight and duties. Although the Company maintains relationships with a limited number of suppliers, the Company believes that its products  may be readily manufactured by several alternative sources in quantities sufficient to meet the Company’s requirements.

The Company maintains a foreign representative office located in Shanghai, China, which is responsible for the coordination of production, purchases and shipments, seeking out new vendors and overseeing inspections for social compliance and quality. The Company’s management and quality assurance personnel visit the third-party facilities regularly to monitor and audit product quality and to ensure compliance with labor requirements and social and environmental standards. In addition, the Company closely monitors the currency exchange rate. The impact of future fluctuations in the exchange rate or changes in safeguards cannot be predicted with certainty.

For the six-month period ended September 27, 2026, purchases from the Company’s two largest suppliers accounted for approximately 19% and 11% of purchases as compared to the three largest suppliers accounting for approximately 16%, 11% and 11% for the six-month period ended September 28, 2025. To mitigate the risks associated with supplier concentration, the Company engages in ongoing efforts to identify alternative sources of supply, assess supplier reliability and performance, and negotiate favorable contractual terms where feasible. However, there is no assurance that the Company will be successful in reducing its dependence on any single supplier or mitigating the impact of supplier-related risks in the future.

The U.S. government has tariffs on imports from certain countries, including China. During 2025, the U.S. government increased tariffs which increased the cost of the products the Company sources from China and affected shipments from the Company’s Chinese-based suppliers. Some of these tariffs, the International Emergency Economic Powers Act ("IEEPA") tariffs, were recently deemed illegal by the U.S. Supreme Court ruling issued on February 20, 2026. The Company incurred approximately $5.3 million and $267 thousand of IEEPA tariffs during fiscal year 2026 and 2025, respectively. In April 2026, the U.S. Customs and Border Protection launched the Consolidated Administration and Processing of Entities ("CAPE"), a platform for importers of record to submit IEEPA tariff refund requests. The Company has evaluated its eligibility to submit IEEPA tariff refund requests, is complying with all applicable refund procedures and has submitted its eligible entries. As of June 28, 2026, $4.7 million of the refunds submitted were accepted by the CAPE system. These accepted claims for the recovery of IEEPA tariffs were deemed probable under the loss recovery model as of June 28, 2026 and the Company previously recorded a $4.5 million receivable included within other current assets on the Condensed Consolidated Balance Sheets. As of September 27, 2026, the Company collected the majority of that amount. For the quarter ended September 27, 2026, the Company recorded an additional $0.5 million reduction to cost of sales and relieved the same amount in inventory reflecting tariff costs no longer capitalized within the balance sheet as of quarter end. The Company continues to evaluate the impact of the tariffs and its potential refunds on the additional $0.9 million of refund requests. While significant refunds have been received, some uncertainty remains regarding the ultimate availability, timing, and amount of a full recovery of this outstanding amount. The Company will continue to monitor developments and will recognize any additional recovery when realization becomes probable.

Licensed Products: Certain products are manufactured and sold pursuant to licensing agreements for trademarks. Also, many of the designs used by the Company are copyrighted by other parties, including trademark licensors, and are available to the Company through copyright license agreements. The licensing agreements are generally for an initial term of one to three years and  may or  may not be subject to renewal or extension. Sales of licensed products represented 52% and 50% of the Company’s gross sales for the six-month periods ended September 27, 2026 and September 28, 2025, respectively, which included 26% and 21% of gross sales in the six-month periods ended September 27, 2026 and September 28, 2025, respectively, under the Company’s license agreements with affiliated companies of The Walt Disney Company (“Disney”). The Company’s license agreement with Disney expires  December 31, 2027, and covers infant and toddler bedding, diaper bags, infant feeding and bath in the United States and Canada, and bibs and disposable products in the United States, Canada and Japan.

Customers: The Company’s customers consist principally of mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, internet accounts and wholesale clubs. The Company does not enter into long-term or other purchase agreements with its customers. The table below sets forth those customers that represented more than 10% of the Company’s gross sales:

Note 5 – Inventories

As of September 27, 2026 and March 29, 2026, the Company’s balances of inventory were $28.4 million, nearly all of which were finished goods.

Note 6 – Property, Plant and Equipment

Net property, plant and equipment consisted of the following (amounts in thousands):

Depreciation expense amounted to $184 thousand and $191 thousand for the three months ended September 27, 2026 and September 28, 2025, respectively, and amounted to $369 thousand and $389 thousand for the six months ended September 27, 2026 and September 28, 2025, respectively. 

Note 7 – 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 does not take advances on the factoring agreements.

CIT bears credit losses with respect to assigned accounts receivable from approved shipments, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT  may at any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, then the Company either assumes (and  may seek to mitigate) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $72 thousand and $110 thousand for the three-month periods ended September 27, 2026 and September 28, 2025, respectively, and amounted to $149 thousand and $180 thousand for the six-month periods ended September 27, 2026 and September 28, 2025, respectively.

Credit Facility: The Company’s credit facility includes a revolving line of credit and a term loan of $8.0 million under a financing agreement with CIT. The Company  may borrow up to $40.0 million under the revolving line of credit, 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 a first lien on all assets of the Company. The financing agreement for the revolving line of credit matures on  July 19, 2029. On September 27, 2026, the Company had elected to pay interest on balances owed under the revolving line of credit under the SOFR option, which was 5.3%. 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.

At September 27, 2026 and March 29, 2026, the balances on the revolving line of credit were $1.7 million and $9.5 million, respectively, there was no letter of credit outstanding and $18.4 million and $12.5 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.

On June 23, 2025, the Company and CIT amended the Company’s financing agreement with CIT to: (i) provide that, until the Company’s term loan is paid in full, the Company shall maintain at all times Excess Availability (as defined in the financing agreement) equal to or the greater of (a) the sum of the balance outstanding under the Company’s term loan plus $1.0 million or (b) $4.0 million (the “Availability Covenant”); and (ii) reinstate the fixed charge coverage ratio; provided however, that the fixed charge coverage ratio shall not be tested at any fiscal quarter end in which, during the immediately preceding fiscal quarter, the Company at all times has been in compliance with the Availability Covenant.  As of September 27, 2026, the Company was in compliance with the Excess Availability requirements.

The balance on the $8.0 million term loan as of September 27, 2026 was $3.7 million, including $2.0 million classified as current. The term loan was issued on July 19, 2024, is payable by the Company in 48 equal monthly installments and bears interest at SOFR plus 2.25% (6.0% at September 27, 2026).

Credit Concentration: The Company’s accounts receivable at September 27, 2026 amounted to $15.5 million, net of allowances of $1.6 million. Of this amount, $12.8 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 29, 2026 amounted to $18.9 million, net of allowances of $1.5 million. Of this amount, $16.3 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.

Fair Value: The Company evaluates the fair value of its debt using the three level fair value hierarchy. Fair value should be based on the assumptions market participants would use when pricing the liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs in the fair value hierarchy are as follows:

The carrying value of financial instruments reported in the accompanying condensed consolidated balance sheets for cash, which is considered Level 1, accounts receivable, accounts payable, accrued expenses and other liabilities, which are all considered Level 2, approximate fair value due to the immediate or short-term nature of these financial instruments.

The following table presents fair value of debt as of September 27, 2026:

The Company uses a valuation model to determine the fair value of its revolving line of credit and the term loan with CIT. The Company uses a discounted cash flow model to project the future principal and interest payments over the remaining life of the loans. The significant inputs used in the model are observable market data including SOFR Forward Curves.         

The aggregate maturities of long-term debt for each of the five years subsequent to September 27, 2026 are: $1.0 million in fiscal 2027, $2.0 million in fiscal 2028, $667 thousand in fiscal 2029, $1.7 million in fiscal 2030, and no amount due in 2031.

Note 8 –Intangible Assets

Intangible Assets: Our finite-lived intangible assets consist primarily of the fair value of identifiable assets acquired in business combinations. The gross amount, accumulated amortization and net balances of the Company’s intangible assets as of September 27, 2026 and March 29, 2026, are as follows (in thousands):

Amortization expense, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $187 thousand for both the three-month periods ended September 27, 2026 and September 28, 2025, and amounted to $374 thousand and $401 thousand for the six-month periods ended September 27, 2026 and September 28, 2025, respectively. 

Note 9 – Advertising Costs

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $162 thousand and $431 thousand for the three months ended September 27, 2026 and September 28, 2025, respectively, and amounted to $405 thousand and $827 thousand for the six months ended September 27, 2026 and September 28, 2025, respectively.  

Note 10 – Stock-based Compensation

At the Company’s 2026 annual meeting of stockholders, the Company’s stockholders approved the Crown Crafts, Inc. Amended and Restated 2021 Incentive Plan (the “A&R 2021 Plan”), which amended and restated the Crown Crafts Inc. 2021 Incentive Plan (the “2021 Plan”) to increase the share reserve pool by 1,250,000 shares of the Company’s common stock. The A&R 2021 Plan was approved by the Company’s Board of Directors (the “Board”) on June 22, 2026, subject to shareholder approval at such meeting.

The 2021 Plan was adopted by the Board on June 8, 2021, to replace the Crown Crafts, Inc. 2014 Omnibus Equity Compensation Plan (the “2014 Plan”). The 2021 Plan was approved by the Company’s stockholders at the Company’s 2021 annual meeting of stockholders held on August 10, 2021, and became effective on such date. As a result of such approval, grants may no longer be issued under the 2014 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 the A&R 2021 Plan may be 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 may be granted subject to the achievement of performance goals or other conditions, and certain awards may be payable in stock or cash, or a combination of the two. The A&R 2021 Plan is administered by the Compensation Committee of the Board, which selects eligible employees, non-employee directors and other individuals to participate in the A&R 2021 Plan and determines the type, amount, duration (such duration not to exceed a term of ten (10) years for grants of stock options) and other terms of individual awards. At September 27, 2026, 1,308,320 shares of the Company’s common stock were available for future issuance under the A&R 2021 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 Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement. For the three-month periods ended September 27, 2026 and September 28, 2025, the Company recorded $171 thousand and $190 thousand of stock-based compensation, respectively, and $374 thousand and $390 thousand for the six-month periods ended September 27, 2026 and September 28, 2025, 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. All stock awards are expensed over the vesting period and are adjusted for forfeitures as occurred.

Time-Based Restricted Shares: The Company issues time-based restricted shares to the Board and certain officers and executives under our stock-based compensation plan. The time-based restricted shares automatically convert to shares of the Company's common stock on a one-for-one basis as the awards vest. The time-based restricted shares typically vest over a one-to-three-year vesting period on the anniversary of the grant date. The grant date fair value is equal to the quoted market price for the shares on the date of the grant. The total fair value of time-based restricted shares vested during the six months ended September 27, 2026 and September 28, 2025 was $407 thousand and $410 thousand, respectively. The following table summarizes the Company’s non-vested share activity for the six months ended September 27, 2026:

For the three-month periods ended September 27, 2026 and September 28, 2025, the Company recognized compensation expense associated with non-vested stock grants, which is included in marketing and administrative expenses, of $112 thousand and $181 thousand, respectively. For the six-month periods ended September 27, 2026 and September 28, 2025, the Company recognized compensation expense associated with non-vested stock grants, which is included in marketing and administrative expenses, of $315 thousand and $378 thousand, respectively.

As of September 27, 2026, total unrecognized compensation expense related to the Company’s non-vested stock grants was $813 thousand, 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 15.3 months.

Note 11 – Income Taxes

The Company’s provision for income taxes includes all currently payable federal and state taxes and is based upon the Company’s estimated annual effective tax rate (“ETR”).  The Company’s provisions for income taxes for the three-month periods ended September 27, 2026 and September 28, 2025 are based upon an estimated annual ETR of 24.4% and 23.0%, respectively, and was 24.2% and 25.1% for the six-month periods ended September 27, 2026 and September 28, 2025, respectively.  The changes in the ETR primarily relate to variations in state income taxes in the current period as compared to the prior period.  The Company provides for deferred income taxes based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates that will be in effect when the differences are expected to reverse.

ITEM 5. OTHER INFORMATION

During the three-month period ended September 27, 2026, none of the Company’s directors or officers informed the Company of the adoption, modification or termination of a “Rule 10-b5-1 trading arrangement” or “non-Rule 10-b5-1 trading arrangement,” as those terms are defined in Item 408(a) of Regulation S-K.